Farm Credit Services v. Steven L. SwackhammerFarm Credit Services v. Steven L. Swackhammer
After the bankruptcy court allowed chapter 12 debtors - several years in a row - to modify their confirmed plan over the objection of their primary secured creditor, that creditor appealed. The issues before us are whether the bankruptcy court abused its discretion by confirming the debtors’ fourth modified plan under
Family farmers and appellees Steven and Michele Swackhammer filed their chapter 12 bankruptcy petition in September 2018. After lengthy and contested proceedings with several creditors, including secured creditor and appellant Farm Credit Services of America, PCA, the Swackhammers confirmed a consensual second modified plan a year later, in September 2019.
Thereafter, in both February 2020 and February 2021, the Swackhammers moved to modify their confirmed plan to extend the time under the plan to make payments to Farm Credit and two other secured creditors. Each time, the Swackhammers alleged their circumstances had changed substantially, due to abnormally wet weather, equipment failure, employee illness, or losses in farmed acreage from delayed financing. Each time, Farm Credit objected, arguing that the Swackhammers had failed to show a substantial, unanticipated change in circumstances. Each time, the bankruptcy court rejected Farm Credit‘s arguments and confirmed the modified plans. Transcripts of those hearings are not in the record on appeal. We cannot in any event revisit the bankruptcy court‘s grounds for approving the 2020 and 2021 plan modifications - under whatever factual and legal grounds those rulings were premised upon - since those orders are final and nonappealable.
A year after the 2021 modification, in March 2022, the Swackhammers filed a motion to approve a third modified plan to again extend the deadline for payments to Farm Credit and other creditors. The Swackhammers alleged that modification was necessary due to an unforeseen loss in revenue from the 2021 crops. For the first time, the Swackhammers also argued in a footnote that nothing in
Farm Credit again objected. Farm Credit pointed out that the Swackhammers had yet to timely make their annual plan payments without modification. Farm Credit argued that the bankruptcy court by then had three years of evidence that none of the Swackhammers’ plans were feasible. Farm Credit urged the court again to require the Swackhammers to show that their revenue loss was due to a substantial and unanticipated change in circumstances and, if not, to deny the modification. In the meantime, both Farm Credit and the chapter 12 trustee filed motions to dismiss the bankruptcy case.
The bankruptcy court held an evidentiary hearing on the Swackhammers’ proposed plan modification and the motions to dismiss in May 2022. The parties by agreement admitted certain exhibits and Mr. Swackhammer was the only witness who testified. As will be discussed in more detail below, Mr. Swackhammer‘s testimony is confusing about which events necessitated the March 2022 modification; when those events occurred; and whether those events were unanticipated. In particular, the record is unclear about whether the undisputed delay in obtaining financing for the 2022 crop year was unanticipated or was the result of events in prior years. Also confusing was Mr. Swackhammer‘s testimony about an earlier bout with cancer and what role his health played in why the Swackhammers needed more time to make plan payments. Mr. Swackhammer testified, however, that he was proposing to sell part of their homestead in two transactions and would commit the sale proceeds to make plan payments.
The chapter 12 trustee in closing argument told the court that the modified plan as proposed in the motion was not feasible. But with what she termed were the “oral modifications” to the plan based on Mr. Swackhammer‘s agreement to sell land,
The bankruptcy court responded that the trustee must have been “reading my mind.” Addressing Farm Credit‘s counsel, the court acknowledged that, while Farm Credit might not agree, it had been a “busy case” and “we did have some what I would consider unusual events occur.” The bankruptcy court noted that “certainly the issues that were presented the first year were a problem” and that “we [then] all went into a pandemic for the better part of two years - that has an impact on things.” The court said it did not interpret
The Swackhammers filed a fourth motion to modify after the parties failed to reach an agreement. Farm Credit again objected on the same feasibility and no-unanticipated-substantial-change-in-circumstances grounds. The court set the motion for a telephonic hearing.
At the hearing, the chapter 12 trustee stated that she believed the fourth modified plan could be confirmed, provided that the Swackhammers paid in some additional funds. The Swackhammers’ counsel responded that the Swackhammers were aware they needed to make additional plan contributions and that counsel was willing to waive his unpaid fees to make the plan feasible. Farm Credit‘s counsel, while admitting that Farm Credit had received its share of the payments derived from the first land sale as anticipated from the May 2022 hearing, argued that the plan was still not feasible and again urged the court to reconsider its interpretation of
The court at the conclusion of the hearing overruled Farm Credit‘s objection and confirmed the Swackhammers’ fourth modified plan. Expressing its concerns about feasibility, however, the court ordered that if the Swackhammers failed to comply with any terms of the fourth modified plan, then, upon the chapter 12 trustee‘s filing of an affidavit showing default, the case would be dismissed without further notice or hearing. Farm Credit appealed. At oral argument, the parties acknowledged that the Swackhammers were current on the payments due under the fourth modified plan.
Jurisdiction & Standard of Review
At the threshold, we agree with the parties that we have jurisdiction over this appeal given that an order confirming a plan over an objection is a final order and that we have jurisdiction over appeals from final orders.
The parties assert our standard of review is de novo, citing In re Kraus, 261 B.R. 218 (B.A.P. 8th Cir. 2001). Kraus, however, involves an appeal from a plan confirmed under
Factual findings - such as whether a plan is feasible - are reviewed for clear error. See In re Ahlers, 794 F.2d 388, 398 (8th Cir. 1986), rev‘d on other grounds, Norwest Bank Worthington v. Ahlers, 485 U.S. 197 (1988). Accord 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.“). “To be clearly erroneous, a decision must strike us as more than just maybe or probably wrong; it must . . . strike us as wrong with the force of a five-week-old, unrefrigerated dead fish.” Kaplan v. Mayo Clinic, 847 F.3d 988, 992 (8th Cir.) (citations omitted), cert. denied, 138 S. Ct. 203 (2017) (mem.).
Discussion
Farm Credit urges this court to adopt an interpretation of
As relevant in this case,
Compliance with
It is true that courts are split on the interpretation of
In Johnson, this court held that modification of a confirmed chapter 13 plan should be limited to situations in which there has been “a substantial change in circumstances.” Id. at 748 (emphasis added) (citing In re Murphy, 474 F.3d at 149 (holding that a party seeking plan modification must demonstrate a substantial and unanticipated post-confirmation change in financial condition) (additional citations omitted). The Johnson court also held that when a confirmed plan is modified to reduce (as opposed to extending) payments under
Johnson also cited to dicta in an earlier Eighth Circuit case, Educ. Assistance Corp. v. Zellner, 827 F.2d 1222 (8th Cir. 1987). The Zellner court addressed whether the bankruptcy court erred in confirming a chapter 13 debtor‘s plan under
This court disagrees that relying on Zellner‘s dicta is a “stretch.” Appellate courts in the Eighth Circuit are directed to give deference to a higher court‘s dicta. In re Belew, 588 B.R. 875, 878 (B.A.P. 8th Cir. 2018), aff‘d, 943 F.3d 395 (8th Cir. 2019). More importantly, this panel is bound by our previous decisions, just as the Court of Appeals for the Eighth Circuit is bound by its prior decisions. In re Pfleghaar, 215 B.R. 394, 396 (B.A.P. 8th Cir. 1997) (citations omitted). Both the Eighth Circuit‘s dicta in Zellner and the BAP‘s holding in Johnson compel us to conclude that a “substantial change of circumstances” is required to justify a plan modification. But see In re Witkowski, 16 F.3d 739 (7th Cir. 1994) (plain language of
We thus hold that plan modifications under
Mr. Swackhammer testified at the May 2022 hearing that he was unable to meet his crop yield projections because of a
When asked what unexpected events occurred in 2021, Mr. Swackhammer testified about complications from his earlier cancer treatment that were “not working out” and that he had “now” been referred to the Mayo Clinic. Although Farm Credit argues that the bankruptcy court should not have taken judicial notice of the pandemic and that the evidence does not show clearly how Mr. Swackhammer‘s cancer or the pandemic impacted his ability to farm, we cannot say on this record that we have a definite and firm conviction that the bankruptcy court clearly erred. The bankruptcy court had the benefit of exhibits that are not in the record before us as well as four years of experience with the Swackhammers, including experience with plan modifications and hearings that took place during the pandemic.
For the same reasons, we cannot conclude that the bankruptcy court clearly erred in finding that the Swackhammers’ fourth modified plan was feasible. To satisfy the feasibility requirement, there must be reasonable assurances from the debtor that the plan can be completed and that the plan will cash flow. In re Kraus, 261 B.R. at 224. Debtors’ income and expense projections are considered in conjunction with their actual past performance to determine feasibility. See In re Euerle Farms, Inc., 861 F.2d 1089, 1090 (8th Cir. 1988). The Eighth Circuit has recognized that projecting income and expenses in the farm context is not “an exact science.” In re Monnier Bros., 755 F.2d 1336, 1341 (8th Cir. 1985).
As one court has observed, the question of whether a chapter 12 plan is feasible “is not typically a simple yes-or-no question but rather an analysis of where, on a continuum of feasibility, a particular plan falls.” In re Simpson, No. 17-10443, 2020 WL 2844383, at *3 (Bankr. D. Vt. June 1, 2020) (slip copy). Because most cases fall somewhere in the middle of the feasibility continuum, feasibility determinations in farm cases “compel the Court to reach a determination based on careful analysis and weighing of the totality of facts and circumstances of the case.” Id. The salient facts and circumstances are wide-ranging and may include:
The value and equity of the debtor‘s assets, the nature and amount of the debtor‘s liabilities, the efficiency of the debtor‘s operations, the debtor‘s pre-petition transactions with creditors, the debtor‘s historical performance, the terms of the proposed plan, and other evidence showing the likelihood of success in chapter 12.
How much weight the court assigns to each of the facts varies from case to case and the nature of any objections. Id. In most cases falling somewhere in the middle of the continuum (like the Swackhammers’ case), the court is not engaged in a mathematical computation of fixed components. “Rather, it is making a judgment based on an assessment of myriad moving and mutable parts.” Id.
The record in this case showed that, at the time of the hearing on the fourth modified plan, the Swackhammers had made the payments required under the first modification; had paid 40% of the payments
Again, given that the projections and other exhibits the bankruptcy court reviewed are not in the record on appeal, we cannot say that the bankruptcy court clearly erred in finding that the Swackhammers would be able to make their payments and to comply with the plan under
Conclusion
At a minimum, a substantial change in circumstances is required to justify modification of a plan under