Haldeman v. State of Wyo. Farm Loan Bd., 93-8040

Decision Date09 August 1994
Docket NumberNo. 93-8040,93-8040
PartiesJoe E. HALDEMAN and Kathryn O. Haldeman; Ross Haldeman and Janet Haldeman, Debtors-in Possession, Appellants, v. STATE OF WYOMING FARM LOAN BOARD, Appellee.
CourtU.S. Court of Appeals — Tenth Circuit

Robert T. Moxley, Gage & Moxley, Cheyenne, WY, (Sue Davidson, Cheyenne, WY, with him on the brief), for appellants.

Emily S. Birtell, Office of Atty. Gen., Cheyenne, WY, (Joseph B. Meyer and Michael L. Hubbard, Office of Atty. Gen., with her on the brief), for appellee.

Before MOORE and McWILLIAMS, Circuit Judges, and ROSZKOWSKI, * Senior District Judge.

ROSZKOWSKI, Senior District Judge.

This is an appeal from the district court's order affirming the bankruptcy court's decision in favor of the defendant. At issue first is the ownership of unsevered crops after the foreclosure sale of the farmland in question. The second issue is whether the defendant retains Eleventh Amendment immunity from suit by the plaintiffs. We affirm the conclusions of the bankruptcy court and the district court that ownership of the crops ran with the land and that the Wyoming Farm Loan Board is immune from suit.

I.

The plaintiffs are farmers in Albin, Wyoming. The defendant, Wyoming Farm Loan Board, held mortgages on the plaintiffs farms, which were executed in September 1985. In May 1986, the plaintiffs filed Chapter 11 petitions in bankruptcy, at which time the plaintiffs had already been in default on the loans.

While the case was pending in the bankruptcy court, the plaintiffs filed six proposed reorganization plans, each of which was not confirmable. The bankruptcy court ordered the plaintiffs to present a confirmable plan or risk dismissal of their petitions. A plan was filed and a hearing on it was held on November 2, 1988. The court could not confirm the plaintiffs' plan and granted the secured creditors relief from the automatic stay to proceed with foreclosure.

The defendant initiated foreclosure proceedings on the farmlands. On December 17, 1988, the plaintiffs received notice of foreclosure and were informed the foreclosure sale was scheduled for January 31, 1989. Prior to the sale, the plaintiffs filed a document styled "Notice of Administration of Crops in Bankruptcy" with the Laramie County Clerk's Office. The plaintiffs asserted that the document reserved an ownership interest in the planted crops, barring their sale with the land in the foreclosure.

The farm had five center pivot sprinkler systems as part of its irrigation system. The plaintiffs owned three of the sprinklers. They leased the fourth sprinkler from a neighbor, and owned the fifth, subject to a security interest held by the American National Bank of Kimball. The plaintiffs disputed the ownership of the three sprinklers in relation to the foreclosure sale. The bankruptcy court found them to be personalty and awarded them to the plaintiffs.

At the foreclosure sale, the defendant bid its interest and purchased the land. After they vacated the land, the plaintiffs filed an adversary proceeding in the bankruptcy court claiming ownership of the unsevered winter wheat crop. The crop was unmatured and still growing on the land at the time of the sale and at the time the defendant took possession. Alternatively, the plaintiffs asked for reimbursement for the costs they put into the crops. They also claimed that the defendant wrongfully converted the crops, that the defendant negligently managed the crops causing them damages, that the defendant intentionally interfered with the plaintiffs' attempt to exercise their option to buy clause in the lease of the fourth sprinkler system. They also requested that the court issue a declaration that the plaintiffs owned the three sprinklers, that they be awarded rent on the sprinklers, and punitive damages.

Pending resolution of the adversary proceeding, the bankruptcy court directed that the defendant had a right to harvest the crop when it matured, providing that it sequestered the proceeds in a separate account.

In separate rulings on motions for summary judgment, the bankruptcy court held that the defendant owned the crops, but the sprinklers were personalty of the plaintiffs. The remaining issues were set for trial. After trial, the bankruptcy court awarded the plaintiffs costs associated with planting the wheat crop but dismissed the claims of unjust enrichment, conversion and intentional interference with a contract. The bankruptcy court also decided that the defendant was an arm of the state, having Eleventh Amendment immunity from money damages, and dismissed the claim for rent of the sprinkler systems. However, the court ordered the sprinklers to be awarded to the defendant as a setoff for its unsecured claim. The court subsequently amended that part of its judgment, awarding the plaintiffs possession of the sprinklers.

The plaintiffs appealed to the district court, which affirmed. The district court agreed that the defendant retains Eleventh Amendment immunity and could not be sued for money damages. The court found that the issues of ownership of the crops were properly framed and decided. Finally, the district court affirmed the bankruptcy court's exercise of discretion in awarding costs of planting the crops to the plaintiffs. The plaintiffs appeal to this court.

II.

The plaintiffs first challenge the lower court's determination that the ownership of the crops transferred with the land. This is a legal issue and therefore this court has de novo review over this determination. See In re Hart, 923 F.2d 1410, 1411 (10th Cir.1991). Issues of a factual nature are reviewed for clear error. Id.

The Haldemans executed two mortgages to the defendant in which the Haldemans did not reserve an interest in the crops at issue. A common law rule of real property is that unmatured crops which continue to draw sustenance from the soil pass with title to the land unless specifically reserved. Once severed from the land, crops become personal property. The crop of winter wheat here was unsevered and three months from maturation. Neither party cites any recent Wyoming caselaw in support of their position. However, we agree with the reasoning of the district court in finding that the unmatured crops passed to the defendant as purchaser at the foreclosure.

The common law of Wyoming appears to follow the same rule as in other states, which hold that crops which continue to draw sustenance from the soil pass with the title to the land unless specifically reserved. In Gross v. Robinson, 36 Wyo. 392, 256 P. 80, 83 (1927), the Wyoming Supreme Court stated that:

The majority of courts, however, seem to hold that one who recovers land from an adverse holder, as, for instance, a successful plaintiff in ejectment, is entitled to all the crops not yet severed from the land. This is upon the theory that the crops still standing on the land and affixed to the soil are part and parcel of the land, and not personal property, though crops are personal property for some purposes, and that the recovery of the land necessarily includes such crops.

Id. 256 P. at 83; see also Womach v. Thomas, 486 A.2d 15, 17 (Del.Ch.1984); Wood v. Wood, 116 Colo. 593, 183 P.2d 889, 890 (1947); Whitfield v. Gay, 253 S.W.2d 54, 56 (Tex.App.1952); Smith v. Dairymen's League Co-Op. Ass'n, Inc., 186 Misc. 82, 58 N.Y.S.2d 376, 380 (N.Y.Sup.Ct.1945); Rector v. Lewis, 46 Cal.App. 168, 188 P. 1018 (1920); Annotation, Conveyance Of Land As Including Mature But Unharvested Crops, 51 A.L.R. 4th 1263 (1987); 21A Am.Jur.2d, Crops Sec. 14 (1981); 25 C.J.S., Crops Sec. 6 (1966). Cf. Fleming v. Goggins, 375 P.2d 474 (Wyo.1962) (Tenant farmer entitled to silage converted from corn already harvested but had been stored on the land).

Here, the crops remained unmatured and unsevered at the time the plaintiffs' three-month right of possession pending redemption had expired, giving the Haldemans no additional rights. The plaintiffs knew foreclosure was "a distinct possibility." Nevertheless, the plaintiffs continued to work the land. The district court noted that the mortgagor arguably does not lose anything by continuing to work the land because the crop on the land enhances the price of the land at sale.

The plaintiffs contend that they are fighting on behalf of the bankruptcy estate to pay off unsecured creditors and argue that the defendant receives a windfall by taking the crops. They assert that the crops are personalty subject to the provisions of the automatic stay. Second, the plaintiffs argue that the crops are personalty because Wyoming takes a lien theory approach to mortgages, the relief from the stay allows the foreclosure on a prepetition lien, which was on the land alone and did not include the crops which are after-acquired property.

We believe the plaintiffs' arguments attempt to avoid the initial question of state property law, namely, whether the crops are personal property or part of the real estate. Some jurisdictions have recognized an exception to the general rule that crops run with the land. That exception is limited to circumstances when the crops are matured but not yet harvested at the time the purchaser acquires title to the real property. See Conveyance Of Land As Including Mature But Unharvested Crops, 51 A.L.R. 4th 1263; cf. Fleming, 375 P.2d 474. That exception is not applicable here. The exception and cases adopting it deal with matured unsevered crops, while this case deals with unmatured crops, which pass with title to the land.

The plaintiffs also suggest that the crops are after-acquired property and that 11 U.S.C. Sec. 522 exempts the crops from the estate. The plaintiffs argument again jumps ahead of the analysis. Our finding that title to the crops is determined by state property law resolves the issue. The crops were properly found to transfer with title to the land to the defendant when it purchased the land at the foreclosure sale. 1

III.

The plaintiffs also contend...

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