In re Solis
| Decision Date | 15 April 2016 |
| Docket Number | CASE NO. 15–11181–tmd |
| Citation | 576 B.R. 828 |
| Parties | IN RE: Joseph Evan SOLIS, Sr., Debtor. |
| Court | U.S. Bankruptcy Court — Western District of Texas |
W. Michael Murray, Murray & Associates, P.C., Austin, TX, for Debtor.
The question before the Court is simple: What is the replacement value of the Debtor's 2008 Ford Explorer XLT?
The Debtor seeks relief under chapter 13, the wage-earner's reorganization statute. His schedules of assets and liabilities, which he swore to under oath, include a 2008 Ford Explorer XLT with an asserted value of $6,731. The Explorer secures debt of $12,774 owed to Ally Financial. The value of the Explorer matters because the Debtor's chapter 13 plan, which was confirmed on March 28, 2016, will become infeasible if the value of the Explorer is significantly more than the Debtor's proposed value.1
Ally Financial filed a proof of claim for a $12,771.32 debt secured by the Explorer. Ally's proof of claim lists the value of the Explorer as $9,925, but Ally did not attach any exhibits supporting this value.
The Debtor now objects to Ally's claim. He does not dispute the claim amount or that the claim is secured by the Explorer. Rather, his objection is limited to the value of the collateral. According to the Debtor, the correct value is $6,731.25. To support this value, the Debtor attached a printout of the NADA Guides price report for the SUV as an exhibit to the objection.
Limited evidence of the Explorer's value was provided at the hearing. The Debtor introduced into evidence—with Ally's consent—price reports from Edmunds.com and photos of the SUV.2 Ally introduced a price report from the NADA Guides.3 The Debtor also testified to the condition of the SUV and verified the photos of his SUV. The Debtor's uncontroverted testimony, in conjunction with the photographs, indicated that the SUV has some deep scratches and light damage to both fenders but is mechanically sound. The Debtor had opportunities on cross-examination to affirm or disavow the value asserted in his schedules, but did neither.
The NADA and Edmunds reports contain slightly different information. The NADA report provides values for "Rough Trade-in," "Average Trade-in," "Clean Trade-in," and "Clean Retail." The only obvious adjustments applied to those values are for mileage and options. The Edmunds reports provide values for "Trade-in," "Private Party," and "Dealer Retail" with adjustments for optional equipment, color, regional adjustment, mileage, and, importantly, condition. The key difference is that the NADA report provides a retail price estimate for the Debtor's SUV in "Clean" condition while one of the Edmunds reports provides a retail price for the Debtor's SUV in "Average" condition. Unsurprisingly, the reports indicate different amounts—the NADA Clean Retail value favored by Ally is $9,475 while the Edmunds Dealer Retail value for the SUV in Average condition favored by the Debtor is $5,947.
Neither party voiced an objection to the introduction of the NADA or Edmunds reports into evidence4 or to the Court taking judicial notice of facts not subject to reasonable dispute regarding the reports.5 According to the website from which the NADA report provided to the Court was obtained, a vehicle in Clean condition under the NADA Guides has no mechanical defects, only minor exterior surface scratching, and minimal interior wear. According to the website from which the Edmunds report was obtained, Average condition per Edmunds.com means that the vehicle "[m]ay have a few mechanical and/or cosmetic problems and may require a considerable amount of reconditioning." Based on the Debtor's testimony, the condition of Debtor's SUV is worse than the NADA Clean condition. It falls within the broad Edmunds Average condition, but because the Debtor's SUV has no mechanical issues, the Debtor's SUV is likely better than the typical vehicle of Average condition.
According to section 506(a)(1) of the Bankruptcy Code, a claim secured by a Debtor's collateral is an allowed secured claim "to the extent of the value of such creditor's interest in the estate's interest in such property...." For individual debtors under chapter 7 or 13, section 506(a)(2) defines the value of personal property collateral as "replacement value of such property as of the date of the filing of the petition without deduction for costs of sale or marketing."6 Further, "[w]ith respect to property acquired for personal, family, or household purposes, replacement value ... mean[s] the price a retail merchant would charge for property of that kind considering the age and condition of the property at the time value is determined."7 Here, this means the price for which a retail car dealer would agree to sell the Debtor's Ford Explorer in its condition on September 8, 2015.
Neither the Code nor the Rules specify which party bears the burden of proof regarding value under section 506(a).8 Based on the context in which the valuation takes place, the burden of proof may lie with the secured creditor, party challenging the value, or involve a burden-shifting framework.9
The context here is an objection to claim.10 Generally, a proof of claim is prima facie evidence of the validity and the amount of the claim.11 However, if a party in interest objects and provides evidence that is at least as probative as that offered by the proof of claim, the burden shifts to the claimant.12 The ultimate burden is then on the claimant to prove its claim by the preponderance of the evidence.13
Analogizing to the objection to claim process, the U.S. Court of Appeals for the Third Circuit adopted a similar burden-shifting framework for valuing collateral in In re Heritage Highgate, Inc.14 The Third Circuit's analysis is persuasive. It makes sense that if the creditor has the burden of proving the amount of the creditor's allowed secured claim, the creditor should also have the burden of proving the value of the collateral from which that amount is determined.
Applying this burden-shifting here, the first question is whether the Debtor produced evidence at least equal in strength to the evidence supporting Ally's proof of claim. The Court must then determine whether the preponderance of the evidence supports a higher value than that claimed by the Debtor.
Ally's proof of claim contained no documentary support for its asserted value of the Debtor's Ford Explorer. The only exhibits were copies of the sales contract supporting the claim and a Texas Certificate of Title supporting a perfected lien. Where the proof of claim makes an unsupported assertion, an unsupported assertion in response is "at least equal in probative force" to the evidence in the proof of claim.15 And here the Debtor provided some evidence suggesting a lower value. The burden therefore shifted to Ally to support a higher value.
The Court has five pieces of evidence from which to determine the price at which a car dealer would sell the Debtor's SUV, considering its age and condition: the NADA price report, the Edmunds price reports, the Debtor's testimony regarding the condition of the property, pictures of the SUV, and the value sworn to in the schedules. The NADA price report indicates that the Clean Retail value of the SUV is $9,475. The Edmunds price reports indicate that the Dealer Retail price for the SUV in Average condition is $5,947. Both the NADA16 and Edmunds17 price reports have been accepted by courts as credible and reliable evidence of the price for which a retail car dealer would sell a vehicle.18
Courts have noted that the NADA Clean Retail value typically overstates the replacement value of a debtor's vehicle.19 The NADA Clean Retail value is an idealized standard that is rarely met by used vehicles before they are reconditioned.20 Often, courts use the NADA Clean Retail price as the starting point before deducting the cost of repairs to determine value.21 Others take a standard set percentage off the NADA value as the starting point.22 And one bankruptcy court in the Fifth Circuit held that averaging the Clean Retail and Clean Trade-in NADA values best approximated replacement value.23
Given the deep scratches and fender damage to the Debtor's SUV, the NADA Clean Retail value plainly overstates the replacement value of the Debtor's SUV. There is no evidence in the record regarding the costs of reconditioning from which the Court could determine its value based on the NADA price report. And the record is also insufficient to determine a percentage reduction in the NADA Clean Retail or to adopt the average of the NADA Clean Retail and Clean Trade-in prices.
But the Edmunds price report adopted by the Debtor might understate the replacement value of the Debtor's SUV. According to the Edmunds website, Average condition may include "a few mechanical and/or cosmetic problems [.]" The Debtor's SUV has deep scratches and some fender damage, but it has no mechanical defects. Although the Debtor's SUV falls under the Average category, it may be in better condition than the typical Average vehicle.
The Court finds that the replacement value of the Debtor's SUV is somewhere between the NADA price and the Edmunds price. Ally did not carry its burden in that it provided no evidence to support an appropriate discount from the NADA Clean Retail value. The Debtor, on the other hand, did swear to a value of $6,731, which is consistent with the idea that a vehicle with no mechanical and a few cosmetic defects should be worth a little more than the Edmunds Average value.24 Although the value that the Debtor asserted in his schedules is weak evidence, and was rendered even weaker when the Debtor was cross-examined, it...
To continue reading
Request your trial
- Chau v. Capital One, N.A. (In re Chau)
-
In re Fernandez
...Security State Bank of Hedley, Texas, 614 F.2d 1056, 1061 (5th Cir. 1980); In re Coppess, 567 B.R. 893 (8th Cir. BAP 2017); In re Solis, 576 B.R. 828 (Bankr.W.D.Tex. 2016). According to Judge Russell, "This is apparently based upon an assumption that the owner has sufficient knowledge to ei......