No. 87-2420.

United States Court of Appeals, Ninth Circuit.

Before EUGENE A. WRIGHT and POOLE, Circuit Judges, and HARRY L. HUPP*, District Judge.

MEMORANDUM**

This is an appeal from an order confirming a reorganization plan under Chapter 11 of the bankruptcy code. In 1983, Geo Prock, the owner of the Ponderosa Hotel and Casino ("Ponderosa") petitioned for bankruptcy under Chapter 11. (During the bankruptcy proceedings, Geo Prock died, and his widow, Margaret Prock, carried on as trustee of the estate.) Kathy and Larry Tripp were creditors of the estate. They held, as tenants in common, a promissory note in the amount of $2,000,000, which was partly secured by fixtures and furniture in the hotel. Larry Tripp settled his $1,000,000 claim independently with the Prock estate. Kathy Tripp's ("Tripp") claim remained. Because Tripp's claim was only partially secured, she was treated by the bankruptcy court as both a secured (Class XII of the reorganization plan) and an unsecured creditor (Class XIII).

Prock's estate proposed a First Amended Plan of Reorganization, which was revised on August 22, 1984, and confirmed, without findings, on September 26, 1984. Findings were made seven months later (on April 30, 1985), in connection with a joint stipulation to modify the Revised First Amended Plan of Reorganization ("Revised Plan"), but the findings made are not relevant to the issues presented on appeal. The Revised Plan provided for the sale of the hotel, free and clear of any liens, to an approved third party, who would pay $6,450,000 in total; $450,000 in cash up front, and $6,000,000 by promissory note.

Tripp filed objections to the Revised Plan with the bankruptcy court. After it was confirmed, she appealed to the district court who affirmed the bankruptcy court's order confirming the Revised Plan. Before this Court is the appeal from the district court. We have jurisdiction under 28 U.S.C. Sec. 158(d).

The issue on appeal is whether the Revised Plan complies with the "cram down" provisions of the bankruptcy code, 11 U.S.C. Sec. 1129. Tripp claims that the Revised Plan deprives her of her security interest, because it leaves her with an interest which is not the "indubitable equivalent" of her original claim (11 U.S.C. Sec. 1129(b)(2)(A)(iii)), and because it provides her with less than she would have received upon liquidation under Chapter 7 (11 U.S.C. Sec. 1129(a)(7)(A)(ii)).

The Court reviews the findings of fact of the bankruptcy court under the clearly erroneous standard. Ragsdale v. Haller, 780 F.2d 794 (9th Cir.1986). Factual findings of the bankruptcy court should only be disturbed if a review of the record leaves a "definite and firm conviction that a mistake has been committed." Shaw v. United States, 741 F.2d 1202, 1205 (9th Cir.1984), quoting United States v. United States Gypsum Co., 333 U.S. 364, 365 (1948).

The Revised Plan provides in part that Class XII (secured) creditors "to the extent their claims are filed and allowed as secured, will share in those proceeds of the said sale of 515 South Virginia Street, Reno, Nevada, which remain after all other payments or assignments are made in accordance with the terms of the approved sale. There will be no lien on other assets of the estate for either Class V or Class XII creditors." Excerpt of Record at 53.

Tripp, the only member of Class XII, did not consent to the Revised Plan, because she believes that it does not give her the "indubitable equivalent" of her security interest. Tripp claims that she originally had a first position secured interest in the fixtures and furniture of the Ponderosa, but that the Revised Plan left her with a pro rata share of a note and "wrap-around" deed of trust, subject to preexisting liens on real property.

Since Tripp dissented, and was the only member of her class, the Revised Plan could not be confirmed unless it complied with the "cram down" provisions of Chapter 11. 11 U.S.C. Sec. 1129. The Revised Plan purports to comply with section 1129(b)(2)(A)(iii), which requires that the secured creditor recover the "indubitable equivalent" of her original claim, and with section 1129(a)(7)(A)(ii), which requires that a dissenting creditor's interest under a Chapter 11 plan of reorganization be no less than it would be in a Chapter 7 liquidation.

The bankruptcy court's order confirming the Revised Plan is not accompanied by findings of fact and conclusions of law. Although the bankruptcy court did make findings in 1985, when it modified the Revised Plan, these findings do not address the issues crucial to this appeal.

On appeal, the district court found that Tripp received the indubitable equivalent of her original secured claim, and that she also ended up with more than she would have under a Chapter 7 liquidation. However, the District Court is not acting as a fact finder, but instead a reviewing court, and thus we must disregard its "findings." Ragsdale v. Haller, 780 F.2d 794, 795 (9th Cir.1986).

Whether Tripp received the indubitable equivalent and at least as much as she would have received on liquidation required that this Court compare her original secured interest in the Ponderosa fixtures and furniture with the interest she received under the Revised Plan (and modification of April 30, 1985). If the Court had findings before it that identified Tripp's original security interest, and her interest as provided for in the Revised Plan, it could compare them, and determine whether the bankruptcy court was clearly erroneous in finding that the new interest under the plan is the indubitable equivalent of the original interest. It is not immediately obvious that the substituted interest is the "indubitable equivalent." If the original security interest was a first lien on the furniture and fixtures, and if the partial interest in the wrap-around note and deed of trust was subordinate to other preexisting liens on the realty, then the difference in priority would have to be counter-balanced by other factors unknown to us to qualify as the "indubitable equivalent." Thus, this Court needs findings from the bankruptcy court to resolve the appeal. Appellant Tripp argues that she should be restored to the position of having, in addition to a share of the note and deed of trust, a lien on the other assets of the estate, which she was awarded in the original plan of reorganization. This does not necessarily follow unless such is required for compliance with 11 U.S.C. Sec. 1129.

With such findings before it, the Court could also evaluate whether the bankruptcy court was clearly erroneous in finding that Tripp's interest under the Revised Plan was equal to or greater than what she would have collected in a Chapter 7 liquidation, as required by 11 U.S.C. Sec. 1129(a)(7)(A)(ii).

Without such findings, however, the Court cannot review these questions. Because the bankruptcy court did not make the essential findings on whether Tripp received the indubitable equivalent of her original interest, we must reverse and remand so that those findings can be made. For this reason, we REVERSE the order confirming the Revised Plan insofar as it affects Class XII claimants, and REMAND the action to the bankruptcy court for it to make factual findings as to whether the Revised Plan complies with the provisions of the bankruptcy code, 11 U.S.C. Sec. 1129, as to Class XII creditors, or for further proceedings in accord with this memorandum.