In re Big Dry Angus Ranch, Inc.

• Decision Date: 05 February 1987
• Docket Number: Bankruptcy No. 86-40023.
• Citation: 69 BR 695
• Parties: In re BIG DRY ANGUS RANCH, INC., Debtor.
• Court: U.S. Bankruptcy Court — District of Montana

69 B.R. 695 (1987)

In re BIG DRY ANGUS RANCH, INC., Debtor.

Bankruptcy No. 86-40023.

United States Bankruptcy Court, D. Montana.

February 5, 1987.

Stephen C. Mackey, Billings, Mont., for debtor.

Malcolm H. Goodrich, Billings, Mont., for FLB.

Thomas M. Monaghan, Miles City, Mont., for First Nat. Bank of Miles City.

ORDER

JOHN L. PETERSON, Bankruptcy Judge.

The issue in this case is whether the Debtor-in-Possession, a family farmer, may convert this proceeding from Chapter 11 of Title 11 to Chapter 12. At the date the recently enacted "Bankruptcy Judges, United States Trustees and Family Farmer Act of 1986", P.L. 99-554, became effective on November 26, 1986, the Debtor's Chapter 11 proceeding was pending, having been filed January 13, 1986.

Section 302(c) of the Family Farmers Act provides:

"Amendments Pertaining To Family Farmers — (1) The amendments made by subtitle B of Title II shall not apply with respect to cases commenced under Title 11 of the United States Code before the effective date of this Act."

One of the amendments made by subtitle B of Title II under Section 256 of the Act was to Section 11 U.S.C. § 1112:

"Sec. 256. Conversion From Chapter 11 to Chapter 12. Section 1112(d) of Title 11, United States Code is Amended —

(1) by inserting "12 or" before "13",

(2) in paragraph (1) by striking out "and" at the end thereof,

(3) in paragraph (2) by striking out the period at the end thereof and inserting "and", and

(4) by inserting after paragraph (2) the following: `(3) if the debtor requests conversion to Chapter 12 of this title, such conversion is equitable.\'"

As a result of Section 256, Section 11 U.S.C. § 1112(d) now reads:

"(d) The court may convert a case under this Chapter to a case under Chapter 12 or 13 of this title only if —

(1) the debtor requests such conversion;

(2) the debtor has not been discharged under Section 1141(d) of this title, and

(3) if the debtor requests conversion to Chapter 12 of this title, such conversion is equitable."

The Joint Explanatory Statement of the Committee of Conference of Senate and House members states:

"APPLICABILITY OF CHAPTER 12 TO PENDING CHAPTER 11 AND 13 CASES.

It is not intended that there be a routine conversion of Chapter 11 and 13 cases, pending at the time of enactment, to Chapter 12. Instead it is expected that courts will exercise their sound discretion in each case, in allowing conversion only where it is equitable to do so.

Chief among the factors the court should consider is whether there is a substantial likelihood of successful reorganization under Chapter 12.

Courts should also carefully scrutinize the actions already taken in pending cases in deciding whether, in their equitable discretion, to allow discretion. For example, the court may consider whether the petition was recently filed in another Chapter with no further action taken. Such a case may warrant conversion to the new Chapter. On the other hand, there may be cases where a reorganization plan has already been filed or confirmed. In cases where the parties have substantially relied on current law, the availability to convert to the new Chapter should be limited."

Needless to say, the conference report smacks with inconsistency to the literal reading of Section 302(c) of the Act.

The Debtor-in-Possession on December 23, 1986, filed its Motion to Convert this case to Chapter 12, on grounds it was eligible as a farmer under the criteria of Chapter 12, and conversion was equitable because the family farm operation would materially benefit by the provisions of the new law, under which it can more realistically operate, without prejudice to any creditor. No Chapter 11 Plan of Reorganization has yet been filed in this case. The motion has met with resistance from Federal Land Bank of Spokane (FLB), which places squarely in issue the right of the Debtor to convert by reason of Section 302(c). FLB argues 302(c) prohibits conversion of a pending Chapter 11 case to Chapter 12 inasmuch as Section 1112(d) as amended, does not apply to cases commenced before the effective date of the Family Farmer Act. FLB also disputes that conversion would be equitable, since more than one year has elapsed with no Plan filed, thus showing such unreasonable delay proves the Debtor's inability to effect a Plan, and the present Motion to Convert is nothing more than a "ploy" to further delay the legitimate rights of creditors. The file reflects that FLB filed a Motion to Dismiss the Chapter 11 case because of the unreasonable delay, which then led this Court to order the Debtor to file a Disclosure Statement and Plan of Reorganization on or before December 23, 1986, or the case would be dismissed for failure to prosecute the proceeding with diligence. The Debtor's response to that Order was the present Motion to Convert to Chapter 12.

FLB, in its memorandum, submitted two unreported cases dealing with the question of conversion. In re B.A.V. Inc., 68 B.R. 411, (Bankr.Colo.1986) and In re Tomlin Farms, Inc., 68 B.R. 41, (Bankr.N.D.1986). Both courts held conversion of a pending case was not possible since the language of the statute was clear and unequivocal. Both decisions hold that in arriving at the meaning of a statute, if the language is plain, it is improper to look beyond that language to the legislative history. In re B.A.V. Inc. cites as authority Central Trust Co. v. Offical Creditors Committee, 454 U.S. at 359-60, 102 S.Ct. at 697-98, while Tomlin Farms relies upon Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976) In addition, Tomlin Farms, adopted the rationale of United States v. Oregon, 366 U.S. 643, 648, 81 S.Ct. 1278, 1280, 6 L.Ed.2d 575 (1961) ostensibly holding "that committee language suggesting an application contrary to the plain words of the statute itself is not sufficiently compelling to justify deviation from the language of the statute itself", and "Legislative history may not be used to create the ambiguity" citing U.S. v. Public Utilities Comm'n, 345 U.S. 295, 315, 73 S.Ct. 706, 717, 97 L.Ed. 1020 (1953). Tomlin Farms suggests the most recent Supreme Court case dealing with statutory construction is United States v. Locke, 471 U.S. 84, 95, 105 S.Ct. 1785, 1793, 85 L.Ed.3d. 64 (1985), where the Court held:

"There is a basic difference between filling a gap left by Congress\' silence and rewriting rules that Congress has affirmatively and specifically enacted. — Nor is the judiciary licensed to attempt to soften the clear impact of Congress\' chosen words whenever a court believes these words lead to harsh result. — On the contrary, deference to the supremacy of the legislature, as well as recognition that Congressmen typically vote on the language of a bill, generally require us to assume that `the legislative purpose is expressed by the ordinary meaning of the words used\'. — Going behind the plain language of a statute in search of a possible contrary congressional intent is `a step to be taken cautiously\' even under the best of circumstances. United States v. Locke, 105 S.Ct. at 1793 (citation omitted)."¹

The Debtor has introduced at the hearing on the Motion to Convert, cash flow projection of income and expenses through April, 1988, which forms the basis of the proposed Plan. More important to the Debtor, it claims the requirements of adequate protection available to FLB under Chapter 11, as well as the requirements of 1129(a)(7) and 1129(b), could probably not be met by the Debtor in Chapter 11 and further, that Section 1111(b)(2) provision available to FLB "looms" as a potential roadblock to reorganization.

Of course, Chapter 12 has abrogated the adequate protection rule of In re American Mariner Industries, Inc., 734 F.2d 426 (9th Cir.1984), on lost opportunity cost payments,² as well as abolished the absolute priority rule of 1129(b) of Chapter 11,³ together with the attendant right of the undersecured creditor to utilize the provisions of Section 1111(b)(2). The secured creditor's lien under Chapter 12 may now be reduced down to current property value as the basis for payment of the secured claim. Thus, there is no provision in Chapter 12 by which a secured party may recoup what it loses on present valuation in the event the value of the property should increase following reorganization. The above gives a brief description of the major differences between Chapter 11 and Chapter 12, thus leaving one with the impression that Chapter 12 is more debtor oriented than Chapter 11.

The latest word from the United States Supreme Court on statutory construction came in a bankruptcy case setting in Kelly v. Robinson, ___ U.S. ___, 107 S.Ct. 353, 93 L.Ed.3d 216, 65 B.R. 17 (advance sheet) (1986). The court was faced with the dischargeability of a criminal restitution order issued by a Connecticut state court, and concluded, (1) the debtor's restitution obligation was a debt subject to bankruptcy jurisdiction, and (2) was automatically nondischargeable under Section 523(a)(7) of the Bankruptcy Code, which provides that a discharge in bankruptcy does not affect any debt that "is a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss". A fair reading of the statute involved indicates on its face that Section 523(a)(7) protects criminal fines, but not restitution orders, which generate funds for the victims, and thus constitute "compensation for actual pecuniary loss". The Supreme Court, however, not only examined the words of the statute but reviewed the history of Section 523(a)(7), its predecessor act and the public policy question of state interest in administration of its criminal justice system. The pertinent matter in the opinion on statutory construction seems in my view, to indicate the bankruptcy decisions from the Colorado and North Dakota districts noted above, have misplaced the proper application of the test of statutory construction. The...