|STEVEN RAY HEITSHUSEN||Bankruptcy No. L-88-00779C|
|Adversary No. L-91-0182C|
|STEVEN RAY HEITSHUSEN
The matter before this Court is the motion of plaintiff, for partial summary Pioneer Hi-Bred International, Inc. ("Pioneer") for partial summary judgment on its complaint seeking a writ of replevin of certain items of personal property owned by one of the defendants, debtor, Steven Ray Heitshusen (debtor). Pioneer asserts a lien and security interest in these items of property. The Farmers Home Administration of the United States of America ("FmHAII), one of the defendants to this action, resists Pioneer's motion for partial summary judgment. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A). The following opinion denies Pioneer's motion for partial summary judgment.
Pioneer has provided an extensive list of facts which are not in dispute. On May 13, 1988, the debtor filed for Chapter bankruptcy. The FmHA and a number of other defendants in this present adversary action were creditors of the debtor's Chapter 12 estate. on January 4, 1989, this Court entered an order confirming the debtor's Chapter 12 plan, as amended.
The confirmed plan contained the following relevant provisions:
1. The Debtors reserve the right under this Plan and under any order of confirmation entered herein to use, sell or lease property in the ordinary course of business as set forth in Section 363 of the United States Bankruptcy Code, and to obtain credit in the ordinary course of business as set forth in Section 364 of the United States Bankruptcy Code without prior approval from the Court and/or notice to creditors . . . . (Amended Plan, Article IX, Pgs. 9-10)
2. Upon confirmation, all property of the estate shall vest in the Debtors, subject only to whatever liens or security interest have been created or reaffirmed herein. (Amended Plan, Article IX, pg. 9)
Also on January 4, 1989, the debtor and the FmHA entered into a stipulation designed to settle disputes with the FmHA and the claim of FmHA.
After confirmation of the plan, the debtor executed and delivered to Pioneer a Promissory Note and Security Agreement dated December 27, 1989, (Note 1), in the maximum principal amount of $250,000 plus interest. On or about April 16, 1990, the debtor executed and delivered to Pioneer a second Promissory Note and Security Agreement (Note 2) in the principal amount of $49,500 plus interest. On or about May 25, 1990, the debtor executed and delivered to Pioneer a third Promissory Note and Security Agreement (Note 3) in the principal amount of $27,500 plus interest. As collateral for these three loans, Pioneer received a security interest in certain property of the debtor, including the debtor's interest in inventory, equipment, farm products, accounts and other rights to payment, general intangibles, and additional specified items. The additional specified items include crop insurance payments, all government farm payments, and various items of equipment. Pioneer filed a number of documents to perfect its security interests in the specified items.
As of January 1, 1991, the debtor had a total unpaid balance of $333,872.06 due and owing to Pioneer. The debtor defaulted on the Pioneer loan repayment. On February 15, 1991, this Court granted Pioneer relief from the automatic stay to enforce its security interest in certain property of the debtor. On February 21, 1991, this Court entered an order converting the debtor's Chapter 12 case to a Chapter 7 case. Defendant William D. Martin was appointed as the Chapter 7 trustee.
On March 1, 1991, Pioneer filed this case in Iowa District Court for Iowa County, seeking a writ of replevin of property owned by the debtor in which Pioneer claimed a lien and security interest. On March 28, 1991, FmHA, as one of the defendants, removed this case to the United States District Court for the Northern District of Iowa, Cedar Rapids Division. On or about June 24, 1991, FmHA filed its answer to Pioneer's replevin petition, filed a cross claim, filed a counter claim, and requested reference of this case to this Bankruptcy Court. FmHA asserted, in part, that Pioneer is not entitled to replevin because Pioneer's security interest was unenforceable because neither Pioneer nor Heitshusen had obtained prior court approval for the loan under(1) § 364.
On August 5, 1991, the United States District Court for the Northern District of Iowa entered an order referring this matter to this Court. Prior to the transfer of this case from the United States District Court to this Court, the debtor was deposed on July 25, 1991. At the deposition, the debtor testified that he believed the loans from Pioneer were authorized by the confirmed plan.
Pioneer also has submitted an affidavit of one of its loan managers, Ken Danilson, in support of its motion for partial summary judgment. Danilson states that he has personal knowledge of the facts stated in Pioneer's Statement of Undisputed Facts and that those facts are correctly stated.
FmHA has submitted a statement of material facts which it contends remain in dispute. FmHA points out that the language of the confirmed plan which Pioneer asserts allowed the debtor to enter into the lending agreement with Pioneer without court approval, states that the debtor was allowed "to obtain credit in the ordinary course of business as set forth in Section 364 . . ." FmHA argues that there is an issue of material fact regarding whether debtor's loan from Pioneer was in the debtor's ordinary course of business. FmHA asserts, in argument and through the affidavit of Chris Beyerhelm, the Chief of the Farmers Programs Division of the Iowa FmHA, that the $327,000 the debtor borrowed from Pioneer far exceeds any borrowing the debtor had done previously for annual operating income. FmHA further points out that the debtor has provided an affidavit stating that his need for more financing was due largely to the fact he rented an additional 700 acres to farm at Pioneer's urging.
Pioneer has moved for partial summary judgment on its replevin petition contending that the debtor's confirmed Chapter 12 plan specifically allowed the debtor to enter into the post-confirmation security arrangements with Pioneer. In particular, Pioneer asks this Court to grant summary judgment on its contention that the debtor's transaction with Pioneer was specifically authorized by the plan language allowing the debtor "to obtain credit in the ordinary course of business as set forth in Section 36411 without court approval or notice to creditors. Pioneer argues that Pioneer's loan to the debtor-was in the ordinary course of the debtor's operations and, therefore, expressly was allowed by the plan.
FmHA argues that summary judgment is inappropriate in this case. FmHA points out that the relevant language of the debtor's confirmed plan states that the debtor may obtain credit in the ordinary course of business as provided in Section 364 without notice to creditors or court approval. FmHA asserts that the ordinary course of business exception under § 364, found at § 364(a), is limited only to obtaining unsecured credit. FmHA contends that § 364 provides no ordinary course of business exception under which the debtor could obtain secured credit and that § 364(c) specifically requires the debtor to obtain court approval and give notice to other creditors.
FmHA also argues here that even if the Court finds that the plan language allowed the debtor to obtain secured credit in the ordinary course of business without Court approval, this particular arrangement with Pioneer was not in the debtor's ordinary course of business. Under either of FmHA's arguments, Pioneer's security interest would not be allowed by the plan and would need prior Court approval. FmHA contends, at the bare minimum, there is a genuine issue of material fact regarding whether this transaction was in the debtor's ordinary course of business, and summary judgment should be denied.
As this Court previously observed in Cedar Rapids Meats y. William Hager (In re Cedar Rapids Meats, Inc.), 121 B.R. 562, 565 (Bankr. N.D. Iowa 1990):
In order for any party to prevail on its motion for summary judgment that party must satisfy Fed.R.Bankr.P. 7056, which incorporates Fed.R.Civ.P. 56. Under Rule 56 summary judgment is appropriate "if the pleadings, deposition, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to relief as a matter of law." Fed.R.Civ.P. 56(c). This rule essentially provides a two-step analysis. Thomas v. United Parcel Service, Inc., 890 F.2d 909, 914 (7th Cir. 1989) (citations omitted). First, a moving party must demonstrate that there exists no genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S. Ct. 2505, 2510, 91 L. Ed. 2d 202 (1986); Thomas, 890 F.2d at 914. Then, the moving party must demonstrate that on those undisputed facts, they are entitled to relief as a matter of law. Thomas, 890 F.2d at 914.
In order to determine which facts are material, the Court should look to the substantive law in a dispute to identify the facts which are critical to the outcome. Anderson v. Liberty Lobby, Inc., 106 S. Ct. 2505, 2510 (1986). In the Anderson case, the Supreme Court observed that genuine issues of material fact exist, and summary judgment should be denied, "when the evidence is such that a reasonable (trier of fact] could return a [decision] for the non-moving party." 106 S. Ct. at 2510. The Supreme Court also has observed, however, that "Rule 56(e). . . requires the non-moving party to go beyond the pleadings and by her own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate 'specific facts showing that there is a genuine issue.for trial.'" Cellotex Corp. v. Catrett, 106 S. Ct. 2548, 2553 (1986).
The Supreme Court noted in Adickes v. S.H. Cress & Co., 398 U.S. 144, 159-60, 90 S. Ct. 1598, 1609 (1970) that "on summary judgment the inferences to be drawn from the underlying facts contained in the moving party's material must be viewed in the light move favorable to the party opposing the motion." (citations omitted). Stated another way, "[t]he evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Anderson, 106 S. Ct. at 2513. A court is not "to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 106 S. Ct. at 2511.
In order to determine which facts are material, the Court must look to the law governing the dispute. The law governing this dispute is § 364 of the Bankruptcy Code. That section states in relevant part:
- If the trustee is authorized to operate the business of the debtor-under section 721, 1108, 1304, 1203, or 1204 of this title, unless the court orders otherwise, the trustee may obtain unsecured credit and incur unsecured debt in the ordinary course of business allowable under section 503(b)(1) of this title as an administrative expense.
- The court, after notice and a hearing, may authorize the trustee to obtain unsecured credit or to incur unsecured debt other than under subsection (a) of this section, allowable under section 503(b)(1) of this title as an administrative expense.
- If the trustee is unable to obtain unsecured credit allowable under section 503(b)(1) of this title as an administrative expense, the court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt-
- with priority over any or all administrative expenses of the kind specified in section 503(b) or 507(b) of this title;
- secured by a lien on property of the estate that is not otherwise subject to a lien; or
- secured by a junior lien on property of the estate that is subject to a lien.
11 U.S.C. § 364(a)-(c). The plain language of this section indicates that the "ordinary course of business" exception to obtaining credit without notice to creditors and court approval is limited under § 364(a) to obtaining unsecured credit. Sapir v. Coppinger Color Lab, Inc., (In re Photo Promotion Associates,
Inc.), 72 B.R. 606, 611 (Bankr. S.D.N.Y. 1987) appealed and remanded on other grounds, 89 B.R. 328 (S.D.N.Y. 1988). This ordinary course of business exception does not apply to obtaining secured credit. As one court has pointed out:
An integral part of 11 U.S.C. § 364(c) is the requirement that notice be given to the creditors and a court order be issued before an enforceable security interest is granted against property of the estate.
Id. at 612; see also Bezanson V. Indian Head Nat'l. Bank (In re J.L. Graphics. Inc.), 62 B.R. 750, 754-56 (Bankr. D.N.H. 1986). Some courts have gone as far as to note that the notice and hearing requirement before obtaining secured credit implicates procedural due process concerns. Photo Promotion, 72 B.R. at 612 (citing Credit Alliance Corp. v. Dunning-Ray Ins. Agency, Inc. (In re Blumer), 66 B.R. 109, 113-14 (9th Cir. B.A.P. 1986).
Here, summary judgment is wholly inappropriate. Pioneer is not entitled to the relief it requests under the law. The plan language Pioneer contends authorized its transactions with the debtor states that the debtor is allowed only "to obtain credit in the ordinary course of business as provided in Section 364.11 As noted above, § 364 provides only for obtaining unsecured credit in the ordinary course of business. Based on that observation, this Court must conclude that the language Pioneer points to does not authorize the debtor to enter into secured transactions in the ordinary course of business. Hence, Pioneer's arguments in this motion for summary judgment are not supported by the law. Moreover, at a bare minimum, the materials both parties have submitted on this summary judgment motion establish an issue of material fact regarding what constitutes "a transaction in the debtors ordinary course of business." Hence, summary judgment is not available under Rule 56(c).
This Court wishes to point out that it is ruling only upon the issue raised in the motion for summary judgment, that is, whether the plan language authorizes the transaction which is at issue in this case. This Court is not addressing any of the other issues which may be raised in this case, including, whether Pioneer is entitled to an order "nunc pro tunc" or whether the transaction in question may be entered into post-confirmation without any language in the plan or court order authorizing the secured transaction. Those issues have not been raised, nor briefed, at this stage of the proceedings.
IT IS THEREFORE ORDERED that Pioneer's motion for summary judgment is denied.
DONE AND ORDERED this 23rd day of April, 1992.
|Michael J. Melloy|
|Chief Bankruptcy Judge|
1. All statutory references are to Title 11 of The United States Code, the Bankruptcy Code, unless indicated otherwise.