Matter of Matthieson
| Decision Date | 07 July 1986 |
| Docket Number | Civ. No. 3-85-1711. |
| Citation | 63 BR 56 |
| Parties | Matter of Eugene Lawrence MATTHIESON and Marlys Jean Matthieson, Robert J. Jakes, Sr., Ronald A. Weber and Ann Weber, Frederick N. Plaetz, Jerome Henry Tasto and Colleen Marie Tasto, and Barry L. Pietz and Paulette A. Pietz, Debtors. Timothy D. MORATZKA, Trustee, Appellant, v. UNITED STATES of America, AGRICULTURAL STABILIZATION AND CONSERVATION SERVICE, Appellee. |
| Court | U.S. District Court — District of Minnesota |
Phillip L. Kunkel, Moratzka, Dillon, Kunkel & Storkamp, P.A., Hastings, Minn., for appellant.
James E. Lackner, Asst. U.S. Atty., Minneapolis, Minn., for appellee.
This matter comes before the court on an appeal by the Trustee1 from an Order of the bankruptcy court dated August 29, 1985. The present appeal consists of six consolidated Chapter 7 bankruptcy cases involving similar facts and a common question of law. In its Order of August 29, 1985, the bankruptcy court granted the motion of appellee, Agricultural Stabilization and Conservation Service (ASCS), for relief from the automatic stay in bankruptcy to offset the mutual obligations running between the various debtors and ASCS. Specifically, the bankruptcy court determined that the deficiency payment owed each debtor by ASCS was a pre-petition obligation which could be offset under 11 U.S.C. § 553. The Trustee appeals the bankruptcy court's decision, contending that any obligation by ASCS arose post-petition and thus cannot be subject to offset.
The six consolidated cases involve similar relevant facts which are undisputed for purposes of this appeal. The debtors in each case are Minnesota farmers who enrolled in the Federal Crop Deficiency Program for the 1984 growing season. The principal terms of the program, by contract and governmental regulation, required that the debtors refrain from planting crops on a specified portion of their tillable acres and further required debtors to maintain soil conservation practices on the unused acreage. Additional requirements included the filing of certain reports showing compliance with the program's terms and an evaluation of compliance by a local ASCS committee. In exchange, ASCS agreed to pay the debtors a deficiency payment if the final deficiency calculation would be greater than zero. Such deficiency payment was to be based upon a predetermined formula and was dependent upon the end-of-the-year market prices. Consequently, the deficiency payments were due on or about April 1, 1985. Under the formula, it was possible that any particular deficiency payment might have been zero. Subsequent to enrollment in the program, but prior to April 1, 1985, the debtors in each of the consolidated cases filed a petition for relief under Chapter 7 of the Bankruptcy Code.
Prior to the filing of his Chapter 7 petition, each debtor had an outstanding debt owing to the government. These pre-petition debts arose out of secured government loans and unearned deficiency payments from previous years. Absent a bankruptcy filing, the ASCS would be required to offset payments due participants under the deficiency program against debts owed by the participant to any United States government agency or department. See 7 C.F.R. §§ 713.1-713.116. On the basis of such authority, ASCS moved the bankruptcy court for relief from the automatic stay to offset the alleged mutual pre-petition obligations of the parties pursuant to 11 U.S.C. § 553.
The sole issue raised by the Trustee on appeal is whether the deficiency payments owed by ASCS to the enrolled debtors were pre-petition obligations and subject to offset under 11 U.S.C. § 553. The Trustee contends that the obligations owed by ASCS were not pre-petition obligations, but rather obligations arising only after a final determination was made that a deficiency exists. The Trustee specifically asserts that the enrollment contracts between the debtors and ASCS were subject to various conditions precedent, including the final condition that a deficiency in fact exists. Because such conditions could not have been met at the time of filing the bankruptcy petition, the Trustee argues that the ASCS obligations arise post-petition and therefore cannot be used to offset the debtors' obligations. ASCS, on the other hand, endorses the bankruptcy court's determination that their obligations arose at the time of contracting with the participants of the deficiency payment program.
The creditor's right of setoff in bankruptcy is explicitly set forth in § 553(a), which provides in pertinent part:
Except as otherwise provided in this section and in sections 362 and 363 of this title, this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case . . .
11 U.S.C. § 553(a). In order to qualify for a setoff under § 553, the debts must be mutual and they must be pre-petition. In re Braniff Airways, Inc., 42 B.R. 443, 447 (Bankr.N.D.Tex.1984). A creditor may not offset its pre-petition claims against a debt owed to the debtor which came into existence after the filing of the bankruptcy. Cooper-Jarrett, Inc. v. Central Transport, Inc., 726 F.2d 93, 96 (3rd Cir.1984). As previously noted, the issue in this appeal is whether the obligations of ASCS arose prepetition or post-petition.
To support his position that ASCS's obligations became effective only after the final determination of a deficiency, the Trustee relies extensively on the decision in Hill v. Farmers Home Administration (In re Hill), 19 B.R. 375 (Bankr.N.D.Tex.1982). In Hill, the court addressed this same issue in a rather summary fashion, concluding that the obligation of ASCS under a similar program arose only after a determination that a deficiency existed:
The prerequisites for determination of entitlement to money occurs at or near harvest time. It is only after the market price of the crop is determined that one can conclude that a deficiency between that price and the target price occurs. Also, it is late in the season before a conclusion can be reached as to whether there is a "disaster" which provides for disaster payments by ASCS. Therefore, I conclude that those monies, if any, to be paid by ASCS to, or for the benefit, of Hill are post-petition monies.
In re Hill, 19 B.R. at 380. On the basis of this conclusion, the court held that the debt of ASCS owing to the debtor could not be subject to offset under § 553. Id.
After a review of analogous case law, however, the court rejects the Trustee's argument on this question and the conclusion of the court in Hill. The creditor's "right of setoff may be asserted in a bankruptcy case even though at the time the petition is filed the debt is absolutely owing but not presently due, or where a definite liability has accrued but is as yet unliquidated." Traders Bank of Kansas City v. Stonitsch (Matter of Isis Foods, Inc.), 24 B.R. 75, 76 (Bankr.W.D.Mo.1982); Whitman v. Seedtec International, Inc. (In re Whitman), 38 B. 395, 397 (Bankr.D. N.D.1984). Where an obligation exists prior...
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