Opinion
No. 80-29 C
April 18, 1980
Bankruptcy Reform Act — Reorganization Automatic Stay — Relief from Stay — Equity — Burden of Proof
The creditor failed to carry the burden of establishing the debtor's lack of equity in the subject vehicles pursuant to Section 362(g) of the Bankruptcy Code by not producing appraisals of their value. The record, containing conflicting testimony, would have as easily supported a valuation of $100,000 as it would a valuation of $240,000. See Sec. 362(g) at ¶ 8608.
Bankruptcy Reform Act — Reorganization Automatic Stay — Relief from Stay — Effective Reorganization
Since the debtor would be unable to effectuate a successful reorganization if it couldn't realize the income generated from the operation of the vehicles subject to the state court foreclosure action, relief from the automatic stay was denied. See Sec. 362(d)(2) at ¶ 8605.
[Opinion of the Court]
THIS IS an adversary proceeding commenced by the Plaintiff, Flagship Bank of Polk County, who filed a complaint pursuant to § 362 of the Code seeking a termination of the automatic stay in order to continue to foreclose its security interest in certain vehicles of the Debtor, Economy Trucking, Inc., most of which are currently in the possession of the Plaintiff.
The pertinent facts as revealed at the final evidentiary hearing can be briefly summarized as follows:
The Plaintiff is the holder of a promissory note executed on behalf of the Debtor on December 5, 1978 in the face amount of $98,288.94 which calls for monthly installment payments of $3,123. In order to secure the above indebtedness, the Plaintiff duly perfected a security interest in numerous vehicles owned by the Debtor. After a default in the monthly payments in October of 1979, the Plaintiff, pursuant to the terms of the note, accelerated the entire indebtedness and there is now approximately $80,000 owing on the note together with costs and expenses for a total of $92,753.51. On January 8, 1980, the Plaintiff, by virtue of a writ of replevin, obtained possession of all but three of the vehicles pending a final hearing in a State Court foreclosure action.
On January 9, 1980, the Debtor filed a Petition For Order For Relief under Chapter 11 of the Bankruptcy Code and the Plaintiff subsequently instituted the present adversary proceeding by filing a complaint seeking termination of the automatic stay pursuant to § 362 of the Bankruptcy Code.
The Debtor, in due course, filed an answer to the Plaintiff's complaint and a counterclaim seeking a turnover of the vehicles on the ground that the property is of significant value to the estate of the Debtor.
Sec. 362(d) of the Code provides in pertinent part as follows:
"On request of a party in interest . . . . the Court shall grant relief from the stay . . . such as by terminating, annulling, modifying, or conditioning such stay —
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest; or
(2) with respect to a stay of an act against property, if —
(A) the debtor does not have an equity in such property, and
(B) such property is not necessary to an effective reorganization.
Pursuant to § 362(g) of the Code, the Plaintiff has the burden of establishing the Debtor's lack of equity in the collateral and the Debtor has the burden on all other issues.
Having considered the evidence as revealed at the final evidentiary hearing, this Court is satisfied that the Plaintiff has failed to carry the burden of establishing the Debtor's lack of equity in the vehicles. Neither side produced appraisals of the vehicles and there is conflicting testimony in the record, none of which is particularly reliable as to their value. The record would, therefore, as easily support a valuation of $100,000 as it would a valuation of $240,000.
In light of the foregoing, the most that can be said is that the evidence is in equilibrium and that the Plaintiff therefore, failed to establish with the requisite degree of proof that the Debtor does not have any meaningful equity in the subject vehicles. The record further reveals that the Debtor will be unable to effectuate a successful reorganization if it cannot realize the income that can be generated from the operation of the vehicles in question. Though the Debtor is presently unable to operate under the license issued to it by the State, it appears that, through a customary practice in the business, the Debtor can operate the vehicles by leasing them to another licenseholder.
In light of the foregoing, this Court is satisfied that the vehicles in question are necessary to an effective reorganization, that the Plaintiff has failed to establish the lack of any meaningful equity in the vehicles and that, therefore, the relief prayed for by the Plaintiff must be denied and that the automatic stay shall continue in full force and effect.