A two-year delay in confirmation obliged the bankruptcy court as a matter of law to hold another hearing to value a secured creditor’s collateral, according to an opinion by District Judge Robin L. Rosenberg of West Palm Beach, Fla.
The Sept. 27 opinion also appears to stand for the proposition, perhaps erroneously, that the passage of time can convert a final order into an interlocutory order.
A chapter 11 debtor filed a motion to value collateral under Section 506(a). Without objection from the lender, the bankruptcy court entered an order finding that the collateral was worth $38,000. The order bifurcated the lender’s claim into secured and unsecured claims “in any plan and disclosure statement filed in this case.”
The debtor amended the plan twice. When the confirmation hearing rolled around some two years after the valuation order, the lender objected to the plan’s $38,000 valuation of the collateral. Holding that the valuation order was final and binding, the bankruptcy judge declined to hear testimony from the lender’s expert to show that the collateral had increased in value over the ensuing two years.
The lender appealed and won, setting aside confirmation in the process.
Judge Rosenberg cited the Collier bankruptcy treatise for the proposition that property should be valued as of the date to which the valuation relates — in this case, the date of confirmation. She therefore said that the bankruptcy court “erred as a matter of law when it assessed whether the confirmation requirements were met by reference to a two-year-old valuation” because the valuation was “stale” for the purpose of deciding whether the plan met Section 1129 confirmation standards.
Since valuation should have been conducted “on or near the confirmation date,” Judge Rosenberg said that the $38,000 valuation order was not final. To reach that conclusion, she cited authorities distinguishing between final and interlocutory orders.
Judge Rosenberg reversed the confirmation order and remanded the case to the bankruptcy court, presumably to conduct another valuation hearing.
Presumably also, the $38,000 valuation order did not become a nullity. The original valuation would seem to bind the creditor to a $38,000 value as of the original valuation date two years before. Consequently, the lender’s confirmation objection would seem to be limited to showing appreciation in the value of the collateral between the original valuation date and confirmation.
The opinion cannot mean that valuation orders are always interlocutory or that the parties are always at liberty to relitigate value. Rather than holding that the original valuation order was not final, perhaps Judge Rosenberg should only have said that the two-year-old valuation was not binding under the principles of res judicata in a contested confirmation two years later because the mandates of Sections 506(a) and 1129 require valuation at a later date. Otherwise, the opinion could mean that a final order becomes interlocutory with the passage of time.
The question remains: How much time must pass before the judge must conduct a new valuation hearing?