First Bank of Miller, Miller, SD v. Wieseler, Civ. No. 84-3094
| Citation | 45 BR 871 |
| Decision Date | 09 January 1985 |
| Docket Number | Bankruptcy No. 384-0063 to 384-0065.,Civ. No. 84-3094 |
| Parties | FIRST BANK OF MILLER, MILLER, SOUTH DAKOTA, Appellants v. George John WIESELER and James Michael Wieseler, d/b/a Wieseler Partnership, George John Wieseler, and Delores Jean Wieseler, SSN XXX-XX-XXXX and XXX-XX-XXXX, James Michael Wieseler and Marietta Laree Wieseler, SSN XXX-XX-XXXX and XXX-XX-XXXX, Appellees. |
| Court | U.S. District Court — District of South Dakota |
Ron J. Volesky, Churchill, Manolis, Freeman & Volesky, Huron, S.D., for appellants.
Max A. Gors, James E. Carlon, Pierre, S.D., for appellees.
On July 30, 1984, George and James Wieseler, d/b/a Wieseler Partnership, filed a Chapter 11 voluntary petition on behalf of their farming and ranching partnership. Also on July 30, the partners with their respective wives filed individual Chapter 11 petitions. At an expedited hearing held on September 13, 1984, the three bankruptcy estates were consolidated. The primary purpose of the expedited hearing, however, was to consider debtors' motion requesting use of "cash collateral" pursuant to 11 U.S.C. § 363. Specifically, debtors desired to use proceeds from the sale of livestock and crops subject to a security interest held by First Bank Miller (creditor) to meet their ongoing farming expenses and continue operating another year. In compliance with 11 U.S.C. § 363(e), as "adequate protection" of creditor's interest in the property debtors sought to convert into proceeds, debtors offered a replacement lien in their anticipated 1985 grain harvest and in livestock they expected to buy in March, 1985 and sell in the summer and early fall of 1985.
At the conclusion of the hearing, the bankruptcy court orally granted debtors' motion. On September 21, 1984, the bankruptcy court denied creditor's motion for a stay pending appeal, and on October 5, 1984, the court entered its findings of fact and conclusions of law.
The bankruptcy court's grant of debtors' cash collateral motion is the subject of this appeal. In conjunction with a review of that decision, on September 26, 1984, this court granted creditor's motion for a stay pending appeal. This court did, however, on the agreement of the parties, except from the stay debtors' sale of 171 head of cattle, 106 of which had already been sold, provided they deposit the proceeds in their debtor-in-possession account and leave the proceeds there until further notice of this court. Having now considered the record on appeal and the arguments of the parties, this court holds pursuant to 11 U.S.C. § 363(e) that debtors failed to meet their burden of proof on the issue of adequate protection. Accordingly, the case is remanded to the bankruptcy court for further proceedings not inconsistent with this opinion.
George and James Wieseler, brothers, are life-long farmers and ranchers, and have been partners since 1969. Together they own approximately 1,960 acres of land in central South Dakota where they raise cattle and grain. At the expedited bankruptcy hearing, James Wieseler, the only witness called by either side, testified that the majority of grain the debtors produce is used as feed for their livestock.
James Wieseler further testified that in the course of maintaining their farming and ranching operation, debtors have done business with and have been financed by First Bank Miller. This relationship with creditor is further evidenced by debtors' bankruptcy petition which states that debtors owed creditor $309,000 at the time of filing. Although the original promissory notes and security agreements are not part of the record on appeal, the parties apparently agree that this debt was secured by a security interest in all of the debtors' machinery, equipment, cattle, grain and feed.
Debtors' cash collateral motion proposes that they be permitted to sell grain and livestock subject to creditor's security interest. At the expedited bankruptcy court hearing, debtors projected their expenses between September, 1984 and September, 1985 to be $321,710. They also estimated that the property they wished to convert to cash collateral was worth $186,300 at the time they filed their petitions and calculated that they could sell that same property for $279,050. Debtors' "Exhibit E" categorize and value the property debtors desired to sell. Figure 1 is a substantial reproduction of Exhibit E.
FIGURE 1
Estimated Sale Price at Time Estimated Sale Price Under
of Filing (July 30, 1984) Cash Collateral Order
(Issued September 13, 1984)
70 cows @ $400 = $ 28,000 70 cows @ $525.00 = $ 36,750.00
30 heifers @ $380 = $ 11,400 30 heifers @ $470.00 = $ 14,100.00
141 steers @ $400 = $ 56,400 141 steers @ $400.00 = $ 70,500.00
124 bred 124 bred
heifers @ $400 = $ 49,600 heifers @ $550.00 = $ 68,200.00
65 calves @ $100 = $ 6,500 65 calves @ $350.00 = $ 22,750.00
wheat = $ 11,000 7,000 bu. wheat
@ $3.75/bu. = $ 26,250.00
barley = $ 12,000 7,000 bu. barley
@ $2.00/bu. = $ 14,000.00
corn = $ 3,000 4,500 bu. corn
@ $3.00/bu. = $ 13,500.00
oats = $ 8,400 6,500 bu. oats
__________ @ $2.00/bu. = $ 13,000.00
TOTAL $186,300 _____________
TOTAL $279,050.00
On direct examination, James Wieseler testified that the figures contained in Exhibit E were either made by himself or at his direction. Other than that, debtors offered no explanation as to the genesis of the figures in Exhibit E.
In this case, the bankruptcy court accepted as the cornerstone of debtors' adequate protection proposal, debtors' offer of a replacement lien in their 1985 grain harvest and some livestock they anticipated buying and selling in 1985. Debtors' "Exhibit C", which was received in evidence, specifies the quantities and values of the items comprising the replacement lien:
DEBTORS' EXHIBIT C
Adequate Protection
500 yearlings to be purchased in
March at $350.00 175,000.00
203 acres corn to yield 40 bu./acre
at $3.00 bu. 24,360.00
226 acres wheat to yield 30 bu./acre
at $3.75 bu. 13,125.00
70 acres oats to yield 80 bu./acre
at $2.00 bu. 11,200.00
230 acres barley to yield 30 bu./
acre at $2.00 bu. 7,800.00
130 acres alfalfa to yield 2 ton/acre
at $40.00 ton 10,400.00
205 acres hay to yield 1 ton per
acre at $30.00 ton 6,150.00
portion of increase of value in
yearling crop 31,015.00
__________
TOTAL 279,050.00
At the conclusion of the September 13, 1984 hearing, the bankruptcy court granted the debtors' motion to use cash collateral, ordering that it remain effective until February of 1985. The bankruptcy court indicated it would hold a hearing at that time to review the debtors' use of the cash collateral. Additionally, the court ordered debtors to (1) provide creditor with regular financial reports including an annotated bank statement disclosing the identity and purpose of each transaction; (2) keep creditor apprised of the disposition of major assets and permit its representatives to inventory and inspect any collateral located on debtors' farm; (3) conduct their operation so as to stay within a specified budget; (4) deposit any cash received from the sale of collateral in excess of cash needed for immediate expenses in an interest-bearing account; and (5) provide creditor with a lien on both the debtor-in-possession and interest-bearing accounts.
Essentially, creditor argues on appeal that a replacement lien on crops to be planted in 1985 and livestock not yet purchased is not adequate protection1 of its interest in presently held livestock, proceeds, and crops. Creditor is entitled to adequate protection of its lien in the presently held property by virtue of Section 363(e) of the Bankruptcy Code which provides that:
Notwithstanding any other provision of this section, at any time, on request of an entity that has an interest in property used, sold or leased, or proposed to be used, sold, or leased, by the trustee, the court shall prohibit or condition such use, sale, or lease as is necessary to provide adequate protection of such interest. In any hearing under this section, the trustee has the burden of proof on the issue of adequate protection.
Adequate protection is not defined in the Bankruptcy Code.2 Section 3613 of the Code simply illustrates, in non-exclusive terms, some methods by which adequate protection may be provided. One of these methods is the replacement lien. 11 U.S.C. § 361(2). However, whether a replacement lien is the correct device for affording adequate protection, or whether it alone will be sufficient depends upon the circumstances of the case. See 2 Collier on Bankruptcy, ¶ 361.01, 361-9 (L. King 15th ed. 1983).
Whatever the method of adequate protection, the purpose of adequate protection is always to preserve the cash collateral creditor's "interest in property." Protection of the creditor's interest in property means that a...
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