John S. Marlar v. U.S. Trustee ( 2005 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 05-2015
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In re: John Samuel Marlar, *
*
Debtor, *
*
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John Samuel Marlar, * Appeal from the United States
* District Court for the
Debtor-Appellant, * Western District of Arkansas.
*
v. * [TO BE PUBLISHED]
*
Renee S. Williams, *
*
Trustee-Appellee. *
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Submitted: December 16, 2005
Filed: December 22, 2005
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Before WOLLMAN, LAY, and RILEY, Circuit Judges.
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PER CURIAM.
The bankruptcy court1 denied John S. Marlar’s motion to dismiss an involuntary
bankruptcy petition brought against him. The bankruptcy court concluded that, for
the purposes of 11 U.S.C. § 303(a), Marlar’s status as a farmer was an affirmative
1
The Honorable James G. Mixon, United States Bankruptcy Judge for the
Western District of Arkansas.
defense that he waived by failing to raise it in a timely manner. The district court2
affirmed. We also affirm.
In 1998, an involuntary bankruptcy petition was filed against Marlar. A hearing
was held and Marlar was adjudicated a debtor. Marlar did not raise the issue of his
status as a farmer at the hearing. Nearly five years later, in December 2003, Marlar
filed a motion to dismiss, asserting that 11 U.S.C. § 303(a) strips bankruptcy courts
of subject matter jurisdiction over involuntary bankruptcy petitions brought against
farmers. In his motion to dismiss, Marlar contended that he was a farmer when the
involuntary petition was filed and that, accordingly, the bankruptcy proceedings
against him should be dismissed for lack of jurisdiction.
In February 2004, the bankruptcy court held a hearing at which Marlar
presented evidence supporting his assertion that he met the statutory definition of a
farmer. The bankruptcy court then denied Marlar’s motion to dismiss without
reaching the question of whether Marlar was in fact a farmer for the purposes of 11
U.S.C. § 303(a), concluding that “even if [Marlar] were a farmer at the time the
involuntary petition for relief was filed against him, [his status as a farmer] was an
affirmative defense which should have been pleaded and proved at the time the
involuntary petition was filed.”
Marlar then appealed to the district court, which agreed with the bankruptcy
court’s conclusion that, under 11 U.S.C. § 303(a), a debtor’s status as a farmer is an
affirmative defense that is waived if not timely raised. The district court held that
Marlar’s five-year delay in raising his status as a farmer was untimely, and that,
accordingly, his motion to dismiss had been properly denied.
2
The Honorable Harry F. Barnes, United States District Judge for the Western
District of Arkansas.
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In this appeal, we must decide two questions. First, we must determine whether
the district court erred in concluding as a matter of law that, under 11 U.S.C. § 303(a),
an alleged debtor in an involuntary bankruptcy case must timely assert his or her
status as a farmer as an affirmative defense, lest it be waived. If we answer this
question in the affirmative, we must then determine whether the district court properly
concluded that Marlar’s five-year delay in asserting his status as a farmer was
untimely. “We review the bankruptcy court’s legal conclusions de novo and its
factual findings under the clearly erroneous standard.” First Nat’l Bank of Olathe,
Kansas v. Pontow, 111 F.3d 604, 609 (8th Cir. 1997).
Although our court has not previously addressed the issue raised in this case,
the Fifth Circuit has held that under 11 U.S.C. § 303(a) “an individual’s status as a
farmer does not go to the jurisdiction of the bankruptcy court over an involuntary
bankruptcy petition, but instead is an affirmative defense that may be waived.” In re
McCloy, 296 F.3d 370, 375 (5th Cir. 2002); see also In re Frusher, 124 B.R. 331, 333
(D. Kan. 1991); In re Johnson, 13 B.R. 342, 346 (D. Minn. 1981). We agree.
Subject matter jurisdiction over title 11 bankruptcy proceedings is provided by
28 U.S.C. § 1334, which states in relevant part that “the district court shall have
original and exclusive jurisdiction of all cases under title 11.” In turn, under 28
U.S.C. § 157(a), district courts may “provide that any or all cases under title 11 . . .
shall be referred to the bankruptcy judges for the district.” Marlar asserts that this
grant of subject matter jurisdiction is defeated by the provision in 11 U.S.C. § 303(a)
exempting farmers from the commencement of involuntary bankruptcy proceedings
against them. As such, Marlar argues that his five-year delay in asserting his status
as a farmer is irrelevant, as challenges to subject matter jurisdiction may be raised at
any point in a bankruptcy proceeding. We conclude, however, that Marlar’s
interpretation of § 303(a) cannot be reconciled with § 303(h) or the general grant of
subject matter jurisdiction in 28 U.S.C. §§ 157 and 1334.
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Section 303(a) provides:
An involuntary case may be commenced only under chapter
7 or 11 of this title, and only against a person, except a
farmer, family farmer, or a corporation that is not a
moneyed business, or commercial corporation, that may be
a debtor under the chapter under which such case is
commenced.
11 U.S.C. § 303(a). Thus, Marlar correctly asserts that farmers are expressly excepted
from the class of persons against whom an involuntary case may be commenced under
chapter 7 or 11. However, 11 U.S.C. § 303(h) provides:
If the petition is not timely controverted, the court shall
order relief against the debtor in an involuntary case under
the chapter under which the petition was filed. Otherwise,
after trial, the court shall order relief against the debtor in
an involuntary case under the chapter under which the
petition was filed . . . .
Like the Fifth Circuit, we read this provision to mean that a farmer against whom an
involuntary petition is filed must timely controvert the petition by raising his or her
status as a farmer in order to preclude the commencement of an involuntary case. See
McCloy, 296 F.3d at 375. Thus, rather than stripping the court of subject matter
jurisdiction over all cases involving farmers, the farmer exception in 11 U.S.C.
§ 303(a) simply provides a means for farmers to escape the commencement of an
involuntary bankruptcy case against them. Accordingly, we hold that an alleged
debtor must timely assert his or her status in one of the exempted categories as an
affirmative defense. If the alleged debtor fails to timely raise the issue, it is waived.
To hold otherwise would interfere with the bankruptcy court’s ability to
proceed in involuntary bankruptcy cases and create significant uncertainty in the
process, as alleged debtors could strategically raise the issue of jurisdiction at any
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point in the proceedings. See id. (“[T]his circumstance could interfere with the
bankruptcy court’s ability to reorganize debtors by allowing [the question of subject
matter jurisdiction] to be raised at any time, in a possibly strategic manner.”); Frusher,
124 B.R. at 334 (“[We are] unconvinced that Congress created a provision in the
bankruptcy code which would allow the alleged debtor to play the ultimate trump card
at any point in the involuntary bankruptcy proceeding.”).
We next turn to the question of whether Marlar’s five-year delay in raising the
affirmative defense that he is a farmer was timely. The record indicates, and Marlar
concedes, that many hearings have been held and a number of issues have been
litigated and resolved, including the sale of Marlar’s property. This supports the
district court’s conclusion that Marlar’s motion to dismiss was untimely.
Accordingly, we affirm.
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