In Re Ray E. Snyder
| Citation | 436 B.R. 81 |
| Decision Date | 25 August 2010 |
| Docket Number | Adversary No. 09-8070.,Bankruptcy No. 09-81178. |
| Parties | In re Ray E. SNYDER and Gloria E. Snyder, Debtors. Illini Bank, Plaintiff, v. Michael D. Clark, as Chapter 12 Trustee for Ray E. Snyder and Gloria E. Snyder and Tri Ag, Inc., Defendants. Tri Ag, Inc., Counter-Plaintiff, v. Illini Bank, Counter-Defendant. |
| Court | United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Central District of Illinois |
OPINION TEXT STARTS HERE
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John S. Narmont, Springfield, IL, for Debtors.
Mark A. Bogdanowicz, Timothy J. Howard, Howard and Howard, Peoria, IL, for Plaintiff.
Michael D. Clark, Peoria, IL, pro se.
David A. Rolf, Springfield, IL, for Defendants.
This adversary proceeding requires the Court to determine whether the equitable doctrine of marshaling should be applied for the benefit of Tri Ag, Inc. (TRI AG), the holder of a junior lien against certain crop proceeds held by the Chapter 12 Trustee, Michael D. Clark (TRUSTEE). Illini Bank (ILLINI), as the assignee of the senior lienholder, wants the funds for itself and opposes marshaling. TRI AG and ILLINI have filed cross motions for summary judgment supported by a stipulation of undisputed material facts.
Summary judgment should be granted when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c)(2). The moving party must show there is no genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A factual issue is material only if resolving it might change the outcome.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A factual issue is genuine if there is sufficient evidence for a reasonable jury to find in favor of the non-moving party on the evidence presented. Id.
In deciding a motion for summary judgment, the court may not make credibility determinations, weigh the evidence, or choose from among different reasonable inferences that might be drawn from the evidence. Paz v. Wauconda Healthcare & Rehabilitation Centre, LLC, 464 F.3d 659, 664 (7th Cir.2006). The court must view the evidence in the light most favorable to the non-moving party. Id.
When parties file cross motions for summary judgment, each motion must be assessed independently; denial of one does not necessitate grant of the other. Lexion Medical, LLC v. Northgate Technologies, Inc., 618 F.Supp.2d 896, 899 (N.D.Ill.2009). The court must consider the evidence through separate lenses, always allowing the non-moving party the benefit of all conflicts in the evidence and choices among reasonable inferences from that evidence. Rhino Linings USA, Inc. v. Harriman, 658 F.Supp.2d 892, 896 (S.D.Ind.2009). If summary judgment is not granted, the court should nevertheless, to the extent practicable, determine what material facts are not genuinely at issue and issue an order to that effect, thus establishing those facts as the law of the case. Fed.R.Civ.P. 56(d)(1).
The Debtors, Ray and Gloria Snyder (DEBTORS), filed their Chapter 12 Petition on April 15, 2009. One of the issues raised by the movants is whether the farm assets are owned jointly by the DEBTORS or solely by Ray Snyder. Schedule I filed by the DEBTORS designates Ray as “Self Employed Farmer” and Gloria as “Retired.” The schedule lists Ray as the sole recipient of the farm income and Gloria as receiving a pension or other retirement income. However, Schedule A lists the real property including the farm ground as owned jointly and Schedule B lists all of the personal property farm assets as owned jointly, including “stored corn” subject to the liens of Ag-Land FS, Inc. (AG-LAND), TRI AG and ILLINI.
TRI AG'S debt is the oldest, dating back to 2002, evidenced by a promissory note dated August 5, 2002, in the amount of $129,544.22, signed by both DEBTORS, due and payable in full on February 5, 2003, with interest accruing at 7% per annum. The debt, obviously not paid when due, was initially unsecured. However, on February 10, 2006, Ray Snyder only, signed a security agreement granting TRI AG a security interest in all crops grown and/or stored on real estate located in Logan and Mason counties. To perfect that security interest, a UCC financing statement naming Ray as the sole debtor was filed with the Secretary of State, but not until April 7, 2006. As of the petition date, TRI AG was owed $123,342.
In the gap period between the execution of TRI AG'S security agreement and the filing of the financing statement, AG-LAND jumped in. On February 27, 2006, AG-LAND filed a UCC Financing Statement with the Secretary of State naming both Ray and Gloria as debtors and describing the collateral, in material part, as all growing and harvested crops. Subsequently, three AG-LAND debt instruments were signed which TRI AG concedes relate back to the earlier filed financing statement. On January 8, 2008, Ray Snyder only, signed a Line of Credit Note and Security Agreement in the amount of $100,000 secured by a security interest in, among other things, all growing and harvested crops. On March 22, 2008, Ray and Gloria both signed a second Line of Credit Note and Security Agreement in the amount of $50,000, also secured by crops. On January 12, 2009, Ray and Gloria both signed a third Line of Credit Note and Security Agreement with AG-LAND in the amount of $100,000 secured by crops. As of the petition date, AG-LAND was owed a total of $130,897.05. TRI AG concedes that its security interest in crops and their proceeds is junior to that of AG-LAND.
In 2007, the DEBTORS borrowed money from ILLINI, both signing a note in the amount of $217,000 and a note in the amount of $469,000. Concurrent with the notes, the DEBTORS both signed an Agricultural Security Agreement granting ILLINI a security interest in crops, machinery and equipment, among other things. ILLINI perfected its lien by filing a UCC Financing Statement with the Secretary of State, naming only Gloria as the Debtor, but immediately corrected by an amended financing statement naming both DEBTORS. As of the petition date, ILLINI was owed a total of $492,786.62 on the two notes referenced above.
The first court hearing in the case was held on May 12, 2009, on the DEBTOR'S motion to borrow and on a proposed stipulation and agreed order determining the treatment and payment terms of ILLINI'S claims, to which AG-LAND objected. Counsel for the DEBTORS, ILLINI, AG-LAND and TRI AG attended the hearing, at which TRI AG'S marshaling right was expressly raised and discussed among the Court and counsel. About one month later, on June 17, 2009, AG-LAND sold and assigned its secured claim to ILLINI. The bankruptcy rules authorize claims trading, a practice whereby a creditor sells its claim against a debtor to a third party. See F.R.B.P. 3001(e); In re Kreisler, 546 F.3d 863 (7th Cir.2008). By purchasing AG-LAND'S position, ILLINI leapfrogged TRI AG from third to first priority on the crop lien, to the extent of AG-LAND'S claim amount. The claim acquisition also put ILLINI in first place as to the farm equipment since it acquired AG-LAND'S first priority equipment lien as well.
On December 18, 2009, the DEBTORS filed a report asserting that the stored corn that they owned as of the petition date sold for net proceeds of $39,084.40. The report asserts that the wheat crop harvested post-petition was sold for net proceeds of $16,262.48. The report references an anticipated crop insurance payment in an unknown amount. The report also itemizes crop insurance proceeds previously turned over to the TRUSTEE in the amount of $27,342. The parties later stipulated that the expected crop insurance proceeds were paid to the TRUSTEE in the amount of $17,832. So the total crop proceeds at issue is $100,520.88. Since this amount is less than the petition date balance owed to AG-LAND, ILLINI stands in first priority position with respect to the full amount of the proceeds.
TRI AG does not have a security interest in machinery and equipment; its only lien is on the crop proceeds. In addition to the crop lien, ILLINI holds an equipment lien and several mortgages on real estate. Based upon an appraisal conducted post-petition by Nelson Aumann, the parties stipulated that the total value of the equipment liened to ILLINI is $326,830.88.
The DEBTORS filed their Chapter 12 Plan of Reorganization (Plan) on July 15, 2009. The Plan acknowledges the sale of AG-LAND'S position to ILLINI and proposes to pay ILLINI all of the 2008 crop proceeds with any deficiency (for reasons unexplained) to be paid in full in 2010 from the 2009 crop proceeds, with TRI AG treated as entirely unsecured.
The equitable doctrine of marshaling rests upon the principle that a creditor having two funds to satisfy his debt should not be permitted to arbitrarily prejudice a junior creditor who may resort to only one of the funds. Meyer v. U.S., 375 U.S. 233, 236, 84 S.Ct. 318, 11 L.Ed.2d 293 (1963). The junior creditor's secured interest may be protected by forcing the senior creditor to first exhaust the fund not available to the junior creditor, i.e., to marshal the order of liquidation in the way most favorable to the junior creditor.
The doctrine, founded in equity, is designed to promote fair dealing. Id. at 237, 84 S.Ct. 318. Marshaling should not be applied when the result would be inequitable to the senior creditor. In re Bank of Oakley, 131 Cal.App. 203, 210, 21 P.2d 164 (Cal.App. 1 Dist.1933). Inequity might be in the form of mere delay or inconvenience to the senior creditor. Toledo Blank, Inc. v. Pioneer Steel Serv. Co., 98 Ohio App.3d 109, 114, 648 N.E.2d 1 (Ohio App. 6 Dist.1994). The remedy has been denied where the fund or property available to the senior creditor is of uncertain value. Id. Most certainly, the prejudice to be avoided is rendering an oversecured senior creditor...
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