Tim Wargo & Sons, Inc., In re

• Decision Date: 14 March 1989
• Docket Number: No. 88-1949,88-1949
• Citation: 869 F.2d 1128
• Parties: , 57 USLW 2555, 20 Collier Bankr.Cas.2d 1362, 19 Bankr.Ct.Dec. 179, Bankr. L. Rep. P 72,724 In re TIM WARGO & SONS, INC., Debtor. TIM WARGO & SONS, INC., Appellant, v. EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1128

869 F.2d 1128

101 A.L.R.Fed. 495, 57 USLW 2555, 20

Collier Bankr.Cas.2d 1362,

19 Bankr.Ct.Dec. 179, Bankr. L. Rep. P 72,724

In re TIM WARGO & SONS, INC., Debtor.

TIM WARGO & SONS, INC., Appellant, v. EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES, Appellee.

No. 88-1949.

United States Court of Appeals, Eighth Circuit.

Submitted Dec. 15, 1988.

Decided March 14, 1989.

Steve Alexander, Fayetteville, Ark., for appellant.

Billy J. Hubbell, Crossett, Ark., for appellee.

Before BOWMAN and MAGILL, Circuit Judges, and HANSON, Senior District Judge. ^*

BOWMAN, Circuit Judge.

Tim Wargo & Sons, Inc. (debtor) appeals from a final order of the District Court ¹ affirming the Bankruptcy Court's ² dismissal of its Chapter 12 case. ³ The courts below ruled that debtor is not eligible for Chapter 12 relief because it is not a "family farmer" as defined by the Bankruptcy Code (Code). We affirm.

Debtor is a closely held corporation whose principal asset is approximately 450 acres of farmland located in Desha County, Arkansas. Tim Wargo, Sr. owns sixty percent of debtor's stock, the remainder split among his wife Callie and two sons Tim, Jr. and Andrew. ⁴ The Wargo family farmed this acreage prior to 1985; beginning with crop year 1985, however, debtor leased the entire acreage to a tenant farmer. Under the lease, the tenant farmer planted, cultivated, and harvested crops on debtor's land, remitting to debtor twenty-five percent of the proceeds from the sale of the crops less twenty-five percent of the cost of fertilizer. The tenant farmer worked debtor's acreage in this fashion in 1985 and 1986. Debtor sought protection under Chapter 12 in 1986 after the Equitable Life Assurance Society of the United States filed a foreclosure action against debtor and others in Arkansas state court.

Access to the relief afforded by Chapter 12 of the Code, 11 U.S.C. Secs. 1201-1231 (Supp. IV 1986), is restricted to "family farmer[s] with regular annual income." 11 U.S.C. Sec. 109(f) (Supp. IV 1986). A corporation is a "family farmer" if the corporation has certain characteristics; among other things, "more than 50 percent of the outstanding stock or equity [must be] held by one family ... and such family [must] conduct the farming operation." 11 U.S.C. Sec. 101(17)(B) (Supp. IV 1986). The central issue in this appeal is whether debtor, through the Wargo family, "conducted" the planting, cultivating, and harvesting of crops which occurred on debtor's farmland in 1985 and 1986.

This inquiry is essentially one of fact. Debtor urges upon us the proposition--one we take to be of law--that its lease of land to a tenant farmer in the fashion described above may be characterized as a "farming operation" as that term is defined by the Code, 11 U.S.C. Sec. 101(20) (Supp. IV 1986). We assume without deciding that debtor's arrangement with its tenant farmer may be so characterized. ⁵ Nevertheless, we hold that the Wargo family did not "conduct" the farming operation on debtor's land.

The Bankruptcy Court found that "only one of the debtor's shareholders, Tim Wargo, Jr., performed any duties related to the lease of the land, and the amount of time involved was not substantial." In re Tim Wargo & Sons, Inc., 74 B.R. at 473. This finding of fact is not clearly erroneous. Tim Wargo, Jr. testified that he holds three jobs, none of which involves farming debtor's acreage. Transcript of March 3, 1987 Hearing at 21. Tim Wargo, Jr. testified in passing that he has had occasion to drive a tractor on debtor's acreage since debtor began leasing its farmland to the tenant, id. at 61, but the record is silent as to the frequency and duration of his efforts. There is no testimony by any of the other members of the Wargo family. Debtor points to, and we can find, nothing in the record to detract from the Bankruptcy Court's finding that debtor has basically turned all responsibility for crop production over to the tenant farmer and retains no significant involvement in or control over the farming of its acreage.

At oral argument counsel for debtor asserted that the Bankruptcy Court's finding is speculative. To this claim we need only observe that the Bankruptcy Court drew an entirely fair inference from the record presented it, and that, were there more to Tim Wargo, Jr.'s role in the conduct of the farming of debtor's acreage than that reflected in the record, the burden was debtor's to elicit the relevant facts. See In re Rott, 73 B.R. 366, 371 (Bankr.D.N.D.1987) (party filing Chapter 12 petition bears burden of proving eligibility); see also Jenkins v. Petitioning Creditor--Ray E. Friedman & Co., 664 F.2d 184, 186 (8th Cir.1981) (party filing involuntary petition bears burden of proving entitlement to such relief).

Debtor places much emphasis on discussions Tim Wargo, Jr. had with the tenant farmer about what crops to plant in a given year. Debtor also emphasizes discussions Tim Wargo, Jr. had with Tim Wargo, Sr. about the farming of debtor's acreage. At oral argument debtor urged us to consider these conversations illustrative of debtor's "conducting" the farming of its acreage. The courts below rejected this suggestion, and so do we. In order for debtor to be characterized as "conducting" the farming of its acreage within the meaning of Sec. 101(17)(B), some member of the Wargo family must at minimum play an active role in the farming operation taking place on its land. See In re Burke, 81 B.R. 971, 976 (Bankr.S.D.Iowa 1987) (corporate debtor which leases farmland to tenant under crop share arrangement considered "engaged in farming" only if family members of debtor "take an active role in the operation"); In re Mikkelsen Farms, Inc., 74 B.R. 280, 285 (Bankr.D.Or.1987) (though corporate debtor leased all of its farmland in crop year 1987, debtor eligible for Chapter 12 relief because it, through its principals, had planted and harvested crops in 1986, the year in which it filed its petition). Cf. In re Dakota Lay'd Eggs, 57 B.R. 648, 656 (Bankr.D.N.D.1986) (corporation receives income from a farming operation if income is "derived from its own farming or production efforts as opposed to the farming or production efforts of others"). ⁶ As the District Court observed, the conversations just described do not distinguish the role played by the Wargo family in the production of crops on debtor's acreage from that of an absentee landlord doing business in the corporate form who simply owns land and leases it to a tenant farmer from year to year. In re Tim Wargo & Sons, Inc., 86 B.R. at 151. The "conduct" element of Sec. 101(17)(B) serves to exclude from Chapter 12 eligibility those corporations which bear so attenuated a connection with the farming operation itself. See In re Mary Freese Farms, Inc., 73 B.R. 508, 511 (Bankr.N.D.Iowa 1987) (where tenant farmer "makes all of the management decisions and does all of the 'hands-on' planting and harvesting," corporate debtor does not "conduct" the farming operation); 132 Cong.Rec. 9985 (1986) (statement of Sen. McConnell) ("[A] corporation who [sic] seeks to file under chapter 12 must have 50 percent of its stock or equity owned by a person who is actually farming."). We conclude that the courts below were correct in attaching little significance to the conversations that debtor here emphasizes. ⁷

In its brief debtor argues that if its arrangement with the tenant farmer is construed to be a "farming operation" as defined by the Code then "deductively, the [Wargo] family must be conducting the farming operation" because "all of [debtor's] business is conducted by its stockholders who are the members of a single family." Appellant's Brief at 6 (...