789 F.2d 1085 (4th Cir. 1986), 85-1821, In re Snowshoe Co.

Docket Nº:85-1821, 85-1822 and 85-1973.
Citation:789 F.2d 1085
Party Name:In re SNOWSHOE COMPANY, INC., Debtor. (Three Cases). Michael L. BRAY, Trustee, Appellee, v. SHENANDOAH FEDERAL SAVINGS AND LOAN ASSOCIATION, Appellant, and Ingersoll-Rand Financial Credit Corporation; Monongahela Power Company; Charleston Linen Service; Precision Pump, Inc.; Ford Motor Credit Company; John Deere Industrial Equipment Company; Snowsh
Case Date:May 08, 1986
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit
 
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Page 1085

789 F.2d 1085 (4th Cir. 1986)

In re SNOWSHOE COMPANY, INC., Debtor. (Three Cases).

Michael L. BRAY, Trustee, Appellee,

v.

SHENANDOAH FEDERAL SAVINGS AND LOAN ASSOCIATION, Appellant,

and

Ingersoll-Rand Financial Credit Corporation; Monongahela

Power Company; Charleston Linen Service; Precision Pump,

Inc.; Ford Motor Credit Company; John Deere Industrial

Equipment Company; Snowshoe Summit Development Company;

Miscellaneous Creditors; Haven Homes, Inc.; Bowles,

McDavid, Graff & Love Law Firm; Mountain State Telephone

Company; Remond, Anderson & Rice, Inc.; Community Bank and

Trust, National Association; Charleston National Bank;

Hungry Hare, Inc. and Slope Shops, Inc., Defendants. (Two Cases).

Michael L. BRAY, Trustee, Appellee,

v.

INGERSOLL-RAND FINANCIAL CREDIT CORPORATION, Appellant,

and

Shenandoah Federal Savings and Loan Assocation; Monongahela

Power Company; Charleston Linen Service; Precision Pump,

Inc.; Ford Motor Credit Company; John Deere Industrial

Equipment Company; Snowshoe Summit Development Company;

Miscellaneous Creditors; Haven Homes, Inc.; Bowles,

McDavid, Graff & Love Law Firm; Mountain State Telephone

Company; Remond Anderson & Rice, Inc.; Community Bank and

Trust, National Association; Charleston National Bank;

Hungry Hare, Inc. and Slope Shops, Inc., Defendants.

Nos. 85-1821, 85-1822 and 85-1973.

United States Court of Appeals, Fourth Circuit

May 8, 1986

Argued Feb. 6, 1986.

Page 1086

Lawrence A. Katz (Zuckerman, Spaeder, Goldstein, Taylor & Kolker, Washington, D.C., on brief), for appellant Shenandoah Federal Sav. and Loan Ass'n.

(James W. Martin, Jr., Bridgeport, W.Va., on brief), for appellant Ingersoll-Rand Financial Credit Corp.

Michael L. Bray (Steptoe & Johnson, Clarksburg, W.Va., on brief), for appellee.

Before HALL, PHILLIPS and MURNAGHAN, Circuit Judges.

K.K. HALL, Circuit Judge:

Shenandoah Federal Savings and Loan Association ("Shenandoah"), the principal creditor in a Chapter 7 bankruptcy proceeding, appeals from two orders of the district court that have been consolidated for purposes of this appeal. The district court permitted the trustee in bankruptcy to obtain additional credit by granting a senior lien on property of the estate pursuant to 11 U.S.C. Sec. 364(d) and to sell certain obsolete or surplus property free of any existing liens. Shenandoah contends that these actions left its interest in the estate without "adequate protection" as required by 11 U.S.C. Sec. 364(d). We disagree and affirm the decisions below.

I.

The Chapter 7 bankruptcy debtor, the Snowshoe Company ("Snowshoe"), is the principal owner of the Snowshoe Ski Resort located in Pocahontas County, West Virginia. Historically plagued with financial problems, Snowshoe is currently in its fourth bankruptcy proceeding. Only the last two proceedings are relevant to this appeal.

In July of 1982, Snowshoe borrowed $10 million from Shenandoah to finance improvements to the resort, pay off other indebtedness, and contribute to working capital. In August, 1982, Snowshoe borrowed an additional $1.75 million from Shenandoah to fund construction of a conference center at the resort. The loans to Snowshoe were secured by a first lien on Snowshoe's real and personal property, subject only to a prior lien held by Charleston National Bank and certain purchase money liens on equipment and machinery of the resort.

In April, 1984, Shenandoah declared both of its prior loans in default. Facing a foreclosure as a result of the defaults, Snowshoe filed a petition for relief under Chapter 11 of the bankruptcy code listing liabilities of $13,515,545.85.

Several months after the bankruptcy petition was filed, a number of creditors, including Shenandoah, moved for the appointment of a trustee to manage the resort. A hearing was held before Judge John A. Kamlowsky, United States Bankruptcy Court for the Northern District of West Virginia, to determine whether the appointment of a trustee was appropriate.

During the hearing considerable dispute arose concerning the fair market value of the assets of Snowshoe. Various estimates or appraisals were offered ranging from

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$14.65 million to $31 million. The bankruptcy court concluded that the fair market value of the resort was substantially in excess of $19 million. In support of this conclusion, the court noted that in 1983, John N. Taylor, then Executive Vice-President of Shenandoah, had offered to purchase the resort for $2,000,000 in cash and the assumption of liabilities estimated to be between $15 and $17 million.

The amount actually owed by the debtor to Shenandoah was also contested at the hearing. Snowshoe contended that a substantial portion of its indebtedness to Shenandoah was subject to setoff in an unliquidated amount resulting from alleged fraudulent acts by...

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