Weber, Matter of
| Decision Date | 13 May 1994 |
| Docket Number | No. 93-2766,93-2766 |
| Citation | 25 F.3d 413 |
| Parties | 30 Collier Bankr.Cas.2d 2068, Bankr. L. Rep. P 75,893 In the Matter of Randy WEBER and Christian Weber, Debtors-Appellants. |
| Court | U.S. Court of Appeals — Seventh Circuit |
David A. Rosenthal, Rosenthal, Greives & O'Bryan, Lafayette, IN, for David A. Rosenthal, trustee.
James T. Hodson, Ball, Eggleston, Bumbleburg & McBride, Lafayette, IN (argued), for Farm Credit Services of Mid-America, ACA.
Robin W. Morlock, Asst. U.S. Atty., Dyer, IN, for U.S., acting through Farmers Home Admin., U.S. Dept. of Agriculture.
John O. Worth, Rushville, IN, William L. Schlosser, Schlosser & Schlosser, Indianapolis, IN (argued), for Randy Weber and Christian Weber.
Before CUDAHY and RIPPLE, Circuit Judges, and WILLIAMS, District Judge. *
Randy and Christian Weber run a large family farm in northern Indiana. The Webers filed for bankruptcy under Chapter 12 of the bankruptcy code on August 10, 1987. "The goal of a chapter 12 case is the confirmation of a debt adjustment plan." 5 Collier on Bankruptcy p 1200.01 (15th ed. 1993).
After several objections by creditors and lengthy negotiations, the Webers' reorganization plan was finally confirmed by the bankruptcy court on September 23, 1988, more than a year after the Webers filed for bankruptcy. The bankruptcy court on that date entered an order confirming the plan.
Once a plan is confirmed, "all property of the estate will vest in the debtor except to the extent that the plan specifically provides otherwise." Id. A debtor who has completed making payments under the plan is entitled to a discharge from bankruptcy. 11 U.S.C. Sec. 1228(a).
The dispute here involves a disagreement over the interpretation of the confirmed plan. Interpreting this plan presented the bankruptcy court with a perplexing task, perhaps because lengthy negotiations and numerous changes left the plan something of a patchwork.
For example, some of the plan's language suggests that the disposable income for each of the crop years from 1987 through 1989 is to go to the unsecured creditors on a pro rata basis. But other language implies that the plan itself has already accounted for the commitment of the disposable income from the 1987 crop year, leaving only the disposable income from the 1988 and 1989 crop years for the unsecured creditors. This apparent contradiction proves critical, because, while the farm generated a profit of more than $120,000 in 1987, it lost money in both 1988 and 1989. The losses for those two years totaled over $300,000.
The unsecured creditors thus insist that they are entitled to their pro rata share of the more than $120,000 in profits that the farm generated in 1987, despite the fact that the farm lost money in the other two years. In support of this claim, they point to the language in the plan that says that income "shall be distributed for each crop year subject to review by Trustee to all unsecured creditors." Because the plan says each year, the creditors maintain that the profits from 1987 should have been distributed to them, rather than offset by the losses sustained in the later years. In addition, in support of their contention that the language calling for pro rata distributions following each crop year includes 1987, they point to other plan language that says that from "remaining funds available from the 1987-1989 crops, unsecured creditors shall receive pro-rata distribution of disposable income."
But the Webers too can cite to language in the confirmed plan (including some of the very same language on which their creditors rely) to suggest that the plan itself (which was not confirmed until September 1988) already accounted for the distribution of the income earned from the 1987 crop year. Article V of the plan (entitled "Means for Execution of the Plan") provides that:
There is available approximately Four hundred thousand Dollars ($400,000.00) for the Spring of 1988, which is held by the Debtors-In-Possession, as well as the Trustee. After all disbursements for the year 1988, there should be remaining approximately thirty-five thousand dollars ($35,000.00) available to the Debtors-In-Possession for the Fall expenses. Certain input creditors in 1987 advanced supplies for the debtors['] crop. These advances are entitled to reimbursement ... Upon confirmation the sum of $37,500 shall be disbursed and $37,500 shall be disbursed by January 15, 1989. From remaining funds available from the 1987-1989 crops, unsecured creditors shall receive pro-rata distribution of disposable income.
According to the Webers, then, the $120,000 in disposable income that was generated from the 1987 crop year was part of the $400,000 that was to be used for the "Spring of 1988." As such, that money was already spent, and thus not part of what the plan contemplated as the "remaining funds available from the 1987-1989 crops."
After the term of the plan expired, the Webers filed for a discharge. Their theory was that because their disposable income over the three year period was negative, they owed nothing to their unsecured creditors and were thus entitled to a discharge. But the bankruptcy court--the same court that approved the confirmed plan in the first instance--rejected this argument. Decision (May 15, 1992) at 4. The bankruptcy court therefore denied the Webers' petition for a discharge. The district court affirmed this determination, finding that the plan called for a calculation and payment of disposable income "annually rather than cumulative." Mem. & Ord. (June 7, 1993) at 9.
But neither the bankruptcy court nor the district court addressed what appears to be the Webers' strongest argument, and the one they press most vigorously here: that even if disposable income is to be calculated annually (rather than cumulatively), the income from the 1987 crop year was already accounted for as part of the $400,000 whose disposition is provided for in the plan. The Webers fault the bankruptcy court as well as the district court for entirely ignoring this plan language.
But the Webers are themselves responsible for the bankruptcy court's failure to seize on this language, since their brief to that court made only the less compelling argument: that the losses from 1988 and 1989 offset the 1987 profits (despite the plan's referring to the disposable income from each of the three years). "This question as to disposable income certainly can be simplified in that the observation is whether or not, disposable income should be paid during the three (3) years under the Plan or whether a Court is to determine disposable income on a yearly basis." Webers' Post-hearing Brief at 3.
The bankruptcy court answered that question, and it did so adversely to the Webers. On appeal to the district court, the Webers for the first time (and there only in their reply brief) suggested that the 1987 profits were already accounted for in the plan. D.Ct.Reply Br. at 5-7. But the district court apparently refused to permit the Webers to sandbag the bankruptcy court by first advancing their strongest argument on appeal (and then belatedly). While it surely would have been preferable had the district court explained its reasoning, we read the court's refusal to address the argument at all as an implicit finding that the argument was waived.
That, in any event, is the correct result, since to find otherwise would permit a litigant simply to bypass the bankruptcy...
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