Bowman v. Bond, 100200 FED8, 00-6019

Docket Nº:00-6019
Party Name:Bowman v. Bond
Case Date:July 13, 2000
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

IN RE: MICHAEL AARON BOWMAN AND DEBRA JO BOWMAN DEBTORS.

MICHAEL AARON BOWMAN AND DEBRA JO BOWMAN APPELLANTS,

V.

JACK BOND APPELLEE.

No. 00-6019NE

United States Bankruptcy Appellate Panel FOR THE EIGHTH CIRCUIT

Submitted: July 13, 2000

October 2, 2000

Appeal from the United States Bankruptcy Court for the District of Nebraska

Before Koger, Chief Judge, Hill, and Dreher, Bankruptcy Judges.

Dreher, Bankruptcy Judge

Appellants Michael Aaron Bowmanand Debra Jo Bowman ("Debtors") appeal the December 1, 1999 order of the bankruptcy court (FN1) granting Appellee Jack Bond ("Appellee") relief from the automatic stay to foreclose on certain real property in Dundy County, Nebraska owned by the Debtors ("Dundy property") and the February 17, 2000 order of the bankruptcy court denying Debtors' motion for reconsideration. We affirm.

FACTS

The Debtors in this case are Michael and Debra Bowman. Mr. Bowman is employed full-time by a radio station equipment company in Ogallala, Nebraska, approximately 60 miles from the Dundy property which is the subject of this appeal. Ms. Bowman is employed full-time as a clerk at a lumber company. The Debtors' combined yearly income is approximately $60,000.

On April 23, 1999, the Debtors filed a chapter 11 bankruptcy petition. The filing of that petition stayed a foreclosure action on the Debtors' 1,400 acre Dundy property. Metropolitan Life Insurance Company of Kansas City originally held the first mortgage on the Dundy property. Prior to the Debtors' bankruptcy filing, however, Metropolitan had assigned its mortgage interest to the Appellee. When the bankruptcy petition was filed, the Dundy property was subject to numerous liens and mortgages totaling over $4 million, including Appellee's claim for around $600,000.

Upon filing for bankruptcy, the Debtors indicated that they intended to reorganize (FN2) their farming operations. So, throughout the summer of 1999, the Debtors requested approval from the bankruptcy court to undertake certain farming operations. On one occasion, the Debtors proposed to lease farmlands from a large produce company to plant pumpkins. Several creditors objected to the Debtors' plans, and the bankruptcy court denied the Debtors' motion on grounds that it was too late in the summer to plant pumpkins. On another occasion, the Debtors proposed to plant organic crops and lease 300 acres of farmland in Hays County, Nebraska. Based on objections from creditors, the bankruptcy court disapproved that proposal as well.

On August 2, 1999, the Debtors filed a plan of reorganization and a disclosure statement. Under that plan, the Debtors indicated that they would not only continue their farming operations but also that they would undertake organic farming. Specifically, the plan provided that the Debtors would retain their interest in the Dundy property and make substantial annual payments. Profits from the farming operations would be used to pay the secured creditors' claims in installments over twenty-five years. Unsecured creditors would receive a pro-rata share of any remaining profits over a seven-year period. In addition, the plan provided that the Debtors would maintain their full-time jobs as a sales associate and a clerk, using this employment income to cover their living expenses. The appendix to the plan indicated that the Debtors believed the Dundy property was worth $700,000. Several creditors objected to this low valuation. One lien holder hired an appraiser to value the Dundy property.

Appellee claimed that a successful reorganization was not possible given the Debtors' proposed plan. On September 17, 1999, Appellee sought relief from the automatic stay to initiate foreclosure proceedings, asserting both that the Debtors lacked equity in the Dundy property and that the Dundy property was not necessary for an effective reorganization. Alternatively, the Appellee argued that his interest in the Dundy property was not adequately protected.

During the next several months, the Debtors sought to continue the hearing on Appellee's motion for relief from the automatic stay. On October 12, 1999, the bankruptcy court held a preliminary hearing. The Debtors subsequently offered Appellee several different payment plans to adequately protect his secured interest and requested that the bankruptcy court delay or cancel the upcoming evidentiary hearing. The bankruptcy court denied the Debtors' requests.

On November 3, 1999, the bankruptcy court held an evidentiary hearing on Appellee's motion for relief from the automatic stay. At the hearing, the Debtors' counsel acknowledged that the Debtors had no equity in the Dundy property and that the plan of reorganization proposed in August was not confirmable. The Debtors accordingly introduced a new plan of reorganization-a liquidation plan under which the Debtors would liquidate several related entities, such as Bowman Storage LLC, and form one surviving entity, the Bowman Family Partnership, Ltd., to engage in organic dairy farming and pork production.

Mr. Bowman testified at the evidentiary hearing that neither he nor his wife had any experience in the dairy business or organic farming. Mr. Bowman also indicated that they did not own any farm equipment or cows. Moreover, the Debtors acknowledged that they had no operating capital to get their farming operations up and running. Under the plan, the Dundy property would sit idle for the first two years because its five-year water allocation had already been used. During those two years, however, the Debtors could, according to Mr. Bowman, secure organic certification for their farming operations, which required that no pesticides or other chemicals be applied to the farmland for two growing seasons, and continue to collect Freedom to Farm Act payments from the USDA. Mr. Bowman also pointed out that he and his relatives had been actively engaged in developing a pork production project since 1994. Finally, Mr. Bowman acknowledged that he was not sure of the plan's treatment of certain creditors and liens, specifically which liens or creditors would receive payments and in what amounts.

On December 1, 1999, the bankruptcy court entered an order granting Appellee relief from the automatic stay, enabling Appellee to initiate foreclosure proceedings against the Dundy property under Nebraska state law. The Debtors subsequently filed a motion asking the bankruptcy court to reconsider its previous order in light of new evidence about the Dundy property's value. Previously, the Debtors believed that the Dundy property was worth $700,000, but they now had a written appraisal valuing it at $1.4 million. On January 31, 2000, the bankruptcy court held a telephonic hearing on the Debtors' motion to reconsider and, on February 17, 2000, denied that motion. The Debtors appealed from the order granting Appellee relief from the automatic stay and the order denying the motion to reconsider.

During oral argument in this case, the parties advised the court that the foreclosure sale authorized by the bankruptcy court's order granting relief from the automatic stay would likely occur in the near future. As of the date of this opinion, the foreclosure sale has not yet taken place, but the Dundy property remains under imminent threat of foreclosure. In addition, it is now almost eighteen months and two full growing seasons into the Debtors' farm reorganization and the Debtors still have not proposed a plan of reorganization acceptable to the creditors.

ISSUES

On appeal, the Debtors raise two main issues. The first issue is whether the bankruptcy court abused its discretion in granting Appellee relief from the automatic stay. The bankruptcy court granted Appellee relief from the automatic stay under sections 362(d)(1) and 362(d)(2) after finding that the Appellee's interest in the Dundy property...

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