In re Ramaker
| Decision Date | 28 March 1990 |
| Docket Number | Adv. No. X89-0175D,X89-0179D.,Bankruptcy No. R85-01839D |
| Citation | 117 BR 959 |
| Parties | In re David J. RAMAKER and Jean A. Ramaker, Debtors. WHITE FRONT FEED & SEED, DIVISION OF PAUL LAMMERS & SONS, INC., Plaintiff, v. STATE NATIONAL BANK OF PLATTEVILLE, a Corporation, David J. Ramaker and Jean A. Ramaker, Defendants. ROEDER IMPLEMENT, INC., Plaintiff, v. STATE NATIONAL BANK OF PLATTEVILLE, a Corporation, David J. Ramaker and Jean A. Ramaker, Defendants. |
| Court | U.S. Bankruptcy Court — Northern District of Iowa |
Victor Sprengelmeyer, Dubuque, Iowa, for debtors.
Chad Leitch and Stephen Krumpe, Dubuque, Iowa, for White Front Feed & Seed.
H. Raymond Terpstra, II, Cedar Rapids, Iowa, Patrick Clare, Platteville, Wis., for State Nat. Bank of Platteville.
C.J. May, III, Dubuque, Iowa, for Roeder Implement, Inc.
Before the court are three motions for summary judgment filed in these consolidated adversary proceedings. Motions have been filed by White Front Feed & Seed, Division of Paul Lammers & Sons, Inc. (WHITE), David J. Ramaker and Jean A. Ramaker (RAMAKERS) and State National Bank of Platteville (BANK). Oral argument took place by telephone on March 20, 1990.
Summary judgment is appropriate when there exists no genuine issue of material fact and the movant is entitled to judgment as a matter of law. Sommers v. Budget Marketing, Inc., 667 F.2d 748, 749 (8th Cir.1982); Bankr. R. 7056. The facts are considered in the light most favorable to the non-movant and the non-movant is entitled to all reasonable inferences which may be derived from the underlying facts as shown by the pleadings, depositions and affidavits presented. Sommers at 749-50. Although findings of fact are not required in the determination of these motions, they can be helpful to any reviewing court and to the litigants. Klinge v. Lutheran Charities Ass'n. of St. Louis, 523 F.2d 56, 62 (8th Cir.1975).
DISCHARGE
(Motions of White and Ramakers)
With leave of court, White amended its complaint against Ramakers to seek a determination that obligations of Ramakers to White, incurred during the chapter 11 case, are not discharged in this bankruptcy case.1
White and Ramakers agree that as to the issue of discharge, there are no genuine issues of material fact. The following is a brief summary of the facts relevant to the motions as to discharge. David and Jean Ramaker filed their voluntary petition under chapter 11 of the Code in 1985. After the filing, they operated the farm business as debtors-in-possession. During the pendency of the chapter 11 case, White supplied feed, seed and fertilizer to the Ramakers. It did so on more than one occasion, and it was paid for the goods supplied. White supplied seed, feed, and fertilizer on credit to the Ramakers during 1988. On January 6, 1989, Ramakers voluntarily converted their chapter 11 case to a case under chapter 7. At the time of the conversion, Ramakers' unpaid bill to White amounted to $14,841.42 plus any allowable accrued interest. The feed was for Ramakers' pigs. The seed and fertilizer were used to plant and fertilize a 1988 crop. The expenses were reasonable and necessary to the Ramakers' operation of the farm. On May 11, 1989, the court's order of discharge was filed. The order contained the following language: "The debtor is released from all personal liability for debts existing on the date of commencement of this case, or deemed to have existed on such date pursuant to § 348(d) of the Bankruptcy Code (Title 11, United States Code)."
White maintains that under § 348(d) of the Bankruptcy Code, the debt incurred by Ramakers during the chapter 11 case is not discharged. It seeks such a determination by the court in its motion for summary judgment. Ramakers resist and move for summary judgment asking the court to find that the expenses incurred with White during the chapter 11 case were discharged. This dispute involves the interplay among 11 U.S.C. §§ 727(b), 503(b)(1)(A), and 348(a), (b), and (d).
White argues that 11 U.S.C. § 348(d) clearly eliminates administrative expenses from those post-petition, pre-conversion claims from which the debtor is discharged. Section 348(d) states in pertinent part that:
a claim against the estate or the debtor that arises after the order for relief but before conversion in a case that is converted under § 1112 . . . of this title, other than a claim specified in § 503(b) of this title, shall be treated for all purposes as if such claim had arisen immediately before the date of the filing of the petition.
It is White's contention that this subsection specifically excepts from discharge those administrative expenses incurred by debtors after the filing of a chapter 11 until its conversion. If White is correct in its reading of this subsection, then the matter might be resolved by determining whether the expenses incurred by Ramakers were administrative claims within the meaning of § 503(b). There is no dispute that during the chapter 11 case, White sold feed to Ramakers for Ramakers' swine. There is also no dispute that White sold, on credit, seed and fertilizer for the planting of a 1988 crop.
Section 503(b) of the Code provides that administrative expenses shall be allowed for the "actual, necessary costs and expenses of preserving the estate." 11 U.S.C. § 503(b)(1)(A). There is a dispute between White and Ramakers over whether the expenses incurred preserved the estate. Ramakers argue that because all personal property in the estate was secured to the State National Bank of Platteville, there was no estate to preserve. Furthermore, even if Ramakers would concede that the feed for the Ramakers' swine was an administrative expense, they still would argue that seed and fertilizer for the 1988 crop did not preserve an estate, but merely created new property of the estate.
While it is true that all post-petition expense is not entitled to administrative priority, the court concludes that the expenses incurred with White by Ramakers during the chapter 11 case are so entitled.2 Often a two-part test is used to determine whether an expense should have administrative priority status. Such status will be granted if the court finds that the debt arises from a transaction with the debtor-in-possession and is "beneficial to the debtor-in-possession in the operation of the business." In the Matter of Jartran, Inc., 732 F.2d 584, 587 (7th Cir.1984) citing In re Mammoth Mart, Inc., 536 F.2d 950, 954 (1st Cir.1976). Ramakers apparently argue that because the bankruptcy failed and because Ramakers had granted a security interest in its personalty to bank, White's credit sale of feed, seed and fertilizer had no beneficial effect on the estate. The outcome of the bankruptcy, however, is not the test. It is whether the transaction was beneficial to the debtor-in-possession "in the operation of the business." Id. Despite the fact that the reorganization failed, and despite the evidence that the 1988 crop was a poor one, White's credit sales of goods were still beneficial to the debtors-in-possession in the operation of the farm business. This court does not accept the hindsight argument that feed, seed, and fertilizer are not necessary expenses of a crop and livestock farming operation merely because the reorganization later fails. Furthermore, there is no question that the Ramakers were operating their farm business as debtor-in-possession. Section 364(a) of the Code gives administrative expense priority to creditors who extend credit to the debtor-in-possession in the ordinary course of the debtor-in-possession's business.
The court concludes that the claim of White is an administrative expense under 11 U.S.C. § 503(b). Having concluded that White's claim is an administrative claim arising in the chapter 11 case, the court must now reach the discharge issue. I do not agree that White's claim is not discharged in this case. The court does not believe that § 348(d) was intended to eliminate from the effect of the discharge those claims arising after the filing of the chapter 11 case but before its conversion to chapter 7. Section 348(d) deals with the treatment of claims. It should be construed to provide that non-administrative claims arising in a chapter 11, upon conversion, are treated as prepetition debts. Chapter 11 administrative claims are provided for differently. They retain their priority status and are paid ahead of unsecured creditors in the case. They are inferior, however, to chapter 7 administrative expenses. 11 U.S.C. § 726(a)(1) and § 726(b). The latter provides that in a case converted from chapter 11 to chapter 7, an allowed administrative expense claim incurred during the chapter 7 case has priority over an allowed administrative expense incurred under any other chapter before the conversion. Still v. United Pipe and Supply Co., Inc. (In re W.L. Jackson Mfg. Co.), 50 B.R. 498, 503 (Bankr.E.D.Tenn. 1985).
Section 727(b), on the other hand, deals with the discharge of these chapter 11 administrative claims. Read in conjunction with § 348(a) and (b), it provides that unless a debt is excepted from discharge under § 523, a discharge under § 727(a) discharges the debtor from all debts "that arose before the date of the order for relief under this chapter." That phrase is given meaning by 11 U.S.C. § 348(b) which states in pertinent part that in § 727(b), "`the order for relief under this chapter' in a chapter to which a case has been converted under § . . . 1112 . . . of this title means the conversion of such case to such chapter." Thus, § 727(b) specifically discharges the debtor from all debts arising before the date of conversion. The only exceptions are those provided under 11 U.S.C. § 523. White has raised no § 523 grounds for denying Ramakers a discharge of its administrative claim arising during the chapter 11 case.
Two cases do appear to support White's argument....
To continue reading
Request your trial