In re Nauman, BAP No. OR-97-1264-JHN
| Citation | 213 BR 355 |
| Decision Date | 18 September 1997 |
| Docket Number | Bankruptcy No. 396-36120-elp12.,BAP No. OR-97-1264-JHN |
| Parties | In re Jeffrey Charles NAUMAN, Brenda Sue Nauman, Debtors. Gary L. MILLER; June W. Miller; John P. Belza; Virginia D. Belza; Appellants, v. Jeffrey Charles NAUMAN; Brenda Sue Nauman; First Security Bank; Robert K. Morrow, Trustee; United States Trustee; Appellees. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Ninth Circuit |
Before: JONES, HAGAN, and NAUGLE1, Bankruptcy Judges.
The bankruptcy court confirmed the Debtors' Chapter 12 Family Farmer Reorganization Plan by its order of February 27, 1997. Creditors Gary and June Miller and John and Virginia Belza ("Miller-Belza"), who sold the ranch property to the Debtors, now appeal the confirmation order. Specifically, the Appellants argue that the bankruptcy court erred in that the Debtors' plan fails the feasibility requirement of § 1225(a)(6).2 Miller-Belza also argue that the plan involves negative amortization of the ranch property, and that the negative amortization plan does not meet the factors approved by the Ninth Circuit in Great Western Bank v. Sierra Woods, 953 F.2d 1174 (9th Cir.1992). We AFFIRM the decision of the bankruptcy court.
The Debtors, Jeffery Charles Nauman and Brenda Sue Nauman, acquired a cattle ranch in central Oregon in February of 1995. The ranch consists of two separate properties: the Keyes Mountain parcel is approximately 2,768 acres and the Ranch Site parcel is approximately 2,582 acres. The Naumans originally sought to acquire only the Ranch Site parcel. The Appellants, the Millers, were interested in purchasing only the Keyes Mountain property. Mr. Miller is a California real estate broker. The then-owner of the parcels was unwilling to sell only one parcel at a time. Ultimately, a deal was struck in which the Appellants, the Millers and the Belzas, would purchase both parcels and simultaneously sell the Ranch Site property to the Naumans.
In January of 1995, the Millers and Belzas purchased both parcels. The Ranch Site property was purchased for $775,000.00. The agreement required annual installments of $50,194.00. The first payment, however, was to be $46,829.42. The balance would be due in January of 2005. Miller-Belza also purchased the Keyes Mountain property for $725,000.00 with annual installments of $34,845.00. The balance on this property would also be due in the year 2005.
Miller-Belza sold the Ranch Site property to the Naumans on the same day that Miller-Belza acquired it from the previous owner. The sale contract between the Naumans and Miller-Belza for the Ranch Site property required a purchase price of $775,000.00, with a $300,000.00 down payment. The remaining $475,000.00 was to be paid in annual installments with an 8.5% interest rate. The annual installments were to be $50,218.00, with the exception of the first year, in which the payment was to be $42,032.38. The annual payments were to continue until January 3, 2005, when the full balance would be due. The sale contract gave Miller-Belza the right to foreclose on the property in the event of default. The Naumans also acquired grazing rights to the Keyes Mountain property.
The Naumans failed to make the 1996 payment on the Ranch Site property and filed for bankruptcy protection in August of 1996. The value of the property at that time was estimated at $750,000.00. Two debts are secured by the Ranch Site property. The first was the Miller-Belza debt in the amount of approximately $545,000.00, and the second was a deed of trust in favor of William Nauman, the Debtor's father, for $91,000.00. Another loan by First Security Bank for $100,000.00 is secured by the cattle herd.
The Debtors have some experience in the cattle industry. Testimony in the lower court indicated that prior to the purchase of the Oregon property, Jeffrey Nauman had operated a cattle ranch in Idaho. He is a member of the Oregon Cattlemen's Association, he was selected to represent Oregon on a nationwide Cattlemen's tour, and he chairs the Association's Land Resources Committee.
At the time of the filing of bankruptcy, the Naumans' business operations had three components. First, there was a cow-calf operation in which the calves were sold off of the ranch. Second, the Naumans shipped many of their calves to a feedlot for additional weight gain before sale. By sending the cattle to the feedlot, the Naumans delay the sale of the cattle in hopes of taking advantage of an anticipated market increase in cattle prices. Third, the Naumans had a "bed and breakfast" operation in a second house on the property.
The bankruptcy court held hearings regarding the Debtors' plan on December 10, 1996, January 6, 1997, and January 24, 1997. The court issued its oral opinion on February 5, 1997, with a modification thereto on February 24, 1997. The court entered its written order on February 27, 1997. This appeal followed.
Did the bankruptcy court err in finding that the plan was feasible under § 1225(a)(6)?
Did the bankruptcy court err in allowing negative amortization of the Ranch Site property?
Whether a debtor's plan is feasible under § 1225(a)(6) is a factual determination. In re Rape, 104 B.R. 741, 748 (W.D.N.C. 1989); In re Crowley, 85 B.R. 76, 78-79 (W.D.Wis.1988); see also In re Webb, 932 F.2d 155, 158 (2d Cir.1991). The fairness of a negative amortization plan is also a question of fact. Corestates Bank v. United Chemical Technologies, 202 B.R. 33, 52-53 (E.D.Pa.1996) (citing Great Western Bank v. Sierra Woods Group, 953 F.2d 1174, 1176-77 (9th Cir.1992)). All findings of fact are reviewed under a clearly erroneous standard, and we give due regard to the opportunity of the bankruptcy court to judge the credibility of the witnesses. Fed.R.Bankr.P. 8013. "A finding of fact is clearly erroneous when after reviewing the evidence we are left with the definite and firm conviction that a mistake has been committed." In re Arnold and Baker Farms, 177 B.R. 648, 653 (9th Cir. BAP 1994) (citing In re Contractors Equip. Supply Co., 861 F.2d 241, 243 (9th Cir.1988)), rev'd, 85 F.3d 1415 (9th Cir.1996), cert. denied, ___ U.S. ___, 117 S.Ct. 681, 136 L.Ed.2d 607 (1997).
Id. at 79 (citing In re Cott, 49 B.R. 570 (Bankr.W.D.Mo.1985); In re Reitz, 79 B.R. 934 (Bankr.Kan.1987); In re Konzak, 78 B.R. 990 (Bankr.N.D.1987)).
Since the Appellants argue that the Debtors' plan is not feasible, the details regarding the ranch's historic performance and the distinguishing characteristics of the Debtors' current operation plan are relevant. The Appellants present four main arguments as to why the confirmed plan is not feasible. These arguments are discussed below.
The lower court found that the Debtors' plan was reasonable and rejected the creditors' contention that the Debtors' planned increase in herd size would overtax the ranch. The ranch is at an elevation of between 4,000 and 5,000 feet above sea level and sometimes experiences severe winters. The previous owner of the ranch had owned the ranch for only three or four years prior to its sale, but indicated that the ranch had historically carried approximately 200 cows.
The Debtors' cow-calf operation consists of both owned and leased cows. At the time of the confirmation hearing, the Naumans had 91 owned cows and 197 leased cows. In 1997, the Debtors anticipate owning 90 cows and leasing 221 cows from other parties. During the summer months, they will also graze 100 yearlings owned by third parties. Mr. Nauman, the debtor, testified that prior to purchasing the ranch, he had been told that there had previously been 325 cows on the ranch year-round and up to 500 stocker cattle in the summer months. Although Appellants' brief claims that there was uncontradicted evidence that the winter carrying capacity of the ranch was 200 cows, the record on appeal indicates that the carrying capacity was the subject of varying testimony. The issue is further complicated by the fact that the question of carrying capacity is different from the question of the historical number of cattle on the ranch. Additionally, testimony in the lower court indicated that differences in management practices can affect carrying capacity.
The Debtors' management practices differ from those historically found on the ranch. Testimony in the bankruptcy court indicated that the previous owner ran a large-framed breed of cattle, which required a large amount of feed in order for them to calve during the winter months. Regarding grazing practices, the previous owner divided his herd among the available fields and left them there for the entire season. In contrast, the...
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