United Companies Fin. Corp. v. Brantley, Civ. No. 80-9036.

• Decision Date: 18 September 1980
• Docket Number: Civ. No. 80-9036.
• Parties: UNITED COMPANIES FINANCIAL CORPORATION, Plaintiff, v. Clarence W. BRANTLEY and Elizabeth W. Brantley, Defendants.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Florida

6 B.R. 178 (1980)

UNITED COMPANIES FINANCIAL CORPORATION, Plaintiff, v. Clarence W. BRANTLEY and Elizabeth W. Brantley, Defendants.

Civ. No. 80-9036.

United States Bankruptcy Court, N.D. Florida, Pensacola Division.

September 18, 1980.

COPYRIGHT MATERIAL OMITTED

William E. Bond, Jr., Pensacola, Fla., for plaintiff.

J. Paul Fitzgerald, Milton, Fla., for defendant.

OPINION

N. SANDERS SAULS, Bankruptcy Judge.

An order was entered herein on July 29, 1980, continuing the stay in effect for a period of sixty (60) days. As indicated therein, this opinion is entered to aid the parties on rehearing as to the findings and conclusions with respect thereto, and, with respect to certain issues relating to further proceedings herein together with the application thereto of the new provisions of the law.

Clarence W. Brantley and his wife, Elizabeth, filed a joint petition under Chapter 13 of Title 11 of the United States Code on April 16, 1980. Six days later, on April 22, 1980, the plaintiff, United Companies Financial Corporation (sometimes hereinafter "United"), filed its complaint for modification of the stay.

The plaintiff is the holder of a final judgment of foreclosure under which the subject real property of the defendants was scheduled for a foreclosure sale on April 17, 1980. This sale was stayed by the filing of the instant Chapter 13 petition. The property consists of 1.5 acres upon which the defendant debtors' residence is located; a contiguous and adjoining 45.26 acres upon which various farm outbuildings are located, and, some 160 wooden open-bottom structures designed and utilized for the commercial production of earthworms.

United asserts that it is due the judgment sum of $90,930.12, plus interest thereon at the legal rate from March 18, 1980. This sum is comprised of principal due in the sum of $79,750.67; $8,040.45 as interest through March 18, 1980; $67.00 as title search expense; $3,000.00 for attorney's fees; and, $72.00 as taxable court costs. On June 25, 1980, an amended claim was filed reflecting an amount due, as of that date, of $91,095.87. Attached to said amended claim is a copy of the mortgage which was foreclosed and an assignment of a life insurance policy held as security.

Pursuant to Section 362(e) of Title 11, a preliminary evidentiary hearing was scheduled for and held on May 16, 1980. On May 12, 1980, the defendants filed their answer to the complaint. The defendants denied the plaintiff's allegations that there was no equity in the property and that the property was not necessary or essential to an effective reorganization. Among other responses, defendants also alleged that it would be grossly unjust to modify the stay because (1) the property encumbered included the debtors' residence; (2) the adjacent acreage contained a developed earthworm farm; (3) a reasonable period of time was necessary to cure the default by sale of a portion of the property and the development of a market for the earthworm production; and, (4) modification would be inequitable in light of all the attendant circumstances. These last referred to circumstances were alleged as follows:

"The defendants admit that they need to delay the sale of the real property so that they can pay all of their indebtedness, and aver that this is just and equitable in light of the fact that plaintiff, within a period of fourteen (14) months, made four (4) loans to the defendants, which eventually totalled a face amount of $80,000. That during this period of time, the defendants paid to the plaintiff brokerage fees which are over and above any interest paid, in the amount of $15,385.70, and in addition thereto were required to purchase life insurance in a gross amount of $23,640.70. After a reduction of all of the costs paid to the plaintiff pursuant to said loans, the defendants received for their benefit the sum of $53,385.15, yet there is now an encumbrance against their home, farm and source of livelihood in the gross amount of $90,930.12. . . . "

At the preliminary hearing evidence was received as to the value and necessity of the property. The plaintiff submitted appraisal evidence that the value of the property was $99,700. Before adjustment, the residence was valued at $22,160; the farm outbuildings at $5,000; and the land, field fencing and certain mobile home hookups at $74,816. No value was attributed to the earthworm operation since the appraiser felt the production beds could be moved. The defendant husband testified that the value of the real property was $100,000; that the earthworm operation had a value of $50-60,000; and, that the production beds could not be moved without substantial loss. He testified extensively concerning the business and the market with respect to earthworm farming. He also testified as to his various transactions with the plaintiff.

As shown by the evidence, the defendants initially sought a loan in part to consolidate existing debts to various lenders and also to enter into the earthworm production business. In April of 1977, the defendants executed an unsecured note for $16,750. Of this amount, $5,427.34 went to pay off various lenders; $69.70 to miscellaneous costs; $6,659.35 to the debtors; $183.16 to prepaid interest and hazard insurance; $2,660.00 to an alleged life insurance affiliate or subsidiary of the lender for the prepayment of premiums for diminishing term life insurance on the life of the husband debtor; and, $1,749.45 as a fee to the originating broker, an alleged affiliate or subsidiary of the lender.

Six (6) months later, in October of 1977, the defendants executed a new note for $52,400. Apparently at this time a mortgage was also executed. Of this amount, $14,243.59 went to pay off the prior April loan; $5,163.00 to United Worm Growers; $6,674.21 to Pensacola Title Company and the defendants; $13,454.30 to the defendants; $231.90 to prepaid interest and miscellaneous costs; $7,644.00 to the alleged insurance affiliate or subsidiary for diminishing term life insurance; and, $4,989.00 to the alleged broker affiliate or subsidiary.

Four (4) months later, in February of 1978, a further note in the sum of $10,500.00 was executed by the defendants. Of this amount, $7,500.00 went to the defendants; $157.75 to miscellaneous costs; $1,668.00 to diminishing term insurance; and, $1,174.25 to brokerage.

Four (4) months later, in June 1978, the defendants executed a new consolidated note secured by mortgage in the sum of $80,000. Of this amount, the sums of $43,306.87 and $9,032.59 went to pay off the respective balances of the prior $52,400.00 and $10,500.00 notes; $681.00 to title insurance; $399.00 to miscellaneous costs; $7,507.54 to the defendants; $11,600.00 to diminishing term life insurance on a policy with a face amount of only $40,000; and $7,473.00 to the broker. This last note was payable in equal monthly installments of $1,057.24 until paid in full. This would thus mathematically be for a period of 75.67 months or 6.3 years.

The defendants paid the monthly payments until November 1, 1978, when the company (United Worm Growers) to which they sold their production failed. During this time the debtors averaged approximately $3,500.00 per month from their business. In February of 1979, the defendants paid $3,175.00 to United. The defendant husband testified that this was for a one-year moratorium. The plaintiff's witness testified that this was an extension payment for 150 days and brought the account current to April 15, 1979. Thereafter, no further payments were made and the plaintiff's foreclosure judgment was entered on March 18, 1980. During said period of default, the defendants sought to refinance and extend the loan with United over a longer period of time but were refused. As of May 15, 1980, the sum necessary to cure the default and reinstate was $15,506.36.

At the conclusion of the preliminary hearing, the stay was ordered to remain in effect and the cause was set over for final hearing. To coincide with the court's scheduled hearings in the Pensacola division of this district, the parties stipulated to a final hearing date on June 25, 1980, in Pensacola for the convenience of the parties and witnesses.

Upon final hearing, additional testimony and documentary evidence was heard and received. In addition, the defendants, at the outset, filed an objection to the allowance of the plaintiff's claim alleging essentially the same matters asserted in their answer. It was further alleged:

"That the Plaintiff and its subsidiary corporations are so closely connected as to make the loan usurious or in the alternative that the initiation and origination of four (4) loans within fourteen (14) months is churning and unlawful as to the debtors. And any event, to allow the brokerage fees collected and the life insurance fees collected as a claim against the debtor is unreasonable, unjust inequitable."

In view of the ostensible intent of § 362 that stay relief proceedings are not appropriate for the complete hearing and determination of any issues largely collateral or unrelated to lack of adequate protection, equity, necessity or other cause for relief from the stay, the court sustained the plaintiff's objection to the defendant's motion to consolidate and present extensive additional evidence either affirmatively or by way of counterclaim in support of the usury and churning objections to the plaintiff's claim. See, H.Rep. 95-595, p. 344; S.Rep. 95-989, pp. 53, 55, U.S.Code Cong. & Admin.News 1978, pp. 5787, 5839, 5841, 6300. The defendants were, however, permitted to raise and the court took notice of their limited evidence with respect to the existence of such usury and churning claims. As directed in the record, this did not mean that the existence of affirmative defenses and possible counterclaims could not be raised and considered by the court in exercising its discretion as to any vacation or modification of the stay; but, that what was precluded,...