Judge Sidney Brooks of the US Bankruptcy Court for the District of Colorado recently entered an order dismissing a Chapter 11 proceeding. In dismissing the bankruptcy, he also issued an opinion addressing a drafting problem with the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (”BAPCPA”).

In the case of in re TCR of Denver, LLC, the debtor voluntary moved for dismissal of its bankruptcy. On December 27, 2005, the Court set a hearing on the Motion to Dismiss and on December 30, entered its sua sponte order requesting that the parties file briefs on the issues connected with the recent revisions to Section 1112(b) of the Bankruptcy Code.

The reason that Judge Brooks requested the briefs on Section 1112(b) is that drafting problems in the revised section would lead to an “absurd result”. Section 1112(b) sets out, in part, that a Chapter 11 case can be dismissed for cause. Sect. 1112(b)(4) provides that “cause” includes 16 listed conditions. However, between the last two conditions, Congress struck out the word “or” and inserted the word “and”.

In his Opinion, Judge Brooks illustrates how the word “and” would result in an absurd conclusion. If the Plain Meaning Rule is followed, then the combination of the words “and” and “includes” would make it appear “that all of the sixteen specifically identified factors demonstrating ?cause’ under 11 U.S.C. ? 1112(b)(4) must be show, plus, there may be other factors to supplement the specifically delineated factors.”

Judge Brooks says that because the Plain Meaning Rule would lead to an absurd result, a party in interest does not need to establish all of the items constituting cause. For example, the Court points out that one of the conditions is if the debtor fails to pay a domestic support obligation. The Court says that it can think of no instance where a corporate debtor would have a domestic support obligation, so a literal reading would have the result that no corporate Chapter 11 cases could be dismissed.

The Court agrees with the parties’ arguments and says that where, as in this section, the use of the word “includes” in an introductory phrase to a statute supports a disjunctive reading of the subparts contained therein and not a conjunctive reading. The Court dismissed the Chapter 11 case and said to rule otherwise would “shock the general moral or common sense.”

NOTE: The debtor and party in interest both responded to the Court’s sua sponte order requesting briefs in rhyme. The Court commended the parties’ ability to express their arguments in rhyme but stated that it would make its findings of fact, conclusions of law and Order in “fairly stagnant prose.”

Here is a link to the article:
http://www.cob.uscourts.gov/opinions/05-45287_Memorandum_Opinion.pdf

Ray