In re Donnay

• Decision Date: 28 June 1995
• Docket Number: Bankruptcy No. 4-94-0341. Adv. No. 4-94-461.
• Citation: 184 BR 767
• Parties: In re Richard J. DONNAY and Sandra A. Donnay, Debtors. Michael FARRELL, as the Bankruptcy Trustee for the ESTATE OF Richard J. DONNAY and Sandra A. Donnay, Plaintiff, v. Mark WURM and Todd Wurm, Defendants.
• Court: U.S. Bankruptcy Court — District of Minnesota

184 B.R. 767 (1995)

In re Richard J. DONNAY and Sandra A. Donnay, Debtors.

Michael FARRELL, as the Bankruptcy Trustee for the ESTATE OF Richard J. DONNAY and Sandra A. Donnay, Plaintiff, v. Mark WURM and Todd Wurm, Defendants.

Bankruptcy No. 4-94-0341. Adv. No. 4-94-461.

United States Bankruptcy Court, D. Minnesota.

June 28, 1995.

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Lowell P. Bottrell, Anderson & Bailly, Fargo, ND, for trustee.

Edward W. Bergquist, Minneapolis, MN, for Mark Wurm and Todd Wurm.

Richard Salmen, St. Paul, MN, for debtors.

Michael J. Farrell, Trustee, Barnesville, MN.

MEMORANDUM ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

NANCY C. DREHER, Bankruptcy Judge.

The above-entitled matter came on for hearing before the undersigned on the 26th day of January, 1995 on plaintiff's motion for an order granting summary judgment. Appearances were as follows: Lowell Bottrell for the plaintiff, Michael Farrell; Edward Bergquist for the defendants, Mark and Todd Wurm; and Richard Salmen for the debtors, Richard and Sandra Donnay.

The Court having read the papers, heard the arguments of counsel, and being duly advised in the premises, concludes that the plaintiff's motion for summary judgment shall be granted in part and denied in part.

FACTS

1. The Debtors, Richard and Sandra Donnay (collectively "Debtors"), are married. Richard Donnay ("Debtor") was in the business of buying grain from local farmers and reselling the grain to commodity firms, including Pillsbury Company ("Pillsbury") and Peavey Grain Company ("Peavey"). Debtor was a public grain warehouse operator within the meaning of Minn.Stat. § 232.21, subdivision 12.

2. Roy Wurm was a grain farmer and the father of defendants, Mark and Todd Wurm (collectively "the Wurms"). Throughout the pertinent years, the Wurms operated a sizable 1,000 acre family farm in Maple Lake, Minnesota. The Wurms shared all aspects of the operations, including decision-making. On March 13, 1993, Roy Wurm died unexpectedly in an accident. Following his untimely death, Mark and Todd Wurm inherited or were assigned the rights to the contracts involved in this case.

3. Debtor and the Wurms did business together for a number of years. They engaged in a series of contracts pursuant to which the Wurms would agree to sell their crops to Debtor on a "forward contract" basis. In essence, the Wurms agreed to deliver their crops to locations specified by Debtor and Debtor agreed to pay the Wurms a given price per bushel of crop. Debtor then brokered sales to commodities companies and the Wurms paid Debtor a commission. Typically, Debtor arranged for the sale of the crops to Peavey or Pillsbury, whose elevators were located in the Twin Cities area. Debtor at times also sold the crops to others. Sometimes Debtor instructed the Wurms to deliver the crops to Peavey and Pillsbury elevators, and other times Debtor used his own trucks to pick up the crops at the Wurms' farm. For purposes of this motion, the location of delivery is unimportant.

4. No written agreement existed between the Wurms and Peavey or Pillsbury suggesting the companies were parties to these transactions between Debtor and the Wurms.

5. The contracts between Debtor and the Wurms were virtually identical. Debtor agreed to pay the Wurms a set price per bushel for the crops. The first payment was almost always to be made well after delivery and was at a premium fixed price which escalated over time. That is, rather than immediately receiving payment for all of the crops, the Wurms would delay their receipt of a payment for part of the proceeds of sale. At periodic intervals, the parties adjusted the price to be paid in the future. They did so by changing, in handwritten notations, the terms of the sale on the face of each contract. The price adjustment was referred to sometimes as a "premium" and other times as "interest." Most commonly, however, the parties simply referred to the adjustment as a percentage increase over each year. The Wurms were free to take their money out, including the fixed premium earned, or they could agree to leave the money in and earn an additional premium as documented by another change to the contract. The longer the Wurms waited for payment, the more money they would be paid for their crops.

6. These arrangements look suspiciously like an investment account, pursuant to which the Wurms deposited with Debtor the proceeds from the sale of their crops and Debtor paid interest to the Wurms. Debtor has filed an affidavit in which he describes the arrangement in precisely this way. The Wurms called the additional payment a "premium," but both Debtor and the Wurms viewed the payments as interest. If Debtor's version of the facts is correct, the apparent benefit to be derived from such an arrangement was the fact that the Wurms received a very high return on their money without notice to the IRS.

7. On January 21, 1994, Debtors filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code and Michael Farrell ("Trustee") was appointed the trustee. After the bankruptcy filing, Debtor ceased operating the elevator and grain storage business.

8. On April 13, 1994, the Wurms filed a proof of claim (No. 81) in the amount of $893,325.78 against Debtors. The Wurms' claim is based on the various contracts entered into between Debtor and the Wurms. Specifically, the claim seeks 1) unpaid principal and unpaid premiums (or interest) for the sums deposited over the various years the parties did business, 2) payment for the 1993 crop with no claim for interest, and 3) a refund of a small sum relating to the purchase of fuel.

9. The Wurms have also filed a claim with the Minnesota Department of Agriculture against the grain storage bond and grain sales bond of Debtor's business seeking payment for their 1993 crops.

10. The claim filed in bankruptcy court is as follows:

                                                                 Unpaid            Unpaid
                Year     Crop      Bushels       Price/bu         Prin.            Premium        Total
                1985     Corn      10,092.13     $2.2225        $22,441.58        $35,791.22     $58,232.80
                1986     Corn      25,000.00     $2.035         $50,875.00        $68,213.99    $119,088.99
                1987     Corn      10,327.13     $1.90          $19,450.54        $20,792.06     $40,242.60
                1988     Corn      15,091.88     $1.9825        $29,919.65        $29,904.36     $59,824.01
                1989     Beans     13,274.35     Varied         $92,549.21        $66,760.40    $159,309.61
                1990     Beans     8,134.66      $5.90          $47,994.49        $28,426.15     $76,420.64
                1990     Corn      7,686.43      $2.775         $21,329.84        $12,173.10     $33,502.94
                1990     Corn      26,383.88     $2.36          $62,265.96        $33,507.07     $95,773.03
                1992     Corn      26,550.71     $2.25          $59,739.10        $ 1,792.17     $61,531.27
                1993     Beans     9,907.50      Varied         $59,940.40                       $59,940.40
                1993     Corn      45,286.86     Varied         $93,460.78                       $93,460.78
                1993     Corn      10,550.87     $2.75          $29,014.89                       $29,014.89
                TOTAL                                          $588,981.44       $297,360.52    $886,341.96
                                                               1993 Prepaid Fuel               
                                                               GRAND TOTAL                      $893,325.78
                

The contracts at issue are more fully described below:

a) 1985 Corn Contract. Pursuant to Contract No. 1661 dated November 11, 1985, the Wurms agreed to sell 10,092.13 bushels of corn to Debtor at an initial price of $2.32 per bushel for a total price of $22,441.58. Delivery was set for November, 1985. The Wurms delivered the corn between November 20, 1985 and November 22, 1985. Pursuant to the contract, payment for the corn at $2.32 per bushel was deferred to March 3, 1986. The parties later modified the contract to provide for payment on April 15, 1986 at $2.37 per bushel. Thereafter, over the years, the Wurms and Debtor continued to modify the contract to reflect a different price for the corn. The parties sometimes changed the bushel price, while other times they assigned a different premium to be earned on the unpaid corn.¹ The following graph illustrates the price modifications. The date reflects the future date to which the Wurms would receive the stated price or premium. For example, in 1993 the parties agreed to modify the contract to provide for 12.50 percent interest between April 20, 1993 and April 20, 1994.²

                  Date                        Price or Premium
                06/15/86                      $2.42    per bushel
                09/02/86                      $2.49     "    "
                01/06/87                      $2.57     "    "
                05/05/87                      $2.65     "    "
                10/01/87                      $2.75     "    "
                01/01/88                      $2.82     "    "
                04/01/88                      $2.89     "    "
                09/01/88                      $2.99     "    "
                04/15/89                      $3.19     "    "
                04/15/90                      12.50%   interest
                04/15/91                      14.70     "    "
                04/20/92                      13.50%   premium
                04/20/93                      13.20%    "    "
                04/20/94                      12.50%    "    "
                

The Wurms' claim seeks $22,441.58 in unpaid principal and $35,791.22 in unpaid premium for this crop, for a total of $58,232.80.

b) 1986 Corn Contract. Pursuant to Contract No. 1671 dated January 15, 1986, the Wurms agreed to sell 25,000 bushels of corn to Debtor at an initial price of $2.035 per bushel. Delivery was set for October, 1986. The Wurms delivered the corn between October 9, 1986 and October 15, 1986. The contract deferred payment for the corn until May 5, 1987 with a changed price of $2.145 per bushel. Thereafter, over the years, the parties modified the price as follows:

                  Date

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