In re BBT

• Decision Date: 08 May 1981
• Docket Number: Bankruptcy No. 80-00815,Adv. No. 81-0007.
• Citation: 11 BR 224
• Parties: In re BBT, a Nevada limited partnership, Debtor. The PROVIDENT BANK, Agent, an Ohio banking corporation, Plaintiff, v. BBT, a Nevada limited partnership, Defendant.
• Court: U.S. Bankruptcy Court — District of Nevada

11 B.R. 224 (1981)

In re BBT, a Nevada limited partnership, Debtor.

The PROVIDENT BANK, Agent, an Ohio banking corporation, Plaintiff, v. BBT, a Nevada limited partnership, Defendant.

Bankruptcy No. 80-00815, Adv. No. 81-0007.

United States Bankruptcy Court, D. Nevada.

May 8, 1981.

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Harvey S. Schochet and Michael J. Lawson, of Steefel, Levitt & Weiss, San Francisco, Cal., Steven T. Walther, of Walther, Key, Maupin, Oats, Cox, Lee & Klaich, Reno, Nev., for plaintiff.

Ronald S. Orr and Brent A. Whittlesey, of Gibson, Dunn & Crutcher, Los Angeles, Cal., William E. Peterson, of Woodburn, Wedge, Blakey & Jeppson, Reno, Nev., for defendant.

OPINION AND DECISION

BERT M. GOLDWATER, Bankruptcy Judge.

This is an adversary action to lift the automatic stay in a Chapter 11 reorganization and a counterclaim for accounting and turnover of funds. The background of the parties is as follows:

As of December 30, 1978, BBT had executed four agreements by which 200 general purpose 70-ton boxcars were purchased from a Mexican manufacturer and builder pursuant to a purchase agreement with American Financial Corporation under which:¹ (1) The principal agreement takes the form of a Conditional Sales Agreement between The Provident Bank (Provident), an Ohio banking corporation, as vendor or agent² and defendant debtor, a limited partnership, as vendee; (2) BBT as owner appointed Railway Freight Car Services, Inc., as its agent to perform all of the duties of the Conditional Sales Agreement; (3) BBT as owner entered into an agreement with Columbus & Greenville Railway Company (C&G), a short-line railroad in Mississippi, as its manager of the boxcars;³ and (4) BBT assigned its Agency Agreement and Management Agreement to Provident.

The sales price of the boxcars, $7,500,000, was 80/20 financing. BBT paid a $1,500,000 cash down payment leaving a balance of $6,000,000 payable in quarterly installments over a period of 15 years with interest at 12½%, 16½% in the event of default. Debtor paid approximately $1,500,000 in payments on the debt but defaulted on an installment payment of principal and interest on October 30, 1980. The Conditional Sales Agreement also calls for payment to a Maintenance Fund Escrow which payments due quarterly were alleged to be $1,250 short on January 30, 1980, and totally defaulted on October 30, 1980.

Plaintiff's alternate theory of recovery is based upon 11 U.S.C. § 1168 which permits taking possession of rolling stock conditionally sold to a debtor without regard to 11 U.S.C. § 362 or § 363 where the secured party with a purchase-money security interest has not been before 60 days of the commencement of the case assured by the debtor of performance and the default cured. It is conceded here that no assurance of performance nor cure of the default was made within the time provided in Section 1168.⁴

I.

Provident contends there is cause including a lack of adequate protection 11 U.S.C. § 362(d)(1), and, further, that the property is not necessary to an effective reorganization 11 U.S.C. § 362(d)(2).⁵

The acquisition of the boxcars in 1978 was at a time when tax laws encouraged investment in rolling stock. The manufacture and acquisition of rolling stock, particularly boxcars, increased rapidly until there were more than adequate numbers to service the nation's railroad freight demands. When the national economy began slowing in 1979, the utilization of boxcars began to drop until today those boxcars which do not have a priority for utilization have little or no use.⁶ BBT not only is not in a priority position with C&G, but general purpose boxcars are the last of railroad stock to be put into use. Special boxcars, gondolas, flatcars, and others are usually called up for use before general purpose cars.

The present flat market for general purpose boxcars began in mid-1980 and is expected to continue for at least one year and, according to some experts, eighteen months to two years. It is expected to definitely improve from its low as the business cycle changes.⁷

There are no manufacturers now adding general purpose boxcars to the supply but some manufacturers are gearing up expecting that after the passage of time demand will justify production. Old boxcars are gradually being retired and experience shows there have been low and high demands with changes in the business cycle over the last 35 years.

The BBT boxcars are worth between $20,000 and $25,000 per car at fair market value.⁸ A sale of boxcars requires the seller to deliver the cars (per mile charge per unit to place of delivery), paint new logos for the buyer, and pay a commission for the sale. The useful life of a general purpose boxcar is 20 to 40 years. After 20 years a complete overhaul is necessary.

The 200 BBT all-steel 70-ton general purpose boxcars are located at numerous sidings along the C&G lines in Mississippi. They are in good condition. A few minor, easily repairable damages can be seen on examination. They have not been vandalized or rusted. They are standard in grade, desirable in size for American railroad use, and well constructed.

Witnesses on market use and sale value of boxcars testified that there are movements in the market for boxcars from time-to-time but the market for boxcars is a very special area. BBT is engaged in discussions with railroads and others in the market place. Some of these discussions tend to look encouraging but there is nothing definite as to any of the offers or pending negotiations. Various factors affecting market price always must be considered, but, in general, the market price of $20,000 to $25,000 has been a firm plateau since the filing of this case.⁹

The sense of adequate protection is that there be protection for the realization of payment of a claim against the property as of the date of filing the case. As a matter of policy and constitutional law, this protection extends only to a creditor's "allowed secured claim" and the unsecured part of a claim will not be entitled to protection. 2 Collier on Bankruptcy, XXX-X-XXX-X (15th ed. 1980).

An "allowed secured claim" is a determination generally made under 11 U.S.C. § 506¹⁰ which provides an allowed claim of a creditor secured by a lien on property has an interest in the estate's interest, and, to the extent that the value is less than the amount of the total allowed claim, the claim is unsecured.

For the purpose of this hearing under Section 362, Provident is adequately secured in that it had, as of the date of filing, a security interest in 200 general purpose boxcars with a market value of $4,000,000 which cars are not depreciating in value and are likely to increase. Provident is not entitled to be secured for its total claim of $6,000,000 unless, when a plan is proposed, it exercises its election under 11 U.S.C. § 1111(b)(2).

During trial BBT produced a letter, backed by reliable bank credit, from Peter S. Bing, its limited partner, which offered Provident $4,150,000 in cash. Provident refused the offer believing it has the right to either (1) vacate the stay or (2) provide its own plan to protect its claim. BBT argues that Provident's success in terminating the stay can only result in Provident's repossession which would require a commercially reasonable U.C.C. sale likely to bring only $4,000,000 or even less after sales costs. However, BBT overlooks Provident's right at such sale to bid its claim, and, if it is the highest bidder, to hold the boxcars until the market justified a sale or other agreement by which it could recoup more than the open court offer. So, too, Provident, as a recourse secured claimant (against the general partners), may bid its claim to the full extent if the property is sold under a plan. 11 U.S.C. § 1111(b)(1)(B)(ii); 11 U.S.C. § 363(k).

BBT also contends that Provident will have no more success utilizing the boxcars than BBT and, hence, there is nothing to be gained by vacating the stay at this time. What Provident will do with the property is not a proper issue. BBT cites In re Castle Village Co., 3 BCD 588 (S.D.N.Y. 1977), for the proposition that, inasmuch as Provident, if successful in bidding after lifting the stay, would have to hold and maintain the boxcars and await the improvement of the market utilization the same as BBT, it is not suffering any loss and BBT might as well hold the property as Provident. In Castle Village, it was held that the holder of a second deed of trust, after announcing it intended to hold the property after foreclosure bidding, was not entitled to lift a stay in a Chapter XII Act proceeding where its monthly interest was being paid from a net cash flow of $585,000 annually before debt service. The first deed of trust was also being serviced and the holder of the second deed of trust was awarded $300,000 which had accumulated in a surplus fund agreed to be paid to it. BBT also cites In re Nevada Tower Associates, 3 BCD 583 (S.D.N.Y.1977), where the stay was continued to allow an apartment building, 90% complete, to be finished and certificates of indebtedness to complete construction were authorized with a priority over the first deed of trust. This was done because the holder of the first deed of trust intended to finish the building if the stay was lifted. As long as completion of the building was a necessity, the Court held the debtor should have the first right to finish construction and that the mortgagee could not, in any event, expect a return on its investment until completion and determination of the cash flow.

Those cases do not stand for the proposition that if the secured claimant will do nothing more than the debtor with the property the debtor should be allowed to retain the property. The rule of those cases is that the debtor should be given the opportunity to present a plan where premature lifting of the stay would cause irreparable damage to the debtor. There is no duty upon the secured ...