647 F.2d 768 (8th Cir. 1981), 80-2198, State of Mo. v. United States Bankruptcy Court for E. D. of Arkansas

Docket Nº:80-2198, 80-2179.
Citation:647 F.2d 768
Party Name:In re STATE OF MISSOURI; State of Missouri Ex Rel John G. Runyan, as Director of the Missouri Department of Agriculture; State of Missouri Ex Rel Missouri Department of Agriculture; John G. Runyan, as Receiver of Certain Grain Warehouses; State of Missouri Ex Rel John Ashcroft, Attorney General of the State of Missouri; and James Boillot, Acting Di
Case Date:April 08, 1981
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit
 
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Page 768

647 F.2d 768 (8th Cir. 1981)

In re STATE OF MISSOURI; State of Missouri Ex Rel John G.

Runyan, as Director of the Missouri Department of

Agriculture; State of Missouri Ex Rel Missouri Department of

Agriculture; John G. Runyan, as Receiver of Certain Grain

Warehouses; State of Missouri Ex Rel John Ashcroft, Attorney

General of the State of Missouri; and James Boillot, Acting

Director of the Missouri Department of Agriculture, Petitioners,

v.

U. S. BANKRUPTCY COURT FOR the E. D. OF ARKANSAS and the

Hon. Charles W. Baker, Respondents,

and

Robert P. Lindsey, as Trustee, et al., Intervenor-Respondents,

and

United States of America, Intervenor.

In re STATE OF MISSOURI; State of Missouri Ex Rel John G.

Runyan, as Director of the Missouri Department of

Agriculture; State of Missouri Ex Rel Missouri Department of

Agriculture; John G. Runyan, as Receiver of Certain Grain

Warehouses; State of Missouri Ex Rel John Ashcroft, Attorney

General of the State of Missouri; and James Boillot, Acting

Director of the Missouri Department of Agriculture, Appellants,

v.

U. S. BANKRUPTCY COURT FOR the E. D. OF ARKANSAS and the

Hon. Charles W. Baker, Appellees,

and

Robert P. Lindsey, as Trustee, et al., Intervenor-Appellees,

and

United States of America, Intervenor.

Nos. 80-2198, 80-2179.

United States Court of Appeals, Eighth Circuit

April 8, 1981

Submitted March 11, 1981.

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A. Jan Thomas, Jr., West Memphis, Ark., Ben F. Arnold, Little Rock, Ark., Davidson, Plastiras, Horne, Hollingsworth & Arnold, Ltd., Little Rock, Ark., Warren Dupwe, Jonesboro, Ark., Richard Steele, Cape Girardeau, Mo., for appellee/intervenor/trustee.

John Ashcroft, Atty. Gen., State of Mo., Gerald M. Sill, Asst. Atty. Gen., Jefferson City, Mo., for appellants/petitioners; James F. Gunn, St. Louis, Mo., F. Craig King, Jr., Gunn & Gunn, St. Louis, Mo., of counsel.

Bill W. Bristow, Jonesboro, Ark., Seay & Bristow, Jonesboro, Ark., Smith & Morphew, Corning, Ark., Coleman, Gantt, Ramsay & Cox, Pine Bluff, Ark., Richard L. Ramsay, Pine Bluff, Ark., for intervenors.

Before BRIGHT, HENLEY and McMILLIAN, Circuit Judges.

BRIGHT, Circuit Judge.

This case presents the question of whether the State of Missouri or the federal bankruptcy court for the Eastern District of Missouri has jurisdiction over grain located in Missouri grain storage warehouses. The bankruptcy court 1 asserts that it has exclusive jurisdiction over the grain warehouses pursuant to a bankruptcy proceeding instituted by Arkansas debtors, operators of warehouses in Missouri and Arkansas. The State of Missouri 2 asserts that the grain should be liquidated in accordance with provisions of the Missouri Code, under the aegis of the Missouri Department of Agriculture.

The State of Missouri applies here for a writ of prohibition 3 to prevent the bankruptcy court from exercising jurisdiction over the grain. The State also appeals

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from the district court's 4 denial of its application for a similar writ of prohibition. See In re Cox Cotton Co., 3 C.B.C.2d (Collier's Bankruptcy Cases) 615 (E.D.Ark.1980).

After carefully reviewing the record and the contentions of the various parties, we sustain the authority of the bankruptcy judge. We hold that the Bankruptcy Reform Act of 1978 (the Code), 11 U.S.C. § 101 et seq. (Supp. III 1979), vests the bankruptcy court with exclusive jurisdiction over the grain and grain warehouses in question, subject, of course, to the court's and trustee's obligation to protect the interests of farmers and others who have ownership rights in the grain. See 11 U.S.C. § 361. Accordingly, we deny the writ of prohibition and affirm the order of the district court.

I. Background. 5

Robert James, Don James, and G. E. James (the debtors), residents of Arkansas, operated public grain elevators in Missouri and Arkansas under various partnership identities, including elevators located at Holcomb, New Madrid (Ristine), Caruthersville, and Naylor, Missouri. An affiliated corporation, James Agri-Center, Inc., operates a public grain warehouse at Neelyville, Missouri.

On August 11, 1980, these debtors, including the corporation, filed bankruptcy proceedings in the bankruptcy court for the Eastern District of Arkansas. The partnership liquidations were originally filed under chapter 7 of the Bankruptcy Code, and subsequently were converted into reorganization proceedings under chapter 11 of the Code. The corporation operates as a debtor in possession under chapter 11 of the Code. The bankruptcy court appointed Robert P. Lindsey initially as the interim trustee on August 15, 1980, and later as permanent trustee for the purpose of operating and liquidating the various partnerships.

Three days prior to the filing of the bankruptcy proceedings, the debtors authorized the Missouri Department of Agriculture to assume control of the grain in their Missouri warehouses, pursuant to Missouri law empowering the State to operate and liquidate insolvent grain warehouses. 6 The Missouri Department of Agriculture filed receivership petitions for the debtors' grain warehouses in the state circuit courts for the counties in which the warehouses are located. On August 12, 1980, subsequent to the filing of the bankruptcy petitions, the Missouri courts appointed John G. Runyan, then Director of the Department, as receiver of each warehouse and ordered him to

make an audit and full investigation of the financial circumstances of respondents (debtors) and carry out such operation or liquidation of said public grain warehouse(s) in order to protect the best interests of those individuals storing grain in said facilit(ies).

On August 29, the bankruptcy court entered an order directing the trustee to assume certain grain purchase contracts with farmers, executed by the debtors prior to bankruptcy. A number of farmers, believing this action deprived them of their rightful possession of their grain, barricaded the New Madrid (Ristine) grain warehouse. The bankruptcy court ordered United

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States Marshals to intercede and break the blockade. 7

On September 3, 1980, the State requested that the bankruptcy court determine the ownership of the grain located in the Missouri partnership warehouses. The State subsequently voluntarily withdrew the request; thus the question of the ownership of the grain remains in dispute. Missouri concedes that the debtors own at least 2.3 percent of the grain. Other parties claiming ownership of the grain include Missouri and Arkansas farmer-producers, the Commodity Credit Corporation, and the First Tennessee Bank, N. A., Memphis. The State and the trustee dispute whether the amount of grain on hand exceeds the outstanding warehouse receipts. The trustee estimates the value of the Missouri grain at approximately $5,000,000.

On September 11, 1980, the bankruptcy court issued an order approving the trustee's application for a grain dealer and warehouse operator's license. The court also fixed the trustee's bond at $1,000,000 and ordered the trustee to comply to the extent possible with Missouri laws and regulations concerning the licensing of grain dealers and warehouses.

The drama escalated when, on September 23, 1980, the trustee filed a request in bankruptcy court to sell the grain free and clear of all liens. The trustee alleged that the grain should be sold because of the cost of storage, the high market price, the danger of deterioration, and the financial benefits of investing the proceedings pending eventual distribution. The trustee asserted authority to sell the grain pursuant to 11 U.S.C. § 363(f)(4), which permits the sale of property owned by an entity other than the bankruptcy estate if the ownership is in bona fide dispute. 8 Here, the trustee alleged a genuine dispute between the estate and other parties concerning ownership of the grain.

In response to the petition to sell grain, the Missouri authorities brought an action in Missouri state court against the trustee and the debtors for enforcement of the Missouri grain laws. On October 20, 1980, the state court issued a temporary restraining order, coupled with an order to show cause, directing Missouri's Director of Agriculture to take possession of the grain

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warehouses and restraining the trustee from interfering in any way with the Director's control, operation, and liquidation of the Missouri grain.

Needless to say, the order produced an immediate response from the trustee and the bankruptcy court. On the same day the state order issued, the bankruptcy judge telephoned counsel for Missouri's Director of Agriculture and advised him that contempt proceedings would be heard against the Director.

The Missouri officials immediately sought a writ of prohibition in this court. We denied that petition on October 21, 1980, without prejudice to the filing of a petition for such a writ in the district court for the Eastern District of Arkansas. We also stayed certain bankruptcy proceedings, including the contempt proceeding, pending a further order of this court. The Missouri officials then unsuccessfully sought prohibitory relief in the federal district court. See In re Cox Cotton Co., 3 C.B.C.2d 615 (E.D.Ark.1980).

The district court ruled that the bankruptcy court possessed exclusive jurisdiction over the estate of the debtors, which included all legal and equitable interests in property of the debtors wherever located as of the commencement of the action. See 11 U.S.C. § 541(a); 28 U.S.C. § 1471(e) (Supp. II 1978). The court also observed that, although state law defines the "interests" in property, federal law controls the issue of whether...

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