Weathersfield Farms v. First Inter-State Bank, Civ. A. No. 81-190.
| Decision Date | 12 October 1981 |
| Docket Number | Civ. A. No. 81-190. |
| Citation | 15 BR 282 |
| Parties | WEATHERSFIELD FARMS, INC., Appellant, v. FIRST INTER-STATE BANK, Appellee. |
| Court | U.S. District Court — District of Vermont |
Gary T. Brooks, Brownell & Hoyt, Norwich, Vt., for appellee.
Michael J. McGarry, Burlington, Vt., for Weathersfield Farms, Inc.
This case comes before the court on appeal from a final order of the United States Bankruptcy Court for the District of Vermont, dismissing a proceeding instituted by the appellant under Chapter 11 of the Bankruptcy Code, 11 U.S.C. § 1101 et seq. (1978). In re Weathersfield Farms, Inc., 14 B.R. 574 (Bkrtcy.Vt.1981) (Marro, J.). The appellee has moved to affirm the order of the Bankruptcy Court and the parties have submitted both oral and written argument on that motion, which the court now considers in conjunction with the Record on Appeal.
Under Bankruptcy Rule 810, the district court must accept the referee's findings of fact unless they are clearly erroneous. Here, most of these findings appear to be undisputed. The relevant facts show that Weathersfield Farms, Inc. (the debtor) holds 250 acres of unimproved land in Thetford, Vermont. Raymond Phelan is the president and sole shareholder of the debtor, which was incorporated in 1971 for the purpose of becoming a "therapeutic community" for alcohol and drug abusers. This purpose has never been realized.
In 1972, the debtor borrowed $31,000 from the appellee, First Inter-State Bank (the Bank) and secured the loan with a mortgage on the real estate. The debtor ceased paying the mortgage and local taxes in November 1974. In January, 1978, without the consent of the Bank, the debtor transferred the land without consideration to Visualists, Inc., a New York corporation of which Phelan was again the sole shareholder. Judge Marro found that the debtor had made the transfer in order to delay anticipated foreclosure proceedings, which the Bank instituted in February, 1980. After the debtor's default and the running of the redemption period, a decree of foreclosure was entered in the Superior Court of Orange County on July 9, 1980.
On August 29, 1980 the debtor filed its Chapter 11 petition in the Bankruptcy Court. The Bank moved for relief from the automatic stay provisions of Chapter 11 and also moved to dismiss. After three hearings, Judge Marro issued a Memorandum and Order in which he exercised the equitable power of the court to attribute to the debtor the equity in the property, valued at $35,000. He therefore denied the Bank's motion for relief from the automatic stay. He also denied the motion to dismiss for lack of good faith, finding that even though the debtor had not proposed a reorganization plan within the 120 days allowed by the statute, it should be given the opportunity to file a plan and, if it was capable of effectuation, thereby demonstrate its good faith. Id., No. 80-191 (Dec. 8, 1980).
The debtor submitted a first plan and, after being given the opportunity to amend it, was heard at a confirmation hearing. The plan consisted primarily of two activities: cutting timber to obtain cash to start the rehabilitation project, and giving the Bank a mortgage on the equity in the property. The court found that the administrative expenses and the cost of complying with state environmental regulations would absorb most of the cash obtained from the timber, requiring that the debtor borrow more money to effectuate the plan and thereby further impairing the interest of the Bank, the only secured creditor. The court noted that although the debtor spoke of the possibility of obtaining various federal grants, no funds had materialized and the economic climate did not auger success. The court concluded that the reorganization plan was visionary, impractical and speculative, and had not been proposed in good faith. Confirmation was therefore denied. Id. (Mar....
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