In re Findley, Bankruptcy No. 86-01703-BRC-DEE

• Citation: 76 BR 547
• Decision Date: 26 May 1987
• Docket Number: Adv. No. 87-0011.,Bankruptcy No. 86-01703-BRC-DEE
• Parties: In re Emmett F. FINDLEY and Florence M. Findley, d/b/a Findley Fish Farms, Debtors. SUNBURST BANK, Movant, v. Emmett F. FINDLEY and Florence M. Findley, d/b/a Findley Fish Farms, Respondents. E.T. SHURDEN, Plaintiff, v. Emmett F. FINDLEY and Florence M. Findley, d/b/a Findley Fish Farms; and Sunburst Bank, Formerly Known as Grenada Bank, Defendants.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Northern District of Mississippi

76 B.R. 547 (1987)

In re Emmett F. FINDLEY and Florence M. Findley, d/b/a Findley Fish Farms, Debtors.

SUNBURST BANK, Movant, v. Emmett F. FINDLEY and Florence M. Findley, d/b/a Findley Fish Farms, Respondents.

E.T. SHURDEN, Plaintiff, v. Emmett F. FINDLEY and Florence M. Findley, d/b/a Findley Fish Farms; and Sunburst Bank, Formerly Known as Grenada Bank, Defendants.

Bankruptcy No. 86-01703-BRC-DEE, Adv. No. 87-0011.

United States Bankruptcy Court, N.D. Mississippi.

May 26, 1987.

Edward E. Lawler, Jr., Bennett, Lotterhos, Sulser & Geno, Jackson, Miss., for Emmett F. Findley and Florence M. Findley, d/b/a Findley Fish Farms.

P.J. Townsend, Jr., Townsend, McWilliams & Holladay, Drew, Miss., for E.T. Shurden.

Edward Tharp Cofer, Grenada, Miss., for Sunburst Bank.

OPINION

DAVID W. HOUSTON, III, Bankruptcy Judge.

Came on for consideration the following matters, to-wit: (a) motion seeking relief from the automatic stay filed by Sunburst Bank, formerly known as Grenada Bank, referred to hereinafter as Sunburst Bank, against the debtors, Emmett F. Findley and Florence M. Findley, d/b/a Findley Fish Farms; response to said motion having been filed by the debtors; all parties being represented before the Court by their respective attorneys of record; as well as; (b) complaint filed by E.T. Shurden, plaintiff, hereinafter referred to as Shurden, against the debtors-defendants, Emmett F. Findley and Florence M. Findley, d/b/a Findley Fish Farms, and the defendant, Sunburst Bank, formerly known as Grenada Bank; answers and affirmative defenses having been filed by said defendants; all of said parties being represented before the Court by their respective attorneys of record; and the Court having heard and considered each of the above matters, hereby finds as follows, to-wit:

I.

The Court has jurisdiction of the parties to and the subject matter of these proceedings pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. Both of these proceedings are core proceedings as defined under 28 U.S.C. § 157(b)(2)(A)(G)(K) and (M).

II.

FACTUAL DISCUSSION

On or about October 1, 1984, the debtors, Emmett F. Findley and Florence M. Findley, d/b/a Findley Fish Farms, executed and delivered to Sunburst Bank a promissory note, security agreement, and UCC-1 financing statements (referred to hereinafter as financing statements), all of said documents being introduced into evidence. These documents renewed and extended an existing line of credit from Sunburst Bank to the debtors. This indebtedness was further renewed and extended by a subsequent promissory note and security agreement dated April 16, 1986. The description of the collateral, which appears in both the security agreements and all of the financing statements, is recited hereinbelow:

Renewal and extension of a note and security agreement dated 06/03/83 for $2,200,000.00 secured by FmHA subordination of all crops, all catfish production, all farm equipment, and all ASCS and FCIC payments. Instruments subordinated dated and filed 06/20/75, file # 5056; 03/31/77 file # 5772; 09/15/77 file # 59; 09/15/77 file # 5968; 10/01/81 file # 8147 and security agreement dated 04/01/81. UCCs subordinated filed with the Chancery Clerk, Bolivar County, 1st District. FmHA subordination dated 05/20/83 for $2,200,000.00 plus accrued interest and funds advanced for taxes and insurance necessary to protect security property is recorded with the Chancery Clerk, 1st and 2nd Judicial District, Bolivar County, MS. Additional collateral taken this renewal is 1st mortgage on all catfish produced on 318 acres of ponds on the Bill Brown Farm and 201 acres on the Mrs. Margaret Barger Farm. All located at Schlater, Leflore County, MS. UCCs filed with the Chancery Clerk\'s offices of Leflore County, Bolivar County, 1st and 2nd Judicial Districts, and Secretary of State. This note is intended to cover all crop production, all catfish production, all equipment and supplies used in crop and catfish production, and any and all future purchases by Emmett F. Findley and Florence M. Findley.

In an effort to perfect the liens created by the aforementioned security agreements, Sunburst Bank filed financing statements with the Chancery Clerk of the First and Second Judicial Districts of Bolivar County, Mississippi, the debtors' residence; with the Chancery Clerk of Leflore County, Mississippi, the location of the Bill Brown farm and the Margaret Barger farm; and with the Secretary of State of the State of Mississippi. As will be discussed more fully hereinbelow, no financing statement was filed with the Chancery Clerk of Sunflower County, Mississippi, the location of the E.T. Shurden catfish ponds.

As of the date of the filing of the bankruptcy petition, November 6, 1986, the debtors owed Sunburst Bank the principal sum of $2,182,506.20, plus interest in the sum of $185,867.09, totaling $2,369,373.29, in addition to a per diem interest accrual thereafter at the rate of $448.46 per day. There was little dispute that the value of the collateral remaining was substantially less than the total indebtedness owed by the debtors to Sunburst Bank. Prior to the filing of the bankruptcy petition, Sunburst Bank had foreclosed the catfish ponds operated by the debtors at their residence in Gunnison, Bolivar County, Mississippi, and had assumed control of the catfish farming operations there as of September 30, 1986. The amount of the aforementioned indebtedness reflects the application of the foreclosure proceeds.

In addition to conducting catfish operations pre-petition at their residence, the debtors also leased catfish ponds from Bill Brown at Schlater, Leflore County, Mississippi, at a rental rate of $300.00 per land acre per year, applicable to approximately 380 total acres. By agreement, which was reduced to a Court order, Brown, the debtors, and Sunburst Bank consented to permit Sunburst Bank to operate the Brown ponds, to seine the catfish, and to place all monies received from the catfish sales in an escrow account to be distributed pursuant to the order of this Court according to the respective interests of the parties.

Pursuant to a lease contract, dated March 1, 1986, the debtors' sons, Richard W. Findley and William R. Findley, leased catfish ponds, comprising 100 acres, from E.T. Shurden. This written agreement called for an annual lease payment in the sum of $25,000.00, due March 1, 1987, one year subsequent to the date of execution. As a result of a verbal agreement finalized on July 1, 1986, Shurden leased an additional 100 acres of catfish ponds to the debtors' sons for an annual rental of $25,000.00, payable July 1, 1987. Pursuant to one or both of these agreemetns, the debtors' sons performed certain dirt work for Shurden and received a credit of $10,000.00 against the total annual rent. Shurden verified that this work was, in fact, performed, and that the annual rent should be reduced to the total sum of $40,000.00. As a part of the written lease contract, which was witnessed but not executed by Emmett F. Findley, the debtors' sons purported to convey to Shurden a contractual lien on "all fish now in and hereafter placed or born in said ponds on the said premises leased hereby to secure the payment of the rental for said premises for the then current year and prior years." In an effort to perfect this contractual landlord's lien, Shurden recorded a financing statement post-petition on November 10, 1986. On this same date, Shurden, joined with his wife, Florene Shurden, filed a complaint in the Chancery Court of Sunflower County, Mississippi, against the debtors' sons, as well as, Grenada Bank, demanding judgment in the sum of $40,000.00, and requesting that a lien be impressed against the catfish located in the Shurden ponds. No further action has been taken by the Shurdens in prosecuting this litigation.

Following a hearing in this Court on December 20, 1986, an order was entered adjudicating that the catfish located in the Shurden ponds were not the property of Richard W. Findley and William R. Findley, but, in fact, were the property of the debtors' bankruptcy estate as contemplated by 11 U.S.C. § 541(a). This order was supported by the fact that the debtors' sons testified without reservation that they owned no interest in these catfish.

Similar to the arrangements made at the Brown catfish ponds, Sunburst Bank also assumed the management of the catfish operations at the Shurden ponds. The Court is of the opinion that this assumption occurred shortly after September 30, 1986, which comports with the date that Sunburst Bank assumed the operations at the debtors' residence. Subsequently, an order was entered to the effect that the bank would conduct seining operations at the Shurden ponds, market the catfish, and place the sales proceeds in an escrow account. The funds in this account are to be ultimately distributed following a determination by this Court as to the respective interests of the parties therein.

Although the fish are being seined, removed from the Brown and Shurden ponds, and sold, the Court considers that the status quo of all lien claims has been preserved just as if these harvesting operations were not being undertaken.

The debtors, on more than one occasion, have requested that this Court authorize them to retake possession of the catfish at the three farms, so that their reorganization efforts could be initiated. The Court has refused these requests for the following reasons:

(1) The debtors have exhibited no source of income to care for, feed, or maintain the catfish. There was even no source of income to pay for the reinstallation of such essentials as electricity or other utilities.

(b) Actual seining operations at the several catfish pond locations has proved the debtors' projections of fish on hand to be substantially overestimated. The debtors' plan projections are likewise overly optimistic and unrealistic. Considering the expert testimony, the debtors' plan of...