Williams, Matter of

• Decision Date: 27 July 1988
• Docket Number: No. 88-3125,88-3125
• Citation: 850 F.2d 250
• Parties: Bankr. L. Rep. P 72,418 In the Matter of Kermit Wayne WILLIAMS, Debtor. Kermit Wayne WILLIAMS, Appellant, v. HIBERNIA NATIONAL BANK, et al., Appellees. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 250

850 F.2d 250

Bankr. L. Rep. P 72,418

In the Matter of Kermit Wayne WILLIAMS, Debtor.

Kermit Wayne WILLIAMS, Appellant, v. HIBERNIA NATIONAL BANK, et al., Appellees.

No. 88-3125

Summary Calendar.

United States Court of Appeals, Fifth Circuit.

July 27, 1988.

Jack P. Harris, Baton Rouge, La., for appellant.

Robert G. Coury, John A. Hollister, Thomas J. Lutkewitte, Peter S. Thriffiley, New Orleans, La., for appellees.

Appeal from the United States District Court for the Middle District of Louisiana.

Before REAVLEY, KING and JOLLY, Circuit Judges.

REAVLEY, Circuit Judge:

Kermit Wayne Williams, a Chapter 11 debtor under the Bankruptcy Code, 11 U.S.C. Sec. 1101 et seq., sought confirmation of his reorganization plan. The bankruptcy court denied confirmation and the district court affirmed. We affirm.

I

On May 9, 1986, Williams filed a voluntary bankruptcy petition under Chapter 11, 11 U.S.C. Sec. 1101 et seq. His estate consisted of two primary assets: (1) interest in certain real estate, valued by Williams at $783,000; and (2) interest in 32 horses, valued by Williams at $134,300. While all of Williams' real estate was mortgaged to various secured creditors, the horses were unencumbered.

Williams filed a reorganization plan and disclosure statement with his petition. The plan divided creditors and equity interest holders into 13 classes. Significantly, class 9 was composed solely of Fidelity National Bank (now Hibernia) which held a mortgage in the original principal amount of $65,000 on certain real property, and class 12 was composed of unsecured creditors, including Fidelity which had an unsecured claim of $72,500.

On May 9, Williams mailed a "Notice To All Creditors and Parties in Interest of Valuation of Property," which stated that he proposed to value certain real property and the horses, and that the valuations proposed by him would be conclusive unless an objection was filed within 20 days. Williams valued the real estate on which Fidelity had a mortgage, at $65,000, and the horses at $134,300. Fidelity timely objected to the notice of valuation and requested that the bankruptcy court set the value of the real estate after a valuation hearing scheduled for June 4, 1986. Fidelity did not object to the value Williams had attached to the horses. On June 11, 1986, the court entered an "Order Determining Value of Property For Purposes of Confirmation" which valued the real estate at $50,000 and the horses at $134,300.

The reorganization plan proposed by Williams impaired class 9 and class 12, see 11 U.S.C. Sec. 1124, and the plan was rejected by both classes pursuant to 11 U.S.C. Sec. 1126. Section 1129(b), the cramdown provision, provides that notwithstanding a plan's rejection by an impaired class, the court must confirm the plan if it does not discriminate unfairly, and is fair and equitable, with respect to the impaired nonaccepting class. This requirement is met with respect to a class of unsecured claims if "the plan provides that each holder of a claim of such class receive or retain on account of such claim property of a value, as of the effective date of the plan, equal to the allowed amount of such claim." 11 U.S.C. Sec. 1129(b)(2)(B)(i) (emphasis added).

In an attempt to fulfill this requirement, the plan provided that Fidelity would receive, in satisfaction of its $72,500 unsecured claim, either (1) a combination of 22 horses, valued at $60,850, and promissory notes worth $11,650; or (2) a combination of promissory notes and stock in a corporation formed by Williams which would have, as its primary asset, the 32 horses. A confirmation hearing was held on August 24, 1986, at which the primary issue was the proper value to be attached to the horses. Williams admitted that his horse business had not been profitable, the market for horses was depressed, and that it would take over a year to sell the horses. An expert for Fidelity estimated that the horses were worth half of the amount claimed by Williams ($134,300), and testified that the cost of boarding a single horse for one year would be $1,710. Therefore, while the value Williams attached to the 22 horses he proposed to give to Fidelity, under the first option of the plan, was $60,850, the cost of boarding these horses for one year, according to Fidelity's expert, would be $37,620.

On March 20, 1987, the bankruptcy court issued an order denying confirmation. In its "Reasons For Decision," filed on October 8, 1987, the court held that the plan did not meet the requirements of 11 U.S.C. Sec. 1129(b)(2)(A) with respect to secured claims (including Fidelity's class 9 secured claim) and that, most importantly, the plan did not meet the requirements of 11 U.S.C. Sec. 1129(b)(2)(B)(i) with respect to unsecured claims (including Fidelity's class 12 unsecured claim). With respect to the plan's treatment of unsecured claims, the court found that

the Debtor has not proved by a preponderance of the evidence that the property [the horses] to be distributed to the creditors has a value, as of the effective date of the plan, equal to the allowed amount of the unsecured claims. I so find for a reason that was most succinctly put by Mr. Hood in his memorandum in objection to plan confirmation; Mr. Hood wrote:

"The debtor, in the instant case, is blatantly attempting to use the Bankruptcy Code to unload on his creditors, not his assets, but rather, his liabilities."

Mr. Hood's comment is supported by the testimony that the horse operation has never really been a profitable operation and has always lost money.

The court concluded that "it is...