In re Wickersheim, Bankruptcy No. 88-02172.

• Decision Date: 21 September 1989
• Docket Number: Bankruptcy No. 88-02172.
• Citation: 107 BR 177
• Parties: In re Larry J. WICKERSHEIM and Dolores M. Wickersheim, Debtors.
• Court: U.S. Bankruptcy Court — Eastern District of Wisconsin

107 B.R. 177 (1989)

In re Larry J. WICKERSHEIM and Dolores M. Wickersheim, Debtors.

Bankruptcy No. 88-02172.

United States Bankruptcy Court, E.D. Wisconsin.

September 21, 1989.

Michael G. Trewin, Wausau, Wis., for debtors.

Robert F. Konkol, Stevens Point, Wis., for PCA.

Harold J. LaChapelle, Wisconsin Rapids, Wis., for FCB.

Thomas J. King, Oshkosh, Wis., Chapter 12 Trustee.

DECISION

JAMES E. SHAPIRO, Bankruptcy Judge.

INTRODUCTION

Yogi Berra, a New York Yankee legend, once remarked, "It's never over 'til it's over." That well-known quotation even appears (with some slight variation in wording) in a Court of Appeals decision. See In re Moody, 817 F.2d 365, 368 (5th Cir.1987). How true. When this court signed an order on March 8, 1989 confirming the debtors' chapter 12 plan of reorganization, it believed that this would bring to an end a long and bitter struggle between the debtors on the one hand and Production Credit Association of North Central Wisconsin ("PCA") and Farm Credit Bank of St. Paul ("FCB") on the other hand. Unfortunately, the rift between the parties has widened.

FACTS

This controversy stems from a lien avoidance motion filed by the debtors on June 15, 1988, nearly 9 months before the order confirming the debtors' chapter 12 plan was signed. This motion sought to avoid the security interest of PCA in certain farm machinery, farm equipment and cattle owned by the debtors. A telephonic hearing was held on July 26, 1988 on the motion.

At the time of the hearing, much uncertainty existed among bankruptcy courts in Wisconsin with respect to the application of § 522(f) to farm machinery and equipment owned by a debtor electing the Wisconsin statutory exemptions. The Eastern District of Wisconsin applied a restrictive interpretation of § 522(f), limiting it to farm machinery and equipment of modest value and excluding capital assets. Matter of Hintz and Matter of Foth, 86 B.R. 571 (Bankr.E.D.Wis.1988) (hereinafter referred to as "Hintz/Foth"). The Western District of Wisconsin construed § 522(f) more broadly, declaring that it encompassed any farm machinery and equipment without any monetary ceiling, unless specified in the state exemptions. In re Thompson, 82 B.R. 985 (Bankr.W.D.Wis.1988). After Thompson was affirmed by United States District Judge Crabb on July 20, 1988, it was appealed to the Seventh Circuit. Hintz/Foth was also in the process of being appealed to the District Court for the Eastern District of Wisconsin when the debtors filed their lien avoidance motion.

At the July 26, 1988 telephonic hearing, the parties agreed to abide by the anticipated District Court ruling in Hintz/Foth on this issue. The court directed the parties to enter into a written stipulation setting forth their agreement which, together with a proposed order, was to have been filed with the court. That never took place. The proposed stipulation had been prepared and mailed by Atty Michael G. Trewin, on behalf of the debtors, to Atty Robert F. Konkol, on behalf of PCA. However, due to an inability by the parties to agree upon language in the proposed stipulation, it was never executed by PCA and never returned by Atty Konkol to Atty Trewin.

Meanwhile, a sharply contested issue developed on the feasibility of the debtors' proposed plan. Both PCA and FCB filed motions for dismissal based on lack of feasibility. An evidentiary hearing was conducted on November 3, 4 and 22, 1988. On December 16, 1988, this court found that the proposed plan was feasible and dismissed the motions of PCA and FCB.

Thereafter, the parties engaged in extensive negotiations. At a preliminary confirmation hearing held on January 31, 1989, the parties informed the court that a full resolution had been reached on all issues, thereby paving the way for confirmation of the debtors' plan. That agreement, orally recited into the record, served as the basis for the debtors' plan, which plan was then confirmed at this preliminary confirmation hearing. As a part of their agreement, FCB withdrew its pending objection to confirmation.¹ The agreement also provided for dismissal of PCA's pending adversary proceeding against the debtors for nondischargeability based upon allegations of diversion of milk proceeds. Within a few weeks after the preliminary confirmation hearing, a "Second Amended Chapter 12 Plan," setting forth the oral agreement of the parties, written stipulation and order confirming plan of reorganization dated March 8, 1989 were all filed in court. A separate order dismissing with prejudice PCA's pending adversary proceeding was also filed and entered by this court on March 3, 1989.

The confirmed plan stated that PCA held a secured claim in the amount of $51,000. The fair market value of PCA's collateral was calculated as $52,000. In recognition of their exemption, the debtors were credited with $1,000 against the $52,000, resulting in PCA's $51,000 secured claim. Neither the plan nor the written stipulation explained how the fair market value of either the collateral or the exemption was calculated. Nothing in the plan reserved to the debtors any right to pursue their lien avoidance motion. The plan required the debtors to execute new loan documents with both PCA and FCB.

On February 1, 1989, the Seventh Circuit delivered its decision in In re Thompson, 867 F.2d 416 (7th Cir.1989). Ironically, that occurred one day after the preliminary confirmation hearing before this court. The effect of the Seventh Circuit decision in Thompson was to affirm the lower court in that case and to overrule the bankruptcy court in Hintz/Foth. On March 13, 1989, the United States District Court for the Eastern District of Wisconsin vacated the judgment in Hintz/Foth "for further consideration in light of In re Gary Thompson and Randalyn Thompson, 867 F.2d 416 (7th Cir. Feb. 1, 1989)."

On May 6, 1989, almost one year after the debtors' lien avoidance motion was filed, Atty Trewin wrote a letter to this court requesting a hearing on that motion. Atty Konkol responded that this matter was no longer an open issue in view of the confirmed plan. Atty Konkol further informed the court that the debtors never executed the loan documents with PCA and FCB which were required under the plan and asked that the debtors be directed to do so.

This correspondence prompted a telephonic hearing on May 13, 1989, by the court with Attys Trewin and Konkol. As a result of that hearing, PCA and FCB filed motions for dismissal of the case based upon an alleged material default by the debtors under the confirmed plan due to the failure to execute the loan documents. The debtors simultaneously filed a motion for modification of their plan, requesting that PCA's lien be avoided and that PCA's secured claim be reduced by the same amount by which PCA's lien is avoided.

These motions came on for hearing on August 15, 1989. Testimony was received from one of the debtors, Larry J. Wickersheim, and from Lyness Anderson, senior loan officer for Farm Credit Services, the entity which administers the loans for PCA and FCB.

DEBTORS' MOTION TO MODIFY PLAN AND AVOID LIEN OF PCA

This court has reviewed the files, records and proceedings herein, including transcripts of the July 26, 1988 and January 31, 1989 hearings. It has also considered the testimony of Mr. Wickersheim and Mr. Anderson presented on August 15, 1989. It concludes that the confirmed plan clearly and unambiguously manifested a complete settlement by the parties of all pending disputes, including the lien avoidance issue. Mr. Anderson's statement at the August 15, 1989 hearing that:

"We wanted a complete plan rather than start to go, give various little items away without really knowing where we was sic going."

sums up the understanding of the parties.

As previously stated, the plan fixed PCA's secured claim at $51,000. The plan also structured monthly payments of $970.74 from the debtors to PCA based upon the $51,000 secured claim at 11% interest, with a balloon payment on January 1, 1993. Nowhere does the plan declare that the $51,000 secured claim is subject to an adjustment if Hintz/Foth is reversed by the district court. Although that was the parties' earlier understanding, if that was still the intent when the settlement was reached, the debtors would have been under a duty to place PCA on notice by specifically detailing such potential adjustment in the plan. In re Fawcett, 758 F.2d 588, 591 (11th Cir.1985). Atty Trewin's explanation that he was relying upon the July 26, 1988 telephonic conference, in lieu of such notification in the plan, is unpersuasive. His contention that he was "of the mistaken impression that said stipulation had been filed with the court and drafted the debtors' plan of reorganization accordingly" is incredible. Atty Trewin's letter to Atty Konkol dated July 28, 1988 stating, "If the stipulation meets with your approval, please sign and return to my office for filing with the court" (emphasis added) is self-explanatory. That stipulation was never signed and returned by Atty Konkol to Atty Trewin. If Atty Trewin intended to pursue this motion, he had the responsibility to bring this to the court's attention prior to confirmation. His failure to do so leads this court to conclude that, by January 31, 1989, the lien avoidance issue was "history."

The only provision calling for an adjustment in the amount of PCA's secured claim was that which was orally recited into the record on January 31, 1989 as part of the agreement. At that time, the parties informed the court that the secured claim of PCA was subject to being increased from $51,000 to $59,000 "if for some reason the plan fails." See transcript of January 31, 1989 proceedings at p. 22, line 8.²

This court believes that the parties, who were represented by counsel, understood that the effect of their agreement, as incorporated into the debtors' plan, was to settle all existing disputes between them. Solely for the sake of...