Camino Real Landscape Maintenance Contractors, Inc., In re, Nos. 86-6165

• Court: United States Courts of Appeals. United States Court of Appeals (9th Circuit)
• Writing for the Court: Before SNEED, BOOCHEVER and THOMPSON; SNEED
• Citation: 818 F.2d 1503
• Parties: -496, 88-1 USTC P 9225, 16 Collier Bankr.Cas.2d 1341, Bankr. L. Rep. P 71,859 In re CAMINO REAL LANDSCAPE MAINTENANCE CONTRACTORS, INC., Debtor. UNITED STATES of America, Plaintiff-Appellant, v. CAMINO REAL LANDSCAPE MAINTENANCE CONTRACTORS, INC., Defendant-Appellee. In re HADRIAN CONSTRUCTION, INC., Debtor. UNITED STATES of America, Plaintiff-Appellant, v. HADRIAN CONSTRUCTION, INC., Defendant-Appellee. In re ARMOUR OIL COMPANY, Debtor. UNITED STATES of America, Plaintiff-Appellant, v. ARMOUR OIL COMPANY, Defendant-Appellee.
• Docket Number: Nos. 86-6165,86-6310,86-6174
• Decision Date: 05 June 1987

Page 1503

818 F.2d 1503 61 A.F.T.R.2d 88-496, 88-1 USTC P 9225,
16 Collier Bankr.Cas.2d 1341,
Bankr. L. Rep. P 71,859 In re CAMINO REAL LANDSCAPE MAINTENANCE CONTRACTORS, INC., Debtor.
UNITED STATES of America, Plaintiff-Appellant,
v.
CAMINO REAL LANDSCAPE MAINTENANCE CONTRACTORS, INC.,
Defendant-Appellee.
In re HADRIAN CONSTRUCTION, INC., Debtor.
UNITED STATES of America, Plaintiff-Appellant,
v.
HADRIAN CONSTRUCTION, INC., Defendant-Appellee.
In re ARMOUR OIL COMPANY, Debtor.
UNITED STATES of America, Plaintiff-Appellant,
v.
ARMOUR OIL COMPANY, Defendant-Appellee. Nos. 86-6165, 86-6174, 86-6310. United States Court of Appeals,
Ninth Circuit. Argued and Submitted April 8, 1987.
Decided June 5, 1987.

Page 1504

Raymond W. Hepper, Washington, D.C., for plaintiff-appellant.

Diane H. Sparrow, Richard R. Ravreby, Carlsbad, California, David S. Kupetz, Los Angeles, California, for defendants-appellees.

Appeals from the United States District Court for the Southern District of California.

Before SNEED, BOOCHEVER and THOMPSON, Circuit Judges.

SNEED, Circuit Judge:

These three cases, arising out of chapter 11 reorganizations, pose a single issue. That is, what rate of interest on deferred payments of federal taxes will provide the government with payments having a present value equal to the allowed amount of its claim, as required by 11 U.S.C. Sec. 1129(a)(9)(C). We hold that the debtor must pay the government interest at the rate the debtor would pay a commercial lender for a loan of equivalent amount and duration, considering the risk of default and any security. Accordingly we uphold the judgment of the Bankruptcy Appellate Panel in the matter of Armour Oil Co. (Armour). We reverse the judgments of the district court in the matters of Camino Real Landscape Maintenance Contractors, Inc. (Camino Real) and Hadrian Construction, Inc. (Hadrian).

I.

FACTS AND PROCEEDINGS BELOW

Each of the three debtors in these consolidated cases filed a petition for reorganization under chapter 11 of the Bankruptcy Code. The government filed a proof of claim for unpaid taxes in each proceeding. The government's claims were entitled to seventh priority. 11 U.S.C. Sec. 507(a)(7). ¹ The debtors submitted plans of reorganization that proposed to defer payment of the tax claims under 11 U.S.C. Sec. 1129(a)(9)(C). That section permits a court to confirm a plan if the holders of tax claims consent, or if they "will receive on account of such claim deferred cash payments, over a period not exceeding six years after the date of assessment of such claim, of a value, as of the effective date of the plan, equal to the allowed amount of such claim." Id.

The government objected to the rates of interest on tax payments that were proposed under the three plans. Hadrian and Camino Real proposed to pay interest at a rate equal to the rate of increase in the Consumer Price Index. Armour proposed to pay interest at the treasury bill rate. The government requested interest at the rate set by 26 U.S.C. Sec. 6621 for delinquent taxes. This rate was 11% on the effective dates of the plans in Hadrian and Camino Real, and 10% on the effective date of the plan in Armour.

In Hadrian, the bankruptcy court fixed the rate at 9% on the government's claim. The court selected the 9% rate after noting that the yields on treasury bonds, notes, and bills were 9.3%, 9.11%, and 9.8%. Excerpt of Record (E.R.) at 14-15. The same court approved the plan proposed by Camino Real after ordering that debtor to pay interest at 9% on the government's claim. The court noticed that treasury notes yielded 8.4% at the time. E.R. at 47. A different bankruptcy court, in approving the plan proposed by Armour, ordered the debtor to pay 8% interest on the government's claim. That court considered the treasury bill rate (7.02%), E.R. at 105, the Sec. 6621 rate (11%), E.R. at 111-12, current market conditions, id., interest rates generally paid by borrowers, E.R. at 113, and the fact that the

Page 1505

government's claim was secured, E.R. at 113-14.

The government appealed to the district court the Hadrian and Camino Real orders. The district court consolidated the cases and affirmed without an opinion. The government appealed the Armour order to the Ninth Circuit Bankruptcy Appellate Panel. The panel affirmed, relying on its prior decision in In re Welco Industries, Inc., 60 B.R. 880 (Bankr. 9th Cir.), appeal dismissed for lack of juris., No. 86-3918 (9th Cir.1986). The government then appealed all three decisions to this court, which ordered the appeals consolidated.

II.

STANDARD OF REVIEW

We review de novo the district court's decision. Hence we review the bankruptcy court's findings of fact for clear error, and its conclusions of law de novo. In re Acequia, Inc., 787 F.2d 1352, 1357 (9th Cir.1986). We review the bankruptcy appellate panel's decision in the same fashion. In re Center Wholesale, Inc., 759 F.2d 1440, 1445 (9th Cir.1985).

III.

DISCUSSION

A....