Court Opinion

ID: 9488402
Source: CourtListenerOpinion
Date Created: 2023-08-05 12:44:06.201554+00
Date Added: 2024-06-11T17:52:51.934218
License: Public Domain

ON PETITION FOR REHEARING
Before REYNALDO G. GARZA, SMITH, and PARKER, Circuit Judges.
JERRY E. SMITH, Circuit Judge:
The petition for panel rehearing is DENIED. The opinion, 31 F.3d 325 (5th Cir. 1994), is modified to delete, as dicta, the last portion of part II, beginning with the incomplete paragraph that begins on 31 F.3d at 329, through the end of part II, id. at 331.
In their suggestion for rehearing en banc, which remains pending despite our denial of panel rehearing, the debtors assail this court’s holding that retail or replacement value is to be used to value collateral that a debtor proposes to retain in a chapter 13 plan. Our opinion, id. at 329, speaks for itself on that issue. We wish now to note, however, that since this case was decided, the law of the various circuits has moved decidedly in the direction we have proposed.
For example, in Metrobank v. Trimble (In re Trimble), 50 F.3d 530 (8th Cir.1995), the court specifically approved of our approach as follows:
We adopt the reasoning of the Fifth Circuit in In re Rash, and other courts that have focused on the second sentence *686of section 506(a), and we now conclude that the value of Metrobank’s lien interest is properly based on the retail value of the collateral without deduction for costs of sale. We agree ivith the Fifth Circuit that the retail valuation method is the only method that gives full effect to the entire language of § 506(a).... Under the wholesale valuation method, the creditor’s interest would always be valued at the amount the creditor would receive upon disposition of the collateral, regardless of the purpose of the valuation or of the proposed disposition or use of the property. The wholesale method would not be affected by whether the debtor intended to release the property or intended, instead, to retain and use the property. Rather, where a debtor intends to retain and use the collateral, the purpose of the valuation is to determine the amount an underse-cured creditor will be paid for the debtor’s continued possession and use of the collateral, not to determine the amount such creditor would receive if it hypothetically had to repossess and sell the collateral. Such an interpretation ignores the express dictates of section 506(a).
Id. at 531-32 (emphasis added, quotation from Rash, 31 F.3d at 329, omitted). Thus, the Eighth Circuit agrees with our conclusion that retail value is the proper measure.
A few days after Trimble was decided, the First Circuit followed suit, in Winthrop Old Farm Nurseries v. New Bedford Inst. for Sav. (In re Winthrop Old Farm Nurseries), 50 F.3d 72 (1st Cir.1995). Like the Eighth Circuit, the Winthrop court gave meaning to the second sentence of 11 U.S.C. § 506(a):
... A number of courts ..., including four Circuit Courts, have adhered to this clear expression of congressional .intent and declined to value collateral that a debt- or proposes to retain based on a hypothetical foreclosure sale. These courts reason that because the reorganizing debtor proposes to retain and use the collateral, it should not be valued as if it were being liquidated; rather, courts should value the collateral “in light of’ the debtor’s proposal to retain it and ascribe to it its going-concern or fair market value with no deduction for hypothetical costs of sale.2
We are persuaded that [this] line of cases[1] correctly interprets the statute!,] gives meaning to both sentences of § 506(a), and enables bankruptcy courts to exercise the flexibility Congress intended. By retaining collateral, a Chapter 11 debt- or is ensuring that the very event Winthrop proposes to use to value the property' — a foreclosure sale — will not take place. At the same time, the debtor should not be heard to argue that, in valuing the collateral, the court should disregard the very event that, according to the debtor’s plan, will take place — namely, the debtor’s use of the collateral to generate an income stream. In ordinary circumstances the present value of the income stream would be equal to the collateral’s fair market value. Under such circumstances, a court remains faithful to the dictates of § 506(a) by valuing the creditor’s interest in the collateral in light of the proposed post-bankruptcy reality: no foreclosure sale and economic benefit for the debtor derived from the collateral equal to or greater than its fair market value. Our approach allows the bankruptcy court, using its informed discretion and applying historic principles of equity, to adopt in each *687case the valuation method that is fairest given the prevailing circumstances.
The [contrary] interpretation ... renders the second sentence of § 506(a) virtually meaningless....
50 F.3d at 74-76 (second emphasis added).
Finally, in Huntington Nat’l Bank v. Pees (In re McClurkin), 31 F.3d 401 (6th Cir.1994), decided the week Rash was argued but before it was issued, the court focused, as we did in Rash, on the second sentence of § 506(a) in declaring that in a chapter 13 proceeding where, as here, the collateral is being retained by the debtor, no hypothetical costs of sale should be deducted, because “ ‘a disposition of the property is not reasonably in the offing.’ ” Id. at 404 (quoting Brown & Co. Sec. Corp. v. Balbus (In re Balbus), 933 F.2d 246, 251 (4th Cir.1991)). This holding, tantamount to declaring replacement, or retail, value, to be appropriate, is cited in the passage from Winthrop that we have quoted above.
It is so ORDERED.

. The court also cites, in addition to the four circuit cases (Rash, McClurkin, Lomas, and Balbus), the following: In re Case, 115 B.R. 666, 670 (9th Cir. BAP 1990) (holding that for chapter 12 plan confirmation purposes, hypothetical costs should not be deducted from fair market value in valuing collateral to be retained by debt- or); In re Arnette, 156 B.R. 366, 368 (Bankr.D.Conn.1993) (holding that motor vehicle to be retained by chapter 13 debtor "should be valued at the price the debtor could get for it in a free and open market, i.e., its fair market value”); In re Green, 151 B.R. 501 (Bankr.D.Minn.1993) (valuing car to be retained by chapter 13 debtor at retail, rather than wholesale, value); In re Savannah Gardens-Oaktree, 146 B.R. 306, 310 (Bankr.S.D.Ga.1992) (using fair market value to value apartment complex in chapter 11 adequate protection context); In re Usry, 106 B.R. 759, 762 (Bankr.M.D.Ga.1989) (concluding that in light of fact that chapter 11 and chapter 12 debtors planned to retain collateral to produce income, secured claim equaled amount of stipulated fair market value without deduction for hypothetical liquidation costs).

 See, e.g., In re McClurkin, 31 F.3d 401, 405 (6th Cir.1994) (holding that § 506(a) “does not require or permit a reduction in the creditor's secured claim to account for purely hypothetical costs of sale” of Chapter 13 debtor’s residence); Matter of Rash, 31 F.3d 325, 329-31 (5th Cir.1994) (holding that truck to be retained by Chapter 13 debtor must be valued at replacement cost to debtor because foreclosure value fails to account for debtor’s proposed use of collateral); Lomas Mortgage USA v. Wiese, 980 F.2d 1279, 1284-86 (9th Cir.1992) (holding that second sentence of § 506(a) precludes deduction of hypothetical costs of sale in valuing Chapter 13 debtor’s real property to be retained by debt- or), ... vacated on other grounds, - U.S. -, 113 S.Ct. 2925, 124 L.Ed.2d 676 (1993) ...; In re Balbus, 933 F.2d 246, 252 (4th Cir.1991) (same)....