Mesa Farm Company v. United States, 71-1121.

• Decision Date: 09 March 1973
• Docket Number: No. 71-1121.,71-1121.
• Citation: 475 F.2d 1004
• Parties: In the Matter of MESA FARM COMPANY, a partnership composed of James V. Pettitt and George W. Ross, Bankrupt No. 110092, and Mesa Farms, Inc., a California corporation, Bankrupt No. 110091, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

475 F.2d 1004 (1973)

In the Matter of MESA FARM COMPANY, a partnership composed of James V. Pettitt and George W. Ross, Bankrupt No. 110092, and

Mesa Farms, Inc., a California corporation, Bankrupt No. 110091, Appellants, v. UNITED STATES of America, Appellee.

No. 71-1121.

United States Court of Appeals, Ninth Circuit.

March 9, 1973.

Henry Cohen (argued), Burlingame, Cal., for appellants.

Anthony J. Steinmeiyer, Atty. (argued), Alan S. Rosenthal, Morton Hollander, Leonard Schaitman, Attys., L. Patrick Gray, III, Asst. Atty. Gen., Dept. of Justice, Washington, D. C., James L. Browning, Jr., U. S. Atty., San Francisco, Cal., for appellee.

Before HAMLIN and TRASK, Circuit Judges, and SOLOMON, District Judge^*.

HAMLIN, Circuit Judge.

Mesa Farm Company and Mesa Farms, Inc., appeal from a denial by the United States District Court for the Northern District of California of a petition for review of the Referee in Bankruptcy's order directing them to pay an additional $22,200 into the Referees' Salary and Expense Fund (hereinafter Fund).

The sole issue presented is a question of first impression, to wit: whether the Judicial Conference of the United States validly promulgated a rule requiring that payment made to the Fund be based upon the fair market value of all assets coming into the bankrupt's estate, irrespective of whether such property is liquidated in the estate by the trustee. We uphold the rule's validity and affirm.

In June, 1968, Mesa Farm Company and Mesa Farms, Inc. each filed a petition for arrangement under Chapter XI of the Bankruptcy Act.¹ When no arrangement was consummated, both consented to an adjudication in bankruptcy.

The facts relevant to the instant proceeding were submitted to the District Court on an Agreed Statement of Facts:

"Prior to adjudication MESA FARMS COMPANY, a partnership, owned a fee-simple interest in that realty known as Mahoney Ranch, a leasehold interest in that realty known as Echenique Ranch, and operating agricultural machinery and equipment. MESA FARMS, INC., a corporation, conducted an agricultural business on said realty, using the machinery and equipment. MESA FARMS, INC. had no assets. None of said assets of MESA FARM COMPANY were liquidated in the Chapter XI Proceedings prior to adjudication.

"Subsequent to adjudication the leasehold on the Echenique Ranch was sold to the Echeniques free and clear of liens thereon for $225,000.00. There being more than $225,000.00 of liens on the leasehold, the proceeds were distributed to the lienors.

"During the pendency of the bankruptcy, Paul Masson, Inc. made an offer to the Trustee to purchase the Mahoney Ranch, subject to a first deed of trust, for a total price, including the amount of the first deed of trust, of $800,000.00. Also during the bankruptcy, Almaden Vineyards, Inc. approached JAMES V. PETTITT and GEORGE W. ROSS, the partners of MESA FARMS COMPANY to purchase the Mahoney Ranch for $850,-000.00. After negotiations between the partners, their attorneys, and Almaden, it was ultimately agreed that the property should be sold free and clear of liens for the price of $1,050,-000.00 cash, the amount being an approximation of that necessary to pay all creditors, secured and otherwise, of MESA FARMS COMPANY and MESA FARMS, INC., taxes, attorneys fees, costs and all expenses of administration. The sale would be made by the partnership to Almaden and was contingent upon dismissal of the bankruptcy proceedings prior to the conclusion of the sale. The machinery and equipment were appraised by an outside appraiser at $60,000.00 and were agreed to be sold by the partnership, contingent upon dismissal of the bankruptcy, to another corporation for $60,000.00 free and clear of liens in satisfaction of its claim against MESA FARM COMPANY on an unsecured loan, which with interest to May 31, 1969, amounted to $60,956.-52.

"On June 6, 1969, a petition to approve the Masson sale and a petition to dismiss the bankruptcies came on simultaneously for hearing. Upon being advised at the hearing of the Almaden offer, representatives of Paul Masson, Inc. withdrew the Masson offer. The Referee approved the dismissal conditioned upon the court retaining jurisdiction to determine the amounts payable, if any, to the Referee\'s Salary and Expense Fund. Subsequent to the Order of Dismissal, also on June 6, 1969, a Contract of Sale for the Mahoney Ranch to Almaden was signed and escrow was closed less than a week thereafter. The machinery and equipment were thereafter transferred to the creditor corporation.

"The purchase price for the Mahoney Ranch was given to the attorneys for the bankrupt; they have paid all creditors in full except those whose claims are disputed, and some five creditors who have agreed to a reduction of their claims in the event that the moneys payable to the Referee\'s Salary and Expense Fund is such that all claims cannot be paid at one hundred cents on the dollar."

The dismissed bankrupts, appellants herein, paid into the Fund $4,750.00, the amount which would have been owed if the fees were based solely upon the $225,000.00 received from the Echenique Ranch leasehold. The referee held, however, that under a rule of the Judicial Conference of the United States, the payment to the Fund must be based upon $1,335,000.00, i.e., the fair market value of all assets coming into the hands of the trustee. Such assets included the $1,050,000.00 received for the Mahoney Ranch and the $60,000.00 received for the machinery and equipment subsequent to bankruptcy dismissal, in addition to the $225,000.00 received for the leasehold in the bankruptcy proceeding. Accordingly, the referee ordered appellants to pay an additional $22,200.00 into the Fund.

Appellants petitioned the District Court for review of the referee's order, contending that the Conference rule was invalid.² The petition was denied and this appeal followed.

Section 40c(2)(a) of the Bankruptcy Act, 11 U.S.C. § 68(c)(2)(a), provides:

"(2) Additional fees for the referees\' salary and expense fund shall be charged, in accordance with the schedule fixed by the conference (a) against each estate wholly or partially liquidated in a bankruptcy proceeding, and be computed upon the net proceeds realized * * *." (emphasis added)

Section 40c(2)(c) provides in pertinent part:

"The Director of the Administrative Office of the United States Courts, with the approval of the Judicial Conference, may make, and from time to time amend, rules and regulations prescribing methods for determining net proceeds realized in asset cases * * *."

The Judicial Conference promulgated the following rule with reference to determining "net proceeds realized":³

"Determination of net proceeds realized.

"In determining the amount of net proceeds realized in asset cases for the purpose of Section 40c(2) of the Bankruptcy Act as amended, the term `net proceeds realized in asset cases\' shall mean, in the case of sale or liquidation, the amount of money coming into the estate of the bankrupt as assets of such estate, which shall include the entire sale price of encumbered property when sold free and clear of all liens, or, if not sold or liquidated, the fair cash market value of all property coming into the estate as assets of such estate * * *."

Appellants contend that the Judicial Conference has exceeded its statutory authority as delegated in section 40c(2)(c) by defining "net proceeds realized" to include the fair market value of all property coming into the hands of the trustee in bankruptcy for the purposes of computing amounts due to the Fund, whether or not such property is liquidated in the estate by the trustee.

They urge that the phrase "net proceeds realized" necessarily imports a concept of the result of the sale or liquidation efforts. Specifically, appellants claim "net proceeds realized" refer to those proceeds realized by the trustee only as a result of a liquidation of assets in the bankruptcy proceedings.⁴

In Udall v. Tallman, 380 U.S. 1, 16, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965), the Supreme Court enunciated the standard of review that courts must employ when faced with problems of statutory construction:⁵

"This Court shows great deference to the interpretation given the statute by the officers or agency charged with its administration. `To sustain the Commission\'s application of this statutory term, we need not find that its construction is the only reasonable one, or even that it is the result we would have reached had the question arisen in the first instance in judicial proceedings.\' Unemployment Comm\'n v.

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