Turner, In re

Decision Date23 May 1996
Docket Number94-6208,Nos. 94-6191,s. 94-6191
Citation84 F.3d 1294
Parties, 35 Collier Bankr.Cas.2d 1413, 29 Bankr.Ct.Dec. 153, Bankr. L. Rep. P 76,968, 13 Colo. Bankr. Ct. Rep. 255 In re Curtis Lawayne TURNER and Rita Gail Turner, Debtors. Curtis Lawayne TURNER and Rita Gail Turner, Appellees/Cross-Appellants, v. SMALL BUSINESS ADMINISTRATION, The Administrator of the Small Business Administration, an Agency of the Government of the United States of America, Appellant/Cross-Appellee.
CourtU.S. Court of Appeals — Tenth Circuit

Cynthia L. Alexander, Attorney, Civil Division, Department of Justice, Washington, D.C. (Rosalee Morris, Special Assistant U.S. Attorney, Oklahoma City, Oklahoma, and J. Christopher Kohn and Tracy J. Whitaker, Attorneys, Civil Division, Department of Justice, Washington, D.C. with her on the brief), for Appellant/Cross-Appellee.

Kenneth L. Peacher (Thomas J. Steece, Steece, Mathews, Gray & Peacher, Oklahoma City, Oklahoma, and Alford A. Bratcher, Marlow, Oklahoma with him on the brief), for Appellees/Cross-Appellants.



PAUL KELLY, Jr., Circuit Judge.

The Small Business Administration appeals from the entry of summary judgment in favor of Debtors Curtis Lawayne Turner and Rita Gail Turner. The bankruptcy court granted summary judgment in favor of the Debtors in an adversary proceeding, ruling that the United States' setoff of payments owed by the Agricultural Stabilization and Conservation Service ("ASCS") to the Turners against the Turners' delinquent debt to the Small Business Administration ("SBA") was avoidable. The district court affirmed, as did a panel of this court, albeit on different grounds. Turner v. Small Business Admin., 59 F.3d 1041 (10th Cir.1995). We voted to grant rehearing en banc thereby vacating the panel judgment. 10th Cir.R. 35.6. We now withdraw the panel's opinion and remand to the panel for further consideration.


The facts of this case are not in dispute. In 1979 and 1981, the Debtors received two loans from the SBA totaling approximately $200,000.00. By August 7, 1991, the Debtors had become delinquent in their payments, and the SBA declared the Debtors in default and accelerated the amounts due under the loans.

Subsequently, on March 4, 1992, the Debtors entered into four contracts with the ASCS to receive payments from the United States Department of Agriculture as part of the 1992 Price Support and Production Adjustment Programs. After the Debtors received initial payments from the ASCS under the contracts, the SBA notified the Turners that it would request administrative offset of any further payments against their delinquent SBA debt. A hearing was held and the SBA Office of Hearings and Appeals declared that the SBA could collect on the Debtors' debt through administrative offset. Between December 30, 1992 and February 8, 1993, the ASCS directed $24,599.35 to the SBA rather than to the Debtors, which the SBA applied against their indebtedness.

The Debtors filed a Chapter 12 bankruptcy petition on February 10, 1993. Debtors then initiated an adversary proceeding to recover the funds diverted to the SBA. Debtors conceded that the administrative offset was legal and in compliance with the federal regulations, but maintained that the administrative offset occurred within the ninety days before they filed their petition, and therefore was avoidable under either 11 U.S.C. § 553, the setoff provision of the Code, or 11 U.S.C. § 547, the preference provision of the Code. The bankruptcy court, affirmed by the district court, determined that the transaction was indeed a set off under § 553, but one which was avoidable because it occurred within the ninety day prepetition period, § 553(b). The government contends that the bankruptcy court incorrectly applied § 553(b), an argument not addressed by the panel.

The panel determined that § 553 did not apply, reasoning that the transaction at issue was not a "set off" because the SBA and the ASCS did not satisfy the mutuality requirement of § 553. The panel determined that the transaction was instead a voidable preference under § 547 because the transfer of the funds occurred within 90 days of the filing of the petition. Turner, 59 F.3d at 1046. We granted the Government's petition for rehearing en banc to decide the narrow issue of whether the United States is a unitary creditor in bankruptcy. We now hold that the United States is a unitary creditor for purposes of bankruptcy. 1 Therefore, the debts owed from the Turners to the SBA and from the ASCS to the Turners are "mutual debts" and may be set off subject to any applicable exceptions in § 553. We remand to the panel for further consideration under § 553.


In reviewing the decision of a bankruptcy court, the district court and the court of appeals apply the same standards of review that govern appellate review in other cases. CCF, Inc. v. First Nat'l Bank & Trust Co. (In re Slamans), 69 F.3d 468, 472 (10th Cir.1995). We therefore review de novo the district court's order affirming the bankruptcy court and the discrete legal issue on which rehearing en banc has been granted. Id.


There cannot be much debate that outside of the bankruptcy context, the United States is treated as a unitary creditor, and agencies of the United States government, including the SBA and ASCS, may set off debts owed by one agency against claims that another agency has against a single debtor. 31 U.S.C. § 3716(a) provides that an agency that has a claim against a person "may collect the claim by administrative offset." The Supreme Court has explained that "[t]he right of setoff ... allows entities that owe each other money to apply their mutual debts against each other." Citizens Bank of Maryland v. Strumpf, 516 U.S. 16, ----, 116 S.Ct. 286, 289, 133 L.Ed.2d 258 (1995).

Most directly, in Cherry Cotton Mills v. United States, 327 U.S. 536, 66 S.Ct. 729, 90 L.Ed. 835 (1946), the Supreme Court made clear that the United States has a right to effect interagency setoffs. In that case, the Government owed petitioner a tax refund under the Agricultural Adjustment Act, and the petitioner owed the Reconstruction Finance Corporation ("RFC") the balance on a loan. The Treasury paid the overage directly to the RFC to reduce the petitioner's indebtedness. While the immediate issue decided in Cherry Cotton Mills dealt with the jurisdictional power of the Court of Claims, the Court's language clearly indicates that agencies of the United States government are deemed a unitary creditor:

We have no doubt that the set-off ... jurisdiction of the Court of Claims was intended to permit the Government to have adjudicated in one suit all controversies between it and those granted permission to sue it, whether the Government's interest had been entrusted to its agencies of one kind or another.

Id. at 539, 66 S.Ct. at 730. The Court explained further that the right to setoff "applies with equal force" to all agencies, including an agency such as the RFC, notwithstanding the fact that Congress chose to call it a "corporation." Id.

An examination of other relevant Supreme Court authority and the appropriate federal regulations reveals that the holding of Cherry Cotton Mills applies equally to the SBA and the ASCS. In Small Business Admin. v. McClellan, 364 U.S. 446, 450, 81 S.Ct. 191, 194-95, 5 L.Ed.2d 200 (1960), the Supreme Court described the SBA as "an integral part of the governmental mechanism ... created to lend the money of the United States." The Court held that the SBA was therefore "entitled to the priority of the United States in collecting loans made by it out of government funds" under the Bankruptcy Act. Id.; see also 13 C.F.R. § 140.5(a) ("SBA may, after attempting to collect a claim from a person under normal SBA collection procedures, collect the claim by means of administrative offset."). Similarly, in United States v. Remund, 330 U.S. 539, 542, 67 S.Ct. 891, 892-93, 91 L.Ed. 1082 (1947), the Court held that the Farm Credit Administration, which, like the ASCS, was an agency under the general direction of the Department of Agriculture, was entitled to priority under the Bankruptcy Code. The Court stated that "[a]t no time has the Farm Credit Administration been other than an unincorporated agency of the United States Government.... And the use of a name other than that of the United States cannot change that fact." Id.; see also 7 C.F.R. § 1403.7(j)(1) ("Debts due any agency other than [ASCS] shall be offset against amounts payable by [ASCS] to a debtor.").


The question, which we now answer in the negative, is whether the United States and its agencies should be treated differently solely due to the fact that a bankruptcy proceeding has been superimposed on the pertinent transaction. We are convinced that the presence or absence of a bankruptcy proceeding does not affect the United States' status as a unitary creditor.


The language of the Bankruptcy Code makes clear that the term "setoff" has no special meaning in the bankruptcy context. The Supreme Court recently indicated that "[a]lthough no federal right of setoff is created by the Bankruptcy Code, 11 U.S.C. § 553(a) provides that, with certain exceptions, 2 whatever right of setoff otherwise exists is preserved in bankruptcy." Strumpf, 516 U.S. at ----, 116 S.Ct. at 289. Section 553(a) specifically states that "this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor." 11 U.S.C. § 553(a).

Debtors contend that the Bankruptcy Code evinces a clear intent that government agencies must be treated as separate entities for setoff in a bankruptcy proceeding. However, the only specific statutory provision which they cite to support their contention is in the definitional section of the...

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