Rio Valley Motors Company L.L.C.

1 The Court has subject matter and personal jurisdiction
pursuant to 28 U.S.C. §§1334 and 157(b); this is a core
proceeding pursuant to 28 U.S.C. §157(b)(2)(A), (G) and (M); and
these are findings of fact and conclusions of law as may be
required by Rule 7052 F.R.B.P. 	There is pending in the United
States District Court for the District of New Mexico a motion to
withdraw the reference of this case (doc 84); until and unless
the District Court withdraws the reference, this Court has
jurisdiction to administer the estate. 	Rule 5011(c) F.R.B.P.
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UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF NEW MEXICO
In re:
RIO VALLEY MOTORS COMPANY, LLC
Debtor. 	No. 11-06-11866 SS
MEMORANDUM OPINION AND ORDER
(1) DENYING MOTION FOR RELIEF FROM STAY
FILED BY FORD MOTOR CREDIT COMPANY
AND JOINDER BY VALLEY NATIONAL BANK, AND
(2) AUTHORIZING EXPENDITURE OF CASH COLLATERAL
Ford Motor Credit Company (“FMCC”) filed a motion for stay
relief (doc 50), in which Valley National Bank (“Bank”) joined in
a limited fashion (doc 55) and to which the Debtor in Possession
(“Debtor”) objected (doc 67). 	The motion came on for a final
hearing on January 8, 2007. 	For the reasons set out in this
memorandum opinion, the Court will deny the motion. 	The Court
also enters a supplemental order on the cash collateral motions
filed by the Debtor (docs 10, 11 and 17). 1
Background
Debtor is a full service Lincoln Ford Mercury dealership
located in Espanola, New Mexico. 	FMCC floor planned (financed)
the Debtor’s new and used car inventory. 	Debtor began
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experiencing cash flow problems and sold some vehicles out of
trust. 	In the course of conducting floor planning audits, FMCC
confirmed the sales out of trust. 	Shortly thereafter the Debtor
filed its chapter 11 petition, on October 13, 2006.
Debtor then sought Court approval to use cash collateral.
Docs 10, 11 and 17. 	The Bank concurred in the request; FMCC
opposed it. 	FMCC argued that the Debtor’s finances were not
strong enough to ensure repayment of the cash collateral used,
and that Debtor should not be trusted since it had already sold
vehicles out of trust. 	Following an evidentiary hearing, the
Court permitted the use of cash collateral for a short period of
time in order to allow the Debtor to demonstrate that it could
operate successfully enough to justify the further use of cash
collateral and in order to allow the Debtor to promptly begin the
search for a buyer of the business. 	Doc 46 (amended minutes of
oral ruling; doc 61 – order). 	Following the next evidentiary
hearing, the Court found that the Debtor had not promptly
initiated the search for a buyer, contrary to instructions in the
first cash collateral ruling, and that the Debtor’s finances had
deteriorated. 	(The Court also found that, contrary to the
Court’s specific order, the Debtor had not turned over $315,000
of cash to FMCC.) 	In consequence the Court denied the Debtor
further use of cash collateral (doc 64). 	Debtor filed a motion
for reconsideration of that ruling (doc 75); upon
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2 During the hearing FMCC and the Debtor disclosed a dispute
about whether the Debtor was authorized to use cash collateral to
pay taxes, New Mexico Motor Vehicle Department (“MVD”) fees and
similar costs (if any) for vehicles that the Debtor bought, sold
or traded. 	The parties agreed on the record that the Debtor
could use cash collateral for those purposes, and the Court,
perhaps redundantly, approved the agreement orally. 	The decretal
portion of this Order formalizes that approval.
3 Presumably if the Small Business Administration pays out
on its guaranty, it will be subrogated to a portion of the Bank’s
claim, secured or otherwise. 	So there will be no net gain to the
estate.
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reconsideration, the Court declined to change the ruling (doc
82). 2 	Despite the rulings, Debtor quite remarkably (and to its
considerable credit) has continued to operate, and has filed a
motion to sell the business (doc 100).
Analysis
FMCC’s representative, Scott Schaeffer, testified that the
principle balance due to FMCC was $1,963,685 together with, as of
January 8, 2007, accrued interest and other charges of
approximately $79,000, for a total of approximately $2,043,000.
At the time of the cash collateral hearings, the Bank was owed
approximately $513,000, of which about $183,000 is guaranteed by
the Small Business Administration. 3 	The total debto owed to
these two creditors is approximately $2,556,000 if the $79,000 of
FMCC accrued interest and charges are included, and $2,477,000 if
not.
The evidentiary hearing established the following values for
the collateral (in rounded off numbers):
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4 This item was not included in the calculation of assets
that the Court used in making its cash collateral decisions. 	The
Court had essentially treated the value of the trailers as a wash
with the Bank’s debt secured by the trailers (assuming the
trailers do secure that debt). 	Since the Court is now counting
the debt, it needs to also include the offsetting collateral
value.
5 This statement assumes of course that the sale will take
place. 	As things stand now, it will not. 	The emergency motion
to sell (doc 100) is subject to the two objections from the Bank
and FMCC (docs 102 and 104 respectively), which upon reading are
obviously intended to aid the Debtor in implementing its proposed
sale. 	The Debtor is advised to consider them carefully and act
upon them quickly.
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Vehicles 	$1,345,000
Parts 	100,000
FFE 	40,000
Accounts Receivable 	100,000
Franchise 	250,000
Cash (including con-
tracts in transit) 	510,000
Trailers 4 	60,000
TOTAL 	$2,405,000
All these values are somewhat speculative, of course, as is any
estimate of value. 	The actual values will be determined by, and
as of the date of, the closing of the sale of the business. 5 	For
example, the FFE and parts may well bring more in a going-concern
sale of the business than is listed here.
FMCC has a first lien on most of the collateral; FMCC and
the Bank dispute who has the first lien on the franchise and on
the trailers. 	The value of the disputed collateral is
approximately $376,000, comprised of $250,000 for the franchise,
$60,000 for the unsold trailers, and $66,000 for the proceeds in
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6 $66,283.39 appears in Debtor exhibit G from the January 8
hearing; that this is the correct trust account is confirmed by
the account number from Debtor exhibit G from the November 30
hearing. 	The November 30 exhibit G showed a balance of
$2,681.19, so the almost $64,000 increase suggests the sale of
two or more trailers. 	At the same time the Debtor continues to
list the value of the unsold trailers as $60,000, which is about
the same amount -- $65,000 -- it showed when the trailer trust
account proceeds were at $2,681 on or about November 30 (Debtor
exhibit D from November 30 hearing). 	The Court has no
explanation for that seeming anomaly.
7 The Court has some nagging doubt about the accuracy of
Debtor’s collateral values. 	Partly that is occasioned by the
Debtor’s somewhat chaotic presentation on November 30 of its
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trust account 295-9173xxx for the trailer sale proceeds. 6 	That
leaves a value of $376,000 for the contested collateral and of
$2,029,000 for the balance of the collateral on which FMCC has an
uncontested first lien for its claim of $1,964,000 or $2,043,000.
FMCC argues that none of the foregoing evidence need be
considered, since the Court already made factual determinations
of asset values and debt in the cash collateral orders. 	Those
values were determined at a different time and in a different
context. 	During the course of this case, as would be expected,
the values of the collateral have changed as Debtor has bought
and sold vehicles, used inventory in the repair of vehicles, etc.
Arguably the most glaring example of change is the evidence that
the market value of the franchise is $250,000, which is what has
actually been offered to the Debtor. 	Emergency Motion to Sell
(doc 100). 	This figure is considerably less than the $600,000
which the Debtor continues to show on its exhibits. 7 	The amount
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finances. 	The doubt is reinforced by the Debtor’s inexplicable
continued use of the $600,000 figure for the franchise when Mr.
Trujillo testified that he expected an offer of $350,000 for the
franchise.
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of the debt may have changed also; FMCC alleges that it has
incurred, and is entitled to be paid, an additional $79,000. 	As
a result, numbers that were current and useful weeks ago need to
be updated, since a motion for stay relief (or, for that matter,
a motion to use cash collateral) needs to be based on facts as
they currently exist rather than what they were earlier,
including on the petition date.
A consideration related to the issue of what evidence to
consider arises from the difference between the request to use
cash collateral and a motion to modify the stay in order to
repossess collateral. 	That is, the Court’s previous orders
denying the use of cash collateral do not determine the outcome
of this motion for stay relief. 	An order allowing the use of
cash collateral necessarily results in the decrease of the
collateral securing the claim. 	An order denying stay relief does
not by itself result in the decrease in the collateral.
Therefore all other things being equal, an order denying stay
relief does less harm, or at least poses less risk, to a creditor
than an order allowing the use of cash collateral. 	So the
previous orders denying the use of cash collateral do not
preclude a review of the current facts of the case, and the
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introduction of evidence about those facts.
Therefore FMCC’s oral motion to preclude the introduction of
new evidence on the value of the collateral is overruled.
The motion for stay relief relies on the first two
subsections of §362(d), which provide in relevant part as
follows:
[T]he court shall grant relief from the stay...
(1) for cause, including the lack of adequate
protection of an interest in property of such party in
interest;
(2) with respect to a stay of an act against property
under subsection (a) of this section, if --
(A) the debtor does not have an equity in such
property; and
(B) such property is not necessary to an effective
reorganization....
FMCC argues that its interest is not being adequately
protected, in part because of the Debtor’s sale of vehicles out
of trust. 	Now that the Debtor appears to be complying with its
fiduciary obligations as a chapter 11 debtor in possession, the
sales out of trust have presumably ended.
It appears that FMCC’s claim may be marginally oversecured
($2,029,000 - $1,964,000) or undersecured once the charges begin
to be added in ($2,029,000 - $2,043,000). 	These figures do not
take into account the dispute about whether FMCC is in a first
position on either the franchise or the trailers, but until that
issue is decided (which this Court needs to do), it cannot be
said with any certainty that FMCC has any significant equity in
the collateral. 	That being the case, FMCC is not entitled to
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adequate protection at this stage of the case. 	See United
Savings Association of Texas v. Timbers of Inwood Forest
Associates, Ltd., 484 U.S. 365 (1988). 	Therefore no grounds
exist for modifying the stay under §362(d)(1).
The collateral values also bring into question whether the
Debtor has an equity in the collateral. 	It appears that it does
not ($2,405,000 - [$1,964,000 + $513,000 =] $2,477,000 =
<$72,000>). 	But the requirements of §362(d)(2) also require a
showing that the property is not needed for an effective
reorganization. 	Since the term “reorganization” includes a
measured liquidation, §1123(a)(5)(D), such as the Debtor is
currently undertaking, assuredly the property is needed for an
effective reorganization. 	In consequence there is no basis for
modifying the stay under §362(d)(2).
Conclusion
FMCC has not shown that it has any significant equity in the
property of the estate beyond what it is owed. 	FMCC has shown
(or, perhaps more accurately, Debtor has shown) that Debtor
likely has no equity in the property of the estate; Debtor has
established that the property at issue is necessary for an
effective reorganization. 	§362(d)(1), (d)(2) and (g). 	Therefore
the motion for stay relief must be denied. 	Although the Bank
joined in the motion for stay relief, it did not appear at the
final (evidentiary) hearing, so its joinder in the request for
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stay relief is also denied.
In closing argument, FMCC suggested a short period of time
to permit the Debtor to close the sale of the business. 	The time
suggested by FMCC was too short to be useful to the Debtor. 	The
Court will not impose at this time a deadline for completing the
sale on pain of modification of the stay. 	But as stated in note
5 above, the Debtor is strongly urged to accept the helping hand
tendered by FMCC and the Bank in order to consummate the hoped-
for sale. 	Otherwise, stay relief may well be appropriate.
Should the Debtor not move smartly to complete the sale, the
Court will entertain a renewed motion for stay relief on
shortened notice.
IT IS THEREFORE ORDERED that Ford Motor Credit Company’s
motion for stay relief (doc 50) and Valley National Bank’s
joinder therein (doc 55) are denied without prejudice.
IT IS FURTHER ORDERED that the Debtor may use cash
collateral, derived from the proceeds of sales of vehicles, to
pay taxes, MVD fees and any similar costs (if any) on all
vehicles sold or bought, including those traded by the Debtor.
Honorable James S. Starzynski
United States Bankruptcy Judge
copies to:
Walter L Reardon, Jr
Local counsel for debtor
3733 Eubank Blvd NE
Albuquerque, NM 87111-3536
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William L Needler
Attorney for Debtor
555 Skokie Blvd #500
Northbrook, IL 60062
Alice Nystel Page
Office of US Trustee
PO Box 608
Albuquerque, NM 87103-0608
Donald Cram
Attorney for FMCC
Severson & Werson
One Embarcadero Ctr
San Francisco, CA 94111
Duane Geck
Attorney for FMCC
Severson & Werson
One Embarcadero Ctr
San Francisco, CA 94111
James Jurgens
Attorney for VNB
100 La Salle Cir Ste A
Santa Fe, NM 87505-6976
Jappy Dickson
Southwest Brokerage Company
Lagustrurn Court
Arlington, TX 76017
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