In re Leaver
| Decision Date | 24 March 2021 |
| Docket Number | Case Number: 20-11122-12 |
| Citation | 627 B.R. 517 |
| Parties | IN RE: Zachery R. LEAVER, Debtor. |
| Court | U.S. Bankruptcy Court — Western District of Wisconsin |
Wade M. Pittman, Pittman & Pittman Law Offices LLC, Madison, WI, for Debtor.
DECISION
Zachery R. Leaver ("Leaver") filed a voluntary Chapter 12 petition on April 21, 2020. About two months later, Hillside Dairy ("Hillside") filed a proof of claim in the secured amount of $106,448.84. The basis for the claim was a boarding lien.1
Leaver filed a plan on July 20.2 Shortly after, a stipulation between Hillside and Leaver providing for the release of livestock was filed ("Stipulation").3 The Stipulation also contained an agreement that Hillside would have an administrative claim and that it would retain its lien rights. The Stipulation was approved by the Court on July 31.4
Hillside objected to Leaver's plan a few days later arguing the plan did not provide for its lien as stipulated or to treat the claim as an administrative expense.5 It said it released the animals relying on the terms of the Stipulation.
Leaver then objected to Hillside's claim.6 Leaver filed an amended plan.7 The amended plan does not, however, change the treatment of Hillside.
The parties filed a joint stipulation of facts.8 The parties have filed briefs and Leaver's primary secured creditor, Wisconsin Bank & Trust ("WB&T"), filed a letter in support of Leaver's position. Confirmation of Leaver's amended plan has been held in abeyance pending a decision on the Hillside claim.
Leaver is a dairy farmer. He owns and operates a farm.9 Leaver has perfected security agreements with WB&T and Farm Service Agency for business loans.10 Those loans pre-date Leaver's transactions with Hillside.
Starting in 2017, Leaver delivered dairy cows and youngstock he was unable to care for to Hillside.11 On the petition date, all of his livestock was either located at Hillside or with Leaver's father-in-law.12 Until about May 20, 2020, Hillside "housed, cared for, milked and managed Leaver's dairy cows and youngstock."13
Hillside has filed a claim in the amount of $106,448.84. Most of the claim is for pre-petition amounts. Somewhere between $2,593.50 and $4,882.50 may be for post-petition services charged at the rate of $2.10/head/day.
There were not less than 65 head located at Hillside when possession of those animals was given to Debtor.14 According to Leaver's schedules, the number was actually higher. It was:15
So according to Leaver the value of the livestock in Hillside's possession on the petition date was about $119,000. In other words, Hillside was fully secured on the petition date because it had cattle in its possession of a value that was greater than any alleged claim of Hillside.
Leaver and Hillside stipulated to the release of the livestock to Leaver.16 The Stipulation says Hillside "will release any animals in its possession owned by" Leaver. It also says Leaver agrees to treat "any outstanding bill by [Hillside] as an administrative expense in his Chapter 12 plan." Finally, it promised that Hillside would retain its lien on the animals being released.
The parties say the livestock was returned to Leaver on about May 20, 2020.17 Based on the Stipulation, the logical inference is that the scheduled livestock was in the possession of Hillside in late May 2020.
Hillside filed a proof of claim in the amount of $106,448.84 asserting its claim was fully secured.18 The Stipulation releasing the cattle was approved on July 31.19 On August 24, Leaver objected to Hillside's claim asserting that the amount owed to Hillside is in dispute because no contract rate for caring for the animals was ever agreed upon between the parties. 20
The objection simply challenges the amount of Hillside's claim. It does not raise the questions of Hillside's secured status or its administrative priority that are now the basis for Leaver's arguments.
The Court has jurisdiction over these matters pursuant to 28 U.S.C. §§ 157 and 1334(a). Venue is proper under 28 U.S.C. §§ 1408 and 1409. The issue before the Court is a claim asserted by Hillside against the bankruptcy estate arising out of post-petition actions related to an agreement between Debtor and Hillside and could be considered, at least partially, a request for payment of an administrative expense pursuant to 11 U.S.C. § 503. It falls within the parameters of "allowance or disallowance of claims against the estate," as well as "matters concerning the administration of the estate" and "other proceedings affecting the liquidation of the assets of the estate." 28 U.S.C. § 157(b)(2) (A), (B), and (O).
Wis Stat. § 779.43(3) in relevant part states:
[E]very keeper of a garage, marina, livery or boarding stable, and every person pasturing or keeping any carriages, automobiles, boats, harness or animals, shall have a lien thereon and may retain the possession thereof for the amount due for the keep, support, storage or repair and care thereof until paid.
A required element under the state statute to have a validly perfected lien is possession. The Wisconsin Court of Appeals has held that "[i]f the lienholder elects to relinquish possession, the lien is no longer necessary to justify possession, and the lien is lost." Premier Cmty. Bank v. Schuh , 2010 WI App 111, 329 Wis. 2d 146, 150-51, 789 N.W.2d 388, 390.
Wis Stat. § 779.43(3) requires possession for perfection. Hillside surrendered possession, so it no longer holds a secured claim based on its pre-petition or post-petition statutory lien.
The parties entered into a Stipulation containing specific terms for the treatment of Hillside. The Stipulation specified plan treatment for Hillside's claim as an administrative expense. It purported to enable Hillside to retain the same lien rights that existed at the time of the Stipulation.
Stipulations entered into freely and fairly and approved by the Court are not to be set aside lightly. Stipulated agreements avoid costly and time-consuming litigation. Waldorf v. Shuta , 142 F.3d 601, 616 (3d Cir. 1998) ; In re Argose, Inc ., 372 B.R. 705, 708 (Bankr. D. Del. 2007).
Here, the Stipulation enabled Debtor to obtain possession of the livestock and placed WB&T back in first secured position on the released livestock. In consideration for Hillside's release of the livestock, Debtor agreed that Hillside would continue to have lien rights in the released cattle and that its claim would be given certain priority treatment in the plan.
Stipulations may be nullified by a court for good cause if the interests of justice require it and the parties can be restored to the positions they held before entering into the stipulation. Waldorf , 142 F.3d at 618 ; Argose , 372 B.R. at 708. The failure to enforce stipulations undermines the willingness of parties to enter into future agreements. That inevitably impacts the prompt and efficient administration of cases. If debtors can unilaterally remake the terms of their stipulations, such agreements would naturally fall into disfavor. Such an outcome would significantly impact the process of negotiating consensual plans and confirmation proceedings. For these reasons, setting aside a stipulation must be carefully considered, and must necessarily be used in limited circumstances.
By relinquishing possession, Hillside gave up the priority its lien might have against WB&T. All the same, Leaver agreed that Hillside would retain lien rights in the livestock that was in its possession at the time of turnover. Leaver stipulated to the grant of a security interest in the livestock that was in the possession of Hillside.
State law controls this situation. Article Nine of the Uniform Commercial Code applies to the creation of this security interest. As section 409.109 provides:
Wis. Stat. § 409.109.
Section 409.333 is the section that governed Hillside's lien. It provides that a possessory lien, created by statute, has priority over a security interest in goods unless the statute creating the possessory lien expressly provides otherwise. So at the time of the Stipulation, Hillside held a possessory lien on the livestock that was superior to the lien of WB&T.
The parties agree that the livestock is an item of "personal property" or involves an agricultural lien. The language of the Stipulation is clear that the transaction involves Leaver's interests in the livestock and it plainly says it is intended to create a security interest in the livestock. Thus, once the statutory lien of Hillside was terminated, Article Nine applies to the transaction described in the Stipulation unless it is specifically excluded by the U.C.C. itself. There is no suggestion that Article Nine is inapplicable.
It is clear from the foregoing that Article Nine governs the parties' rights in the livestock under the Stipulation. So the inquiry shifts to whether Hillside has complied with Article Nine's requirements for the attachment and perfection of its claimed security interest.
State law...
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2021-2022 Commercial Law Developments
...occurred within the meaning of the Uniform Fraudulent Transfer Act and the creditor had liability thereunder.[Page 14]In re Leaver, 627 B.R. 517 (Bankr. W.D. Wis. 2021)—A creditor that had a boarding lien on the debtor's cattle, and which pursuant to a bankruptcy court-approved stipulation,......