«Debtor. -X APPEARANCES: William H. Oilver, Jr., Esq. Brandywine Commons 2240 State Highway 33, Suite 112 P.O. Box 667 Neptune, N.J. 07753 Attorney ...»
UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW JERSEY
KAREN ELAINE SCOTT Case No.: 09-44705 (MBK)
APPEARANCES:William H. Oilver, Jr., Esq.
Brandywine Commons 2240 State Highway 33, Suite 112 P.O. Box 667 Neptune, N.J. 07753 Attorney for Debtor, Karen Elaine Scott John R. Morton, Jr., Esq.
110 Marter Avenue, Suite 301 Moorestown, N.J. 08057 Attorney for J.P. Morgan Chase Bank, NA MICHAEL B. KAPLAN, U.S.B.J.
I. INTRODUCTIONThis matter comes before the Court on the Chapter 13 petition filed by the Debtor, Karen Scott, in contemplation of approval of the Debtor’s Plan of Confirmation, together with objections interposed by Toyota Motor Credit. The principal issue before the Court is how to calculate the replacement value of a used vehicle for cram down purposes, including the appropriate commercial valuation guides to be used.
For the reasons set forth below, the Court determines that retail value is the appropriate starting point in calculating replacement value for purposes of § 506(a)(2). Accordingly, the Court adopts the creditor’s approach of starting with retail guides, specifically, the National Automobile Dealers Association (“NADA”) Guide for retail value, less reconditioning and repair costs. However, the Court finds the Debtor’s expert’s estimate of these repair costs more credible. In the case, sub judice, the Court sets the retail value of the Vehicle for purposes of § 506(a)(2) at $9,500 in consideration of the evidence presented.
II. PRODEDURAL HISTORY AND FACTSThe Debtor owns a 2005 Toyota Corolla S 4D (“Vehicle”) financed by Toyota Motor Credit Corporation (“Toyota”). The Vehicle has mileage of 64,438. Toyota holds a first purchase money security interest in the Vehicle as a result of a retail installment contract for $15,329.98 signed on January 19, 2007.
On December 24, 2009, the Debtor filed a petition under Chapter 13 of Title 11 of the United States Code. The Debtor’s Chapter 13 Plan proposed to cram Toyota’s secured claim down to $6000 plus interest payable at 3%. The Debtor achieves this valuation by starting with the value provided under Galves Auto Price List (“Galves”), and then deducting for perceived repairs and reconditioning.
On February 4, 2010, Toyota filed an objection to the Confirmation of the Debtor’s Plan, arguing that the proposed cram down value of $6,000 did not reflect an accurate retail price under § 506(a)(2). Rather, Toyota asserts that the appropriatevalue of the Vehicle is $10,800.
To achieve this value, Toyota’s appraiser relies on the NADA Guide and Kelley Blue Book retail values as starting points, and then deducts for age and condition of the Vehicle.
On June 11, 2010, the Court held a valuation hearing. Two experts, Robert Nolan and Don Graff, testified for the Debtor. Mr. Nolan has been in the used car business for 40 years and has owned his own used car business since 1967. He is based in Monmouth County, New Jersey. He attends local car auctions once or twice a week throughout the State at which he obtains his inventory. Mr. Nolan testified that to achieve the appraised value, he physically inspected the Vehicle and relied on his experience, along with the Galves range of values between $6,150 and $6,950, as well as various listings of similar Toyota Corolla vehicles for sale on the Manheim Market Report for auction sales. Mr. Nolan then took additional deductions for dent and bumper repair, engine repair, reconditioning, and detailing expenses, totaling $1,500, to reach the appraised value of $6,000.
The Debtor further relies on the expert testimony of Don Graff. Mr. Graff has been in the automotive business for 30 years. He has run major car dealerships and has been the internet sales director of two very large car companies, one of which has 14 dealerships and 29 brands.
Mr. Graff testified that, in his experience in the automobile business in central New Jersey, New Jersey car dealers rely exclusively on Galves when appraising a car and that Edmunds Pricing Report (“Edmunds”), NADA, and Kelley Blue Book are not used for determining what a dealer will sell a car for in the New Jersey market. Instead, those guides are primarily used by car dealers for insurance and for banks.
Toyota relied on the appraisal of Paul Runiewicz. Mr. Runiewicz has been a used car dealer, automobile purchasing agent, and appraiser for 43 years. He testified that he attends approximately three auto auctions per week. Mr. Runiewicz’s appraisal was based upon a physical inspection of the vehicle along with values from NADA of $10,650, Kelley Blue Book of $10,975, Edmunds of $9,631 to $10,971, as well as various listings of similar Toyota Corolla vehicles for sale on Auto Trader and Cars.com with retail prices ranging from $10,950 to $11,880. These values are for vehicles in excellent or “clean” condition.1
The Court has jurisdiction over this contested matter under 28 U.S.C. §§1334(a) and 157(b) and the Standing Order of the United States District Court dated July 10, 1984, referring all bankruptcy cases to the bankruptcy court. This matter is a core proceeding within the meaning of 28 U.S.C. §§ 157(b)(2)(L). Venue is proper in this Court pursuant to 28 U.S. C.
§1409(a). The following constitutes the Court’s findings of fact and conclusions of law as required by Fed. R. Bankr. P. 7052.2
A. Confirmation Requirements Under 11 U.S.C. §1325 The Debtor’s Chapter 13 plan may be confirmed if the plan satisfies one of the three
requirements set forth in § 1325. § 1325 provides as follows:
§ 1325(a)(5)(A-C). § 1325(a)(5)(B) is commonly known as the “cramdown” power, allowing a debtor to keep collateral and pay the present value of the allowed secured claim over the life of
soiling and wear, with all equipment in completed working order. Vehicle has a clean title history; vehicle will need minimal reconditioning to be made ready for resale.” To the extent that any of the findings of fact might constitute conclusions of law, they are adopted as such.
Conversely, to the extent that any conclusions of law constitute findings of fact, they are adopted as such.
the plan. An individual debtor’s ability to cramdown in Chapter 13 bankruptcies was discussed at length by the Supreme Court in Assocs. Commercial Corp. v. Rash, 520 U.S. 953, 117 S.Ct.
1879, 138 L.Ed.2d 148 (1997). The Rash Court noted:
“Under the cram down option, the debtor is permitted to keep the property over the objection of the creditor; the creditor retains the lien securing the claim, see §1325 (a)(5)(B)(i), and the debtor is required to provide the creditor with payments, over the life of the plan, that will total the present value of the allowed secured claim, i.e., the present value of the collateral, see § 1325(a)(5)(B)(ii). The value of the allowed secured claim is governed by § 506(a) of the Code.” Id. at 957.
B. Valuation Under 11 U.S.C. §506(a):
11 U.S.C. § 506(a) governs the valuation of allowed claims in bankruptcy cases and is
central to the resolution of this case. §506 (a)(1) states:
“An allowed claim of a creditor secured by a lien on property in which the estate has an interest... is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property,... and is an unsecured claim to the extent that the value of such creditor’s interest... is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property....” 11 U.S.C. § 506(a)(1).
11 U.S.C. § 506(a) was substantially amended by the Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005 (“BAPCPA”). § 506(a)(2) was added and provides:
“If the debtor is an individual in a case under chapter 7 or 13, such value with respect to personal property securing an allowed claim shall be determined based on the replacement value of such property as of the date of the filing of the petition without deduction for costs of sale or marketing. With respect to property acquired for personal, family, or household purposes, replacement value shall mean the price a retail merchant would charge for property of that kind considering the age and condition of the property at the time value is determined.” § 506(a)(2)(emphasis added).
Prior to enactment of BAPCPA, the prevailing means of determining the value of a vehicle was based on its replacement value. The Supreme Court in Rash defined replacement value as “the price a willing buyer in the debtor’s trade, business, or situation would pay a willing seller to obtain property of like age and condition.” 520 U.S. at 959, n.2. However, the Rash Court noted that precise valuation would be determined by the Bankruptcy Courts on a case-by-case basis.3 Id.
Since the enactment of BAPCPA, most courts have interpreted the first sentence of §506(a)(2) as codifying the Supreme Court’s decision in Rash. These courts have followed the general replacement value standard articulated in Rash. See In Re Morales, 387 B.R. 36 (Bankr.
C.D. CA. 2008). Additionally, the Third Circuit has endorsed the proposition that the BAPCPA amendments were meant to codify Rash, without significantly altering the discretion of the Bankruptcy Court. See In Re Finnegan, 358 B.R. 644, 648 (Bankr. M.D. Penn. 2006).
However, with respect to the second sentence of §506(a)(2), the Bankruptcy courts have not established a uniform method for calculating the retail value of a vehicle or any other personal property. See In re De Anda-Ramirez, 359 B.R. 794, 797, n.3. (10th Cir. BAP 2007) (declining to establish a specific method for determining retail value). As a result, the task of calculating replacement value under the second sentence of §506(a)(2) remains subject to a trial court’s discretion, predicated on the unique condition of the redeemed property. See In Re Brown, 2006 WL 3692609 (Bankr. D.S.C., 2006).
As the proper methodology for valuation of vehicles for cramdown purposes is an issue for which there is no controlling precedent within the Third Circuit, this Court seeks guidance
“Our recognition that the replacement-value standard... governs in cram down cases leaves to bankruptcy courts, as triers of fact, identification of the best way of ascertaining replacement value on the basis of the evidence presented.” Id. at 41.
from the other courts which have analyzed this question after the enactment of the post-BAPCPA version of § 506(a)(2). This Court primarily relies on and adopts the Morales Court’s reasoning and approach to § 506(a)(2) valuation. 387 B.R. 36 (Bankr. C.D. CA. 2008). The Morales Court concluded that, “absent unusual circumstances, the retail value for vehicles under § 506(a)(2) should be calculated by adjusting either the Kelley Blue Book retail value or the [NADA] Guide retail value by a reasonable amount in light of evidence presented regarding condition, the retail market, and other relevant factors.” 387 B.R. at 37.
To support its ruling, the Morales Court first notes that “[t]he plain language of [§ 506(a)(2)] contemplates ‘the price a retail merchant would charge’ instead of the price a private party [or wholesale merchant] would charge.” Id. at 46. See also Brown, 2006 WL * 3 (“Given the language used in the second sentence of § 506(a)(2), it appears that a retail value or retail price is the appropriate standard by which to determine replacement value.”). Beyond the statutory text, the Morales Court suggests that, unlike the wholesale value, the retail value takes into consideration the costs of sale, marketing, and the dealer’s profit. As such, this value better approximates what a vehicle would actually sell for in the market. Id. at 46.
The Morales Court further reasons that although the post-BAPCPA statute states that replacement value should be calculated “without deduction for costs of sale or marketing,” adjustments to retail value are necessary to approximate replacement value. Id. at 47; Rash, 520 U.S. at 959, n.6. Other Bankruptcy courts across the country support this reading. For example, the De Anda-Ramirez Court concludes that adjustment to the retail price provided by retail guides is necessary because retail value is rarely equivalent to the retail value of § 506(a)(2).