Griffin v. Federal Land Bank of Wichita, 88-1599-C.

• Decision Date: 16 February 1989
• Docket Number: No. 88-1599-C.,88-1599-C.
• Citation: 708 F. Supp. 313
• Parties: John GRIFFIN and Sondra Griffin, Plaintiffs, v. FEDERAL LAND BANK OF WICHITA, Defendant.
• Court: U.S. District Court — District of Kansas

708 F. Supp. 313

John GRIFFIN and Sondra Griffin, Plaintiffs, v. FEDERAL LAND BANK OF WICHITA, Defendant.

No. 88-1599-C.

United States District Court, D. Kansas.

February 16, 1989.

Ann M. Zimmerman, Marilyn Harp, Legal Services of Wichita, Wichita, Kan., for plaintiffs.

Martin R. Ufford, Redmond, Redmond, O'Brien & Nazar, Wichita, Kan., for defendant.

MEMORANDUM AND ORDER

CROW, District Judge.

The case comes before the court on both parties' motions for summary judgment. Plaintiffs filed their complaint on October 14, 1988, seeking to enforce their rights under the Agricultural Credit Act of 1987 Act, Pub.Law 100-233, 12 U.S.C. § 2199 et seq. At the same time, plaintiffs filed a motion for a temporary restraining order. The court denied plaintiff's motion from the bench stating, inter alia, that plaintiffs had not shown irreparable harm nor established a likelihood of success on the merits. The parties then agreed no issues of material fact existed in the case and accepted the court's recommendation to submit the legal issues to it on stipulated facts. Having received the necessary filings, the court is prepared to rule.

The parties have stipulated to the following facts:

1. On or about August 13, 1981, John W. Griffin and Janice K. Griffin, now Janice K. Piatt, made, executed and delivered to The Federal Land Bank of Wichita their promissory note in the original amount of $165,000. In order to secure the indebtedness represented by the promissory note, John W. Griffin and Janice K. Griffin executed and delivered to The Federal Land Bank of Wichita their mortgage dated August 13, 1981 encumbering the following described real estate in Reno County, Kansas, together with other property described in said mortgage:

Southwest Quarter (SW ¼) of Section 8, Township 23 South, Range 7 West of the Sixth P.M.

Said mortgage was filed of record in the Office of the Register of Deeds of Reno County, Kansas, on the 19th day of August, 1981 in Mortgage Book 502 at Page 77 in the original amount of $165,000.

2. On February 28, 1986, John Griffin filed for relief under Chapter 7 of the Bankruptcy Code. His debts, including his debt to the Federal Land Bank, were discharged on June 26, 1986.

3. In February, 1987, the Federal Land Bank filed a petition to foreclose the above described note and mortgage in the District Court of Reno County, Kansas.

4. On December 2, 1987, a Journal Entry of Judgment in said foreclosure action was filed with the Clerk of the Reno County District Court.

5. On December 16, 1987, the Federal Land Bank first published a notice of the sheriff's sale on the above described property.

6. On January 6, 1988, the Agricultural Credit Act of 1987 became effective.

7. The sheriff's sale of the Griffins' property was held on January 11, 1988, and Federal Land Bank was the successful bidder at that sale.

8. On July 11, 1988, the redemption period on the subject property expired and the Griffins vacated the premises.

9. On August 29, 1988, The Farm Credit Bank of Wichita entered into a lease of the residence located on the subject property with Jerry and Terri Bribiesca. The Bribiescas subsequently assigned their interests in this lease to Mrs. Katheryn Kuhns.

10. On August 26, 1988, the Farm Credit Bank entered into a custom farming agreement with Tim R. Ayers to custom farm the 313 acres of cropland located on the subject property. Mr. Myers did not lease the subject property from the Farm Credit Bank.

11. On October 18, 1988, the Farm Credit Bank notified Katheryn Kuhns that it would terminate the lease agreement dated August 29, 1988. The Farm Credit Bank has determined it will not release the subject property to any person between now and the time the subject property is sold to a third party.

12. Mr. John Griffin, plaintiff in this case, has been farming land near Nickerson in Reno County, Kansas, since about 1957. His parents farmed land in this area as far back as 1888. Mr. Griffin bought land from his parents in about 1974 for $300 an acre. By the Mid-1980's Mr. Griffin owned 500 acres, including the homestead which had belonged to his parents. He rented and farmed an additional 880 acres in the same area. His farming operation consisted of raising wheat, milo, and millet, and feeding cattle.

Upon these stipulations, no genuine issues of material fact remain to prevent the court's entry of judgment as a matter of law.

The parties have identified three issues for the court's decision. First, whether plaintiffs have any restructuring rights under the Act when the judgment of foreclosure was entered prior to the effective date of the Act, January 6, 1988, but the foreclosure sale occurred after that date? Second, what relief, if any, are plaintiffs entitled to because defendant leased the plaintiff's former farm residence without giving them the first right of refusal to lease? Finally, is defendant's custom farming agreement with a third party on plaintiff's former farm ground subject to plaintiffs' first right of refusal to lease? The issues will be addressed seriatim.

I. Restructuring Rights Under the Act

Congress passed the Act in an effort "to provide credit assistance to farmers, to strengthen the Farm Credit System, to facilitate the establishment of secondary markets for agricultural loans, and for other purposes." Preface to Pub.L. 100-233, 1987 U.S.Code Cong. & Admin.News, 101 Stat. 1568. As to the rights of farmers-borrowers, a more detailed explanation of Congress' general intent is found in the House report:

H.R. 3030 will require Farm Credit System lenders to restructure the loans of financially-stressed farmers-borrowers, in order to help keep farmers on the land and help turn around the condition of stressed system institutions. Restructuring (which involves compromise of debt obligations) will be required if that is the least cost alternative, that is, if it will produce more return to the lender than foreclosure.

....

Loan restructuring as envisioned in H.R. 3030 could include rescheduling, reamortization, renewal, deferral of principal, or interest monetary concessions, or other action regarding an outstanding loan, that would make it probable that the borrower's operation would become financially viable. The purpose of this required restructuring purely and simply is to keep the farmer in business so long as that can be accomplished as cheaply as foreclosing the loan. If properly done on appropriate cases, the circumstances can be very positive. The borrower remains on the farm in a viable operation where he can continue in his chosen profession and avoid the agony of losing the way of life enjoyed by the farm family. The institution, while it may take a financial loss, will not lose any more than if it had foreclosed the loan under which circumstances it would likely acquire property that would be a financial drain, disrupt the lives of the borrower and his family, and add to the tensions of the rural community.

H.R.Rep. No. 100-295(I), 100th Cong. 1st Sess., 52, 62-63, reprinted in 1987 U.S. Code Cong. & Admin.News 2723, 2733-34.

The loan restructuring process is primarily set forth at 12 U.S.C. § 2202a. Once a loan is or has become distressed, the lender is required to give written notice to the borrower that the loan may be suitable for restructuring and to provide a copy of lender's policy governing treatment of distressed loans and all materials necessary for borrower to submit an application for restructuring. 12 U.S.C. § 2202a(b)(1). Written notice must be provided no later than 45 days before the lender commences foreclosure proceedings. 12 U.S.C. § 2202a(b)(2). A lender may not foreclose or continue any foreclosure proceeding before completing its pending consideration of the loan for restructuring. 12 U.S.C. § 2202a(b)(3).

As another right of the borrower before foreclosure, the Act requires the lender to provide the borrower a reasonable opportunity to meet personally with the lender's representative to review the loan and its suitability for restructuring and to aid the development of a restructuring plan. 12 U.S.C. § 2202a(c).

Upon receipt of the borrower's application for restructuring, the lender must decide whether to restructure the loan after considering a number of listed factors. 12 U.S.C. § 2202a(d)(1). "This section 2202a shall not prevent a qualified lender from proposing a restructuring plan for an individual borrower in the absence of an application for restructuring from the borrower." 12 U.S.C. § 2202a(d)(2). If it determines the cost of restructuring under the proposed plan is less than or equal to the potential cost of foreclosure, the lender must restructure as proposed. 12 U.S.C. § 2202a(c)(1). The Act spells out the factors relevant to the lender's comparison of costs. 12 U.S.C. § 2202a(e)(2).

Each farm credit district board of directors must develop a restructuring policy which explains the procedure for submitting an application for restructuring and the borrower's right to seek review of a denial of the application before a credit review committee. 12 U.S.C. § 2202a(g). The policy must have been developed within 60 days after January 6, 1988. 12 U.S.C. § 2202a(g)(1). A copy of this policy accompanies the notice of distressed loan sent to the borrower. 12 U.S.C. § 2202a(b)(1) and (2).

The applicability of § 2202a is addressed in subsection (k), which provides:

The time limitation prescribed in subsection (b)(2), and the requirements of subsection (c), shall not apply to a loan that became a distressed loan before the date of the enactment of this section if the borrower and lender of the loan are in the process of negotiating loan restructuring with respect to the loan.

As previously described, subsection (b)(2) requires a 45-day notice before commencement of foreclosure proceedings, and subsection (c) requires the lender to provide the borrower with a reasonable opportunity to meet and discuss restructuring. Subsect...