In re Lemos, Bankruptcy No. 98-00551. Adversary No. 99-6173.
| Decision Date | 14 December 1999 |
| Docket Number | Bankruptcy No. 98-00551. Adversary No. 99-6173. |
| Citation | 243 BR 96 |
| Parties | In re Edward LEMOS, Debtor. Edward Lemos, Plaintiff, v. Bernie Rakozy, Defendant. |
| Court | U.S. Bankruptcy Court — District of Idaho |
Howard R. Foley, Foley & Freeman, Meridian, Idaho, for plaintiff.
Jed W. Manwaring, Evans, Keane, Boise, Idaho, for defendant.
In this adversary proceeding, Plaintiff Edward Lemos, a Chapter 7 debtor, seeks to establish that certain funds received after the filing of his bankruptcy petition through the federal Crop Loss Disaster Assistance Program ("CLDAP") are not property of his bankruptcy estate. The Defendant, Chapter 7 trustee, Bernie Rakozy, contends the money is property of the bankruptcy estate and should be distributed to creditors. A trial was conducted on October 14, 1999, and the matter was taken under advisement. The parties having filed briefs after trial, and the Court having duly considered the evidence, testimony, and the arguments of the parties, the following constitutes the Court's findings of fact and conclusions of law. Fed.R.Bankr.P. 7052.
Plaintiff, a farmer, had grown wheat and onions during the past several years. These crops were federally insured and Plaintiff received crop insurance indemnity payments in 1994 (wheat), 1995 (wheat and onions), and 1996 (wheat) totaling $63,067.
Plaintiff filed for relief under Chapter 12 of the Bankruptcy Code on February 25, 1998. The case was converted to Chapter 7 on July 14, 1998, and Plaintiff received a discharge on November 9, 1998.
On October 21, 1998, Congress enacted Public Law 105-277 establishing the CLDAP, which provided cash benefits payable to farmers suffering crop losses during certain years. The legislation directed the Secretary of Agriculture to promulgate regulations governing applications for benefits under the program to be administered by local Farm Service Agency offices. Regulations were promulgated and adopted. See 7 C.F.R. §§ 1477.101 et seq.
On April 9, 1999, Plaintiff applied for disaster benefits under the multi-year portion of the CLDAP. To qualify, Plaintiff had to show that he had received crop loss indemnity payments in at least three of the previous five years. 7 C.F.R. § 1477.101. He did so, and Plaintiff's application for benefits was approved. The amount of his benefits was calculated by multiplying the total indemnity payments he had received over the previous five years by 25%, then reducing it by a national factor of .849. On June 21, 1999, a payment on Plaintiff's application in the amount of $13,386.00 was issued, but it was intercepted by Defendant as trustee of Plaintiff's bankruptcy estate. Plaintiff seeks to recover the funds from Defendant.
The parties disagree over whether the farm program benefit payment under these facts constitutes property of the bankruptcy estate. If the money is property of the bankruptcy estate, Defendant as trustee is entitled to possession of the funds to administer in the bankruptcy case. 11 U.S.C. § 542.
Under Section 541(a) of the Bankruptcy Code, property of the estate includes:
11 U.S.C. § 541(a)(1) and (6). The scope of the concept of "property of the estate" was intended by Congress to be extremely broad. In re Shaw Construction, 92 I.B.C.R. 90, 91 (citing H.R.Rep. No. 595, 95th Cong., 1st Sess. 367-68 (1977) and S.Rep. No. 989, 95th Cong., 2d Sess. 82-83 (1978)). See also Monumental Life Insurance Co. v. Bibo, Inc. (In re Bibo), 200 B.R. 348, 350 (9th Cir. BAP 1996), citing Harsh Investment Co. v. Bialac (In re Bialac), 712 F.2d 426 (9th Cir.1983) ().
As a preliminary matter, Defendant argues that Plaintiff has judicially admitted certain facts as propounded in Requests for Admission served by Defendant on Plaintiff on August 10, 1999. Responses to these discovery requests were not served by Plaintiff until September 17, 1999. Defendant argues that the requests are deemed admitted pursuant to Federal Rule of Civil Procedure 36(a) as incorporated by Federal Rule of Bankruptcy Procedure 7036. Plaintiff moves for relief from the effect of the rule.
Plaintiff will be excused from the effect of his tardy discovery responses. Fed.R.Civ.P. 36(b). Defendant was not prejudiced at trial by Plaintiff's failure to timely respond to the requests. Moreover, it appears to the Court that, for the most part, the requests do not address issues of fact, but require Plaintiff to concede certain conclusions of law. The Court declines to base its determination of the issues on any such "deemed admissions." Id.
The legal issue presented by this case is whether crop disaster benefits paid on Plaintiff's account pursuant to legislation enacted and regulations adopted after the filing of Plaintiff's bankruptcy petition, but related to crop losses occurring prepetition, should be included within the bankruptcy estate under 11 U.S.C. § 541(a)(1). As the debtor requesting the determination, Plaintiff has the burden of proving the disaster payments are not property of the estate. Johnson v. Taxel (In re Johnson), 178 B.R. 216, 220-21 (9th Cir. BAP 1995) ().
The CLDAP required the Secretary of Agriculture to make disaster payments available to producers who had incurred specific crop losses. PL. 105-277; 7 U.S.C. § 1421, Subtitle A §§ 1101-1103. It was solely because Plaintiff had received crop insurance indemnity payments for losses incurred in his wheat and onion crops during 1994 through 1996 that he was eligible for benefits under the CLDAP. 7 C.F.R. § 1477.300.
In Rau v. Ryerson, 30 B.R. 541 (9th Cir. BAP 1983), aff'd. 739 F.2d 1423 (9th Cir. 1984), the court held that payments received pursuant to an employment contract which became due when the debtor's job was terminated eight months after filing for bankruptcy were property of the bankruptcy estate. The payments were based upon commissions earned during previous years. Citing Segal v. Rochelle, 382 U.S. 375, 380, 86 S.Ct. 511, 15 L.Ed.2d 428,1 the court found that even though the right to payments under the termination agreement was contingent, it was "`sufficiently rooted in the pre-bankruptcy past and so little entangled with the bankrupt's ability to make an unencumbered fresh start,'" that the payments should be regarded as property of the bankruptcy estate.2 See also In re Buchanan, 139 B.R. 721, 722-723 (Bankr.D.Idaho 1992) ().
This Court, following Ryerson, has also held that other contingent interests may be included as property of the estate. In re Shaw Construction, Inc., 92 I.B.C.R. 90-91. In Shaw, a worker's compensation insurance dividend which was declared and received postpetition was found to be a contingent interest properly characterized as property of the bankruptcy estate. Id.
While these cases stand for the broad proposition that even contingent interests may constitute property of the estate pursuant to Section 541(a)(1), none of them involve the postpetition enactment of a federal program that gives rise to property of the estate. The only case the Court has been able to locate involving postpetition regulations is from the Alaska bankruptcy court which was recently asked to determine whether certain fishing quota rights were to be included as property of the estate. After first concluding that the fishing rights were in fact "property" under Alaska law, the court then concluded the fishing rights which had accrued due to certain prepetition qualifying events were property of the estate, despite the regulations having been enacted postpetition. Battley v. Schmitz (In re Schmitz), 224 B.R. 117 (Bankr.D.Alaska 1998), supplemented by 232 B.R. 173 (Bankr.D.Alaska 1999).
While the Alaska court gave as a basis for its decision the fact that the administrative process for promulgation of the regulations was in an advanced stage when the debtor filed for bankruptcy relief, the court also reasoned that the fishing quota rights were "so rooted in the debtor's pre-bankruptcy past that they should be included as property of the estate." Id. at 124 (citing Segal v. Rochelle, 382 U.S. 375, 380, 86 S.Ct. 511, 15 L.Ed.2d 428 (1966)). Specifically, the court found that the qualifying events (i.e., fishing in previous years) had occurred prepetition, and no qualifying activities were required postpetition. Id. at 123.
Similarly, in this case Plaintiff became entitled to the CLDAP payments only as a result of qualifying events (i.e., growing and suffering qualifying losses as to certain crops) occurring before bankruptcy, rather than any significant event taking place after filing his bankruptcy petition. The scenario is a common one. Congress frequently and regularly enacts a variety of farm subsidy programs, including price supports, set-asides, and disaster relief, which change from year to year. The prospect of a federal program being adopted to compensate for farm losses in any given year may therefore be properly characterized as a contingent interest, which, though it may never vest if the program does not encompass a particular crop or a particular year, is property of the bankruptcy estate when it relates to prepetition crops.
Additionally, it would be inequitable in these circumstances to allow Plaintiff to reclaim the...
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