In re Vote
| Citation | 261 BR 439 |
| Decision Date | 25 April 2001 |
| Docket Number | BAP No. 00-6115ND. |
| Parties | In re Daryl Lee VOTE, Debtor. Wayne Drewes, Trustee, Appellant, v. Daryl Lee Vote, Appellee. |
| Court | Bankruptcy Appellate Panels. U.S. Bankruptcy Appellate Panel, Eighth Circuit |
Kip M. Kaler, Fargo, ND, for appellant.
Kyle L. Carlson, Lowell P. Bottrell, on brief, Fargo, ND, for appellee.
Before KRESSEL, SCHERMER, and VENTERS,1 Bankruptcy Judges.
The Chapter 7 Trustee, Wayne Drewes, appeals from the November 6, 2000, Order of the Bankruptcy Court2 denying the Trustee's Motion for Tumover ("Motion"). The Trustee's Motion sought the turnover of certain postpetition payments received by the Debtor pursuant to two federal agricultural assistance and crop disaster programs. Because we conclude that those postpetition payments received by the Debtor do not constitute property of the bankruptcy estate, the Order of the Bankruptcy Court will be affirmed.
The facts of this case are straightforward and uncontroverted.3
The Debtor filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the District of North Dakota on September 7, 1999. Wayne Drewes was appointed as the Chapter 7 trustee.
Subsequent to the filing, on October 22, 1999, Congress enacted the Omnibus Consolidated Appropriations Act of 2000. This act funded the Market Loss Assistance Program ("MLAP"), which provided payments for all farmers (meeting certain requirements) enrolled in 7-Year Production Contracts with the Farm Service Agency ("FSA"), and funded the Crop Disaster Program ("CDP") for the 1999 crop year. The Debtor, who had enrolled in a 7-Year Production Contract with the FSA in May 1996, qualified for and received an $11,632.00 MLAP payment on November 3, 1999. The Debtor also received two CDP payments: one for $10,866.00, received on February 9, 2000, and one for $10,740.00, received on April 7, 2000. He enrolled in the CDP program on February 1, 2000, nearly five months after his bankruptcy petition was filed.
On October 16, 2000, the Trustee filed a Motion for Turnover seeking the turnover of the postpetition MLAP and CDP payments received by the Debtor. The Bankruptcy Court held a hearing on the Trustee's Motion on October 31, 2000, and denied the Trustee's Motion in a Memorandum and Order entered on November 6, 2000. The Trustee now appeals that Order.
The issue on appeal is whether the MLAP and CDP payments received post-petition by the Debtor were or were not property of the bankruptcy estate.4
We review the findings of fact of the bankruptcy court for clear error and its legal determinations de novo. See O'Neal v. Southwest Missouri Bank (In re Broadview Lumber Co.), 118 F.3d 1246, 1250 (8th Cir.1997); Hartford Cas. Ins. Co. v. Food Barn Stores, Inc. (In re Food Barn Stores, Inc.), 214 B.R. 197, 199 (8th Cir. BAP 1997). The determination of whether property constitutes property of the bankruptcy estate is a legal issue to be reviewed de novo. Brown v. Luker (In re Zepecki), 258 B.R. 719 (8th Cir. BAP 2001).
The Trustee argues that the Bankruptcy Court erred when it determined that the CDP and MLAP payments received by the Debtor postpetition were not property of the bankruptcy estate. The Bankruptcy Court based its determination that the CDP and MLAP payments were not part of the bankruptcy estate on the fact that as of the date of the petition, the federal legislation that authorized and funded those payments had not yet been enacted, and therefore, the right to receive payments did not exist at the time the Debtor filed bankruptcy. Consequently, the Bankruptcy Court reasoned, the right to receive the payments and, by extension, the payments themselves, did not become part of the bankruptcy estate pursuant to 11 U.S.C. § 541(a)(1) or (7). The Trustee, however, contends that under Segal v. Rochelle, 382 U.S. 375, 86 S.Ct. 511, 15 L.Ed.2d 428 (1966), property of the bankruptcy estate includes after-acquired property that is "sufficiently rooted in the pre-bankruptcy past and so little entangled in the debtor's ability to make a fresh start that it should not be excluded from property of the estate," id. at 380, 86 S.Ct. 511, and the CDP and MLAP payments qualify as property of the bankruptcy estate under that standard. Alternatively, the Trustee argues that the CDP and MLAP payments are property of the bankruptcy estate under 11 U.S.C. § 541(a)(6), as "proceeds . . . of or from property of the estate."5
We agree with the Bankruptcy Court that the CDP and MLAP payments are not property of the bankruptcy estate because the Debtor had no cognizable legal right to those payments at the time he filed for bankruptcy. The Trustee's argument based on 11 U.S.C. § 541(a)(6) will not be considered, inasmuch as the record on appeal does not show that the Trustee raised this argument in the Bankruptcy Court, and we generally will not hear new arguments on appeal in the absence of extraordinary circumstances or a miscarriage of justice, neither of which has been shown here. See In re Hervey, 252 B.R. 763, 767-768 (8th Cir. BAP 2000).
Section 541(a)(1) provides that the bankruptcy estate is comprised of ". . . all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1). United States v. Whiting Pools, Inc., 462 U.S. 198, 205, n. 9, 103 S.Ct. 2309, 2314, 76 L.Ed.2d 515 (1983)(quoting H.R.Rep. No. 95-595, p. 367 (1977); S.Rep. No. 95-989, p. 82 (1978), U.S.Code Cong. & Admin.News 1978, pp. 5868, 6323.) While the scope of § 541(a)(1) is broad, it is not without limits; it is limited temporally by the plain language of the statute to interests that exist as of the commencement of the case, and is further limited by the scope and definition given to the phrase "all legal and equitable interests." 11 U.S.C. § 541(a)(1).
The Bankruptcy Court determined that at the time the Debtor's bankruptcy petition was filed, he did not have an interest in the CDP and MLAP payments that fell within the ambit of § 541(a)(1). Therefore, the Bankruptcy Court reasoned, the right to the CDP and MLAP payments did not pass to the bankruptcy estate when the Omnibus Consolidated Appropriations Act of 2000 was enacted; rather, because the actual right to those payments arose postpetition, that right (and the payments pursuant thereto) inured to the Debtor.
The Trustee argues that the Bankruptcy Court erred by defining property of the estate too narrowly and that the scope of property encompassed by § 541(a)(1) is broad enough to include the Debtor's right to the CDP and MLAP payments as of the commencement of the case. Specifically, the Trustee points to Segal v. Rochelle, 382 U.S. 375, 380, 86 S.Ct. 511, 515, 15 L.Ed.2d 428 (1966), for the proposition that after-acquired property may be considered part of the bankruptcy estate if it is "sufficiently rooted in the prebankruptcy past and so little entangled in the debtor's ability to make a fresh start that it should not be excluded from property of the estate." Segal, 382 U.S. at 380, 86 S.Ct. 511. Applying that standard to the property at issue here, the Trustee contends that the CDP and MLAP payments are property of the estate because they are rooted in the Debtor's pre-bankruptcy farming activities and that the exclusion of the payments from the bankruptcy estate would not hamper the Debtor's ability to make a fresh start.
The issue of whether the definition of property of the estate contained in 11 U.S.C. § 541(a)(1) is sufficiently broad to encompass payments pursuant to government programs funded by legislation enacted postpetition is unsettled. One court has held, on facts nearly identical to the instant case, that payments received by the debtor postpetition pursuant to a Crop Loss Disaster Assistance Program enacted postpetition were property of the bankruptcy estate because, under Segal, the payments were sufficiently tied to the pre-bankruptcy past, namely, the prepetition failure of the debtor's crops. See In re Lemos, 243 B.R. 96 (Bankr.D.Idaho 1999). See also, In re Schmitz, 224 B.R. 117 (Bankr.D.Alaska 1998) (). On the other hand, at least one court (in addition to the Bankruptcy Court's ruling in this case) has held that such payments received pursuant to a program enacted postpetition are not property of the bankruptcy estate. See United States v. Thomas (In re Thomas) 93 B.R. 475 (N.D.Tex.1988). Unfortunately, the court in In re Thomas did not provide a detailed explanation of the rationale behind its holding. Id.
The issue is further muddied by the questionable applicability of Segal in light of the of the enactment of the current Bankruptcy Code in 1978 (which replaced the Bankruptcy Act of 1898). The statement in Segal that after-acquired property may be considered part of the bankruptcy estate if it is "sufficiently rooted in the prebankruptcy past and so little entangled in the debtor's ability to make a fresh start" was based on an analysis of § 70a(5) of the Bankruptcy Act of 1898. Segal, 382 U.S. at 379-81, 86 S.Ct. 511. The Court in Segal developed this definition of property of the estate in the context of determining whether a tax refund should be included in the debtor's bankruptcy estate where the debtor filed bankruptcy in September but could not claim the refund until the end of the year. Id. The Court held that under its interpretation of § 70a(5) the tax refund was part of the estate. Id. at 384, 86 S.Ct. 511.
Subsequent to the...
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