Bate Land Co. LP, v. Bate Land & Timber LLC (In re Bate Land & Timber LLC)

Equitable defenses can bar payment of interest on a fully secured claim, Fourth Circuit holds.

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Case Type:
Case Status:
Affirmed in part and Reversed in part
16-2037 (4th Circuit) (4th Circuit, Dec 06,2017) Published
The Fourth Circuit first reversed the dismissal of the appeal of the confirmation of a partial dirt-for-debt Ch. 11 plan on mootness grounds and then affirmed the Bankruptcy Court's confirmation order after ruling that a finding of “indubitable equivalent” in a Chapter 11 confirmation cramdown is reviewed for clear error. Specifically, the Bankruptcy Court did not err in calculating the indubitable equivalent of lender's claim or in calculating the amount of post-petition interest due to the oversecured lender, which calculation included consideration of equitable defenses.
Procedural context:
This was an appeal of the District Court ruling that equitable mootness required dismissal of appeal of Bankruptcy Court confirmation order and then a review of the Bankruptcy Court's confirmation rulings on indubitable equivalence and calculation of allowed interest claim.
The secured creditor held a lien on all of the debtor’s real property, which secured its claim of $14.6 million. The dirt-for-debt plan proposed transferring eight of the tract’s seventy-nine parcels plus $1 million to the lender in satisfaction of the fully secured claim. The lender objected to the plan, forcing lengthy cramdown hearings and consideration of whether the plan represented the “indubitable equivalent” of the lender’s claim under Section 1129(b)(2)(A)(iii). The Bankruptcy Court ultimately ruled that the subject parcels were worth $13.7 million and when combined with the proposed $1 million cash payment under the plan, the proposed plan treatment constituted the “indubitable equivalent” of the secured claim. After failing to win a stay pending appeal, the lender had nevertheless appealed. The District Court dismissed the appeal as equitably moot; but the Fourth Circuit ruled otherwise and then addressed the proper standard of review on the merits. In addition to addressing the indubitable equivalence if the plan terms, Judge Duncan also affirmed the Bankruptcy Court’s decision to address equitable considerations in the context of Section 506(b) to toll the post-petition accrual of interest on account of the delay in ruling caused by the Bankruptcy Court’s own workload and litigation initiated by the lender.
Judge Duncan authored the opinion, in which Judge Niemeyer and Judge Floyd joined.

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