Cyrus Capital Partners, L.P. v. Sears Holdings Corporation

An essential element in almost every bankruptcy is determining the value of property serving as collateral for secured debt. That critical process is governed by § 506(a) of the Bankruptcy Code, 11 U.S.C. § 506(a). In Associates Commercial Corp. v. Rash, 520 U.S. 953 (1997), this Court held that § 506(a) requires courts to apply a “replacement value” standard, rejecting multiple alternative standards lower courts had adopted, including a “case-by-case” approach that allowed for different valuation standards based on the “facts and circumstances of individual cases.” Id. at 964 n.5, 965 (quotation omitted). In this case, the courts below refused to apply a replacement-value standard to determine the value of retail inventory that served as collateral for secured debt held by petitioner. The courts instead held that under the specific facts and circumstances of the case—in particular, the debtors’ professed plans to sell the inventory during the bankruptcy proceedings—the bankruptcy court had discretion to employ a different valuation standard that accounted for the debtors’ hypothetical sales plans. The question presented is: Whether Bankruptcy Code § 506(a) authorizes a court to value collateral retained by the debtor under a standard other than “replacement value” when the debtor professes an intent to sell the collateral.