Progressive Farmers Ass'n, In re

• Decision Date: 23 October 1987
• Docket Number: No. 86-2340,86-2340
• Citation: 829 F.2d 651
• Parties: In re PROGRESSIVE FARMERS ASSOCIATION, Debtor. SOUTH CENTRAL ENTERPRISES, INC., and Edwin M. Lipscomb Farms, Inc., and Caleb Lipscomb, and Ellen Lipscomb, Appellants, v. Richard FARRINGTON, Trustee, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 651

829 F.2d 651

In re PROGRESSIVE FARMERS ASSOCIATION, Debtor SOUTH CENTRAL ENTERPRISES, INC., and Edwin M. Lipscomb Farms, Inc., and Caleb Lipscomb, and Ellen Lipscomb, Appellants, v. Richard FARRINGTON, Trustee, Appellee.

No. 86-2340.

United States Court of Appeals Eighth Circuit.

Submitted June 11, 1987.

Decided Sept. 23, 1987.

Rehearing and Rehearing En Banc Denied Oct. 23, 1987.

David F. Sullivan, Springfield, Mo., for appellants.

Lincoln J. Knauer, Springfield, Mo., for appellee.

Before ROSS, ^* and WOLLMAN, Circuit Judges, and BRIGHT, Senior Circuit Judge.

WOLLMAN, Circuit Judge.

South Central Enterprises, Inc., Edwin M. Lipscomb Farms, Inc., and Caleb and Ellen Lipscomb (appellants) appeal from a district court order ¹ affirming a decision of the bankruptcy court granting rescission of a contract for the sale of an agricultural supply business from appellants to the Progressive Farmers Association. We affirm.

I.

This action arises out of appellants' sale of their agricultural supply business (Aggieville) in early December 1975 to the Progressive Farmers Association ² (hereinafter Progressive), a Missouri farm cooperative. Aggieville is located in the Missouri towns of Springfield, Liberal, and Monett, and consists of a farm supply store, a grain elevator, a fertilizer plant, and associated agricultural enterprises. At the time of the sale, Aggieville was operated and owned in part by Caleb Lipscomb (Lipscomb). Lipscomb continued to manage Aggieville after it was sold to Progressive.

The contract for the sale of Aggieville, which was evidenced by three written agreements and promissory notes, was a "package deal." The contract required Progressive to pay $60,000 down on the purchase price of Aggieville and the remaining $840,000 in monthly installments of interest and principal, which were due on the first of each month with a five-day grace period. The contract further provided that appellants were to furnish Progressive with abstracts of good and marketable title to the real estate. If Progressive objected to the abstracts of title submitted and if appellants were unable or unwilling to cure such objections, the contract could be annulled at Progressive's option.

After signing the contract, appellants tendered to Progressive abstracts of title to the Aggieville real estate. Progressive verbally objected to the abstracts to the Liberal real estate, alleging that four of the lots in the center of the Liberal property were not entirely owned by appellants and that a building not subject to the contract stood in part on the Liberal real estate. After Progressive complained to appellants about the defect in the title, it agreed to appellants' proposal that the defect be cured after the resolution of a lawsuit involving the Liberal real estate. ³ In December of 1976 that lawsuit was settled and a short time thereafter Progressive again complained about the alleged defect in the title to the Liberal property. Appellants, however, failed to cure the defect in the title. About this same time, Progressive began tendering its installment payments on the promissory notes. Despite the payment schedule set forth in the notes, Progressive consistently made late payments well after the 6th of the month. ⁴ Appellants never declared or threatened to declare a default on any of the notes until May of 1977.

Progressive failed to tender the May installment payment on its May 6, 1977, due date. On May 9, 1977, appellants, stating that Progressive was in default on its obligations, foreclosed their security interest in Aggieville. Progressive filed its petition in bankruptcy court four days later. At no time did Progressive ever tender to appellant the May 1977 installment payment, nor did appellants ever tender to Progressive the deeds to any of the Aggieville real estate.

On May 25, 1977, appellants filed in the bankruptcy court their petition for the reclamation of all of the Aggieville property. The trustee in bankruptcy counterclaimed, seeking rescission of the contract for the sale of Aggieville from appellants to Progressive.

The bankruptcy court granted the trustee's prayer for rescission on the ground that appellants' failure to deliver good and marketable title to the Aggieville real estate was a material breach of the agreement that entitled Progressive to rescind. Appellants appealed, and the district court ⁵ vacated the bankruptcy court's judgment. The court held that Progressive's failure to tender the May 1977 installment was not a default entitling appellants to foreclose their security interest in Aggieville. It remanded the action for further findings, however, so that the bankruptcy court could determine whether Progressive was otherwise in default on or before May 9, when appellants foreclosed on their security agreement in Aggieville. Specifically, the court stated that it was remanding for a finding as to whether Progressive was, on May 9, 1977, actually insolvent. The district court instructed that if the bankruptcy court on remand found that Progressive was insolvent or otherwise in default of its obligations under the security agreement before the time of foreclosure, appellants were entitled to foreclose their security interest in Aggieville, and the trustee's counterclaim for rescission should be denied.

Some sixty-five months later, the bankruptcy court ⁶ issued a memorandum opinion finding that Progressive was neither in default of its obligations under the security agreement nor insolvent on May 9, 1977. In re Progressive Farmers Ass'n, 50 B.R. 525 (Bankr.W.D.Mo.1985). Therefore, in accordance with the directions of the district court the bankruptcy court held that appellants were not entitled to foreclose and granted the trustee's motion for rescission. The bankruptcy court, based on the findings of the initial bankruptcy proceeding, entered judgment in favor of Progressive in the amount of $485,825.10 plus interest. Appellants again appealed. The district court found that there was no substantial evidence to support the bankruptcy court's finding that Progressive was not insolvent on May 9, 1977. The court held, however, that appellants had waived their right to declare forfeiture on any other ground, including insolvency, since they had failed to assert any other grounds other than nonpayment in their notice of forfeiture and petitions for reclamation. The district court therefore affirmed the bankruptcy court's finding that Progressive had a right to rescind the contract due to appellants' material breach of the Aggieville contract by failing to transfer good and marketable title to the four lots in Liberal, Missouri. The district court further upheld the bankruptcy court's ruling concerning the trustee's right to recover $458,825.10 plus interest from appellants. This appeal followed.

II.

A. Jurisdiction.

The first issue that must be addressed is the jurisdiction of this court to decide this dispute. Appellants argue that the bankruptcy court erred in asserting jurisdiction over the proceedings after the case was remanded by Judge Collinson due to the Supreme Court's intervening decision in Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). In that case, the Supreme Court found unconstitutional the vesting of the district court's bankruptcy jurisdiction over bankruptcy judges, who are not Article III judges, in the context of the bankruptcy court's adjudication of state law claims. Id. at 87-88, 102 S.Ct. at 2880. Appellants assert that the questions of insolvency and anticipatory breach, which the district court instructed the bankruptcy court to make a determination as to on remand, were questions of state law and required the exercise of judicial power beyond the authority of a bankruptcy judge in light of the holding in Northern Pipeline.

The present action was commenced under the Bankruptcy Act of 1898, the Bankruptcy Reform Act not having been enacted until 1978. ⁷ The Supreme Court's holding in Northern Pipeline, however, reaches only the grant of independent jurisdiction to a bankruptcy court under the statute enacted in 1978. It does not deal with the question of the validity of the derivative jurisdiction exercised by bankruptcy referees under the Bankruptcy Act of 1898. Northern Pipeline, 458 U.S. at 80 n. 31, 102 S.Ct. at 2876 n. 31. The Court in Northern Pipeline concluded only that:

28 U.S.C. Sec. 1471 (1976 ed., Supp. IV), as added by Sec. 241(a) of the Bankruptcy Act of 1978, has impermissibly removed most, if not all, of "the essential attributes of the judicial power" from the Art. III district court, and has vested those attributes in a non-Art. III adjunct. Such a grant of jurisdiction cannot be sustained as an exercise of Congress' power to create adjuncts to Art. III courts.

458 U.S. at 87-88, 102 S.Ct. at 2880.

The controlling jurisdictional provision under the 1898 Act states that:

Suits by the receiver and the trustee shall be brought or prosecuted only in the courts where the bankrupt might have brought or prosecuted them if proceedings under this title had not been instituted, unless by consent of the defendant * * *.

11 U.S.C. Sec. 46(b) (emphasis added).

We find that appellants consented to the summary jurisdiction of the bankruptcy court and therefore cannot now raise the issue of the bankruptcy court's jurisdiction over a counterclaim that is reasonably related to the claim submitted by appellants. See Floro Realty & Inv. Co. v. Steem Elec. Corp., 128 F.2d 338, 340 (8th Cir.1942). Appellants voluntarily submitted to the bankruptcy court their petition for the reclamation of Aggieville. The trustee in bankruptcy then filed an answer and counterclaim in which he prayed for rescission of the contract. Appellants then responded to the trustee's counterclaim by means of a reply that addressed the merits of the trustee's contentions but which did not raise any...