Argued: September 12, 2017
from the United States District Court for the Eastern
District of North Carolina, at Wilmington. Terrence W. Boyle,
District Judge. (7:16-cv-00023-BO)
Matthew Nis Leerberg, SMITH MOORE LEATHERWOOD LLP, Raleigh,
North Carolina; Laurie Beth Biggs, STUBBS & PERDUE, PA,
Raleigh, North Carolina, for Appellant.
Mason Oliver, THE LAW OFFICES OF OLIVER & CHEEK, P.A.,
New Bern, North Carolina, for Appellee.
Nelson, SMITH MOORE LEATHERWOOD LLP, Raleigh, North Carolina;
Trawick H. Stubbs, Jr., Joseph Z. Frost, STUBBS & PERDUE,
PA, Raleigh, North Carolina, for Appellant.
Currin, THE LAW OFFICES OF OLIVER & CHEEK, P.A., New
Bern, North Carolina; Mark R. Sigmon, SIGMON LAW, PLLC,
Raleigh, North Carolina, for Appellee.
NIEMEYER, DUNCAN, and FLOYD, Circuit Judges.
DUNCAN, CIRCUIT JUDGE
Land Company LLC ("BLC") challenges the district
court's dismissal of BLC's appeal of the bankruptcy
court's confirmed reorganization plan (the
"Confirmed Plan") for Bate Land & Timber LP
(the "Debtor"). In addition to appealing the
district court's conclusion that the appeal was equitably
moot, BLC further urges us to hold that the bankruptcy court
both failed to provide BLC with the indubitable equivalent of
its secured claim and erred in reducing the amount of
post-petition interest awarded. For the following reasons, we
reverse the district court's dismissal of BLC's
appeal and affirm the bankruptcy court.
complexity of the proceedings below mirrors the parties'
contentious relationship. Because we reach the merits of
BLC's appeal, and because indubitable equivalence is an
inherently fact-bound inquiry, we first consider with
particular attention the bankruptcy court's detailed
findings of fact.
2006, BLC sold the Debtor seventy-nine tracts of land in
eastern North Carolina for $65 million. Of this amount,
the Debtor paid $9 million in cash and financed the remaining
$56 million through a purchase money promissory note secured
through a purchase money deed of trust encumbering the
years that followed, the Debtor paid BLC over $60 million.
However, the Debtor failed to repay its debt in full by the
maturation date. The parties negotiated new deadlines, but
the Debtor failed to meet the revised deadlines as well. The
Debtor attempted to convey two tracts of land back to BLC to
satisfy its debt, but BLC rejected this proffer.
Debtor filed for Chapter 11 bankruptcy in 2013, and BLC filed
a secured claim in the Debtor's bankruptcy proceeding for
approximately $13 million. The Debtor's proposed
reorganization plan (the "Proposed Plan") included
several other creditors, but BLC accounted for the vast
majority of all debts owed.
regard to BLC, the Debtor submitted a partial dirt-for-debt
provision in its Proposed Plan, by which the Debtor offered
to satisfy BLC's secured claim through conveyance of the
two tracts of property described above. In a dirt-for-debt
plan, a creditor accepts all of its real-property collateral
in satisfaction of its bankruptcy claim. In a partial
dirt-for-debt plan, a debtor may transfer part of the
collateral to satisfy the bankruptcy claim. See, e.g., In
re SUD Props., Inc., No. 11-03833-8-RDD, 2011 WL
5909648, at *2-3 (Bankr. E.D. N.C. Aug. 23, 2011) (defining
partial dirt-for-debt). The Proposed Plan estimated that the
combined worth of these two tracts of land was approximately
$13.5 million. After this transfer of collateral, the Debtor
proposed that it would retain the remaining tracts of land
free and clear of any liens. The bankruptcy court circulated
the Proposed Plan to its creditors on August 30, 2013. Most
of the Debtor's other creditors accepted the Proposed
Plan. BLC objected, however, arguing that it would not
provide full compensation.
bankruptcy court has the authority to "cram down" a
plan over a creditor's objections under certain
circumstances. 11 U.S.C. § 1129(b)(2)(A)(iii). One such
circumstance exists when the plan provides the creditor with
the "indubitable equivalent" of its claim.
Id. Bankruptcy courts purport to consider the plain
meaning of this term. See In re SUD Props., Inc.,
2011 WL 5909648, at *5. However, application of the
indubitable equivalence standard involves more flexibility
than the term suggests. In the bankruptcy context,
"[t]he phrase 'indubitable equivalent' . . .
means in essence, that the treatment afforded the secured
creditor must be adequate to both compensate the secured
creditor for the value of its secured claim, and also insure
the integrity of the creditor's collateral
position." 4-506 Collier on Bankruptcy §
506.03 (16th ed. 2017).
response to BLC's objections, the bankruptcy court
initiated "cramdown" proceedings and conducted
several hearings to ensure that the final reorganization plan
would provide BLC with the "indubitable equivalent"
of its claim. During these proceedings, the bankruptcy court
valued the land that the Debtor proposed to transfer to BLC
in satisfaction of BLC's claim.
bankruptcy court noted, valuing the property is the most
challenging aspect of a dirt-for-debt scenario. The
bankruptcy court therefore heard extensive expert testimony
regarding the properties' value. The ultimate
determination is significant because the higher the
valuation, the less the Debtor would have to pay in cash to
satisfy BLC's claim.
valuing property, a bankruptcy court may choose to consider a
property's "highest and best use" instead of
its current physical condition. See In re Thoburn Ltd.
P'ship, 513 B.R. 887, 888 (Bankr. E.D. Va. 2013).
Courts have favored this approach in a dirt-for-debt setting.
See, e.g., In re Sailboat Props., LLC, No.
10-03718-8-SWH, 2011 WL 1299301, at *2 (Bankr. E.D. N.C. Mar.
31, 2011). The bankruptcy court thus decided to consider the
property's highest and best use.
the parties vigorously disagreed about the highest and best
use of the subject parcels. BLC contended that their highest
and best use was for the production and harvesting of timber.
The Debtor, on the other hand, argued that at least some of
the parcels had a highest and best use as residential
property and were thus more valuable. The experts'
respective opinions led to significantly different
bankruptcy court first evaluated evidence related to the two
tracts of land that the Debtor initially offered BLC in
satisfaction of its secured claim. The bankruptcy court
determined that these two tracts featured desirable
waterfront property with "navigable depths and lacking
vertical hindrances" situated in a location
"ideal" for watersports. Order at 32, In re
Bate Land & Timber, LLC, No. 13-04665-8-SWH (Bankr.
E.D. N.C. Jan. 15, 2015). The properties were also located in
an area with a growing population and a
"rebounding" residential housing market.
Id. Accordingly, the bankruptcy court determined
that the highest and best use of these two tracts was