Source: http://www.bankruptcylitigationblog.com/archives/recent-case-law-developments-56-notable-reported-cases-for-the-week-ended-11605.html
Timestamp: 2015-05-22 08:29:05
Document Index: 588707554

Matched Legal Cases: ['§ 506', '§ 506', '§ 506', '§ 722', '§ 722', '§ 722', '§ 722', '§ 506']

Home > Recent Case Law Developments > Notable Reported Cases for the Week Ended 11/6/05 > Sunday, November 6, 2005 | Posted By Steve Jakubowski | 0 Comments | Notable Reported Cases for the Week Ended 11/6/05
We hold that the bankruptcy and district courts' conclusions are erroneous because the Forum Agreement is not ambiguous as there is no competing valid interpretation of the Forum Agreement that differs from that which Reliance advances....
By this opinion we have established that the Forum Agreement as executed is applicable to the Montgomery Ward bonds and that Forum's cross-indemnification obligation applies to losses Reliance suffered on those bonds. Thus, the remaining issues relate to Forum's affirmative defenses and, if it is liable, damages. Forum's appeal will be dismissed.
In re Weber, 2005 WL 2862229 (BAP 10th Cir., 11/2/05): This case is interesting for its discussion of certain implications the Court it believed could be drawn from US Supreme Court's decision in Associates Commercial Corp v. Rash, 502 U.S. 953 (1997). Here, the debtors appealed the Bankruptcy Court's order granting a motion to redeem a 2003 Ford Taurus. The issue before the Bankruptcy Court was which valuation standard was to be used: the "trade-in" value or the "private party" value. The Bankruptcy Court granted the motion to redeem at a value of $10,940. Wells Fargo, the secured creditor, argued that Rash, applies to this case and mandates the application of "replacement value" in all redemption situations.
The Court, discussing the holding of Rash, stated:
In Rash, the Supreme Court initially observes the first sentence of § 506(a) sets no valuation standard. While that language instructs a court as to what it must evaluate, "it is not enlightening on how to value collateral." The Supreme Court then continues: "The second sentence of § 506(a) does speak to the how question. 'Such value,' that sentence provides, 'shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property." Of "paramount importance to the valuation question" is the proposed "disposition or use" of the subject collateral ... In a cram-down scenario, the debtor may keep the collateral over the creditor's objection so long as the creditor is provided with the equivalent of the present value of the collateral over the life of the plan. As a result, the creditor is exposed to "double risks" in that the debtor keeps the collateral under a court-imposed "crammed down" financing arrangement and, in the event of a subsequent debtor default, the "property may deteriorate from extended use." Use of the replacement standard in those instances is mandated by § 506 because it values " the creditor's interest in the collateral in light of the proposed [repayment plan] reality: no foreclosure sale and economic benefit for the debtor derived from the collateral equal to ... its [replacement] value." Because the secured creditor is receiving back neither the collateral nor its proceeds, liquidation value is not relevant to the debtor's intended use or disposition in the context of a Chapter 13 cram-down.
A § 722 redemption presents a totally different situation. "The true underpinning of Rash is its focus on the 'double risk' of a debtor's retention of property in a Chapter 13 case and payment of the value of the creditor's allowed secured claim over time." In a redemption situation, no such concerns exist...."
Rash, therefore, mandates that the creditor's interest in the collateral be valued in light of the proposed redemption reality: That is, the functional equivalent of a foreclosure sale will take place, and that is the "proper guide" under a prescription hinged to the property's "disposition or use" for purposes of valuation under section 722 redemption. Rash, 520 U.S. at 962-63. This interpretation of valuation in a § 722 redemption is consistent with the vast majority of courts that have dealt with this issue.
Further, when a statute is vague or ambiguous, other interpretive tools may be used, including an examination of the act's purpose and of its legislative history. A review of legislative history relating to § 722 which was added to the Bankruptcy Code in 1978 (no federal right of redemption existed under the Bankruptcy Act) adds further support to the use of a "trade-in" value herein. (Citations omitted throughout.)
Rash does not mandate application of replacement value in a § 722 redemption scenario. Indeed, to do so would ignore Rash's application of the plain language in § 506(a), which does not advocate blind adherence to replacement value in every case. The Court finds the "private party" valuation used by the Bankruptcy Court in