In re Ratliff
| Citation | 79 BR 930 |
| Decision Date | 18 November 1987 |
| Docket Number | Bankruptcy No. 87 B 6598 E. |
| Parties | In re William Flake RATLIFF and Toni Gale Ratliff, Debtors. |
| Court | United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Colorado |
Robert T. Hippler, McKie and Associates, Denver, Colo., for debtors.
Peter Lucas, Denver, Colo., for FDIC.
Dahil Goss, Asst. U.S. Atty., Denver, Colo., for FmHA.
William Bass, Pendleton & Sabian, Denver, Colo., Chapter 12 trustee.
David Lucey, Rider & Woulf, Denver, Colo., for Federal Land Bank of Wichita.
This matter came before the Court on the Debtors' motion to confirm their Chapter 12 Plan. Objections have been filed by, among others, Farmers Home Loan Administration ("FmHA") and the Federal Deposit Insurance Corporation ("FDIC"). Both FmHA and FDIC have claims against the Debtors which are secured by security agreements and financing statements covering the Debtors' crops and the proceeds thereof. FmHA also holds, as security for its loans, a deed of trust on the Debtor's interest in one parcel of land which is co-owned by Mr. Ratliff and his brother.
The evidence at the confirmation hearing disclosed that the Debtors, prior to filing their Chapter 12, had entered into four contracts with the Commodity Credit Corporation ("CCC") under the United States Conservation Reserve Program ("CRP"). The purposes of that program have been set forth in the Federal Regulations as follows:
The Debtors' rights and obligations under the CRP are evidenced by written contracts between CCC and the Debtors. With respect to three of the CRP contracts, the land affected thereby is owned by third-party landlords and leased by the Debtors. The land owners have joined in the contracts and, pursuant to agreements between the Debtors and the land owner, the dollars payable by CCC under the terms of the contracts are allocated between the land owner and the Debtors. The fourth contract affects the land which is co-owned by Mr. Ratliff and his brother. As noted, FmHA holds a deed of trust on the Debtors' half-interest in this latter parcel.
Under the terms of the CRP contracts CCC has agreed to pay the Debtors annual rent for the land over a ten-year period. In return, the Debtors have agreed to carry out a conservation program on the land which includes planting grass or other ground cover and the elimination of noxious weeds. The Debtors are barred from harvesting any crops from the land or utilizing the land for grazing purposes. CCC shares the cost of the initial planting, and the Debtors in this case received, post-petition, approximately $7,000.00 from CCC as reimbursement for the cost of the initial planting of the crop cover. All other payments under the contracts are due post-petition and all services to be provided by the Debtors are to be provided post-petition. If the Debtors fail or otherwise default in carrying out their obligations, they are subject to various penalties, including the forfeiture of all payments received.
Both FmHA and FDIC have asserted rights to the CCC payments. They argue that the CCC payments are in lieu of crops similar to payments under the Pay-In-Kind ("PIK") program and must, therefore, be considered to be "proceeds" from crops, relying on In re Munger, 495 F.2d 511 (9th Cir.1974); In re Judkins, 41 B.R. 369 (Bankr.M.D.Tenn.1984); In re Lee, 35 B.R. 663 (Bankr.N.D.Ohio 1983); In re Kruse, 35 B.R. 958 (Bankr.D.Kan.1983). In the alternative, FmHA asserts a right to the CRP payments attributable to the co-owned land on the theory that such payments constitute "rents and profits" which are encumbered under the deed of trust held by the FmHA.
The Debtors, on the other hand, dispute the claim of the governmental agencies. The Debtors argue that all rights under the CCC contracts arise post-petition and are dependent on the post-petition efforts by the Debtors. Thus, they assert that the governmental claims are barred by 11 U.S.C. § 552.
The Court rejects the claims advanced by the FmHA and FDIC. The payments to be made by CCC under the CRP contracts are not "proceeds" of crops, as PIK program payments have been recognized to be, but serve a different purpose.
With respect to the PIK program, the payments under that program have been described as follows:
The PIK payments are traceable to the crops subject to the defendant\'s security interests. The PIK entitlement are for specific crops, on specific acreage, and for specific production. Such a nexus between the entitlements and the original collateral indicates that participation in the PIK program was a substitute for the planting of the crop collateral. In re Judkins, supra, 41 B.R. at 373.
With respect to the CRP payments, the regulations quoted above provide that the purposes of this program are to preserve and protect the land from erosion. The payments received by the farmer are not for or in lieu of the production of specific crops on specific acreage. Instead, the payments are denominated in the contract as "rent" and are no more "proceeds of crops" than are any other cash rents a farmer might receive for leasing his land on a cash rent basis.
Since the CRP payments are in the nature of "rent," the FmHA asserts a right to the payments pertaining to the co-owned ground under the terms of the deed-of-trust held by it. That claim also must fail on grounds which affect both the FmHA claim to "rents" and the claims of both the FmHA and the FDIC to crop "proceeds."
The Court must keep in mind the procedural context of this case. We are not here on applications by the FmHA and the FDIC for relief from stay or for adequate protection pending the administration of this estate. If we were, and assuming that FmHA and/or FDIC had valid claims to the CRP payments to be made for the current crop year as constituting "cash collateral," the issue of adequate protection as to the use of such cash collateral would be ripe for consideration. But that is not our case.
The issue now before the Court concerns the confirmability of the Debtors' Chapter 12 plan under 11 U.S.C. § 1225. FmHA holds, as security, a deed of trust which purports to encumber "rents and profits." In Colorado, the holder of such an encumbrance can only gain control of such "rents and profits" by commencing foreclosure and having a receiver appointed, or, when bankruptcy has intervened, by filing notice of claim with the Court. In re Morning Star Ranch Resorts, 64 B.R. 818 (Bankr.D. Colo.19...
To continue reading
Request your trial