In re Julien Co.

• Decision Date: 16 August 1990
• Docket Number: Bankruptcy No. 90-20283-B (jn),Adv. No. 90-0127.
• Parties: In re The JULIEN COMPANY, Debtor. COMMODITY CREDIT CORPORATION, Plaintiff, v. Jack MARLOW, Trustee for The Julien Company, Defendant.
• Court: U.S. Bankruptcy Court — Western District of Tennessee

117 B.R. 910 (1990)

In re The JULIEN COMPANY, Debtor.

COMMODITY CREDIT CORPORATION, Plaintiff, v. Jack MARLOW, Trustee for The Julien Company, Defendant.

Bankruptcy No. 90-20283-B (jn), Adv. No. 90-0127.

United States Bankruptcy Court, W.D. Tennessee, W.D.

August 16, 1990.

William W. Siler, Asst. U.S. Atty., Memphis, Tenn., for Commodity Credit Corp.

J. David Blaylock, Udelsohn, Blaylock and Marlow, Memphis, Tenn., for Jack F. Marlow, trustee.

Risa M. Rosenberg, Milbank, Tweed, Hadley & McCloy, New York City, for Bank Mees and Hope NV.

James F. Gleason, Jr., Hartzog, Calamari & Gleason, New York City, for Union Bank of Bavaria.

Robert F. Orians, Martin, Tate, Morrow & Marston, Memphis, Tenn., for Bankers Trust Co.

Julie C. Chinn, Memphis, Tenn., Asst. U.S. Trustee.

MEMORANDUM OPINION AND ORDER

WILLIAM H. BROWN, Bankruptcy Judge.

This adversary proceeding arose after the filing of a motion by the Trustee to sell property free and clear of liens, the objection of the Commodity Credit Corporation ("CCC"), testimony and proof taken in regard to that motion, and the Court's entry of an order permitting, under certain conditions, the Trustee to sell property subject to CCC's claimed interests free and clear of liens or interests pending the determination of all issues related to the asserted position of CCC. After hearings conducted on the said motion, the Court determined, pursuant to Bankruptcy Rule 7001(2) that this was a proceeding "to determine the validity, priority, or extent of a lien or other interest in property;" therefore, all further hearings should be pursuant to an adversary proceeding. CCC thereafter filed this adversary proceeding, which has been answered, with a counterclaim, which also has been answered. After conclusion of the trial on July 26, 1990, the Court took all issues under advisement. This memorandum opinion and order constitutes findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (K), (M), (N), and (O).

HISTORY OF THIS PROCEEDING

This case began with an involuntary Chapter 7 filing, after which the case was converted to Chapter 11, and a Chapter 11 Trustee was appointed. As a part of his responsibilities in liquidating assets of the estate, the Trustee moved the Court to sell certain cotton free and clear of liens, with any liens or interests to attach to the proceeds. Specifically, the Trustee took the position in that motion that CCC enjoyed a position no better than that of a secured creditor and that its security interests or liens in certain stored cotton could be satisfied by the Trustee's sale of that cotton and payment of valid lien claims. In contrast, the government took the position that the cotton subject to CCC's claims was not in fact property of the estate. At the hearing on the Trustee's motion and as Exhibit 5 to the deposition of Charles Cunningham, a representative of the Agricultural Stabilization and Conservation Service ("ASCS") the parties submitted, for placement under seal, a list of the principal debt owed to CCC and the number of bales stored in various states, against which bales CCC claimed its ownership interest. The number of bales and the value thereof is significant and the outcome of this adversary proceeding will have an impact on not merely the satisfaction of CCC's interests but the potential payment of other creditors' claims.

At the pretrial conference of this adversary proceeding, the parties agreed to preserve the testimony and evidence from the prior hearing on the Trustee's motion, heard on April 20, 1990, and to make that testimony and evidence a part of the record of this adversary proceeding.

STATEMENT OF ISSUES

The issues presented to the Court are:

1. Whether the Trustee's interest in cotton placed in storage as collateral for CCC loans is property of the estate;

2. Whether the applicable CCC statutes and regulations establish a loan program under which CCC is the holder of a security interest;

3. Whether the applicable CCC statutes and regulations vest title to the collateral in CCC immediately upon maturity of the loans and failure to timely redeem, notwithstanding the automatic stay;

4. Whether the automatic stay applies to CCC so as to prohibit CCC from electing to take title to the stored cotton on which the time for redemption expires;

5. If the automatic stay applies, whether CCC should be given relief from the stay and whether CCC's interests are adequately protected;

6. Whether the Trustee may continue to redeem and sell the cotton collateral under 11 U.S.C. § 363(f), and whether CCC may be compelled to accept a money satisfaction of its interests; and

7. Whether CCC is entitled to receive all proceeds from the Trustee's sales, even if those proceeds exceed the loan amounts, and whether the Trustee should be required to abandon to CCC all cotton collateral on which the time for redemption expires.

The Court has concluded that the Trustee's interest in the cotton collateral is property of the estate, that the automatic stay applies, that the CCC program at issue is a loan program, that CCC is the holder of a security interest under the Bankruptcy Code, that CCC's interests are adequately protected, that the automatic stay acts to prevent title to the collateral automatically vesting in CCC, that the automatic stay acts to prevent CCC from exercising its "elections" as to the collateral, that CCC presently is not entitled to relief from the stay, that the Trustee is not required to abandon the estate's interest in all collateral, and that the Trustee may continue to redeem and sell the collateral under § 363(f) so long as the sales are for sufficient amounts to satisfy the CCC loans and related charges.

FINDINGS OF FACT

CCC administers the cotton price support loan program under authority of 7 U.S.C. § 1444, et seq. and the regulations at 7 C.F.R. § 1427, et seq. The regulations in 7 C.F.R. § 1427, et seq. govern price support loans for 1980 and subsequent crop years. 7 C.F.R. § 1427.1. The January 1, 1989 edition of the regulations are controlling.

CCC is a government corporation created under the United States Department of Agriculture for the purpose of carrying out programs designed to aid agriculture through market and price stabilization. 15 U.S.C. § 714, et seq.

The cotton price support loan program is administered for the purpose of stabilizing, supporting and protecting the price of cotton. 15 U.S.C. § 714 and 7 U.S.C. § 1444. The regulations for the program and all controlling documents are prepared by CCC. See C.F.R. § 1427.11.

Participating cotton producers (farmers) may apply for CCC Form A loans, with the loan values set annually for each crop year, and under the loan program producers may pledge warehouse-stored cotton to CCC under a nonrecourse, demand loan subject to the producer's right to redeem the cotton by repaying the loan to CCC on or before a fixed date. See 7 C.F.R. § 1427.6, § 1427.7 and § 1427.8. Thereby, the producer is given an opportunity to obtain an immediate, minimum return for a cotton crop while also permitting the producer to take advantage of any price increases by redemption and resale of the cotton.

The cotton producer executes a note and security agreement (CCC-Cotton A), an example of which was admitted as Exhibit 1. The form has the following printed conditional language:

The terms and conditions of the Note and Security Agreement are set forth in this Form CCC-Cotton A ("Note") and Form CCC-601 "Commodity Credit Corporation Note and Security Agreement Terms and Conditions," and any appendix thereto. By signing this Form CCC-Cotton A, each producer acknowledges receipt of Form CCC-601 and any appendix thereto.

The producer hereby sells, assigns, and mortgages to CCC as collateral for the payment of this Note all of the commodity described in this Note and Form CCC-Cotton A-1, Schedule of Pledged Cotton, together with all authorized replacements, substitutions, additions, and accessions thereto, which is stored in the warehouse specified in this Note.

This program will be conducted on a non-discriminatory basis without regard to race, color, religion, national origin, sex, marital status or handicap.

. . . . .

PRODUCERS REPRESENTATIONS. By signing this Form CCC-Cotton A, the producer makes the representations and warranties and agrees to all the terms and conditions specified in this Form CCC-Cotton A, Form CCC-601, and any appendix thereto.

An example of the Schedule of Pledged Cotton (CCC-Cotton A-1) was introduced as Exhibit 2.

The Commodity Credit Corporation Price Support Note and Security Agreement Terms and Conditions (CCC-601) (dated 4-27-88) was introduced as Exhibit 3. This entire document is important; however, in the definitions section found in the CCC-601, the "amount due" is defined as "the amount of the loan due CCC on the maturity date . . ." (Emphasis added) "Collateral" is defined as being "the commodity described in the Note which has been pledged as security for a CCC price support loan." (Emphasis added) Paragraph 4 of CCC-601 provides that "in lieu of repayment of the amount due, the producer may in accordance with Sections 9 and 10, deliver the collateral to CCC." (Emphasis added) Paragraph 6 of CCC-601, in discussing the collateral, provides: "The kind and quantity of the commodity which has been pledged by the producer as collateral for the satisfaction of the loan is described in the Note." (Emphasis added)

In discussing the maturity, the regulations provide that "CCC may, by public announcement, extend the time for repayment of the loan indebtedness or carry the loan in a past due status." 7 C.F.R. § 1427.7(a) "Public announcement" is not defined in the definition section of the regulations. 7 C.F.R. § 1427.2

Paragraph 10 of CCC-601 discusses warehouse-stored nonrecourse loans, and it is the Court's understanding that this section is applicable...