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In RadLAX Gateway Hotel, LLC v Amalgamated Bank, the Supreme Court’s statutory interpretation focuses on an emerging theme of its bankruptcy jurisprudence: the proper domain of the bankruptcy judge. While one might expect the Court to approach that question of domain as it has for administrative agencies, that is not the approach taken. This article explores the Court’s approach to bankruptcy’s domain. In doing so, we connect three principal strands of the Court’s bankruptcy jurisprudence. The first strand, embodied in Butner v United States, centers on the idea that the bankruptcy forum must vindicate nonbankruptcy rights. The second, most recently addressed in Stern v Marshall, focuses on the limits of bankruptcy judges in deciding and issuing final judgment on the issues before them. Bankruptcy judges must limit themselves to deciding issues central to the administration of the bankruptcy process. RadLAX is the continuation of a third strand that makes it plain that the Court reads ambiguous provisions of the Bankruptcy Code to narrow the range of decisions over which the bankruptcy judge may exercise her discretion — at least when the exercise of that discretion might impact nonbankruptcy rights. The resulting bankruptcy jurisprudence is in stark contrast with the Court’s approach in administrative law. This paper attempts to make sense of this state of affairs and connect it with the realities of bankruptcy practice today.

Section 1129(b) of the Bankruptcy Code gives each class of unsecured claims the right to insist that a reorganization plan be "fair and equitable" and to prevent those junior to them from receiving "property" on account of their old interests. The Bankruptcy Code is often said to embrace a rule of absolute priority, but if it does so, it is only through these restrictions. Hence, the meaning of the words "fair and equitable" and "property" is the terrain on which priority battles are contested. One must choose among different methods of statutory interpretation. One can derive priority rules by examining the judicial evolution of the words "fair and equitable" before they were incorporated into the 1978 Bankruptcy Reform Act. Alternatively, one can look to the word "property," and derive priority rules by trying to define this word. Opinions in the most recent Supreme Court case on this issue, 203 N. LaSalle, exemplify these competing approaches. Using these opinions as its starting point, this paper explores the way in which priority rules in bankruptcy have evolved over time and shows how the absolute priority rule is harder to derive from the statute and hence more contingent, positively and normatively, than commonly supposed.

WHEN the managers of RJR-Nabisco announced that they wanted to take the company private, the value of its bonds dropped by $500 million in a single day. The manager's plan, as in most buyouts, called for dramatically increasing the debt-equity ratio of the firm. Instead of holding a senior interest in a firm that had assets greatly in excess of its liabilities, the bondholders found that they would be left with an interest in a firm with the same assets but encumbered with much more debt. They would have claims against a firm with a greater risk of becoming insolvent and of being unable to pay its creditors in full. The same promise from a riskier debtor is worth less-in this case, it might seem, $500 million less. Transactions in which a firm is sold and becomes substantially more leveraged were commonplace in the late 1980s. They accounted for over 20 percent of takeover activity in the United States and totaled almost $50 billion a year.' The legal rights of prebuyout creditors will be a focal point of litigation in any of these transactions that unravel in the 1990s, as some already have and more inevitably will. Before they lend, creditors can insist on a variety of event risk covenants such as "poison puts" that allow them to accelerate the firm's obligations to repay in the event that the firm dramatically changes its capital structure. Poison puts and other clauses, however, aid only those who have them. Those parties who do not, like parties to any other agreement, must look to the background legal rules to flesh out their obligations. The rules governing the rights of the bondholders fall within

THE Prisoner's Dilemma casts a shadow over all who want to trade. Two parties may desire that a transaction go forward, but each may fear that the other will not perform. The parties may rationally decide either not to make promises or not to keep them, even though each would be better off if both made promises and kept them. Take the simplest case. I have a book that I want to sell for $10; you would like to buy it for $10.' The trade makes each of us better off, but we have conflicting schedules and can never be in the same place at the same time. I must part with the book before I know that you have parted with the $10. Similarly, you must part with the $10 before you know that I have parted with the book. We may not have an incentive to keep our promises. When I decide whether to send the book, you have already decided whether to send the cash, but I do not know your decision. I look at the two possibilities. First, I examine the course I should take if you have already decided to break your promise. In this event, I should keep the book. I do not want to be left without either the book or the $10. I then determine my best course if you have already decided to sent the $10. Here, too, I should keep the book. I am better off with both the book and the $10 than I am with just the $10. Whether I part with the book has nothing to do with whether you part with the $10. Keeping the book is the optimal strategy

A BANKRUPTCY proceeding is a day of reckoning for all parties with ownership interests in an insolvent firm. Ownership interests are valued, the assets are sold, and the proceeds are divided among the owners. Bankruptcy proceedings take one of two forms, depending on whether ownership rights to the assets are sold on the open market to one or more third parties or whether ownership rights to the assets are transferred to the old owners in return for the cancellation of their prebankruptcy entitlements. The first kind of bankruptcy proceeding, a liquidation, is governed by Chapter 7 of the Bankruptcy Code; the second kind, a reorganization, is governed by Chapter 11. A bankruptcy proceeding always involves a sale of assets followed by a division of the proceeds among the existing owners. In a Chapter 7 proceeding the sale is real; in a Chapter 11 proceeding the sale is hypothetical.' An analysis of the law of corporate reorganizations should properly begin with a discussion of whether all those with rights to the assets of a firm (be they bondholders, stockholders, or workers) would bargain for one if they had the opportunity to negotiate at the time of their initial investment.2 Properly understood, a bankruptcy proceeding itself can be

IN 1600,' a Hampshire farmer named Pierce conveyed his sheep to his creditor Twyne to satisfy a preexisting debt. Twyne, however, allowed Pierce to remain in possession of the sheep, to shear them, and to mark them as his own. When a sheriff tried to seize the sheep under a writ of execution on behalf of another creditor, Twyne forcibly resisted, maintaining that the sheep were his. Edward Coke, then attorney general, brought a criminal action against Twyne in the Star Chamber. That court held that because the transfer to Twyne was secret it was fraudulent and therefore void.2 Few principles of Anglo-American law have been so long-lived and so widely held, as the one in Twyne's Case.3 The principle that secret inter