Purchasing Claims and Changing Votes: Establishing “Cause” under Rule 3018(a)

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By Amir Shachmurove

Chapter 11 of the Bankruptcy Code gives creditors whose rights will be impaired the right to vote to accept or reject a proposed plan of reorganization, subjecting this prerogative to only two limitations. The first is set forth in Section 1126(e), which provides that a vote not cast or “not solicited or procured in good faith” may be nullified. The second appears in the penultimate sentence of Bankruptcy Rule 3018(a), which requires “a creditor or equity security holder” seeking “to change or withdraw” a vote to establish “cause.” Though “cause” has always been the sole constraint on the right to change or withdraw a previously cast vote in the whole of bankruptcy law, Rule 3018(a)’s text and commentary provide no definition or example. Existing precedent, moreover, is threadbare.

In four substantive parts, Purchasing Claims and Changing Votes: Establishing ‘Cause’ Under Rule 3018(a) proposes a new blueprint for the application of Rule 3018(a)’s deceptively plain “cause.” Necessarily, Part II surveys the present and wanting legal landscape. Part III then summarizes the standards for interpreting federal rules generally and shows how bankruptcy law’s specialized character compels these precepts’ alteration when a bankruptcy rule is at issue. Thereafter, Parts III and IV employ these tenets to delineate the effective range of “cause” in Rule 3018(a). In so doing, this article explicates the rarely-noticed interpretive constraints applicable to the Bankruptcy Rules and reads Rule 3018(a) accordingly, demonstrating how bankruptcy’s lone check on a pivotal privilege must be understood in light of such modern phenomena as claims trading.

The full article is published in 89 Am. Bankr. L.J. 511 (2015), and is available here.