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           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT     United States Court of Appeals
                                                       Fifth Circuit

                                                                                    FILED
                                                                                 March 29, 2018
                                      No. 15-20497
                                                                                 Lyle W. Cayce
                                                                                      Clerk
In the Matter of: HOUSTON REGIONAL SPORTS NETWORK, L.P.

                  Debtor
-----------------------------------------
HOUSTON SPORTSNET FINANCE, L.L.C.; COMCAST SPORTS
MANAGEMENT SERVICES, L.L.C.; NATIONAL DIGITAL TELEVISION
CENTER, L.L.C., doing business as Comcast Media Center;
NBCUNIVERSAL MEDIA, L.L.C.; SPORTSCHANNEL NEW ENGLAND,
L.L.C.; SPORTSCHANNEL PACIFIC ASSOCIATES; HOUSTON
SPORTSNET HOLDINGS, L.L.C.,

               Appellants,

v.

HOUSTON ASTROS, L.L.C.; ASTROS HRSN GP HOLDINGS, L.L.C.;
ASTROS HRSN LP HOLDINGS, L.L.C.; ROCKET BALL, LIMITED;
ROCKETS PARTNER, L.P.,

               Appellees.


                   Appeal from the United States District Court
                        for the Southern District of Texas


Before WIENER, PRADO, and OWEN, Circuit Judges.
PRISCILLA R. OWEN, Circuit Judge:
       Comcast 1 loaned Houston Regional Sports Network, L.P. (the Network)



       1“Comcast” refers to Comcast Corporation and/or its subsidiaries and affiliates unless
otherwise specified.
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                                         No. 15-20497
$100 million, secured by a lien on substantially all of the Network’s tangible
and intangible assets. Included in the assets was an Affiliation Agreement
(the Agreement) pursuant to which a Comcast subsidiary agreed to pay the
Network to carry the Network’s content on its cable systems. The Network
involuntarily entered bankruptcy, and before a plan of reorganization was
confirmed, Comcast elected to treat its entire claim as secured.                        The
bankruptcy court then conducted a valuation of the Network’s assets, including
the Agreement. The valuation was as of the date of the bankruptcy petition,
and, after deducting the Network’s unpaid media fees from the Agreement’s
valuation, the court concluded that the Agreement had no value. The district
court affirmed.        Because the district court did not consider the value of
Comcast’s collateral in light of the reality of the plan of reorganization and
accordingly deducted waived Network liabilities from the Agreement’s value,
we remand for further proceedings consistent with this opinion.
                                                I
     Houston Regional Sports Network, L.P. is a television network that was
formed by the Houston Astros baseball team and Houston Rockets basketball
team (the Teams) 2 to televise their respective games. The Network entered
into media-rights agreements with each of the Teams, pursuant to which the
Network was granted exclusive rights to broadcast games in exchange for fees.
The Network also entered into an Affiliation Agreement with Comcast Cable
Communications, LLC, pursuant to which Comcast would carry the Network
on its cable systems through 2032, in exchange for a monthly fee based on the
number of Comcast subscribers. In 2010, a Comcast affiliate provided a $100
million loan to the Network, secured by a lien on substantially all of the




      2   The “Teams” refers to all appellees and their affiliates.
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                                     No. 15-20497
Network’s tangible and intangible assets, including the Agreement but not the
Teams’ media rights.
      In July and August 2013, the Network defaulted on consecutive
payments to the Astros. The Astros sent a notice of default stating that if the
Network did not cure the default by September 29, the Astros would have the
right to terminate its agreement with the Network. On September 27, various
Comcast entities filed an involuntary Chapter 11 petition against the Network.
The Astros filed a motion to dismiss the petition, which the bankruptcy court
denied. After the petition was filed but before the bankruptcy court ruled on
its validity, Comcast and the Teams began negotiations for Comcast to
purchase the Network out of bankruptcy, but no agreement was reached.
Instead, the Teams entered into an agreement with AT&T and DirecTV. The
agreement provided that AT&T and DirecTV would acquire all of the equity in
the Network and enter into separate agreements to pay the Network for the
right to broadcast the Network’s content.
      The sale agreement with AT&T and DirecTV was included in a plan of
reorganization (the Plan), which the bankruptcy court confirmed in October
2014. Under the Plan, the Teams agreed to waive their rights to approximately
$107 million in media-rights fees owed by the Network that had accrued during
the bankruptcy.
      Before the Plan was confirmed, Comcast made an election pursuant to
11 U.S.C. § 1111(b), which permits an undersecured creditor—a secured
creditor whose collateral is worth less than its claim—to elect to have its claim
treated as fully, rather than partially, secured. 3 This election guaranteed
Comcast the right to receive a stream of payments. The present value of these




      3   See 11 U.S.C. § 1111(b).
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                                       No. 15-20497
payments is equal to the value of the collateral as determined by the court; the
nominal value of the payments equals the amount of the claim. 4
       Under the amended Plan, the Network’s tangible collateral—cash,
accounts receivable, furniture, fixtures, and equipment—was to be sold, so
Comcast’s § 1111(b) election does not apply to that collateral. 5 The parties
stipulated to the bankruptcy court that the value of the tangible collateral was
$26.2 million.      To value the intangible collateral, the bankruptcy court
projected the Network’s net income through 2032, discounted it to present
value, and apportioned it among the Network’s intangible assets in proportion
to the revenue that each would generate. Because the bankruptcy court was
conducting the valuation as of the petition date, it apportioned income to
agreements that did not exist as of the petition date based on the probability
that such agreements would come to fruition. Comcast’s expert and the Teams’
expert disagreed about whether and how the $107 million in waived media-
rights fees should be included in the calculation.
       The bankruptcy court concluded that the value of the Agreement would
be $54.3 million on the date that the Plan would go into effect, but subtracted
the waived media-rights fees from the Network’s income in the period between
the petition and the effective date, yielding large net losses for that period.
Since the Agreement was the only significant intangible asset during that
period, these costs lowered the Agreement’s value as of the petition date to
zero. Because a creditor cannot make a § 1111(b) election as to collateral of




       45 NORTON BANKR. L. & PRAC. 3d § 102:1 (2018).
       5 See 11 U.S.C. § 1111(b)(1)(B)(ii) (A creditor may not make a § 1111(b)(2) election if
“the holder of a claim of such class has recourse against the debtor on account of such claim
and such property . . . is to be sold under the plan.”).
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“inconsequential value,” 6 Comcast was unable to elect to have its claim treated
as fully secured.
       After the bankruptcy court confirmed the Plan, Comcast appealed the
bankruptcy court’s valuation of the Agreement to the district court. It also
sought a stay of implementation of the Plan pending appeal. The district court
denied the stay, but the Teams later agreed that they would be required to pay
the debt if Comcast prevailed on appeal.                  The district court affirmed the
valuation, holding that the petition date was the proper date from which to
value the Agreement and that the expenses incurred by the Network during
bankruptcy were appropriately offset against the Agreement’s value. Comcast
appeals.
                                                II
       When we review a district court sitting as an appellate court, we apply
“the same standards of review to the bankruptcy court’s findings of fact and
conclusions of law as applied by the district court.” 7 This court “review[s] the
bankruptcy court’s findings of fact under the clearly erroneous standard, and
the bankruptcy court’s conclusions of law de novo.” 8 The Bankruptcy Code does
not require a particular method to value collateral, and “[v]aluation is a mixed
question of law and fact, the factual premises being subject to review on a
‘clearly erroneous’ standard, and the legal conclusions being subject to de novo
review.” 9




       6   See id. § 1111(b)(1)(B)(i) (“A class of claims may not elect application of paragraph
(2) of this subsection if . . . the interest on account of such claims of the holders of such claims
is of inconsequential value.”).
         7 In re Age Ref., Inc., 801 F.3d 530, 538 (5th Cir. 2015) (quoting In re Crager, 691 F.3d

671, 676 (5th Cir. 2012)).
         8 Id. (quoting In re T-H New Orleans Ltd. P’ship, 116 F.3d 790, 796 (5th Cir. 1997)).
         9 In re Clark Pipe & Supply Co., Inc., 893 F.2d 693, 697-98 (5th Cir. 1990).

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                                                III
       Comcast challenges the valuation date utilized by the bankruptcy court.
The bankruptcy court valued Comcast’s claim as of the petition date because
it assumed In re Stembridge 10 controlled, and in the alternative, because it had
the flexibility to select a fair date. Comcast asserts that the statutory text and
case law dictate that the appropriate valuation date is the effective date of the
Plan, which would result in a higher valuation of the Agreement that is eligible
for a § 1111(b) election. The Teams allege that Stembridge mandates valuation
as of the petition date, and that the bankruptcy court correctly held that the
Agreement was of inconsequential value and ineligible for § 1111(b).                           We
conclude that a court is not required to use either the petition date or the
effective date. Courts have the flexibility to select the valuation date so long
as the bankruptcy court takes into account the purpose of the valuation and
the proposed use or disposition of the collateral at issue.
       The Bankruptcy Code itself does not dictate the appropriate valuation
date for Chapter 11 bankruptcies. Under 11 U.S.C. § 506(a)(1), the value of a
secured claim “shall be determined in light of the purpose of the valuation and
of the proposed disposition or use of such property, and in conjunction with any
hearing on such disposition or use or on a plan affecting such creditor’s
interest.” 11 Section 506(a) is often used in conjunction with other parts of the
Bankruptcy Code. 12 This includes the cram-down provision in § 1129(b), which
requires valuation of collateral in the context of plan confirmation when the
debtor retains possession of the collateral. 13 Under this cram-down provision,



       10  394 F.3d 383 (5th Cir. 2004).
       11  11 U.S.C. § 506(a)(1).
        12 See, e.g., id. § 1325(a)(5) (stating that in a Chapter 13 context, in order for a plan of

reorganization to be confirmed, a debtor must pay a secured creditor at least the value of the
collateral unless the creditor consents to less favorable treatment).
        13 Id. § 1129(b).

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                                       No. 15-20497
a bankruptcy court may confirm a plan over a creditor’s objection subject to
certain conditions, so long as the plan “does not discriminate unfairly, and is
fair and equitable, with respect to each class of claims or interests that is
impaired under, and has not accepted, the plan.” 14
       At issue in this case is § 1129(b)(2)(A)(i)(II), which provides that a
bankruptcy plan is “fair and equitable” with respect to a class of claims—and
thus confirmable over a creditor’s objection—if under the plan:
       each holder of a claim of such class receives 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 holder’s interest in the estate’s interest in
       such property. 15
This provision thus provides for the value of the collateral to be discounted to
present value when considering whether the proposed plan provides adequate
payment to the creditor. However, it is § 506 that instructs the court on how
to make the initial valuation, before the collateral’s present value is calculated
under § 1129.      Accordingly, whatever the valuation date, the language of
§ 1129 is not superfluous, as § 1129 presumes the collateral has been assigned
value. 16 Section 1129 merely uses that value to set a floor for what sum the
creditor must receive in deferred cash payments while the debtor retains
possession of the collateral. It does not provide any guidance as to how the
initial valuation should be made. That is left to § 506.




       14  Id. § 1129(b)(1).
       15  Id. § 1129(b)(2)(A)(i)(II).
        16 See H.R. REP. NO. 95-595, pt.4, at 413 (1977), reprinted in 1978 U.S.C.C.A.N. 5963,

6369 (“The court may confirm a plan over the objection of [secured creditors] if the
[creditors] . . . are to receive under the plan property of a value equal to the allowed amount
of their secured claims, as determined under . . . 11 U.S.C. 506(a). The property [to be
received under the plan] is to be valued as of the effective date of the plan, thus recognizing
the time-value of money.”).
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       A 2005 amendment to § 506 provides that in Chapter 7 and Chapter 13
personal bankruptcies involving claims of personal property, the valuation
shall be as of the date of the petition and based on replacement value of the
property. 17 But the Code provides no similar guidance for Chapter 11 business
reorganizations, nor for other types of property. Rather, § 506(a)(1) directs the
court to consider (1) “the purpose of the valuation;” (2) “the proposed
disposition or use of [the] property;” and to do so (3) “in conjunction with any
hearing on such disposition or use or on a plan affecting such creditor’s
interest.” 18 This provision allows the bankruptcy court to make valuations of
collateral throughout the proceeding based on the purpose of each valuation. 19
       Precedent also does not mandate a specific valuation date in the Chapter
11 cram-down context. Rather, case law requires that courts consider the
purpose of the valuation and the proposed use or disposition of the collateral
at issue. In Associates Commercial Corp. v. Rash, 20 the Supreme Court stated
that when considering possible valuations, the “debtor’s ‘use’ of the property”
was “[o]f prime significance,” and the “actual use” of the property rather than
a “foreclosure sale that will not take place” should guide the court’s valuation. 21
Though the court was considering whether foreclosure value or replacement
value was appropriate in the Chapter 13 cram-down context, 22 the language


       17 11 U.S.C. § 506(a)(2) (“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.”).
       18 Id. § 506(a)(1).
       19 See S. REP. NO. 95-989, pt. 1, at 68 (1978), reprinted in 1978 U.S.C.C.A.N. 5787,

5854 (“To illustrate, a valuation early in the case in a proceeding under sections 361-363
would not be binding upon the debtor or creditor at the time of confirmation of the plan.”).
       20 520 U.S. 953 (1997).
       21 Id. at 963.
       22 Id. at 962-63.

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provides guidance on the proper interpretation of § 506(a) as applied to plan-
confirmation valuations when the debtor proposes to retain property. 23
       In addition, the Third and Eighth Circuits have held that the effective or
confirmation date of the plan is the appropriate valuation date in a Chapter 11
cram-down valuation. The Third Circuit adopted the confirmation date—
albeit in a case where neither party challenged the timing of the valuation—
based on the purpose of the valuation. 24 As that court explained:
       [T]he value of the property should be determined as of the date to
       which the valuation relates. Where, as here, the purpose of the
       valuation is to determine the treatment of a claim by a plan, the
       values determined at the § 506(a) hearing must be compatible with
       the values that will prevail on the confirmation date. 25
The Eighth Circuit likewise determined that “[t]he allowed secured claim will
equal the value of the collateral at the time the plan is confirmed” in a Chapter
11 cram-down, 26 and bankruptcy courts have generally adopted the same
rule. 27 These holdings are consistent with the leading bankruptcy treatise’s
discussion of the issue. 28


       23  See id. at 962 (considering the proper valuation standard when a debtor “invoking
cram down power, retains and uses the property”).
        24 In re Heritage Highgate, Inc., 679 F.3d 132, 143 (3d Cir. 2012) (affirming the

bankruptcy court’s conclusion “that the fair market value of the [collateral] as of the
confirmation date controls whether the [creditor’s] claims are secured or not”).
        25 Id. at 143 n.9 (internal citations and quotation marks omitted).
        26 In re Ahlers, 794 F.2d 388, 400 n.14 (8th Cir. 1986), rev’d on other grounds sub nom.,

Norwest Bank Worthington v. Ahlers, 485 U.S. 197 (1988).
        27 See, e.g., In re Hales, 493 B.R. 861, 866 (Bankr. D. Utah 2013) (“[T]he Court

determines that the confirmation date, or a date near it, is the appropriate valuation date in
[a § 1129 cram-down plan confirmation] case.”); In re Atlanta S. Bus. Park, Ltd., 173 B.R.
444, 450 (Bankr. N.D. Ga. 1994) (“[W]hen valuation is for the purpose of plan confirmation,
the value must be determined as of the date the plan is confirmed, and not at some other
date.”); In re Landing Assocs., Ltd., 122 B.R. 288, 292 (Bankr. W.D. Tex. 1990) (“When the
valuation is for purposes of plan confirmation, however, value must be determined as of that
date.”); In re Seip, 116 B.R. 709, 711 (Bankr. D. Neb. 1990) (“[F]or purposes of confirmation,
collateral should be valued in close proximity to the date of confirmation.”).
        28 4 COLLIER ON BANKRUPTCY ¶ 506.03(7)(d)(i) (16th ed. 2015) (“If the debtor is to

retain the collateral and proposes to treat the creditor’s secured claim in accordance with
[§1129’s] first option, the relevant valuation determination under section 506(a) will often be
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                                      No. 15-20497
       However, the Third Circuit recognized that a valuation conducted under
§ 506(a) may not always relate to the confirmation or effective date of the
plan. 29 This is because § 506(a) valuations are used in a variety of contexts.
For example, the First Circuit considered § 506(a) in the context of determining
the amount of post-petition interest an oversecured creditor should receive. 30
The First Circuit determined that the flexible nature of § 506(a), as contrasted
with the inflexible exception in § 506(a)(2), suggested the bankruptcy court
was not bound to use the value of the collateral on either the petition date or
the plan effective date. 31 Rather, when the value of collateral fluctuated over
the course of the proceedings, the bankruptcy court could determine the value
of the collateral as of the first point in time that the creditor became
oversecured, and thus entitled to post-petition interest. 32 The First Circuit’s
opinion echoed this court’s logic in In re T-H New Orleans Ltd. Partnership,
where we held that, when considering a valuation for the purpose of
determining an award of interest under § 506(b) “valuation of the collateral
and the creditor’s claim should be flexible and not limited to a single point in
time, such as the petition date or confirmation date.” 33 This court thus found
no error in the bankruptcy court’s use of the date at which it determined the
claim “probably” became oversecured. 34




straightforward: the court must simply value the collateral as of the effective date of the
debtor’s plan in order to determine the allowed amount of the creditor’s secured claim.”).
       29 Heritage Highgate, 679 F.3d at 142 n.7 (recognizing that “the appropriate time as

of which to value collateral may differ depending on the facts presented”).
       30 In re SW Boston Hotel Venture, LLC, 748 F.3d 393, 405-06 (1st Cir. 2014).
       31 Id. at 405-07 (“The fact that Congress mandated particular measuring dates in the

exception [in § 506(a)(2)] without mandating a particular measuring date in the general rule
suggests that it intended flexibility under § 506(a)(1).”).
       32 Id. at 407-08.
       33 116 F.3d 790, 798 (5th Cir. 1997).
       34 Id. at 798-99 & n.9.

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       That § 506(a) valuations may be made at different times under different
circumstances does not lessen the force of the Third and Eighth Circuit
holdings that the appropriate valuation date is the date of plan confirmation
in the Chapter 11 cram-down context.                 When a court values collateral to
confirm a cram-down plan under § 1129(b)(2)(A)(i), the proposed use or
disposition of the property under the plan of reorganization is critical, precisely
because the debtor is choosing to retain the collateral, rather than sell it or
return it to the creditor. 35         Yet the bankruptcy court can determine the
appropriate date of valuation on a case-by-case basis and we need not adopt a
bright-line rule.
       Contrary to the Teams’ assertions and the bankruptcy court’s holding,
this court’s decision in Stembridge does not compel a fixed valuation as of the
date of the petition for Chapter 11 cram-downs. Though some language in the
opinion could be broadly read to include all cram-downs, 36 the holding that “the
value of the collateral should be determined as of the filing of the petition” was
limited to § 1325 plan confirmations. 37
       We decline to extend the per se valuation date of Stembridge to Chapter
11 cram-downs.         Congress implicitly rejected such an extension when it
codified the Stembridge holding in § 506(a)(2). That codification specifically
provided that personal property in Chapter 7 and 13 bankruptcies must be
valued as of the petition date but made no such provision for Chapter 11




       35 11 U.S.C. § 1129(b)(2)(A); see Assocs. Commercial Corp. v. Rash, 520 U.S. 953, 964
(1997) (reasoning that in the cram-down context §506(a) “calls for the value of the property
possesses in light of the ‘disposition or use’ in fact ‘proposed,’ not the various dispositions or
uses that might have been proposed”).
       36 See In re Stembridge, 394 F.3d 383, 385 (5th Cir. 2004) (framing the issue as “when

should a bankruptcy court determine the value of a secured claim for the confirmation of a
plan under the code’s cram-down provision”).
       37 Id. at 388.

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bankruptcies. 38 This omission suggests Congress did not intend to limit courts
to the petition date in all Chapter 11 bankruptcies. 39 There is good reason for
not mandating a petition-date valuation for Chapter 11 cram-downs.
Involuntary bankruptcies like this one are not permitted in the Chapter 13
context. 40 Section 506(a) requires that the valuation of collateral take into
account the proposed use or disposition of that collateral. 41 While the petition
date may not be an issue when the parties have an immediate plan of
reorganization, such rapid action should not be assumed in involuntary cases.
In an involuntary bankruptcy, there may not be any proposed use or
disposition of the collateral at the filing of the petition, because the Chapter 11
debtor did not choose to file bankruptcy. As the court noted in Stembridge, “in
many, if not most, cases involving a cram-down, the plan is confirmed along
with, or shortly thereafter, the filing of the original petition.” 42 However,
involuntary Chapter 11 bankruptcies present the converse. Rarely, if ever,
would the court expect a plan confirmation to coincide with the filing of an
involuntary bankruptcy. The petition-date mandate in Stembridge does not
apply to involuntary Chapter 11 bankruptcies.
       Stembridge did not require the bankruptcy court to value Comcast’s
collateral as of the petition date. Neither the Code nor precedent requires this
court to adopt any per se valuation date in the Chapter 11 cram-down context.
We continue to follow the flexible approach to valuation timing that allows the
bankruptcy court to take into account the development of the proceedings, as




       38 11 U.S.C. § 506(a)(2).
       39 See In re SW Boston Hotel Venture, LLC, 748 F.3d 393, 406 (1st Cir. 2014)
(explaining that § 506(a)(2) created an exception to the general rule set forth in § 506(a), and
that the amendment “suggests that [Congress] intended flexibility under § 506(a)(1)”).
       40 11 U.S.C. § 303.
       41 Id. § 506(a)(1).
       42 Stembridge, 394 F.3d at 386 n.6.

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                                       No. 15-20497
the value of the collateral may vary dramatically based on its proposed use
under any given plan. 43 The bankruptcy court stated that under a flexible
approach it would still use the petition date to value the Agreement, so its
erroneous reliance on Stembridge is harmless. Nevertheless, we remand for a
re-valuation of the Agreement because the bankruptcy court failed to value the
collateral in light of its proposed use when it deducted all unpaid media fees
from the value of the Agreement.
                                             IV
       The bankruptcy court erred in deducting the Teams’ unpaid, waived
media fees from the value of Comcast’s collateral.                 In order to value the
Agreement as of the petition date, the bankruptcy court first valued the
Network’s assets at the effective date of the Plan and allocated a proportional
amount of that value to the Comcast Agreement. It then discounted that value
back to the date of the petition using a discount rate provided by both experts,
yielding a value for the Agreement of $54,274,470 as of the effective date of the
Plan. The bankruptcy court then took the total amount of unpaid media fees
that had accrued between the petition date and the effective date, discounted
that to the value as of the petition date using the same discount rate, and
subtracted it from the value of the Agreement, resulting in a value of zero that
is “inconsequential” under § 1111(b) and thus ineligible to be treated as an
entirely secured claim. 44




       43  See, e.g., In re Williams, 850 F.2d 250, 252-53 (5th Cir. 1988) (affirming denial of
plan confirmation when the sale of horses was proposed to satisfy unsecured claims under
Chapter 11 cram-down provision based on bankruptcy court’s finding that, given the
depressed market and boarding costs, the value of the horses under the plan was not equal
to the amount allowed of the creditor’s claims, despite an earlier order that set a higher
value).
        44 11 U.S.C. § 1111(b)(1)(B)(i).

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                                       No. 15-20497
       The first part of the bankruptcy court’s valuation took into account the
proposed use of the Agreement by the reorganized Network, then discounted
that value back to the date of the petition. As discussed, this was permissible
under the Code and this circuit’s precedent. However, the subtraction of the
media fees incurred during the bankruptcy is improper because it does not
value the collateral in light of its proposed use by the debtor and is an
impermissible surcharge.
       Subtracting the Teams’ unpaid media fees from the Agreement’s value
was error because it does not consider the collateral’s value in light of the
actual proposed post-reorganization use, as required by § 506(a) and the
Supreme Court’s decision in Rash.                  Section 506(a) commands that the
collateral be valued in light of its proposed use by the reorganized debtor. 45
Under the Plan, the Network will now be able to use the Agreement to generate
revenue free and clear of the previously outstanding media-rights fees, as the
Teams have agreed to waive them. Therefore, the value of the Agreement in
the reorganized debtor’s hands is unaffected by these waived fees. Subtracting
those costs from the value of Comcast’s collateral would value the Agreement
in light of a hypothetical disposition of the property—i.e. liquidation—that will
not occur. 46
       The Supreme Court’s decision in Rash confirms that bankruptcy court
valuations must be based on actual use. 47 Valuing Comcast’s collateral based
on fees that will never be paid is inappropriate. The costs will not be borne by
the Network and therefore are not deductible from the collateral the Network



       45 Id. § 506(a)(1) (“Such value shall be determined in light of the purpose of the
valuation and of the proposed disposition or use of such property.”).
       46 See Assocs. Commercial Corp. v. Rash, 520 U.S. 953, 963-964 (1997) (confining the

§ 506(a) inquiry to the actual proposed use or disposition of the property).
       47 Id. at 963 (“[A]ctual use, rather than a foreclosure sale that will not take place, is

the proper guide.”).
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                                       No. 15-20497
retains under the Plan. Though the Teams are correct that retained assets
must be valued for both their positive and negative values, the Plan eliminates
the media-rights fees that the bankruptcy court deducted from the
Agreement’s value. Thus, the waived fees are not appropriately considered in
valuing the Agreement in light of its proposed use by the reorganized debtor.
The bankruptcy court erred in adjusting the valuation of the collateral to
reflect costs that will not be incurred under the Plan as actually proposed.
       Additionally, subtracting the media-rights fees—an administrative
expense—from the value of the collateral is an impermissible surcharge. “The
general rule in bankruptcy is that administrative expenses cannot be satisfied
out of collateral property, ‘but must be borne out of the unencumbered assets
of the estate.’” 48 Carved out in 11 U.S.C. § 506(c) is a narrow exception that
allows for recovery of expenditures out of a creditor’s collateral if the expenses
are (1) necessary; (2) reasonable; and (3) benefit the creditor. 49
       However, even if the fees were necessary and reasonable, the Network
never paid the Teams, and never will under the Plan. While this Court has
approved orders requiring payment of expenses incurred, 50 it has never
authorized charging a secured creditor for an expense that was never and
would never be paid under the reorganization plan. The Fourth Circuit has
held that “no § 506(c) ‘recovery should be permitted if the expenditure
was . . . the independent duty of the debtor, debtor in possession or trustee to
maintain its property (even if the value of the collateral increased as an




       48 In re Domistyle, Inc., 811 F.3d 691, 695 (5th Cir. 2015) (quoting 4 COLLIER ON
BANKRUPTCY ¶ 506.05 (16th ed. 2015)).
       49 11 U.S.C. § 506(c) (“The trustee may recover from property securing an allowed

secured claim the reasonable, necessary costs and expenses of preserving, or disposing of,
such property to the extent of any benefit to the holder of such claim.”); Domistyle, 811 F.3d
at 695 (quoting In re Delta Towers, Ltd., 924 F.2d 74, 76 (5th Cir. 1991)).
       50 See, e.g., In re Senior-G & A Operating Co., 957 F.2d 1290, 1299-1300 (5th Cir. 1992).

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    Case: 15-20497       Document: 00514407765          Page: 16   Date Filed: 03/29/2018



                                      No. 15-20497
incidental result thereof).’” 51 In this case, the fees were incurred by the debtor
Network, which was obligated to pay the Teams the media-rights fees under
that agreement.
       Furthermore, to benefit the creditor, the expenses must be “directly
related to preserving or enhancing” that encumbered property. 52 While costs
incurred to preserve the value of the estate are not categorically excluded, this
Circuit requires a determination of “how much benefit the secured creditor
actually received.” 53 In this case, that benefit would be zero, because the court
determined that, after subtracting the media-rights fees, the value of the
Agreement was zero—the same value it would have had in liquidation.
Accordingly, the media-fees waiver did not benefit Comcast given the
bankruptcy court’s valuation.
       The unpaid media-rights fees should not have been incorporated into the
valuation of Comcast’s collateral. The fees will never be paid under the Plan,
and thus cannot be attributed to the value of the Agreement in light of its
“proposed use.” Moreover, the fees incurred by the Network to preserve its
media rights and facilitate reorganization did not inure to Comcast’s benefit.
The Agreement must be valued in light of the Plan, without recourse to
hypothetical situations which are neither proposed nor likely in this Chapter
11 cram-down.
                                      *      *      *
       For the foregoing reasons, we REMAND this case to the bankruptcy
court for a re-valuation of the collateral in light of the Plan.




       51In re K & L Lakeland, Inc., 128 F.3d 203, 210 (4th Cir. 1997) (quoting 3 COLLIER ON
BANKRUPTCY ¶ 506.06 (15th ed. 1996) (requiring an actual expenditure of money for a 506(c)
surcharge)).
      52 Domistyle, 811 F.3d at 698 (emphasis omitted).
      53 Id. at 700.

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