Summary of a Recent
Judicial
Development in
Bankruptcy
Court Declines Imposition of Sanctions Against the
Government for Delaying Subsidy Payments
Walt McCarterNational AgLaw Center Research Associate
Summary of Decision
In In re Reams, Case No.: 01-70935-LMK, 2005 Bankr. LEXIS 2122 (Bankr. N.D. Fla. Sept. 22, 2005), the United States Bankruptcy Court for the Northern District of Florida declined to sanction the government for withholding subsidy checks from a debtor for eight days because there was no willful violation of the automatic stay, nor was there any evidence of bad faith on behalf of the government agency.
Background
Debtors filed their Chapter 12 petition in September 2001. Id. at *1. They were tobacco farmers operating under a quota/government subsidy system. Id. at 1-2. They received their payments from the government program through Farm Service Agency (FSA). Id. at *3. The payment had to first be approved at a local level, then at the national level. On July 12, 2005, the Debtors did not receive their government check because the county executive director of FSA would not release it. Id. at *4. The director was hesitant to make the disbursement because the Debtors were in bankruptcy and wanted to talk to the Assistant U.S. Attorney General to make sure that he should release the check; however, the Attorney General's office was closed due to Hurricane Dennis hitting the Pensacola area. Id. The Debtors filed a motion to compel the turnover of the payments, and recovered them on July 20, 2005. Id. at *5. The Debtors then sued for sanctions against the government for intentionally delaying the payment, and to recover damages for the extra eight days worth of accruing interests on loans they would have paid with the money. Id. at *5-6.
Arguments
The Debtors argued that they should be awarded damages under Bankruptcy Rule 9011 of the Federal Rules of Bankruptcy Procedure and 11 U.S.C. §§ 105 and 362, because the government intentionally delayed their payments. Id.
The government argued that it was not liable for damages because there was no willful violation of the automatic stay, and there was no bad faith on its part. Id. at *6-7.
Analysis and Holdings
The court stated that the Debtors incorrectly relied on Rule 9011 because that rule concerns a lawyer's certification of papers he files and submits to the court. Id. at *6. The court also found no violation of 11 U.S.C. § 362. Id. at *7. It was unclear to the court "how delaying the payment of TTPP proceeds to the Debtors eight days qualifies as an act to collect the debt." Id. at *7-8. The government made no demand of payments, nor initiated any actions to recover them in violation of the automatic stay. Id. at *8. Moreover, the court found the FSA director's actions to be "understandable and even admirable." Id. The court has discretion under 11 U.S.C. § 105 to provide damages also, but because the court found no violation of the automatic stay, the § 105 claim also failed. Id. at *10-11. The court noted that the tobacco subsidy program was still new, the FSA director was unfamiliar with bankruptcy law and procedure, and there was no bad faith. Id. at *13. Furthermore, it was clear that the Debtors were entitled to the payments, but there was no clearly specified time when they would receive them. Id. at *14. For those reasons the court dismissed the Debtors' claim. Id. at *16.
The case was decided on September 22, 2005.