FILED
                                                                             MAR 10 2020
                           NOT FOR PUBLICATION
                                                                         SUSAN M. SPRAUL, CLERK
                                                                           U.S. BKCY. APP. PANEL
                                                                           OF THE NINTH CIRCUIT



             UNITED STATES BANKRUPTCY APPELLATE PANEL
                       OF THE NINTH CIRCUIT

In re:                                               BAP Nos. CC-19-1166-GTaL
                                                               CC-19-1167-GTaL
TERRY LEE FLEMING, SR.,                              (Consolidated Appeals)

                    Debtor.                          Bk. No. 6:17-bk-19513-MW

HAVASU LAKESHORE INVESTMENTS,
LLC,

                    Appellant,

v.
                                                      MEMORANDUM*
TERRY LEE FLEMING, SR.; HAVASU
LANDING, LLC,

                    Appellees.

                   Argued and Submitted on January 30, 2020
                           at Pasadena, California

                               Filed – March 10, 2020

               Appeal from the United States Bankruptcy Court


         *
        This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential
value. See 9th Cir. BAP Rule 8024-1.
                       for the Central District of California

          Honorable Mark S. Wallace, Bankruptcy Judge, Presiding

Appearances:        Martin A. Eliopulos of Higgs Fletcher & Mack LLP
                    argued for Appellant; Michael B. Reynolds of Snell &
                    Wilmer LLP argued for Appellee Havasu Landing, LLC;
                    James Edward Till of LimNexus LLP argued for Appellee
                    Terry Lee Fleming, Sr.



Before: GAN, TAYLOR, and LAFFERTY, Bankruptcy Judges.



                                 INTRODUCTION

      Secured creditor Havasu Lakeshore Investments, LLC (“HLI”)

appeals from an order confirming the chapter 111 plan proposed by debtor

Terry Lee Fleming, Sr. (“Debtor”) and co-proponent, Havasu Landing, LLC

(“Landing”). In confirming the plan, the bankruptcy court determined that

HLI would receive the indubitable equivalent of its approximately $5.4

million secured claim through: (1) a cash payment of $500,000 on the

effective date; (2) transfer of 49 units of real property from Landing,

consisting of 46 lots and 3 finished home sites (the “Landing Property”),

valued by the bankruptcy court at $3,694,000; and (3) five annual payments

of $241,124.54 with interest at 5%.

      1
      Unless specified otherwise, all chapter and section references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1532.

                                           2
      HLI argues that the court erred in valuing the Landing Property by

adopting a methodology which failed to account for the necessary costs

and time to sell the lots. As a result, HLI contends that the plan does not

provide it with the indubitable equivalent of its secured claim. HLI also

argues that the bankruptcy court erred in determining that the plan was

feasible without any evidence that Debtor could make the annual

payments.

      On review of the bankruptcy court’s decision, we decline to require

any specific valuation methodology for purposes of determining

indubitable equivalence. However, plan treatment consisting of cash

payments in addition to the transfer of real property at the bankruptcy

court’s valuation does not provide HLI with the indubitable equivalent of

its secured claim under § 1129(b)(2)(A)(iii). We also agree that the

bankruptcy court’s finding that the plan was feasible was not supported by

evidence in the record. Accordingly, we VACATE the order confirming the

Plan and REMAND to the bankruptcy court for further proceedings

consistent with this decision.

                                   FACTS

A.    Prepetition Events

      In 2003, Debtor invested in a real estate project with HLI, involving

an 80-acre manufactured home park called Vista Del Lago, located in Lake

Havasu, California. Sometime after 2009, Vista Del Lago defaulted on a


                                      3
loan and appeared to be headed toward bankruptcy.

     While acting as an agent of HLI, Debtor purchased the defaulted loan

and acquired Vista Del Lago through foreclosure. After the foreclosure,

Debtor became involved in litigation against HLI and various individuals

associated with the project which culminated in a February 2015 California

state court judgment for constructive fraud and punitive damages against

Debtor and in favor of HLI in the amount of $3,659,343.

     Debtor formed Landing in 2010 and was its sole member until after

the judgment was entered in 2015. At the time of the judgment, Landing

owned Vista Del Lago and other real property in Lake Havasu. Within

weeks of the judgment, Debtor transferred a 55% interest in Landing and

the managing member position to his son, Terry Fleming, Jr.

     After obtaining the judgment, HLI began efforts to collect. It recorded

an abstract of the judgment in Orange and Riverside counties and obtained

a charging order on Debtor’s membership interest in Landing. HLI also

obtained a debtor’s examination lien and a turnover order directing Debtor

to immediately deliver all funds held in the name of the Terry L. Fleming

Sr. Family Trust, which were approximately $3.1 million in 2015. After

learning that Debtor had named his daughter as successor trustee of the

trust, HLI obtained a similar debtor’s examination lien and turnover order

against Debtor’s daughter.




                                     4
B.     The Bankruptcy Case

       1.     Debtor’s Assets and HLI’s Claim

       In November 2017, Debtor filed a chapter 11 petition. His amended

schedules indicated total assets of $5,931,985.78, held personally or in his

trust, which included his personal residence in Orange County, a rental

property in Riverside County, a 45% membership interest in Landing, a

9.25% equity interest in HLI, and approximately $1.6 million in cash and

cash equivalents. Debtor also scheduled approximately $600,000 in

retainers held by various professionals.

       As of the petition date, HLI’s claim, including pre-petition interest

and attorneys’ fees, was approximately $4.7 million. HLI asserted that its

claim was secured by nearly all of Debtor’s property and by property held

in Debtor’s trust.

       In March 2018, Debtor filed a motion to allow his counsel to draw

down its retainer on a monthly basis. Although Debtor disputed the extent

of HLI’s lien on the retainer funds, he argued that HLI had a nearly 34%

equity cushion based on the value of its other collateral.2 The court agreed

and determined that even if HLI had a security interest on the retainer, its

secured claim was adequately protected because the fair market value of


       2
         Debtor subsequently filed an adversary proceeding contesting the extent and
validity of HLI’s asserted liens on property held by the Terry Lee Fleming Sr. Family
Trust. As of the petition date, the trust held Debtor’s residence, the rental property, and
approximately $1.38 million in cash and cash equivalents.

                                             5
HLI’s other collateral was in excess of $7 million.

      In December 2018, HLI filed a motion for adequate protection and for

a super-priority administrative expense claim. HLI asserted that while its

claim had increased to approximately $5.2 million due to accrued post-

petition interest, the value of Debtor’s assets had diminished to

approximately $5.1 million. HLI argued that Debtor’s use of cash and

counsel’s drawdown of the retainer, combined with new estimates of value

in Debtor’s Plan and disclosure statement, left HLI’s claim without

adequate protection.

      Debtor objected and argued that the court made factual findings of

value in its decision on the drawdown order and that HLI had not offered

any new evidence of diminished property values. Debtor also submitted a

declaration stating that as of January 2018, the fair market value of HLI’s

asserted collateral was approximately $6.8 million. The court denied the

motion.

      2.    Debtor’s Plan and HLI’s Objection

      In November 2018, Debtor filed his Second Amended Plan (“Plan”)

which proposed to pay all claims in full over a five-year period. The Plan

proposed to pay HLI’s claim through: (1) an effective date payment of

$500,000; (2) transfer of the Landing Property, which Debtor valued at

$3,753,100; and (3) five annual payments, with interest at 5%, equal to the

remaining balance of HLI’s secured claim after the cash payment and


                                       6
transfer of Landing Property. The Plan stated that the credit to be applied

for the Landing Property would be determined by the court and that “[f]or

the avoidance of doubt, no lien is being stripped by virtue of the Plan.”

      With the exception of HLI, all voting creditors accepted the plan. HLI

objected to confirmation and argued that the value of the Landing Property

did not account for necessary holding costs or the time required to sell all

of the lots, which HLI argued could be as long as 24 years. HLI stated that

it had ceased operations in 2010 and was insolvent, so requiring it to pay

taxes, management fees, and HOA dues for the Landing Property would

not be fair and equitable. HLI argued that it would not receive the

indubitable equivalent of its claim because the Plan shifted the risk of

selling the Landing Property to HLI without assurance that it would

recover the full amount of its claims. HLI also objected that the Plan was

not feasible and was not proposed in good faith.

      3.    Confirmation of the Plan

      In April 2019, the bankruptcy court held an evidentiary hearing on

confirmation of Debtor’s Plan and heard expert testimony regarding the

value of the Landing Property.

      HLI’s expert, Mr. Detling, developed two financial projection models

which used a discounted cash flow (“DCF”) methodology. Mr. Detling

used the Debtor’s proposed retail value of $65,000 for each of the 46

undeveloped lots, but assumed that they would take between 12 and 24


                                      7
years to sell. He applied discount rates of 14% and 20% and concluded that

the present value of the Landing Property was between $443,743 and

$1,384,628.

      Debtor’s expert, Mr. Vanderley, developed a “net aggregate value”

model which used the retail value of $65,000 for each undeveloped lot and

then deducted estimated sales costs and holding costs for the typical sales

cycle. Mr. Vanderley explained that the typical sales cycle, as it pertained to

any individual lot, would be in the range of six to nine months. Under the

“net aggregate value” method, Mr. Vanderley initially concluded that the

value of the Landing Property was between $3,123,000 and $3,166,000.

      Mr. Vanderley also prepared a model using a DCF methodology.

Unlike Mr. Detling, he projected that all of the lots could be sold within five

years. Using discount rates of 5.6% and 10.9%, he concluded that the value

of the Landing Property was between $2,924,000 and $3,227,000. However,

Mr. Vanderley testified that the DCF method was inferior to the “net

aggregate value” method because it relied on too many unknown

variables.

      In a supplemental declaration, Mr. Vanderley updated his models to

correct a formula error and to adjust the retail price of the 46 undeveloped

lots to $71,500, based on current prices provided by Terry Fleming, Jr.

Using the retail price of $71,500, Mr. Vanderley concluded that the total

value of the Landing Property was between $3,694,000 and $3,737,000


                                       8
using the “net aggregate value” method, and between $3,182,000 and

$3,515,000 using the DCF method.

      The bankruptcy court did not find Mr. Detling’s testimony credible

and rejected his valuations. The court instead adopted the lower of

Mr. Vanderley’s “net aggregate values,” which used the retail price of

$71,500 and assumed a nine-month sales cycle. The court determined the

total value of the 46 lots and 3 finished home sites to be $3,694,000.

      In confirming the Plan, the bankruptcy court rejected HLI’s argument

that transfer of the Landing Property unfairly shifted risk without some

form of adequate protection such as an “equity cushion.” The court stated:

            The conveyance of real property to HLI under the
            Plan is performance itself, not a promise of future
            performance, so adequate protection is not
            applicable. There is no need for protection to be
            provided against the risk that promised future
            performance will not occur because such promised
            performance has already occurred. Similarly, the
            concept of an “equity cushion” has no place because
            HLI will own all the equity in the conveyed real
            property itself.

      However, because Debtor challenged the validity and extent of HLI’s

security interests in the pending adversary proceeding, the court required

the Plan to provide for a springing lien on Debtor’s residence and the rental

property, to ensure the remaining balance of the claim would be secured in

the event that Debtor was successful.


                                        9
      Based on the value of the Landing Property and the accrued interest

on the HLI claim, the court also required the five annual payments to be

increased from $191,784 to $241,124.54. HLI timely appealed.

                                JURISDICTION

      The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and

157(b)(2)(L). We have jurisdiction under 28 U.S.C. § 158.

                                     ISSUES

      Did the bankruptcy court err in determining that the Plan provided

HLI with the indubitable equivalent of its claim?

      Did the bankruptcy court err in determining that the Plan was

feasible?

                          STANDARDS OF REVIEW

      We review the bankruptcy court’s decision to confirm a chapter 11

plan for an abuse of discretion. Marshall v. Marshall (In re Marshall), 

, 1045 (9th Cir. 2013). A bankruptcy court abuses its discretion if it

applies the wrong legal standard, misapplies the correct legal standard, or

if its factual findings are illogical, implausible, or without support in the

record. Traffic School.com, Inc. v. Edriver Inc., 

, 832 (9th Cir.

2011).

      A bankruptcy court’s determination of property value is a question of

fact which we review for clear error. Arnold & Baker Farms v. United States

(In re Arnold & Baker Farms), 

, 1421 (9th Cir. 1996). Factual


                                         10
findings are clearly erroneous if they are illogical, implausible, or without

support in the record. Retz v. Samson (In re Retz), 

, 1196 (9th

Cir. 2010). The ultimate conclusion of indubitable equivalence is a question

of law which we review de novo. In re Arnold & Baker 

. De novo review requires that we consider the matter as if no decision

had been previously rendered. Kashikar v. Turnstile Capital Mgmt., LLC (In re

Kashikar), 

, 164 (9th Cir. BAP 2017).

      We review a bankruptcy court’s finding of feasibility for abuse of

discretion. First S. Nat’l Bank v. Sunnyslope Hous. Ltd. P’ship (In re Sunnyslope

Hous. Ltd. P’ship), 

, 647 (9th Cir. 2017), as amended (June 23,

2017), cert. denied, 

(2018).

                                  DISCUSSION

      HLI’s primary argument on appeal is that the Plan does not provide

HLI with the indubitable equivalent of its secured claim because the

bankruptcy court erred in valuing the Landing Property. HLI argues that

the court should not have adopted Mr. Vanderley’s values derived from

the “net aggregate” method and instead should have adopted

Mr. Vanderley’s values derived from the DCF method.

      Valuations of property are factual findings to which we apply a

deferential standard of review. In re Arnold & Baker 

.

This deference extends to the bankruptcy court’s choice of valuation

methodology. Taffi v. United States (In re Taffi), 

, 1193 (9th Cir.


                                         11
1996) (en banc) (recognizing various methods to establish value but leaving

the determination to the trial court); Estate of Simplot v. C.I.R., 

,

1197 (9th Cir. 2001); Seravalli v. United States, 

, 1575 (Fed. Cir.

1988) (“[C]ourts necessarily must have considerable discretion to select a

method of valuation that is most appropriate in the light of the facts of the

particular case. It may be a single method or some combination of different

methods.”).

      HLI argues that the BAP has mandated the use of DCF methodology

when there is no immediate market for the sale of real property. We

disagree. In Arnold & Baker Farms, we noted that bankruptcy courts had

recognized three procedures for valuing land to be surrendered:

(1) liquidation value; (2) market value; and (3) fair value. 

, 656

(9th Cir. BAP 1994). We stated that the “fair value” method was an

acceptable valuation procedure under the circumstances of that case, but

we did not require any specific method for valuing property to be

transferred as the indubitable equivalent of a secured claim. 

      The choice of valuation methodology should be based on the facts of

each case and is within the bankruptcy court’s sound discretion. Regardless

of how the bankruptcy court determines the value of property to be

transferred to a secured creditor, it must also determine whether a

proposed transfer is the indubitable equivalent of the creditor’s secured

claim. In re Arnold & Baker 

(“[T]he finding of a trial


                                        12
court of a particular value of real property . . . will not necessarily

determine whether the creditor will receive the indubitable equivalent of

its secured claim.”).

      We decline to require any specific valuation methodology for

indubitable equivalence and we do not determine whether the valuation

here was clearly erroneous because, as we conclude below, transfer of the

Landing Property for a dollar-for-dollar reduction of HLI’s claim does not

provide HLI with the indubitable equivalent of its secured claim.

A.    The Plan Cannot Be Confirmed Under § 1129(b)

      A bankruptcy court can confirm a plan over a creditor’s objection

only if the plan does not discriminate unfairly and is fair and equitable

with respect to each class of claims that has not accepted the plan.

§ 1129(b)(1). To be “fair and equitable” with regard to secured claims, the

plan must provide:

            (I)   (I) that the holders of such claims retain the
                  liens securing such claims, whether the
                  property subject to such liens is retained by
                  the debtor or transferred to another entity, to
                  the extent of the allowed amount of such
                  claims; and

                  (II) that each holder of a claim of such class
                  receive on account of such claim deferred cash
                  payments totaling at least the allowed amount
                  of such claim, of a value, as of the effective
                  date of the plan, of at least the value of such

                                        13
                    holder's interest in the estate's interest in such
                    property;

            (ii)    for the sale, subject to section 363(k) of this
                    title, of any property that is subject to the liens
                    securing such claims, free and clear of such
                    liens, with such liens to attach to the proceeds
                    of such sale, and the treatment of such liens
                    on proceeds under clause (I) or (iii) of this
                    subparagraph; or

            (iii)   for the realization by such holders of the
                    indubitable equivalent of such claims.

§ 1129(b)(2)(A).

      Treatment under any of the three clauses in § 1129(b)(2)(A) requires

payment in full of the allowed secured claim. 7 COLLIER ON BANKRUPTCY

¶ 1129.04 [2] (Alan N. Resnick & Henry J. Sommer, eds. 16th ed. rev. 2019).

The bankruptcy court confirmed the Plan as providing HLI with the

indubitable equivalent of its secured claim under § 1129(b)(2)(A)(iii).

      The Ninth Circuit has held that if a plan proposes to provide a

creditor with the indubitable equivalent of its claim through a partial

transfer of collateral, such transfer must compensate the creditor and “must

insure the safety of or prevent jeopardy to the principal.” In re Arnold &

Baker 

. In such a case, the creditor has no recourse

against its remaining collateral in the event that a sale of the property does

not yield proceeds equal to the bankruptcy court’s valuation. 

transfer is therefore not “completely compensatory.” 

re Murel

Holding Corp., 

, 942 (2d Cir. 1935)). The Circuit held that “[t]o the

extent a debtor seeks to alter the collateral securing a creditor’s loan,

providing the ‘indubitable equivalent’ requires that the substitute collateral

not increase the creditor’s risk exposure.” 

court noted that unlike the transfer of collateral in

Arnold & Baker Farms, the real property transferred under Debtor’s Plan is

not collateral and not estate property. The Plan also specifically provides

that no liens are affected. The bankruptcy court essentially considered the

property transfer as payment and reduced the remaining claim by its

determined value. The bankruptcy court then considered whether the

remaining amount of HLI’s claim would be adequately secured by the

remaining collateral and required springing liens in the event that Debtor

prevailed in the adversary proceeding.

      The Plan does not ensure full payment of HLI’s secured claim

because it does not provide compensation for the necessary time to sell the

Landing Property and it unfairly shifts the risk of selling the Landing

Property to HLI. As a result, the Plan does not satisfy the indubitable

equivalent standard of § 1129(b)(2)(A)(iii).

      Although Arnold & Baker Farms involved a partial surrender of

collateral, the fundamental issue in that case is that deeming a claim

satisfied through a transfer of property necessarily limits the creditor’s


                                       15
ability to look to its other collateral to satisfy any remaining portion of the

claim in the event that the property is ultimately sold for less than the

appraised value. The creditor is “forced to assume the risk of receiving less

on the sale without being able to look to the remaining undistributed

collateral for security.” In re Arnold & Baker 

.

      The present case presents the same concern as Arnold & Baker Farms.

Despite the Plan provision that no liens are affected, by deeming the

transfer to satisfy a portion of the claim, HLI is forced to assume the risk

that sales of the Landing Property will not yield the appraised value. HLI

will be unable to look to its other collateral for any shortfall.

      “Experience has taught us that determining the value of real property

at any given time is not an exact science.” 

If the court’s

valuation of the Landing Property is not accurate or if the market for the

Landing Property does not behave as predicted over the next five years,

HLI may not recover the value fixed by characterizing the transfer as

“payment.”3

      At the time of confirmation, HLI’s claim was fully secured by

collateral valued at approximately $7,000,000. Under the Plan, HLI is forced

to assume the risk that proceeds from the Landing Property might be less



      3
         Although HLI also clearly has the benefit of potential increased property
values, the downside risk makes it less than “indubitable” that HLI will receive the
value of its secured claim.

                                           16
than the court’s valuation, without any recourse against its collateral if

sales proceeds prove inadequate. The Plan provision that HLI retains its

liens is illusory because by deeming the claim partially satisfied, HLI can

only look to its collateral to satisfy the remainder of its claim after the

property transfer.

      Of particular concern, the Plan also fails to adequately compensate

HLI for the necessary time to sell the Landing Property. Mr. Vanderley

valued the Landing Property based on a six- to nine-month sales cycle for

any individual lot, but also projected that it would take approximately five

years for HLI to sell all 49 units transferred under the Plan. Thus, his

valuation “as of the date of transfer” was not equivalent to a cash payment

on that date because it ignored his own testimony regarding the

anticipated market absorption.

      If the Plan instead proposed that Landing would sell the lots and

Debtor would make deferred cash payments from his Landing

distributions, Debtor would be required to compensate HLI with interest in

order to satisfy § 1129(b)(2)(A)(I) and Landing would pay the carrying

costs. Interest is necessary to provide the secured creditor with the value,

as of the effective date, of its allowed secured claim. Transfer of the

Landing Lots as “payment,” does not compensate HLI for the

approximately five years needed to sell the lots, a time period established

by Debtor’s own expert.


                                        17
B.    The Bankruptcy Court Abused Its Discretion By Finding The Plan
      Feasible

      Section 1129(a)(11) requires that the bankruptcy court find that

confirmation is not likely to be followed by liquidation or the need for

further financial reorganization. To demonstrate that a plan is feasible

under § 1129(a)(11), a debtor must show a “reasonable probability” of

success. Acequia, Inc. v. Clinton (In re Acequia, Inc.), 

, 1364 (9th

Cir. 1986). The Debtor does not have to prove that success is inevitable and

a “relatively low threshold of proof will satisfy” as long as evidence

supports a finding of feasibility. Computer Task Grp., Inc., v. Brotby (In re

Brotby), 

, 191 (9th Cir. BAP 2003).

      HLI argues that the bankruptcy court erred in finding the Plan

feasible because Debtor’s financial projections contain computational errors

and do not provide evidence that Debtor has a reasonable probability of

making the increased annual payments. We agree.

      The court determined that the Plan was feasible based on the

financial projections attached to the Debtor’s declaration in support of

confirmation. Those projections seem to indicate that Debtor has sufficient

funds to make the five annual payments of $191,784 and possibly even the

increased payments required by the court. However, the financial

projections contain clear mathematical errors, including a failure to account

for the first annual payment in the cumulative balance for the 12 months

ending in December 2019, and erroneous total annual personal expenses

                                        18
for Debtor in the remaining four years. When the errors are corrected,

Debtor’s projections evidence an inability to make annual payments at

either the proposed amount of $191,784 or the required amount of $241,124.

There is no evidence in the record to support Debtor’s ability to make the

annual Plan payments to HLI, and therefore the court’s finding of

feasibility constitutes an abuse of discretion.

                               CONCLUSION

      Debtor’s Plan does not provide HLI with the indubitable equivalent

of its secured claim and is not feasible on the record before us. For the

reasons set forth above, we VACATE the bankruptcy court’s order

confirming the plan and REMAND for further proceedings consistent with

this decision.




                                       19