Unpublished Disposition, 876 F.2d 896 (9th Cir. 1985)

No. 87-3883.

United States Court of Appeals, Ninth Circuit.

Before ALARCON and WRIGHT, Circuit Judges, and EDWARD RAFEEDIE,^**  District Judge.

MEMORANDUM^*** 

Debtors/Appellants Keith J. Arnold & Sons, Inc., Bruce J. Arnold, and Nancy Arnold ("Appellants") appeal the Bankruptcy Court's valuation of a parcel of real property known as Canyon Creek and the Bankruptcy Court's holding that appellee, Edward Parkinson, is entitled to adequate protection payments. We affirm the Bankruptcy Court's valuation of the Canyon Creek property. We reverse the Bankruptcy Court's holding that appellee, Edward Parkinson, is entitled to adequate protection payments and remand the case to the Bankruptcy Court.

FACTS

On May 5, 1977, appellants entered into a mortgage with the Federal Land Bank ("FLB") on a parcel of real property known as Canyon Creek for the principal sum of $788,000.00. On September 9, 1977, appellants entered into a second mortgage on the same parcel of land with appellee, Edward Parkinson, for the principal sum of $198,379.23, which was in second position to the FLB mortgage on 480 acres out of the 929 acres of Canyon Creek.

On January 16, 1984, appellants petitioned for a Chapter 11 Bankruptcy Reorganization. Pursuant to 11 U.S.C. § 506(a), valuation of security hearings were conducted by the Bankruptcy Court. The Bankruptcy Court set the valuation of the Canyon Creek property at $1,016,000.00 and ruled that appellee, Edward Parkinson, was entitled to receive adequate protection payments, as an undersecured creditor.

DISCUSSION

We review the findings of fact of the Bankruptcy Court under a clearly erroneous standard. In re Comer, 723 F.2d 737, 739 (9th Cir. 1984). The Bankruptcy Court's and the Bankruptcy Appellate Panel's conclusions of law are reviewed de novo by this court. In re Torrez, 827 F.2d 1299, 1300 (9th Cir. 1987).

II. Res Judicata Effect of Judge Young's Order

Appellants are not barred by res judicata from appealing the granting of adequate protection payments to Edward Parkinson. Although Judge Young initially ordered that adequate protection payments be made and appellants did not appeal that order, Judge Hagan also ordered adequate protection payments and his order was timely appealed.

III. The Valuation of the Canyon Creek Property

On February 10, 1984, Edward Parkinson filed a motion pursuant to 11 U.S.C. § 362 seeking to lift the automatic stay which was imposed when appellants filed their bankruptcy petition. On May 31, 1984, a motion by appellants for valuation of security pursuant to 11 U.S.C. § 506(a) and a motion by Edward Parkinson for adequate protection were heard before Bankruptcy Judge Young.

At that hearing, testimony was presented by appellants and Edward Parkinson, exhibits were submitted, and counsel for each side argued in support of their respective positions. At least four witnesses, both expert and non-expert, testified as to the value of the Canyon Creek property. The witnesses' testimony indicated that the property had a value of between $1,016,050.00 to $1,372,400.00. Based upon evidence submitted by an appraiser hired by appellants, Judge Young found that the reasonable value of the Canyon Creek land was $1,016,050.00.

On January 30, 1985, appellants filed an Adversary Proceeding against several of its creditors, including Edward Parkinson, requesting the Bankruptcy Court to determine the secured value of all the creditors claiming an interest in the Canyon Creek property. During this hearing, the parties introduced appraisals of the Canyon Creek property. The parties did not offer, however, any evidence which indicated that there had been a change in the value of the Canyon Creek property since the previous hearing. Based upon the evidence presented, Judge Hagan determined the Judge Young was correct in concluding that the Canyon Creek property should be valued at $1,016,000.00.

In determining this amount, Judge Hagan found that $1,016,000.00 would be the realized sale price in a hypothetically forced sale under Chapter 7 liquidation. He also found that liquidation costs, including real property taxes, attorney fees, interest or real estate commission, should not be subtracted from the fair market value of the land when determining the liquidation value as appellants had argued. In other words, Judge Hagan found that appellants' formula for reducing the fair market value by liquidation costs to arrive at the liquidation value was erroneous.

We must determine whether the Bankruptcy Court's finding that the Canyon Creek property was valued at $1,016,000.00 was clearly erroneous. Based upon the evidence before this court, it was not clearly erroneous. Both Judge Young and Judge Hagan considered relevant evidence relating to the value of the property prior to reaching their decisions. Testimony was presented by expert appraisers. Exhibits were submitted. Counsel for both sides were given an opportunity to be heard. Furthermore, it was appellants own witness who appraised the Canyon Creek property at $1,016,000.00. Therefore, the valuation of the Canyon Creek property at $1,016,000.00 was amply supported by competent evidence. Accordingly, the finding that the Canyon Creek property is valued at $1,016,000.00 for purposes of determining the secured value of each creditor's claim is affirmed.

On May 31, 1984, a motion for valuation of security and a motion by Edward Parkinson were heard before Judge Young. During the hearing, Judge Young found that Edward Parkinson was an undersecured creditor and that Edward Parkinson was entitled to receive adequate protection payments pursuant to 11 U.S.C. § 361. Judge Young also ordered appellants to maintain the value of Edward Parkinson's security as of February 10, 1984 in the sum of $70,000.00.

On February 25th and 27th, 1985, a valuation hearing was held before Judge Hagan. During this hearing, Judge Hagan found that the previous findings of Judge Young were correct. Additionally, Judge Hagan concluded that appellants had not paid an excessive amount in adequate protection and that they had to pay the adequate protection payments which Judge Young had ordered previously.

Edward Parkinson, as an undersecured creditor, is not entitled to adequate protection payments. The Supreme Court in United Sav. Ass'n v. Timbers of Inwood Forest, 108 S. Ct. 626 (1988) held that an undersecured creditor is not entitled to adequate protection payments under 11 U.S.C. § 362 for the delay caused by the automatic stay in foreclosing on the collateral. Id. at 635. Further, the holding of Timbers of Inwood Forest is to be applied retroactively. In re Cimarron Investors, 848 F.2d 974, 976 (9th Cir. 1988).

Therefore, the Bankruptcy Court's decision granting adequate protection payments to Edward Parkinson is reversed. The case is remanded to the Bankruptcy Court for further proceedings consistent with the holdings of Timbers of Inwood Forest and In re Cimarron Investors.