In re Great Plains Royalty Corporation

Citation471 F.2d 1261
Decision Date16 January 1973
Docket NumberNo. 72-1403,72-1404.,72-1403
PartiesIn the Matter of GREAT PLAINS ROYALTY CORPORATION, Bankrupt (two cases). SOURIS RIVER TELEPHONE MUTUAL AID CORPORATION, Appellant, v. Myron ATKINSON, Trustee, Appellee. NORTH CENTRAL ELECTRIC COOPERATIVE, INC., Appellant, v. Myron ATKINSON, Trustee, Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (8th Circuit)

Pringle & Herigstad, Minot, N. D., for appellants.

Frank F. Jestrab and John R. Gordon, Bjella & Jestrab, Williston, N. D., on brief for appellee.

Before LARAMORE, United States Court of Claims Judge,* and BRIGHT and ROSS, Circuit Judges.

BRIGHT, Circuit Judge.

We here consider whether two REA-financed cooperatives, operating under bylaw policies of general application, may decline to refund patronage capital credited to the estate of a bankrupt and defunct corporation when it would refund such capital to the estate of an individual patron should he die. In the context of an adjudication in bankruptcy, the Referee, Gordon M. Thompson, and the district court on review, Judge VanSickle, held the patronage capital refundable to the corporation because the circumstances of its bankruptcy amounted to "de facto" death. The cooperatives appeal. We affirm.

The appellant-cooperatives, Souris River Telephone Mutual Aid Corporation (Souris River) and North Central Electric Cooperatives, Inc. (North Central), are North Dakota cooperative corporations governed by provisions of the North Dakota Cooperative Laws. See generally, N.D.Cent.Code, chs. 10-13 (applicable to electric cooperatives) and 10-15 (applicable to cooperative associations in general). Both cooperatives provide utility services in rural areas — Souris River, telephone communications, and North Central, electric power at retail. Both have obtained loans for plant construction from the federal government through the Rural Electrification Administration (REA). The assets of both are mortgaged to the United States to secure these loans.

The REA has made recommendations to these and other cooperatives regarding "nonprofit operations." The appellants have adopted bylaws substantially in the form recommended by the REA. Under these bylaws, they have established a "capital credits" plan whereby all amounts received from patronage in excess of operating costs and expenses are credited to the member-patron's account as though these amounts had been refunded to the patron in cash and then returned to the cooperative for inclusion in its capital account.1 The bylaws further provide that the boards of directors, at their discretion, may retire patronage capital credits on a first-in, first-out basis.2 Where no financial impairment will result, the bylaws permit an exception to the "first-in, first-out" rule, by allowing early retirement of a patron's credits upon his death, where the board of directors in its discretion and "acting under policies of general application * * *" approves.3

With this background, we turn briefly to the record here. It shows that both Souris River and North Central are in sound financial condition and that each has consistently authorized prepayment of capital credits to the estates of individual patrons who have died over the past decade. The bankrupt, Great Plains Royalty Corporation, as a patron-member, acquired substantial capital credits in each cooperative, from 1961 to the date of its bankruptcy on April 12, 1968. The corporation, prior to its adjudication in bankruptcy, had incurred obligations to the respective cooperatives for telephone and electric services, which had not been paid. After bankruptcy, the trustee continued to require these services. The cooperatives filed claims as general creditors against the bankrupt's estate for payment of these pre-bankruptcy obligations and as creditors entitled to priority for services furnished in the post-bankruptcy period. The bankrupt's trustee, as a setoff and counterclaim to the claim of each cooperative, sought early retirement of the patronage capital credited to the corporation, contending that, in each case, a balance was due the trustee for the excess of capital credits in favor of the bankrupt's estate.

In sustaining the trustee's contentions, the bankruptcy court ruled the bankrupt corporation to be "de facto dead." Accordingly, the court reasoned that each cooperative became obligated to pay capital credits to the trustee of the bankrupt's estate pursuant to the bylaw provision authorizing the cooperative board of directors to retire capital credits "upon the death of any patron." We affirm this ruling.

North Dakota law authorizes a capital credits bylaw for nonprofit cooperatives. The relevant statute specifies that, after deduction of expenses and other permitted allocations of net proceeds, the cooperative shall distribute the remainder to patrons "in accordance with the ratio which their patronage bears to total patronage." N.D.Cent.Code § 10-15-33(3)(a). This distribution may be in "cash or credits * * *." N.D. Cent.Code § 10-15-33(5).

Discrimination in distributions of remaining net proceeds is prohibited, except as between member- and nonmember-patrons in specified circumstances. The statute provides:

None of the remainder shall constitute income to the co-operative, but all thereof shall be distributed and paid in accordance with the ratio which individual patronage bears to total patronage, either to all patrons, to member patrons only, or to all patrons with nonmembers receiving a lower proportion than members, as the bylaws may provide. There shall be no other distinction between members and nonmembers, but distribution may be based on business done with particular departments, or in particular commodities, supplies or services, or upon classification of business according to type or nature thereof. N.D.Cent. Code § 10-15-33(4)(b) (emphasis added).

The bylaws of each cooperative, in this case, specify that their terms constitute a contract between the cooperative and each patron.4 The discretion granted the directors in accelerating retirement of capital credits upon the death of any patron must be exercised under policies of general application. Yet the undisputed record shows that both Souris River and North Central in recent years have accelerated payment of capital credits upon...

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7 cases
  • In re Braniff Airways, Inc., Bankruptcy No. 482-00369.
    • United States
    • United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Northern District of Texas
    • August 7, 1984
    ...against the debtor does not have this effect, and, thus, there is no reason to prohibit such setoff, citing e.g., In re Great Plains Royalty Corp., 471 F.2d 1261 (8th Cir.1973); In re North Atlantic & Gulf Steamship Co., 204 F.Supp. 899 (S.D.N.Y. 1962), aff'd sub nom., Schilling v. A/S D/S ......
  • Mitchellville Co-op. v. Indian Creek Corp.
    • United States
    • Court of Appeals of Iowa
    • February 26, 1991
    ...cannot die as a natural person, and such a result is unfair. In support of its proposition, Indian Creek cites to In re Great Plains Royalty Corp., 471 F.2d 1261 (8th Cir.1973). In Great Plains, two cooperatives refused to refund patronage capital credits to the estate of a defunct, bankrup......
  • In re Axvig, Bankruptcy No. 83-05036
    • United States
    • United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of North Dakota
    • January 14, 1987
    ...asserts that Axvig's stock should immediately be redeemed or retired. The Eighth Circuit Court of Appeals, in In re Great Plains Royalty Corporation, 471 F.2d 1261 (8th Cir.1973), addressed the issue of whether a corporation in Chapter 7 has effectively died within the meaning of a cooperat......
  • In re Eastern Maine Elec. Co-op., Inc.
    • United States
    • United States Bankruptcy Courts. First Circuit. U.S. Bankruptcy Court — District of Maine
    • March 25, 1991
    ...their discretion, the directors of a cooperative are free to refuse to pay value to retire a patron's account. In re Great Plains Royalty Corp., 471 F.2d 1261, 1265 (8th Cir.1973) (agreeing that patronage dividends allocated cooperative patrons' accounts do not constitute an indebtedness of......
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