Matter of Cassavaugh, Bankruptcy No. 84-00615-SJ-W-11.
| Decision Date | 06 November 1984 |
| Docket Number | Bankruptcy No. 84-00615-SJ-W-11. |
| Citation | 44 BR 726 |
| Parties | In the Matter of Edward G. CASSAVAUGH and Mary Ann Cassavaugh, Debtors. |
| Court | U.S. Bankruptcy Court — Western District of Missouri |
Darold W. Jenkins, Independence, Mo., for debtors.
The within chapter 11 proceedings were filed on February 24, 1984. Since that time, some eight months have passed during which the debtors have not put before the court a plan of reorganization which could be confirmed under the standards set forth in section 1129 of the Bankruptcy Code. The delay in filing a proposed plan and disclosure statement has been, in the meantime, punctuated by the unavailing efforts of the court to encourage the prosecution and movement forward of the case,1 and to ensure the filing of a disclosure statement which was sufficient under the standards imposed by section 1125 of the Bankruptcy Code.2 Ultimately, it was necessary for the court to set a hearing on both of the issues of whether a defective disclosure statement had been satisfactorily amended3 and on confirmation of a proposed plan for Friday, November 2, 1984, in St. Joseph, Missouri. At the same time, a hearing was convened on the motions of the creditors Nodaway Valley Bank and Farmers Home Administration to dismiss these chapter 11 proceedings for delay prejudicial to creditors and for inability of the debtors to effectuate a plan of reorganization.4
In the course of the hearing convened on that date, counsel for the debtors adverted to the principal material facts that the current income of the debtors does not permit any current payments to creditors and that the debtors, at the same time, because of the particular constellation of secured and unsecured debts, cannot gain acceptance of any plan by any class of creditors.5 Consequently, although the debtors had been granted leave to solicit acceptances by the prior order of this court, they did not do so and therefore could not be prepared to go ahead with the confirmation hearing. Their counsel stated at the outset of the hearing that there is "no way" that a plan of reorganization could be formulated which could be confirmed and that, therefore, the only course open to the debtors was to request that these chapter 11 proceedings be dismissed. The creditors then present requested that the dismissal be with prejudice; whereupon the debtors offered to demonstrate the value of their property, apparently as a preface to some type of proposal to "redeem" the property for its value.6 But the debtors were not able to demonstrate their entitlement to such relief because they could not show the existence of any assenting class to a plan of reorganization as required by section 1129(a)(10) of the Bankruptcy Code.7 As noted above, although the debtors had been granted leave to solicit acceptances of a proposed plan by a prior order of this court, they had failed to do so.
The failure of the debtors to prosecute these chapter 11 proceedings in the face of the creditors' motions to dismiss and thereby, by means of the delay, to work prejudice to the rights of the creditors warrants a dismissal with prejudice. As this court has pointed out on prior occasion, such a dismissal is in substance a dismissal for want of prosecution, which is ordinarily a dismissal with prejudice.8 The facts of this case which have been recounted above demonstrate the unjustified delay which has taken place and the admitted impossibility of formulating a confirmable plan. Prejudice to the rights of creditors is demonstrated by the same facts, for it is, under the provisions of the current Bankruptcy Code, a violation of the rights of secured creditors to keep the automatic stay in effect when there is no prospect of a confirmable plan. Further, as observed above, these chapter 11 proceedings have now pended for some eight months during which the debtors have made little or no payment to secured creditors nor offered them any other form of "adequate protection" such as is required by section 361-363 of the Bankruptcy Code.9 Under the law which applies under these sections, even an undersecured creditor is not adequately protected simply by the value of its collateral, as counsel for the debtors has repeatedly suggested in these proceedings. Rather, the undersecured creditor is entitled to adequate protection of the use value of its collateral. In re American Mariner Industries, Inc., 734 F.2d 426, 435 (9th Cir.1984) () This protection must continue even after confirmation of the plan.10 And the rights of oversecured creditor are, if anything, greater.11 But, in the case at bar, there is admittedly no offer or potential for such adequate protection. The bankruptcy court must therefore conclude that, not only is there a ground for dismissal in that there has been delay prejudicial to creditors, but also that there is a readily apparent inability to effectuate, or achieve confirmation of, a plan of reorganization.12 Under such circumstances, in the face of creditors' motions to dismiss, the court has no legal alternative but dismissal.
All this seems to be admitted by counsel for the debtors, who nevertheless urges the court and creditors to infuse into the bankruptcy process a form of relief which can be meaningful to a farm debtor who has no significant current income to offer to creditors and whose future potential is wholly speculative and uncertain. Under such circumstances, if the debtors, as is admittedly the case at bar, cannot obtain the consent of at least one class of creditors, the only possibility, it seems, would be an indefinite moratorium on payments to secured creditors. But such relief in bankruptcy has previously been held by the Supreme Court of the United States to be an unconstitutional taking of property rights without due process of law in Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 55 S.Ct. 854, 79 L.Ed. 1593 (1935).
It is true that, in a later decision, the Supreme Court held that a temporary moratorium on payments might be in consonance with constitutional principles. Wright v. Vinton Branch of the Mountain Trust Bank of Roanoke, 300 U.S. 440, 57 S.Ct. 556, 81 S.Ct. 736 (1937). But, as noted above, the current bankruptcy law, with its demands for pre-confirmation adequate protection, does not travel the full distance which the Wright decision, supra, makes constitutional.
It seems now to be urged that the time is ripe for the court system to widen its horizons in respect of these farm chapter 11 cases. In his statements before this court, counsel for the debtors mentions that the situation of the small farmer in our district is a "time bomb" which the courts should prepare themselves to defuse. In respect of the contention that farm bankruptcies are increasing, the files and records of the bankruptcy court fully support counsel's statements. This type of case initially began, three or four years ago, to appear in groups of two and three before the court, but now they appear in great numbers. And, as in this case, in all too many of the cases, there is little or nothing the current bankruptcy system can do to rehabilitate the farm debtors. The current code makes bankruptcy a virtually useless alternative if there is no prospect of earning a profit in the foreseeable future—and, in a disheartening number of farm cases, as in this one, that prospect cannot be demonstrated. The result is that the bankruptcy court has commenced to see a parade of farm debtors —hard workers, good citizens, once proud and once productive—who are caught in this catastrophic transformation of the rural economy and who are suffering the insufferable—the loss of home and a lifetime vocation in one fell swoop. But the scourging of the countryside seems to fall upon the doorstep of the bankruptcy court at a time in its history when it is less able than in almost any prior epoch to deal with it. Its judges currently sit under a cloud affecting their tenure which far removes them from the ability to transcend statutory limitations in favor of the full width of equity which may be allowed by constitutional principles.13 As a private citizen, a judge might wish that more could be done. But, as a judge, he must always and everywhere be mindful of the limitations which the law imposes upon him. "The court cannot be wiser than the law." Matter of Anderson, 12 B.R. 483, 491 (Bkrtcy. W.D.Mo.1981).
It is therefore, for the foregoing reasons,
ORDERED that the within chapter 11 proceedings be, and they are hereby, dismissed with prejudice.
1 The debtors filed a proposed plan and disclosure statement timely, within 120 days of the date of...
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