In re Dettler Farms

• Decision Date: 05 March 1986
• Docket Number: Adv. No. 185-0018.,Bankruptcy No. 184-00171
• Citation: 58 BR 404
• Parties: In re DETTLER FARMS, Debtor. DETTLER FARMS, Plaintiff, v. CLARK COMMUNITY OIL COMPANY, together with all of its agents and employees and Greg Overby, its manager, Defendants.
• Court: U.S. Bankruptcy Court — District of South Dakota

58 B.R. 404 (1986)

In re DETTLER FARMS, Debtor DETTLER FARMS, Plaintiff, v. CLARK COMMUNITY OIL COMPANY, together with all of its agents and employees and Greg Overby, its manager, Defendants.

Bankruptcy No. 184-00171, Adv. No. 185-0018.

United States Bankruptcy Court, D. South Dakota.

March 5, 1986.

J. Bruce Blake, Sioux Falls, S.D., for debtor/plaintiff Dettler Farms.

Frederic R. Moulton, Clark, S.D., for defendants Clark Community Oil Company, together with all of its agents and employees and Greg Overby, its manager.

MEMORANDUM DECISION

PEDER K. ECKER, Bankruptcy Judge.

Introduction

This matter is before the Court on a complaint for permanent injunction against Clark Community Oil Company, together with all of its agents, employees, and Greg Overby, its manager ("Defendants"), filed on behalf of Dettler Farms ("Debtor") by Attorney J. Bruce Blake, Sioux Falls, South Dakota, on May 10, 1985. The relief requested is a permanent injunction against the defendants from any further participation in the criminal prosecution of the debtor, its general partners, or any of its employees. Attorney Frederic R. Moulton, Clark, South Dakota, represented the defendants. A hearing was held in Aberdeen, South Dakota, on May 17, 1985.

Background

Dettler Farms is a South Dakota farm partnership comprised of two general partners, Kevin and Steven Dettler.

On November 1, 1984, the debtor issued a check in the amount of $11,025.92 to Clark Community Oil Company ("CCOC") for receipt of a certain amount of fuel needed in its farming operations. In due course, CCOC deposited the debtor's check into its account at First Bank, Clark, South Dakota, and the check was subsequently returned because of insufficient funds (NSF).¹

On December 4, 1984, an involuntary Chapter 11 was filed against the debtor. Thereafter, the debtor filed a voluntary Chapter 11 conversion petition on February 6, 1985.

On March 18, 1985, a criminal complaint was filed and warrant issued for the arrest of Kevin Dettler, one of the debtor's partners. Kevin Dettler was charged under S.D.C.L. § 22-41-1² with the crime of passing a check against insufficient funds in the first degree.

On May 10, 1985, the debtor filed a complaint for permanent injunction against CCOC, including its agents and employees. The relief requested is a permanent injunction from further participation in the criminal prosecution of the debtor, its general partners, or any of its employees.

On May 17, 1985, a hearing was held. Following the hearing, the Court decided that a preliminary injunction should issue and a written preliminary injunction was entered on June 12, 1985.

At the May 17, 1985, hearing, Mr. Greg Overby, Manager of CCOC, testified to the following:

1. His managerial duties included the collection of checks taken by CCOC but subsequently returned NSF.

2. The debtor\'s NSF check came to his attention.³

3. Upon receipt of the debtor\'s check, he took the check to Debtor\'s bank in Redfield, South Dakota, and told the bank to hold it for collection. Eventually, he picked up the check because it was not paid.

4. Thereafter, he took the check to Jon Flemmer, State\'s Attorney, Clark County, South Dakota, for collection purposes.⁴

5. That a few days prior to signing the criminal complaint, he contacted one of the partner\'s wives, informing her of his meeting with the State\'s Attorney and threatening to sign a complaint against her husband if the NSF check was not promptly paid.⁵

6. That because the check was not paid, he signed a criminal complaint against Kevin Dettler.

Issue

The principal issue raised is: When a creditor is seeking to utilize the criminal process as a means of exacting a preference not accorded to other creditors similarly situated, may a bankruptcy court permanently enjoin that creditor from any further participation in the criminal prosecution of the debtor?

Law

Prior to determining this issue, the Court notes that both the debtor and CCOC, through their respective attorneys, addressed only the general issue of whether a bankruptcy court may permanently enjoin a post-petition bad check state criminal proceeding. The Court, however, will not address this issue. This is because the Clark County State's Attorney is not a party in this matter. Named defendants include only CCOC, together with all of its agents, employees, and Greg Overby, its manager.

As to the principal issue, the Court holds that a creditor (including agents or employees) may be permanently enjoined from any further participation in the criminal prosecution of a debtor when a creditor is seeking to utilize the criminal process as a means of exacting a preference not accorded to other creditors similarly situated. This is based on the following discussion.

While many courts have addressed the issue of whether a bankruptcy court may permanently enjoin a state bad check criminal proceeding,⁶ apparently only one court has addressed the question of when a creditor may be enjoined from any further participation in the criminal prosecution. See In re Caldwell, 5 B.R. 740 (Bkrtcy.W.D.Va. 1980).

When faced with this issue in Caldwell, the Western District of Virginia Bankruptcy Court held that a creditor may be permanently enjoined from any further participation in the criminal prosecution of a debtor when "a creditor is seeking to utilize the criminal process as a means of extracting a preference not accorded other creditors similarly situated." 5 B.R. at 742. In reaching this conclusion, the court both reconciled the apparent conflict between Bankruptcy Code Subsections 362(a)(6) and (b)(1)⁷ and noted the United States Supreme Court's holding in Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281 (1939). 5 B.R. at 741.

With respect to the United States Supreme Court's holding in Pepper v. Litton, the court observed:

The principles set forth in Pepper requires (sic) this Court to prohibit one creditor from receiving preferential treatment ahead of other creditors in the same class. In the case at bar, the creditor, being a general unsecured creditor, must be accorded the same treatment in the allowance and payment upon its claim as other general unsecured creditors receive.

Id.

Based on the foregoing, the Court adopts the Caldwell court's test and underlying rationale as determinative of when a creditor may be permanently enjoined from any further participation in state bad check criminal proceedings.⁸

The issue, therefore, becomes whether CCOC, through its manager, Mr. Overby, was seeking to utilize the criminal process as a means of extracting a preference not accorded to other creditors similarly situated. The Court holds in the affirmative.

In the instant case, Mr. Overby testified that collecting on the NSF check was the reason that he contacted and met with the Clark County State's Attorney. Moreover, he contacted one of the general partner's wives and threatened to sign a criminal complaint if CCOC was not promptly paid.⁹ Put more aptly, he offered not to sign the criminal complaint if the NSF check was paid.

According to the debtor's schedules, CCOC has an unsecured claim in the amount of $17,800. Allowing an unsecured creditor to post-petition collect its entire debt by threatening criminal prosecution would undoubtedly allow it to be treated differently from other unsecured creditors. See, e.g., 11 U.S.C. § 1129(a) (requirements necessary for Chapter 11 plan confirmation).

Based on the foregoing, the Court finds that CCOC, through its manager, Mr. Overby, was seeking to utilize the criminal process as a means of extracting a preference not accorded to other creditors similarly situated and that this type of creditor action violates both the Bankruptcy Code and principles as provided in Pepper v. Litton, 308 U.S. at 295, 60 S.Ct. at 240; therefore, the Court holds that Clark Community Oil Company, together with all of its agents, employees, and Greg Overby, its manager (Defendants), are permanently enjoined from any further participation in the criminal prosecution of the debtor, its general partners, or any of its employees.

Accordingly, this Memorandum Decision constitutes the Court's Findings of Fact and Conclusions of Law in the above-entitled matter pursuant to Bankr.R.P. 7052 and F.R.Civ.P. 52. Counsel for the debtor is directed to submit an appropriate order in accordance with Bankr.R.P. 9021.

1 CCOC is listed in Debtor's A-3 schedule as having an unsecured claim in the amount of $17,800. The debtor's unsecured debts are estimated at $344,593. at the time of filing.

2 S.D.C.L. § 22-41-1 provides:

Passing check against insufficient funds — Degrees according to amount. Any person who, for himself or as agent or representative of another, for a present consideration with intent to defraud, passes a check drawn on a financial institution knowing at the time of such passing that there are not sufficient funds in the account on which the check was drawn in the financial institution for the payment of such check and all other checks upon such funds then outstanding, in full upon its presentation, although no express representation is made with reference thereto, is guilty of passing a check against insufficient funds. A person who passes a check of one hundred dollars or less against insufficient funds is guilty of passing a check against insufficient funds in the third degree, which is a Class 2 misdemeanor. A person who passes a check or a series of checks within any thirty-day period in the amount of two hundred dollars or less but more than one hundred dollars, against insufficient funds, is guilty of passing a check against insufficient funds in the second degree, which is a Class 1 misdemeanor. A person who passes a check of more than two hundred dollars, or a series of checks within...