In re Jeurissen
| Decision Date | 19 April 1988 |
| Docket Number | Bankruptcy No. 4-86-3759. |
| Citation | 85 BR 531 |
| Parties | In re Bruce G. JEURISSEN and Marsha M. Jeurissen, Debtors. |
| Court | U.S. Bankruptcy Court — District of Minnesota |
P. Joseph O'Neill, Chaska, Minn., for debtor.
Arthur C. Benson, Minneapolis, Minn., for Chaska Inv. Ltd. Partnership.
This matter came on for hearing on February 1, 1988, on the application of Chaska Investment Limited Partnership, pursuant to 11 U.S.C. § 503(b)(1)(A), to determine whether certain rent claimed to be due from the debtors is an administrative expense. Arthur C. Benson appeared for movant and P. Joseph O'Neill appeared for the debtors. This court has jurisdiction pursuant to 28 U.S.C. §§ 157 and 1334, and Local Rule 103(b). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (B). Based on all the records and files herein and on arguments of counsel, and further based on the evidence taken at the hearing, the court makes the following Memorandum Order.
Chaska Investment Limited Partnership ("Chaska Investment") owns approximately 2,000 cropland acres in the Chaska area which it rents to approximately 10 separate farmers. Dale Ahlquist ("Ahlquist") has been in charge of its rental operations for several years. In that capacity he has negotiated a large volume of leases with farmers in the Chaska area.
The Debtors, Bruce E. Jeurissen ("Jeurissen") and Marsha M. Jeurissen (referred to jointly as "Debtors"), have farmed approximately 1100 acres in Chaska County for many years. Included within their farming operations are approximately 400 acres of cropland which they have been renting from Chaska Investment since 1981.
On March 31, 1986, Debtors and Chaska Investment entered into the 1986 cropland lease ("the 1986 lease"). The 1986 lease included the following language:
It also provided that rent for the 1986 crop year was due November 15, 1986, with interest accruing thereafter at the rate of 8% per annum. The lease further provided that Chaska Investment would have a security interest in the crops for 1986 and that Jeurissen would sign a UCC-1 form so as to allow Chaska Investment to perfect that security interest. However, Chaska Investment did nothing to perfect its security interest.
The Debtors defaulted in payment of the 1986 lease rental payment in the amount of $24,472.00, which came due on November 15, 1986,1 and, on December 15, 1986, Debtors filed a petition for relief under Chapter 12 of the Bankruptcy Code. Initially, Chaska Investment (and two other of Debtors' landlords) were omitted as creditors from the Chapter 12 petition. Rather, the Debtors' schedules were prepared on an assumption that Chaska Investment (as well as the other two lessors) could be treated as secured creditors of Jeurissen Farms, Inc. (a name under which Jeurissens had been conducting some of their farming operations) and income from the 1986 crops could be viewed as assets, not of the Debtors, but of Jeurissen Farms, Inc., so as to protect the claimed security interests of these three landlords in the 1986 crop. This apparent attempt to forestall the claim of Production Credit Association (PCA) to a security interest in the 1986 crop, was apparently objected to at the first meeting of creditors, which was held on February 10, 1987.
Thereafter, when the Debtors filed their first Chapter 12 Plan of Reorganization on March 11, 1987, they listed Chaska Investment (along with the other two landlords and PCA) as secured creditors claiming a lien on the 1986 crop proceeds and indicated an intention to pay all four such creditors upon confirmation of the Plan following sale of the 1986 crop. Debtors' First Amended Plan dated March 19, 1987, and their Second Amended Plan, dated April 27, 1987, altered the treatment of these four parties by deleting any reference to the three landlords, including Chaska Investment, as secured creditors, making clear that PCA claimed to be the sole secured party in the 1986 crop proceeds, and placing Chaska Investment and the other two lessors in a class of unsecured creditors who would be paid little or nothing pursuant to the Plan. From the beginning, the various Plans filed by the Debtors treated the 1986 lease as an expired lease and not as one which could be assumed under section 365 of the Bankruptcy Code.
On April 1, 1987, Debtors' counsel mailed a letter to Chaska Investment in which counsel notified Chaska Investment that it had been erroneously left off the original petition at the time of the filing and that by a copy of the letter to the bankruptcy court, Chaska Investment's name would be added to the matrix. The bankruptcy court file reflects that Chaska Investment was thereafter (on April 3, 1987) placed on the matrix for service2 and affidavits of service show that it received copies of materials not only relating to the confirmation of Debtors' plan, but also papers relating to subsequent proceedings in which PCA successfully claimed to be the sole perfected secured creditor of the 1986 crop and a court order dated April 27, 1987, declaring PCA's right as a secured creditor in that crop.
Chaska Investment claims that it did not have knowledge of the bankruptcy filing until it received the April 1, 1987 letter and that, in any event, Ahlquist did not understand the implications of bankruptcy even at that point in time. Ahlquist testified that until some point in late spring Jeurissen kept assuring him that Chaska Investment would be paid the 1986 arrearages in spite of the bankruptcy. Jeurissen, however, testified that even before he filed his Chapter 12 he was in regular contact with Ahlquist on the subject; that Chaska Investment knew from the beginning of the filing; and that Chaska Investment was informed of Jeurissen's original attempt to protect its interest in the 1986 crop and of the failure of that attempt in light of the objections of PCA.
The timing is important, Chaska Investment urges, because on March 20, 1987, the parties entered into a new 1987 cropland lease ("the 1987 lease") which carried essentially the same terms as the 1986 lease but to which Chaska Investment attached an "Addendum Agreement." The Addendum Agreement was also dated March 20, 1987, and provides as follows:
Ahlquist testified that the figure of $11,474.00 was selected (rather than the full amount of back due rent) because that is a figure Jeurissen said he could pay. Jeurissen testified that at the time he signed the Addendum Agreement he told Ahlquist he was not sure he was in a position to be committing to pay the 1986 arrearages at all.
Shortly thereafter, Jeurissen delivered to Ahlquist a check in the sum of $10,000.00. The check was dated April 5, 1987, and was deposited by Chaska Investment on April 7, 1987. The check was drawn on the separate "Chapter 12 Debtor-in-Possession" account which had been established in connection with the Debtors' bankruptcy. Ahlquist testified that he did not notice the debtor-in-possession language on the check. It is the position of Chaska Investment that the $10,000.00 was accepted to be applied against the overdue 1986 rent payments; Jeurissen claims that he told Ahlquist the $10,000.00 was, in fact, an advance payment from a government program and it was to be applied to the 1987 lease payments, even though Jeurissen had never made advance payments on any earlier occasion.
Debtors' Seventh Amended Plan of Reorganization was confirmed by Order dated July 29, 1987. Pursuant to Local Rules 185(c) and (f), the notice of the hearing on confirmation specifically instructed Chaska Investment that three days prior to the hearing was fixed as the last day to timely serve and file applications for award of administrative expenses under 11 U.S.C. § 503, which would be heard and determined at the confirmation hearing. Chaska Investment did not file any claim in the bankruptcy proceedings, did not make any appearance in connection with the confirmation hearing, and did not file any request at that time for payment of administrative expenses. Rather, it first brought this application in late October, 1987, for a determination on claimed administrative rent. Shortly thereafter on November 15, 1987, Debtors tendered and Chaska Investment accepted two checks in the total sum of $6,500.00 which, along with the prior $10,000.00 payment, is the precise sum due for the 1987 rent.3
Chaska Investment claims it is entitled to an administrative rent payment totalling approximately $27,400.004 made up of two components: 1) a balance due for arrearages in the 1985 and 1986 rent in the sum of approximately $10,900.00 (1985 and 1986 rent arrearages of $27,472.00, minus the $16,500.00 paid in 1987) and 2) the 1987 rent in the sum of $16,500.00, all in addition to interest. Debtors assert that Chaska Investment is only entitled to keep the $16,500 it has already received in 1987 as administrative rent or expenses of operation; that the...
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