Rash, Matter of

• Decision Date: 30 July 1996
• Docket Number: No. 93-5396,93-5396
• Parties: , Bankr. L. Rep. P 77,195, 10 Tex.Bankr.Ct.Rep. 203 In the Matter of Elray and Jean RASH, Debtor. ASSOCIATES COMMERCIAL CORPORATION, Appellant, v. Elray RASH and Jean E. Rash, Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1036

90 F.3d 1036

65 USLW 2108, Bankr. L. Rep. P 77,195,

10 Tex.Bankr.Ct.Rep. 203

In the Matter of Elray and Jean RASH, Debtor ASSOCIATES COMMERCIAL CORPORATION, Appellant, v. Elray RASH and Jean E. Rash, Appellees.

No. 93-5396.

United States Court of Appeals Fifth Circuit.

July 30, 1996.

Ben L. Aderholt, Raymond Jude Blackwood, Chamberlain, Hrdlicka, White, Williams & Martin, Houston, TX, for appellant.

John J. Durkay, Beaumont, TX, Robert E. Barron, Nederland, TX, for appellees.

Rebecca Anne Leigh, Houston, TX, for Mercedes-Benz Credit Corp., amicus curiae.

Erin B. Shank, Dallas, TX, Pamela Arnold Bassel, Dabney Dorsett Bassel, Law, Snakard & Gambill, Fort Worth, TX, for Nationsbank Corp., Hibernia Nat. Bank and Bank of America Texas, N.A., amicus curiae.

Norma Lorraine Hammes, James Jay Gold, Gold and Hammes, San Jose, CA, for National Association of Consumer Bankruptcy Attorneys, Inc., amicus curiae.

Jan Timothy Chilton, Severson & Werson, San Francisco, CA, for American Auto. Mfrs. Ass'n, Inc., Ass'n of Intern. Auto. Mfrs., Inc., and American Financial Services Ass'n, amicus curiae.

Jane Lightfoot, Andrew Koblenz, Washington, DC, for American Auto. Mfrs. Ass'n, Inc.

John Thomas Whatley, Arlington, VA, for Association of International Automobile Manufacturers, Inc., amicus curiae.

R. Christopher Naylor, Devlin & Naylor, Houston, TX, for Toyota Motor Credit Corporation, amicus curiae.

Appeal from the United States District Court for the Eastern District of Texas.

Before POLITZ, Chief Judge, and REYNALDO G. GARZA, KING, JOLLY, DAVIS, SMITH, DUHE, WIENER, BARKSDALE, EMILIO M. GARZA, DeMOSS, BENAVIDES, STEWART, PARKER and DENNIS, Circuit Judges. ^*

KING, Circuit Judge:

A creditor appeals the district court's affirmance of the bankruptcy court's orders that fixed the amount of the creditor's secured claim and confirmed the debtors' amended Chapter 13 plan. The debtors' plan treated the creditor's secured claim under the "cram down" provision found in § 1325(a)(5)(B) of the Bankruptcy Code: the debtors would retain the collateral securing the creditor's lien--a tractor truck--and pay the creditor the amount of its secured claim, such amount being equal to the value of the truck. Following an evidentiary hearing, the bankruptcy court determined that the value of the truck for purposes of cram down was the amount that the creditor could realize if it repossessed and sold the truck according to the security agreement; the court then found that this amount was the truck's wholesale price. The creditor urges on appeal that, as a matter of law, the truck's value for cram down purposes is equal to its "replacement cost," or, what it would cost the debtors to purchase an identical vehicle; the creditor suggests that, on this record, the truck's replacement cost is its retail price. We do not agree that the Bankruptcy Code compels this result as a matter of law. Accordingly, we affirm the courts below.

I. FACTUAL AND PROCEDURAL BACKGROUND

On March 30, 1989, Elray Rash purchased a Kenworth tractor truck from Janoe Truck Sales & Service, Inc., d/b/a Janoe Kenworth Trucks. The cash price of the truck was $73,700. Rash made a down payment of $16,011 by trading in the truck he then owned and agreed to pay the remaining balance and finance charges in sixty monthly installments of $1,610.41. To secure payment of the unpaid balance, Janoe retained a lien on the truck. Janoe assigned this lien and its other rights under the sales agreement to Associates Commercial Corporation ("ACC"). Since the date of purchase, Rash has continued to own and operate the truck as part of his freight hauling business, which is the primary source of income for his family.

In March 1992, Rash and his wife Jean E. Rash (collectively, the "Rashes") filed a joint petition and a plan under Chapter 13 of the United States Bankruptcy Code. The petition stated that the amount of ACC's secured claim--i.e., the value of the truck--was $28,500. The plan provided that the Rashes would keep the truck and that ACC's secured claim would be treated under the "cram down" option found in § 1325(a)(5)(B) of the Bankruptcy Code, 11 U.S.C. § 1325(a)(5)(B). Pursuant to this option, ACC would retain its lien and receive payments over the life of the plan, the present value of which equaled the amount of its secured claim: $607.79 per month for fifty-eight months, for a principal total of $28,500 and interest at nine percent. If ACC claimed more than this amount, the plan treated the excess as an unsecured claim to be paid pro rata with the other unsecured claims after all priority and secured debts had been paid.

ACC then filed a proof of claim and a motion for relief from the automatic stay. In its proof of claim, ACC alleged that it had a fully secured claim in the amount of $41,171.01. In response, the Rashes filed an objection to ACC's claim, asserting that the value of the truck was $28,500. Accordingly, the Rashes maintained that only $28,500 of ACC's claim was secured and that the balance was unsecured; however, the Rashes did not dispute the total amount of the claim.

On June 16, 1992, the bankruptcy court held a hearing on, inter alia, the Rashes' objection to ACC's claim and ACC's motion for relief from the automatic stay. The court heard the Rashes' objection and ACC's motion together because the disposition of each required the court to determine the value of the truck. ACC's expert witness on the valuation issue was Dirk Copple, a twenty-four-year-old collections manager for ACC. Copple opined that the truck's "current market value"--a term that he defined as the fair value paid by an average individual who walked off the street into a dealership--was $41,000. Copple admitted that he had never seen the Rashes' truck; rather, he based his opinion on his own experience, his conversations with a couple of dealerships, software used by ACC to "book out" equipment, and the industry blue book. Regarding his experience, Copple testified that he had never bought or sold trucks in the open market and that ACC was not a truck dealer, but that he had conducted between fifteen and twenty-five foreclosure sales of trucks in his two years at ACC. Assuming a figure of fifteen sales, Copple testified that ACC had purchased the trucks at twelve of the sales. ACC offered no evidence as to what it did with these trucks after purchasing them. With respect to the other three sales, Copple testified that the purchasers paid at least ninety-two percent of the trucks' retail price; however, Copple also admitted that bidders other than ACC typically offered only seventy-five percent of the retail price.

The Rashes' expert witness was Steven Thibodeaux, a thirty-two-year-old salesperson for Smart's Truck and Trailer, a local dealership that sells new and used trucks. Thibodeaux testified that he had worked at Smart's for ten years and had bought and sold all types of trucks during that period. ¹ Thibodeaux opined that the truck's value was $31,875. In support of this opinion, Thibodeaux testified that he had (1) conducted a complete inspection of the Rashes' truck, (2) calculated the truck's retail price to be $42,500 by reference to the industry blue book, and (3) deducted twenty-five percent from the retail price to arrive at a wholesale price of $31,875. Thibodeaux stated that, as a dealer, he would not pay more than this amount if the Rashes or ACC tried to sell the truck to Smart's. Later, Thibodeaux elaborated that he could not make a profit if he paid the retail price of the truck because of the additional costs incurred by a dealer, including reconditioning the truck for resale and paying a salesperson's commission.

On January 11, 1993, the bankruptcy court entered an order denying ACC's motion for relief from the automatic stay ² and fixing the amount of ACC's secured claim at the truck's wholesale price of $31,875. In an accompanying opinion, the court reasoned that it had to calculate the value of the truck from the "creditor's perspective" because § 506(a) of the Bankruptcy Code sets the amount of a secured claim at "the value of [the] creditor's interest in the estate's interest in the property." In re Rash, 149 B.R. 430, 433 (Bankr.E.D.Tex.1993) (quoting 11 U.S.C. § 506(a)) (emphasis added). Accordingly, the court determined that the value of the truck was equal to the amount that ACC could realize if it exercised its right under the security agreement to repossess and sell the truck. Id. Based on the evidence presented at the hearing, the court found that this amount was the truck's wholesale price. Id. at 434. The court noted that this value was not affected by the fact that the Rashes were keeping the truck "because from the creditor's perspective, his net result, in the event of future repossession or foreclosure, will be the same." Id. at 433.

In response to the January 11 order, the Rashes amended their plan to increase the amount of ACC's secured claim from $28,500 to $31,875. The bankruptcy court then entered another order confirming this amended plan. ACC appealed both orders. The district court consolidated the appeals and affirmed the decisions of the bankruptcy court. A panel of this court reversed, holding that the appropriate measure of the truck's value was its replacement cost to the Rashes, which the panel determined to be the truck's retail price. Associates Commercial Corp. v. Rash (In re Rash), 31 F.3d 325, 329 (5th Cir.1994), modified, 62 F.3d 685 (5th Cir.1995). We granted rehearing en banc to determine whether the bankruptcy court erred, as a matter of law, in failing to value the Rashes' truck at its replacement cost. 68 F.3d 113 (5th Cir.1995).

II. STANDARD OF REVIEW

Although the bankruptcy appellate process makes this court the second level of review, we perform the identical task as the district court. Heartland Fed. Sav. & Loan Ass'n v. Briscoe Enters., Ltd., II (In re Briscoe Enters., Ltd., II), 994 F.2d...