In re Wilson, No. 03-00146 F, C03-3079-MWB (N.D. Iowa 1/27/2004)

• Decision Date: 27 January 2004
• Docket Number: No. 03-00146 F, C03-3079-MWB.,03-00146 F, C03-3079-MWB.
• Parties: In Re: BRUCE A. WILSON and JANET K. WILSON, Chapter 7, Debtors, Bankruptcy Case. BRUCE A. WILSON and JANET K. WILSON, Appellants, v. DAVID A. SERGEANT, Bankruptcy Trustee, Appellee.
• Court: U.S. District Court — Northern District of Iowa

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In Re: BRUCE A. WILSON and JANET K. WILSON, Chapter 7, Debtors, Bankruptcy Case BRUCE A. WILSON and JANET K. WILSON, Appellants, v. DAVID A. SERGEANT, Bankruptcy Trustee, Appellee.

No. 03-00146 F, C03-3079-MWB.

United States District Court, N.D. Iowa.

January 27, 2004.

MEMORANDUM OPINION AND ORDER ON PETITION FOR REVIEW OF THE DECISION OF THE BANKRUPTCY COURT

MARK BENNETT, Chief District Judge.

"The farmer is the only man in our economy who buys everything at retail, sells everything at wholesale, and pays the freight both ways."¹ John F. Kennedy, (Thirty-Fifth President of the United States)

This appeal from a decision of the United States Bankruptcy Court for the Northern District of Iowa raises a unique question of first impression: Are direct payments under the Farm Security and Rural Investment Act of 2002, Pub.L. 107-171, 116 Stat. 134 (May 13, 2002) ("Farm Bill") exempt under Iowa law as "public assistance benefits"? The debtors assert error in the bankruptcy court's determination that the direct payments they are entitled to under the Farm Bill for their 2002 farming activities are not exempt as "public assistance benefits." Specifically, the debtors contend that the Farm Bill's purpose of providing a safety net to farmers places payments made under the Farm Bill squarely within the parameters of a "public assistance benefit." The debtors also challenge the bankruptcy court's interpretation of the Iowa exemption statute to require that government aid payments satisfy a `means test' before they can be classified as "public assistance benefits." The Trustee asserts that as Farm Bill payments amount to a commercial recovery program and are not tailored to the impoverishment of the recipient they are of a different nature than those government aid payments the Iowa legislature intended to exempt as "public assistance benefits."

I. BACKGROUND

Debtors Bruce A. Wilson and Janet K. Wilson ("Wilsons") filed a voluntary petition under Chapter 7 of the Bankruptcy Code on January 17, 2003. David A. Sergeant was appointed as bankruptcy trustee. Among the items listed on their schedule of personal property was "Farm Service Agency, Government Payments under Farm Programs." The Wilsons noted that the amounts of such payments would "not be determined until 06-01-2003." The Wilsons claimed the property was exempt under Iowa Code § 627.6(8)(a), which exempts from bankruptcy proceedings any property that constitutes "[a] social security benefit, unemployment compensation, or any public assistance benefit." On March 31, 2003 the Trustee filed an objection to this exemption on the ground that the farm program payments did not qualify for exemption under Iowa Code § 627.6(8)(a). The Wilsons resisted the objection on April 29, 2003. In a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B) the bankruptcy court held a hearing on the objection to exemption on July 10, 2003 in Fort Dodge, Iowa.

Following the hearing, the bankruptcy court entered a decision sustaining the Trustee's objection on July 29, 2003. In the July 29, 2003 order, the bankruptcy court made the following findings of fact of interest here. The "Government Payments under Farm Programs" that the Wilsons claimed were exempt were payments made pursuant to the "Farm Security and Rural Investment Act of 2002," Pub.L. No. 107-171, 116 Stat. 134 (May 13, 2002) ("Farm Bill"). The Farm Bill provides for both "direct and counter-cyclical payments," but the Wilsons qualified to receive "direct payments" only. The Wilsons entitlement to these payments was based solely on their crop farming in 2002. Direct payments, pursuant to the Farm Bill are made at a rate of $0.28 per bushel for corn and $0.44 per bushel for soybeans. 7 U.S.C. § 7913(b). The total payments made to an individual in a year cannot exceed $40,000.00. The bankruptcy court found that for the program years 2003 through 2007, an individual is ineligible for payments under the Farm Bill if their adjusted gross income exceeds $2.5 million for the three tax years immediately preceding the applicable program year. Further, the court noted that for the tax years 1996 through 2001 the Wilsons have received, and reported as taxable income, $405,834.00 in farm program payments.

In determining the merits of the Trustee's objection, the bankruptcy court focused on the rulings in In re Gibbs, No. 99-02769S (Bankr. N.D. Iowa May 10, 2000) and Matter of Longstreet, 246 B.R. 611 (Bankr. S.D. Iowa Feb. 28, 2000) — both of which dealt with why earned income credits ("EIC") constituted "public assistance benefits" under Iowa Code § 627.6(8)(a). After analyzing these cases the bankruptcy court came to the following conclusion:

Wilsons' farm program payments are of an entirely different character (than earned income credits). The act under which the payments will be made is not tailored to provide assistance to needy individuals. Wilsons' 2002 grain operation was apparently the sole basis for qualification for the payments. The amount of the payments is not related to need. The only "means test" for entitlement to payments is an adjusted gross income of less than $2.5 million. The court concludes that the Iowa legislature did not intend the exemption statute to protect Wilsons' farm program payments as "public assistance benefits."

In re Wilson, 296 B.R. 810, 813 (Bankr. N.D. Iowa 2003).

On August 19, 2003, the bankruptcy court entered its judgment that the Trustee's objection be sustained, in conformation with the bankruptcy court's July 29, 2003 order. The Wilsons filed a timely notice of appeal on August 20, 2003. On September 3, 2003, the Wilsons filed their designation of record and statement of issues presented on appeal, which identified the following issue for appeal:

Did the Bankruptcy Judge err in ruling that the Iowa Legislature did not intend the exemption statute [Iowa Code § 627.6(8)(a)] to protect the Debtors' farm program payments as `public assistance benefits'?

The Clerk of the Bankruptcy Court filed a Certificate on Appeal on September 9, 2003. Pursuant to Bankruptcy Rule 8009 and N.D. IA. L.R. 8001.1 concerning bankruptcy appeals, appellants filed their brief on appeal on November 6, 2003,² and the Trustee filed his responsive brief on December 31, 2003.³ The Wilsons opted not to file a reply brief. Therefore, the Wilsons' appeal is now fully submitted. This court has jurisdiction over this appeal pursuant to 28 U.S.C. § 158(a) (2003). In this matter the appellants are represented by Charles A. Walker of the Walker Law Office, P.C. in Fort Dodge, Iowa. The appellee is represented by David A. Sergeant, of David A. Sergeant, P.C., in Fort Dodge, Iowa.

II. LEGAL ANALYSIS

A. Standard Of Review

The Eighth Circuit Court of Appeals has, on a number of occasions, reiterated the applicable standard of review for bankruptcy appeals in the context of the district court's review of a bankruptcy court's conclusions:

When a district court reviews a bankruptcy court's judgment, it acts as an appellate court. As with most appellate proceedings, the district court may review the bankruptcy court's legal conclusions de novo but the bankruptcy court's findings of fact shall not be set aside unless clearly erroneous. BANKR. R. 8013; see, e.g., In re Hunter, 771, F.2d 1126, 1129 n. 3 (8th Cir. 1985); In re Martin, 761 F.2d 472, 474 (8th Cir. 1985); see also BANKR. R. 7052 (Federal Rule of Civil Procedure 52 applies in adversary bankruptcy proceedings). Furthermore, the district court may not make its own independent factual findings. If the bankruptcy court's factual findings are silent or ambiguous as to an outcome determinative factual question, the district court may not engage in its own factfmding but, instead, must remand the case to the bankruptcy court for the necessary factual determination. E.g., In re Walker, 726 F.2d 452, 454-55 (8th Cir. 1984); In re Neis, 723 F.2d 584, 588-90 (7th Cir. 1983).

Wegner v. Grunewaldt, 821 F.2d 1317, 1320 (8th Cir. 1987); see, e.g., Gourley v. Usery, 123 F.3d 1089, 1093 (8th Cir. 1997) (reiterating the fact that the bankruptcy court's legal conclusions are reviewed, on appeal, under the de novo, standard); First Nat. Bank of Olathe, Kan. v. Pontow, 111 F.3d 604, (8th Cir. 1997) (noting that the bankruptcy court's legal conclusions are reviewed de novo, where as its factual findings are reviewed under the clearly erroneous standard); In re Muncrief, 900 F.2d 1220, 1224 (8th Cir. 1990) ("In reviewing a bankruptcy court's judgment, ordinarily a district court acts as an appellate court; reviewing the bankruptcy court's legal conclusions de novo, and its findings of fact under the clearly erroneous standard."). The bankruptcy court's interpretation of a statute is a question of law which is reviewed de novo. In re Martin, 140 F.3d 806, 807-08 (8th Cir. 1998); In re Pepmeyer, 273 B.R. 782 (N.D. Iowa 2002) (citing In re Martin, for the principle that the bankruptcy court's interpretation of a statute is a question of law reviewed de novo).

B. Arguments Of The Parties

1. The Wilsons' argument

In their appellate brief, the Wilsons make several arguments for reversal of the bankruptcy judge's decision, and in support of the Wilsons' contention that this court must instead overrule the Trustee's objection and hold their Farm Bill payments exempt under Iowa Code § 627.6(8)(a). The Wilsons argue that the Farm Bill payments they received qualify as "public assistance benefits" for a number of reasons. First, the Wilsons claim that the placement of the term "public assistance benefits" with such benefits as unemployment compensation and social security payments — both of which an individual qualifies for based on employment status and not income — leans towards a broad interpretation of the phrase "public assistance benefits" to include payments under the Farm Bill.

Next, the Wilsons support their position by drawing an analogy between cases holding earned-income...