In re Fazzio

• Decision Date: 06 April 1995
• Docket Number: Bankruptcy No. 284-02815-A-11. Adv. No. 93-2318.
• Citation: 180 BR 263
• Parties: In re Walter E. FAZZIO and Elvira V. Fazzio, Debtors. Walter E. FAZZIO and Elvira V. Fazzio, Plaintiffs, v. Jan RARICK, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of California

180 B.R. 263 (1995)

In re Walter E. FAZZIO and Elvira V. Fazzio, DebtorsWalter E. FAZZIO and Elvira V. Fazzio, Plaintiffs, v.Jan RARICK, Defendant.

Bankruptcy No. 284-02815-A-11. Adv. No. 93-2318.

United States Bankruptcy Court, E.D. California.

April 6, 1995.

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John M. O'Donnell, Hefner, Stark & Marois, Sacramento, CA, for plaintiffsWalter E. Fazzio and Elvira V. Fazzio.

Thomas W. Olson, Jr., Sacramento, CA, for defendantJan Rarick.

MEMORANDUM DECISION

DAVID E. RUSSELL, Chief Judge.

This case involves the division of sales proceeds of real property owned by two tenants in common where one of them had not set foot on the property for many years.The property in question is located in Yuba County near Marysville, California and primarily used as a rice farm ("Rice Ranch" or "the property").As many Northern Californian hunters know, rice farms attract ducks, and therein lies the beginning of our tale.

FACTUAL BACKGROUND

Walter E. Fazzio("Fazzio") was a duck hunter¹.His executors and the conservators of his wife, Elvira Fazzio, are now the plaintiffs in this adversary proceeding to determine the rights of the bankruptcy estate to the sales proceeds of farm land ("the property" or "Rich Ranch") used to hunt ducks.The defendant is Jan Rarick, the widow of Dr. Ivan Rarick.The good doctor, like Fazzio, was an avid duck hunter.As far as is known to the court, all of the male owners of the Rice Ranch mentioned herein purchased their partial interests in the Rice Ranch so that they could hunt ducks.

Fazzio initially acquired a one-half interest in the 362 acre Rice Ranch on behalf of himself and his wife when he purchased it with Jack Sellers("Sellers") in March of 1969 for $362,000.They put up $100,000 in cash and financed the balance of the purchase price with two promissory notes secured by deeds of trust recorded against the property.The first deed of trust in priority secured a note in the principal amount of $120,000 held by the Federal Land Bank ("FLB").The second deed of trust secured a loan from Michaels & Sullivan for $142,000.Fazzio and Sellers agreed that they were each responsible for one-half of the loan payments.

In 1970, Sellers and Fazzio sold a one-eighth interest in the Rice Ranch to Dr. Ivan and Jan Rarick("Raricks") and a one-eighth interest to Larry E. Tripp("Tripp").The Raricks and Tripp each contributed $23,000 as a down payment towards the purchase of their interests in the Rice Ranch, and assumed their proportionate share of the loan obligations.After the sale, Sellers and Fazzio each owned undivided three-eighths interests while the Raricks and Tripp each owned an undivided one-eighth interest.

Thereafter, at some time before 1977, Sellers sold two-thirds of his remaining interest (2/8 interest in the property) to Fazzio and the other one-third (1/8 interest in the property) to Tripp, giving Fazzio a five-eighths total interest and Tripp a one-fourth interest.The Raricks retained their original one-eighth interest.On December 11, 1977, Dr. Ivan Rarick died, leaving his wife, Jan Rarick("Rarick") as the sole owner of their undivided interest in the Rice Ranch.

From the time of its acquisition and up to 1979 all of the male cotenants, who were friends, used the Rice Ranch for duck hunting, and after Dr. Rarick's death his sons hunted for a few years.Up until Dr. Rarick died, the owners had an oral agreement that each would be responsible for the hunting and maintenance expenses and the loan obligations in proportion to their ownership shares.Since Fazzio was an experienced rice farmer, they also agreed that he would oversee the growing of rice on the property to generate income to help defray the joint expenses.Finally, they agreed that Fazzio would otherwise be responsible for the management and control of the Rice Ranch and the payment of its obligations, as well as provide an annual accounting.Fazzio agreed to these duties because he considered his fellow cotenants as friends who mutually enjoyed the sport of duck hunting.

After Dr. Rarick's death, Tripp commenced a judicial partition action requesting that the Rice Ranch be sold and the proceeds divided amongst the cotenants.In order to avoid the loss of the Rice Ranch, Fazzio agreed to purchase Tripp's one-quarter interest, but he needed to rearrange the financing.He got the FLB to agree to advance additional funds and got Michaels & Sullivan to agree to subordinate their deed of trust to FLB's new loan.

The transfer of interests was completed in March of 1979.According to FLB's closing loan statement, the new loan was for $300,000.Of that sum, $18,000 was being withheld for capital stock² and another $115,636.10³ was withheld to pay off the balance of the original loan.The new loan thus provided additional funds of $166,363.90, which were insufficient to pay Tripp and his wife the agreed upon $177,649.12 for their interest in the Rice Ranch.In order to complete the transaction, Fazzio had to add $16,539.24 of his own funds so that closing costs, real estate taxes of $3,348.67, and Tripp could be paid.Although Rarick signed FLB's deed of trust so that it could be recorded, she did not sign the new promissory note.

After the sale of the Tripp interest Fazzio owned an undivided seven-eighths interest in the property and Rarick owned the remaining one-eighth.A watershed had also been reached in the relationship between the co-tenants.All of Fazzio's duck-hunting buddies were gone and he and Rarick did not get along.Although he and his attorneys negotiated and tried to reach a formal agreement with Rarick, no agreement was signed.He decided to farm the Rice Ranch for his own account.

From 1979 to 1985, Fazzio agreed to let Robert E. Mohammed farm part of the Rice Ranch.Rarick gave her consent to the 1979 agreement (entitled a "lease" by the parties) with Mohammed, but was not consulted in respect to any later "leases."The agreements provided, in part, that Mohammed would plant 303.8 acres to rice for each crop season and that Fazzio would furnish all water needed for the crop.Fazzio also agreed to pay 1/3 of the cost of fertilizer, weed killer, herbicides, and insecticides used to grow the crop.In exchange, the agreements required Mohammed to deliver to Fazzio 1/3 of all the rice grown and harvested from the Rice Ranch.

From 1979 to 1989, Fazzio also farmed the Rice Ranch as an individual.He obtained crop loans to pay for the 1980 and 1981 crop years expenses.He participated in the Farmers Rice Cooperative and federal government farming subsidies.Until the sale of the property in July of 1989, Fazzio used the income from the farming operations to pay the operating and other expenses of the Rice Ranch.

Fazzio prepared annual spread sheets at the end of each year from 1979 through 1989(exhibits 10 through 20, inclusive) describing each item of income or expense by type or check payee.Through 1985 the items were listed only by date.From 1986 through 1989, the items were listed by date and check number.Through 1986, the spreadsheets had four columns for expenses, farm or hunting operating expenses, or farm or hunting capital expenditures.For 1987 through 1989(exhibits 18, 19 and 20), the spreadsheets contained income and expenditures for personal and other business ventures of the Fazzios, and the Rice Ranch transactions were spread to only two columns, one for expenses and the other for rice income.The court is satisfied that the spreadsheets represent the Rice Ranch business records and were properly maintained.Furthermore, the spreadsheets allocated the expenses in the same manner used prior to 1979 to account to the coowners.

The total income (including the proceeds from the crop-share arrangement with Mohammed) from the rice crops from 1979 through July of 1989 was $652,738.The total expenditures, not including a disputed claim by Mohammed for $32,000, were $657,266.A summary of the annual expenditures for hunting expenses and hunting capital expenditures as taken from the spreadsheets is attached as Table I to this Memorandum.A separate column for real property taxes paid has been included; the payment for 1982 represents part of a $15,000 payment listed on the spreadsheet (exhibit 13) as having been made to the FLB.There was only one payment made on the Michaels & Sullivan note secured by the second deed of trust on the property and it was put in the Hunting Capital Expenditure column.Except for payments made on the FLB loan, the expenditures listed on Table I, totalling $76,284, represent all of the cotenancy obligations paid by Fazzio for the years in question.There is no showing that other expenditures which Fazzio listed in the spreadsheets as farming expenses, such as those listed on Exhibit C attached to the Alternative Direct Testimony Declaration of Marnie L. Yorton, are not attributable to the farming operations or were ever agreed to by any of the other coowners at any time as proper expenditures related to maintaining the duck hunting facilities.

Fazzio made sporadic payments to the FLB over the years.Those payments, as shown on the spreadsheets, are summarized as follows:

 Year       Exhibit No.           Amount
                 1980           11               $ 24,600
                 1981           12                 32,408
                 1982           13                  2,2384
                 1983           14                 78,735
                 1987           18                 45,000
                 1988           19                 45,000
                                                 ______________
                        Total                    $227,981
                                                 ==============
                

Fazzio filed a chapter 11 petition on August 10, 1984.Pursuant to the terms of a confirmed plan, the Rice Ranch was sold on July 13, 1989, for a gross sales price of $900,000.Plaintiff's exhibit 37 is a copy of the seller's closing statement dated July 13, 1989.That closing statement shows that...