Darin Seifert v. Kyle Carlson ( 2015 )

United States Bankruptcy Appellate Panel
For the Eighth Circuit
___________________________
No. 14-6044
___________________________
In re: Darin Larry Seifert
Debtor
------------------------------
Darin Larry Seifert
Debtor - Appellant
v.
Kyle Carlson
Trustee - Appellee
CHS
Objector - Appellee
____________
Appeal from United States Bankruptcy Court
for the District of Minnesota - Fergus Falls
____________
Submitted: April 23, 2015
Filed: May 22, 2015
____________
Before FEDERMAN, Chief Judge, NAIL and SHODEEN, Bankruptcy Judges.
____________
SHODEEN, Bankruptcy Judge.
The Debtor, Darin L. Seifert, appeals the order that resulted from the
bankruptcy court’s bench ruling on November 18, 2014, which held that the
objection to debtor’s claim of exemption in farm proceeds pursuant to state law was
moot. We have jurisdiction of this appeal from entry of the bankruptcy court’s final
order pursuant to 28 U.S.C. section 158(b). For the reasons set forth below, we
reverse and remand for further proceedings.
STANDARD OF REVIEW
A bankruptcy court’s findings of facts are reviewed for clear error, and its
conclusions of law are reviewed de novo. First Nat’l Bank v.Pontow, 111 F.3d 604,
609 (8th Cir. 1997) (quoting Miller v. Farmers Home Admin. (In re Miller), 16 F.3d
240, 242 (8th Cir. 1994)). Issues subject to a bankruptcy court’s discretion are
reviewed for an abuse of that discretion based upon a failure to apply the proper legal
standard. Sanders v. Clemco Indus., 862 F.2d 161, 169-70 (8th Cir. 1988). The
conclusion that such an abuse occurred can only be reached if the court’s ruling was
clearly erroneous as to factual findings or legal conclusions. Yates v. Forker (In re
Patriot Co.), 303 B.R. 811, 814 (B.A.P. 8th Cir. 2004).
DISCUSSION
Seifert filed his petition under chapter 12 of the Bankruptcy Code on
December 23, 2013. In the schedules filed with the court the sale proceeds from the
current year’s crop were described as “farm earnings” valued at $134,661. This asset
consisted of five checks made jointly payable to the Farm Services Agency (FSA),
CHS, Inc. and Seifert. Seifert claimed $91,258 of these farm earnings as exempt
under Minnesota Statute § 550.37(13). FSA was identified as a secured creditor that
held equipment, crops, farm earnings and a Kenworth tractor as collateral. CHS,
Inc. filed a timely objection to Seifert’s exemption claim in the farm earnings, which
the trustee later joined.
2
Based upon the amount of its claim and the value of the collateral, FSA was
classified and treated as an oversecured creditor in all of the proposed plans filed by
Seifert. The FSA did not object to Seifert’s claim of exemptions or to any of the
filed plans. CHS and the chapter 12 trustee objected to each of the plans on various
grounds. One of their objections was based upon the best interests of creditors test
required under 11 U.S.C. section 1225(a)(4) and closely aligned to the exemption
controversy. Under that code provision, in order to obtain confirmation of a chapter
12 plan, a debtor must demonstrate that: “the value, as of the effective date of the
plan, of property to be distributed under the plan on account of each allowed
unsecured claim is not less than the amount that would be paid on such claim if the
estate of the debtor were liquidated under chapter 7 of this title on such date.” Both
CHS and the trustee took the position that because Seifert was not entitled to an
exemption in the farm earnings the amount to be paid to the unsecured creditors must
include the value of that asset.
At a May 28, 2014 hearing the bankruptcy court was informed that Seifert,
CHS and the trustee had reached an agreement on the objections to confirmation of
the plan related to 11 U.S.C. section 1225(a)(4). A Third Amended Plan, filed on
September 24, 2014, included the following language:
The Debtor’s net equity in his property, after deducting the
amounts of the secured claims and his exemptions, is set
by Stipulation. The debtor agrees that no less than
$32,500.00 shall be paid to the Trustee for payment of cost
of administration excluding attorney fees and distribution
to creditors over the life of the Plan as provided for in
Article VII. However, if the Debtor’s claim of exemption
of farm earnings is finally disallowed, the Debtor shall pay
the principal sum of $95,000.00, together with interest, as
provided in Article VII.
After the parties had reached their agreement, but before the next hearing on plan
confirmation, CHS filed a pleading with the Court asserting that the pending
exemption dispute was moot because the checks resulting from the sale of the 2013
3
crop had been turned over to FSA and consequently Seifert retained no interest in
those funds.
It is well-settled that jurisdiction of the federal courts is confined to actual
controversies in which one of the litigants has a “legally cognizable interest.”
Genesis Healthcare Corp. v. Symczyk, 133 S. Ct. 1523, 1528 (2013) (internal
citations and quotations omitted). Requests for declaratory relief are equally subject
to the doctrine of mootness. See Marine Equip. Mgmt. Co. v. United States, 4 F.3d
643, 646 (8th Cir. 1993); see also Orix Credit Alliance, Inc. v. Wolfe, 212 F.3d 891,
896 (5th Cir. 2000). An actual controversy must exist at all stages of the proceeding
which will result in a remedy that can be fashioned to address an interest or injury
alleged by one of the parties. If subsequent developments in the case preclude such
a result the issue becomes constitutionally moot. See Genesis Healthcare Corp. v.
Symczyk, 133 S. Ct. at 1528; Shea v. Esensten, 208 F.3d 712, 716 (8th Cir.2000);
Missouri v. Craig, 163 F.3d 482, 485 (8th Cir.1998). “A live case or controversy
exists . . . if the parties have an interest in the outcome of the litigation.” In re PW,
LLC, 391 B.R. 25, 33 (B.A.P. 9th Cir. 2008).
There is no doubt that the parties' stipulation, incorporated into the proposed
plan, reserved the issue of the disputed claim of exemption for later determination.
Payment to the FSA did not operate to override the parties’ stipulation and did not
constitute a determination of what amount would be paid to unsecured creditors.
The issue of whether debtor is entitled to the exemption under state law is not moot.
For the reasons set forth, the decision of the bankruptcy court is reversed and
remanded for further proceedings consistent with this opinion.
___________________________
4