In re Guinnane

• Decision Date: 05 May 1987
• Docket Number: Bankruptcy No. 86-20516.
• Citation: 73 BR 129
• Parties: In re Edwin J. GUINNANE Katherine J. Guinnane, Debtors.
• Court: U.S. Bankruptcy Court — District of Montana

73 B.R. 129 (1987)

In re Edwin J. GUINNANE Katherine J. Guinnane, Debtors.

Bankruptcy No. 86-20516.

United States Bankruptcy Court, D. Montana.

May 5, 1987.

Joseph W. Duffy, Great Falls, Mont., for debtors.

Malcolm Goodrich, Billings, Mont., for Interstate Production Credit.

ORDER

JOHN L. PETERSON, Bankruptcy Judge.

At Butte in said District this 5th day of May, 1987.

In this Chapter 12 case, Interstate Production Credit Association (PCA) has filed a motion to dismiss this proceeding on the grounds the Debtors do not qualify as family farmers under Chapter 12. The Debtors resist the motion and hearing was held on April 2, 1987.

PCA claims that figures obtained for the Debtors' gross farm and non-farm income for 1986¹ show farm figures are taken from the operation of the Debtors, and at the hearing on the motion to dismiss the Debtor Katherine Guinnane stated she had made an error in her deposition which she corrected upon signing the deposition after its transcription. Once the correction is made, the Debtors' farm income shows gross receipts of $134,909.00 and non-farm income of $122,872.00. The Debtors' farm income is derived from sale of cattle, trucking cattle and custom haying. PCA challenges the use of the figures by the Debtors. Specifically, PCA claims that the figure of $13,887.00 included by the Debtors as farm income is, in reality, non-farm income derived from trucking of cattle raised by third parties. In support of such position, PCA has shown that a like income item for 1985 in the sum of $15,856.00 was treated in the income tax returns of the Debtors as being derived from a trucking business, and was not included as farm income. If the sum of $13,887.00 is non-farm income, by the Debtors' own figures, they do not meet the 50% income test under 101(17).

Under 11 U.S.C. § 101(17), it is provided that family farmer means a person engaged in a farming operation whose aggregate debts do not exceed $1,500,000.00 with not less than 80% of whose aggregate non-contingent debts arise out of the farming operation, and such individual and spouse receive more than 50% of the individual gross income from the preceding taxable year from such farming operation. Under 11 U.S.C. § 101(20), farming operation includes farming, tilling of the soil, dairy farming, ranching, production or raising of crops, poultry or livestock, and production of poultry or livestock products in an unmanufactured state. In Collier on Bankruptcy, Sec. 101.19, P. 101-42.4 (15th Cir.), the treatise states:

"Although certain modes of farming are specified, the definition of `farming operation\' is not limited to those operations specifically enumerated. Section 101(18)20 specify `ranching\' and `raising of crops\' as farming operations. The older phrase `tilling of the soil\' has been retained."

Section 101(20), formerly 101(18), was discussed at length in the case of In re Dakota Lay'd Eggs, 57 B.R. 648, 653 (Bankr.N. D.1986), where the court states after discussing In re Blanton Smith Corp., 7 B.R. 410 (Bankr.M.D.Tenn.1980):

"* * * Tracking the legislative history of 101(17) and (18)20, as well as the definition of `person\' found in Section 101(33), the Bankruptcy Court in Blanton Smith concluded that the term `farmer\' could no longer be confined to small farms but rather must include in its definition farming corporations and agri business. With that conclusion, this Bankruptcy Court agrees. The Blanton Smith case, however, did not address the issue from the standpoint of income or production sources. It did not attempt to distinguish between debtor-owned or operated farming operations and non-owned or non-operated farming operations. * * *

* * * * * *

In construing Section 101(18)20, several things must be kept in mind. First, Section 101(18) is a helper. Its placement in the Code is intended to aid in defining who qualifies as a `farmer\' under Section 101(17). Secondly, although Section 101(18) may by its terms be regarded as non-exclusive with regards to the types of farming operations which may be included within the definition, it cannot be so broadly applied as to bring in operations clearly outside the nature or practices one normally associates with farming. * * * Section 101(18) suggests that the term `farming operation\' was meant to include those estimates normally done by persons engaged in the initial stages of production."

The North Dakota court cited Armstrong v. Corn Belt Bank (Matter of Armstrong), 55 B.R. 755 (C.D.Ill.1985), as a recent bankruptcy decision which holds that farming operations within the context of 101(18)20 requires a distinction be made between the nature or character of the income sources to arrive at a determination of what constitutes a "farming operation." In Armstrong, the court found income from the sale of farm machinery and rental of farm land was not derived from a farming operation.²

The holding of the district court regarding the farm machinery income was reversed on appeal in Matter of Armstrong, 812 F.2d 1024, 1026-27 (7th Cir.1987), where the Court held in discussing 101(18):

"The definition does not provide a simple all-inclusive list of tasks and activities (i.e., tillage of the soil, dairy farming). Instead, the section starts out in general terms — `Farming operation includes farming, tillage of the soil, dairy farming . . .\' (emphasis added). Implicit in this definition is the inclusion of general activities inherent in farming and, we believe, the means (or in this case the equipment) necessary to perpetuate the farming operation the definition speaks of. When a farmer sells some of his machinery in an effort to scale down his operation (say from 200-100 acres) and save the farm, the money received is inescapably from the 50% of the farming operation dissolved.

We believe this to be a pragmatic view-point. A contrary result would reap illogical results which we are confident Congress had no desire to create. Farmers in financial trouble could harvest their crop on a given year, decide to scale down their operation, sell machinery and be considered non-farmers under § 101(17) even though they had no significant outside employment or income. Suppose Armstrong had no income from farming rent or the seed company. After all, many legitimate farmers do not rent land or receive wages from outside companies. Given this scenario Armstrong could have made money solely from the sale of beans and corn (and inconsequential income from elsewhere) and yet still have been considered a non-farmer. This result is illogical, undesired and unnecessary. One envisions large numbers of cases where farmers, by merely pruning their operations and selling their equipment, are no longer considered farmers for purposes of the bankruptcy code. We do not believe Congress envisioned such a scenario and believe a broader interpretation is necessary.

Farmers are exempted from the commencement of involuntary cases under Title 11 `. . . because of the cyclical nature of their business. One drought year or one year of low prices, as a result of which a farmer is temporarily unable to pay his creditors, should not subject him to involuntary bankruptcy.\' See Senate Report No. 95-989, U.S.Code Cong. & Admin.News 1978, p. 5787 as

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