Supreme Court Update: Reichle v. Howards (11-262) and Radlax Gateway Hotel v. Amalgamated Bank (11-166)

June 5, 2012 Supreme Court Update

Greetings, Court fans!

In today's Update, we bring you two of the Court's recent decisions: Reichle v. Howards (11-262), holding that Secret Service agents were entitled to qualified immunity with respect to an allegation of retaliatory arrest in violation of the First Amendment, and Radlax Gateway Hotel v. Amalgamated Bank (11-166), concluding that Chapter 11 debtors may not auction property free and clear of liens as part of a cramdown bankruptcy plan unless they allow lienholders to bid for the property and offset the purchase price with the debts they are owed.

In Reichle v. Howards (11-262), the Court took up a case of Secret Service agents allegedly behaving badly – on domestic soil this time. In 2006, as then-Vice President Dick Cheney was visiting a Colorado mall, a Secret Service agent overheard Steven Howards say into his cellphone that he was "going to ask [the Vice President] how many kids he's killed today." Howards approached Cheney and told him that his "policies in Iraq are disgusting," and then touched the Vice President's shoulder. Secret Service agents approached Howards, who refused to speak with them, denied assaulting Cheney, and stated, "if you don't want other people sharing their opinions, you should have [the Vice President] avoid public places." When Howards falsely denied having touched Cheney, the agents arrested him.

Howards brought a Bivens action, alleging that he was arrested and searched without probable cause, and that the agents arrested him in retaliation for criticizing the Vice President, in violation of the First Amendment. The Tenth Circuit held that the agents enjoyed qualified immunity on the Fourth Amendment claim, but – over a dissent – denied qualified immunity on the First Amendment claim. The panel split over whether, under the Supreme Court's decision in Hartman v. Moore (2006), probable cause to arrest (established when Howards lied to federal officers about touching Cheney) defeats a First Amendment claim of retaliatory arrest. Hartman did not deal with an allegedly retaliatory arrest, but held that a plaintiff cannot state a claim for retaliatory prosecution in violation of the First Amendment if charges are supported by probable cause. The Court granted cert on two questions: (1) whether a First Amendment retaliatory arrest claim may lie despite the presence of probable cause to support the arrest, and (2) whether clearly established law at the time of Howards' arrest so held.

A majority of six led by Justice Thomas and joined by the Chief and Justices Scalia, Kennedy, Alito, and Sotomayor (Kagan did not participate), reached only the second question, leaving the constitutional question for another day. The Court rejected Howards' view that Hartman, which stated that "as a general matter[,] the First Amendment prohibits government officials from subjecting an individual to retaliatory actions," settled the question. To defeat qualified immunity, a plaintiff must establish that the right allegedly violated was clearly established, and not merely established "as a broad general proposition." The Court explained, "[h]ere, the right in question is not the general right to be free from retaliation for one's speech, but the more specific right to be free from a retaliatory arrest that is otherwise supported by probable cause. This Court has never held that there is such a right." Nor, the majority found, was such a rule clearly established even within the Tenth Circuit. Specifically, in light of Hartman, existing Tenth Circuit precedent regarding retaliatory arrests was in doubt at the time of Howards' arrest, and the justices determined that a reasonable agent could have interpreted Hartman's rationale as applying to retaliatory arrests. The agents, therefore, were entitled to qualified immunity.

Justice Ginsburg, joined by Justice Breyer, concurred in the judgment but wrote separately. She noted that in a retaliatory prosecution case like Hartman, the defendant will not be the prosecutor, but another government official who, based on retaliatory animus, convinced the prosecutor to act. That fact pattern creates a "distinct problem of causation," which justified Hartman's requirement that a plaintiff show a lack of probable cause in order to state a claim for retaliatory prosecution. The same causation problem is unlikely in a retaliatory arrest case, where generally there is "no gap to bridge between one government official's animus and a second government official's action[.]" Nonetheless, in light of the fact that the defendants were Secret Service agents who must make "singularly swift, on the spot, decisions whether the safety of the person they are guarding is in jeopardy," Justice Ginsburg concluded that, regardless of their own views, the officers had to take the content of Howards' statements into account. In her view, "[r]etaliatory animus cannot be inferred from the assessment they made in that regard. If rational, that assessment should not expose them to claims for civil damages."

In Radlax Gateway Hotel v. Amalgamated Bank (11-166), the Justices took up the case of Amalgamated Bank, trustee for a fund that loaned millions of dollars to petitioners for the purchase of the Radisson Hotel at LAX and related construction and improvements. Things did not go as planned, and petitioners filed for Chapter 11 bankruptcy. Although typically courts will not approve a Chapter 11 bankruptcy plan without the consent of creditors, 11 U.S.C. § 1129(b) creates an exception for nonconsensual "cramdown" plans that do not discriminate unfairly and that are "fair and equitable" with respect to each class of claims or interests affected. In this case, petitioners submitted a plan that would have allowed them to sell substantially all of their assets at auction and use the proceeds to repay Amalgamated. Under the debtors' proposed procedures, however, the bank itself would not be permitted to "credit-bid" by bidding for the property using the debt it was owed to offset the purchase price. The bankruptcy court rejected the plan, concluding that the proposed auction procedures did not comply with statutory requirements for cramdown plans. The Seventh Circuit affirmed, holding that 11 U.S.C. § 1129(b)(2)(A) does not permit debtors to sell an encumbered asset free and clear of a lien without permitting the lienholder to credit-bid.

With Justice Scalia writing for a unanimous Court of eight (Justice Kennedy did not participate), the Court affirmed. The Court explained that a cramdown bankruptcy plan must meet one of three requirements to be "fair and equitable." Petitioners appeared to opt for one of the three paths, under which encumbered property is sold free and clear of a lien. But such a sale must also comply with 11 U.S.C. § 363(k), which provides that "unless the court for cause orders otherwise the holder of [a] claim [on encumbered property] may bid at such sale, and, if the holder of such claim purchases such property, such holder may offset such claim against the purchase prices of such property." In other words, the creditor may credit-bid up to the amount of its claim, absent an order to the contrary, issued for cause. Because petitioners' procedure did not comply with this requirement, they tried to shoehorn their proposed plan into a different path toward a cramdown bankruptcy: one that is "fair and equitable" because it provides "for the realization by [non-consenting creditors] of the indubitable equivalent of [their] claims," meaning in this case that the bank would receive the cash the auction generated.

The Court refused to let the petitioners achieve through the "indubitable equivalent" path what they could not otherwise do via the path that requires § 363(k) compliance. The Court applied the canon of construction that "the specific governs the general," an approach particularly appropriate where "Congress has enacted a comprehensive scheme and has deliberately targeted specific problems with specific solutions." Here, the general "indubitable equivalent" provision appears alongside the specific provision requiring that creditors must be allowed to credit-bid at any sale of encumbered property. Under the general/specific canon, the "indubitable equivalent" provision "although broad enough to include it, will not be held to apply to a matter specifically dealt with" in the clause pertaining to sales free and clear of a creditor's lien. Thus, Chapter 11 debtors may not sell property free and clear of liens under § 1129(b)(2)(A) unless they allow lienholders to credit-bid.

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Kim and Jenny

From the Appellate and Complex Legal Issues Practice Group at Wiggin and Dana. For more information, contact Kim Rinehart or any other member of the Practice Group at 203-498-4400