Opinion ID: 799809
Heading Depth: 2
Heading Rank: 4

Heading: Burden of Proving the Project's Value

Text: Having now disposed of the Cornerstone Investors' principal arguments for why the Project's fair market value as of confirmation cannot control here, we return to the burden of proof. To reiterate, when a party moves for a bankruptcy court to value secured claims pursuant to § 506(a), a burden-shifting framework will govern. Application of the framework here demonstrates that the Cornerstone Investors' appeal must fail. The Committee filed the motion seeking to have the Cornerstone Investors' claims deemed wholly unsecured, and it was therefore obligated to present evidence that the Project's fair market value, together with the value of other collateral held by Debtors, was less than the Bank Lenders' secured claim. Its submission of an appraisal previously accepted as evidence of the Project's value at a cash collateral hearing, as adjusted, satisfied the Committee's burden. The veteran appraiser it enlisted used well-accepted techniques of real estate appraisal to calculate the Project's fair market value. That the appraiser did so in light of the property's proposed disposition or use is clear from its acceptance of results derived from the Developer's Approach, an income capitalization method of estimating land value when subdivision and development are the highest and best use of the parcel of land being appraised. Dictionary of Real Estate Appraisal (4th ed.) 279-80. That approach most accurately considered the time and expenses that would be incurred by the Debtors in developing the property. The Bankruptcy Court, therefore, did not err by accepting the appraiser's calculation of the Project's fair market value, namely, $9,543,396.23 after adjustment. On appeal, the Cornerstone Investors attempt to chip away at the appraisal, contending that the appraiser's methodology was flawed in certain respects. However, the Cornerstone Investors leveled no such challenges before the Bankruptcy Court. At the hearing on the Committee's motion, they conceded that the appraisal accurately calculated the Project's fair market value and urged only that the fair market value should not control. Even assuming, however, that their failure to challenge the accuracy of the appraisal's fair market value determination did not waive the contention on appeal, the Cornerstone Investors' arguments still fail to demonstrate any error by the Bankruptcy Court. The purported missteps by the appraiser to which they point do not undermine the appraisal's suitability to satisfy the Committee's initial burden. First, the Cornerstone Investors suggest that the appraiser improperly applied discounts to attract a buyer because the plan did not contemplate sale to a single developer. Those discounts, however, merely accounted for the risks and uncertainty inherent in the build-out in which Debtors were engaged. In other words, they were necessary to establish the Project's present fair market value. Second, the Cornerstone Investors urge that the appraisal was too stale to be acceptable, having been completed over a year before the plan's confirmation. However, through stipulations of fact presented to the Bankruptcy Court, the fair market value of the Project was reduced to account for sales of homes that occurred between the date of appraisal and the date of confirmation. Although the adjustment did not account for potential shifts in land value or the residential home market that may have occurred during that period, the Cornerstone Investors offered no evidence of any such changes. The Bankruptcy Court, therefore, did not err by adopting the adjusted appraisal value of $9,543,396.23 as a fair reflection of the Project's worth as of the date on which the plan was confirmed. Under a burden-shifting framework, the Cornerstone Investors had the ultimate burden of persuading the Bankruptcy Court that the appraisal undervalued the Project and that the Project was instead worth enough to secure their claims under § 506(a). At the hearing on the Committee's motion, the Cornerstone Investors, however, expressly declined to have an appraiser ... come in and say that either [the Committee's] appraisal was wrong or that we had a higher ... fair market value. Instead, they relied upon the plan budget as providing the proper valuation. The Bankruptcy Court and District Court properly held that the budget was not a valuation, but, rather, a projection and refused the Cornerstone Investors' invitation to use a wait-and-see approach. The Cornerstone Investors thus failed to satisfy their burden. Thus, the Bankruptcy Court properly accepted the valuation put forth by the Committee because it satisfied the Committee's burden of overcoming the presumed validity and amount of the Cornerstone Investors' secured claims. The Cornerstone Investors, by contrast, did not satisfy their burden of proving that their secured claims were worth more than the Committee's valuation indicated. Accordingly, the Bankruptcy Court did not clearly err by concluding that, in total, the collateral securing the secured debt was worth $11,165,477.15 and that therefore the Cornerstone Investors' claims were unsecured.