United States Court of Appeals

FOR THE EIGHTH CIRCUIT

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No. 99-2705

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In re: Westpointe, L.P., a Missouri

Partnership, doing business as

Westpointe Apartments, 

Debtor.

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Northwest Village Limited

Partnership; Grandview Hills

Limited Partnership; Parkridge

Apartments Limited Partnership;

Lamplite Limited Partnership;

Westpointe Limited Partnership,

Debtors - Appellants,

v.

William E. Franke; Gannon

Management Company of Missouri;

Prairie Properties, L.L.C.,

Creditors - Appellees.

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Northwest Village Limited

Partnership; Grandview Hills

Limited Partnership; Parkridge

Apartments Limited Partnership;

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Appeal from the United States

District Court for the 

Eastern District of Missouri.
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Lamplite Limited Partnership;

Westpointe Limited Partnership,

Debtors - Appellants,

v.

Prairie Properties, L.L.C.,

Creditor - Appellee.

Cynthia McNeill,

Interested Party - Appellee.

Susman, Schermer, Rimmel &

Shifrin,

Movant - Appellee.

William E. Franke; Gannon

Management Company of Missouri,

Creditors - Appellees.

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Submitted: March 15, 2000

 Filed: March 14, 2001

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Before HANSEN, HEANEY, and FAGG, Circuit Judges. 

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1We do not think it necessary to explain in detail the underlying facts and

complicated procedural history of this case because those facts are set forth thoroughly

in the district court's opinion. See In re Westpointe, L.P., 234 B.R. 431, 433-37 (E.D.

Mo. 1999).

2The Honorable Stephen N. Limbaugh, United States District Judge for the

Eastern District of Missouri.

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HANSEN, Circuit Judge.

In short,1 five real estate limited partnerships ("Debtors") filed for Chapter 11

bankruptcy in September of 1990 after defaulting on their HUD mortgage. A

reorganization plan was proposed by appellees William E. Franke and Gannon

Management Company of Missouri ("Franke-Gannon"), approved by HUD, and later

adopted by the bankruptcy court on June 22, 1992. As of that date, the bankruptcy

court determined that the Debtors' estate had assets worth approximately $56.4 million

and liabilities worth approximately $75.8 million. The Franke-Gannon reorganization

plan was approved over the objection of the Debtors. Debtors appealed, arguing that

the bankruptcy court erred in its valuation findings. The district court2 upheld the

bankruptcy court's approval of the Franke-Gannon plan, finding that the estate indeed

was insolvent and thus the Debtors' equity interests in the estate were without value and

were properly extinguished. Debtors appeal the district court's decision, arguing that

the estate's assets actually exceeded its liabilities at the time of the reorganization and

that they are entitled to the excess value of the estate because the creditors have

otherwise been paid in full. We affirm.

Our standard of review is the same as that of the district court, which reviewed

the bankruptcy court's factual findings for clear error and its legal conclusions de novo.

See In re Mathiason, 16 F.3d 234, 235 (8th Cir. 1994). A reorganization plan may be

confirmed over the objection of equity holders whose interests are being eliminated as

long as the "cramdown" requirements of 11 U.S.C. § 1129 are met, and specifically in
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this case the requirement in § 1129(b) that the plan be "fair and equitable" to any

dissenting class. According to § 1129(b)(2)(C)(ii), a plan is fair and equitable as long

as the holder of any interest junior to the dissenting impaired class does not receive any

property under the reorganization plan, and because there are no interests junior to the

Debtors, the confirmed plan satisfies this requirement. The other primary consideration

for determining whether a plan which extinguishes equity interests is fair and equitable

is whether the debtor is solvent. See In re Koelbl, 751 F.2d 137, 140 (2d Cir. 1984)

("The 'fair and equitable' requirement [of § 1129(b)] does not look toward protection

of debtor interests, but rather toward protection of dissenting creditor interests, absent

the value of the ongoing business being large enough to support protection of the

debtors."); Moulded Prod., Inc. v. Barry, 474 F.2d 220, 225 (8th Cir.) (explaining that

if a business entity is insolvent the shareholders may not be allowed to participate in

the reorganized entity even if they will lose their original investment), cert. denied, 412

U.S. 940 (1973). Thus, the main issue in this appeal is whether the bankruptcy court's

finding that the Debtors' estate was insolvent is clearly erroneous.

Debtors argue that the bankruptcy court used an erroneous valuation method

which underestimated the value of the estate's assets. We disagree. The bankruptcy

court principally relied upon the Tellatin Appraisal for purposes of making its valuation

determination. The Tellatin Appraisal, which was compiled by a recognized expert

according to accepted professional standards, used an accepted valuation method--

income capitalization--that incorporated anticipated future profits and the anticipated

reversion value of the apartments into the final present going concern value of the

estate. See Moulded Products, 474 F.2d at 225 (holding that the proper measure of

valuation in reorganization proceedings is the going concern value of the debtors' estate

and that a debtor is insolvent if the "aggregate amount of its property, as measured by

its going concern value, is insufficient to pay its debts"). Cf. In re King Resources Co.,

651 F.2d 1326, 1335-36 (10th Cir. 1980) (finding capitalization of future earnings

approach to valuation proper). We reject Debtors' contention that the failure of the

Tellatin Appraisal to take into account the special financing terms of the Franke-
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Gannon reorganization plan was erroneous. The bankruptcy court did not abuse its

discretion in refusing to qualify Debtors' valuation witness Randolph as an expert or in

rejecting as not relevant to valuation Randolph's testimony; the special financing terms

were not a market condition available to the Debtors, and in any event the market

financing assumption behind the Tellatin Appraisal was adequate for purposes of

determining solvency of the estate. In sum, we agree with the district court that the

income capitalization method of valuation used in the Tellatin Appraisal and relied

upon by the bankruptcy court was neither inappropriate as a matter of law nor was its

final valuation determination as adopted by the bankruptcy court clearly erroneous.

Debtors also argue that the bankruptcy court overestimated the liabilities of the

estate by miscalculating HUD's claim, and that the Debtors are entitled to the leftover

funds because all creditors have been paid in full under the confirmed reorganization

plan. Specifically, Debtors argue that HUD's secured interest in the properties was

limited to the fair market value of the properties ($38.6 million) rather than the amount

due on the loans ($64.9 million); that HUD did not have valid claims for the postdefault rents ($9.4 million), the money wrongfully disbursed to Franke ($4.5 million),

the money in the Bond Stabilization Fund ($330,000), or the two tax refunds

($280,000); and that HUD is improperly receiving over one hundred percent of its

secured claim by its entitlement to twenty-five percent of any surplus cash and sale

proceeds from the properties.

First, the full $64.9 million due on the HUD loans was correctly considered a

liability of the estate. During the bankruptcy proceedings below, HUD filed a valid

proof of claim for the full $64.9 million, no objections were raised by the Debtors, and

the bankruptcy court proceeded to treat the entire amount as one allowed claim. It is

true that the HUD loans were non-recourse and were under-secured by over $25

million given that the fair market value of the collateral (the apartment buildings)

pledged as security for the loans was only $38.6 million. But under 11 U.S.C. §

1111(a), loans of this sort receive recourse treatment even if they are contractually non-
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recourse. We reject Debtors' argument that HUD's failure to make an election under

§ 1111(b) precludes treating the unsecured portion of HUD's claim the same as the

secured portion of the claim, because the Franke-Gannon plan clearly treated the two

claims as part of the same class of interests and the Debtors failed to raise a proper and

timely objection. We therefore hold that HUD's entire $64.9 million claim was

properly considered a liability against the Debtors' estate for purposes of determining

insolvency and confirming the Franke-Gannon reorganization plan.

Second, we reject the Debtors' contention that they are entitled to the value of

the post-default rents, the stabilization funds, and the tax refunds. We agree with the

courts below that these funds are encumbered by HUD's liens and perfected security

interests, but even if they are not, any error regarding HUD's entitlement (and Debtors'

lack thereof) is harmless because the total amount of the funds is less than the $18

million shortfall of the estate as determined at valuation. For similar reasons, in

addition to the failure of the Debtors to raise a proper objection below, we also reject

Debtors' argument that they are entitled to the value of the Franke claim.

Third, we reject the Debtors' contention that HUD impermissibly received

greater than one hundred percent of its claim. The Debtors not only failed to object to

confirmation of the plan on this basis, which means we would have to address the issue

for the first time on appeal, but we are also not convinced that the present value of

HUD's entitlement to twenty-five percent of any surplus cash and any net sale or

refinancing proceeds of the properties clearly amounts to HUD receiving greater than

one hundred percent of its claim. The present value of this entitlement would have to

be reduced to account for the time value of money, the twenty-five percent stake

appears to be in return for the reduced loan interest rate agreed to by HUD in the

reorganization plan, and the Debtors even argued at the valuation hearing that the

present value of all the payments to HUD (including the twenty-five percent stake)

aggregated $58.3 million which is still less than HUD's $64.9 million claim. In short,

this is a factual dispute between the parties reviewed for clear error, and the confirmed
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reorganization plan does not clearly and erroneously grant to HUD payments exceeding

one hundred percent of its rightful claim.

Finally, we reject the remaining arguments of the Debtors because they are

without merit or they were not raised properly in the courts below.

Based on the foregoing reasons, we affirm the district court's judgment upholding

the bankruptcy court's decision accepting the proposed reorganization plan for the

properties. The motions to dismiss Debtors' appeal based on equitable mootness and

for lack of standing are dismissed as moot.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.