In re Keinath Bros. Dairy Farm

• Decision Date: 09 April 1987
• Docket Number: Bankruptcy No. 86-09726.
• Citation: 71 BR 993
• Parties: In re KEINATH BROTHERS DAIRY FARM, a Michigan co-partnership, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Michigan

71 B.R. 993 (1987)

In re KEINATH BROTHERS DAIRY FARM, a Michigan co-partnership, Debtor.

Bankruptcy No. 86-09726.

United States Bankruptcy Court, E.D. Michigan, N.D.

April 9, 1987.

Jay S. Kalish, Southfield, Mich., for debtor.

John J. McQuillan, Bay City, Mich., for Federal Land Bank.

MEMORANDUM OPINION ON DEBTOR'S MOTION TO CONVERT FROM CHAPTER 11 TO CHAPTER 12

ARTHUR J. SPECTOR, Bankruptcy Judge.

On November 24, 1986, the debtor, Keinath Brothers Dairy Farm, a Michigan co-partnership, comprised of Ronald N. Keinath, John J. Keinath and Larry L. Keinath, filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. Twenty-two days thereafter, on December 16, 1986, the debtor moved to convert this case to Chapter 12. The motion was contested by Federal Land Bank of St. Paul, which argued that § 302(c)(1) of the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986, Pub.L. 99-554 restricted the availability of the option to convert a Chapter 11 case to Chapter 12 to debtors in cases which were filed on or subsequent to November 26, 1986, and that since this case was filed prior thereto, the debtor lacked the ability to convert it to Chapter 12.

The Code section dealing with converting a Chapter 11 case to a case of a different chapter, § 1112(d), was amended as part of the foregoing Act. It now reads:

The court may convert a case under this chapter to a case under chapter 12 or 13 of this title only if—

(1) the debtor requests such conversion; (2) the debtor has not been discharged under § 1141(d) of this title; and (3) if the debtor requests conversion to chapter 12 of this title, such conversion is equitable.

(The denotes additions made pursuant to § 256 of the Act.) Section 302(c) of the Act, however, states that

(1) the amendments made by subtitle B of title II which enacted the Family Farm Amendments shall not apply with respect to cases commenced under title 11 of the United States Code before the effective date of this Act.

The effective date of the Act was November 26, 1986. As subtitle B of title II includes, among other things, § 256, the section which amended Code § 1112 to permit conversions from Chapter 11 to Chapter 12, the statutory framework clearly envisions no conversions of Chapter 11 (or other chapter) cases which were filed before November 26, 1986.

The Federal Land Bank of St. Paul makes this argument. It says that § 302(c)(1) is unambiguous and clearly limits the availability of conversion from Chapter 11 to Chapter 12 to debtors in cases filed on or subsequent to the effective date of the statute, November 26, 1986. The debtor argues that § 302(c)(1) of the Act is ambiguous, and ought therefore to be construed by reference to legislative history, which clearly supports the view that conversion under these circumstances is appropriate. The legislative history comes in the form of a conference committee report. Comments in a conference committee report are the best indication of congressional intent. Garcia v. United States, 469 U.S. 70, 76, 105 S.Ct. 479, 83 L.Ed.2d 472, 478 (1984); Railroad Commission v. Chicago, B. & Q. Ry., 257 U.S. 563, 588-589, 42 S.Ct. 232, 237, 66 L.Ed. 371, 383 (1922). Here, the Committee of Conference said:

It is not intended that there be routine conversion of Chapter 11 and 13 cases, pending at the time of the enactment, to Chapter 12. Instead, it is expected that courts will exercise their sound discretion in each case, in allowing conversions only where it is equitable to do so.

Chief among the factors the court should consider is whether there is a substantial likelihood of successful reorganization under Chapter 12.

Courts should also carefully scrutinize the actions already taken in pending cases in deciding whether, in their equitable discretion, to allow conversion. For example, the court may consider whether the petition was recently filed in another chapter with no further action taken. Such a case may warrant conversion to the new chapter. On the other hand, there may be cases where a reorganization plan has already been filed or confirmed. In cases where the parties have substantially relied on current law, availability to convert to the new chapter should be limited.

Joint Explanatory Statement of the Committee of Conference, H.R. Conf.Rep. No. 958, 99th Cong., 2d Sess., 1986, U.S.Code Cong. & Admin.News 1986, pp. 5227, 5249.

In the alternative, the debtor argues that even if § 302(c)(1) is held to be unambiguous, to rule that debtors lack the ability to convert Chapter 11 cases pending on the effective date of the act to Chapter 12 would fly in the face of congressional intent as so clearly expressed in the conference committee report. It therefore says that the statute ought to be construed, notwithstanding its clarity to the contrary, in conformance with the express legislative intentions.

In an attempt to establish an ambiguity, the debtor presented the testimony of Morris Garfinkel, Chairman of the English Department of the Oak Park, Michigan School System. He diagrammed the sentence contained in § 302(c)(1), but, in our mind, failed to set forth a reading contrary to the plain reading urged on us by the Federal Land Bank.

Therefore, the legal issue is whether the legislative history which distinctly expresses an intention that debtors in Chapter 11 and Chapter 13 cases pending on November 26, 1986, may convert their cases to Chapter 12 controls over the plain contrary language of the statute. This issue is one which, after centuries of court interpretations of statutes, ought to have been finally decided by now. Yet the more ink that has been spilled on this issue over the past half century, the more muddled the answer has become.

The many cases deciding this Chapter 12 conversion issue can be fairly divided into three distinct camps. One camp rigidly adheres to the literalist approach and disregards legislative history. See In re Albertson, 68 B.R. 1017, 15 B.C.D. 577 (Bankr.W.D.Mo.1987); In re Barclay, 69 B.R. 552 (Bankr.C.D.Ill.1987); In re Council, 70 B.R. 20 (Bankr.W.D.Tenn.1987); In re Glazier, 69 B.R. 666, 15 B.C.D. 575 (Bankr.W.D.Okla.1987); In re Groth, 69 B.R. 90, 15 B.C.D. 565 (Bankr.D.Minn. 1987); In re Hughes, 70 B.R. 66 (Bankr.W. D.Va.1987); In re Lindsey, 69 B.R. 632 (Bankr.C.D.Ill.1987); In re Petty, 69 B.R. 412 (Bankr.N.D.Ala.1987); In re Rossman, 70 B.R. 985 (Bankr.W.D.Mich.1987); In re B.A.V., Inc., 68 B.R. 411, 15 B.C.D. 550 (Bankr.D.Colo.1986); In re Tomlin Farms, Inc., 68 B.R. 41, 15 B.C.D. 296 (Bankr.D.N. D.1986). The other pole applies what it believes is a contrary principle, that is, that the clearly expressed legislative intention to allow pre-November 26, 1986 Chapter 11 cases to be converted to Chapter 12 overrides the plain language of § 302(c)(1) forbidding it. See In re Big Dry Angus Ranch, Inc., 69 B.R. 695 (Bankr.D.Mont. 1987); In re Erickson Partnership, 68 B.R. 819, 15 B.C.D. 614 (Bankr.D.S.D.1987); In re Fischer, 72 B.R. 634 (Bankr.D.Kan., 1987); In re Henderson, 69 B.R. 982 (Bankr.N.D.Ala.1987); In re Mason, 70 B.R. 753, 15 B.C.D. 534 (Bankr.W.D. N.Y.1987). The third camp holds against conversion of existing cases but either examines legislative history and finds its direction to be unclear, In re Spears, 69 B.R. 511, 15 B.C.D. 551 (Bankr.S.D. Iowa 1987), or finds some other reason to deny the motion, In re Ray, 70 B.R. 431 (Bankr. E.D.Mo.1987).

We find all three approaches less than satisfactory. The first camp pays no attention whatsoever to the impressive number of U.S. Supreme Court cases which seem to direct that courts not adhere to the literal words of a statute when to do so would subvert congressional intent clearly expressed in conference committee reports or other legislative history. We cannot disregard the existence of these cases or their apparent instruction. The second camp too readily disregards the well-established principle that clear statutes need no construction in order to reach a result that many feel is probably the "right" one. The in-between camp takes no stand on the question of how to properly approach interpretation of a statute whose words seem to need no interpretation, merely application. We believe that to decide the question in this case we must first decide which of the two theories of statutory interpretation is an appropriate tool for such a task.

For many years the principle was firmly established that one looked to legislative history only if the meaning of the statute in question was unclear. If the statute was clear and unambiguous, and if it did not cause an absurd or futile or ineffective result when literally applied, the statute required no "construction"; therefore, resort to history to divine its meaning was unnecessary and improper. Haggar Co. v. Helvering, 308 U.S. 389, 394, 60 S.Ct. 337, 339, 84 L.Ed. 340 (1940); Armstrong Paint & Varnish Works v. Nu-Enamel Corp., 305 U.S. 315, 333, 59 S.Ct. 191, 200, 83 L.Ed. 195, 205-206 (1938); Sorrells v. United States, 287 U.S. 435, 446, 53 S.Ct. 210, 214, 77 L.Ed. 413, 419 (1932); United States v. Katz, 271 U.S. 354, 357, 46 S.Ct. 513, 514, 70 L.Ed. 986, 988 (1925); 73 Am. Jur.2d Statutes, § 195 (1974); Sutherland, Stat. Const. § 46.01 (4th ed. 1984).

Among the strongest statements of the literalist maxim are those found in Railroad Commission v. Chicago, B. & Q. Ry., 257 U.S. at 588-589, 42 S.Ct. at 237, 66 L.Ed. at 383, where the Court said:

Great stress is put on the legislative history of the Transportation Act to show that the bill was not intended to confer on the Commission power to remove any discrimination against interstate commerce involved in a general disparity between interstate and intrastate rates. Committee reports and explanatory statements of members in charge, made in presenting a bill for passage, have been held to be a legitimate aid to the interpretation of a statute where its language is doubtful or obscure. But when taking

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