Weil Restructuring

What Not to Do When Trying to Establish a $20 Million Value for Estate Property (Hint: Don’t Rely Solely on Google Earth)

Contributed by Adam Lavine
Valuation fights in bankruptcy are often complex and highly technical affairs that, at times, can be rather dry.  This was not the case in In re Helena Christian School, Inc., No. 13-60091, (Bankr. D. Mont. September 16, 2013), in which the debtor’s valuation evidence hinged on printouts from Google Earth.
In Helena Christian School, the debtor owed approximately $1.9 million to Mountain West Bank, N.A. pursuant to two promissory notes that were secured by a mortgage on 325 acres of undeveloped property owned by the debtor.  The bank moved for relief from the automatic stay in order to proceed with a foreclosure and liquidation of the property.  It argued that it was entitled to stay relief because the debtor lacked equity in the property, and, therefore, the bank did not have “adequate protection” against a diminution in value of the property during the bankruptcy.  The debtor opposed the motion, arguing that the value of the property exceeded the amount owed to the bank and that the equity cushion provided the Bank with “adequate protection.”
To support its position that the debtor lacked equity in the property, the bank hired a certified real estate appraiser who testified that the value of the property was $845,000.  The real estate appraiser based his valuation on his conclusion that the highest and best use of the property was to hold it for future development.
Here’s where things start to get interesting.  In contrast to the bank, the debtor argued that “the highest and best use of the property [was] for mining and that, if the property [were] mined, it [would be] worth $20 million.”  In its Disclosure Statement, the debtor had stated that the $20 million figure was based upon an alleged report prepared by an unidentified geologist.  At the valuation hearing, however, the debtor failed to introduce a geologist’s report.  Instead, the debtor relied exclusively on the testimony of a witness working in the precious metals business as well as certain exhibits prepared by that witness.
As you may have guessed from the title of this post, Google Earth figured prominently in the exhibits prepared by the debtor’s witness.  As stated by the court:

[T]he only evidence presented by the debtor consisted of Exhibit A, which is a collection of satellite images obtained from Google Earth that [the debtor’s witness] then marked with lines and push pin images, and Exhibit G, which is an aerial photograph taken by an airplane pilot.  On page 1 of Exhibit A, the push pins supposedly mark the fourteen gold deposits on the property . . . .

Armed with the Google Earth printouts and aerial photographs, the debtor’s witness testified that there could be as much as $60 million of gold on the property.  To further support this valuation, the debtor’s witness testified that he visited the property and, using a method he developed, he was able to determine the depth and quantity of minerals underground.  The witness, however, did not describe with any particularity the process or equipment he used in determining the amount of mineral deposits on the property, nor did he introduce as evidence any type of report.
Not surprisingly, the court was unimpressed by the exhibits and accompanying testimony.  The court expressed its displeasure by noting that “[t]he Court [was] apparently supposed to accept [the witness’s] conclusions based upon satellite photographs obtained from Google Earth and from an aerial photograph taken by an unidentified airplane pilot, on which [the witness] then drew lines and placed push pins.”  The court concluded that “[w]ithout more than the pictures and [the witness’s] bald opinion,” it could not give much weight to the value asserted by the debtor.  Accordingly, the court valued the property in the amount of $845,000 and granted the Bank’s motion for relief from the automatic stay after determining that the debtor had no equity in the property.
Google Earth is an incredible application and a pretty fun tool that can be used to explore every corner of the planet.  As Helena Christian School points out, however, parties should think twice before relying solely on Google Earth to establish a $20 million valuation for their property.

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