Baker v. Rosenberger (In re Rosenberger)

In re: MARY ELLEN ROSENBERGER, Debtor.

TERESA GALE BAKER, DENNIS DALE BAKER, AND VICKIE LYNN BAKER RIGGLEMAN,AS EXECUTORS OF THE ESTATE OF FLOYD E. BAKER, Movants, v. MARY ELLEN ROSENBERGER, Debtor,and HERBERT L. BESKIN, Trustee, Respondents.

Case No. 20-50093

ECF Doc. No. 52

UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF VIRGINIA

September 29, 2020

Chapter 12

MEMORANDUM OPINION

The Court must determine whether the debtor, Ms. Mary Ellen Rosenberger, qualifies as a chapter 12 debtor under section 109(f) of the Bankruptcy Code. The only requirement in dispute is whether Ms. Rosenberger satisfies section 101(18)'s statutory definition of "family farmer." For the reasons explained below, the Court concludes that Ms. Rosenberger is a "family famer," and is therefore an eligible chapter 12 debtor.

Background

Ms. Rosenberger filed an individual voluntary petition under chapter 12 of the Bankruptcy Code on February 5, 2020. Ms. Rosenberger scheduled a 50% ownership interest in a joint farming venture with a related debtor in this Court, Mr. Gregory Hamman. See Schedule A/B, at 5, ECF Doc. No. 15. Ms. Rosenberger claims her participation in the joint farming operation renders her eligible for chapter 12 under section 109(f) of the Bankruptcy Code. The Estate of Floyd E. Baker (the Baker Estate), however, disputes Ms. Rosenberger's eligibility for chapter 12.

On June 12, 2020, the Baker Estate filed a motion to dismiss Ms. Rosenberger's chapter 12 case, contending that "she is not a 'Family Farmer' . . . nor is she a 'farmer'" as defined by the Bankruptcy Code and thus is not eligible to be a debtor under chapter 12. See ECF Doc. No. 52. Because she is not an eligible chapter 12 debtor, according to the Baker Estate, the Court must dismiss Ms. Rosenberger's case. Ms. Rosenberger filed an answer to the motion to dismiss denying the assertions in the Baker Estate's motion to dismiss; she filed an amended answer subsequently to correct the statutory references in her answer. See ECF Doc. Nos. 57, 66. The Court held a hearing on August 5, 2020, at which the Baker Estate's counsel clarified that the Baker Estate's sole contention is that Ms. Rosenberger is not a "family farmer" under section 101(18) of the Bankruptcy Code. The Baker Estate's position that Ms. Rosenberger is not a "family farmer" as defined by section 101(18) is two-fold: first, she, as a factual matter, was not "engaged in" a farming operation on the date of filing, and second, even if she was "engaged in" a farming operation, she did not derive at least 50 percent of her income from the farming operation in the prior taxable year, nor the two taxable years preceding the prior taxable year.

At the August 5, 2020, hearing, the Court allowed the parties to present evidence on the issue of Ms. Rosenberger's eligibility for chapter 12 bankruptcy. Counsel for Ms. Rosenberger presented evidence in the form of Ms. Rosenberger's testimony and her 2019 federal income tax return. Both parties presented arguments to the Court regarding Ms. Rosenberger's eligibility. After the hearing, the Court took the matter under advisement.

Discussion

The question of a debtor's eligibility to file a bankruptcy petition under a certain chapter of the Bankruptcy Code falls within this Court's jurisdiction as delegated to it by the United States District Court for the Western District of Virginia pursuant to 28 U.S.C. §§ 1334(a) and 157(a). In determining this debtor's eligibility, the Court must resolve two issues: (1) whether Ms. Rosenberger was "engaged in" a farming operation, and (2) whether Ms. Rosenberger derived at least 50 percent of her gross income in 2019 from her farming operation.

Section 101(18), in pertinent part, provides:

The term "family farmer" means—

(A) individual or individual and spouse engaged in a farming operation whose aggregate debts do not exceed $10,000,000 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 individual and spouse was filed . . . .

11 U.S.C. § 101(18).

The parties agree that the underlying operation qualifies as a "farming operation." Therefore, resolving the first issue requires the Court to make a finding of fact, based on the evidence presented, only as to Ms. Rosenberger's engagement in the operation. The second issue is a question of law for the Court, requiring the Court to decide which figures in the debtor's 2019 federal income tax return are included in "gross income" as contemplated by section 101(18).

A. The Debtor Was "Engaged in" a Farming Operation at the Time of Filing

The requirement that the debtor be "engaged in" a farming operation raises two issues for interpretation—the first, a temporal question, and the second, a substantive question. Specifically, the Court must resolve both when the debtor must be engaged in a farming operation for eligibility for chapter 12 bankruptcy and what constitutes an individual's engagement in a farming operation.

The parties do not spar over whether Ms. Rosenberger must be continuously engaged in a farming operation throughout the chapter 12 bankruptcy. The Court will therefore only address the issue briefly. The test for eligibility is determined at the time the case is filed. In re Clark, 288 B.R. 237, 246 (Bankr. D. Kan. 2003). The debtor need only be "engaged in" a farming operation when she filed her bankruptcy petition. See, e.g., id. at 246-47; In re Nelson, 291 B.R. 861, 867-68 (Bankr. D. Idaho 2003); In re Lockard, 234 B.R. 484, 491 (Bankr. W.D. Mo. 1999). Ms. Rosenberger, therefore, must show she was engaged in a farming operation at the time she filed her petition.

The question of what constitutes an individual's engagement in a farming operation is central to resolving the Baker Estate's motion to dismiss. Rather than considering whether the underlying operation is actually a "farming operation," the Court must decide to what extent a qualifying "family farmer" must be involved in what has already been established as a "farming operation." Many courts have had the occasion to consider what constitutes a "farming operation," but few have considered what satisfies the Code's requirement that the debtor be "engaged in" the operation. Most courts addressing whether a debtor is "engaged in a farming operation" tend to focus on whether a particular activity is a "farming operation," and in doing so the courts apply a "totality of the circumstances" approach. See In re Paul, 83 B.R. 709, 712 (Bankr. D.N.D. 1988) ("The majority of courts to consider the question [of whether an activity constitutes a farming operation] have adopted this 'totality of the circumstances' test."). The totality of the circumstances approach for determining whether a particular operation is a "farming operation" considers the relevant facts case-by-case, with a view to seven common, but non-exclusive, factors:

1. Whether the location of the operation would be considered a traditional farm;

2. The nature of the enterprise at the location;

3. The type of product and its eventual market...;

4. The physical presence or absence of family members on the farm;

5. Ownership of traditional farm assets;

6. Whether the debtor is involved in the process of growing or developing crops or livestock; and

7. . . . [W]hether or not the practice or operation is subject to the inherent risks of farming.

In re Osborne, 323 B.R. 489, 494 (Bankr. D. Or. 2005) (quoting In re Sugar Pine Ranch, 100 B.R. 28, 31 (Bankr. D. Or. 1989)).

In Cottonport Bank v. Dichiara, 193 B.R. 798 (W.D. La. 1996), the court noted that the "engagement in" analysis is somewhat separate from the "farming operation" analysis, but the totality of the circumstances test remains instructive. Id. at 802. This Court agrees. The Court will look to the totality of the circumstances to determine whether a debtor is "engaged in" a farming operation. The factors most relevant to the "engagement in" inquiry are: (1) the debtor's daily involvement on the farm, (2) the debtor's legal ownership interest in the farming operation and/or its assets, and (3) the debtor's physical presence on the farm.

The debtor bears the burden of proving her eligibility for relief under a certain chapter of bankruptcy. See, e.g., In re Carter, 570 B.R. 500, 508 (Bankr. M.D.N.C. 2017) ("[F]or the Debtor to qualify as a family farmer so as to be eligible for Chapter 12 relief pursuant to § 109(f), the Debtor must meet all five elements of § 101(18)(A), and courts have uniformly held that the burden rests with the Debtor in evidencing eligibility."); In re Ollis, 609 B.R. 459, 464 (Bankr. D.S.C. 2019); see also Tim Wargo & Sons, Inc. v. Equitable Life Assurance Soc'y of the U.S. (In re Tim Wargo & Sons, Inc.), 869 F.2d 1128, 1130 (8th Cir. 1989). She must put forward sufficient evidence to allow the Court to find that she satisfies the section 109(f) eligibility requirements, including the definitional section 101(18) requirement that she was "engaged in" a farming operation at the time of filing.

At the hearing, the debtor presented evidence to show that she was engaged in a farming operation at the time of filing. Specifically, the debtor testified to her involvement in the farming operation that she operated as a joint venture with a related debtor, Mr. Hamman. She testified to the existence of an understanding between the two that Ms. Rosenberger and Mr....