Broken Bow Ranch, Inc., In re

• Decision Date: 30 August 1994
• Docket Number: No. 93-2895,93-2895
• Parties: Bankr. L. Rep. P 76,071 In re BROKEN BOW RANCH, INC., Debtor. BROKEN BOW RANCH, INC., Debtor-Appellant, v. FARMERS HOME ADMINISTRATION, Claimant-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1005

33 F.3d 1005

Bankr. L. Rep. P 76,071

In re BROKEN BOW RANCH, INC., Debtor BROKEN BOW RANCH, INC., Debtor-Appellant, v. FARMERS HOME ADMINISTRATION, Claimant-Appellee.

No. 93-2895.

United States Court of Appeals Eighth Circuit.

Submitted April 11, 1994.

Decided Aug. 30, 1994.

Wanda Howey-Fox, Yankton, SD, argued, for appellant.

Thomas A. Lloyd, Asst. U.S. Atty., Pierre, SD, argued, for appellee.

Before MAGILL, Circuit Judge, FRIEDMAN, ^* Senior Circuit Judge, and LOKEN, Circuit Judge.

LOKEN, Circuit Judge.

Broken Bow Ranch, Inc., a South Dakota farming corporation (Broken Bow or Debtor), appeals the district court's ¹ affirmance of a bankruptcy court ² order denying Debtor a discharge in bankruptcy unless it pays $81,862 in "disposable income" to its unsecured creditors. See 11 U.S.C. Secs. 1225(b), 1228(a). Concluding that we have jurisdiction to review this final bankruptcy order and that the bankruptcy court did not err in determining Debtor's disposable income, we affirm.

I.

Broken Bow filed for protection under Chapter 12 of the Bankruptcy Code, and its amended plan of reorganization went into effect on September 1, 1988. The plan required that Debtor pay all disposable income earned during the three-year life of the plan to unsecured and undersecured creditors. See 11 U.S.C. Sec. 1225(b)(1). Appellee Farmers Home Administration is a substantial undersecured creditor.

Debtor's plan ended on September 1, 1991, and Debtor filed its Final Report and Account in March 1992. FmHA objected to discharge on the ground that Debtor had not paid all disposable income to the Chapter 12 trustee for distribution to eligible creditors. ³ After a trial, the bankruptcy court concluded that Debtor had $81,862 in disposable income when the plan ended. The court denied Debtor's request for a discharge until that amount is paid and ordered Debtor and the trustee to agree on payment terms, subject to the court's approval. The district court affirmed, noting "that the bankruptcy court performed an in-depth analysis of this bankruptcy case and made a carefully considered decision." Debtor appeals.

II.

"Unlike the district court, our jurisdiction in bankruptcy cases is limited to appeals from final orders. Compare 28 U.S.C. Sec. 158(a), with 28 U.S.C. Sec. 158(d)." In re Pleasant Woods Assocs. Ltd. Partnership, 2 F.3d 837, 838 (8th Cir.1993) (per curiam). As happens all too often in bankruptcy appeals, neither party addressed this issue, but we are nonetheless obliged to do so. See, e.g., Lewis v. United States Farmers Home Admin., 992 F.2d 767, 771 (8th Cir.1993).

In determining whether a bankruptcy court order is final for purposes of 28 U.S.C. Sec. 158(d), we must consider:

the extent to which (1) the order leaves the bankruptcy court nothing to do but execute the order; (2) delay in obtaining review would prevent the aggrieved party from obtaining effective relief; and (3) a later reversal on that issue would require recommencement of the entire proceeding.

In re Apex Oil Co., 884 F.2d 343, 347 (8th Cir.1989). Thus, if a district court order remands a case to the bankruptcy court for "further factual development" or for "other significant judicial activity involving the exercise of considerable discretion," it is not a final order and we lack jurisdiction to review it. Travelers Ins. Co. v. KCC-Leawood Corporate Manor I, 908 F.2d 343, 345 (8th Cir.1990); In re Vekco, Inc., 792 F.2d 744, 745 (8th Cir.1986). See In re Schneider, 873 F.2d 1155, 1157 (8th Cir.1989) (remand to determine proper fixed discount rate not a final order because bankruptcy court must "further develop the record and exercise considerable discretion in determining the appropriate rate").

In Lewis and in Pleasant Woods, we held that bankruptcy court orders refusing to confirm plans of reorganization under Chapter 13 and Chapter 11 were not final decisions for purposes of 28 U.S.C. Sec. 158(d). In each case, in addition to denying confirmation of the proposed plan, the bankruptcy court had retained jurisdiction and had described what type of modified plan the court would be willing to confirm. We held that such an order is interlocutory--until either a modified plan is confirmed, or the bankruptcy case is dismissed, significant judicial activity involving the exercise of considerable discretion remains uncompleted. See Lewis, 992 F.2d at 772-73.

The order in this case is somewhat similar to the nonappealable orders in Lewis and Pleasant Woods. The bankruptcy court has "withheld" discharge unless Debtor pays $81,862 of disposable income to its Chapter 12 creditors. Nonetheless, we conclude that this is an appealable final decision. Broken Bow's Chapter 12 plan has been completed, and it has submitted its Final Report. The order under review does not contemplate further significant activity in the bankruptcy case, such as the submission and consideration of a modified plan of reorganization. Either Debtor will make the $81,862 disposable income payment and receive a discharge, or it will fail or refuse to make the payment and the case will be dismissed without a discharge. Although the bankruptcy court must approve any deferred payment terms the trustee and Broken Bow may negotiate, this will not likely require the exercise of "considerable" judicial discretion. Now is clearly the most logical time for the parties to obtain a final appellate answer to the last significant issue in this proceeding, discharge. Therefore, we have jurisdiction over Debtor's appeal.

III.

The Code provides that a Chapter 12 debtor is entitled to discharge "after completion ... of all payments under the plan," 11 U.S.C. Sec. 1228(a). Here, Broken Bow's plan required that it "make payments at the end of its three (3) year plan so as to comply with" Sec. 1225(b)(1)(B), that is, payments of all "disposable income." Disposable income is defined in the Code:

For purposes of this subsection, "disposable income" means income which is received by the debtor and which is not reasonably necessary to be expended--

(A) for the maintenance or support of the debtor or a dependent of the debtor; or

(B) for the payment of expenditures necessary for the continuation, preservation, and operation of the debtor's business.

11 U.S.C. Sec. 1225(b)(2). In Sec. 1225(b), Congress intended to provide creditors "an assurance that what can be done to protect their interests will be done. Disposable income is simply a measure of what can be done to promote fairness." Rowley v. Yarnall, 22 F.3d 190, 193 (8th Cir.1994).

The determination of what constitutes disposable income is a fact-intensive inquiry into whether debtor has "income which is in excess of that reasonably required for maintenance and continuation of [its] farming operation from one year to the next." In re Coffman, 90 B.R. 878, 885 (Bankr.W.D.Tenn.1988). Chapter 12 debtors must turn over disposable income during the course of their farm operations under a plan. See In re Kuhlman, 118 B.R. 731 (Bankr.D.S.D.1990). Creditors may also require a final disposable income determination at the end of the plan, prior to discharge, to ensure that debtor did not "accumulate an unreasonably large reserve of funds that would provide a windfall at the time of discharge." In re Gage, 159 B.R. 272, 280 (Bankr.D.S.D.1993); see Rowley, 22 F.3d at 194.

A. In this case, the bankruptcy court first calculated Broken Bow's potential disposable income by subtracting its obligations from its inventories at the end of the plan period. That consisted of adding cash on hand ($75,881), plus the value of hay, silage, and corn inventories ($177,542), plus the amount of two government payments, a 1990 "corn deficiency" payment and a 1991 disaster payment ($26,493); and then subtracting an outstanding FmHA note ($65,444), an outstanding "sealed corn" loan ($131,530), and unpaid property taxes ($1,080). The net amount, $81,862, is Broken Bow's "net disposable income" at the end of its Chapter 12 plan.

Broken Bow shoots one arrow at this calculation--it contends that the bankruptcy court erred in including the two government payments because they were received in 1992, after the end of the plan. We disagree. Whether or not these payments were entirely predictable, they were attributable to Debtor's farm operations during the plan period. In calculating disposable income so as to avoid providing a windfall to either the Debtor or its creditors, the bankruptcy court must have discretion to decide whether operations during the plan period should be considered on a cash or accrual basis. Rigid adherence to either approach might open the door to manipulation or abuse, or might overstate or understate disposable income in a particular case. Here, the record reflects that Broken Bow...