In re Nordyke

Decision Date04 October 1984
Docket Number82-0964 and 83-0427.,Adv. No. 83-0588,83-0753,Bankruptcy No. 382-03624
Citation43 BR 856
PartiesIn re Robert G. NORDYKE and Maude M. Nordyke, Debtors. ALLIS-CHALMERS CREDIT CORPORATION v. Robert G. NORDYKE and Maude M. Nordyke. BORG-WARNER ACCEPTANCE CORP. v. Robert G. NORDYKE. JOHN DEERE COMPANY v. Robert G. NORDYKE and Maude M. Nordyke. LINDSAY CREDIT CORPORATION v. Robert G. NORDYKE and Maude M. Nordyke.
CourtU.S. Bankruptcy Court — District of Oregon

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Bill Kloos, Eugene, Or., for debtors.

Aubrey Fitzgerald, trustee.

Howard M. Levine, Howard Speer, Eugene, Or., LaVerne M. Johnson, Corwallis, Or., Rohn Roberts, Eugene, Or., Peter Raphael, James Ray Streinz, Portland, Or., Edward M. Fitch, Redmond, Or., and Lawrence W. Erwin, Bend, Or., for creditors.

FINDINGS OF FACT AND CONCLUSIONS OF LAW DISTRIBUTING PROCEEDS OF 1983 CLOVER CROP AND RULING ON CLAIMS

DONAL D. SULLIVAN, Bankruptcy Judge.

The Court on September 12, 1984 tried various pending motions for instructions, to turn over, and to distribute the proceeds of the 1983 clover crop. Julie Colling reported the proceedings.

The debtors, Mr. and Mrs. Robert Nordyke, are Christmas Valley, Oregon farmers who filed chapter 11 on November 12, 1982. The Nordykes anticipated at the time of filing that they would have a clover crop which would yield a gross of approximately $160,000. In fact, the crop upon the sale of the remainder in 1984 will yield gross proceeds of approximately $72,000. Supplemental schedules revealed that gross administrative claims relating to the 1983 crop approximate $124,000. During the 1983 crop season, the debtors, with the Court's approval, granted various liens on the 1983 crop; negotiated adequate protection orders with secured creditors calling for super administrative priority over other administrative creditors under 11 U.S.C. § 507(b); and incurred various ordinary administrative expenses.

The debtors converted to chapter 7 on July 9, 1984. Three creditors claimed liens and super priority totalling approximately $21,000 on the 1983 crop based upon stipulations and orders entered during the season. One landlord claimed the entire proceeds of the crop grown on his land because of nonpayment of rent under Oregon laws, which claim amounted to approximately $35,000 representing one-half of the proceeds produced by the debtors' total crop. One other creditor claimed super priority under 11 U.S.C. § 507(b) and another creditor claimed a lien, which claims totalled approximately $52,000 based upon stipulations and orders granting adequate protection and the inability of the estate to otherwise pay administrative expenses in full. The remainder of the claimants, among other things, asserted administrative priority with respect to unpaid rent, utility charges, fuel, and other services which contributed to the production of the 1983 crop and its proceeds. For purposes of this order, there will be insufficient funds from other sources to pay all administrative creditors.

The Court's findings with respect to the various claims follow:

Allis Chalmers Credit Corporation. Allis Chalmers Credit Corporation ("Allis Chalmers") claimed $39,211.17 from the limited crop proceeds on hand based upon an order to which the debtors stipulated dated September 21, 1983 requiring payment of $36,064.59 as an administrative expense from the 1983 crop proceeds. The order granted super priority under 11 U.S.C. § 507(b) in the event the payment is insufficient. The order did not grant a crop lien but, for purposes of this decision, the distinction between a lien and super priority should not make any difference. Allis Chalmers resisted any reexamination of the order although it claimed the right to add $3,146.58 in interest, presumably under the provision of the order granting it the right to seek reconsideration or additional protection.

Allis Chalmers' claim should be reduced for the purpose of allowance under 11 U.S.C. § 507(b) to $33,000. To the extent that the order of September 21, 1983 may overcompensate Allis Chalmers for losses resulting from the stay, the order of September 21, 1983 granting adequate protection is not final for the following three reasons.

First. Allis Chalmers, in the context of this case, misconstrues the concept of adequate protection. Adequate protection is a device intended to provide additional protection against loss to a secured creditor arising from continuation of the automatic stay of 11 U.S.C. § 362 as called for by the circumstances of the case. Crocker National Bank v. American Mariner Industries, Inc. (In re American Mariner Industries, Inc.), 734 F.2d 426 (9th Cir. 1984). By its nature, adequate protection is not final unless all parties later treat it as final. The concept is not intended to be a disguised form of partial assumption of an executory contract requiring the cure of prepetition delinquencies although if loss from the stay is shown, it may have this effect to the extent of the loss. If the parties elect not to treat the order as final, as here, loss and compensation, therefore, are the triggering events calling for the final allowance of a given amount as adequate protection under 11 U.S.C. §§ 503(b) and 507(b) which necessarily depend upon the duration of the stay and must occur later.

Second. The grant of super administrative priority status cannot be reexamined but if Allis Chalmers elects not to seek relief from the stay because of nonpayment, the amount of the grant must be determined at a later hearing. The order obtained by Allis Chalmers, by its terms, created a fact issue to the extent that "the administrative expense priority set forth . . . shall prove to be inadequate to protect ACCC's interest" and it is not final where the amount of super priority is reserved by law and by the agreement, and is asked for by Allis Chalmers. The lack of finality of the agreement works both ways. If the creditor elected to allow the stay to remain in effect, in spite of failure to make the payments, or comes back for more, the finality of the payments called for is waived and the payments are neither a floor nor a ceiling on the amount of the ultimate allowance of § 507(b) priority. In this event, and because of the creditor's election, the order is not self-executing as to amount. Nonpayment, inadequacy of funds, and conversion to chapter 7, are additional future events contemplated by the order, which events require a hearing on the overall issue of adequate protection and not just the inadequacy of the primary grant. Others affected by the claim of super priority are entitled to notice under 11 U.S.C. § 503(b) and have a right to be heard at such a hearing. Allis Chalmers, by asking for interest on top of the payments called for in the order, seems to recognize the lack of finality as to the amount.

Third. In any event, the adequate protection order entered in this case can be reexamined under other principles on motion of those who are not privy to the order if Allis Chalmers' construction of the order were to be adopted. In re Callister, 15 B.R. 521, 8 B.C.D. 446, 453 (Bankr.D.Utah 1981) called the problem of excessive valuation of the collateral and resulting depreciation an error in the stipulation and reexamined agreed § 507(b) priority. Under Callister, a creditor should not be rewarded for carelessness, much less greed, in negotiating a stipulation for adequate protection that overstates entitlement.

A postfiling order which upgrades the prepetition unsecured portion of a debt owing to a secured creditor by cross-collateralization or otherwise may be reexamined at the request of a later appointed trustee or other creditors, even though the debtor-in-possession stipulated to the order. Otte v. Manufacturers Hanover Commercial Corp. (In re Texlon Corp.), 596 F.2d 1092 (2nd Cir.1979); Fed.R.Bankr.P. 9024. Necessarily, if the Court can reexamine the amount of an administrative lien under the principles of Texlon, it follows that the Court can determine the grant of super priority under 11 U.S.C. § 507(b) after the lien proves insufficient.

Procedurally, there can be no collateral estoppel or res judicata under Texlon with respect to creditors who are not notified of the hearing on the order, who may not have been in existence at the time of the order, and who would not have been concerned with the issue of super priority under 11 U.S.C. § 507(b) until after the filing of the chapter 7 and the funds available to pay administrative expenses proved to be inadequate. This must be the rule because the creditor has greater leverage and bargaining power, as mentioned in Texlon and in Callister, and the debtors are concerned with their own survival in negotiating the order and lack the neutrality necessary to protect the interests of other administrative creditors, some of whose claims have not yet matured.

Allis Chalmers should receive payment as an administrative expense for the withholding of its collateral. The payment should be adequate to compensate for depreciation arising from the use and to compensate for the delay imposed in receiving its money based upon the liquidation value of the collateral at the time of filing and an estimate of the time necessary to foreclose. In re American Mariner Industries, Inc., supra; Union Leasing Co. v. Peninsula Gunite, Inc. (In re Peninsula Gunite, Inc.), 24 B.R. 593 (Bankr. 9th Cir.1982). Section 507(b) priority is granted if funds are not available in the estate to pay all administrative creditors:

On the merits, I find that Allis Chalmers is entitled to a claim under 11 U.S.C. § 507(b) in the amount of $33,000. Specifically, I find that during the period of the chapter 11 operation, the value of the collateral subject to Allis Chalmers' lien depreciated $23,500, that the starting value of the property at the time of filing was $50,000, and, considering the factors articulated in ...

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