In re Joseph W. WATFORD and Doris F. Watford, Debtors.
Joseph W. WATFORD and Doris F. Watford, Plaintiffs-Appellants,
v.
FEDERAL LAND BANK OF COLUMBIA, Defendant-Appellee.
In re Joseph W. WATFORD and Doris F. Watford, Debtors.
Joseph W. WATFORD and Doris F. Watford, Plaintiffs-Appellants,
v.
UNITED STATES of America, Acting Through the COMMODITY
CREDIT CORPORATION, An Agency of the United States
Department of Agriculture, Defendant-Appellee.
Nos. 88-8894, 89-8029.
United States Court of Appeals,
Eleventh Circuit.
April 25, 1990.
Richard J. Tuneski, Marietta, Ga., for plaintiffs-appellants.
Lillian H. Lockary, Asst. U.S. Atty., Dept. of Justice, Macon, Ga., J. Carol Sherwood, Jr., Dover, Sherwood & Shelton, Valdosta, Ga., for defendant-appellee.
Appeals from the United States District Court for the Middle District of Georgia.
Before TJOFLAT, Chief Judge, and ANDERSON and CLARK, Circuit Judges.
ANDERSON, Circuit Judge:
In 1985, Joseph W. Watford and Doris F. Watford, appellants, grew soybeans. In 1986, the Watfords ceased the cultivation of their land, stored their soybean harvest on their land, and began conducting a stone crabbing operation in the Gulf of Mexico. Appellants have allowed their land to lie fallow since 1985. However, they have plans to develop fish ponds on the property. At the initial hearings, Mr. Watford testified that these ponds would be for recreational use; but, he testified at the final bankruptcy hearing that he also would harvest the fish by draining ponds.
On July 28, 1987, the Watfords filed a petition for reorganization of their farming operation pursuant to Chapter 12 of Title 11 of the United States Code. Appellants then filed a motion requesting the use of cash collateral to finance their reorganization plan. After an evidentiary hearing, the bankruptcy court concluded that the appellants' offer of adequate protection was insufficient under 11 U.S.C. Sec. 1205 and, therefore, denied appellants' motion. A notice of appeal to the United States District Court was filed on December 21, 1987.
On January 25, 1988, the Federal Land Bank of Columbia (the "Bank"), a creditor, moved to convert or dismiss the appellants' Chapter 12 case, contending that appellants did not qualify for relief under Chapter 12 because they were not "family farmers" under the definition provided in the Bankruptcy Act. The bankruptcy court granted the Bank's motion and dismissed appellants' Chapter 12 petition on March 7, 1988, finding that: 1) the Watfords met the income requirements of 11 U.S.C. Sec. 101(17)(A); 2) the definition of "farming operation," as contemplated by 11 U.S.C. Sec. 101(20) does not include appellants' stone crabbing business; 3) the development of ponds for recreational use could not be considered a "farming operation" under Sec. 101(20); and 4) the storage and maintenance of soybeans awaiting sale does not constitute a "farming operation" under Sec. 101(20).
On March 22, 1988, a hearing was held on appellants' motion for reconsideration of the bankruptcy court's order dismissing appellants' Chapter 12 petition. The appellants offered testimony that they planned to begin commercial production of catfish. While noting that there are cases which recognize the raising of catfish as a valid "farming operation" for Chapter 12 purposes, the bankruptcy court ruled that the appellants' plans for development of the fish ponds were irrelevant because appellants were not engaged in these operations at the time they filed the Chapter 12 petition. The bankruptcy court then denied appellants' motion. Appellants filed a notice of appeal on April 4, 1988.
The district court affirmed the bankruptcy court's dismissal of appellants' Chapter 12 petition. The court held that the bankruptcy court's findings that the appellants' stone crabbing business, storage and maintenance of soybeans, and proposed recreational fishing and camping facility are not "farming operations" under 11 U.S.C. Sec. 101(20) were not clearly erroneous. In addition, the court found that the bankruptcy court's determination that the appellants' catfish farming plans were irrelevant was not clearly erroneous. By separate order, the district court affirmed the bankruptcy court's denial of appellants' motion to use cash collateral because the issue was moot.
Appellants have filed notices of appeal from both district court orders. Those appeals have been consolidated.
In order for a bankruptcy court to have jurisdiction over a Chapter 12 petition, the debtor must be a "family farmer." 11 U.S.C. Sec. 109(f) (Supp.1989). "Family farmer" is defined as anindividual or individual and spouse engaged in a farming operation whose aggregate debts do not exceed $1,500,000 and not less than 80 percent of whose aggregate noncontingent, liquidated debts ..., on the date the case is filed, arise out of a farming operation ..., 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 the taxable year preceding the taxable year in which the case concerning such individual or such individual and spouse was filed.
11 U.S.C. Sec. 101(17)(A) (Supp.1989). It is undisputed that the Watfords have met the income and debt requirements of the statute. However, in order to be "family farmers," appellants acknowledge that they must not only meet the 50% and 80% tests, but also they must be "engaged in a farming operation" when they file the Chapter 12 petition. See In re Paul,
The issue involved in this case is essentially one of law: do the Watfords' business enterprises constitute a "farming operation" under 11 U.S.C. Secs. 101(17)(A) and 101(20)? Whether a particular activity constitutes a "farming operation" under the statute should be evaluated as a legal question. In re Maike,
11 U.S.C. Sec. 101(20) (Supp.1989) states:
"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.
However, the above list is not all-inclusive. In re McNeal,
We conclude that appellants' stone crabbing business does not constitute a "farming operation." The stone crabbing is not carried out on the Watfords' property and is too remote from Congress' statutory purpose to constitute a "farming operation."
The question of whether the Watfords' storage of soybeans and their fish pond plans fall within the definition of "farming operation" is more difficult. The storage of soybeans alone does not constitute a "farming operation." In re Haschke,
The standard we adopt today is whether, in view of the totality of the circumstances, the debtor intends to continue to engage in a "farming operation" even though he or she was not engaged in the physical activity of farming at the time the petition was filed. The reason for this inquiry into the intent of the debtor is that we must "determine whether there is a 'farming operation' within the context of Sec. 101(17) [now Sec. 101(20) ] in light of the fact that the operation of the entity for whom Chapter 12 was passed to aid might have been drastically altered just prior to filing due to the very economic stress Chapter 12 was passed to alleviate." In re Mikkelsen Farms,
In holding that the Watfords' intent to continue farming is relevant, we reject the contrary implication in the language of footnote 2 of In re Armstrong,
Therefore, we adopt the totality of the circumstances test which has been used by many bankruptcy courts to determine whether income arose out of a "farming operation." See, e.g., In re Vernon,
In summary, we hold that the Watfords' stone crabbing business does not fall within the definition of "farming operation." To this extent, we affirm the district court. However, in regard to the Watfords' activities of storing soybeans and planning commercial fish ponds, we conclude that the bankruptcy court and the district court applied an incorrect legal standard in addressing whether or not the Watfords were engaged in a "farming operation" at the time of filing their Chapter 12 petition. Thus, we vacate the judgment below in this regard and remand for a determination of whether the Watfords had abandoned all farming operations at the time of the filing, or whether under the totality of the circumstances the Watfords had not abandoned all farming operations, but rather were planning to continue farming operations in the form of commercial fish ponds or otherwise.1
AFFIRMED in part, VACATED in part and REMANDED.
Notes
Since the district court did not address the cash collateral issue, we find it appropriate for the district court to address the issue in the first instance