In Re Panther Mountain Land Development, LLC
53 Bankr. Ct. Dec. (CRR) 252, 2010 Bankr. LEXIS 3700, 438 B.R. 169 (2010)
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Rule of Law:
A creditor seeking relief from the automatic stay under 11 U.S.C. § 362(d)(2) fails to meet its burden of proving lack of equity when its appraisal evidence is found to be unreliable, inconsistent, and based on subjective, unsupported adjustments. Furthermore, an equity cushion, supported by credible owner and broker testimony and evidence of market interest, can provide the adequate protection required to deny relief under § 362(d)(1).
Facts:
- Panther Mountain Land Development, L.L.C. ('Debtor'), an entity managed by Dana and Barry Kellerman, was formed to develop two real estate tracts in Maumelle, Arkansas: Sunset Lake (126 acres) and Panther Mountain (a 79-acre subdivision).
- In 2007, the Debtor obtained two loans from National Bank of Arkansas ('National Bank'), one secured by a mortgage on Sunset Lake and the other by a mortgage on Panther Mountain.
- The Debtor subsequently defaulted on the loans by failing to make payments as required under the notes.
- In November 2008, National Bank filed a foreclosure action against both properties in Arkansas state court.
- The Debtor's last payment to National Bank was made on July 17, 2009, from the proceeds of a lot sale.
- At the time of the bankruptcy proceedings, the Debtor was under a Real Estate Purchase Agreement to sell 45 acres of the Sunset Lake property to a third party for $600,000.
Procedural Posture:
- Panther Mountain Land Development, LLC ('Debtor') filed a petition for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Eastern District of Arkansas on September 20, 2009.
- One day later, National Bank of Arkansas ('National Bank') filed its first Motion for Relief from Stay.
- Following an evidentiary hearing, the bankruptcy court denied National Bank's first motion.
- On December 16, 2009, the Debtor filed its Chapter 11 Small Business Plan.
- On April 26, 2010, National Bank filed a second Motion for Relief from Stay and a Motion for Valuation of Secured Claims, which are the subject of this opinion.
- The bankruptcy court conducted evidentiary hearings on the second motion for relief and the motion for valuation.
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Issue:
Does a creditor meet its burden to obtain relief from the automatic stay under 11 U.S.C. § 362(d)(1) and (d)(2) when its professional appraisal is found to be unreliable and the debtor presents credible countervailing evidence of a sufficient equity cushion in the collateral?
Opinions:
Majority - Judge Audrey R. Evans
No, a creditor does not meet its burden to obtain relief from the automatic stay when its valuation evidence is unpersuasive and the debtor demonstrates the existence of an equity cushion that provides adequate protection. The court denied National Bank's motion for relief under § 362(d)(2) because the bank failed to meet its burden of proving the Debtor lacked equity in the properties. The court found the bank's professional appraisals for both Sunset Lake and Panther Mountain to be unreliable, unpersuasive, and based on flawed methodologies. For the Sunset Lake property, the appraisal relied heavily on the property's own prior sale, used non-comparable properties, and made large, subjective adjustments. For the Panther Mountain property, the appraisal used a speculative income-capitalization approach, its calculations disproportionately weighted the lowest-priced lot sale, and it entirely omitted a 15-acre tract of land. The court found the Debtor's evidence, including owner testimony, broker testimony, and a pending purchase agreement for a portion of the land, to be more credible in establishing the existence of equity. Regarding relief under § 362(d)(1), the court found that although National Bank established a prima facie case that its equity cushion was eroding due to accruing interest, the Debtor successfully demonstrated it was adequately protected. The court was persuaded by testimony that property values were stable or increasing and that the Debtor was undertaking an aggressive marketing campaign. The existence of a sufficient equity cushion, combined with the Debtor's reorganization efforts, was sufficient to protect National Bank's interest. Finally, the court denied the motion for valuation because the bank's flawed evidence did not provide a reliable basis for the court to make a specific numerical determination of the properties' value.
Analysis:
This case illustrates the judiciary's role as a critical assessor of expert evidence in bankruptcy valuation disputes. It demonstrates that a professional appraisal is not dispositive and will be rejected if its methodology is inconsistent, subjective, or fails to account for key facts. The opinion empowers debtors by showing that credible testimony from owners and real estate professionals, along with tangible market evidence like a pending sale, can effectively rebut a creditor's expert report. This precedent reinforces that the burden of proof on a creditor is substantial and that courts will not grant relief from the stay based on speculative or unreliable valuation evidence.
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