In Re Donald Taffi Madelaine Taffi, Debtors. Donald Taffi Madelaine Taffi v. United States

68 F.3d 306 76 A.F.T.R.2d 95 -7101, 64 USLW 2258 , 28 Bankr.Ct.Dec. 19 , 95 Cal. Daily Op. Serv. 7978 , 95 Daily Journal D.A.R. 13 ,687 In re Donald TAFFI; Madelaine Taffi, Debtors. Donald TAFFI; Madelaine Taffi, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee. Nos. 94-55011, 94-55019. United States Court of Appeals, Ninth Circuit. Argued and Submitted June 7, 1995. Decided Oct. 10, 1995. A. Lavar Taylor, Santa Ana, California, for plaintiffs-appellants. Paula K. Speck, United States Department of Justice, Tax Division, Washington, D.C., for defendant-appellee. Appeals from the United States District Court for the Central District of California. Before: WALLACE, Chief Judge, KOZINSKI and RYMER, Circuit Judges. Opinion by Chief Judge Wallace; Dissent by Circuit Judge KOZINSKI. WALLACE, Chief Judge: 1 The Taffis (Debtors) appeal from the district court's judgment in favor of the Internal Revenue Service (IRS). The district court held that for purposes of valuing a secured tax lien on the residence the Debtors will retain, the residence should be valued at its "fair market" value and that "hypothetical costs of sale" should not be deducted. The district court…

Opinion by Chief Judge Wallace; Dissent by Circuit Judge KOZINSKI.

The Taffis (Debtors) appeal from the district court’s judgment in favor of the Internal Revenue Service (IRS). The district court held that for purposes of valuing a secured tax lien on the residence the Debtors will retain, the residence should be valued at its “fair market” value and that “hypothetical costs of sale” should not be deducted. The district court also refused to eliminate the unsecured portion of the IRS’s lien upon confirmation of the Debtors’ reorganization plan. We have jurisdiction over this timely appeal pursuant to 28 U.S.C. §§ 158 (d), 1291. We affirm the district court’s valuation of the lien, but reverse and remand for the limited purpose of having the district court reduce the amount of the IRS’s tax lien to its allowed secured claim.

I

This case requires us to address two issues of first impression in this circuit. The first is whether the residence of a debtor should be valued, for purposes of determining the amount of a secured claim, at that residence’s “fair market” value or “forced sale” value, when the debtor is to keep possession of the residence. The second issue is whether…

dissenting:

1. My colleagues adopt a plausible interpretation of 11 U.S.C. § 506 (a), but one foreclosed by our earlier opinion in In re Mitchell, 954 F.2d 557 (9th Cir.1992). The majority’s attempt to distinguish Mitchell is unconvincing. The question in Mitchell was how to value a security interest in a car. Mitchell answered that the “creditor’s interest” is “what the creditor would obtain if the creditor were to make a reasonable disposition of the collateral.” Id. at 560 . Mitchell rejected the alternate value suggested by the creditor, namely the “replacement cost to the debtor.” Id.

It’s true that Mitchell referred to the two values as “wholesale” and “retail,” but that was merely a shorthand. Mitchell made it clear that by “retail value” it meant the value of the car in the hands of the debtor, and by “wholesale value” it meant what the car would bring the creditor on foreclosure. It chose the wholesale price, not because it was the “fair market value,” cf. Maj. op. at 309, but because, it “appear[ed] to ... best approximate!;]” the creditor’s collection value. Mitchell, 954 F.2d at 560 .

Mitchell construed the same section of the Bankruptcy Code as we, and it rejected…