In re Childress
| Decision Date | 25 May 1995 |
| Docket Number | Bankruptcy No. 95-20117-C-11. |
| Citation | 182 BR 545 |
| Court | U.S. Bankruptcy Court — Western District of Missouri |
| Parties | In re Jerry William CHILDRESS d/b/a Childress Grain Company, d/b/a Grain Train & Minnie Agnes Childress, Debtors. |
Jerry W. Venters, Jefferson City, MO, for debtors.
Craig F. Martin, Asst. Atty. Gen., Jefferson City, MO, for Missouri Dept. of Agriculture.
ORDER GRANTING MOTION FOR RELIEF FROM AUTOMATIC STAY FILED BY THE MISSOURI DEPARTMENT OF AGRICULTURE
This matter is before the Court on the motion for expedited hearing pursuant to 11 U.S.C. § 557 and motion for relief from the automatic stay filed by the Missouri Department of Agriculture (Department). A hearing was held on April 19, 1995. After considering the arguments of counsel, reading the briefs submitted by the parties, and independently researching the issues presented, the Court grants the Department's motion for relief from the automatic stay.
The joint debtors, Jerry William Childress and Minnie Agnes Childress, d/b/a Childress Grain Company and d/b/a Grain Train, own grain elevators in Auxvasse, Missouri and Baring, Missouri. The Childresses operated the Auxvasse elevator from 1986 until 1994 and operated the Baring elevator from 1978 until 1994. The Childresses were licensed in Missouri to conduct business as a grain warehouse and grain dealer. On or about June 27, 1994, pursuant to an order signed by Judge Roper of Callaway County, the Department took possession of the Childresses' grain elevator in Auxvasse. On or about June 28, 1994, pursuant to an order signed by Judge Lewis of Knox County, the Department took possession of the Childresses' grain elevator in Baring.
The court orders authorized the Department to take possession of the Childresses' records, to liquidate the grain-related assets, and to deposit the proceeds therefrom in an interest-bearing escrow account. The Department seized and took possession of all known grain-related assets. Subsequently, grain claimants submitted affidavits of claim with the Department, which detailed the amount and type of grain that was sold to the Childresses priced and unpaid, or deposited in open storage. The Department confirmed all the claims that were filed. An administrative hearing was held on November 22, 1994, to determine the validity and amount of grain-related claims, the applicability of funds held in escrow, and to determine the distribution of the proceeds from the escrow account. The parties each appeared by counsel at the hearing. On January 23, 1995, the hearing officer determined that all claimants of record should be reimbursed according to formulas set forth by the Department and introduced as evidence at the hearing. The hearing officer entered an order accordingly. No party or claimant filed an appeal within 30 days of the effective date of the hearing officer's order, which became final pursuant to Missouri law.
On March 1, 1995, the Department filed a motion to distribute grain-related assets in the Circuit Court of Callaway County. On March 2, 1995, the Childresses filed a joint voluntary petition under Chapter 11 of the Bankruptcy Code, which stayed the Department's proceedings. In their amended schedule E, the Childresses list grain claimants holding undisputed, unsecured claims in the total amount of $404,618.78. Of that amount, the Childresses contend that $122,140.59 is entitled to priority under 11 U.S.C. § 507(a)(5)(A). In their schedules, the Childresses list total assets of $882,692.63, which includes an allocation of $432,792.63 to assets seized by the Department. The Childresses list total liabilities, including the grain claimants, of $963,412.04 of which $361,314.00 is secured debt. Unsecured priority claims for wages and taxes total $6064.30. Unsecured nonpriority claims, excluding any unsecured nonpriority portion of the grain claimants' claims, total $191,414.96.
The Department is currently holding $405,070.66, which consists of bond proceeds in the amount of $145,278.03; grain proceeds from the sale of grain in the amount of $249,092.00; and grain-related assets, including funds from the Childresses' checking account and any other funds in their possession that were related to the business, in the amount of $10,699.64. The funds being held by the Department are sufficient to satisfy the grain claimants' claims in full.
On March 14, 1995, the Department filed a motion for expedited hearing pursuant to 11 U.S.C. § 557 and for relief from the automatic stay. Attached to the motion is a certificate of service which shows that all of the Childresses' creditors, including each secured creditor, listed in the bankruptcy schedules received notice of the motion. In its motion, the Department contends that the funds in its possession are not property of the bankruptcy estate and requests relief from the automatic stay to allow the Department to disburse the funds in accordance with the hearing officer's order and Missouri law. The Childresses concede that the bond proceeds are not property of the estate and may properly be distributed to the grain claimants by the Department, which narrows the controversy to the proceeds from the sale of grain and other grain-related assets.
It is the Childresses' position that the Department's proposal to distribute the funds in question to the grain claimants violates the provisions of the Bankruptcy Code. The Childresses assert that the funds are property of the bankruptcy estate and must be turned over to them as debtors-in-possession; that after a reduction of their claims for payments received from the bond proceeds, the grain claimants would have a priority claim pursuant to section 507(a)(5)(A) in an amount not to exceed the greater of $4000 or the remaining amount of each claim; and that if the payment from the bond proceeds and the priority payment does not satisfy the grain claimants' claims, the grain claimants must share in a pro rata distribution from the bankruptcy estate along with other general unsecured creditors.
The Department argues that the funds at issue are not property of the bankruptcy estate because under Missouri law the grain claimants were bailors who are entitled to recover their property or proceeds from the Childresses, the Childresses acquired no ownership interest in the grain as a result of the bailment relationship, and the Childresses had no ownership interest in the funds at the time the bankruptcy was filed. The Department contends that the full amount of the funds should be paid out to the grain claimants and asserts that its proposed distribution is not limited in any way by the Bankruptcy Code. The Department argues that the grain claimants are entitled to distribution of the funds under 11 U.S.C. § 557 and that all of the funds must be paid out to the grain producers pursuant to the section 557 motion "to preclude `forced sharing' by producers/depositors with other non-producer creditors." The Department argues that:
bankruptcy courts are mandated to order distribution of non-estate property, such as the stored grain, . . . to producers/depositors before distribution to the debtor\'s other creditors. To the extent that a producer does not recover the full amount of his grain claim by way of § 557 expedited procedures, the producer holds an allowed unsecured claim with respect to which § 507(a)(5) provides a $4,000 maximum fifth priority.
No secured creditor, nor any other creditor, has filed an objection to the Department's motion to lift the automatic stay. No creditor, other than the grain claimants, has claimed an interest in the funds being held by the Department.
The starting point for the Court's analysis is 11 U.S.C. § 557, which states:
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