Wells Fargo Bank National Ass'n Ex Rel. Morgan Stanley Capital I Inc. v. Texas Grand Prairie Hotel Realty, L.L.C. (In Re Texas Grand Prairie Hotel Realty, L.L.C.)
710 F.3d 324
5th Cir.2013Background
- Debtors in Chapter 11 sought to cram down Wells Fargo’s secured claim on a plan valuing the claim at about $39.08 million following a $49 million loan to four Texas hotels; Wells Fargo acquired the loan from Morgan Stanley.
- Plan proposed to pay Wells Fargo’s secured claim over 7 or 10 years (terms varied by filings) with 5% interest, based on a prime-plus rate; Wells Fargo challenged the rate as too low.
- Bankruptcy court admitted Debtors’ restructuring expert Robichaux’s testimony on the cramdown rate after a Daubert challenge; Wells Fargo disputed the Till framework and its application.
- District court affirmed the bankruptcy court’s decision; Wells Fargo timely appealed; equitable mootness was invoked by Debtors to dismiss the appeal, but the appellate court rejected mootness and proceeded on the merits.
- Appellate court affirmed, holding the cramdown rate determination was a proper application of the Till prime-plus framework in Chapter 11 and not clearly erroneous.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the appeal is equitably moot | Wells Fargo argued the plan’s consummation would be undone and equities harmed | Debtors contended partial relief could be granted without unwinding the plan | Not equitably moot; merits considered |
| Standard governing cramdown rate calculation in Chapter 11 | Till prime-plus should govern the rate; no fixed formula required | Till is controlling but does not mandate a single formula; review is for clear error | Court refuses to fix a single formula; reviews for clear error in applying Till’s framework |
| Whether the 5% cramdown rate is supported under Till | Debtors’ expert’s 1.75% risk premium over prime is within Till’s 1–3% range and feasible | Wells Fargo contends the market rate would demand higher compensation; Ferrell’s market-rate approach flawed | 5% rate upheld as a defensible Till-based result; Robichaux’s analysis sustained |
| Admissibility and consideration of Robichaux’s expert testimony under Rule 702/Daubert | Robichaux’s testimony is reliable and properly applied Till | Daubert challenge was merit-based and should have precluded testimony | Bankruptcy court’s admission upheld; merits analysis properly considered |
Key Cases Cited
- Till v. SCS Credit Corp., 541 U.S. 465 (U.S. 2004) (prime-plus cramdown framework; objective baseline with risk adjustment; not a fixed formula in Chapter 11)
- T-H New Orleans Ltd. P’ship, 116 F.3d 790 (5th Cir. 1997) (no fixed cramdown-rate formula; review for clear error on rate determination)
- In re Pacific Lumber Co., 584 F.3d 229 (5th Cir. 2009) (equitable considerations in appellate review of secured claims)
- In re Scopac, 624 F.3d 274 (5th Cir. 2010) (equitable mootness and secured-claim considerations in reorganization)
- In re Scopac II, 649 F.3d 320 (5th Cir. 2011) (clarified discretion in reassessing plan implementations to avoid jeopardizing feasibility)
- In re American HomePatient, Inc., 420 F.3d 559 (6th Cir. 2005) (discussion of Till’s applicability in Chapter 11 cramdowns)