Northwest Village Ltd Partnership v. Franke

• Decision Date: 15 March 2000
• Docket Number: No. 99-2705,99-2705
• Citation: 241 F.3d 1005
• Parties: (8th Cir. 2001) IN RE: WESTPOINTE, L.P., A MISSOURI PARTNERSHIP, DOING BUSINESS AS WESTPOINTE APARTMENTS, DEBTOR. NORTHWEST VILLAGE LIMITED PARTNERSHIP; GRANDVIEW HILLS LIMITED PARTNERSHIP; PARKRIDGE APARTMENTS LIMITED PARTNERSHIP; LAMPLITE LIMITED PARTNERSHIP; WESTPOINTE LIMITED PARTNERSHIP, DEBTORS - APPELLANTS, v. WILLIAM E. FRANKE; GANNON MANAGEMENT COMPANY OF MISSOURI; PRAIRIE PROPERTIES, L.L.C., CREDITORS - APPELLEES. NORTHWEST VILLAGE LIMITED PARTNERSHIP; GRANDVIEW HILLS LIMITED PARTNERSHIP; PARKRIDGE APARTMENTS LIMITED PARTNERSHIP; LAMPLITE LIMITED PARTNERSHIP; WESTPOINTE LIMITED PARTNERSHIP, DEBTORS - APPELLANTS, v. PRAIRIE PROPERTIES, L.L.C.,CREDITOR - APPELLEE. CYNTHIA MCNEILL, INTERESTED PARTY - APPELLEE. SUSMAN, SCHERMER, RIMMEL & SHIFRIN, MOVANT - APPELLEE. WILLIAM E. FRANKE; GANNON MANAGEMENT COMPANY OF MISSOURI, CREDITORS - APPELLEES. . Submitted:
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1005

241 F.3d 1005 (8th Cir. 2001)

IN RE: WESTPOINTE, L.P., A MISSOURI PARTNERSHIP, DOING BUSINESS AS WESTPOINTE APARTMENTS, DEBTOR.

NORTHWEST VILLAGE LIMITED PARTNERSHIP; GRANDVIEW HILLS LIMITED PARTNERSHIP; PARKRIDGE APARTMENTS LIMITED PARTNERSHIP; LAMPLITE LIMITED PARTNERSHIP; WESTPOINTE LIMITED PARTNERSHIP, DEBTORS - APPELLANTS, v.WILLIAM E. FRANKE; GANNON MANAGEMENT COMPANY OF MISSOURI; PRAIRIE PROPERTIES, L.L.C., CREDITORS - APPELLEES.

NORTHWEST VILLAGE LIMITED PARTNERSHIP; GRANDVIEW HILLS LIMITED PARTNERSHIP; PARKRIDGE APARTMENTS LIMITED PARTNERSHIP; LAMPLITE LIMITED PARTNERSHIP; WESTPOINTE LIMITED PARTNERSHIP, DEBTORS - APPELLANTS, v.PRAIRIE PROPERTIES, L.L.C.,CREDITOR - APPELLEE.

CYNTHIA MCNEILL, INTERESTED PARTY - APPELLEE.

SUSMAN, SCHERMER, RIMMEL & SHIFRIN, MOVANT - APPELLEE.

WILLIAM E. FRANKE; GANNON MANAGEMENT COMPANY OF MISSOURI, CREDITORS - APPELLEES.

No. 99-2705.

UNITED STATES COURT OF APPEALS, FOR THE EIGHTH CIRCUIT.

Submitted: March 15, 2000.

Filed: March 14, 2001.

Appeal from the United States District Court for the Eastern District of Missouri.[Copyrighted Material Omitted]

Before Hansen, Heaney, and Fagg, Circuit Judges.

Hansen, Circuit Judge.

In short,¹ five real estate limited partnerships ("Debtors") filed for Chapter 11 bankruptcy in September of 1990 after defaulting on their HUD mortgage.A reorganization plan was proposed by appelleesWilliam E. Franke and Gannon Management Company of Missouri ("Franke-Gannon"), approved by HUD, and later adopted by the bankruptcy court on June 22, 1992.As of that date, the bankruptcy court determined that the Debtors' estate had assets worth approximately $56.4 million and liabilities worth approximately $75.8 million.The Franke-Gannon reorganization plan was approved over the objection of the Debtors.Debtors appealed, arguing that the bankruptcy court erred in its valuation findings.The district court² upheld the bankruptcy court's approval of the Franke-Gannon plan, finding that the estate indeed was insolvent and thus the Debtors' equity interests in the estate were without value and were properly extinguished.Debtors appeal the district court's decision, arguing that the estate's assets actually exceeded its liabilities at the time of the reorganization and that they are entitled to the excess value of the estate because the creditors have otherwise been paid in full.We affirm.

Our standard of review is the same as that of the district court, which reviewed the bankruptcy court's factual findings for clear error and its legal conclusions de novo.SeeIn re Mathiason, 16 F.3d 234, 235(8th Cir.1994).A reorganization plan may be confirmed over the objection of equity holders whose interests are being eliminated as long as the "cramdown" requirements of 11 U.S.C. § 1129 are met, and specifically in this case the requirement in § 1129(b) that the plan be "fair and equitable" to any dissenting class.According to § 1129(b)(2)(C)(ii), a plan is fair and equitable as long as the holder of any interest junior to the dissenting impaired class does not receive any property under the reorganization plan, and because there are no interests junior to the Debtors, the confirmed plan satisfies this requirement.The other primary consideration for determining whether a plan which extinguishes equity interests is fair and equitable is whether the debtor is solvent.SeeIn re Koelbl, 751 F.2d 137, 140(2d Cir.1984)("The 'fair and equitable' requirement [of § 1129(b)] does not look toward protection of debtor interests, but rather toward protection of dissenting creditor interests, absent the value of the ongoing business being large enough to support protection of the debtors.");Moulded Prod., Inc. v. Barry, 474 F.2d 220, 225(8th Cir.)(explaining that if a business entity is insolvent the shareholders may not be allowed to participate in the reorganized entity even if they will lose their original investment), cert. denied, 412 U.S. 940(1973).Thus, the main issue in this appeal is whether the bankruptcy court's finding that the Debtors' estate was insolvent is clearly erroneous.

Debtors argue that the bankruptcy court used an erroneous valuation method which underestimated the value of the estate's assets.We disagree.The bankruptcy court principally relied upon the Tellatin Appraisal for purposes of making its valuation determination.The Tellatin Appraisal, which was compiled by a recognized expert according to accepted professional standards, used an accepted valuation method--income capitalization--that incorporated anticipated future profits and the anticipated reversion value of the apartments into the final present going concern value of the estate.SeeMoulded Products, 474 F.2d at 225(holding that the proper measure of valuation in reorganization proceedings is the going concern value of the debtors' estate and that a debtor is insolvent if the "aggregate amount of its property, as measured by its going concern value, is insufficient to pay its debts").Cf.In re King Resources Co., 651 F.2d 1326, 1335-36(10th Cir.1980)(finding capitalization of future earnings approach to valuation proper).We reject Debtors' contention that the failure of the Tellatin Appraisal to take into account the special financing terms of the Franke-Gannon reorganization plan was erroneous.The bankruptcy court did not abuse its discretion in refusing to qualify Debtors' valuation witness Randolph as an expert or in rejecting as not relevant to valuation Randolph's testimony; the special financing terms were not...