Antitrust and Unfair Competition Law

In re Twin Pines, LLC (Bankr. D. N.M.)

The following is a case update written by Adam A. Lewis, Senior Counsel, Morrison & Foerster LLC, analyzing a recent decision of interest:


In Twin Pines, LLC, ___ B.R. ___, 2021 WL 312674 (Bankr. D.N.M. January 29, 2021) (“Twin Pines”), the United States Bankruptcy Court for the District of New Mexico (the “Court”) held that a bank’s real and personal property collateral did not include equipment the debtor acquired postpetition that was not the proceeds or products of the lender’s prepetition collateral even though it arguably became fixtures on the lender’s real property collateral.

The case can be found here.


The debtor limited liability company owned two adjacent lots. On one was a two-lane car wash it acquired with a loan. On the other lot were two apartments it had built and a coffee kiosk it later opened. At one point, the creditor bank replaced the original lender, taking floating liens on the debtor’s real property, fixtures and equipment, along with the proceeds and products of the original collateral.

The equipment and related fixtures for the two car wash lanes were aging. About 18 months before the debtor’s bankruptcy, one of the lanes failed, so the debtor continued its operations with just the remaining lane. In February 2019, it filed a Chapter 11 case, filing a plan that October. In April 2020 the debtor successfully moved over the bank’s objection to amend its voluntary petition to obtain relief under the new Subchapter V. Not long after, it filed an amended plan that underlay the need for valuation that is at the heart of Twin Pines.

The debtor’s still-operable lane became increasingly balky as the case progressed. In March 2020, the debtor had to suspend its operation altogether because of local pandemic regulations. When the debtor was allowed to reopen it in August 2020, the equipment in the surviving lane no longer functioned either. In the meantime, however, the debtor had been looking for a new system for that lane. It bought a new, more productive system that a member installed for free. Some of its members paid for the system in return for additional membership interests. The debtor reopened that lane successfully when health regulations permitted.

The debtor moved for a preconfirmation valuation hearing for the bank’s collateral. Considering reports and live testimony by the debtor’s and bank’s respective appraisers, that hearing occurred over several days spaced out over the early winter of 2020. The last day of trial was in November 2020. The Court issued its valuation ruling in January 2021. In that ruling, it also provided that in connection with the later confirmation hearing, as yet unscheduled, the parties would have a chance to submit evidence and make arguments why the valuation should be adjusted based on subsequent events. That was an issue in part because in its ruling the Court set the valuation date as the date of the confirmation hearing.

Along with its specification of the valuation date, the Court addressed a number of other valuation issues in its January 2021 ruling. One was that each appraiser’s methodology departed from normal practice in a material (albeit different) way. The correct valuation method (sales comparison, cost or capitalization) also was one of the issues. There were others, including the burden of proof. In the end, the thorniest issue for the Court was whether the value of the refurbished facility in the one lane should be included in the value of the bank’s collateral. The Court concluded that it should not.


The bank claimed that its fixture filing captured the new lane equipment as part of its real property collateral. The debtor disagreed. The Court found that under New Mexico law the issue of what the collateral included was somewhat unclear as to at least some of the equipment (although it noted that the bank also failed to show the value of the relevant assets). But it concluded that it did not have to resolve that question. Regardless of whether the new equipment became a fixture, Bankruptcy Code section 552(a) cuts off floating liens as of the petition date. It is true that under Bankruptcy Code section 552(b)(1) assets acquired postpetition with the proceeds or products of prepetition collateral become a secured creditor’s collateral. But in Twin Pines, the operating lane’s new equipment was financed by some of the members from nondebtor assets, not the bank or the sale or other transmutation of other bank collateral. In essence, the Court then ruled that the floating lien termination rule of section 552(a) trumped the effect of local fixture law, which under nonbankruptcy law might have rendered the equipment part of the bank’s real property collateral if it had indeed, become fixtures. The Court cited no authority for this proposition, relying instead on the language of section 552(a) and cases interpreting the meaning of “proceeds and products”. Based on this analysis, the Court found that the value of those installed new equipment assets was not included in the value of the bank’s collateral.


Even though the Court cites no direct authority for the theory that section 552(a) overrides what would otherwise be the effect of the addition of fixtures to a creditor’s real property collateral when the addition occurs postpetition, the Court’s conclusion seems sound. The ruling makes sense if the purpose of section 552(a) is to prevent a prepetition lienholder from improving his position with assets its money did not add to the estate, thereby overriding what might normally be the status of those assets if they are fixtures. Perhaps it can be argued that the Court’s view deprives a secured creditor of the benefit of its bargain, but that kinds of provision is common in the Bankruptcy Code; consider, for example, section 506(a), which strips down secured claims from the gross amount of the claim to the value of the creditor’s interest in collateral, not to mention section 502(a) itself in cutting off floating liens. On the downside, the rule of Twin Pines may create some tricky valuation issues in trying to separate the value of the postpetition assets as installed from the prepetition assets to which they were added allegedly as fixtures, although the Court navigated the problem quickly.

The decision also is notable for its extended discussion of valuation practices and standards, some of which are unique to the bankruptcy setting (such as the date of valuation). It is a nice tour of issues.

These materials were authored by Adam A. Lewis, Senior Counsel, Morrison & Foerster LLC, a member of the ad hoc group, with editorial assistance by Meredith Jury, (bankruptcy judge, C.D. Cal. (Ret.)), a member of the ad hoc group. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.

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