In re Great Plains Western Ranch Co., Inc.
| Decision Date | 06 April 1984 |
| Docket Number | Adv. No. LA 83-0170-JA,Bankruptcy No. LA 82-17264-JA,LA 82-17252-JA,LA 83-0381-JA. |
| Citation | 38 BR 899 |
| Court | U.S. Bankruptcy Court — Central District of California |
| Parties | In re GREAT PLAINS WESTERN RANCH COMPANY, INC., Debtor and Debtor-in-Possession. C.R. LOUP, Sheldon M. Neider, S.M. Neider & Associates, Inc., L & N Farm and Cattle Company, and Mack Baughman, Plaintiffs/Counter-Defendants, v. GREAT PLAINS WESTERN RANCH COMPANY, INC., Defendant/Counter-Claimant. In re GREAT PLAINS WESTERN CORPORATION, a California corporation, Debtor and Debtor-in-Possession, WILSON COUNTY LAND COMPANY #1, a Texas limited partnership, by Wayne L. HILL, its General Partner; and Wilson County Land Company #2, a Texas limited partnership, by Hill & Company, Inc., its General Partner, Plaintiffs, v. GREAT PLAINS WESTERN CORPORATION, a California corporation, and all persons unknown, claiming any legal or equitable right, title, estate, lien or interest in the property described in the complaint adverse to plaintiffs' title, or any cloud upon plaintiffs' title, Defendants. GREAT PLAINS WESTERN CORPORATION, a California corporation, Counterclaimant, v. WILSON COUNTY LAND COMPANY #1, a Texas limited partnership, Wilson County Land Company #2, a Texas limited partnership, Wayne L. Hill, Hill & Company, Inc., and all persons claiming by, through, or under such persons, and all persons unknown, claiming any legal or equitable right, title, estate, lien, or interest in the property described in the First Amended Counterclaim adverse to counter-claimant's title or any cloud on counter-claimant's title thereto, named as DOES 1-100, inclusive, Counterdefendants. |
COPYRIGHT MATERIAL OMITTED
F. Shaun Burns, Michael A. Shimokaji, Dale & Lloyd, La Jolla, Cal., Stephen F. Biegenzahn, Buchalter, Nemer, Fields, Chrystie & Younger, Los Angeles, Cal., for defendants/counterclaimants.
Thomas M. Allen, Ted R. Frame, Inc., Coalinga, Cal., for plaintiffs/counterdefendants.
Lawrence A. Diamant, Robinson, Wolas & Diamant, Los Angeles, Cal., for creditors' committee.
James E. Eichstaedt, United States Trustee, Los Angeles, Cal., U.S. trustee.
This is a dispute over ownership rights in two properties, a Texas ranch and a Mississippi farm. The debtor holds record title, but the plaintiffs claim ownership by constructive trust. The constructive trust claims rest on an assertion that the record title holder defrauded them out of the purchase price prior to the filing of this Chapter 11 case. For purposes of analysis, I am willing to assume that the record title holder did in fact defraud the plaintiffs. Nonetheless, I hold that the property belongs in the bankruptcy estate.
For several years Great Plains Western Corporation, together with its subsidiary, Great Plains Western Ranch Company, Inc. (collectively "GPW") promoted tax shelter limited partnerships. GPW conceived ventures in agriculture and cattle-raising. GPW located potential investors and created limited partnerships with itself as general partner and the investors as limited partners. The limited partners got (or hoped to get) profits and tax benefits. GPW got management fees, commissions and profit participations. On occasions GPW, as a corporation, also sold property to itself, as a general partner. GPW was involved in some 100 limited partnerships over the past 10 years. In October, 1982, beset with cash flow problems, GPW filed Chapter 11 cases for itself and 10 of its limited partnerships (but not including the plaintiffs in this case). GPW continues to function as a debtor-in-possession ("DIP"), 11 U.S.C. § 1101(1) (1982).
In 1975, GPW purchased a farm in Mississippi (the "farm"). In December, 1977, C.R. Loup ("Loup") and Sheldon M. Neider ("Neider"), together with GPW, formed Loup & Neider Farm & Cattle Company, a California limited partnership ("L&N"), to engage in farming. Loup and Neider were the only limited partners and GPW was the general partner. GPW entered into a contract to sell the farm to L&N. Richard C. Chapman ("Chapman"), president of GPW, signed the contract for GPW as seller. William J. Dale, a vice-president of GPW, signed the contract for GPW, the general partner of L&N, as buyer. Loup and Neider contributed $220,000 in capital, promising to make additional payments of $11,000 per year thereafter. GPW undertook to manage the farm. The contract was recorded on May 10, 1978. For reasons no one disclosed in court, GPW never transferred a deed to L&N.
In October, 1981, Loup & Neider told GPW they intended to replace GPW with another general partner. Shortly thereafter Loup and Neider, purporting to act for L&N, leased the farm to Mack Baughman for a term of four years. They recorded the lease and apparently Baughman undertook the operation of the farm. Nevertheless, GPW continued to act as general partner of L&N. In May, 1982, Loup and Neider refused to make their prescribed $11,000 annual payment. Thereupon GPW declared that they were in default of their obligations to L&N, pursuant to the 1978 agreement. On May 13, 1982, Chapman, GPW's president, acting as L&N's general partner, quitclaimed the farm from L&N to GPW. The stated consideration was $10. On June 8, 1982, the quitclaim was recorded.
Wilson County's chronicle is simpler. In December, 1973, GPW purchased the Triple C Brangus ranch in Texas (the "ranch"). In 1977, GPW formed two limited partnerships, Wilson County Land Company # 1 and Wilson County Land Company # 2 ("Wilson County"). GPW through a subsidiary acted as general partner. GPW contracted to sell the ranch to Wilson County for $1.5 million, payable $200,000 down, with the balance payable in installments over five years. The contract provided that GPW would transfer a deed to Wilson County after Wilson County made the last payment. GPW asserts that Wilson County failed to make the last payment and is in default. Wilson County also, at some point, replaced GPW with another general partner.
In January, 1983, L&N and Wilson County filed separate, although substantially identical, complaints in this court against GPW. Each alleges, among other things, that GPW fraudulently induced it to pay money for the real estate now in GPW's name. Each argues that the relevant state law permits the imposition of a constructive trust on the property to satisfy such a fraud claim. GPW in response moved for summary judgment, and it is that motion in each case that is before me now.
L&N and Wilson County (the "plaintiffs") rely chiefly on Section 541 of the Bankruptcy Code, defining property of the bankruptcy estate, 11 U.S.C. § 541 (1982). Property of the estate under Section 541, they argue, includes (with exceptions not here relevant) only property that was property of the debtor. And that is true. As the Supreme Court said, "The Bankruptcy Act simply does not authorize a trustee to distribute other people's property among a bankrupt's creditors." Pearlman v. Reliance Ins. Co., 371 U.S. 132, 135-36, 83 S.Ct. 232, 234-35, 9 L.Ed.2d 190, 193 (1932). See also 4A COLLIER ON BANKRUPTCY ¶ 541.13 (15th ed. 1983). For purposes of analysis on this summary judgment motion, they argue, I must assume that this property would not be property of the debtor at state law. And that is true also. See generally 6 MOORE'S MANUAL FEDERAL PRACTICE AND PROCEDURE §§ 56.021 and 56.041 (1983).1 Finally, they assert that a constructive trust may be imposed in a bankruptcy proceeding. Once again, I agree. Cf. In re Kennedy & Cohen, Inc., 612 F.2d 963, 966 (5th Cir.1980) (), In re Angus, 9 B.R. 769 (Bkrtcy.D.Or.1981).
The difficulty with all this is that it is only a partial analysis. For the question is not merely what becomes property of the estate. A bankruptcy proceeding is forum not merely for the adjudication of claims between plaintiff and defendant. Rather, it is a multilateral proceeding for the adjudication of rights among a variety of interests. GPW as DIP has the rights and powers of a bankruptcy trustee. See 11 U.S.C. § 1107 (1982). As trustee, it takes rights derivative from the rights of a debtor pursuant to Section 541. But as trustee GPW also exercises a broad range of other rights and powers—rights and powers in no way available to the debtor at state law. See generally 11 U.S.C. §§ 542-553 (1982). Among others, the trustee gets certain rights and powers that might have been exercised by third parties at state law, quite apart from any rights of the debtor. One of these is the power of a hypothetical bona fide purchaser of real property, under 11 U.S.C. § 544(a)(3) (1982). And it is to this power that I now turn.
As COLLIER explains, it is axiomatic that the estate includes property of the debtor, and also defenses that might be available to the debtor. See 4B COLLIER ON BANKRUPTCY ¶ 70.45 (14th ed. 1978). But COLLIER continues:
But such defenses are often not enough. More frequently that other wise, the bankrupt will be estopped to deny the validity of his acts, obligations and transfers. If this estoppel is imputed to the trustee, he may be helpless to avoid or set aside the results of the bankrupt\'s chicanery, the favoritism of certain creditors, or other acts or transfers that are in derogation of the Bankruptcy Act\'s paramount purpose: equality of distribution among all creditors. Id.
The drafters of the Bankruptcy Act of 1898 evidently understood this principle. That act provided that the "trustee . . . shall . . . be vested . . . the title of the bankrupt . . . to all . . . property . . . which might have been levied upon and sold under judicial process against him." See Bankruptcy Act of 1898 § 70a(5), reprinted in 4A COLLIER ON BANKRUPTCY ¶ 70.481 (14th ed. 1978). Taken at face value, this provision might itself...
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