In re Bracewell

• Decision Date: 30 June 2006
• Docket Number: No. 05-11951.,05-11951.
• Parties: In Re: Ricky Wayne BRACEWELL, Debtor. Ricky Wayne Bracewell, Plaintiff-Appellee, v. Walter W. Kelley, Defendant-Appellant.
• Court: U.S. Court of Appeals — Eleventh Circuit

454 F.3d 1234

In Re: Ricky Wayne BRACEWELL, Debtor Ricky Wayne Bracewell, Plaintiff-Appellee, v. Walter W. Kelley, Defendant-Appellant.

No. 05-11951.

United States Court of Appeals, Eleventh Circuit.

June 30, 2006.

COPYRIGHT MATERIAL OMITTED

Thomas Dozier Lovett, Kelley, Lovett, Mullis & Blakey, P.C., Valdosta, GA, for Kelley.

Arthur J. Shelfer, Jr., Thomasville, GA, for Bracewell.

Appeal from the United States District Court for the Middle District of Georgia.

Before CARNES, HULL and PRYOR, Circuit Judges.

CARNES, Circuit Judge:

This is an appeal by the trustee of the bankruptcy estate of Ricky Bracewell from an order of the district court excluding from the estate a payment Bracewell received under the Agricultural Assistance Act of 2003 for crop losses he had sustained. The appeal turns on the issue of whether a crop disaster payment is property of the debtor's estate under 11 U.S.C. § 541(a)(1) or (a)(6) if the losses occurred before the bankruptcy filing or conversion date but the legislation authorizing the payment came afterwards. The bankruptcy court ruled that the payments were property of the estate under § 541(a)(1) but not under (a)(6). On Bracewell's appeal, the district court ruled that the payment was not property of the bankruptcy estate under either subsection of § 541. This is the trustee's appeal from that ruling.

I.

The facts have been stipulated throughout these proceedings. Ricky Bracewell planted approximately 223 acres of seed wheat in November 2000 and approximately 374 acres of seed cotton in May 2001. A drought in 2001 substantially reduced Bracewell's crop yields. As a result, he was unable to repay the debts he had incurred to produce the crops. Bracewell filed a Chapter 12 bankruptcy petition on May 29, 2002, and he converted it to a Chapter 7 case on January 2, 2003.

In July 2002, while Bracewell's bankruptcy petition was pending, the Emergency Farmer and Rancher Assistance Act of 2002 was introduced in the House of Representatives. H.R. 5310, 107th Cong. (2002). That proposed legislation was not enacted. In January 2003, after Bracewell had converted his bankruptcy case to chapter 7, Congress reconvened and the legislation was reintroduced as The Agricultural Assistance Act of 2003. H.R.J. Res. 2, 108th Cong. (2003). The Act was signed into law on February 20, 2003. Agricultural Assistance Act of 2003, Pub.L. No. 108-7, div. N, tit. II, 117 Stat. 538 (2003). It provided for monetary assistance to farmers who had suffered losses to their 2001 or 2002 crops due to weather-related disasters or emergency conditions. Id. § 202(a), 117 Stat. at 538. Under the Act farmers who had suffered losses to both their 2001 and 2002 crops could receive assistance for only one year's loss, the year to be selected by each farmer. Id. § 202(c), 117 Stat. at 538. On January 30, 2004, Bracewell applied to the Department of Agriculture's Farm Service Agency for a payment as a result of the losses he had suffered to his 2001 wheat and cotton crops. He received that payment, in the amount of $41,566 on February 19, 2004, while his Chapter 7 case was still pending in the bankruptcy court.

II.

A.

We begin our legal discussion by taking up the question of whether the crop disaster payment to Bracewell is property of the bankruptcy estate under § 541(a)(1), which is an issue of first impression in this circuit. Section 541(a)(1) defines property of the bankruptcy estate as "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). The plain language of that provision is clear, and it makes the commencement of the bankruptcy case the key date for property definition purposes.¹ That means the property of the debtor's estate is property the debtor had when the bankruptcy case commences, not property he acquires thereafter. Our most closely analogous decision, as well as the only two courts of appeals decisions that are directly on point, confirm that the clear temporal limitation which is so plain on the face of the statutory language controls.

The specific issue in Witko v. Menotte (In re Witko), 374 F.3d 1040 (11th Cir. 2004), was whether a legal malpractice claim was property of the estate. Id. at 1042. After Witko filed a petition for bankruptcy, he was denied alimony in a separate legal proceeding. Id. at 1042. Thereafter, and while his bankruptcy case was still pending, Witko sued his divorce counsel for malpractice. Id. The trustee intervened, seeking a determination that Witko's malpractice claim was property of the estate. Id. We held that it was not, because a debtor's estate cannot be greater than the property rights the debtor had at the commencement of the case. See id. at 1042-43. We reasoned that: "Applying the appropriate state law, Witko's legal malpractice cause of action did not exist until his alimony action concluded with an adverse outcome that was proximately caused by his attorney's negligence," id. at 1043, and that outcome did not happen until after the commencement of the bankruptcy case. Id. at 1044. As a result, the property interest in the malpractice claim did not come into existence until after the bankruptcy case had already commenced. Id. The same is true here. Bracewell's property interest in a claim to payments under the Agricultural Assistance Act of 2003 did not come into existence or accrue until that legislation became law, which was after his bankruptcy petition had been filed.

The two federal appeals court decisions directly on point are Drewes v. Vote (In re Vote), 276 F.3d 1024 (8th Cir.2002), and Burgess v. Sikes (In re Burgess), 438 F.3d 493 (5th Cir.2006) (en banc). In the Eighth Circuit case the debtor, Vote, filed a bankruptcy petition on September 7, 1999, which was six weeks before legislation was passed providing payments for crop losses suffered during 1999. Vote, 276 F.3d at 1026. Thereafter, Vote received more than $33,000 under that legislation because he had not been able to plant a crop in 1999. Id. The Eighth Circuit held that the payments were not "legal or equitable interests of the debtor in property as of the commencement of the case" within the meaning of § 541(a)(1). Id. at 1027. It reasoned that to include the payments in the estate would give the trustee rights beyond those that Vote had at the commencement of the case, because Vote "had no interest of any kind" until the assistance legislation became law. Id.

The Fifth Circuit, sitting en banc, has also recently addressed this precise issue. The Burgess case involved disaster payments under the Agricultural Assistance Act of 2003, the same legislation involved in this case. See Burgess, 438 F.3d at 495. The only factual difference from this case is that Burgess had received a discharge from bankruptcy before the legislation was enacted. See id. The trustee filed a motion to re-open. Id. The Fifth Circuit held that the case should not be re-opened because the assistance payments were not property of the estate. Id. at 496. It began with the proposition that only property "`in which the debtor has a legal or equitable interest at the time of bankruptcy comes into the estate.'" Id. at 499 (quoting Goff v. Taylor (In re Goff), 706 F.2d 574, 578 (5th Cir.1983) (quotation marks omitted), overruled on other grounds by Patterson v. Shumate, 504 U.S. 753, 112 S.Ct. 2242, 119 L.Ed.2d 519 (1992)). The debtor did not have a legal or equitable interest in crop loss payments under legislation that had not been enacted at the time he filed his bankruptcy petition. Id. at 503. He had only a "mere hope" that legislation would be enacted providing payments to cover his crop loss. Id. If a hope at the time of filing were enough, the Court explained, "any postpetition legislation or contract could retroactively create property of the estate." Id. The Burgess court also held that the crop loss itself was not property of the estate which would bring in the disaster payment as proceeds. Id. If the fact that the crop loss preceded the filing were enough by itself, the language of § 541(a)(1) — "a legal or equitable interest as of the commencement of the case"—would have no effect. Id. There can be no legal or equitable interest in payment without law authorizing it, and at the time of filing that law did not exist. See id.

The Ninth Circuit's decision in Sliney v. Battley (In re Schmitz), 270 F.3d 1254 (9th Cir.2001), is in accord with these decisions although Schmitz presented a slightly different question. After the filing of his bankruptcy petition, Schmitz was awarded a fishing quota or right for future years. Id. at 1255. The quota was calculated based on Schmitz's pre-filing fishing history. Id. The Ninth Circuit held that the quota rights were not part of the bankruptcy estate because the regulations creating those rights were not adopted until after the bankruptcy petition was filed. Id. at 1257-58. Even though the quota was calculated based on Schmitz's pre-filing fishing history, that history had no value until the regulations were promulgated. Id. at 1257. At the time he filed, Schmitz had nothing beyond a hope based on his interest. Id.

Thus, the circuits that have considered the issue are in agreement that no legal or equitable interest exists until assistance legislation becomes law; before then the debtor has only a hope and maybe an expectation that legislation will be enacted for his relief, but that is not enough. See In re Schmitz, 270 F.3d at 1257 (holding that "a hope, a wish and a prayer" is insufficient under § 541(a)(1)). We join the other circuits and conclude that until legislation was enacted authorizing the disaster payments and specifying the criteria for those payments, Bracewell had no legal or equitable interest in a payment. This is true even though before he filed his case he satisfied the criteria for payment that, as it turns out, Congress would eventually require. The fact that Congress regularly...