In re Evatt

• Citation: 112 BR 405
• Decision Date: 27 January 1989
• Docket Number: Bankruptcy No. 88-4446-TS.
• Parties: In re Jerry Garland EVATT and Carol June Evatt, Debtors.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — Western District of Oklahoma

112 B.R. 405 (1989)

In re Jerry Garland EVATT and Carol June Evatt, Debtors.

Bankruptcy No. 88-4446-TS.

United States Bankruptcy Court, W.D. Oklahoma.

January 27, 1989.

Herbert M. Graves, Joel W. Harmon, Susan Dennehy Conrad, Sullivan, Graves & Densmore, Oklahoma City, Okl., for debtor.

Kay D. Sewell, Asst. U.S. Atty., Oklahoma City, Okl., for FmHA.

W. Rogers Abbott, II, Abbott & Gordon, Oklahoma City, Okl., for trustee.

Charles R. Underwood, Rick Poland, Oklahoma City, Okl., amicus brief on behalf of other chapter 12 debtors similarly situated.

ORDER DENYING IN PART AND GRANTING IN PART SETOFF OF ENTITLEMENT PAYMENTS

JOHN TeSELLE, Bankruptcy Judge.

                                                   Table of Contents
                                                                                                    Page
                  I. Introduction .................................................................. 407
                 II. Facts ......................................................................... 408
                III. Applicable Law ................................................................ 409
                     A. Establishment of Independent Right to Setoff ............................... 409
                     B. Elements of § 553 .......................................................... 410
                        1. Pre-Petition Debt Owed Creditor to Debtor ............................... 410
                        2. Pre-Petition Debt Owed Debtor to Creditor ............................... 412
                        3. Mutuality of Obligation ................................................. 412
                           a. Are FmHA and ASCS/CCC the same entity for setoff purposes?             412
                           b. Are the pre-petition debtor and debtor-in-possession the same entity   413
                               for setoff purposes
                

                    C. Applicability of § 362 .......................   414
                    D. Equitable Discretion of the Bankruptcy Court ......   414
                IV. Discussion ...........................................   414
                    A. Agreement # 1 .....................................   415
                    B. Agreement # 2 .....................................   415
                    C. Agreements # 3-# 6 ................................   415
                    D. Section 362(d) ....................................   416
                 V. Decision .............................................   416
                

I. INTRODUCTION

On September 6, 1988, the United States of America, on behalf of its agency, Farmers Home Administration (hereinafter referred to as the "FmHA" or the "Creditor") filed a Motion and Brief for Relief from Automatic Stay to Allow Setoff of USDA Entitlement Payments (hereinafter referred to as "FmHA's Motion" and the "FmHA's Brief"). Debtors filed an Objection to Motion and Brief for Relief from Automatic Stay to Allow Setoff of U.S.D.A. Entitlement Payments on September 22, 1988. Trustee's Response to FmHA's Motion and Brief for Relief from Automatic Stay to Allow Setoff of USDA Entitlement Payments was filed September 30, 1988. Also filed on September 30, 1988, was Debtors' Brief in Support of Objection to Motion and Brief for Relief from Automatic Stay to Allow Setoff of U.S.D.A. Entitlement Payments (hereinafter referred to as the "Debtors' Brief"). FmHA's Response to Debtors' and Trustee's Objection to Offset was filed October 18, 1988. The matter was heard October 20, 1988, was taken under advisement, and the parties were given ten days to submit supplemental briefs.

FmHA's Supplemental Brief in Support of Setoff was filed on October 31, 1988. An Amicus Brief in Objection to Motion by United States of America for Modification of Stay to Setoff (hereinafter referred to as the "Amicus Brief") was filed November 2, 1988, by Charles R. Underwood. On November 8, 1988, FmHA's Response to Amicus Brief Objecting to Motion for Modification of Stay to Offset (hereinafter referred to as the "FmHA's Response to Amicus Brief") was filed.

As evidenced by the pleadings, this matter comes before the Court on FmHA's motion for relief from the automatic stay. FmHA seeks to offset entitlement payments potentially due Debtor Jerry Evatt from another agency contained within the Department of Agriculture against debt owed FmHA by Debtors.

This issue has not been previously addressed by this district. The extensive briefing of this matter indicates the significance of the outcome to all parties involved. The Court recognizes as well the potential far-reaching implications of this decision.

After due review and consideration of the motions, briefs, and supporting documents submitted by the parties, the Amicus Brief,¹ and the arguments of counsel, the Court concludes that FmHA's Motion should be denied in part and granted in part.

II. FACTS

On February 24, 1984, Jerry Garland Evatt and Carol June Evatt (hereinafter referred to as the "Debtors") executed a promissory note in favor of FmHA in the original principal amount of $200,000.00, with interest on the unpaid principal balance at the rate of 10.75% per annum (hereinafter referred to as the "Original Note"). Simultaneously, Debtors executed a real estate mortgage in favor of FmHA on real property located in Osage County, Oklahoma. The Original Note was reamortized when Debtors subsequently executed a promissory note in the original principal amount of $217,553.43 in favor of FmHA, with interest on the unpaid principal balance at the rate of 5.25% per annum. As of July 11, 1988, Debtors were jointly and severally obligated to FmHA in the amount of $257,687.37 (hereinafter referred to as the "Indebtedness").

Prior to filing for bankruptcy protection, Jerry Evatt (hereinafter sometimes referred to as the "Debtor," which referral will identify Mr. Evatt in his capacity as pre-petition debtor) signed a series of agreements (hereinafter referred to as the "Agreements") in favor of Commodity Credit Corporation (hereinafter referred to as the "CCC"). CCC's programs are administered by the Agricultural Stabilization and Conservation Service (hereinafter the "ASCS"). CCC, ASCS and FmHA are separate agencies under the jurisdiction of the Department of Agriculture.

The Agreements between Debtor and CCC, and the amounts due Debtor from ASCS/CCC on each are as follows:

1. Farm Storage Note and Security Agreement dated August 8, 1985, in the original principal amount of $68,060.00, which Debtor was to satisfy May 31, 1986, by payment or by delivery to CCC of a quantity of the collateral commodity or other eligible commodity having a settlement value equal to the outstanding balance of the loan (hereinafter referred to as "Agreement # 1"). According to ASCS/CCC, Debtor was to potentially receive $1,142.85 on July 20, 1988;

2. Conservation Reserve Program Contract, Farm I.D. 354, dated February 26, 1987, which requires Debtor to implement certain conservation practices for ten crop years and provides for an annual payment of $7,182.00 (hereinafter referred to as "Agreement # 2"). According to ASCS/CCC, Debtor was to potentially receive $7,182.00 on October 1, 1988;

3. Contract to Participate in the 1988 Price Support and Production Adjustment Programs, Farm I.D. 387, dated March 10, 1988, providing for a certain acreage to be taken out of production and devoted to conservation practices through December 31, 1988 (hereinafter referred to as "Agreement # 3"). According to ASCS/CCC, Debtor was to potentially receive $2,329.00 and $475.95 in December, 1988, and will potentially be eligible to receive $234.80 in July, 1989;

4. Contract to Participate in the 1988 Price Support and Production Adjustment Programs, Farm I.D. 312, dated March 30, 1988, providing for a certain acreage to be taken out of production and devoted to conservation practices through December 31, 1988 (hereinafter referred to as "Agreement # 4"). According to ASCS/CCC, Debtor was to potentially receive $4,771.00 and $974.53 in December, 1988, and will potentially be eligible to receive $529.00 in April, 1989, and $480.00 in July, 1989;

5. Contract to Participate in the 1988 Price Support and Production Adjustment Programs, Farm I.D. 267, dated March 30, 1988, providing for a certain acreage to be taken out of production and devoted to conservation practices through December 31, 1988 (hereinafter referred to as "Agreement #5"). According to ASCS/CCC, Debtor was to potentially receive $2,610.00 and $799.50 in December, 1988, and will potentially be eligible to receive $349.42 in July, 1989;

6. Contract to Participate in the 1988 Price Support and Production Adjustment Programs, Farm I.D. 2327, dated March 30, 1988, providing for a certain acreage to be taken out of production and devoted to conservation practices through December 31, 1988 (hereinafter referred to as "Agreement # 6"). According to ASCS/CCC, Debtor was to potentially receive $14,086.00 and $2,498.51 in December, 1988, and will potentially be eligible to receive $1,232.60 in July, 1989.

On July 11, 1988, Debtors filed their petition seeking relief under Chapter 12 of the Bankruptcy Code. As enumerated above, subsequent to filing for bankruptcy protection Debtor may have become entitled to receive a series of payments, totalling up to $36,869.34 through December 31, 1988, pursuant to the Agreements (hereinafter collectively referred to as the "CCC Payments"). Counsel for FmHA stipulated at the hearing on this matter that FmHA seeks only to offset the CCC Payments scheduled for potential disbursement in 1988. Therefore, the future payments of $2,825.82 to which Debtor may become entitled in 1989 are not at issue in this proceeding.

III. APPLICABLE LAW

FmHA seeks to offset the CCC Payments against the Indebtedness under 11 U.S.C.A. § 553. The relevant portion of that section provides:

"Except as otherwise provided in this section and in sections 362 and 363 . . . this title 11 USCS §§ 101 et seq. does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title . . . against a claim of such creditor against the debtor that

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