Court Opinion

ID: 3036421
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:54:17.663515+00
Date Added: 2024-06-11T11:48:41.385076
License: Public Domain

United States Bankruptcy Appellate Panel
                           FOR THE EIGHTH CIRCUIT
                                 _____________
                           No. 04-6070/6071/6072 NE
                                _____________

In re Corn-Pro Nonstock                *
Cooperative, Inc.,                     *
                                       *
     Debtor.                           *
                                       *
                                       *   Appeals from the United States
Cooperative Supply, Inc. and           *   Bankruptcy Court for the District
Darwin Franzen,                        *   of Nebraska
                                       *
     Petitioning Creditors-Appellants/ *
     Cross-Appellees,                  *
                                       *
     v.                                *
                                       *
Corn-Pro Nonstock Cooperative, Inc., *
                                       *
     Debtor-Appellee/Cross-Appellant.*

                                _____________

                          Submitted: November 23, 2004
                            Filed: December 16, 2004
                                 _____________

Before KRESSEL, Chief Judge, SCHERMER, and FEDERMAN, Bankruptcy Judges.
                              _____________

FEDERMAN, Bankruptcy Judge.
                            FACTUAL BACKGROUND

       These appeals arise out of an involuntary bankruptcy petition which was filed
by Cooperative Supply, Inc. and Darwin Franzen (Petitioning Creditors) against
debtor Corn-Pro Nonstock Cooperative, Inc. (Corn-Pro). In response to the
involuntary petition, on July 29, 2003, Corn-Pro filed a motion to dismiss, contending
that, as a “farmer,” within the meaning of the Bankruptcy Code (the Code),1 it is not
eligible to be the subject of an involuntary bankruptcy petition.2 Corn-Pro also
requested attorney’s fees and costs in such motion. Thereafter, the parties filed cross-
motions for summary judgment, with supporting affidavits and documentation,
concerning that issue. By order entered January 26, 2004, the bankruptcy court3
granted Corn-Pro’s motion for summary judgment, based on its determination that
Corn-Pro is, indeed, a farmer.4 The court also denied the Petitioning Creditors’
motion for summary judgment. At that same hearing, the bankruptcy court deferred
its decision on Corn-Pro’s request for attorney’s fees and costs.

       On February 18, 2004, Corn-Pro filed a separate motion for attorney’s fees and
costs under section 303(i)(1) and (2).5 On May 11, 2004, the court held a hearing on
Corn-Pro’s motion and on June 1, 2004, it issued an order denying Corn-Pro’s request
for attorney’s fees and costs.6

1
 11 U.S.C. § 101(20).
2
 11 U.S.C. § 303(a).
3
 The Honorable Timothy J. Mahoney, Chief Judge, United States Bankruptcy Court
for the District of Nebraska.
4
 Case No. 03-83232, Doc. # 65.
5
 Doc. # 72.
6
 Appellant’s Appendix, # 11.
                                           2
       After we dismissed appeals from both orders as interlocutory,7 the bankruptcy
court, on November 12, 2004, entered judgment dismissing the case, based on the
prior determination that Corn-Pro was a farmer, and denying Corn-Pro’s motion for
fees and expenses. The Petitioning Creditors appealed the portion of the judgment
dealing with dismissal, and Corn-Pro cross-appealed the portion of the judgment
denying fees and expenses. We affirm.

                             STANDARD OF REVIEW

       As to dismissal of the involuntary petition, we review the bankruptcy court’s
factual findings for clear error and its legal conclusions de novo.8 A decision to grant
or deny fees and expenses to a debtor upon dismissal of an involuntary petition is left
to the discretion of the court, thus, we review that order for abuse of discretion.

                          A. ELIGIBILITY FOR RELIEF

      The bankruptcy court determined that Corn-Pro is a “farmer,” against which
an involuntary petition may not be filed.

       Section 303(a) of the Code provides, in relevant part, that an involuntary case
“may be commenced only under Chapter 7 or Chapter 11 of this Title, and only
against a person, except a farmer . . . .”9 Section 101(20) of the Code defines a farmer
as a “person that received more than 80% of such person’s gross income during the
taxable year of such person immediately preceding the taxable year of such person

7
 See, Judgment dismissing appeals entered Nov. 10, 2004, in Case Nos. 04-6031, 04-
6032, and 04-6036.
8
O’Neal v. Southwest Missouri Bank of Carthage (In re Broadview Lumber Co.), 118
F.3d 1246, 1250 (8th Cir. 1997).
9
 11 U.S.C. § 303(a).
                                           3
during which the case under this title concerning such person was commenced from
a farming operation owned or operated by such person.”10

       The Code then defines a person to include an individual, partnership, or
corporation.11 Corn-Pro is a Nebraska nonstock cooperative association, which was
founded by Articles of Incorporation dated October 25, 1996.12 A nonstock
cooperative association is a corporation organized pursuant to Nebraska’s Nonstock
Cooperative Marketing Act (the Act).13 The Code provides that a corporation is a
person, and that a person can be a farmer if more than 80 percent of such person’s
income is derived from a farming operation. It is undisputed that all of Corn-Pro’s
income is derived from its livestock production. The issue then is whether that
livestock production is a farming operation. Section 101(21) provides that a “farming
operation” includes farming, tillage of the soil, dairy farming, ranching, production
or raising of crops, poultry, or livestock, and production of poultry or livestock
products in an unmanufactured state.”14

      In the course of its business, Corn-Pro, which is no longer operating, purchased
isowean pigs (pigs that are weaned early, weighing between 9 and 12 pounds) from
a farrower. It then contracted with hog producers and arranged, through its
independent-contractor managers, for third parties to transport the pigs from the
farrower to the producers’ facilities. The producers then fed and raised the pigs to

10
     11 U.S.C. § 101(20).
11
     11 U.S.C. § 101(41).
12
     Appellants’ Appendix, pg. 114-119.
13
 Pig Pro Nonstock Cooperative v. Moore, 568 N.W. 2d 217, 219 (Neb. 1997); Neb.
Stat. Ann. § 21-1401 (Supp. 2004).
14
     11 U.S.C. § 101(21).
                                          4
finishing or slaughter weight. Once they were ready for slaughter, Corn-Pro sold them
to packers and hired trucking companies to ship the hogs to the packers.

       In Otoe County National Bank v. Easton (In re Easton),15 the Eighth Circuit
considered whether an individual who rented farmland out could treat the rental
income as having been received from a farming operation within the meaning of
section 101(21). The court concluded that a passive investor with no connection to
the production of crops or livestock is not engaged in a farming operation. It,
therefore, remanded the case to the bankruptcy court for further factual findings, and
instructed that debtors may only claim to be engaged in a farming operation if “they
had some significant degree of engagement in, played some significant operational
role in, or had an ownership interest in the crop production.”16 The court found that
the same significant degree of engagement is required when the farming operation in
question involves raising livestock.17 After reviewing the case law, the Easton court
pointed out that “[t]he theme common to these cases is the existence of some indicia
of involvement on the part of the debtor in the farming activity.”18

       The Petitioning Creditors here contend that Corn-Pro could not be engaged in
a farming operation because it was managed by independent contractors and had no
employees. They further contend that, while Corn-Pro owned the pigs, it owned no
real estate in which to birth, raise, or finish them. Instead, it hired third-party
producers to perform those services under contract. In other words, they contend that
Corn-Pro was a conduit used by its members to make passive investments in
livestock, and that Corn-Pro itself did not play a significant role in raising such

15
     883 F.2d 630 (8th Cir. 1989).
16
     Id. at 636.
17
     Id. at 633.
18
     Id. at 635.
                                          5
livestock. We disagree. The Corn-Pro members who managed the operations did so
as independent contractors, but they did so as representatives of, and on behalf of,
Corn-Pro. The fact that they were paid as independent contractors, and not as
employees, does not alter the fact that they were acting for the corporation. In that
capacity, they oversaw the care of the animals, physically checked on the animals,
arranged for the purchase and marketing of the animals, ordered at least some of the
feed, gave some of the vaccinations, and hired transportation for moving the hogs to
slaughter. Corn-Pro, therefore, is not a passive investor; instead, it had significant
involvement in the raising of the livestock, the sale of which generated all of its
income.

      In the Easton case, on remand, the bankruptcy court held that the landlord-
debtor, while not obligated to do so, had provided certain assistance to his tenant by
seeding and mowing certain set-aside acreage, building and repairing fences, and
grazing his own cattle on the leased acreage. In addition, the landlord sometimes
mowed the roadside and weeded beans that had been planted by the tenant. The
bankruptcy court held that, based on these activities, the landlord played a significant
operational role and had a significant degree of engagement in the production of
crops on land he was renting out.19 Similarly, in In re Dakota Lay’d Eggs,20 the court
included income received by a corporation from flocks owned by it, but managed by
others, as income from a farming operation. The eggs produced by those managed
flocks were taken to the corporation’s facility to be candled, weighed, graded, and
packaged in cartons.21 The role played by Corn-Pro’s representatives in managing its
business activities was as least as significant as that played by those found to be
engaged in a farming operation in Easton and Dakota Lay’d Eggs. We conclude that

19
     In re Easton, 118 B.R. 676 (Bankr. N. D. Iowa 1990).
20
     57 B.R. 648 (Bankr. D. N.D. 1986),
21
     Id. at 650.
                                           6
Corn-Pro had a significant degree of engagement in, played a significant operational
role in, and had an ownership interest in the raising of its livestock.

       The Petitioning Creditors argue that Corn-Pro was organized in such a way as
to avoid being labeled as a farmer under Nebraska law, and should, therefore, be
estopped from claiming that it is a farmer for bankruptcy purposes. While the
Nebraska constitution does prohibit corporations from owning farmland, or engaging
in farming operations,22 that prohibition does not apply to nonprofit corporations.23
The Nebraska Supreme Court nevertheless, held, after Corn-Pro was formed, that
cooperative associations such as Corn-Pro may not own farm or ranch land.24 Whether
the ruling of the Nebraska court would prohibit Corn-Pro from engaging in farming
operations, even though it does not own real estate, as argued by the Petitioning
Creditors, is unclear. It is, however, also irrelevant to the question of whether Corn-
Pro should be equitably estopped from claiming that it is a farmer under federal law.

      In order for equitable estoppel to apply, the Petitioning Creditors needed first
to prove that Corn-Pro’s conduct amounted to a false representation or concealment
of material facts calculated to convey the impression that the facts are not what Corn-
Pro now asserts.25 There is no such evidence here. Indeed, Corn-Pro’s Articles of

22
     Neb. Const. Art. XII, § 8(1).
23
     Id. at Art. XII, § 8(1)(B).
24
  Pig Pro Nonstock Cooperative v. Moore, 568 N.W. 2d 217, 228 (Neb. 1997) (stating
that “[i]t is precisely this type of absentee ownership and operation of farm and ranch
land by a corporate entity which the plain language of Article XII, § 8, prohibits”).
25
 Woodward v. City of Lincoln, 588 N.W.2d 831, 836 (Neb. 1999). Other factors
necessary to prove equitable estoppel, which we need not reach here, include: (1) the
intention, or at least the expectation, that such conduct shall be acted upon by, or
influence, the other party or other persons; (2) knowledge, actual or constructive, of
the real facts; (3) lack of knowledge and of the means of knowledge of the truth as
                                          7
Incorporation specifically state that it is formed to assist its members in swine
production, and to provide facilities and services for its members as part of their
agricultural production activities. 26 Since there is no evidence of a false
representation or concealment, equitable estoppel is not applicable.

        In sum, we conclude that Corn-Pro was engaged in a farming operation. Since
all its income was from that farming operation, it is a farmer within the meaning of
the Bankruptcy Code. Accordingly, it cannot be the subject of an involuntary
bankruptcy petition. The bankruptcy court properly dismissed the involuntary
petition.

                        B. ATTORNEY’S FEES AND COSTS

       Corn-Pro filed a separate motion seeking costs and attorney’s fees, as well as
actual and punitive damages. The bankruptcy court denied Corn-Pro’s request, stating
that the legal issue as to whether Corn-Pro is a “farmer” presented “a very close
question.” Corn-Pro appeals that determination.27

      The Code authorizes a bankruptcy court to award attorney’s fees and costs
upon the dismissal of an involuntary petition:

         (i) If the court dismisses a petition under this section other than on
         consent of all petitioners and the debtor, and if the debtor does not

to the facts in question; (4) reliance, in good faith, upon the conduct or statements of
the party to be estopped; and (5) action or inaction based thereon of such a character
as to change the position or status of the party claiming the estoppel). Id.
26
     Appellants’ Appendix at 114.
27
 Corn-Pro appeals only the denial of costs and attorney’s fees, not the denial of punitive
damages.

                                            8
          waive the right to judgment under this subsection, the court may grant
          judgment–

                (1) against the petitioners and in favor or the debtor for –

                      (A) costs; or

                      (B) a reasonable attorney’s fee.28

Corn-Pro argues that an award of costs and fees is appropriate in all cases where the
petition is dismissed at the request of the debtor,29 or that dismissal at least raises a
rebuttable presumption that costs and fees are authorized.30 The Eighth Circuit has
held, however, that an award of costs and fees is within the discretion of the trial
court.31 Indeed, if Congress had intended such an award to be mandatory, it would
have used the word “shall,” not “may.” We conclude, therefore, that an award of costs
and fees is not required in all cases in which the petition is dismissed. Instead, we
conclude that a totality of circumstances test is the correct framework for making a
determination regarding costs and fees. Here, the court found no evidence of bad
faith, and also found that the issue of whether a nonstock cooperative association
could be a farmer was a very close call. In In re Scrap Metal Buyers of Tampa, Inc.,
the court denied costs and fees after finding that the case had merit, despite dismissal,
and that “the Petitioning Creditors’ actions were reasonable under the circumstances,

28
     11 U.S.C. § 303(i)(1).
29
 In re K.P. Enterprise, 135 B.R. 174, 177 (Bankr. D. Me. 1992); In re Leach, 102
B.R. 805, 808 (Bankr. D. Kan. 1989).
30
 In re Scrap Metal Buyers of Tampa, Inc., 233 B.R. 162, 166 (Bankr. M.D. Fla.
1999), affirmed, 253 B.R. 103 (M.D. Fla. 2000); In re Ross, 135 B.R. 230, 238
(Bankr. E.D. Pa. 1991)..
31
 Banker’s Trust Company BT Service Company v. Nordbrock (In re Nordbrock), 772
F.2d 397, 400 (8th Cir. 1985).
                                             9
and their motives and objectives were legitimate uses of the Bankruptcy Code.”32
Likewise, we conclude that the bankruptcy court did not abuse its discretion in
denying costs and fees to Corn-Pro based on the totality of the circumstances.

                               C. JUDICIAL NOTICE

      Both parties asked us to take judicial notice of pleadings filed, since the grant
of summary judgment, in state court proceedings involving these parties. Those
motions are denied.

         The judgment is affirmed.

                                _________________

32
     233 B.R. at 167.
                                          10