Rice v. Carlton Farms, LLC (In re Webb)

• Decision Date: 03 July 2012
• Docket Number: Bankruptcy No. 4:12–bk–10768.,Adversary No. 4:12–ap–1044.
• Citation: 474 B.R. 891
• Parties: In re Dudley R. WEBB, Jr., and Peggy J. Webb, Debtors. M. Randy Rice, Trustee, Plaintiff v. Carlton Farms, LLC, Bank of England, and U.S. Dept. of Agriculture, Defendants.
• Court: U.S. Bankruptcy Court — Eastern District of Arkansas

474 B.R. 891

In re Dudley R. WEBB, Jr., and Peggy J. Webb, Debtors.M. Randy Rice, Trustee, Plaintiff

v.Carlton Farms, LLC, Bank of England, and U.S. Dept. of Agriculture, Defendants.

Bankruptcy No. 4:12–bk–10768.

Adversary No. 4:12–ap–1044.

United States Bankruptcy Court,

E.D. Arkansas,

Little Rock Division.

July 3, 2012.

Basil V. Hicks, Jr., Attorney at Law, N. Little Rock, AR, for Debtors.

Kevin P. Keech, Keech Law Firm, PA, N. Little Rock, AR, Randy Rice, Rice & Associates, Little Rock, AR, for Plaintiff.

Johnathan Dwaine Horton, Wright, Lindsey & Jennings, LLP, Frank Stewart Headlee, Hopkins Law Firm, Lindsey Mitcham Lorence, U.S. Attorney's Office, Eastern District Of Arkansas, Little Rock, AR, Eric H. Holder, Jr., United States Attorney General, U.S. Department of Justice, Washington, DC, for Defendants.

ORDER GRANTING INJUNCTION

AUDREY R. EVANS, Bankruptcy Judge.

On April 11, 2012, the Court held a hearing on the Plaintiff's Motion for Temporary Restraining Order, Preliminary Injunction, and Emergency Hearing (the “TRO Motion”). The TRO Motion, filed by the Chapter 7 Trustee, Randy Rice (the “Trustee”), pursuant to Federal Rule of Bankruptcy Procedure 7065, sought a temporary restraining order and preliminary injunction to prevent separate Defendant Bank of England (the “Bank”) from exercising control over and selling certain grain. On April 2, 2012, the Court entered a temporary restraining order and preliminary injunction and set the matter for an emergency hearing to be held April 11, 2012.

At the April 11, 2012 hearing, Kevin Keech appeared on behalf of the Trustee; Gregory Hopkins and Stewart Headlee appeared on behalf of the Bank of England; Johnathan Horton and Kimberly Tucker appeared on behalf of separate Defendant Carlton Farms; and Lindsey Lorence, with the U.S. Attorney's office, appeared on behalf of the United States Department of Agriculture (“USDA”). After hearing testimony and receiving documentary evidence, the Court entered a permanent injunction enjoining the Bank from taking control over the Debtor's assets including property the Bank asserted was held by the Debtors' joint venture. The Court orally ruled that the Trustee may immediately sell the grain at issue and hold the proceeds from the sale in an estate account, with the various parties' rights to those proceeds to be determined at a later date. This Order serves to document the Court's oral ruling, and constitutes its findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.

Two questions were presented by this case. First, whether certain property—specifically, grain held in the name of a joint venture—belonged to the estate, and second, if the grain belonged to the estate, whether an injunction should be granted to protect the grain. To answer the first question, the Court had to decide whether a “joint venture” created by and entered into between each of the individual Debtors in this case (who are also husband and wife), is in fact a separate entity, specifically, a partnership. Because the Court found that the joint venture was not a separate entity and the grain belonged to the Debtor's estate, and that the estate would suffer irreparable harm if it were not sold immediately, the Court entered an injunction preventing the Bank from exercising control over the grain.

Joint Venture as a General Partnership or Other Separate Legal Entity

While joint ventures are very similar to general partnerships, which are created by two individuals to carry on a business, they are not necessarily one and the same. Uniform Law Comment 2 to Ark.Code Ann. § 4–46–202, titled “Formation of partnership,” provides that “[r]elationships that are called ‘joint ventures' are partnerships if they otherwise fit the definition of a partnership. An association is not classified as a partnership, however, simply because it is called a ‘joint venture.’ ” The Arkansas Court of Appeals has described the nature of a joint venture as follows:

A joint venture is a relationship founded entirely upon contract, and, when a contract exists, that document will be controlling as to what was the parties' intention. McDermott v. Strauss, 283 Ark. 444, 678 S.W.2d 334 (1984). Joint ventures and partnerships are governed by the same basic legal principles, Denny v. Guyton, 327 Mo. 1030, 40 S.W.2d 562 (1931); Boles v. Akers, 116 Okla. 266, 244 P. 182 (1925), but there are important differences, including the ad hoc nature of joint ventures, or their concern with a single transaction or isolated enterprise, plus the fact that loss-sharing is not as essential to joint ventures as it may be for partnerships. See Hults v. Tillman, 480 So.2d 1134 (Miss.1985).

Slaton v. Jones, 88 Ark.App. 140, 148–49, 195 S.W.3d 392, 397 (Ark.App.2004). See also46 Am.Jur.2d Joint Ventures § 9 (2012) (“A joint venture status is created by either an express or implied contract and depends on the mutual intent of the parties.”). Notwithstanding the similarity between partnerships and joint ventures,

the courts do not treat a joint venture as in all respects identical with a partnership, as they are separate and distinct legal relationships. A joint venture is generally a less formal relationship than a partnership. Also, a joint venture is not a legal entity separate from the participants in the venture as a partnership is, unless, of course, the attributes of the joint venture are such that the venture is in actuality a partnership.

48A C.J. S. Joint Ventures § 3 (2012). See also In re Roxy Roller Rink Joint Venture, 67 B.R. 474, 477 (Bankr.S.D.N.Y.1985) (“ ‘[T]he obligation of joint venturers may be equated with that of general partners, and the rules of law governing partnerships, if relevant, apply to a joint venture. However, the two relationships are not identical and there can be a joint venture without the existence of a legal partnership.’ ”) (quoting 16 New York Jurisprudence 2d, Business Relationships, § 1578 at 254–55). In other words, a joint venture is not necessarily a separate entity with a separate legal existence; it is a relationship between two parties which or may not amount to a partnership under partnership law.

In this case, there was evidence that the Debtors farmed under the name “Dudley R. Webb, Jr. Farms Joint Venture,” since the name was used on various loan documents and leases, insurance documents, warehouse receipts, and a bank account. The Debtors executed a joint venture agreement establishing the joint venture on January 14, 2003, with each Debtor holding a 50% interest. Paragraph 13 specifically states: “Nothing herein shall be construed to create a partnership of any kind.” ¹ Debtor Dudley Webb testified that there was no difference between the joint venture and himself; rather, they were “one and the same.” He explained that the purpose of the joint venture and the reason it was created was to ensure that his wife had an equal interest in the farming operation and not just an interest as his spouse. He explained he also wanted to help her establish credit. The joint venture did not file its own tax returns as a partnership using Form 1065. Rather, all the farming equipment and income was listed on the Debtors' individual tax return, a Form 1040. The Debtors also listed assets which the Bank asserts...