Summary of a Recent
Judicial
Development in
Bankruptcy
Nonstock Cooperative Considered a "Farmer"
Under Bankruptcy Code
Joshua T. CrainNational AgLaw Center Graduate Assistant
Summary of Decision
In In re Corn-Pro Nonstock Cooperative, Inc. 318 B.R. 153 (B.A.P. 8th Cir. 2004), the Bankruptcy Appellate Panel for the United States Court of Appeals for the Eighth Circuit held that an agricultural cooperative was a farmer engaged in a farming operation under the Bankruptcy Code because it had a significant degree of engagement in, played a significant role in, and had an ownership interest in the raising of its livestock. See id.
Background
Cooperative Supply, Inc. and Darwin Franzen filed an involuntary bankruptcy petition against Corn-Pro Nonstock Cooperative, Inc. (Corn-Pro). See id. Corn-Pro argued that it could not be compelled into bankruptcy by the involuntary petition because it was a farmer engaged in a farming operation. See id.
Arguments, Analysis, and Holdings
The appellate panel explained that under the Bankruptcy Code, a "farmer" is "a person that receives more than 80% of such person's gross income during the taxable year . . . immediately preceding the taxable year . . . during which the case under this title . . . was commenced from a farming operation owned or operated by such person." Id. at 155-56. The court explained that a corporation, such as Corn-Pro, could be a "person." See id.
Noting that the issue was whether Corn-Pro was engaged in a farming operation, the court explained that a farming operation included "farming, tillage of the soil, dairy farming, ranching, production or raising of crops, poultry, livestock, and production of poultry or livestock products in an unmanufactured state." See id. The creditors argued that Corn-Pro was not engaged in a farming operation, largely because the activities of Corn-Pro were passive. See id. The court explained that although Corn-Pro's members were independent contractors, they were representatives of, and acted on behalf of, Corn-Pro. See id. It also explained that they "oversaw the care of the animals, physically checked on the animals, arranged for the purchase and marketing of the animals, ordered at least some of the feed, gave some of the vaccinations, and hired transportation for moving the hogs to slaughter." Id. at 157. The court explained that Corn-Pro was not, therefore, passive. See id.
The court held that because Corn-Pro had a "significant degree of engagement in, played a significant role in, and had an ownership interest in the raising of its livestock" it was not passive. Id. It concluded that "Corn-Pro was engaged in a farming operation. Since all its income was from that farming operation, it is a farmer within the meaning of the Bankruptcy Code. Accordingly, it cannot be the subject of an involuntary bankruptcy petition. The bankruptcy court properly dismissed the involuntary petition." Id.
The case was decided on December 16, 2004; this summary was posted Mar. 24, 2005.