The Eighth Circuit Contradicts a Purpose of Bankruptcy by Excluding Crop Loss Disaster Payments from the Bankruptcy Estate in in Re Vote

• Publication year: 2022

36 Creighton L. Rev. 315. THE EIGHTH CIRCUIT CONTRADICTS A PURPOSE OF BANKRUPTCY BY EXCLUDING CROP LOSS DISASTER PAYMENTS FROM THE BANKRUPTCY ESTATE IN IN RE VOTE

Creighton Law Review

Vol. 36

INTRODUCTION

When a debtor files a bankruptcy petition, all of his property becomes property of the bankruptcy estate.(fn1) The property included in a bankruptcy estate is determined as of the date the debtor files his petition for bankruptcy.(fn2) The bankruptcy estate consists of any interest the debtor possesses at the time of filing his bankruptcy petition.(fn3) The debtor surrenders all of his interests to the trustee when the bankruptcy petition is filed.(fn4)

Courts define the boundaries of a debtor's bankruptcy estate by looking to Title 11, Bankruptcy, of the United States Code ("Bankruptcy Code").(fn5) Property of the bankruptcy estate, under the Bankruptcy Code, consists of all of the debtor's interests, including those in community property and some property in which the debtor lacked any interest at the commencement of the case.(fn6) Section 541 of the Bankruptcy Code deals specifically with the definition of "property" of the bankruptcy estate.(fn7) One of the Bankruptcy Code's purposes is to acquire anything of value for creditors, minus exemptions, that the debtor possesses at the commencement of the case.(fn8) The other purpose of the Bankruptcy Code is to give the debtor a fresh start; this purpose is not expressed in § 541, but is provided for through exemptions.(fn9) From the debtor's viewpoint, filing bankruptcy is equivalent to financial death.(fn10) In filing for bankruptcy, the debtor chooses to lose his assets in exchange for a fresh start.(fn11) Bankruptcy intends to strike a balance between satisfying pre-bankruptcy debts and providing the debtor with a fresh start.(fn12)

Under § 541 of the Bankruptcy Code, property of the bankruptcy estate is interpreted broadly to include interests that are novel, contingent, or those whose enjoyment must be postponed.(fn13) Contingent interests are legal interests that may never be attained or may be attained at some future date.(fn14) Requiring the debtor's pre-petition interest, which arises before the debtor files his bankruptcy petition, to be certain at the time of filing is contrary to the Bankruptcy Code's inclusion of contingent interests in property of the bankruptcy estate.(fn15) Realistically, to determine whether property received post-petition, after the debtor filed his bankruptcy petition, was a contingent interest at the time of filing, one must wait for the post-petition realization.(fn16)

The right a debtor possesses in future payments received post-petition becomes part of the bankruptcy estate and when the debtor receives the payments, they too become property of the bankruptcy estate.(fn17) The possession of interests by the trustee at the time of filing permits the estate to reap any benefits that might stem from the interests, even if the benefits cannot be received until post-petition.(fn18) Even though enjoyment of the interests is postponed, property sufficiently linked to pre-petition activities should be included in the bankruptcy estate and used to satisfy past debts.(fn19)

Recently, in In re Vote,(fn20) the United States Court of Appeals for the Eighth Circuit concluded that crop loss disaster payments did not constitute property of the bankruptcy estate.(fn21) The Eighth Circuit analyzed whether a debtor, Darryl Lee Vote ("Vote"), had an interest in crop loss disaster payments stemming from the Market Loss Assistance Program ("MLAP") and the Crop Disaster Program ("CDP").(fn22) Based on this analysis, the Eighth Circuit then determined whether the payments constituted property of the bankruptcy estate.(fn23) Vote filed his petition for Chapter 7 bankruptcy on September 7, 1999.(fn24) Congress passed the Omnibus Consolidated Appropriations Act of 2000 ("Appropriations Act"),(fn25) which implemented the disaster programs on October 22, 1999.(fn26) Vote then received the MLAP and CDP payments between November 1999 and April 2000.(fn27) The bankruptcy trustee filed a motion to obtain the two crop loss payments for the bankruptcy estate.(fn28) The Eighth Circuit Bankruptcy Appellate Panel affirmed the bankruptcy court's decision, maintaining that Vote possessed, at most, an expectation at the commencement of the case that Congress would enact the Appropriations Act granting the crop loss disaster payments.(fn29) Consequently, the court declared that the payments were not property of the bankruptcy estate pursuant to § 541 of the Bankruptcy Code.(fn30) The trustee appealed to the Eighth Circuit, which found that Vote did not possess any interest, legal or equitable, in the MLAP and CDP payments at the time of filing because Congress had not yet enacted the legislation implementing the disaster programs.(fn31) The court reasoned that because Vote lacked the requisite legal or equitable interest as of the commencement of the case, the disaster payments did not constitute property of the bankruptcy estate.(fn32)

This Note will first recount the facts and holding of Vote.(fn33) This Note will then review relevant case law regarding the inclusion of crop loss payments and contingent interests in the property of the bankruptcy estate.(fn34) Next, this Note will examine the holding in Vote.(fn35) Specifically, this Note will scrutinize the Eighth Circuit's decision, demonstrating that the court should have characterized Vote's interest in the crop loss disaster payments as contingent and included the payments in the bankruptcy estate.(fn36) Finally, this Note will conclude by criticizing the Eighth Circuit's decision, which contributed to the already controversial topic of what is included in the bankruptcy estate and what the purpose of the Bankruptcy Code is, thereby failing to establish a sufficient standard for future courts to follow.(fn37)

FACTS AND HOLDING

Daryl Lee Vote ("Vote"), a farmer for thirteen years in North Dakota, did not plant any crops for the 1999 season due to the extremely saturated soil.(fn38) On September 7, 1999, Vote filed a petition for Chapter 7 bankruptcy with the United States Bankruptcy Court for the District of North Dakota.(fn39) The court appointed Wayne Drewes ("Trustee") trustee for the Chapter 7 bankruptcy.(fn40) Six weeks later, on October 22, 1999, Congress passed the Omnibus Consolidated Appropriations Act of 2000 ("Appropriations Act"),(fn41) which implemented crop disaster programs.(fn42) The Appropriations Act funded payments for the 1999 farm season from the Market Loss Assistance Program ("MLAP") and the Crop Disaster Program ("CDP").(fn43) Farmers who contracted with the Farm Service Agency for seven years received payments under the MLAP.(fn44) Additionally, the CDP compensated farmers for damages resulting from the inability to plant a 1999 crop.(fn45)

Prior to filing, Vote had met all the necessary requirements to receive the MLAP payments.(fn46) In May 1996, Vote had entered into a seven-year production contract with the Farm Service Agency and therefore received an MLAP payment of $11,632 for the 1999 season on November 3, 1999.(fn47) On February 1, 2000, Vote enrolled in the CDP and qualified for two payments in the amounts of $10,866 and $10,740, received on February 9, 2000 and April 7, 2000, respectively.(fn48)

The Trustee filed a Motion for Turnover in the United States Bankruptcy Court for the District of North Dakota on October 16, 2000, requesting the debtor turn over MLAP and CDP payments to the bankruptcy estate.(fn49) In doing so, the Trustee argued that the post-petition MLAP and CDP payments were linked to a pre-petition property interest and should, therefore, be included in the bankruptcy estate.(fn50) The bankruptcy court denied the Motion for Turnover, stating that the MLAP and CDP payments were not property of the estate.(fn51) The Honorable William A. Hill reasoned as such upon noting that because Congress did not enact the federal Appropriations Act until after Vote had filed his bankruptcy petition, Vote had no right to such payments when he filed his bankruptcy petition.(fn52) The court maintained that the right to the MLAP payments did not exist until Congress enacted the legislation creating the program.(fn53) The court reasoned that the actual right to the CDP and MLAP payments surfaced after the bankruptcy petition was filed and therefore the right stayed with the debtor.(fn54) The court stated that generally, the majority of property acquired by a debtor after he filed his bankruptcy petition is not included in the bankruptcy estate because an interest in the property should be present prior to the date of filing for bankruptcy.(fn55)

The Trustee appealed the order from the bankruptcy court to the United States Bankruptcy Appellate Panel of the Eighth Circuit ("BAP"), arguing that the CDP and MLAP payments constituted after-acquired property that was significantly tied to the pre-bankruptcy activities of Vote as the debtor and should not prevent Vote from making a fresh start.(fn56) The Trustee argued for a broad reading of the Bankruptcy Code that would include the right to receive the MLAP and CDP payments as property of the estate.(fn57) The Honorable Jerry W. Venters, writing for the Eighth Circuit BAP, affirmed the decision of the bankruptcy court, maintaining that the CDP and MLAP payments were not...