In re Axvig, Bankruptcy No. 83-05036
| Decision Date | 14 January 1987 |
| Docket Number | Adv. No. 86-7045.,Bankruptcy No. 83-05036 |
| Citation | 68 BR 910 |
| Parties | In re Allyn E. AXVIG, Debtor. Richard NELSON, Trustee of the Estate of Allyn E. Axvig, Plaintiff, v. CAVALIER RURAL ELECTRIC CO-OPERATIVE OF LANGDON, ND, a North Dakota Cooperative, Fairdale Farmer's Union Oil Co., a North Dakota Cooperative, Fairdale Farmer's Union Elevator, a North Dakota Cooperative, Edinburg Farmer's Union Oil Co., a North Dakota Cooperative, Hensel Farmer's Union Elevator, a North Dakota Cooperative, Park River Farmer's Union Oil Co., a North Dakota Cooperative, Osnabrock Farmer's Union Elevator, a North Dakota Cooperative, Grygla Farmer's Union Oil Co., a Minnesota Cooperative, Roseau Electric Cooperative, Inc., a Minnesota Cooperative, Harvest States Cooperative, f/k/a Grain Terminal Association (GTA), Roseau County Cooperative, a Minnesota Cooperative, Defendants. |
| Court | U.S. Bankruptcy Court — District of North Dakota |
Lowell P. Bottrell, Fargo, N.D., for plaintiff.
Jon C. Stevenson, Grafton, N.D., for defendant Osnabrock Farmer's Union Elevator.
Kirk Tingum, Grand Forks, N.D., for Grygla Farmers Union Oil Co., Fairdale Farmers Co-op. Elevator, Park River Farmers Union Oil, Edinburg Farmers Union Oil Co., Fairdale Farmers Union Oil Co.
Jan M. Sebby, Minot, N.D., for Harvest States Co-op.
R. Scott Stewart, Langdon, N.D., for Cavalier Rural Elec. Co-op. of Langdon.
The matter before the court is essentially a turnover action commenced by Richard Nelson (Trustee), as Trustee of the Chapter 7 estate of Allyn Axvig (Debtor), against various electrical, agriculture supply, and agricultural marketing cooperatives. The Trustee by Complaint filed April 4, 1986, seeks a judgment compelling the cooperatives to immediately pay the Trustee the value of equity credits (also referred to as patronage dividends and capital stock) listed in the Debtor's name. The Trustee further alleges that the credits are assets of the estate and not subject to any possessory lien or right of setoff.
Defendants Fairdale Farmer's Cooperative Elevator Company and Fairdale Farmer's Union Oil Co., (Fairdale Cooperatives) both of whom were owed money by the Debtor as of the date of filing, generally deny the Trustee's allegation insofar as the Trustee alleges that redemption of the equity credits should occur immediately. Additionally, as an affirmative defense, the Fairdale Cooperatives allege that they have a first lien on the equity credits of Allyn Axvig and are thus secured creditors. As an alternative counterclaim, the Fairdale Cooperatives seek relief from stay to setoff the Debtor's obligations against the Debtor's equity credits in the cooperatives. Defendants Grygla Farmer's Union Oil Co., Osnabrock Farmer's Union Elevator, Park River Farmer's Union Oil Co., Edinburg Farmer's Union Oil Co., Harvest States Cooperatives and Cavalier Rural Electric Coop all deny that they are required to immediately redeem the Debtor's equity credits. Defendant Hensel Farmer's Union Elevator did not appear and a default judgment was entered against them on November 4, 1986. The Trustee and Roseau County Cooperative stipulated to a dismissal and a judgment was entered accordingly on November 20, 1986. The remaining defendants and the Trustee agree to submit this case to the court based upon stipulated facts and documents of record, and waive any right to present additional evidence. Oral arguments were held on December 29, 1986. The facts, based upon the stipulated facts and documents are as follows:
Findings of Fact
The defendants are all non-profit cooperatives, engaged in providing various services and products such as electricity, agriculture related services and supplies, and marketing of agriculture commodities. Harvest States Cooperative, Grygla Farmer's Union Oil Co., and Roseau Electric Cooperative Inc. are Minnesota cooperatives; the rest are North Dakota cooperatives. The Debtor has previously done business with all of the defendant cooperatives. Although the individual cooperatives do not characterize their operations in precisely the same terms, their design and operation is quite similar and for the most part they operate in the same fashion.
Cooperatives receive special tax treatments because of their non-profit nature. To retain this treatment, profits must be returned to the cooperative patrons. This is generally done on an annual basis. These profits are allocated on a pro-rata basis based upon the amount of business done with the respective cooperative by individual patrons. A percentage of the annual profits, oftentimes in the range of twenty to thirty percent, is paid out in cash shortly after the profit distribution is calculated. A patron's share of profits not distributed by direct cash payments is often referred to as equity credits, stock credits, capital credits, retained capital, or patronage earnings. The court will refer to these retained earnings as "capital stock". These earnings are retained by the cooperative as operating capital and are generally redeemed or retired in cash upon the patron reaching a specific age or at death. Capital stock does not earn dividends or accrue interest.
Bylaws generally give the cooperative board of directors authority to establish criteria which must be met before capital stock will be redeemed although some cooperative bylaws include these criteria. The board of directors of each cooperative in the case at bar is given the discretion in its bylaws to allow redemption of the capital stock only if the board feels that redemption is feasible and is in the best interest of the cooperative. Cooperatives will often forego redemption of capital stock until a later occasion if the cooperative's financial condition does not warrant immediate payment. It is the capital stock of the Debtor in various cooperatives which the Trustee is seeking to have immediately redeemed or retired by the cooperatives.
The Debtor, Allyn Axvig, is currently 49 years of age. The Debtor has not exempted any of the capital stock in issue. The facts as they specifically pertain to each individual defendant, are as follows:
Cavalier Rural Electric Cooperative of Langdon
This cooperative refers to equity credits as capital credits. Article VII of this cooperative's bylaws provides as follows:
Capital credits are redeemed from deceased members and capital credits accumulated through the year 1962 have been redeemed. Currently, however, only the capital credits of decedents are redeemed, except for redemption of the capital credits of a corporation which recently filed Chapter 7. Capital credits are assignable only on the books of the cooperative pursuant to written instruction from the assignor and only to successors in interest or successors in occupancy on the patrons premises served by the cooperative, unless the board, acting under policies of general application, shall determine otherwise. Allyn Axvig's capital account reflects an amount through 1985 of $2,600.43. Axvig is not indebted to this cooperative.
This cooperative refers to equity credits as revolving capital credits. Article V, section 1(b) of this cooperative's bylaws provides as follows:
Each patron shall . . . irrevocably subscribe and offer to pay to this cooperative an amount of money equal to the amount of his proportionate share of the Patrons\' Net Proceeds for credits in the Revolving Capital . . . and his said subscriptions shall become payable by him in cash without any notice or call for payment upon acceptance of all or any part of his said subscriptions by the Board of Directors at any time during the next succeeding fiscal year.
The board of directors, in its discretion, may retire any revolving capital credits at any time when the record holder either: (1) dies, (2) otherwise ceases to be a producer, (3) removes from the territory served by this cooperative, or (4) attains the age of 70 years of age. During the past several years the cooperative has paid cash in retirement of its capital credits only to patrons who have qualified by reason of death. However, revolving capital credits have been released and paid to the respective patrons through fifty percent of the 1974 credits. Axvig's revolving capital credits are freely transferable and assignable to either member or non-members of the cooperative. Axvig has accumulated $155.48 in retained credits with this cooperative. Axvig is not indebted to this cooperative.
This cooperative officially calls its equity credits capital equity certificates, referred to as "equities". The bylaws of this cooperative provide that annual net savings per member patronage, referred to as patronage dividends, "shall be distributed in . . . Capital Equity Certificates. . . ."
The bylaws further provide that a patron ...
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