In re Beattie
| Citation | 31 BR 703 |
| Decision Date | 09 May 1983 |
| Docket Number | Adv. No. 82-0571,82-0417.,Bankruptcy No. C-B-82-212 |
| Court | U.S. Bankruptcy Court — Western District of North Carolina |
| Parties | In re Truett R. BEATTIE and T. Gerald Beattie, d/b/a Milk Valley Dairy, Debtor. UNITED STATES of America, Plaintiff, v. Truett R. BEATTIE and T. Gerald Beattie, d/b/a Milk Valley Dairy, Defendant. Truett R. BEATTIE and T. Gerald Beattie, d/b/a Milk Valley Dairy, Plaintiff, v. FARMERS HOME ADMINISTRATION, Defendant. |
William R. King, Marilyn Bright, Lipshutz, Frankel, Greenblatt, King & Cohn, Atlanta, Ga., Geoffrey A. Planer, Gastonia, N.C., for debtors.
Lawrence Lee, U.S. Dept. of Agriculture, Atlanta, Ga., for the U.S.
This Chapter 11 bankruptcy proceeding is presently before the Court upon complaint of the Farmers Home Administration (FmHA) for relief from the automatic stay of 11 U.S.C. § 362(a), and Debtor's Answer and Counterclaims thereto involving inter alia lien avoidance, preference, and breach of contract claims against FmHA (Adversary No. 82-0571). Concurrently pending for determination are FmHA's Motion to Dismiss pursuant to 11 U.S.C. § 1112(b)(1), (b)(2) and (b)(3); Debtor's Complaint for Turnover (Adversary No. 82-0417); and remaining issues raised in the Debtor's Application for Use of Cash Collateral initially considered by this Court on September 24, 1982.
By agreement of the parties hereto, with the approval of this Court, and in the interests of judicial economy arising from the common issues involved, all of the above pending matters were consolidated for trial and heard by this Court in Charlotte, North Carolina on April 11 and 12, 1983. Based upon the evidence presented at that trial, evidence presented at the hearing on Debtor's Application for Use of Cash Collateral held on September 21, 1982, the pleadings and briefs of the parties heretofore filed, review and consideration of the statutes and regulations applicable to FmHA, and after hearing all arguments of counsel, this Court makes the following Findings of Fact and Conclusions of Law.
1. Creditor FmHA is an agency of the United States Department of Agriculture. It is the lender of last resort for farm borrowers, 7 U.S.C. § 1922(4).
2. The Debtor in this Chapter 11 case is Truett R. Beattie and T. Gerald Beattie, d/b/a Milk Valley Dairy (hereinafter referred to as "Debtor" or "Beatties"). The Debtor is operating as a debtor-in-possession, and as such under 11 U.S.C. § 1107 has the authority to pursue all claims and maintain all defenses available to both the Beatties and as Trustee for the benefit of the estate.
3. This Court has jurisdiction to hear this case pursuant to Section 1471 of Title 28 of the United States Code and the model rule offered by the Judicial Conference of the United States as adopted by the United States District Court for the Western District of North Carolina.
4. Truett and Gerald Beattie are borrowers from the FmHA pursuant to authority granted that Agency by the Consolidated Farm and Rural Development Act of 1961, as amended, 7 U.S.C. § 1921 et seq., and the regulations implementing that authority, 7 C.F.R. Parts 1800 and 1900.
5. The Beatties are engaged in a dairy farming operation in Bessemer City, North Carolina, and have been continuously in the dairy business for at least 30 years. They are engaged in business under the name Milk Valley Dairy.
6. The Beatties' dairy operations are located upon a 58 + acre tract of hilly land, unsuitable for crop farming, owned by Truett Beattie. On that land are constructed various buildings and facilities required for the dairy operation, as well as a five-room frame house in which Truett Beattie and his family reside.
7. The Beatties also own cows, farm equipment, feed and silage necessary for the operation of a dairy business.
8. All of the real estate and fixtures thereupon have been given as security by Debtor in several deeds of trust to FmHA as security for said Debtor's obligation to that agency; those deeds are dated August 24, 1972, August 28, 1978, May 13, 1980, and July 29, 1981, and were recorded by FmHA in the Office of the Register of Deeds of Gaston County, North Carolina.
9. The Federal Land Bank has a first lien upon the foregoing real estate and fixtures, securing an obligation which as of April 12, 1983 totalled $34,526.31, principal and interest.
10. Prior to crop year 1982, the Beatties rented crop lands in the vicinity of their dairy farm on which they planted and harvested crops to provide hay and silage for their dairy cows.
11. For at least the past 10 years, the Beatties have borrowed funds from FmHA to finance their dairy and farming operations. The Beatties have looked to and utilized FmHA as their primary source of operating credit for this period of time, and FmHA financing has been used for planting of crops, purchase of machinery necessary for their feed growing and milking operations, purchase of livestock, repair and improvement of the real estate, and operating expenses. Throughout these transactions, the FmHA has treated the Beatties as individual borrowers for the purpose of applying loan limitations and other regulations concerning the administration of its authority under the Consolidated Farm and Rural Development Act.
12. The Beatties' credit transactions with FmHA have been collateralized by the granting of security interests in their equipment, livestock, crops, farm products, milk, milk base, and the proceeds thereof, as well as in the real estate.
13. Those security interests were perfected by FmHA by the filing of financing statements in Gaston County, North Carolina pursuant to North Carolina General Statutes Sec. 25-9-302.
14. On February 17, 1983, the FmHA filed a Proof of Claim in the bankruptcy concerning its relationship with Truett R. Beattie and Helen R. Beattie, which proof recited a total indebtedness of $534,410.68. The proof further set out twelve promissory notes, three security agreements, two financing statements, two continuation statements, and an assignment of proceeds as security for the said indebtedness.
15. On February 17, 1983, the FmHA filed a Proof of Claim in the bankruptcy concerning its relationship with T. Gerald Beattie and Marie H. Beattie, which proof recited a total indebtedness of $511,372.94. The proof further set out eleven promissory notes, three security agreements, two financing statements, two continuation statements, and an assignment of proceeds as security for the said indebtedness.
16. All of the government's security agreements cover crops growing on farms more fully described therein, as well as farm equipment and livestock. In addition to the farm equipment listed, the security agreements contain the following language:
Item 2. All farm and other equipment (except small tools and small equipment unless described below), in inventory now owned or hereafter acquired by the debtor, together with all replacements, substitutions, additions, and accessions thereto, including but not limited to the following.
Thereafter the documents contain various items of farm equipment. The security agreements also contain the following language regarding livestock:
Item 3. All livestock (except livestock and poultry kept primarily for subsistent purposes), fish, bees, birds, fur bearing animals, other animals produced or used for commercial purposes, other farm products and supplies now owned or hereafter acquired by debtor, together with all increases, replacements, substitutions, and additions thereto, including but not limited to the following.
Thereafter various cows, heifers and bulls are listed in the security agreements.
Each of the financing statements filed by the government to perfect the aforesaid security agreements contains the following language:
17. As a means of accommodation some of the parties executed and all operated in accord with an "Assignment of Proceeds from the Sale of Dairy Products and Release of Security Interest" (Government Ex. 6) (form FHA 441-25) (hereinafter "milk assignments"), which released a portion of the Government's security from milk products in order that the purchaser of milk, on a transactional basis, would receive clear title thereto, and the debtor be permitted thereby the use of a portion of the funds, with the remainder to be remitted to the secured party, all as agreed to by the debtor (seller), the purchaser, and FmHA (secured party).
18. In the Complaint for Turnover, the Debtor's Application for Use of Cash Collateral, and Debtor's original Answer and Counterclaim and unopposed amendment thereto, Debtor has raised issues concerning the validity and perfection of FmHA's security interests.
19. The FmHA typically participates in "milk assignment" from borrowers operating dairy farms as the sole or major source of repayment for FmHA loans. 7 C.F.R. Secs. 1951.8, 1962.6. The FmHA has had a series of "milk assignments" with this Debtor since 1972, culminating in the "assignments" entered at trial as Government Exhibits 7 and 6: "milk assignments" dated March 29, 1981 and September 25, 1981 in the amounts of $12,000 per month and $16,000 per month respectively. These "assignments" are on pre-printed forms prepared by FmHA.
20. A "milk assignment" is the contractual assignment of all or a portion of the proceeds received from the purchase of an FmHA borrower's milk (in which FmHA holds a security interest) by another party, in this case Dairymen, Inc. In order to implement the "milk assignment" so that payment is received by FmHA, and/or the borrower, through the purchasing entity, the assignment must be accepted by the purchaser. (Government Exhibit 7.)
21. An examination of Government...
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