### NOT FOR PU BLICA TION

U NIT E D ST A T E S BA NK RU PT CYA PPE L L A T E PA N E L

OF T HE NINT H CIRCU IT In re: TERRY LEE FLEMIN G, SR .,

Deb to r. HA VA SULA K ESHO R E IN VESTMEN TS, LLC, A p pellant,

v. TERRY LEE FLEMIN G, SR .; HA V A S U LA N D IN G, LLC, A p pellees. BA P N o s . C C -19-1166-GTaL C C -19-1167-GTaL (C o nso lidated A p peals) Bk. N o . 6:17-b k-19513-MW

M E M O RA ND U M *

A rgued and Sub m itted o n January 30, 2020

at Pasadena, C alifo rnia Filed – March 10, 2020 A ppeal fro m the U nited States Bankruptcy C o urt 

# FIL ED
MAR 10 2020 SUSAN M . SPRAUL, CLERK U. S. B KCY

. APP. PANEL O F T HE NI NT H CI RCUI T

*Thi s di sposi ti on i s not appr opr i ate for publi cati on. Although i t may be ci ted for whatev er per suasiv e v alue i t may hav e, see Fed. R. App. P. 32.1, i t has no pr ecedenti al v alue. See 9th Ci r . BAP Rule 8024-1.fo r the C entral Distric t o f C alifo rnia

Ho no r ab le Mark S. W allac e, Bankruptcy Judge, Presiding A ppearanc es: Martin A . Elio pulo s o f Higgs Fletc her & Mac k LLP

argued fo r A ppellant; Michael B. Reyno lds o f Snell & W ilm er LLP argued fo rA ppellee Havasu Landing, LLC ; Jam es Edward Till o f Lim N exus LLP argued fo r A p pellee Terry Lee Flem ing, Sr.
Befo r e: GA N, TAY LO R , and LA FFERTY, Bankruptcy Judges.

INT ROD U CT I ON Sec ured c redito r Havasu Lakesho r e Investm ents, LLC(“HLI”) appeals fro man o rder c o nfirm ing the c hapter 11 1 plan pro po sed b y deb to r Terry Lee Flem ing, Sr. (“Deb to r ”) and c o -pro po nent, Havasu Landing, LLC (“Landing”). In c o nfirm ing the plan, the b ankruptc y c o urt determ ined that HLI wo uld rec eive the indub itab le equivalent o f its appro xim ately $5.4
m illio n sec ured c laimthro ugh: (1) a c ash paym ent o f $500,000 on the effec tive date; (2) transfer o f 49 units o f real pro perty fro mLanding,
c o nsisting o f 46 lo ts and 3 finished ho m e sites (the “Landing Pro p erty”), valued b y the b ankruptc y c o urt at $3,694,000; and (3) five annual payments
o f $241,124.54 with interest at 5%
.

1 Unless speci fi ed other wi se, all chapterand secti on r efer ences ar e to the Bankr uptcy Code, 11 U.S
. C. §§ 101-1532. 2HLI argues that the c o urt erred in valuing the Landing Pro perty b y

ado pting a m etho do lo gy whic h failed to ac c o unt fo r the nec essary c o sts and tim e to sell the lo ts. A s a result, HLI c o ntends that the plan do es no t pro vide it with the indub itab le equivalent o f its secured c laim . HLI also argues that the b ankruptc y c o urt erred in determ ining that the plan was feasib le witho ut any evidenc e that Deb to rc o uld m ake the annual paym ents. O n review o f the b ankruptc y c o urt’s dec isio n, we dec line to require any spec ificvaluatio n m etho do lo gy fo r purpo s es o f determ ining indub itab le equivalenc e. Ho wever, plan treatm ent c o nsisting o f c ash paym ents in additio n to the transfer o f real pro perty at the b ankruptc y c o u rt’s valuatio n do es no t pro vide HLI with the indub itab le equivalent o f its secured c laimunder § 1129(b )(2)(A )(iii). W e also agree that the b ankruptc y c o urt’s finding that the plan was feasib le was no t suppo rted b y evidenc e in the rec o rd. A c c o rdingly, we VA C A TE the o rder c o nfirm ing the Plan and R EMA N D to the b a nkruptc y c o urt fo rfurther pro c eedings
c o nsistent with this de c isio n. FA CT S A . Prepetition E v e nts In 2003, Deb to r invested in a real estate pro jec t with HLI, invo lving an 80-ac re m a nufac tured ho m e park c alled Vista Del Lago, lo c a ted in Lake Havasu, C alifo rnia. So m etim e after 2009, Vista Del Lagodefaulted o n a
3lo an and appeared tob e headed to ward b ankruptc y.

While ac t ing as an agent o f HLI, Deb t o r purchased the defaulted lo an and ac quired Vista Del Lagothro ugh fo rec lo sure. A fter the fo rec lo sure, Deb to r b ec am e invo lved in litigatio n against HLI and vario u s individuals
asso c iated with the pro jec t which culm inated in a Feb ruary 2015 C alifo rnia state c o urt judgm ent fo r c o nstruc tive fraud and punitive dam ages against Deb to r and in favo r o f HLI in the am o u nt o f $3,659,343. Deb to r fo rm ed Landing in 2010 and was its so le m emb er until after the judgm ent was entered in 2015. A tthe tim e o f the judgm ent, Landing
o wned Vista Del Lagoand o ther real pro perty in Lake Havasu. W ithin weeks o f the judgm ent, Deb to r transferred a 55% interest in Landing and the m anaging m emb er po sitio n to his so n, Terry Flem ing, Jr. A fter ob taining the judgm ent, HLI b egan effo rts to c o llec t. It rec o rded an ab strac t o f the judgm ent in O range and Riverside c o unties and ob tained
a charging o rder o n Deb t o r ’s m emb ership interest in Landing. HLI also
ob tained a deb to r’s exam inatio n lien and a turno ver o r der direc ting Deb to r to im m ediately deliver all funds held in the nam e o f the Terry L. Flem ing Sr. Fam ily Trust, which were appro xim ately $3.1 m illio n in 2015. A fter learning that Deb to r had nam ed his daughter as suc c esso r trustee o f the trust, HLI ob tained a sim ilar deb to r’s exam inatio n lien and turno ver o rder against Deb to r’s daughter.

4B
. T he Bankruptcy Cas e

1. D ebtor’s A s s e ts and HL I’s Claim In N o vemb er 2017, Deb to r filed a chapter 11 petitio n. His am ended
schedules indic ated to tal assets o f $5,931,985.78, held personally o rin his trust, which inc luded his perso nal residenc e in O range C o u nty, a rental pro perty in R iverside C o unty, a 45% m emb ership interest in Landing, a 9.25% equity interest in HLI, and appro xim ately $1.6 m illio n in c ash and
c ash equivalents. Deb to r also scheduled appro x im ately $600,000 in retainers held b y vario us pro fessio nals. A s o f the petitio n date, HLI’s c laim, inc luding pre-petitio n interest and atto rneys’ fees, was appro xim ately $4.7 m illio n. HLI asserted that its
c laimwas secured b y nearly all o f Deb t o r’s pro perty and b y pro perty held in Deb to r’s trust. In March 2018, Deb to r filed a m o t io n to allo w his c o unsel to draw do wn its retainer o n a m o nthly b asis. A ltho u gh Deb to r disputed the extent
o f HLI’s lien o n the retainer funds, he argued that HLI had a nearly 34% equity c ushio n b ased o n the value o f its o ther c o llateral. 2 The c o u rt agreed and determ ined that even if HLI had a security interest o n the retainer, its
secured c laimwas adequately pro tec ted b ec ause the fair m arket value o f

2 Debtor subsequently fi led an adv er sar y pr oceeding contesti ng the extent and v ali di ty of HLI’s asser ted li ens on pr oper ty held by the Ter r y Lee Flemi ng S r . Fami ly Tr u st. As of the peti ti on date, the tr ust held Debtor ’s r esi dence, the r ental pr oper ty, and appr oxi m ately $1.38 mi lli on in cash and cash equiv a lents. 5HLI’s o ther c o llateral was in exc ess o f $7 m illio n.

In Dec emb er 2018, HLI filed a m o t io n fo r adequate pro tec tio n and fo r a super-prio rity adm inistrative expense c laim . HLI asserted that while its
c laimhad inc reased to appro xim ately $5.2 m illio n due to ac c rued po stpetitio n interest, the value o f Deb t o r’s assets had diminished to appro xim a tely $5.1 m illio n. HLI argued that Deb t o r’s use o f c ash and
c o u nsel’s drawdo wn o f the retainer, c o mb ined with new estim ates o f value in Deb to r’s Plan and disclo sure statem ent, left HLI’s c laim witho ut adequate pro tec tio n. Deb to r objec ted and argued that the c o urt m ade fac tual findings o f value in its dec isio n o n the drawdo w n o rder and that HLI had no t o ffered any new evidenc e o f dim inished pro perty values. Deb to ralso sub m itted a dec laratio n stating that as o f January 2018, the fair m a r ket value o f HLI’s asserted c o llateral was appro xim ately $6.8 m illio n. The c o urt denied the
m o tio n. 2. D ebtor’s Plan and HL I’s Objec tion In N o vemb er 2018, Deb to r filed his Sec o nd A m ended Plan (“Plan”) which pro po s ed to pay all c laim s in full o ver a five-year perio d. The Plan pro po sed to pay HLI’s c laimthro ugh: (1) an effec tive date paym ent o f $500,000; (2) transfer o f the Landing Pro perty, whic h Deb to rvalued at $3,753,100; and (3) five annual payments, with interest at 5% , equal to the
rem aining b alanc e o f HLI’s secured c laimafter the c ash paym ent and
6transfer o f Landing Pro p erty. The Plan stated that the c redit to b e applied

fo r the Landing Pro perty wo uld b e determ ined b y the c o urt and that “[f]o r the avo idanc e o f do ub t, no lien is b eing stripped b y virtue o f the Plan.” W ith the exc eptio n o f HLI, all vo ting c r edito rs ac c epted the plan. HLI
objec ted to c o nfirm atio n and argued that the value o f the Landing Pro perty did no t ac c o unt fo r nec essary ho lding c o sts o r the tim e required to sell all
o f the lo ts, which HLI argued c o uld b e as lo ng as 24 years. HLI stated that it had c eased o peratio ns in 2010 and was inso lvent, so requiring it to pay taxes, m anagem ent fees, and HO Adues fo r the Landing Pro perty wo uld
no t b e fair and equitab le. HLI argued that it wo uld no t rec eive the indub itab le equivalent o f its c laim b ec ause the Plan shifted the risk o f selling the Landing Pro p erty to HLI witho ut assuranc e that it wo uld
rec o ver the full am o unt o f its c laim s. HLI alsoobjec ted that the Plan was
no t feasib le and was no t pro po sed in go o d faith. 3. Confirm ation of the Plan In A pril 2019, the b ankruptc y c o urt held an evidentiary hearing o n c o nfirm atio n o f Deb t o r’s Plan and heard expert testim o ny regarding the value o f the Landing Pro p erty. HLI’s expert, Mr. Detling, develo ped two financ ial pro jec tio n m o dels which used a disc o unted c ash flo w (“DC F”) m etho d o lo gy. Mr. Detling used the Deb t o r’s pro po sed retail value o f $65,000 fo r each o f the 46 undevelo p ed lo t s, b ut assum ed that they wo uld take b etween 12 and 24
7years to sell. He applied disc o unt rates o f 14% and 20% and c o nc luded that

the present value o f the Landing Pro p erty was b etween $443,743 and $1,384,628. Deb to r’s expert, Mr. Vanderley, develo ped a “net aggregate value”
m o del which used the retail value o f $65,000 fo r each undevelo ped lo t and then deduc t ed estim a t ed sales c o sts and ho lding c o sts fo r the typic al sales
c yc le. Mr. Vanderley explained that the typic al sales cyc le, as it pertained to any individual lo t, wo uld b e in the range o f six to nine m o nths. Under the “net aggregate value” m etho d, Mr. Vanderley initially c o nc luded that the value o f the Landing Pro p erty was b etween $3,123,000 and $3,166,000. Mr. Vanderley also prepared a m o d el using a DC F m etho do lo gy. Unlike Mr. Detling, he proj ec ted that all o f the lo ts c o uld b e so ld within five years. U sing disc o unt rates o f 5.6% and 10.9%, he c o nc luded that the value
o f the Landing Pro perty was b etween $2,924,000 and $3,227,000. However, Mr. Vanderley testified that the DC F m etho d was inferio rto the “net aggregate value” m etho d b ec ause it relied o n to o m any unkno w n variab les. In a supplem ental dec laratio n, Mr. Vanderley updated his m o dels to
c o r rec t a fo rm ula erro r a nd to adjust the retail pric e o f the 46 undevelo ped lo ts to $71,500, b ased o n c urrent pric es pro vided b y Terry Flem ing, Jr. U sing the retail pric e o f $71,500, Mr. Vanderley c o nc luded that the to tal value o f the Landing Pro p erty was b etween $3,694,000 and $3,737,000
8using the “net aggregate value” m etho d , and b etween $3,182,000 and

$3,515,000 using the DC F m etho d. The b ankruptc y c o urt did no t find Mr. Detling’s testim o ny c r edib le and rejec ted his valuatio ns. The c o urt instead ado pted the lo wer o f Mr. Vanderley’s “net aggregate values,” which used the retail pric e o f $71,500 and assumed a nine-m o nth sales cyc le. The c o urt determ ined the to t al value o f the 46 lo ts and 3 finished ho m e sites to b e $3,694,000. In c o nfirm ing the Plan, the b ankruptc y c o u rt rejec ted HLI’s argum ent that transfer o f the Landing Pro perty unfairly shifted risk witho ut so m e fo rmo f adequate pro t ec tio n such as an “equity cu shio n.” The c o urt stated:

The c o nveyanc e o f real pro perty to HLI under the Plan is perfo rm anc e itself, no t a pro m ise o f future perfo rm anc e, so adequate pro tec t io n is no t applic ab le. There is no need fo rpro tec t io n to b e pro vided against the risk that pro m ised future perfo rm anc e will no t o c c ur b ec a use such pro m ised perfo rm anc e has already o c c urred. Sim ilarly, the c o nc ept o f an “equity cushio n” has no plac e b ec ause HLI will o wn all the equity in the c o nveyed real pro perty itself. Ho wever, b ec ause Deb to r challenged the validity and extent o f HLI’s
security interests in the pending adversary pro c eeding, the c o urt required the Plan to pro vide fo r a springing lien o n Deb to r’s residenc e and the rental pro perty, to ensure the rem aining b alanc e o f the c laimwo uld b e sec ured in the event that Deb to rwas suc c essful.
9Based o n the value o f the Landing Pro perty and the ac c rued interest

o n the HLI c laim, the c o urt alsorequired the five annual paym ents to b e inc reased fro m$191,784 to$241,124.54. HLI timely appealed. JU RISD ICT ION The b ankruptc y c o urt had jurisdic tio n under 28 U .S.C . §§ 1334 and 157(b )(2)(L). W e have jurisdic tio n under 28 U .S.C . § 158. ISSU E S Did the b ankruptc y c o urt err in determ ining that the Plan pro vided HLI with the indub itab le equivalent o f its c laim ? Did the b ankruptc y c o urt err in determ ining that the Plan was feasib le? ST A ND A RD S OF RE V IE W W e review the b a nkruptc y c o urt’s dec isio n to c o nfirma chapter 11 plan fo r an ab use o f disc retio n. Ma rsha ll v. Ma rsha ll (In re Ma rsha ll) , 721 F.3d 1032, 1045 (9th C ir. 2013). Ab ankruptc y c o urt ab uses its disc retio n if it applies the wro ng legal standard, m isapplies the c o rrec t legal standard, o r if its fac tual findings are illo gic al, im plausib le, o r witho ut suppo rt in the
rec o r d. Tra

ffic S cho o l.co m, Inc. v. Edriver Inc. , 653 F.3d 820, 832 (9th Cir. 2011). Ab ankruptc y c o urt’s determ inatio n o f pro perty value is a questio n o f fac twhich we review fo r c lear erro r. Arno l d &Ba ker Fa rm s v. United S ta tes (In re Arno ld &Ba ker Fa rm s) , 85 F.3d 1415, 1421 (9th Cir. 1996). Fac tual
10findings are c learly erro neo us if they are illo gic al, im plausib le, o r witho ut

suppo rt in the rec o rd. R etz v. S a m so n (In re R etz ) , 606 F.3d 1189, 1196 (9th C ir. 2010). The ultim a t e c o nc lusio n o f indub itab le equivalenc e is a questio n o f law which we review de no vo . In re Arno ld &Ba ker Fa rm s , 85 F.3d at 1421. De no vo review requires that we c o nsider the m atter as if no dec isio n had b een previo usly rendered. K a shika r v. Turnstile C

apita l M gm t., LLC(In re K a shika r) , 567 B.R . 160, 164 (9th C ir. BA P2017). W e review a b ankruptc y c o urt’s finding o f feasib ility fo r ab use o f disc retio n. F irst S . N

a t’l Ba nk v. S unnyslo pe H

o us. Ltd. P’ship (In re S unnyslo pe H o us. Ltd. P’ship) , 859 F.3d 637, 647 (9th Cir. 2017), a s a m ended (June 23, 2017), cert. denied

, 138 S. C t. 648 (2018).

D ISCU SSION HLI’s prim ary argum ent o n appeal is that the Plan do es no t pro vide HLI with the indub itab le equivalent o f its secured c laimb ec ause the b ankruptc y c o urt erred in valuing the Landing Pro perty. HLI argues that the c o urt sho uld no t have ado pted Mr. Vanderley’s values derived fro m the “net aggregate” m etho d and instead sho uld have ado pted Mr. Vanderley’s values derived fro mthe DC F m etho d
. Valuatio ns o f pro perty are fac tual findings to which we apply a deferential standard o f review. In re Arno ld &Ba ker Fa rm s , 85 F.3d at 1421. This deferenc e extends to the b ankruptc y c o urt’s cho ic e o f valuatio n m etho do lo gy. T

a ffi v. U nited S ta tes (In re Ta

ffi) , 96 F.3d 1190, 1193 (9th Cir.
111996) ( e n ba nc ) (rec o gnizing vario us m etho d s to estab lish value b u t leaving

the determ inatio n to the trial c o urt); Esta te o f S im plo t v. C .I.R
. , 249 F.3d 1191, 1197 (9th C ir. 2001); S era va lli v. U nited S ta tes , 845 F.2d 1571, 1575 (Fed. Cir. 1988) (“[C ]o urts nec essarily must have c o nsiderab le disc retio n to selec t a
m etho d o f valuatio n that is m o st appro priate in the light o f the fac ts o f the particu lar c ase. It m ay b e a single m etho d o r so m e c o mb inatio n o f different
m etho ds.”). HLI argues that the BA P has m andated the use o f DC F m etho do lo gy when there is no im m ediate m arket fo r the sale o f real pro perty. W e disagree. In Arno ld &Ba ker Fa rm s , we no ted that b ankruptc y c o urts had
rec o gnized three pro c edures fo r valuing land to b e surrendered: (1) liquidatio n value; (2) m arket value; and (3) fair value. 177 B.R . 648, 656 (9th C ir. BA P 1994). W e stated that the “fair value” m etho d was an
ac c eptab le valuatio n pro c edure under the c irc u m stanc es o f that c ase, b ut we did no t require any spec ificm etho d fo r valuing pro perty to b e transferred as the indub itab le equivalent o f a secured c laim
. Id. at 657. The cho ic e o f valuatio n m etho do lo gy sho uld b e b ased o n the fac ts o f
each c ase and is within the b ankruptc y c o urt’s so und disc retio n. R egardless
o f ho w the b ankruptc y c o urt determ ines the value o f pro perty to b e transferred to a secured c redito r, it m ust also determ ine whether a pro po sed transfer is the indub itab le equivalent o f the c redito r’s secured
c laim
. In re Arno ld &Ba ker Fa rm s , 85 F.3d at 1421 (“[T]he finding o f a trial
12c o u rt o f a particular value o f real pro perty . . . will no t nec essarily

determ ine whether the c redito r will rec eive the indub itab le equivalent o f its secured c laim .”). W e dec line to require any spec ificvaluatio n m etho do lo gy fo r indub itab le equivalenc e and we do no t determ ine whether the valuatio n here was c learly erro neo u s b ec ause, as we c o nc lude b elo w, transfer o f the Landing Pro perty fo r a do llar-fo r-do llar reduc tio n o f HLI’s c laimdo es no t pro vide HLI with the indub itab le equivalent o f its secured c laim
. A . T he Plan Cannot Be Confirm ed U nder § 1129(b) Ab ankruptc y c o urt c an c o nfirma plan o ver a c redito r ’s objec tio n o nly if the plan do es no t disc rim inate unfairly and is fair and equitab le with respec t to each c lass o f c laim s that has no t ac c epted the plan. § 1129(b )(1). To b e “fair and equitab le” with regard to secured c laim s, the plan m ust pro vide:

(I) (I) that the ho lders o f such c laim s retain the liens sec uring such c laim s, whether the pro perty subjec t to such liens is retained b y the deb to r o r transferred to ano ther entity, to the extent o f the allo wed am o unt o f such c laim s; and (II) that each ho lder o f a c laimo f such c lass rec eive o n ac c o unt o f such c laimdeferred c ash paym ents to taling at least the allo w ed am o unt o f such c laim, o f a value, as o f the effec tive date o f the plan, o f at least the value o f such 13ho lder's interest in the estate's interest in such pro perty; (ii) fo r the sale, sub

jec t to sec tio n 363(k) o f this title, o f any pro perty that is subj ec t to the liens securing such c laim s, free and c lear o f such liens, with such liens to attach to the pro c eeds o f such sale, and the treatm ent o f such liens o n pro c eeds under c lause (I) o r (iii) o f this sub paragraph; o r (iii) fo r the realizatio n b y such ho lders o f the indub itab le equivalent o f such c laim s. § 1129(b )(2)(A ). Treatm ent under any o f the three c lauses in § 1129(b )(2)(A ) requires paym ent in full o f the allo w ed secured c laim . 7 C O L L IE RO N B A N K R U P T C Y ¶ 1129.04 [2] (A lan N . R esnic k & Henry J. So m m er, eds. 16th ed. rev. 2019). The b ankruptc y c o urt c o nfirm ed the Plan as pro viding HLI with the indub itab le equivalent o f its secured c laimunder § 1129(b )(2)(A )(iii). The N inth C irc uit has held that if a plan pro po ses to pro vide a
c redito r with the indub itab le equivalent o f its c laimthro u gh a partial transfer o f c o llateral, such transfer m ust c o m pensate the c redito rand “must insure the safety o f o r prevent jeo pardy to the princ ipal.” In re Arno ld & Ba ker Fa r m s , 85 F.3d at 1422. In suc h a c ase, the c redito r has no rec o urse against its rem a ining c o llateral in the event that a sale o f the pro perty do es no t yield pro c eeds equal tothe b ankruptc y c o urt’s valuatio n. Id. The
14transfer is therefo re no t “c o m pletely c o m pensato ry.” Id. (c iting In re M urel

H o l ding Co rp. , 75 F.2d 941, 942 (2d Cir. 1935)). The C irc uit held that “[t]o the extent a deb to r seeks to alter the c o llateral securing a c redito r’s lo a n, pro viding the ‘indub itab le equivalent’ requires that the sub stitute c o llateral
no t inc rease the c redito r’s risk expo sure.” Id. The b ankruptc y c o urt no ted that unlike the transfer o f c o llateral in Arno l d &Ba ker Fa rm s, the real pro perty transferred under Deb to r ’s Plan is
no t c o llateral and no t estate pro perty. The Plan alsospec ific ally pro vides that no liens are affec ted. The b a nkruptc y c o urt essentially c o nsidered the pro perty transfer as paym ent and reduc ed the rem aining c laimb y its determ ined value. The b a nkruptcy c o urt then c o nsidered whether the
rem aining am o unt o f HLI’s c laimwo u ld b e adequately secured b y the
rem aining c o llateral and required springing liens in the event that Deb to r prevailed in the adversary pro c eeding. The Plan do es no tensure full paym ent o f HLI’s secured c laim b ec ause it do es no t pro vide c o m pensatio n fo r the nec essary tim e to sell the Landing Pro perty and it unfairly shifts the risk o f selling the Landing Pro perty to HLI. A s a result, the Plan do es no t satisfy the indub itab le equivalent standard o f § 1129(b )(2)(A )(iii). A ltho ugh Arno ld &Ba ker Fa rm s invo lved a partial surrender o f
c o llateral, the fundam ental issue in that c ase is that deem ing a c laim satisfied thro ugh a transfer o f pro p erty nec essarily lim its the c redito r’s
15ab ility to lo o k to its o ther c o llateral to satisfy any rem aining po rtio n o f the

c laimin the event that the pro perty is ultim a tely so ld fo rless than the appraised value. The c redito r is “fo rc ed to assum e the risk o f rec eiving less
o n the sale witho u t b eing ab le to lo o k to the rem a ining undistrib uted
c o llateral fo rsecurity.” In re Arno ld &Ba ker Fa rm s , 85 F.3d at 1422. The present c ase presents the sam e c o nc ern as Arno ld &Ba ker Fa rm s . Despite the Plan pro visio n that no liens are affec ted, b y deem ing the transfer to satisfy a po r tio n o f the c laim, HLI is fo rc ed to assum e the risk that sales o f the Landing Pro perty will no t yield the appraised value. HLI will b e unab le to lo o k to its o ther c o llateral fo r any sho rtfall. “Experienc e has taught us that determ ining the value o f real pro perty at any given tim e is no t an exac t sc ienc e.” Id. at 1421. If the c o u rt’s valuatio n o f the Landing Pro perty is no t ac c urate o rif the m arket fo r the Landing Pro perty do es no tb ehave as predic ted o ver the next five years, HLI m a y no t rec o ver the value fixed b y charac terizing the transfer as “paym ent.” 3 A t the tim e o f c o nfirm atio n, HLI’s c laimwas fully secured b y c o llateral valued at app r o xim ately $7,000,000. U nder the Plan, HLI is fo rc ed to assum e the risk that pro c eeds fro mthe Landing Pro perty m ight b e less

3 Although HLI also clear ly has the benefi t of potenti a l incr eased pr oper ty v alues, the downsi de r i sk makes i t less than “indubi table” that HLI wi ll r ecei ve the v alue of i ts secur ed clai m. 16than the c o urt’s valuatio n, witho ut any rec o urse against its c o llateral if

sales pro c eeds pro ve inadequate. The Plan pro visio n that HLI retains its liens is illuso ry b ec ause b y deem ing the c laimpartially satisfied, HLI c an o nly lo o k to its c o llateral to satisfy the rem a inder o f its c laimafter the pro perty transfer. O f partic ular c o nc ern, the Plan also fails to adequately c o m pensate HLI fo rthe nec essary tim e to sell the Landing Pro p erty. Mr. Vanderley valued the Landing Pro perty b ased o n a six- to nine-m o nth sales cyc le fo r any individual lo t, b u t also pro jec ted that it wo uld take appro xim ately five years fo r HLI to sell all 49 units transferred under the Plan. Thus, his valuatio n “as o f the date o f transfer” was no t equivalent to a c ash paym ent
o n that date b ec a use it igno r ed his o wn testim o ny regarding the antic ipated m arket ab s o rptio n. If the Plan instead pro po sed that Landing wo uld sell the lo ts and Deb to r wo uld m ake deferred c ash paym ents fro mhis Landing distrib utio ns, Deb to rwo uld b e required to c o m pensate HLI with interest in
o rder to satisfy § 1129(b )(2)(A )(I) and Landing wo uld pay the c a rrying
c o s ts. Interest is nec essary to pro vide the sec ured c redito r with the value,
as o f the effec tive date, o f its allo wed secured c laim . Transfer o f the Landing Lo ts as “paym ent,” do es no t c o m p ensate HLI fo r the appro xim a tely five years needed to sell the lo ts, a tim e perio d estab lished b y Deb to r’s o wn expert.

17B. T he Bankruptcy Court A b us ed Its D is c retion By FindingT he Plan

Feas ible Sec tio n 1129(a)(11) requires that the b a nkruptc y c o urt find that
c o nfirm atio n is no t likely to b e fo llo wed b y liquidatio n o r the need fo r further financ ial reo rganizatio n. To dem o nstrate that a plan is feasib le under § 1129(a)(11), a deb to rm ust sho w a “reaso nab le prob ab ility” o f
suc c ess. Acequia

, Inc. v. C l into n (In re Acequia , Inc.) , 787 F.2d 1352, 1364 (9th C ir. 1986). The Deb t o r do es no t have to pro ve that suc c ess is inevitab le and a “relatively lo wthresho ld o f pro o f will satisfy” as lo ng as evidenc e suppo rts a finding o f feasib ility. Co m p uter Ta sk Grp., Inc., v. Bro tby (In re Bro tby) , 303 B.R . 177, 191 (9th C ir. BA P 2003). HLI argues that the b ankruptc y c o urt erred in finding the Plan feasib le b ec ause Deb to r’s financ ial pro jec t io ns c o ntain c o m putatio nal erro rs and do no t pro vide evidenc e that Deb to r has a reasonab le prob ab ility o f
m aking the inc r eased annual paym ents. W e agree. The c o urt determ ined that the Plan was feasib le b ased o n the financ ial pro

j ec tio ns attached to the Deb to r’s dec laratio n in suppo r t o f
c o nfirm atio n. Tho se pro jec tio ns seemto indic ate that Deb t o r has suffic ient funds to m ake the five annual paym ents o f $191,784 and po ssib ly even the inc reased paym ents required b y the c o u rt. Ho wever, the financ ial pro jec tio ns c o ntain c lear m athem atic al erro r s, inc luding a failure to ac c o unt fo r the first annual paym ent in the c um ulative b alanc e fo r the 12 m o nths ending in Dec emb er 2019, and erro neo us to tal annual perso nal expenses 18fo r Deb to r in the rem aining fo ur years. When the erro r s are c o rrec ted,

Deb to r’s pro

jec tio ns evidenc e an inab ility to m ake annual paym ents at either the pro po sed am o unt o f $191,784 o r the required am o unt o f $241,124. There is no evidenc e in the rec o rd to suppo rt Deb to r’s ab ility to m ake the annual Plan paym ents to HLI, and therefo re the c o urt’s finding o f feasib ility c o nstitutes an ab use o f disc retio n. CONCL U SION Deb to r’s Plan do es no t pro vide HLI with the indub itab le equivalent
o f its secured c laimand is no t feasib le o n the rec o rd b efo re us. Fo rthe
reaso ns set fo rth ab o ve, we VA C A TE the b ankruptc y c o u rt’s o r der
c o nfirm ing the plan and R EMA N D fo r further pro c eedings c o nsistent with this dec isio n.

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