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In re Perkins

United States Bankruptcy Appellate Panel of the Sixth Circuit

March 13, 2018

In re: Tony Dian Perkins, Debtor.

          Argued: November 14, 2017

         On Appeal from the United States Bankruptcy Court for the Western District of Kentucky at Bowling Green. No. 16-10383-Joan A. Lloyd, Judge.

         ARGUED:

          Brian R. Pollock, STITES & HARBISON PLLC, Louisville, Kentucky, for Appellant.

          Sandra D. Freeburger, DEITZ, SHIELDS & FREEBURGER, LLP, Henderson, Kentucky, for Appellee.

         ON BRIEF:

          Brian R. Pollock, STITES & HARBISON PLLC, Louisville, Kentucky, for Appellant. Sandra D. Freeburger, DEITZ, SHIELDS &

          FREEBURGER, LLP, Henderson, Kentucky, for Appellee.

          Before: DELK, HARRISON, and HUMPHREY, Bankruptcy Appellate Panel Judges.

          OPINION

          GUY R. HUMPHREY, Bankruptcy Appellate Panel Judge.

         In these consolidated appeals, SummitBridge National Investments V LLC ("SummitBridge") appeals the Bankruptcy Court for the Western District of Kentucky's Memorandum-Opinion overruling Branch Banking & Trust Co.'s ("BB&T")[1] objection to the confirmation of Tony Dian Perkins' ("Perkins") Chapter 12 plan, and the subsequent order confirming that plan.

         Chapter 12 relief is only available to family farmers or family fisherman. 11 U.S.C. § 109(f). A family farmer is an "individual . . . engaged in a farming operation whose aggregate debts do not exceed $4, 153, 150, "[2]and who receives more than half of her gross income from "such farming operation." 11 U.S.C. § 101(18)(A). SummitBridge contends that the bankruptcy court improperly found Perkins to be a family farmer, arguing that Perkins both exceeded the "aggregate debt" limit and did not receive more than half of her income from her farming operation. In the alternative, SummitBridge argues that even if Perkins qualified for Chapter 12 relief, Perkins' plan should not have been confirmed because it was not feasible, provided improper treatment to BB&T's secured claim, and failed to meet the best interests of creditors test. We reject SummitBridge's arguments and affirm the bankruptcy court.

         ISSUES ON APPEAL

1. How is "aggregate debt" calculated in determining a farmer's eligibility for Chapter 12 relief?
2. In determining a farmer's eligibility for Chapter 12 relief, can partnership income received by the individual debtor from the liquidation of separate farming partnerships and from an S corporation constitute income from "such farming operation" when the partnerships and S corporation are not being reorganized in the Chapter 12 case?
3. Did the bankruptcy court err by confirming the Chapter 12 plan in finding the plan was feasible, met the best interest of creditors test, and provided appropriate treatment to the BB&T secured claim?

         JURISDICTION

         The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. The United States District Court for the Western District of Kentucky has authorized appeals to the Panel, and neither party has timely elected to have this appeal heard by the district court. 28 U.S.C. §§ 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). For purposes of appeal, a final order "ends the litigation on the merits and leaves nothing for the court to do but execute the judgment." Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497 (1989) (citations omitted). An order confirming a plan is a final order. Bullard v. Blue Hills Bank, 135 S.Ct. 1686, 1692 (2015) (citing 11 U.S.C. § 1327(a); United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 275, 130 S.Ct. 1367 (2010)); Burden v. Seafort (In re Seafort), 437 B.R. 204, 206 (B.A.P. 6th Cir. 2010) (citing Gen. Elec. Credit Equities, Inc. v. Brice Rd. Devs., LLC (In re Brice Rd. Devs., LLC), 392 B.R. 274, 278 (B.A.P. 6th Cir. 2008)).

         STANDARD OF REVIEW

         Conclusions of law are reviewed de novo. Mediofactoring v. McDermott (In re Connolly N. Am., LLC), 802 F.3d 810, 814 (6th Cir. 2015) (citations omitted); Isaacs v. DBI-ASG Coinvester Fund III, LLC (In re Isaacs), 569 B.R. 135, 139 (B.A.P. 6th Cir. 2017) (citation omitted). "Under a de novo standard of review, the reviewing court decides an issue independently of, and without deference to, the trial court's determination." Matteson v. Bank of Am., N.A. (In re Matteson), 535 B.R. 156, 159 (B.A.P. 6th Cir. 2015) (citation omitted).

         On the other hand, "[f]indings of fact . . . must not be set aside unless clearly erroneous, and the reviewing court must give due regard to the trial court's opportunity to judge the witnesses' credibility." Fed.R.Civ.P. 52(a)(6); see Sutter v. U.S. Nat'l Bank (In re Sutter), 665 F.3d 722, 728 (6th Cir. 2012); In re Aubiel, 534 B.R. 300, 302 (B.A.P. 6th Cir. 2015) (quoting Lester v. Storey (In re Lester), 141 B.R. 157, 160 (S.D. Ohio 1991)).

         "Factual findings are clearly erroneous only when the reviewing court 'is left with the definite and firm conviction that a mistake has been committed.'" United States v. Ray, 803 F.3d 244, 265 (6th Cir. 2015) (quoting United States v. Navarro-Camacho, 186 F.3d 701, 705 (6th Cir. 1999)). A finding of fact "is clearly erroneous when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Anderson v. City of Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511 (1985) (quoting United States v. U.S. Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542 (1948)). "Inconsistencies alone do not demonstrate clearly erroneous findings." Q.W. ex rel. M.W. v. Bd. of Educ. of Fayette Cty., Ky., 630 Fed.Appx. 580, 583 (6th Cir. 2015). "Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous." Anderson v. City of Bessemer City, 470 U.S. 564, 574, 105 S.Ct. 1504, 1511 (1985) (citations omitted). Findings of good faith and feasibility are factual determinations, which we review for clear error. See In re Gentry, 807 F.3d 1222, 1225 (10th Cir. 2015) ("Because a plan's feasibility is a question of fact, we review for clear error. . . ."); Lexon Ins. Co. v. Naser, 781 F.3d 335, 342 (6th Cir. 2015).

         For bankruptcy issues implicating both factual findings and legal holdings, reviewing courts "must break it down into its constituent parts and apply the appropriate standard of review for each part." Bank of Montreal v. Official Comm. of Unsecured Creditors (In re Am. HomePatient, Inc.), 420 F.3d 559, 563 (6th Cir. 2005), reh'g. denied (citations and internal quotation marks omitted). "A mixed question asks whether 'the historical facts . . . satisfy the statutory standard, or to put it another way, whether the rule of law as applied to the established facts is or is not violated.'" U.S. Bank Nat. Ass'n ex rel. CWCaptial Asset Mgmt. LLC v. Vill. at Lakeridge, LLC, No. 15-1509, 2018 WL 1143822, at *5 (U.S. Mar. 5, 2018) (quoting Pullman- Standard v. Swint, 456 U.S. 273, 289, n.19, 102 S.Ct. 1781 (1982)). "When an 'issue falls somewhere between a pristine legal standard and a simple historical fact, ' the standard of review often reflects which 'judicial actor is better positioned' to make the decision." Id. (quoting Miller v. Fenton, 474 U.S. 104, 114, 106 S.Ct. 445 (1985)). "[T]he standard of review for a mixed question all depends-on whether answering it entails primarily legal or factual work." Id.

         FACTS

         Perkins operates a farm on 200 acres of prime land in southern Kentucky first purchased by her grandparents in 1948. She has played an active role in farming this land since 1970, when she married and the couple began farming the land in partnership with her parents. In the intervening years, the farming operation expanded to cultivate approximately 9, 500 acres in various partnerships with their son. Perkins' husband retired from farming operations after becoming seriously ill in 2008. Perkins and her husband lived on the farm until their home was destroyed by a tornado in 2013.

         Perkins encountered financial trouble in 2014 when high input prices and low crop prices combined to force the partnerships to begin talks with BB&T concerning the downsizing of their operation. These circumstances eventually led to the partnerships' filing of Chapter 11 bankruptcy cases.[3] In 2015, in the midst of this restructuring, Perkins retired from her job as a teacher to run the farm and care for her husband. The Chapter 11 bankruptcies were dismissed after liquidating substantially all of the partnerships' assets and making over four million dollars of payments to BB&T.[4]

         On April 25, 2016 Perkins filed for Chapter 12 bankruptcy protection, [5] listing a total of $3, 513, 803.72 of secured and unsecured debts in Schedule E/F.[6] As of the date of the confirmation hearing, proofs of claim filed by creditors totaled $4, 012, 908.79 for debts owed on the petition date. In the preceding tax year, Perkins received $279, 000 of gross income from her own farm, $764, 472 from her farm partnerships with her son, [7] $161, 571 of capital gains from the sale of farm equipment, and $132, 360 from wages, a pension, and social security.

         Perkins filed her Chapter 12 plan, and BB&T objected to confirmation of the plan, as later amended. The bankruptcy court held the confirmation hearing on October 19, 2016, with BB&T being the only party contesting confirmation of the plan. Perkins' amended plan projected gross income of $784, 137 from corn and a double crop of wheat and soy as well as rent from leasing land, a drying barn, and other outbuildings to her son's tobacco growing operation. Perkins' farm income is supplemented by $84, 000 of retirement income. After deducting operating and living expenses, Perkins' budget would pay $184, 000 on secured debts each year leaving $18, 950 of disposable income to be paid to unsecured creditors each year over the plan's five-year life. The liquidation analysis accompanying the plan projected that a Chapter 7 liquidation would produce no payments to general unsecured creditors. The amended plan proposed to pay BB&T's claim in annual instalments over 20 years at 4.5% interest, with the first installment due January 2017.

         Perkins called two witnesses at the confirmation hearing: her son, who testified as the farm manager regarding feasibility of the plan; and herself, testifying as to her debts and income pertaining to eligibility for Chapter 12 relief. BB&T called no witnesses. The bankruptcy court took the matter under advisement and on December 22, 2016, entered a Memorandum Opinion overruling BB&T's objection and ordering Perkins to tender an order confirming her plan. The confirmation order was entered on February 24, 2017.

         DISCUSSION

         SummitBridge has asserted seven assignments of error in its appeal, which the Panel will address in two groups-first, the arguments that Perkins is ineligible for Chapter 12 bankruptcy relief and, second, the arguments that the plan should not have been confirmed due to lack of feasibility, improper treatment of BB&T's claims, and failure to meet the best interest of creditors test.

         I. Perkins Meets the Code's Definition of Family Farmer and Therefore Is Eligible for Chapter 12 Bankruptcy Relief

         Chapter 12 of the Bankruptcy Code was enacted to "give family farmers facing bankruptcy a fighting chance to reorganize their debts and keep their land." H.R. Conf. Rep. No. 99-958, at 48 (1986), reprinted in 1986 U.S.C.C.A.N. 5246, 5249. Prior to the enactment of Chapter 12, family farmers could proceed under either Chapter 11 or Chapter 13 of the Code. Unfortunately, most family farmers were burdened with too much debt to qualify for Chapter 13 protection, and Chapter 11 was "needlessly complicated, unduly time-consuming, inordinately expensive and, in too many cases, unworkable." Id. To avoid Chapter 11's needless complexity and expense, Congress "closely modeled [Chapter 12] after existing Chapter 13, " while relaxing the debt limits and filing deadlines that had left farmers ineligible for Chapter 13. Id. See also In re Shannon, 100 B.R. 913, 934 (S.D. Ohio 1989).

         Section 109 of Title 11[8] defines who may be a debtor under the various chapters of the Code, including Chapter 12: "[o]nly a family farmer or family fisherman with regular annual income may be a debtor under chapter 12 of this title." 11 U.S.C. § 109(f). Section 101(18)(A) defines a "family farmer" as an:

individual or individual and spouse engaged in a farming operation whose aggregate debts do not exceed $4, 153, 150 and not less than 50 percent of whose aggregate noncontingent, liquidated debts (excluding a debt for the principal residence of such individual or such individual and spouse unless such debt arises out of a farming operation), on the date the case is filed, arise out of a farming operation owned or operated by such individual or such individual and spouse, and such individual or such individual and spouse receive from such farming operation more than 50 percent of such individual's or such individual and spouse's gross income for-
(i) the taxable year preceding; or
(ii) each of the 2d and 3d taxable years preceding the taxable year in which the case concerning such individual or such ...

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