Matter of Alexander
| Decision Date | 22 March 1985 |
| Docket Number | Bankruptcy No. 83-03166-SW-W-11. |
| Citation | 48 BR 110 |
| Parties | In the Matter of James Wendell ALEXANDER and Norma Jean Alexander, Debtors. CITIZENS STATE BANK OF NEVADA and Citizens National Bank of Fort Scott, Kansas, Movants v. James Wendell ALEXANDER and Norma Jean Alexander, Respondents. |
| Court | U.S. Bankruptcy Court — Western District of Missouri |
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Gerald D. McBeth, Ewing, Carter, McBeth, Smith, Gosnell and Vickers, Nevada, Mo., for Citizens St. Bank of Nev.
Bryan C. Breckenridge, Russell, Brown, Bickel, Breckenridge and Breckenridge, Nevada, Mo., for Citizens Nat'l. Bank of Fort Scott.
Charles E. Fowler III, Jenkins and Jensen and Husch, Eppenberger, Donohue, Elson and Cornfeld, Kansas City, Mo., for respondents.
The movant secured creditors of the chapter 11 debtors have moved to dismiss the within chapter 11 proceedings on the grounds of delay prejudicial to creditors and of the debtors' inability to effectuate a plan of reorganization. See section 1112(b) of the Bankruptcy Code. The respective motions to dismiss were the subjects of a single hearing held in Joplin, Missouri, on January 11, 1985, whereupon the debtors appeared personally and by Charles E. Fowler III, Esquire, their counsel, and the movant Citizens State Bank of Nevada appeared by Gerald McBeth, Esquire, and the Citizens National Bank of Fort Scott appeared by Bryan Breckinridge, Esquire.
The material facts which were proven to the court in the course of the hearing on the motions to dismiss were that this proceeding has now been pending well in excess of a year and the debtors have only recently proposed the plan of reorganization which is now before the court; that a prior proposed plan was scrapped and abandoned by the debtors when weather conditions resulted in the loss of any hope that the debtors would harvest any appreciable amount of crops in the year 1984; that, consequently, the plan which is now proposed by the debtors would place a moratorium on payments to creditors for an additional year (until the end of 1985, when payments are proposed to be made from crops which are now being cultivated); that the debtors, although they originally asserted that it would be necessary to obtain credit in order to plant and cultivate their crops, now contend that they have been able to plant crops without the benefit of any financing; that, in the three years next preceding the filing of the petition for relief under title 11 of the United States Code, the debtors have suffered losses in their farming operations; that the debtors nevertheless contend that, in the more distant past, they have regularly realized net sums from their farming operations which, if now realizable, would result in annual net income averages which would permit them to pay the creditors the sums annually required by the proposed plan which is currently before the court; that they further contend that the losses which have been suffered in recent years have been caused them by an unusual chain of disastrous weather which is now unlikely to repeat itself; and that they are experienced farmers in middle age who have farmed the land on which they now reside for years.
The motions to dismiss which are now before the court were not filed until most of the inordinate pre-confirmation delay was a fait accompli.1 The debtors have now proposed a plan of reorganization and the hearing on confirmation may be set after a ruling is handed down on the pending motions to dismiss. Accordingly, the court should not issue premature rulings on factual issues which should ordinarily be resolved at the hearing on confirmation of a chapter 11 plan, such as those which will determine the issue of whether the plan is feasible and therefore not likely to be followed by liquidation within the meaning of section 1129(a)(11) of the Bankruptcy Code or that of whether the plan has been proposed in good faith within the meaning of section 1129(a)(3) of the Bankruptcy Code.2 Rather, at this juncture, the motion to dismiss should be granted only if it is clear as a matter of law that the debtors cannot achieve confirmation of their pending proposed plan of reorganization. Thus, if it can be said that the moratorium on payments of principal and interest which is proposed by the debtors in their currently proposed plan is, as a matter of law, impermissible, the motions to dismiss should be granted. It is the contention of the movants that the court should not permit the moratorium which is proposed by the debtors and that to permit such a moratorium would be to nullify the letter of section 1129(b)(2)(A) requiring that secured creditors, through a plan of reorganization, receive the value of their claims as of the effective date of the plan. This section has uniformly been construed to mean that secured creditors must receive interest for delay in enforcement of their rights.3 This is a construction which would necessarily foreclose any possibility of a moratorium, which, by definition, would take away the duty to make payments of interest as well as those of principal.4
But, inasmuch as, as is further enlarged upon below, the provisions of section 1129(b)(2)(A), as so construed and applied, seem to be in conflict with those of section 1129(a)(7) requiring only that a debtor in chapter 11 proceedings grant a creditor the equivalent of what that creditor would receive in straight liquidation under chapter 7,5 some doubt is reflected upon the movant's contentions. Further, a mortgagor's right to a temporary moratorium in payments to his mortgagee may be a matter of constitutional right. See Wright v. Vinton Branch of the Mountain Trust Bank of Roanoke, 300 U.S. 440, 57 S.Ct. 556, 81 L.Ed. 736 (1937). Therefore, in view of the not inconsiderable authority which indicates that decisions of constitutionality vel non should not be made by a non-Article-III court,6 the bankruptcy court has determined that it should refer the issue, with recommended findings and conclusions, to the district court in accordance with section 157(c)(1), Title 28, United States Code. This procedure is particularly applicable under the facts of this case, in which the according of a property right to the debtor may be taking a property right from the creditor. And the current strictures on bankruptcy court jurisdiction do not admit of its resolving a substantial claim of property right by a creditor.7
The principal issue which is made by the evidence adduced in the hearing on the motions to dismiss is whether a bankruptcy court may lawfully permit a temporary and measured moratorium in payments to a creditor, secured as well as unsecured, as part of a chapter 11 plan of reorganization. As observed above, the preview of the feasibility of the debtors' plan of reorganization which is offered by the evidence on the pending motions is less than promising. But it is, at this juncture of the proceedings, not controlling. The question which is necessarily before the court on these motions to dismiss is whether the prospect of successful reorganization is so unpromising that the court cannot be warranted in permitting the case to proceed to a hearing on confirmation. In this case, the evidence presented to the effect that, in the recent past, the debtors have suffered nothing but voluminous losses because of unusual circumstances of weather, is some-what tempered by evidence to the effect that they had, in the more distant past, realized farm income which would sustain the plan now proposed by them.
But, because of the crop failure this year, the plan is necessarily predicated upon a moratorium in payments until next year's harvests are completed. When this additional year is added to the year which has now elapsed since the filing of the petition for relief, the total moratorium on payments may exceed two years.
It must be stated at the outset that this court agrees with the rule of In re American Mariner Industries, Inc., 734 F.2d 426 (9th Cir.1984), to the effect that a pre-confirmation moratorium, made effective only by a debtor's refusal to make appropriate payments on secured debts even as he delays in the filing of any proposed plan of reorganization and which is thus involuntarily imposed on creditors through disregard of sections 361-363 of the Bankruptcy Code, is unlawful. See, e.g., Matter of Cassavaugh, 44 B.R. 726 (Bkrtcy.W.D.Mo.1984).
But may the bankruptcy court confirm a plan which includes a moratorium on payment to creditors as one of its essential features? Only if the answer to this question is in the affirmative may this court deny the pending motions to dismiss and continue processing this case toward confirmation. For, if the answer is in the negative, such processing would be useless inasmuch as it could not culminate in confirmation of the debtors' proposed plan.
In order to answer this question, it is incumbent upon the court to determine whether section 1129(a)(7), requiring only that a debtor in chapter 11 proceedings grant a creditor at least what that creditor would receive in chapter 7 proceedings, is to prevail over the seemingly contrary letter of section 1129(b)(2)(A) which would not permit any moratorium in payments to a secured creditor in chapter 11 proceedings even though such a moratorium may occur in chapter 7 proceedings while a trustee (or the secured creditor) is attempting to liquidate the collateral. Thus, it seems clear that the latter provision has the effect, according to virtually all the interpretations of it,8 of compelling debtors in chapter 11 proceedings to pay more to secured creditors than those creditors would receive in chapter 7 proceedings. This extraction of greater payment is accomplished by means of the provision's ignoring the fact that, in chapter 7 proceedings, compensation (in the form of interest on the value of the collateral) is...
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