755 F.2d 1336 (8th Cir. 1985), 84-1478, In re Monnier Bros.
|Docket Nº:||84-1478, 84-1518.|
|Citation:||755 F.2d 1336|
|Party Name:||In re MONNIER BROTHERS, a Partnership, Alan Dale Monnier and Janice Irene Monnier; Thomas Richard Monnier and Bonnie LaVonne Monnier, Debtors. PRUDENTIAL INSURANCE COMPANY OF AMERICA, Appellee, v. Alan Dale MONNIER, Janice Irene Monnier, Thomas Richard Monnier and Bonnie LaVonne Monnier, Appellants. In re MONNIER BROTHERS, a Partnership, Alan Dale|
|Case Date:||March 01, 1985|
|Court:||United States Courts of Appeals, Court of Appeals for the Eighth Circuit|
Submitted Oct. 10, 1984.
Claier R. Gerry, Sioux Falls, S.D., for appellant.
Robert E. Hayes, Sioux Falls, S.D., for appellee.
Before HEANEY, Circuit Judge, HENLEY, Senior Circuit Judge, and JOHN R. GIBSON, Circuit Judge.
HENLEY, Senior Circuit Judge.
These appeals are from a decision of the District Court for the District of South Dakota 1 modifying and affirming the bankruptcy court's confirmation of a chapter 11 reorganization plan. Debtors (Monnier Brothers, a partnership consisting of Alan Dale Monnier and Thomas Richard Monnier; and Alan Dale Monnier and Thomas Richard Monnier and their wives, as individuals) appeal from the district court's decision to increase the rate at which interest on debtors' secured indebtedness to Prudential Insurance Company would accrue during operation of the plan. Prudential contends in a cross appeal that the plan ought not to have been confirmed, urging that (1) the plan does not give "adequate protection" to Prudential's secured interest; (2) the plan is not feasible; and (3) the plan is unfair and inequitable, and discriminates against Prudential. For reasons to be stated, we affirm.
Debtors are farmers. Prudential loaned debtors $800,000 on May 16, 1981. The loan was evidenced by a note, and secured by a mortgage upon farmland debtors own in Deuel County, South Dakota. By the terms of the note and mortgage, interest on the Prudential loan would accrue at a rate of thirteen percent per annum, and at a rate of fifteen percent per annum on overdue installments. The term of the loan was fifteen years, although Prudential could shorten this term after giving notice to the borrowers. The first installment of principal was due on June 1, 1983. Debtors failed to make this principal payment, having filed their original chapter 11 petitions in the United States Bankruptcy Court for the District of South Dakota on January 3, 1983.
Prudential then requested the bankruptcy court to modify the automatic stay of 11 U.S.C. Sec. 362, so that Prudential might begin state foreclosure proceedings. After a hearing, the bankruptcy court denied Prudential's request for modification of the stay. The bankruptcy court determined that the fair market value of the Deuel County property was $1,356,000; that as of March 1, 1983, debtors' total indebtedness to Prudential, including accrued interest, had been $1,012,209.63; that continued use of the property by debtors was essential to successful reorganization; and that the "equity cushion of approximately $300,000.00" would provide adequate protection for Prudential during the preconfirmation period.
Subsequently, the bankruptcy court confirmed the plan over Prudential's objections. (Ten other classes of creditors, most of them holding fully secured claims, had accepted the plan.) The confirmed plan described how and when each claim would be repaid, and made predictions as to 1983 crop yields, crop prices, and expenses. The plan provided for an initial payment by debtors of $75,000 toward accrued interest then owing on the Prudential debt. The plan also called for the remaining indebtedness to Prudential to be repaid in level amortized installments over a fifteen year period. Under the confirmed plan, interest was to accrue on the Prudential claim for periods prior to the confirmation date at
the default rate set by the note and mortgage, and thereafter at a 10.5 percent rate (the December, 1983 United States treasury bill annual investment yield discount factor). Because the plan did not provide for immediate payment in cash of Prudential's claim, and because Prudential opposed the plan, the district court, at debtors' request, invoked the "cram down" provisions of chapter 11 to confirm the plan. 11 U.S.C. Sec. 1129(b).
Prudential then sought review in the district court. The district court affirmed confirmation of the plan, but reversed the bankruptcy court's order of confirmation "insofar as the order fixes the interest rate that is paid The Prudential Insurance Company of America to be 10.5% rather than the 13% rate set out in the mortgage." The present appeals followed.
1. Interest Rate
Debtors contend (and the bankruptcy court agreed) that under chapter 11 "cram down" provisions, the bankruptcy court could take evidence regarding various prevailing interest rates, and could then make applicable to the scheduled deferred payments due Prudential under the plan whatever rate of interest would insure that Prudential eventually would receive the value of the amount that had been owed on the date the plan was confirmed. U.S.C. Sec. 1129(b)(2)(A)(i)(II). 2 Prudential, however, suggests that when a creditor is oversecured, and prevailing interest rates at confirmation time are lower than the rate set by the loan agreement between the debtor and the creditor, a reorganization plan calling for deferred repayment of the secured debt under 11 U.S.C. Sec. 1129(b)(2)(A)(i)(II) must always provide for accrual of interest at the contract rate, so as to adequately compensate for impairment to the creditor's foreclosure rights, and otherwise give the creditor the full benefit of his bargain.
Under Sec. 1129(b)(2)(A)(i)(II), deferred cash payments due Prudential must total "a value, as of the effective date of the plan, of at least the value of [Prudential's] interest in the estate's interest in" the collateral. Since the Prudential loan was accelerated and oversecured, Prudential had a right at the date...
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