IN RE: William A. MORROW Rebecca S. Morrow Debtors. (2021)

DECISION ON MOTION FOR SUMMARY JUDGMENT

Debtors have filed a petition for relief under Chapter 12 of the United States Bankruptcy Code. One of their creditors, First Financial Bank, has moved for dismissal arguing the debtors are not family farmers because their “aggregate debts” exceed $10,000,000 and the majority of their debts do not arise out of their farming operations, see, 11 U.S.C. § 101(18) (defining “family farmer” as “an individual ․ engaged in a farming operation whose aggregate debts do not exceed $10,000,000 and not less than 50 percent of whose aggregate noncontingent, liquidated debts ․ arise out of a farming operation․”); as such, they are not eligible for relief under Chapter 12. See, 11 U.S.C. § 109(f) (“only a family farmer ․ may be a debtor under chapter 12 ․”). The matter is before the court on the Bank's motion for summary judgment and the debtors' response thereto.

Summary judgment is appropriate where there is “no genuine issue as to any material fact” and “the moving party is entitled to a judgment as a matter of law.” See, Fed. R. Civ. P. Rule 56(a); Fed. R. Bankr. P. Rule 7056. The moving party must initially identify “those portions of ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,’ which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). Once it does so, the non-moving party must affirmatively demonstrate, by specific factual allegations, that there is a genuine issue of material fact requiring trial. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). In ruling on the motion, the court accepts the non-moving party's evidence as true, draws all inferences in favor of the non-moving party, and does not weigh the evidence and credibility of the witnesses. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S. Ct. 2505, 2511, 91 L.Ed.2d 202 (1986).

On May 5, 2017, the debtors, as husband and wife, granted First Financial a mortgage upon their interest in real property. This mortgage secures not only their own obligations to the bank but also debts of Douglas and Mary Beth Morrow. The debtors' obligations are memorialized by third party agreements pledging full and prompt payment of loans the bank made to Douglas and Mary Beth Morrow (Rebecca Morrow) and Onatah Forages, LLC (both debtors) executed on the same day. These third party agreements are non-recourse and the bank's sole recourse against the debtors is to look to its collateral, the real estate. There is no dispute that the obligations secured by the mortgage exceed $13,000,000, well above the $10,000,000 debt limit for Chapter 12. The debtors argue, however, that the value of their interest in the land securing the bank's claim is much less than the debt it secures and, since their obligations to the bank are without recourse, the amount of the bank's debt for eligibility purposes is limited to the value of the their interest in the property, which they contend is only $325,000.¹ If their aggregate debt is calculated in that fashion it falls well below the $10,000,000 limit. The question then is how non-recourse debt is treated for the purpose of Chapter 12 eligibility: is it the entire amount of the debt or is it limited by the value of the debtor's property that secures it?

A debt is a liability on a claim. 11 U.S.C. § 101(12). A claim is a right to payment. 11 U.S.C. § 101(5)(A). The terms are effectively synonymous, just viewed from different perspectives. In re Energy Co-op, Inc., 832 F.2d 997, 1001 (7th Cir. 1987); In re Burgat, 68 B.R. 408, 409 (Bankr. D. Col. 1986). A debtor has debts, while creditors have claims. Burgat, 68 B.R. at 409; see also, Energy Co-op, 832 F.2d at 1001. More importantly, a claim against the debtor's property is a claim against the debtor. 11 U.S.C. § 102(2). So, definitionally, non-recourse claims against a debtor's property constitute claims against the debtor, H.R. Rep. No. 595, 95th Cong., 1st Sess. 315-16 (1977); S.Rep. No. 989, 95 Cong., 2d Sess. 27-28 (1978) (“claim” includes “nonrecourse loan agreements where the creditor's only rights are against property of the debtor, and not against the debtor personally”), and therefore debts.

The decisions that have considered the question presented by the bank's motion have concluded just what the definitions suggest: the entire amount of a non-recourse claim against a debtor's property is to be included in the calculation of “aggregate debts” when determining eligibility for Chapter 12. See, Matter of Lindsey, Stephenson & Lindsey, 995 F.2d 626 (5th Cir. 1993); In re Quintana, 107 B.R. 234 (9th Cir. BAP 1989); aff'd In re Quintana, 915 F.2d 513 (9th Cir. 1990). As summarized by the BAP in Quintana:

[A]lthough the collectability may be limited to the value [of the collateral] the right to payment is not so limited and consequently neither is the claim, nor the debt. Accordingly, notwithstanding the non-recourse nature of the obligation, the entire debt is to be considered in computing aggregate debts. Quintana, 107 B.R. at 239.

Although the debtors advocate a different approach, they cite no authority for their arguments.

Determining eligibility for relief should be as simple and straightforward as possible. Matter of Wagner, 808 F.2d 542, 547, 549 (7th Cir. 1986). By focusing on “aggregate debts,” the first part of § 101(18) calls for consideration of all the claims against a debtor and its property, without regard to whether those claims are secured, unsecured, liquidated, contingent, etc. Quintana, 107 B.R. at 237; Matter of Clark, 550 B.R. 429, 433 (Bankr. N.D. Ind. 2016). Where Congress wanted to limit or categorize the types of debt to be considered it said so. See e.g., 11 U.S.C. § 109(e) (Chapter 13 eligibility based on categorizing “non-contingent, liquidated debts” between secured and unsecured); 11 U.S.C § 303(b)(1) (claims qualifying for an involuntary petition are to be “not contingent” or “subject to a bona fide dispute”). Indeed, the very next portion of § 101(18) makes a distinction between the types of debt to be considered for the second part of the family farmer definition. (Noncontingent, liquidated debts, excluding debt for the principal residence.). It made none for the first part and the court should not complicate the process by reading something into the statute that Congress did not put there. See, Connecticut Nat. Bank v. Germain, 503 U.S. 249, 254, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992) (Congress “says in a statute what it means and means in a statute what it says there”).

There is no genuine issue of material fact. Debtors' aggregate debts exceed $10,000,000 ² and so they are not eligible for relief under Chapter 12. The motion will be granted and the case DISMISSED.

FOOTNOTES

1.   Debtors also contend that the William Morrow's guarantee is limited to $1,575,000 based upon a limited pledge agreement executed in 2015, which they contend has never been amended in writing as required. They also argue that since only Rebecca Morrow signed the unlimited pledge of the obligations of Douglas and Mary Beth Morrow, the mortgage upon their property, which is owned by the debtors as husband and wife, is ineffective. Yet, the mortgage in question was given by the debtors as husband and wife and so they both joined in the conveyance. As for the 2015 limited pledge, there is nothing about that 2015 agreement that would prevent a subsequent, independent agreement for a different amount. Furthermore, the debtors' argument overlooks the fact that the 2017 agreements are in writing.

2.   This conclusion makes it unnecessary to consider the second aspect of the bank's motion: the proportion of debtors' debts that arise out of their farming operation.

Robert E. Grant, Chief Judge