In re Nelson
| Decision Date | 13 February 1991 |
| Docket Number | Bankruptcy No. 90-40163-PKE. |
| Citation | 123 BR 993 |
| Parties | In re David E. NELSON and Marsha R. Nelson, Debtors. |
| Court | U.S. Bankruptcy Court — District of South Dakota |
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Rick A. Yarnall, Chapter 7 Bankruptcy Trustee, Sioux Falls, S.D., for the Bankruptcy Estate of David E. Nelson and Marsha R. Nelson.
Michael J. McGill, Beresford, S.D., for debtors David E. Nelson and Marsha R. Nelson.
Marsha K. Stacey, Asst. U.S. Atty., Sioux Falls, S.D., on behalf of the U.S., Farmers Home Admin.
John A. Schlimgen, Stuart & Gerry, Sioux Falls, S.D., for Tenant Gerald Fitzgerald.
Phillip O. Peterson, Beresford, S.D., for Potential Buyers Neil and Nancy Shuck.
Charles L. Nail, Jr., Assistant U.S. trustee, Sioux Falls, S.D.
This decision adjudicates objections filed to the Chapter 7 Trustee's notice of proposed action to sell real property free and clear of liens and encumbrances. The action pits two different bodies of federal law against each other: bankruptcy law and U.S. Department of Agriculture loan subsidies. After analyzing relevant provisions of the Bankruptcy Code and agricultural regulations as articulated below, the Court concludes that both bodies of law complement each other but the sale cannot be presently approved. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). This Memorandum Decision constitutes Findings of Fact and Conclusions of Law pursuant to Bankr.R. 7052.
In 1984, David and Marsha Nelson (Nelsons or Debtors) received a loan on a 60-acre farm in Union County. The property consists of 40 tillable acres and 20 acres of buildings and grazing pasture. Debtors' financial problems forced them to move into the town of Beresford in 1985.
From 1986 through 1990, Debtors sporadically entered into custom farming arrangements with Gerald Fitzgerald (Fitzgerald). Fitzgerald, no stranger to the Court himself, filed a Chapter 11 petition on March 27, 1986, subsequently converted to Chapter 7, received a debt discharge on April 20, 1988, and the case was closed on November 15, 1990. Not one of the testifying witnesses provided consistent testimony concerning any type of leasing arrangement for 1990. Tangible indications of any Fitzgerald/Nelson arrangement include: an unsigned lease dated May, 1990; the 11 U.S.C. § 341 Trustee's meeting record noting a lease of $4,000 would occur for 1990; an unnegotiated $600 check from Fitzgerald, designated for rent, which is held by Chapter 7 Trustee Rick A. Yarnall (Trustee); and a plethora of letters stating inconsistent lease terms.
Debtors' counsel's September, 1990, letter indicates the parties did not have a lease agreement, and no lease approval motion ever occurred before the Court. Inconsistent testimony of both David Nelson and Fitzgerald; an absence of any written document; no lease motion made pursuant to 11 U.S.C. § 363; and the $600 arriving after the farming season, fortuitously on the dawn of Trustee's proposed sale of the Nelsons' farm, compel the Court to find that no meeting of the minds existed on a 1990 farm lease. Neither custom farming nor David Nelson's employment as head custodian of the Beresford Public School District solved Debtors' financial woes.
Farmers Home Administration (FmHA) Union County Supervisor Jim Rydell counseled the Debtors in 1986 while reviewing the mortgage's delinquency. In 1987, the FmHA sent out an intent to take adverse action, but such actions were stayed by a nationwide moratorium on FmHA farm foreclosures. After the moratorium was lifted, the Debtors received a 1951 servicing notice from the FmHA in November, 1988. FmHA sends the notice to borrowers who are more than 180 days delinquent. The notice gives borrowers 45 days to respond in order to apply for primary and secondary loan programs. The Nelsons did not respond. A second notice, sent in April, 1989, concerning the Debtors' delinquent FmHA loan, drew no response, either. The county supervisor spoke with the Debtors in September, 1989, regarding an attempt to cure the delinquent loan, but nothing was accomplished at the meeting. In November, 1989, the FmHA District Director sent out an acceleration notice and sought mediation under South Dakota law. Debtors did not participate.
Debtors filed Chapter 12 on March 26, 1990. On April 6, 1990, Debtors' counsel received a notice from the FmHA offering loan reservicing but requiring negotiations for loan reservicing options be preceded by a lifting of the automatic stay or dismissal of the case. Debtors' Chapter 12 converted to a Chapter 7 case on August 9, 1990, because the Nelsons did not have more than 50 percent of gross income arising out of farming operations pursuant to 11 U.S.C. § 101(17)(A), and they received a debt discharge on November 21, 1990.
On October 5, 1990, the Court approved a stipulation between the FmHA and Trustee to sell the Debtors' farm, consisting of 60 acres. An appraisal, conducted at the Trustee's request, valued the land at $925.00 an acre. FmHA's mortgage of about $215,000.00 exceeded the farm's $55,500.00 fair market value. Trustee advertised the sale for several weeks in a local newspaper and received a bid of $925.00 an acre from Neil and Nancy Shuck. Trustee next motioned to sell the property free of all encumbrances and requested any objects be filed. The Debtors objected to the sale after they saw the newspaper advertisement on their farm.
Debtors concede they are not entitled to be treated as borrowers, with personal obligations due the FmHA, but assert eligibility for secondary programs, such as lease back and buy back programs, under the 1987 Agricultural Credit Act. Fitzgerald objects, claiming he has rights as a lessee.
I. Can the Bankruptcy Code and the Agricultural Credit Act of 1987 coexist and complement each other? Yes.
II. Did the FmHA violate the automatic stay by sending a post-petition letter to the Debtors to the extent the letter purports to limit the Debtors' rights? Yes.
III. Is the Trustee's sale of property, encumbered by the FmHA, a foreclosure activity entitled to Act protections? Yes.
IV. Do any rights exist under the Act; if so, which rights? Yes, preservation programs.
V. May a Chapter 7 trustee sell FmHA-encumbered property provided all Act obligations are satisfied? Yes.
Where two statutes are capable of coexistence, a court must give effect to each. U.S. v. Stauffer Chem. Co., 684 F.2d 1174, 1184 (6th Cir.1982), aff'd on other grounds, 464 U.S. 165, 104 S.Ct. 575, 78 L.Ed.2d 388 (1984); In re Bludworth Bond Shipyard, Inc., 93 B.R. 520, 522 (Bankr.S.D.Tex.1988). Both statutes must be given effect provided their sense and purpose can be preserved. Watt v. Alaska, 451 U.S. 259, 267, 101 S.Ct. 1673, 1678, 68 L.Ed.2d 80 (1981). Narrower, more specific statutes take precedence over contrary general ones unless the court finds a clear congressional intention supporting the general over the specific. Crawford Fitting Co. v. J.T. Gibbons, Inc., 482 U.S. 437, 445, 107 S.Ct. 2494, 2499, 96 L.Ed.2d 385 (1987); Busic v. U.S., 446 U.S. 398, 406, 100 S.Ct. 1747, 1752, 64 L.Ed.2d 381 (1980); Radzanower v. Touche Ross & Co., 426 U.S. 148, 153, 96 S.Ct. 1989, 1992, 48 L.Ed.2d 540 (1976). The Bankruptcy Code ("Code") and the U.S. Department of Agriculture loan subsidy programs are two distinct bodies of law.
Traditionally, the two approaches to statutory construction are literalism and legislative intent or purpose. In re Shannon, 100 B.R. 913, 917-18 (S.D.Ohio 1989); W. Marshall, Federal Jurisdiction in Flux, 22 Conn.L.Rev. 617 (Summer, 1990, No. 4). Ferreting out Congress' intent and the plain statutory language discerns the coexistence of bankruptcy and farmer loan subsidy programs.
FmHA's debt restructuring programs are part of the Agricultural Credit Act of 1987 ("Act"), Pub.L. No. 100-233, 101 Stat. 1568-1718 (). The Act intends to provide FmHA borrowers "a fair opportunity to overcome their credit problems without adversely affecting creditor rights." H.R. Rep. No. 295(I), 100th Cong., 1st Sess., reprinted in 1987 U.S.Code Cong. & Admin. News 2723, 2724. The Code's central purpose is the fresh start: a new opportunity in life for the honest but unfortunate debtor to reorder financial affairs with a clear field for the future, unhampered by preexisting debt's pressure and discouragement. See Grogan v. Garner, ___ U.S. ___, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).
The Code and the Act complement each other in an attempt to rehabilitate fiscally ill debtors. The bodies of law differ in that debt relief is greater in bankruptcy and Congress enjoys exclusive jurisdiction to derive uniform bankruptcy law. U.S. Const. art. 1, § 8, cl. 1. If specific Code provisions conflict with the Act, the Code takes precedence. Matter of Arthur, 86 B.R. 98, 102 (Bankr.W.D.Mich.1988).
Elaborate statutory schemes for loan subsidy aid and bankruptcy, located respectively in the Act, 7 U.S.C. § 1981, 12 U.S.C. § 2201, et seq., 7 C.F.R. § 1951, and 11 U.S.C. § 101, et seq., strive to achieve Congress' spirit. Salient provisions warranting discussion include 11 U.S.C. §§ 362, 363, and 7 C.F.R. §§ 1951, 1981.
It is axiomatic that filing a bankruptcy petition operates as an automatic injunction halting judicial and nonjudicial proceedings against a debtor or his property. 11 U.S.C. § 362(a). Actions violating the automatic stay are void and of no effect. Matter of Colonial Realty Co., 122 B.R. 1, 4 (Bankr.D.Conn.1990); In re Corporacion de Servicios Medicos Hospitalarios de Fajardo, 60 B.R. 920, 930 (D.P.R. 1986), aff'd, 805 F.2d 440 (1st Cir.1986). Without the automatic stay, creditors would dissipate the debtor's assets,...
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