Akers v. MicaleAkers v. Micale
In this appeal from the United States Bankruptcy Court for the Western District of Virginia, Dale W. Akers seeks review of the bankruptcy court‘s memorandum opinion and order denying confirmation of the appellant‘s fourth amended plan, denying leave to further amend the plan, and dismissing his Chapter 12 bankruptcy petition. For the following reasons, the court will affirm the decision of the bankruptcy court in full.
Background
Akers has been farming on a full-time basis since 1982. His farming operations in Carroll County, Virginia include a produce farm and a general partnership through which he and his son Ryan Akers (“Ryan“) buy and sell cattle. Akers has partly financed his farming operations through loans from the United States Department of Agriculture‘s Farm Service Agency (“FSA“), Skyline National Bank (“Skyline“), and Farm Credit of the Virginias, A.C.A (“Farm Credit“).
After experiencing financial difficulties stemming from a son‘s medical expenses,
On October 14, 2017, Akers filed his first amended plan, which was set for confirmation on November 15, 2017. The record reveals that the debtor, the Chapter 12 trustee, and the objecting parties agreed that further amendment was necessary. Consequently, Akers filed a second amended plan on January 16, 2018.
On May 16, 2018, the bankruptcy court held a hearing on the second amended plan and the pending objections by Farm Credit, Skyline, and the Chapter 12 trustee. During the hearing, the bankruptcy court learned for the first time that Akers owed Carroll County approximately $40,000.00 in delinquent real estate taxes. However, Carroll County had not been identified as a creditor, and Akers’ second amended plan included no provision for payment of the tax claim. The record indicates that Akers was also unable to provide an accurate estimate of his monthly income from the cattle business that he operates with Ryan or the number of cattle that they own, and that Akers had been borrowing money from Ryan to fund farming operations. Consequently, on May 24, 2018, the bankruptcy court denied confirmation of the second amended plan and gave Akers thirty days to file a third amended plan. Akers was also ordered to amend his schedules to include Carroll County as a creditor, and to not incur any additional debt without prior court approval.
On June 15, 2018, Akers filed a third amended plan. Prior to the confirmation hearing on July 25, 2018, the debtor and his attorney prepared new financial projections. During the confirmation hearing, the bankruptcy court discovered that the wrong set of projections had been filed. Although the debtor‘s actual expenses were in some instances substantially less than his projections, the discrepancies further eroded the bankruptcy court‘s confidence in the debtor‘s ability to accurately project, track, and report his finances. Additionally, the record indicates that the debtor remained uncertain as to how much he owed in past due real estate taxes. Accordingly, on August 2, 2018, the bankruptcy court denied confirmation of the third amended plan and gave Akers twenty-one days to file a fourth amended plan.
The bankruptcy court‘s August 2, 2018 order also imposed other requirements. In addition to filing itemized monthly operating reports, Akers was required to make certain payments to Skyline and the Chapter 12 Trustee on or before September 30, 2018. The record indicates that those payments, and others ordered by the bankruptcy court, were made by the debtor.
During the October 17, 2018 confirmation hearing, confusion arose regarding the claims of Farm Credit. Part of the issue was that Farm Credit was granted leave to foreclose on real property owned by the debtor‘s limited liability company, and the foreclosure sales did not close until around the time of the hearing. At the hearing, Farm Credit advised the bankruptcy court that it would need time to determine the remaining deficiency and file an amended claim reflecting the unsecured balance. Akers’ fourth amended plan did not account for any potential unsecured claim on the part of Farm Credit, and the debtor did not make any inquiry of Farm Credit prior to the hearing to determine the outcome of the foreclosure sales.
The bankruptcy court ultimately took confirmation under advisement, directed Farm Credit to file amended claims reflecting the remaining deficiency, and permitted the parties to file briefs in support of their respective positions on the debtor‘s fourth amended plan. On November 27, 2018, Akers filed a fifth amended plan without being granted leave to do so. The bankruptcy court construed the filing as a request for leave to amend.
On January 3, 2019, the bankruptcy court issued an opinion and order denying confirmation of the fourth amended plan. The bankruptcy court found that Akers had not established that he could afford the payments proposed in the plan, and that his “records and projected revenue and expenses [were] inaccurate and unpersuasive such that they [did] not demonstrate the Debtor‘s probable compliance with the plan terms.” Jan. 3, 2019 Mem. Op. 16, 20, Dkt. No. 1-2. Accordingly, the bankruptcy court concluded that Akers “failed to carry his burden on the feasibility prong” of
Akers timely appealed the bankruptcy court‘s decision. The matter has been fully briefed and is now ripe for review.3
Standard of Review
The court has appellate jurisdiction over this matter pursuant to
Discussion
Akers appeals several portions of the bankruptcy court‘s January 3, 2019 decision. For the reasons outlined below, the court will affirm the bankruptcy court‘s decision in its entirety.
I. Denial of Plan Confirmation
Akers initially appears to challenge the bankruptcy court‘s decision to deny confirmation of the fourth amended plan. Akers argues that the bankruptcy court failed to give him the benefit of the doubt, and did not properly credit the fact that he made all of the required Chapter 12 payments or the fact that two hurricanes affected his crop production. For the following reasons, the court is unpersuaded.
The bankruptcy court refused to confirm the debtor‘s fourth amended plan because the court found that the plan was not feasible. When deciding whether to confirm a proposed Chapter 12 plan, a bankruptcy court must consider whether “the debtor will be able to make all payments under the plan and to comply with the plan.”
Courts have recognized that “[f]easibility is never certain, particularly in farm situations.” In re Rape, 104 B.R. at 748 (citation and internal quotation marks omitted). Consequently, courts often “give the Chapter 12 debtor the benefit of the doubt regarding the issue of feasibility when the debtor‘s plan projections use reasonable data in light of the current economic climate.” Keith‘s Tree Farms, 535 B.R. at 652 (citation and internal quotation marks omitted). Courts have also made clear, however, that “[s]incerity, honesty, and willingness are not sufficient to make the plan feasible, and neither are any visionary promises.” In re Rape, 104 B.R. at 749 (citation and internal quotation marks omitted). Instead, the court must “carefully scrutinize the proposed payments in light of the projected income and expenses and consider whether they are based upon realistic and objective facts and whether they are capable of being met.” In re Szudera, 269 B.R. 837, 842 (Bankr. D.N.D. 2011).
In this case, the bankruptcy court considered the cash flow projections submitted by the debtor, as well as the documents depicting his actual revenue and expenses for 2018 through the month of October. The bankruptcy court noted that the debtor‘s total revenue and expenses for the first ten months of 2018, when
On appeal, Akers points out that he consistently made required payments during the pendency of the bankruptcy proceedings. While such evidence may be relevant to the feasibility analysis, it is “certainly not conclusive.” Keith‘s Tree Farms, 535 B.R. at 653. Thus, the fact that Akers complied with the bankruptcy court‘s order of payments did not automatically warrant confirmation of the fourth amended plan. After considering the totality of the evidence, including the debtor‘s history of providing unreliable and inaccurate projections, the bankruptcy court found that the evidence of prior payments was simply insufficient to prove that the fourth amended plan was feasible. See Jan. 3, 2019 Mem. Op. 17 (“[T]hat the Debtor has remained current on his obligations to date does not necessarily prove his ability to make future payments or to make balloon payments in seven years, either through refinancing or accumulation of funds.“). The bankruptcy court‘s finding in this regard was not clearly erroneous.
Akers also argues that the bankruptcy court erred by failing to give him the benefit of the doubt, particularly in light of the fact that weather negatively impacted his profits in 2018. As indicated above, “[c]ourts sometimes give family farm debtors the benefit of the doubt on the issue of feasibility,” since farming can be an uncertain venture. In re Wise, No. 3:12-bk-7535, 2013 Bankr. LEXIS 2299, at *10 (Bankr. D.S.C. June 3, 2013). However, “that does not give the bankruptcy court license to ignore the hard numbers altogether.” Keith‘s Tree Farms, 535 B.R. at 653. Here, the bankruptcy court reviewed the debtor‘s 2017 operating reports and noted that his 2018 revenue did not fall far below the prior year‘s earnings, thus indicating that the original 2018 projections were overly optimistic. The bankruptcy court ultimately determined that “in all but the most optimistic scenarios,” Akers would not have income sufficient to make all of the payments required under the fourth amended plan. Jan. 3, 2019 Mem. Op. 15. The bankruptcy court further emphasized that the calculations assumed the accuracy of the debtor‘s recordkeeping and projections, which had proven to be inaccurate on numerous occasions. The bankruptcy court found that the previously identified errors cast doubt on the entirety of the debtor‘s recordkeeping, and that other deficiencies, including the failure to account for repayment of the loans from Ryan or Farm Credit‘s deficiency claim, “further plague[d]” the debtor‘s case. Id. at 16. Ultimately, the bankruptcy court concluded that the debtor‘s fourth amended plan failed to meet the feasibility requirement of
The Debtor‘s uncompelling testimony and mistake-laden projections and operating reports do not persuade the Court that the Debtor can comply with the Fourth Amended Plan. The Debtor has had five opportunities to propose a confirmable plan. At three consecutive evidentiary
hearings, the Debtor‘s financial projections were deficient. Although the Debtor‘s evidence improved in some instances over time, it remains insufficient to meet the burden imposed by Section 1225.
Id. at 17. Upon review of the record, the court is convinced that this decision was not clearly erroneous.
II. Denial of Leave to Amend
Akers also challenges the bankruptcy court‘s decision to deny him leave to further amend his plan. Akers argues that he was entitled to file a new plan as a matter of right. For the following reasons, the court is unpersuaded.
“The purpose of a Chapter 12 bankruptcy filing is to give family farmers a chance to reorganize their debts and keep their farms while preserving the fair treatment of creditors by moving Chapter 12 bankruptcy cases forward in an expeditious manner.” In re Valentine Hill Farm LLC, 580 B.R. 815, 820 (Bankr. S.D. Ind. 2018) (citing In re Pertuset, 492 B.R. 232, 259 (Bankr. S.D. Ohio 2012)). A Chapter 12 debtor is required to file a plan no later than 90 days after the petition is filed, unless the bankruptcy court extends the 90-day period based on circumstances for which the debtor should not justly be held accountable.
The Bankruptcy Code allows a debtor to modify a plan “at any time before confirmation.”
In arguing that he had an absolute right to file a fifth amended plan, Akers relies on
The court‘s conclusion is further supported by the context surrounding the enactment of Chapter 12. Although Chapter 12 was designed “to allow family farmers a fighting chance to reorganize their debts,” it “was also structured to require debtors to speedily confirm a plan of reorganization.” In re Bentson, 74 B.R. at 58. As other courts have observed, “[t]he legislative history suggests that Congress intended that Chapter 12 bankruptcy cases were to move along expeditiously to protect creditor‘s interests and to preclude diminution in the value of collateral if a reorganization cannot be achieved.” Haffey v. Crocker, 576 B.R. 540, 550 (B.A.P. 6th Cir. 2017) (citation omitted); see also In re Pretzer, 96 B.R. 790, 793 (Bankr. N.D. Ohio 1989) (referencing the legislative history explaining that certain provisions, including the 90-day time limit for filing a Chapter 12 plan, were included “to get these cases moving, rather than languishing in the courts“) (citation omitted). Under Akers’ interpretation of
For all of these reasons, the court concludes that Akers was not entitled to amend his Chapter 12 plan again as a matter of right. Instead, he was required to obtain leave to file a fifth amended plan. Consequently, “[t]he bankruptcy court‘s denial of leave to amend is reviewed for abuse of discretion only.” Keith‘s Tree Farms, 535 B.R. at 653.
In determining whether to allow the filing of an amended plan, courts consider such factors as when the first Chapter 12 plan was filed, how comprehensive and complete the first plan was, the reasons for denial of confirmation of the first plan, and the likelihood of successful confirmation of a new or amended plan. Novak, 934 F.2d at 404. The bankruptcy court referenced these factors in its decision and ultimately found that they weighed against further amendment. The bankruptcy court emphasized that Akers’ Chapter 12 case had been pending for over a year and a
As this court previously observed in Keith‘s Tree Farms, “‘[b]ankruptcy courts are given a great deal of discretion to say when enough is enough’ when it comes to granting or denying the opportunity to amend reorganization plans.” 535 B.R. at 654 (quoting Matter of Woodbrook Assocs., 19 F.3d 312, 322 (7th Cir. 1994)). Upon review of the record and applicable caselaw, the court finds no abuse of discretion in the bankruptcy court‘s decision to deny leave to amend in this case.
III. Dismissal of the Petition
Finally, Akers argues that the bankruptcy court erred in dismissing his Chapter 12 petition. The court is once again constrained to disagree.
Pursuant to
In this case, the bankruptcy court determined that there was cause for dismissal “despite the Debtor having made payments to date when put on terms by the Court.” Jan. 3, 2019 Mem. Op. 19. In particular, the bankruptcy court found that the case was “fraught with ‘unreasonable delay, or gross mismanagement, by the debtor that [was] prejudicial to creditors.‘” Id. (quoting
Conclusion
For the reasons stated, the court will affirm the bankruptcy court‘s decision in full. The Clerk is directed to send copies of this memorandum opinion and the accompanying order to all counsel of record.
DATED: This 13th day of September, 2019.
Glen E. Conrad
Senior United States District Judge