In re Creekside Senior Apartments, LP

• Decision Date: 29 June 2012
• Docket Number: BAP No. 11–8072.
• Parties: In re CREEKSIDE SENIOR APARTMENTS, LP, et al., Debtors.
• Court: Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Sixth Circuit

477 B.R. 40

56 Bankr.Ct.Dec. 227

In re CREEKSIDE SENIOR APARTMENTS, LP, et al., Debtors.

BAP No. 11–8072.

United States Bankruptcy Appellate Panel of the Sixth Circuit.

Argued: April 23, 2012.

Decided: June 29, 2012.

ARGUED:Robert D. Gordon, Clark Hill PLC, Birmingham, Michigan, for Appellants. Daniel E. Hitchcock, Wyatt, Tarrant, & Combs, LLP, Lexington, KY, for Appellee. ON BRIEF:Robert D. Gordon, John R. Stevenson, Clark Hill PLC, Birmingham, MI, Ellen Arvin Kennedy, Dinsmore & Shohl LLP, Lexington, KY, for Appellants. Daniel E. Hitchcock, Wyatt, Tarrant, & Combs, LLP, Lexington, KY, for Appellee.

Before: HARRIS, PRESTON, and SHEA–STONUM, Bankruptcy Appellate Panel Judges.

OPINION

ARTHUR I. HARRIS, Bankruptcy Judge.

This appeal arises from a bankruptcy court order in which the bankruptcy court concluded that, for purposes of determining the value of the secured portion of the claims of Bank of America, N.A. (“Bank”) pursuant to 11 U.S.C. § 506(a), a determination of the fair market value of various apartment complexes included consideration of the remaining federal low-income housing tax credits. In determining the value of the real property, the bankruptcy court also concluded that various rates and/or figures used by the Bank's appraiser were more accurate.

The five Kentucky limited partnership debtors in the five jointly-administered Chapter 11 cases (collectively “Debtors”) and their general partners (collectively “General Partners”) challenge the bankruptcy court's valuation of the real property. In connection therewith, they also take issue with the bankruptcy court's order overruling (1) the Debtors' objection to the valuation of low-income housing tax credits in the Bank's appraisals (“Valuation Objection”) and (2) the Debtors' motion in limine to exclude certain portions of expert reports, affidavit, and testimony of the Bank's expert witness (“Motion In Limine ”).

For the reasons that follow, we affirm the bankruptcy court's orders setting the market value of the Debtors' low-income housing tax credit properties (“LIHTC properties”) and overruling the Debtors' and the General Partners' Valuation Objection and Motion In Limine.

I. ISSUES ON APPEAL

The main issue presented by this appeal is whether the bankruptcy court erred in including the purported value of the remaining low-income housing tax credits when valuing the Bank's secured interest in the Debtors' real properties under § 506(a) of the Bankruptcy Code. The Debtors and their General Partners have also alleged that the bankruptcy court made several errors in weighing the evidence at the valuation hearing and in denying their Motion In Limine to exclude certain portions of the Bank's appraisals.

II. JURISDICTION AND STANDARD OF REVIEW

The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. The United States District Court for the Eastern District of Kentucky has authorized appeals to the Panel, and no party has timely elected to have this appeal heard by the district court. 28 U.S.C. § 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). For purposes of appeal, a final order “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (citations omitted).

An order determining the value of property pursuant to 11 U.S.C. § 506(a) is a final order for purposes of appeal if the valuation was made for purposes of plan confirmation. Chase Manhattan Mortg. Corp. v. Rodriguez (In re Rodriguez), 272 B.R. 54, 56 (D.Conn.2002); see also Gen. Electric Credit Equities, Inc. v. Brice Rd. Devs., L.L.C. (In re Brice Rd. Devs., L.L.C.), 392 B.R. 274, 282 n. 4 (6th Cir. BAP 2008). Because the bankruptcy court made its valuation “for use in connection with the plan, disclosure statement, and confirmation process,” the valuation order is a final order. (Order Setting Market Value of Debtors' Low–Income Housing Tax Credit Properties at 1, Bankr.Case No. 10–53019, ECF No. 252.)

A determination of value pursuant to 11 U.S.C. § 506(a) presents a mixed question of law and fact. Fin. Sec. Assurance, Inc. v. T–H New Orleans Ltd. P'ship (In re Matter of T–H New Orleans Ltd. P'ship), 116 F.3d 790, 799 (5th Cir.1997). The bankruptcy court's findings of fact are reviewed under the clearly erroneous standard. Riverview Trenton R.R. Co. v. DSC, Ltd. (In re DSC, Ltd.), 486 F.3d 940, 944 (6th Cir.2007). “A finding of fact is clearly erroneous ‘when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.’ ” Id. (quoting Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985)). The bankruptcy court's legal conclusions are reviewed de novo. Solis v. Laurelbrook Sanitarium and School, Inc., 642 F.3d 518, 522 (6th Cir.2011). “De novo means that the appellate court determines the law independently of the trial court's determination.” Treinish v. Norwest Bank Minn., N.A. (In re Periandri), 266 B.R. 651, 653 (6th Cir. BAP 2001) (citations omitted).

As the trier of fact, a bankruptcy “ ‘court's rulings on evidentiary matters will only be reversed on a clear showing of abuse of discretion.’ ” Phillips Petroleum Co. v. Stokes Oil Co., Inc., 863 F.2d 1250, 1257 (6th Cir.1988) (citing Apponi v. Sunshine Biscuits, Inc., 809 F.2d 1210, 1218 (6th Cir.1987)). This standard applies to denials of motions in limine, United States v. Poulsen, 655 F.3d 492, 508 (6th Cir.2011), as well as to determinations regarding the weight particular evidence should be given. United States v. McKneely, 6 F.3d 1447, 1453 (10th Cir.1993).

III. FACTS

This appeal arises from an order dated September 12, 2011, setting the market value of Debtors' low-income housing tax credit properties (“Valuation Order”), entered in five jointly-administered Chapter 11 cases in the Eastern District of Kentucky:

+----------------------------------------------------------------------------+
                ¦10–53019        ¦In re Creekside Senior Apartments, Limited Partnership     ¦
                +----------------+-----------------------------------------------------------¦
                ¦10–53298        ¦In re Nicholasville Greens, Limited Partnership            ¦
                +----------------+-----------------------------------------------------------¦
                ¦10–53300        ¦In re Franklin Place Senior Apartments, Limited Partnership¦
                +----------------+-----------------------------------------------------------¦
                ¦10–53301        ¦In re Pennyrile Senior Apartments, Limited Partnership     ¦
                +----------------+-----------------------------------------------------------¦
                ¦10–53346        ¦In re Park Row Senior Apartments, Limited Partnership      ¦
                +----------------------------------------------------------------------------+
                

A. Background of the Debtors

The Debtors are five single-asset real estate debtors as defined in 11 U.S.C. § 101(51B). Each of the Debtors is a Kentucky limited partnership with a corresponding general partner, an administrative limited partner, and an investor limited partner. By virtue of the partnership agreements, the General Partners hold .01% of the corresponding limited partnership's equity interests, the administrative limited partners hold .01% of the corresponding limited partnership's equity interests, and the investor limited partners hold the remaining 99.98% of the corresponding limited partnership's equity interests. Each of the Debtors owns a parcel of real property on which it operates a low-incoming housing apartment complex.

To finance the acquisition and construction/rehabilitation of each property, the Debtors obtained construction loan financing from the Bank. Each construction loan automatically converted into permanent financing upon various terms and conditions. Pursuant to the agreements, the Bank loaned the Debtors the following total amounts of money:

+-----------------------------------------------+
                ¦Creekside Senior Apartments, LP:¦$1,390,000.00 ¦
                +--------------------------------+--------------¦
                ¦Nicholasville Greens, LP:       ¦$ 760,234.35  ¦
                +--------------------------------+--------------¦
                ¦Franklin Place, LP:             ¦$ 793,345.29  ¦
                +--------------------------------+--------------¦
                ¦Pennyrile Senior Apartments, LP:¦$ 534,242.63  ¦
                +--------------------------------+--------------¦
                ¦Park Row Senior Apartments, LP: ¦$1,034,222.00 ¦
                +-----------------------------------------------+
                

As security for these loans, the Bank took a first mortgage lien upon the Debtors' real properties. All five notes matured prior to the filing of the Debtors' bankruptcy cases.

Each of the Debtors' real property complexes was developed in conjunction with the federal Low–Income Housing Tax Credit Program enacted by Congress in 1986 to encourage private market investment in low-income housing. See26 U.S.C. § 42. In exchange for agreeing to rent restrictions, the owners or investors in the property get a dollar-for-dollar credit against their federal income tax obligations over a period of 10 years, provided that the property remains in compliance with the low-income housing tax credit program requirements. The Treasury Department administers the program while state agencies distribute the credits on a competitive basis.

B. The Land Use Restriction Agreements

In 2008, each of the Debtors entered into a land use restriction agreement (“LURA”) with the Kentucky Housing Corporation (“KHC”), the agency tasked with administering the federal low-income housing tax credit program for the Commonwealth of Kentucky. The Debtors, and not their General Partners, administrative limited partners, or investor limited partners, entered into these LURAs as the owners of the properties. The LURAs entered into between the Debtors and the KHC in these cases provide...