Wells Fargo Financial Leasing Inc v. Grigsby et al
MEMORANDUM OPINION Signed by Judge William M Acker, Jr on 1/10/14. (SAC )
2014 Jan-10 PM 03:14
U.S. DISTRICT COURT
N.D. OF ALABAMA
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
WELLS FARGO FINANCIAL LEASING }
ANTHONY EVAN GRIGSBY, debtor; }
CHRISTY MECHELLE GRIGSBY,
joint debtor; LINDA BAKER
GORE, trustee; et al.,
DISTRICT COURT CASE NO.
BANKRUPTCY CASE NO.
Wells Fargo Financial Leasing, Inc. (“Wells Fargo”), appeals
from the bankruptcy court's order confirming the amended chapter 12
plan of Anthony Grigsby and Christy Grigsby (“the Grigsbys” or “the
The plan confirmation order qualifies as a "final
appellate jurisdiction pursuant to 28 U.S.C. § 158. See United
Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 269 (2010).
Wells Fargo asks this court either to reverse the plan confirmation
order or to modify Wells Fargo's treatment under the plan.
reasons detailed below, Wells Fargo's appeal will be unsuccessful
and the plan confirmation order will be affirmed.
The parties do not dispute the underlying material facts, only
their significance for the plan’s treatment of Wells Fargo’s
The secured debt at issue is a loan by Wells Fargo
to the Grigsbys dated December 7, 2007, as subsequently modified
The loan’s collateral consists of a first lien on
Etowah County property (including the Grigsbys’ residence, real
estate, and poultry houses); a second lien on Baldwin County
Before bankruptcy, the Grigsbys paid the poultry
Assignment”), and Koch Foods paid Wells Fargo.
The parties have
stipulated that the value of the Etowah County property (including
the residence, real estate, and poultry houses) is $775,000, and
$707,728.24 as of June 30, 2013.
The Grigsbys filed a joint petition for chapter 12 bankruptcy
on March 19, 2013.
The bankruptcy court confirmed the Grigsbys’
amended plan over Wells Fargo’s objection on August 23, 2013.
confirmed plan provides for Wells Fargo’s secured debt to be repaid
over eighteen years.
The repayment interest rate escalates over
time: 5.25% for 5 years, 6.00% for 5 years, then 6.50% for 8 years.
The Grigsbys must make the plan payments directly to Wells Fargo
within seven days of receiving payment for their poultry flocks.
At the hearings on plan confirmation, the bankruptcy court
admitted four pieces of evidence regarding the market for the
financing of loans like the Grigsbys’ loan: (1) Victor Dutchuk’s
affidavit, which states that a loan secured by existing poultry
houses and related equipment would have a twelve-year term in the
current market but, if secured by new poultry houses and equipment,
affidavit, which states that a loan secured by existing poultry
houses and related equipment would have no longer than a seven-year
term in the current market; (3) Mr. Grigsby’s testimony that he
attempted to secure financing to pay off the Wells Fargo loan but
originating in 2009-12 that are secured by real estate with poultry
houses and have terms ranging from eleven to twenty-three years.
Wells Fargo filed a notice of appeal on August 23, 2013,
seeking reversal of the plan confirmation order or modification of
its treatment under the confirmed plan.
bankruptcy courts’ “final decisions.” 28 U.S.C. § 158.
those decisions under a clearly erroneous standard for findings of
fact and under a de novo standard for conclusions of law, including
interpretations of the bankruptcy code. Equitable Life Assurance
Soc. v. Sublett (In re Sublett), 895 F.2d 1381, 1383-84 (11th Cir.
The “final decision” under review in this appeal is the
plan confirmation order.
Wells Fargo is complaining about the plan confirmation order’s
treatment of its secured debt.
A chapter 12 bankruptcy plan may
modify the rights of secured creditors provided that the plan
complies with 11 U.S.C. § 1225(a)(5).1 Travelers Ins. Co. v.
Bullington, 878 F.2d 354, 357 (11th Cir. 1989).
The plan in this
case must comply with the “cramdown” provisions of § 1225(a)(5)
because Wells Fargo has not accepted the plan and the Grigsbys do
The “cramdown” provisions permit the plan
to be confirmed over Wells Fargo’s objection if the plan payments
have a “present value” equal to the allowed secured claim and if
Wells Fargo “retains” its lien. See id.
Wells Fargo contends that the confirmed plan fails to satisfy
retaining the lien, because the repayment term exceeds the length
dictated by the market and the payer and payment amounts diverge
from those designated in the Proceeds Assignment.2
is addressed in further detail below.
This court concludes that
the bankruptcy court applied the correct legal analysis to each
Further references to 11 U.S.C. § 101 et. seq. (the Bankruptcy Code)
will be by section number only.
Although Wells Fargo contested the repayment interest rate in its
objection to the amended plan and mentions the interest rate as an aside in
its brief, Wells Fargo’s brief does not explicitly appeal the confirmation
order on that basis. Appellant’s Br. 7-8, 39.
issue and did not clearly err in confirming the plan.
Receiving Present Value
Wells Fargo argues that the eighteen-year repayment term in
the confirmed plan does not provide “present value” equal to its
Specifically, Wells Fargo argues that (1) the bankruptcy court
clearly erred in its finding of fact that no efficient market
exists for loans like the Grigsbys’ loan; and (2) the bankruptcy
court erred as a matter of law in concluding that the market alone
does not dictate the repayment term.
Finding that no efficient market exists
In the confirmation order, the bankruptcy court found that no
efficient market exists for loans like the Grigsbys’ loan. BK Doc.
129, ¶ 11.3
Wells Fargo contends that this finding was clearly
This court concludes that the bankruptcy court did not
clearly err in its finding given that Wells Fargo’s evidence was
not directly relevant, at least according to the evidence before
the bankruptcy court, and Mr. Grigsby’s uncontradicted testimony
that he could not find a willing refinancing lender.4
The court cites to documents filed in the bankruptcy court according
to their bankruptcy docket numbers, instead of to the appellate record,
because the record does not have continuous pagination between documents.
The Grigsbys also submitted evidence of eight loans originating in
2009–12 and secured by real estate and poultry houses. This evidence does not
shed light on whether there is an efficient market for similar loans in 2013.
Accordingly, the bankruptcy court did not explicitly consider those loans when
Wells Fargo submitted two affidavits as evidence on the market
for loans secured by poultry houses and related equipment——not on
the market for loans like the Grigsbys’ loan secured by poultry
houses, related equipment, real estate, residences, and poultry
On appeal, Wells Fargo argues that the two categories
are equivalent because “the true value of [the] Collateral flows
operation, not the dirt on which the farm is situated,” and “not
from the fact that the Debtors reside on the property.” Appellant’s
Reply 2, 22.
This argument should have been made to the bankruptcy
The bankruptcy court had no evidence before it that the
poultry houses, related equipment, and poultry proceeds constitute
the principal collateral and that the real estate and residences
have no significant value as collateral.
Such evidence, if it had
been submitted, might have made the affidavits of Wells Fargo’s
experts more relevant.
Those affidavits give information on the
market for loans secured by poultry houses and related equipment
only, irrespective of whether the experts were subjectively aware
of the other collateral.
The bankruptcy court found a distinction
between loans secured by poultry houses and related equipment
versus loans secured by poultry houses, related equipment, real
estate, residences, and poultry proceeds, and weighed the evidence
assessing the market efficiency, although it did consider them when assessing
the plan term.
Based on the evidence before the bankruptcy court,
this court cannot conclude that the bankruptcy court clearly erred
in drawing that distinction and so weighing the evidence.
demonstrated relevance to the market for loans like the Grigsbys’
loan, the bankruptcy court had to assess the market using only Mr.
Grigsby’s testimony that he could not find a willing lender to
refinance his loan.
Based on this evidence, the bankruptcy court
did not clearly err in finding that no efficient market exists for
loans like the Grigsbys’ loan.
Conclusion that the market is not determinative
The bankruptcy court stated in its confirmation order that
“the treatment of Wells Fargo’s secured claim does not have to
match the treatment the Debtors could obtain in the marketplace
because no efficient market exists” and that, “[w]hile the credit
market for new loans is a factor for the Court to consider, it is
not controlling.” BK Doc. 129, ¶¶ 11, 13.
Wells Fargo argues that
the bankruptcy court erred in its conclusion of law that the market
does not control the assessment of the plan term.
This court finds
that the bankruptcy court did not err in its legal analysis and did
not clearly err in approving the term of the Grigsbys’ plan.
Framing the discussion of the market’s role in assessing plan
Bullington, 878 F.2d 354 (11th Cir. 1989).
In Travelers, the
Eleventh Circuit states that “the test is simply whether, as of the
effective date of the plan, the present value of the property ...
is equal to or greater than the amount of the allowed secured
claim.” Id. at 357.
The Eleventh Circuit does not mention the
market as part of this test. Id.
Although the plan in Travelers
mortgages, the Eleventh Circuit does not discuss any evidence on
Furthermore, the fact that the Eleventh Circuit approved a plan
that looked to the market and complied with the market, at least in
part, does not mean that courts must look to the market or look
only to the market. See id. at 357–58.
At most, Travelers suggests
that the market should be a factor in evaluating whether the plan
term and interest rate provide present value. See id.
Wells Fargo heavily relies on In re Koch, 131 B.R. 128 (Bankr.
N.D. Iowa 1991), but Koch expressly disagrees with Travelers and
characterizes it in a way unfavorable to Wells Fargo’s position.
approach,” which allows confirmation if the plan “simply [provides]
for the present value of the secured claim at confirmation over the
life of the plan, regardless of the length.” Id. at 131 (emphasis
Koch expressly disagrees with this approach and follows
the “market approach,” which requires the plan to comply with the
market. Koch, 131 B.R. at 131–32.
In short, Wells Fargo gains
nothing from relying on a case contrary to binding precedent that
characterizes Travelers as not requiring adherence to the market.
More persuasive to this court is a case that does not impose
any requirements contrary to Travelers. See First Nat’l Bank v.
Woods (In re Woods), 465 B.R. 196 (10th Cir. BAP 2012).
bankruptcy court determines the appropriate period of time over
which a claim may be paid.” Id. at 208.
Although the market is one
factor, courts also look to the type of property, the debtors’
particular circumstances, the length of the underlying note, and a
general lenience in allowing family farmers the maximum time for
repayment. Id. at 208–09. Woods supports the perspective, which is
compatible with Travelers, that the market is one significant
factor among several factors that courts should consider. See id.;
Travelers, 878 F.2d at 357-58.
Consistent with Travelers and Woods, the bankruptcy court in
assessing the plan term and did so without clear error.
evidence of the market for loans like the Grigsbys’ loan.
bankruptcy court considered the Dutchuk affidavit, even if not
directly relevant, as well as the Grigsbys’ evidence of eight loans
originating in 2009–12 and secured by both real estate and poultry
houses. These eight loans had terms ranging from eleven to twenty9
Admittedly, the eight loans have limited probative
value for assessing the market in 2013, but the plan’s eighteenyear term falls within the general range of their terms.
bankruptcy court also considered the market terms of residential
mortgage loans and noted that the terms usually exceed eighteen
years and often reach thirty years.
The bankruptcy court did not
clearly err when it considered this market in conjunction with the
market for loans secured by poultry houses and equipment; Wells
Fargo’s loan is secured by residences and real estate as well as by
poultry houses and equipment.
Having considered the market, the bankruptcy court properly
endeavored to “balance the needs of the Debtors with the fair and
equitable treatment of creditors, including Wells Fargo.”5 BK Doc.
129, ¶ 13.
The bankruptcy court considered the types of property
at issue, the Grigsbys’ particular circumstances, and the general
policy in chapter 12 of favoring debt relief to family farmers. BK
Doc. 129, ¶ 10 (consistent with Woods, 465 B.R. at 208–09).
Fargo has not shown that the bankruptcy court clearly erred in
weighing these factors and has “pointed to no record evidence to
Travelers, 878 F.2d at 358 (emphasis added).
In view of the
Another factor in approving the term was that Wells Fargo’s loan is
oversecured by at least $75,000. BK Doc. 129, ¶ 13. If the Grigsbys do not
perform under the plan, Wells Fargo may seek relief from the automatic stay.
Id. Wells Fargo argues that its loan is not adequately protected, but does so
in the context of “retaining the lien” rather than in the context of
“receiving present value.” See infra Part B(1).
inexact balancing of interests and Wells Fargo’s lack of record
evidence, this court cannot say that the bankruptcy court clearly
erred in its findings that the plan provides present value for
Wells Fargo’s loan and that the plan should be confirmed.
Retaining the Lien
Wells Fargo argues that the confirmed plan does not satisfy
the requirement under § 1225(a)(5)(B)(i) that Wells Fargo “retain”
its lien. Specifically, Wells Fargo argues that (1) the bankruptcy
court clearly erred in its finding of fact that Wells Fargo is
adequately protected and thereby retains its lien; and (2) the
bankruptcy court erred as a matter of law by concluding that
diverging from an assignment specifying the payer and the payment
amount does not deprive a creditor of its lien.
For the reasons
explained below, this court disagrees.
The requirement that the creditor “retain the lien” implies an
inquiry into adequate protection. See Abbot Bank-Thedford v. Hanna
(In re Hanna), 912 F.2d 945, 951 (8th Cir. 1990).
That is, a
creditor does not truly retain its lien if the value of the
collateral diminishes faster than plan payments are made on the
secured claim. Id.
Wells Fargo argues that it does not retain its
presently oversecured, the value of the poultry houses and related
equipment will depreciate before the end of the eighteen-year plan
such that Wells Fargo will no longer be adequately protected.
Wells Fargo’s argument relies on the poultry houses and
related equipment having a paramount role in the value of the
entire collateral. Wells Fargo alleges that the poultry houses and
related equipment are the “principal security” for the loan,
together with the poultry proceeds but excluding the real estate
and residences. Appellant’s Br. 29.
As discussed above, Wells
Fargo should have submitted to the bankruptcy court any evidence
that the poultry houses, related equipment, and poultry proceeds
protected in view of all pieces of collateral.
This court must do
likewise notwithstanding the fact that Wells Fargo has presented
relevant evidence on appeal.
To support its contention that the depreciation of poultry
houses and related equipment would prevent it from retaining the
lien, Wells Fargo relies primarily on In re Rice, 171 B.R. 399, 400
(Bankr. N.D. Ala. 1994).
The court in Rice denied confirmation
when the plan proposed a fifteen-year repayment term for a loan
secured by poultry houses that had ten-year life expectancies. The
court reasoned that the poultry houses “will not maintain their
value at a rate equal to the rate the debt is being serviced.” Id.
In the present case, the record indeed contains evidence
equipment will depreciate significantly before the end of the
eighteen-year plan. See, e.g., BK Doc. 57, Ex. C (Affidavit of
Rice, in this respect, is on point. See Rice, 171
B.R. at 400–01.
If the collateral consisted solely of poultry
houses and related equipment, Wells Fargo would not be adequately
protected and, therefore, would not retain its lien under the plan.
The additional collateral of real estate and residences,
however, changes the Rice scenario. The collateral in Rice did not
include real estate or residences. Id.
Wells Fargo glosses over
the significance of the separate non-farming property by contending
that it did not constitute the “primary security.” Appellant’s Br.
With no evidence of this contention before the bankruptcy
collateral in assessing the risk of depreciation. “Real estate
traditionally is not a depreciating asset and the fact that the
[creditor] protection.” In re Prescott, 11-10789, 2011 WL 7268057
(Bankr. S.D. Ga. Dec. 21, 2011) (citation omitted). The bankruptcy
court did not err in considering the generally lesser risk of
depreciation for residences and real estate when evaluating the
lien retention requirement.
Wells Fargo presented evidence that the poultry houses and
related equipment would depreciate before the end of the eighteen13
year plan term, but presented no evidence to the bankruptcy court
that this depreciation covered the collateral as a whole or would
shift the loan’s admitted over-security into under-security.
bankruptcy court did not clearly err in finding that Wells Fargo is
adequately protected by the collateral as a whole and thereby
retains its lien under the plan.
Change of payer and payment amount
Wells Fargo next argues that it does not retain its lien under
the plan because the plan provides for a payer and a payment amount
for Wells Fargo’s claim that differ from those specified in the
The bankruptcy court concluded that Wells
Fargo would retain its lien notwithstanding the difference.
court finds that the bankruptcy court did not err in concluding
that a creditor can retain its lien despite changes to the payer
and payment amount, and that the bankruptcy court did not clearly
err in finding that Wells Fargo would retain its lien under the
plan notwithstanding the difference from the Proceeds Assignment.
Wells Fargo first addresses the change to the payer of the
poultry proceeds, which the Proceeds Assignment designates as Koch
The trustee claims that this argument is “last-minute,” implying that
Wells Fargo raised it for the first time on appeal. In its objection to
confirmation, Wells Fargo objected to the changed payer as not providing
present value under § 1225(a)(5)(B)(ii), although not as violating the lien
retention requirement under § 1225(a)(5)(B)(i), and “nullif[ying] Wells
Fargo’s lien on the Cash by eliminating the direct pay relationship between
Wells Fargo and Koch Foods.” BK Doc. 57, at 13. The court finds that this
language suffices as notice of Wells Fargo’s position that the plan provisions
did not satisfy the cramdown requirements.
Foods, but the plan designates as the Grigsbys. Wells Fargo argues
that courts “routinely decline to confirm” chapter 12 plans that
fail to satisfy the “retain the lien” requirement and argues that
courts should strictly construe it to permit no alteration to
however, do not support strict construction for Wells Fargo’s lien.
The cases cited by Wells Fargo strictly construe the “retain
the lien” requirement but only for undersecured creditors and
creditors whose collateral is replaced with property of a different
One case concerned replacement of a livestock and equipment
comparison because this plan does not seek to replace Wells Fargo’s
collateral. See In re Ames, 973 F.2d 849, 851-52 (10th Cir. 1992).
Another case found that the plan could not fund its plan with a
creditor’s cash collateral because the collateral would greatly
adequate protection and preventing it from “retaining the lien.” In
re Stallings, 290 B.R. 777, 787 (Bankr. D. Id. 2003). However, the
creditor in Stallings was undersecured, and later cases have
confined Stallings’ strict construction of “retaining the lien” to
undersecured creditors. See Harmon v. United States, 101 F.3d 574,
578 (8th Cir. 1996) (“[T]he more natural reading of the [retain the
lien] language is that the creditor must retain the pre-bankruptcy
lien only insofar as it secures repayment of the secured claim”);
In re Wilson, 378 B.R. 862, 882 (Bankr. D. Mont. 2007); In re
Bashas’ Inc., 437 B.R. 874, 927 (Bankr. D. Ariz. 2010).
Wells Fargo’s claim is oversecured and the plan does not attempt to
replace collateral, the bankruptcy court did not need to strictly
construe the “retain the lien” requirement and could confirm a plan
that made changes to the repayment provisions.
One case cited by Wells Fargo that more closely resembles the
present case is In re Blanton, No. 3:09-bk-5923-3F2 (Bankr. M.D.
Fla., Oct. 20, 2009).
However, this case does not stand for the
proposition for which Wells Fargo cites it.
The bankruptcy court
in Blanton acknowledged that the creditor had a security interest
in poultry proceeds and was entitled to enforcement, i.e., payment
per the strict terms, under § 552(b)(1) unless the court orders
otherwise after notice, a hearing, and weighing the equities. Id.
This provision permitted alteration to the strict terms of the lien
if the alteration occurs after notice, a hearing, and weighing the
At no point did the Blanton court state that any
provisions would entirely deprive the creditor of its lien. See id.
Indeed, the Blanton court did not even address the “retain the
lien” requirement because it was not at issue. Id.
To the extent that Wells Fargo suggests otherwise by citing
Blanton, the bankruptcy court satisfied § 552(b)(1) by giving Wells
confirmation hearings, and weighing the equities.
Wells Fargo had
notice from the amended plan that the Grigsbys intended to make the
plan payments directly to Wells Fargo and had two confirmation
hearings at which to address its concerns.
Wells Fargo’s attorney
cross-examined Mr. Grigsby on the role of Koch Foods (incorrectly
transcribed as “Cook Foods”) at the July 30, 2013, hearing, BK Doc.
128, at 44; and the parties discussed the plan payment schedule at
the August 9, 2013, hearing, BK Doc. 126, at 15–17.
The fact that
provisions at the hearings does not suggest that it did not have
the opportunity to do so.
The bankruptcy court evidently weighed
the burdens and benefits of the plan’s repayment provisions for
both sides but decided in favor of confirmation. See, e.g., BK Doc.
129, ¶¶ 9, 10, 13 (“The Court must balance the needs of the Debtors
with the fair and equitable treatment of creditors, including Wells
providing notice and a hearing, Wells Fargo’s contention that the
bankruptcy court “did not properly weigh the equities” is reviewed
by this court for clear error, something not shown in this case.
See Appellant’s Reply 22.
Wells Fargo argues that the bankruptcy
court could not have properly weighed the equities because of its
allegedly inconsistent treatment of the Proceeds Assignment.
treatment consists of the bankruptcy court’s acknowledging that the
Proceeds Assignment has value that contributes to Wells Fargo’s
adequate protection and then confirming a plan that diverges from
provisions in the Proceeds Assignment.
However, these actions are
Although the designation of Koch as the payer
surely has some value, the bankruptcy court had no evidence or
argument before it that the payer played a key role in providing
adequate protection or that the payer’s identity critically affects
the collateral. Without that context, the bankruptcy court did not
clearly err in weighing the equities then confirming the plan with
the different payer specified.
Turning to the divergent payment amount in the plan, Wells
payments under a chapter 12 plan is deemed not to modify the total
modifications, presumably, also do not affect lien retention given
that Wells Fargo included this acknowledgment in the “retain the
differing from contractual payments is surely a common change to
enable reorganization in bankruptcy.
Provided that the bankruptcy
court weighs the equities after notice and a hearing, § 552(b)(1)
including payment amounts, in the plan.
Wells Fargo presents no case law to show that changing payment
amounts can entirely deprive an oversecured creditor of its lien.
Rather, the cases cited restrict the plan’s use of undersecured
property of a different type.
Neither scenario applies here.
bankruptcy court, then, had no case-based reason to deviate from
the general rule that modification of payment amounts does not
affect the total value of a secured claim or lien retention.
bankruptcy court also did not have evidence before it that provided
a fact-based reason to find that this payment amount had particular
Thus, the bankruptcy court did not clearly err in
its finding of fact that Wells Fargo retains its lien even though
the plan payments differ from the Proceeds Assignment’s payments.
In sum, the court finds that the bankruptcy court did not err
in concluding that a plan can alter the repayment provisions of a
secured creditor’s lien if those alterations do not replace the
collateral with property of a different type and if the bankruptcy
court weighs the equities after giving the creditor notice and a
hearing. As a matter of law, changing the payer and payment amount
does not necessarily deprive a creditor of its entire lien.
the particular facts, the bankruptcy court did not clearly err in
finding that the Grigsbys’ plan would not deprive Wells Fargo of
For the reasons detailed above, the court will by separate
order affirm the bankruptcy court’s order confirming the Grigsbys’
chapter 12 plan.
DONE this 10th day of January, 2014.
WILLIAM M. ACKER, JR.
UNITED STATES DISTRICT JUDGE
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