In re Buckingham
| Decision Date | 03 June 1996 |
| Docket Number | Bankruptcy No. 95-30659-12. |
| Citation | 197 BR 97 |
| Parties | In re Larry Gene Chip BUCKINGHAM, and Sheri Darleen Buckingham, a/k/a Sheri Darleen Parrott, Debtors. |
| Court | U.S. Bankruptcy Court — District of Montana |
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R. Clifton Caughron, Caughron & Associates, Helena, Montana, for debtors Buckingham.
Don Torgenrud, St. Ignatius, Montana, for Valley Bank of Hot Springs.
In this Chapter 12 bankruptcy, after due notice, confirmation hearing was held May 7, 1996, on Debtors Larry Gene Chip Buckingham's and Sheri Darleen Buckingham's ("the Debtors") Amended Chapter 12 Plan (dated May 3, 1996) at Missoula. The Debtors appeared at the hearing in support of the Plan represented by counsel, as did Valley Bank of Hot Springs ("VBHS") in opposition. The Chapter 12 Trustee was also present. The Debtors presented the testimony of Debtor Larry Gene Chip Buckingham ("Larry"), economist Tim Watts, Greg Tipps, Jerry Hall, Paul Atkins, Clinton Rice, Jr., Clinton Rice, Sr. and Bob Zeigler. The Debtors had Exhibits 1, 2 and 3 admitted into evidence, and VBHS had Exhibits C and D admitted. Upon close of the hearing, the Court took the matter under advisement and granted the parties ten days to submit memoranda of law in support of their respective positions. Such deadlines having now passed and briefs having been filed, the matter stands ripe for decision. VBHS also included in its brief opposing confirmation, a motion to dismiss. Upon review of the record, the Court sustains the objections of VBHS, and denies confirmation of the Amended Chapter 12 Plan.
The dispositive issues involve whether the Debtors engage in a "farming operation" as defined under 11 U.S.C. § 101(21), and whether the Amended Plan has been proposed in good faith under 11 U.S.C. § 1225(3). The Debtors claim that although virtually all of the income funding their Plan will come from non-farm employment in the construction field, the majority of their income in the year prior to their filing derived from farming and that they intend to rebuild their former hog operation into a sheep ranch as quickly as they can generate excess income over the contemplated Plan payments to purchase necessary livestock. They maintain that Larry intends to cease all construction employment as soon as they have the financial wherewithal to sustain their farm, and to specialize solely in the production of sheep at that time. Moreover, they contend that they have a farm operation currently within the meaning of the Bankruptcy Code because they will derive some of their income from rental of summer pasture and from Larry's employment green-breaking young, untrained horses. Thus they argue they indeed have a farm operation.
VBHS resists this contention, alleging that the Debtors do not qualify as family farmers by either the letter or the spirit of Chapter 12 of the Bankruptcy Code. VBHS points out the risks of market fluctuation, crop failure, insect infestation and weather related disaster support the policy of Chapter 12 protection. It also contends that not enough of the Debtors' income is subject to the inherent risks of farming to say they engage in a "farming operation." Therefore, VBHS concludes, absent such risks in a petitioner's income, the special provisions of Chapter 12 should not apply.
Regarding the good faith proposal of the Debtors' Plan, VBHS claims its treatment as an alleged, but not judicially determined tort feasor unfairly discriminates against VBHS, and therefore not only violates 11 U.S.C. § 1222(b)(1), but also § 1225(a)(3) as being proposed in bad faith to thwart the claims of the Debtors' chief creditor. Furthermore, the Court has an independent duty to inquire into the issue of the Debtors' bad faith. See Fidelity & Casualty Company of New York v. Warren (In re Warren), 89 B.R. 87, 90 (9th Cir. BAP 1988) ().
At the outset, the Court finds that in the period prior to the filing of this petition, the Debtors ran a hog farm, which failed chiefly due to disease in the herd. Prior to the confirmation hearing, however, the Debtors surrendered pursuant to an order granting modification of stay, all of the animals and equipment used in the operation to the secured creditor and thereby abandoned all of their farming operations.
The Debtors filed four different plans of reorganization in this case. Under the current version, the Debtors intend to occupy a 123 acre rural property, which they co-own with a nonpetitioning codebtor, Donna Buckingham (Larry's mother). In their Amended Plan, dated May 3, 1996, the Debtors propose to retire 100% of the $60,000 secured claim owing on the acreage. The express terms of the contract for deed from which the debt arises lists both the Debtors, Larry Buckingham and Sheri Buckingham, and Donna Buckingham as joint tenants with rights of survivorship, referring to all three of them as "Buyers." (See the allowed Proof of Claim of Ivan Cook, filed May 24, 1995). Thus, the contract for deed is the joint obligation of not only the Debtors, but of Donna Buckingham as well. The Plan as proposed, however, will pay not only claims against the Debtors, but also that portion of the secured obligation owed by a nonpetitioning third party, Donna Buckingham. In other words, after the Debtors emerge from their reorganization, Donna Buckingham will own one-third interest in the land paid for under the terms of the Plan, without having contributed anything at all toward the payments under such Plan. Meanwhile, the Debtors' unsecured creditors will receive only $4,810 on claims of $25,977, and then only after the secured claims are paid, which include — once again — a substantial obligation of a codebtor not a party to the instant bankruptcy.
The Debtors attempt to dispute the implications of the contract for deed in their post hearing memorandum, asserting that Donna Buckingham has already paid her share under the contract, and that she will not therefore benefit from paying the balance owed. Nevertheless, such facts were never produced at hearing, and the raw assertions of counsel do not suffice as evidence.1 Furthermore, review of the record reveals absolutely nothing to support their position, or to contradict the express terms of the contract for deed. Indeed, the Debtors have not objected to the Proof of Claim supported by the contract and therefore the secured claim constitutes prima facie evidence as to its validity and amount. See 11 U.S.C. § 502(a); F.R.B.P. 3001(f).
Virtually all of the income to support the Debtors' Plan will come from Larry's employment as a contract house framer and drywaller. In testimony Larry admitted "with the new plan we filed, we'll be surrendering all our sheep," which they had earlier asserted would support their description as engaged in a "farming operation." This move leaves the Debtors with no commercial livestock. Nor do they contemplate cultivating their realty to raise crops. Thus, by their own admission, none of their income will derive from "farming, tillage of the soil, dairy farming, ranching, production or raising of crops, poultry, or livestock, or production of poultry or livestock products in an unmanufactured state." 11 U.S.C. § 101(21) (defining "farming operation").
The Debtors claim to have specific plans to rebuild a sheep herd from scratch. Yet, even with the rosy income scenario painted by their Plan, which purports to leave them with a $10,000 per year surplus after May of 1997,2 they have included no projections or itemized plans as to how they intend to achieve this goal. Thus, without forecasts for numbers of sheep to be purchased, their costs, need for and costs of real improvements, feed costs and the like, the Court can only view the Debtors' "plans" as pure speculation. Furthermore, the Debtors claim to meet the prior year income requirements for family farmer status based on income from a hog farm. They have failed to explain why they intend to switch from hogs to sheep. Their purported intent, without elaboration, to change the entire nature of their former operation further undermines the credibility of their future sheep ranching plans. Thus, the Court finds the Debtors lack a realistic intention or capacity to initiate a sheep operation in the foreseeable future.
The Debtors also claim they will garner minor income from two agriculture related sources. First, during the summer season, they hope to rent their pasturage to neighboring cowmen for fixed grazing fees. On cross-examination, Larry made a special point to emphasize the fees due on this grass will not depend on the state of the beef or heifer markets. The Debtors, however, have yet to execute any contracts in consummation of these plans, and they cannot accurately estimate the numbers of cattle to be grazed, the income they expect to receive therefrom, or even if they will ever secure such contracts.
Second, in addition to the estimated 170 hours a week Larry hopes to work in the construction trades, Bob Ziegler, a neighbor, plans to employ Larry breaking untrained horses to ride. Ziegler buys two to four year old "colts" that he knows little about, "whether they have been started or what," and takes them to Larry who "tries them out." Once Larry gets the animals green-broke (which he boasts takes as little as two days, even for a "bad horse") Ziegler sells them. In exchange for his riding services, Ziegler gives Larry 60% of the net on the sale of the horses, after the covering costs of purchase, shipping and feed. Thus, Larry's income derived from the venture depends on the vagaries of the saddle-horse market. Although he has yet to train a single horse this year, Larry estimates he will earn some $4,000 over the next two years from this source of employment. Thus, at best, the Debtors' own estimates project only 6 percent ($4,...
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