In re Bracewell

• Decision Date: 30 March 2005
• Docket Number: No. CIV.A. 6:04-CV-33(HL).,CIV.A. 6:04-CV-33(HL).
• Citation: 322 B.R. 698
• Parties: In re Ricky W. BRACEWELL, Debtor. Ricky W. Bracewell, Appellant, v. Walter W. Kelley, Trustee, Appellee.
• Court: U.S. Bankruptcy Court — Middle District of Georgia

322 B.R. 698

In re Ricky W. BRACEWELL, Debtor.

Ricky W. Bracewell, Appellant, v. Walter W. Kelley, Trustee, Appellee.

No. CIV.A. 6:04-CV-33(HL).

United States Bankruptcy Court, M.D. Georgia, Thomasville Division.

March 30, 2005.

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Thomas Dozier Lovett, Valdosta, GA, for appellee.

Allen H. Olson, Thomasville, GA, for appellant.

LAWSON, District Judge.

Before this Court is an appeal from the United States Bankruptcy Court for the Middle District of Georgia brought by Ricky W. Bracewell. The bankruptcy court held that a crop disaster payment, created by federal legislation enacted after Appellant converted his Chapter 12 case to a Chapter 7 case, qualified as property of the estate under 11 U.S.C.A. § 541(a)(1) (West 2004), but not under § 541(a)(6). For the reasons set forth below, the bankruptcy court's decision is reversed in part and affirmed in part.

I. JURISDICTION and STANDARD OF REVIEW

Under 28 U.S.C.A. § 158(a)(1), this Court has jurisdiction to hear a final judgment, order, or decree from a United States Bankruptcy Court. 28 U.S.C.A. § 158(a)(1) (West 1993 & Supp.2004); see Fed. R. Bankr.P. 8001. The bankruptcy court's order was final within the meaning of § 158(a)(1); thus, this Court has jurisdiction to hear this appeal.

When adjudicating an appeal from a bankruptcy court, federal district courts are empowered to "affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree" and will accept the bankruptcy court's factual findings unless those findings are clearly erroneous. Fed. R. Bankr.P. 8013; see Equitable Life Assurance Soc'y v. Sublett (In re Sublett), 895 F.2d 1381, 1383 (11th Cir.1990); see also Club Assocs. v. Consol. Capital Realty Investors (In re Club Assocs.), 951 F.2d 1223, 1228 (11th Cir.1992). A district court is not empowered to make independent findings of fact. In re Sublett, 895 F.2d at 1384. Moreover, if a bankruptcy court's findings are "silent or ambiguous as to an outcome determinative factual question," remand to the bankruptcy court is required. Id. (quoting Wegner v. Grunewaldt, 821 F.2d 1317, 1320 (8th Cir.1987)).

In contrast to factual findings, conclusions of law, including a bankruptcy court's interpretation and application of the Bankruptcy Code ("the Code"), are reviewed de novo. See Nordberg v. Arab Banking Corp. (In re Chase & Sanborn Corp.), 904 F.2d 588, 593 (11th Cir.1990). Whether property constitutes property of the bankruptcy estate is a legal issue to be reviewed de novo. Witko v. Menotte (In re Witko), 374 F.3d 1040 (11th Cir.2004) (citing Bell-Tel Fed. Credit Union v. Kalter (In re Kalter), 292 F.3d 1350, 1352 (11th Cir.2002)).

II. ISSUES ON APPEAL

This Court must first determine the precise issue being appealed. Federal Rule of Bankruptcy Procedure 8006 provides, "[T]he appellant shall file with the clerk and serve on the appellee... a statement of the issues to be presented.... [I]f the appellee has filed a cross appeal, the appellee as cross appellant shall file and serve a statement of the issues to be presented on the cross appeal." Fed. R. Bankr.P. 8006. "An issue that is not listed pursuant to [Rule 8006] and is not inferable from the issues that are listed is deemed waived and will not be considered on appeal." Snap-On Tools, Inc. v. Freeman (In re Freeman), 956 F.2d 252, 255 (11th Cir.1992) (emphasis added). Thus, as long as an issue is inferable, then Rule 8006 "is not intended to bind either party to the appeal as to the issues that are to be presented." In re Cohoes Indus. Terminal, Inc., 90 B.R. 67 70 (S.D.N.Y.1988) (internal quotation marks omitted).

The Eleventh Circuit has not set forth a test for determining when an issue is inferable. Therefore, adopting a mix of approaches from other courts, this Court holds that an issue not listed in a Rule 8006 Issue Statement is inferable under the following circumstances. First, the issue must have been raised in the bankruptcy court because an appellate court generally will not consider issues not adjudicated below. Harrison v. Brent Towing Co., Inc. (In re H & S Transp. Co., Inc.), 110 B.R. 827, 830 (M.D.Tenn.1990) (citing Singleton v. Wulff, 428 U.S. 106, 121, 96 S.Ct. 2868, 49 L.Ed.2d 826 (1976)). Second, and in conjunction with the previous point, the issue must not require the court to make any independent factual findings. In re H & S Transp. Co., 110 B.R. at 830. Third, the issue must present no surprise to the other litigant. See Turner v. Marshack (In re Turner), 186 B.R. 108, 117 (9th Cir. BAP 1995).

Here, Appellant identifies the issue as whether a federal crop disaster payment is property of the estate under 11 U.S.C.A. § 541(a)(1). Appellee, however, contends the issue is whether the payment is property of the estate under § 541(a)(1) and § 541(a)(6). Appellant argues that the § 541(a)(6) component of the issue is not listed in Appellant's Rule 8006 Issue Statement. Further, Appellant asserts that Appellee neither filed a cross-appeal on the § 541(a)(6) issue, nor objected to or moved to supplement, to the extent it is possible, Appellant's Rule 8006 Issue Statement.

This Court's review of the record reveals that Appellant is correct regarding both assertions. However, the Court will consider the § 541(a)(6) issue because the issue is inferable from the filings. First, the bankruptcy court adjudicated the § 541(a)(6) issue; thus, it is not being raised on appeal for the first time. Second, the § 541(a)(6) issue does not require this Court to make any independent factual findings. Third, Appellant was not taken by surprise by the issue. In fact, Appellee argued the issue in his Response Brief, and Appellee addressed it in his Reply Brief. Therefore, the issue presented in this appeal is whether Appellant's crop disaster payment is property of Appellant's bankruptcy estate under § 541(a)(1) or § 541(a)(6) when the payment was created by federal legislation after Appellant filed for bankruptcy, specifically after he converted his Chapter 12 bankruptcy case to a Chapter 7 bankruptcy case.

III. FACTS and PROCEDURAL HISTORY

The parties stipulated, and the bankruptcy court adopted, the following facts. Appellant planted approximately 223 acres of seed wheat in November 2000 and approximately 374 acres of seed cotton in May 2001. Appellant used regular farming practices to grow the crops to harvest. During 2001 Appellant's crops were plagued by drought, causing reduced harvest yields. Due to the reduced yields, Appellant was unable to pay for the farm-related debt he incurred to produce the crops. Appellant filed a Chapter 12 bankruptcy petition on May 29, 2002, and he converted it to a Chapter 7 case on January 2, 2003.

The Agricultural Assistance Act of 2003 (the "Act") was signed into law on February 20, 2003. The Act provided assistance to farmers who suffered losses due to weather-related disasters or other emergency conditions which affected their 2001 or 2002 crops. The farmers were allowed to select either the 2001 or 2002 crops as the basis for determining their disaster payment. Appellant applied on January 30, 2004 for a disaster payment from the United States Department of Agriculture Farm Service Agency in the amount of $41,566 for the losses Appellant incurred on his 2001 crops.

In the proceedings below, Appellee filed a motion to determine whether the crop disaster payment was property of the Chapter 7 bankruptcy estate. The bankruptcy court rejected Appellee's argument that the payment constituted "proceeds" of estate property under 11 U.S.C.A. § 541(a)(6). The bankruptcy court did hold, however, that the payments were property of the estate under 11 U.S.C.A. § 541(a)(1). Appellant filed a timely notice of appeal.

IV. ANALYSIS

In analyzing the issues in this case, the Court shall first focus on property of the estate under § 541(a)(1) before turning to § 541(a)(6) and whether the decisions reached in this Order are unfair to creditors.

A. Property of the Estate under § 541(a)(1)

Section 541(a)(1) of the Code provides that a debtor's bankruptcy estate is comprised of "[a]ll legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C.A. § 541(a)(1).¹ Section 541(a)(1)'s broad scope "`includes property of all types, tangible and intangible, as well as causes of actions.'" Meehan v. Wallace (In re Meehan), 102 F.3d 1209, 1210 (11th Cir.1997) (quoting United States v. Whiting Pools, Inc., 462 U.S. 198, 205, n. 9, 103 S.Ct. 2309, 76 L.Ed.2d 515 (1983)). Moreover, "an interest is not outside [§ 541(a)(1)'s] reach because it is novel or contingent." Segal, 382 U.S. at 379, 86 S.Ct. 511. Nevertheless, § 541(a)(1)'s wide reach must be balanced by its temporal limitation to the commencement of the case. In re Vote, 261 B.R. at 442. Striking the balance between § 541(a)(1)'s wide reach and its temporal limitation lies at the heart of this case.

While neither the Supreme Court nor the Eleventh Circuit have had to strike this balance in the context of federal crop disaster payments, cases addressing this balance do arise in other contexts. To illustrate, in Segal, decided under the former Bankruptcy Act, the Supreme Court held that claims for loss-carryback tax refunds were bankruptcy estate property because, in part, they were sufficiently rooted to the debtor's pre-bankruptcy past. 382 U.S. at 380, 86 S.Ct. 511. This was because the predicates for receiving the refunds (payment of taxes in prior years and a net operating loss) occurred pre-petition, even though the Segal debtor could not claim the refunds until the tax year closed. In re Witko, 374 F.3d at 1043 (discussing Segal). Thus, "[t]he debtor had more than a hope that his losses might generate revenue in the future; he `possessed an existing interest at the time of filing [his bankruptcy petition].'" Id. (interpreting Segal, quoting In re Vote, 276 F.3d at 1026, and citing Sliney v. Battley (In re...