Matter of Schaller, Bankruptcy No. LM11-81-01737

• Decision Date: 16 February 1983
• Docket Number: Civ. A. No. 82-C-196-C.,Bankruptcy No. LM11-81-01737
• Citation: 27 BR 959
• Parties: In the Matter of Robert A. SCHALLER and Irene A. Schaller, Debtors.
• Court: U.S. District Court — Western District of Wisconsin

27 B.R. 959 (1983)

In the Matter of Robert A. SCHALLER and Irene A. Schaller, Debtors.

Bankruptcy No. LM11-81-01737, Civ. A. No. 82-C-196-C.

United States District Court, W.D. Wisconsin.

February 16, 1983.

James Hublou, Madison, Wis., for debtors.

Roger L. Imes, La Crosse, Wis., for creditor Northwestern Nat. Life Ins. Co.

CRABB, Chief Judge.

This case is before the court on the debtors' appeal from an order entered on February 4, 1982 in the United States Bankruptcy Court for the Western District of Wisconsin. The order granted Northwestern National Life Insurance Company's request for relief from the automatic stay of proceedings against the debtors, pursuant to 11 U.S.C. § 362(d). For the reasons discussed below, the order appealed from is affirmed.

The record in this case discloses the following: Northwestern held a promissory note in the amount of $1,500,000 signed by the appellants on July 8, 1976, which was secured by a mortgage on four parcels of property in LaCrosse County, Wisconsin. The four parcels are a medical clinic, a laundry, a mall, and an entertainment facility called The Golden Palace. Because of the debtors' nonpayment of the note, mortgage foreclosure proceedings were begun in 1980, a judgment of foreclosure was granted in state proceedings, and a receiver was appointed. Northwestern made the high bid for the parcels at a sheriff's sale and was awarded the property in September, 1980, subject to confirmation of the sale by the state circuit court. In October, 1981, the appellants filed their petition for reorganization, resulting in an automatic stay of the state foreclosure proceedings. On November 9, 1981, Northwestern requested relief from the stay.

Bankruptcy Court's Findings of Fact

In his January 27, 1982, oral decision granting Northwestern's request, the bankruptcy judge made the following findings of fact: that the value of the clinic was $110,000; of the laundry, $60,000; of the mall, $880,000; and of The Golden Palace, $1,000,000, for a total collateral value of $2,050,000; that these values were fairly stable, in that adequate insurance was provided and neither substantial physical nor economic depreciation or appreciation had been shown; that the principal due Northwestern on the date of filing was $1,444,676.52, with interest due in the amount of $290,493.50 as of December 29, 1981, and interest accruing since the date of filing at the rate of $385 per day; that the "cushion," or difference between the value of the property and the amount of the debt, was seventeen to eighteen percent; and that as long as interest was not being paid, the cushion was being continuously eroded by the increasing amount of the debt as further interest became due. The bankruptcy judge also found, with respect to the alternate proposals for Northwestern's protection which were made by appellants,¹ that the property which appellants proposed to sell had no proven value and that there had been no proposed manner or date of sale; that there had been no showing that excess farm income would be available, and that an assignment of such income would be terminable at will by appellants; and that there had been no showing of ways in which managing the four properties involved here would generate significant profits in the short term.

OPINION

In reviewing these findings of fact, I am required to

accept the referee\'s findings of fact unless they are clearly erroneous, and . . . give due regard to the opportunity of the referee to judge the credibility of the witnesses.

Rule 810, Rules of Bankruptcy Procedure; see also Rule 8001, Interim Bankruptcy Rules. I find that the findings of fact in this case were not clearly erroneous.

I first turn to the bankruptcy court's valuation figures. The value of the clinic was based on an offer to purchase, the value of the laundry was arrived at by rounding off appraisals presented for the property, and the value of the mall represents a midpoint between divergent appraisals. The bankruptcy judge evaluated the totality of the evidence on the value of The Golden Palace and then arrived at his own approximation. All of these valuations were adequately based on evidence in the record.

The thrust of appellants' challenge to the values assigned by the judge seems to be that different weight and credibility should have been accorded to the various witnesses testifying about the values of the properties. Yet Rule 810 serves as a reminder that the issue of the credibility of witnesses is peculiarly within the province of the bankruptcy court. Different results certainly were possible (for instance, by relying on offer of exchange figures for the clinic and laundry), given the inexact nature of valuation, see, e.g., In re Savloff, 4 B.R. 285, 286 (Bkrtcy.E.D.Pa.1980), yet it cannot be said that the bankruptcy judge's valuations were clearly erroneous.

The amount of principal and interest due to Northwestern is documented in the record. Appellants' objection to the cushion figure of seventeen and eighteen percent appears to be premised on their contention that the mortgaged property was valued incorrectly; that contention has already been addressed. That the cushion is being eroded by virtue of increasing interest indebtedness follows logically and is not contested by appellants, although they deny that that erosion is determinative of the issue of whether Northwestern is adequately protected. This legal conclusion will be discussed below.

The bankruptcy judge's conclusions as to the uncertainty of the outcome of appellants' alternative proposals were also not clearly erroneous in light of the record.

In evaluating the bankruptcy judge's legal conclusions, the clearly erroneous standard does not apply; rather, I must make an independent finding as to questions of law arising on appeal from the bankruptcy court. Stafos v. Jarvis, 477 F.2d 369 (10th...