Summary of a Recent
Judicial
Development in
Bankruptcy
Plan Must Be Proposed In Good Faith In Order To Be Confirmed
Walt McCarterNational AgLaw Center Research Associate
Summary of Decision
In In re Sandhills Cattle Feeding Company, Inc., No. BK05-40061, 2006 Bankr. LEXIS 2538 (Bankr. D. Neb. Oct. 24, 2006), the United States Bankruptcy Court for the District of Nebraska held that a debtor's Chapter 12 plan was not filed in bad faith, and allowed his plan to be confirmed.
Background
Debtors operated a cattle feed yard near Bassett, Nebraska. Id. at *2. BCD Farms (BCD) orally contracted with the Debtors to feed out 1,436 calves, which were delivered and processed in November 2002. Id. at *3-4. Shortly after arrival, a number of calves broke through the fence and escaped the feed yard and were later hit by vehicles on the highway about four miles away. Id. at *4. A few days later, several cows appeared sick and the veterinarian diagnosed them with bovine rhinotracheitis (red-nose virus). Id. at *5. In December 2002, BCD sent an agent out to inspect the cattle, and he was informed that 172 of the calves had died. Id. at *5-6. He was satisfied that the Debtors had sufficient feed and medication to keep the rest of the cows in good health, and did not recommend to BCD that they remove their remaining cattle. Id. at *6.
Two weeks later, BCD decided that they should remove their cattle from the feed lot, but the Debtor informed them that they owed him $92,000 for feed and expenses and that they could not remove the animals until they paid him. Id. at *7. While at the Debtors' feed yard, 385 of the calves had died. Id. BCD's agent wrote the Debtor a check from his personal account and moved BCD's cattle to another feed yard, then put a stop payment order on the check as he claimed he had been authorized by BCD to do. Id. The Debtors won a judgment against the agent for the full amount of the check in a subsequent lawsuit, and BCD in turn sued the Debtors, alleging five causes of action including one accusation of converting the 385 cattle. Id. at *8. While that case was pending, several creditors were preparing to foreclose on the Debtors' property, and the Debtors filed Chapter 12 bankruptcy to stop the foreclosure proceedings, which also stopped the state court action. Id. BCD objected to the confirmation of their plan and filed a motion for relief from automatic stay, alleging bad faith filing. Id.
Arguments
BCD argued that the Debtors converted 385 head of cattle and, therefore, the plan was filed in bad faith because it treated BCD as a general unsecured creditor. Id. at *9.
Analysis and Holdings
Section 1225(a)(3) of the Bankruptcy Code requires that a plan must be proposed in good faith in order to be confirmed. Id. at *1-2. The court noted that in determining good faith, it must examine the totality of the circumstances surrounding the plan and the bankruptcy filing. Id. at *2. Having done so, the court found that the evidence overwhelmingly showed that the 385 head of cattle that BCD lost were not as a result of conversion of the animals, but were the result of a disease which eventually caused pneumonia and killed the animals. Id. at *11. Thus the court overruled BCD's objection to confirmation of the plan. Id.
The case was decided on October 24, 2006.