Dye, Bart H. v. US Farm Service ( 2004 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 03-2043
BART HARRISON DYE,
Debtor-Appellant,
v.
UNITED STATES OF AMERICA, FARM SERVICES
AGENCY (FSA),
Creditor-Appellee.
IN RE: BART HARRISON DYE,
Debtor.
____________
Appeal from the United States District Court
for the Southern District of Indiana, Evansville Division.
No. 02 C 186—Richard L. Young, Judge.
____________
ARGUED NOVEMBER 6, 2003—DECIDED MARCH 10, 2004
____________
Before CUDAHY, MANION, and ROVNER, Circuit Judges.
MANION, Circuit Judge. After Bart Harrison Dye filed for
Chapter 12 bankruptcy, a dispute arose as to his ownership
rights to a family farm. The bankruptcy court determined
that Dye had earlier deeded the farm to the government in
lieu of foreclosure, so he no longer owned it. Instead, the
court found that he had exercised an option to purchase the
2 No. 03-2043
farm, and was thus required to pay $828,706 or forfeit his
interest. After Dye failed to make the payments for the farm
within 60 days, his Chapter 12 bankruptcy petition was
dismissed. Dye appealed and the district court affirmed. He
now appeals to this court and we also affirm.
I.
Dye filed for Chapter 12 bankruptcy protection on August
17, 2001, seeking relief from debts that arose from a mort-
gage he had taken on his family farm in 1981 with the Farm
1
Service Agency’s (FSA) predecessor. Dye’s relationship
with the FSA began in the early 1980’s when the agency
recorded three mortgages against property in which Dye
and his wife had varying interests. Dye experienced finan-
cial difficulties and entered into an arrangement with the
FSA on September 7, 1984, whereby he and his wife con-
veyed the farm to the FSA and were released from all
personal liability on the mortgages. In other words, this
1984 transaction served as a voluntary conveyance in lieu of
foreclosure. As part of this conveyance, Dye received a
credit of $525,000 for his interest in the farm and the FSA
forgave the balance of a loan to Dye of $321,764.23 in
principal and $33,110.63 in interest. In order to acquire the
farm, FSA also paid Alvin Dye (A. Dye), Dye’s brother,
$120,000 for his interest in a portion of the farm. The FSA
recorded the deed in its name and then claims to have
rented the farm to others for a period of approximately five
years.
1
Prior to October 1, 1996, the FSA was known as the Farmers
Home Administration. For ease of reference, we will refer to both
agencies as FSA.
No. 03-2043 3
In a letter dated December 22, 1989, the FSA advised Dye
of a new program under which former owners of foreclosed
property could enter into a lease back/buy back agreement
with the FSA. On June 6, 1991, Dye entered into a five-year
lease of the farm that he formerly owned. Under this lease,
Dye had the right to exercise an option to buy the farm
before the expiration of the lease, subject to certain terms
and conditions, including the requirement that the balance
of the purchase price had to be paid in cash at closing.
The FSA claims that Dye exercised the option to purchase
the farm by writing to the agency on May 13, 1996. He was
sent a standard sales contract to sign and return to the FSA.
The FSA never received the contract. Instead, Dye filed an
administrative appeal regarding the purchase price of the
farm and certain fish and wildlife easements on the farm.
After losing the administrative case, Dye filed a petition for
review of the administrative determination in U.S. District
Court, and a judgment was entered on April 10, 2002 in
favor of the government. In the meantime, Dye filed for
Chapter 12 bankruptcy on August 17, 2001, and asserted in
his schedules that he was the owner of the farm and that the
“USDA Farm Service Agency” had a first mortgage on the
property. Dye’s intent in filing Chapter 12, as revealed by
his counsel at the bankruptcy hearing, was to treat the
money due under a so-called “installment land sales con-
tract” as a secured debt and cram it down, stretching the
payments out over 20 or 30 years.
During Dye’s bankruptcy proceedings, the FSA asserted
ownership of the farm and requested that the court enter an
order establishing a time for Dye to assume or reject an
option to purchase the land. In response, Dye claimed that
he never relinquished what he perceived to be his equitable
interest in the property, and that the 1984 transaction re-
sulted in him giving the FSA a deed held “in lien of trust.”
4 No. 03-2043
He claims that he lived and worked on the farm ever since
the 1984 transaction and has made payments to the FSA
in the amount of $396,902.92. Accordingly, he asserts an
equitable interest in the farm and that his arrangement with
the FSA constitutes an installment land sales contract. He
also denies entering into the five-year lease with an option
to purchase, and, naturally, denies sending a letter to
exercise any option.
The bankruptcy court rejected Dye’s arguments and on
September 23, 2002, pursuant to 11 U.S.C. § 365(d)(2), or-
dered that Dye, within 60 days, either assume the option to
purchase the farm (by tendering the purchase price of
$828,706) or that the option would be deemed rejected. Dye
did not tender payment, but instead appealed to the district
court without requesting a stay of the 60-day period. The
district court affirmed the bankruptcy court’s ruling. Dye
now appeals to this court.
II.
The findings of fact of the bankruptcy court are reviewed
for clear error. In re Generes, 69 F.3d 821, 824-25 (7th Cir.
1995). Conclusions of law are reviewed de novo. See Meyer
v. Rigdon, 36 F.3d 1375, 1378 (7th Cir. 1994). This appeal
involves application of 11 U.S.C. § 365(d)(2) of the
Bankruptcy Code, which provides, in pertinent part:
In a case under chapter . . .12 . . . of this title, the trustee
may assume or reject an executory contract or unex-
pired lease of residential real property or of personal
property of the debtor at any time before the confirma-
tion of a plan but the court, on the request of any party
to such contract or lease, may order the trustee to de-
termine within a specified period of time whether to
assume or reject such contract or lease.
No. 03-2043 5
Pursuant to this provision, the bankruptcy judge deter-
mined that on June 6, 1991, Dye entered into a five-year
lease with an option to purchase the farm that he formerly
owned. The bankruptcy judge also determined that Dye
exercised his option to purchase on May 13, 1996, but failed
to follow through by tendering the purchase price. These
findings formed the framework for the bankruptcy judge’s
decision to order Dye to follow through with exercising the
option by tendering the purchase price for the farm within
60 days, or to forfeit the option. Under the bankruptcy
court’s ruling, Dye has forfeited any interest in the farm
because he apparently did not have the financing to follow
through with the exercise of the option within the 60-day
period and did not request a stay of the 60-day period.
Dye does not challenge the bankruptcy court’s authority
under 11 U.S.C. § 365(d)(2) to order an executory contract or
lease to be assumed or rejected. Instead, he challenges the
lower court’s underlying findings that he: 1) relinquished
full title to the farm in 1984 to the FSA; 2) then entered into
a lease with an option to purchase the farm in 1991; and
finally, 3) exercised the option to purchase in 1996. Accord-
ingly, we begin the analysis by reviewing the 1984 transac-
tion.
The record reveals that Dye and his wife executed a gen-
eral warranty deed on June 21, 1984, and the FSA recorded
this deed in its name on September 7, 1984. Dye acknowl-
edges that the transfer was voluntary, but, as best we can
tell, he now argues that his conveyance was in fact an
equitable mortgage or installment land contract disguised
as an absolute conveyance. Whether an instrument is a
mortgage or absolute conveyance is governed by the intent
of the parties at the time the transaction is undertaken, and
in assessing intent we may look at extrinsic or parol evi-
dence if necessary. See, e.g., Matter of Willows of Coventry,
6 No. 03-2043
Ltd. Partnership, 154 B.R. 959, 963 (Bankr. N.D. Ind. 1993)
(citing Barber v. Barber, 70 N.E. 2d 185, 187 (Ind. Ct. App.
1946)).
Dye offers no evidence, extrinsic, parol, or otherwise, to
support his equitable mortgage/land contract theory. An
appellant’s brief must “contain appellant’s contentions and
the reasons for them, with citations to the authorities and
parts of the record on which the appellant relies.” Fed. R.
App. P. 28 (a)(9)(A). But Dye cites nothing in the record for
this court to review. He claims that he lived on the farm for
the entire time after the 1984 transaction, and paid the FSA
what he refers to as mortgage payments. While this argu-
ment is inherently plausible, Dye fails to cite the record, and
after our independent review we conclude that there is no
evidence in the record for this position. Dye had the oppor-
tunity to develop the record at the lower court level (by
2
testimony, affidavit, payment receipts, etc.), but did not.
The FSA, for its part, has developed the record, at least as to
3
this issue.
2
Bankruptcy Rule 9017 expressly makes the Federal Rules of
Evidence and a portion of the Federal Rules of Civil Procedure
applicable to bankruptcy proceedings.
3
We note also that the FSA has also failed to set forth evidence
concerning what happened with the property between the years
1984 and 1991. These are the years in which Dye’s attorney claims
that Dye made payments totaling $396,902.92 to the FSA. The
FSA claims, without evidence, that it leased the property to other
parties during this time—while Dye claims that he leased the
property to other parties during this time and forwarded the
payments to the FSA. This rather monumental discrepancy could
have been easily cured had either party, especially Dye, submit-
ted documents to demonstrate which (if either) claim is correct.
No. 03-2043 7
The FSA does cite to a copy of a warranty deed in the rec-
4
ord that indicates that Bart H. Dye and Donna F. Dye
conveyed four tracts of land totaling just over 411 acres to
the United States through the FSA. The FSA claims that any
payments made by Dye were the result of his holdover
tenancy. The courts below cited several reasons to support
the finding that the 1984 transaction constituted an absolute
conveyance of Dye’s entire interest in the farm. For example,
the district court cited the Release From Personal Liability
given by the FSA to the Dyes acknowledging the convey-
ance of the real property. This document provided that Dye
was released from all personal liability for past indebted-
ness on the property and did not include any language
regarding redemption. In addition, the district court cited
the FSA’s purchase of A. Dye’s interest in the farm as
inferential evidence of the FSA’s intent, through the 1984
transaction, to own the entire interest in the farm. Finally, in
1989, the FSA sent a letter to Dye advising him that “[t]he
farm that you once owned may be available for you to buy or
lease under certain conditions.” (Emphasis added.) This
evidence is adequate to uphold the district court’s finding
that Dye conveyed his entire interest in the farm to the FSA
in 1984, particularly since we have no contradictory evi-
dence from Dye.
Next, we consider whether Dye entered into a five-year
lease with an option to purchase. The lower courts cited the
above-mentioned 1989 letter from the FSA and Dye’s exe-
cution of a five-year Lease of Real Property with an option
to purchase the farm that he previously owned. Although
Dye claims he did not enter into a lease, the record includes
a copy of a lease with an option to purchase, signed by the
4
See Affidavit of C. Brent Kerns, Farm Loan Program Chief, FSA,
Indiana, Exh. C.
8 No. 03-2043
FSA as lessor and Dye as lessee on June 6, 1991. The declara-
tion of Brent Kerns, Indiana’s FSA Chief, serves to authenti-
cate this document. Dye does not challenge the authenticity
of his signature on the lease. This evidence thus supports
the finding that Dye in fact entered into a lease with an
option to purchase the farm.
Unfortunately, the evidentiary record breaks down again
as we next examine the district court’s finding that Dye
exercised his option to purchase on May 13, 1996. The FSA
cites a November 4, 1997 letter from Paul Singleton, FSA
Manager of Farm Loan Programs, addressed to Eric Allan
Koch. This letter indicates that an agreement had been
reached regarding the sale of the “Dye” farm, but fails to
indicate the parties to such an agreement. Moreover, there
is no evidence in the record explaining Koch’s identity or
role in this case. While this letter was apparently sent to Dye
as well, there is no evidence that Dye responded. Of course,
Dye denies that he responded. Thus, the Koch letter is
insufficient to establish that Dye exercised an option to
purchase the farm.
As evidence that Dye exercised the option, the FSA
attempts to rely on Kerns’ assertions that Dye pursued an
administrative appeal regarding certain conservation ease-
ments and to dispute the purchase price of the real estate.
However, this begs the question of whether Dye manifested
an intent to exercise his option to purchase since the actual
administrative appeal is missing from the record. For all we
know, Dye’s intent to exercise the option could have been
conditioned on the outcome of the administrative appeal.
More importantly, an option is a contract, see Caisse
Nationale De Credit Agricole v. CBI Industries, Inc., 90 F.3d
1264, 1272 (7th Cir. 1996), and the May 13, 1996 “writing”
wherein the FSA claims Dye exercised the option is missing
from the record without explanation. While Kerns testified
to the existence of this letter at the bankruptcy hearing, we
No. 03-2043 9
remind the FSA of the best evidence rule, Fed. R. Evid. 1002,
and its obligation to produce the actual key document
5
showing that the option was exercised. See, e.g., Dugan v.
R.J. Corman Railroad Co., 344 F.3d 662, 669 (7th Cir. 2003).
Due to the lack of admissible evidence concerning Dye’s
exercise of the option, we cannot uphold the district court’s
decision ordering him to exercise or forfeit the option.
Accordingly, there is no evidence of an executory contract
or unexpired lease necessary for applying 11 U.S.C.
§ 365(d)(2). However, we are permitted to affirm on any
basis identified in the record that was argued below. Payne
v. Churchich, 161 F.3d 1030, 1038 (7th Cir. 1998). The five-
year lease expired in 1996, and the option to purchase
arising from that lease has long since lapsed as a matter of
law. See Chicago Tribune Co. v. National Labor Relations Board,
965 F.2d 244, 248 (7th Cir. 1992). As stated, the record re-
veals that Dye transferred his entire interest in the farm in
1984. According to the record, he then lacked an interest in
the property until he signed the 1991 lease with an option to
purchase. By the time he filed the bankruptcy petition in
2001, his option had lapsed and he was without any other
interest in the farm. The family farm that Dye formerly
owned was improperly listed on his bankruptcy schedules.
Dye’s lawyer conceded at a hearing before the bankruptcy
judge that Dye was pursuing Chapter 12 in an attempt to
cram down the debt related to his installment land sales
contract. But there was no installment land sales contract.
5
The likely explanation for the missing document is that it was
lost. If so, Kerns’ testimony that the original was lost or destroyed
would suffice under Fed. R. Evid. 1004, and we could then rely
on Kerns’ declaration to find that Dye exercised the option.
However, as the record stands, the portion of Kerns’ declaration
referring to the document is inadmissible because it violates the
best evidence rule.
10 No. 03-2043
The only “sale” of the land was the 1984 deed conveying the
property from the Dyes to the United States. There is no
other farm-related debt arising from any other transaction
evidenced in the record. As stated above, Dye’s 1984
transaction was an absolute transfer that released him from
all liability on the farm. He did not enter into an installment
sales contract. Moreover, he cannot cram down money due
under the lease with an option to purchase because he
denies exercising the option and there is no evidence that he
exercised it. His bankruptcy petition was correctly dis-
missed since he has lacked an ownership interest in the
former family farm since 1984—before the enactment of
Chapter 12 in 1986—and thus has no chance to keep land
6
with which he has already parted. Cf. In Re Thomas Fortney,
36 F. 3d 701, 703 (7th Cir. 1994) (“Congress created Chapter
12 in 1986 in order to give family farmers facing bankruptcy
a fighting chance to reorganize their debts and keep their
land.”) (quotation omitted). We are unaware of any grounds
under Chapter 12 to revive an interest in land that has been
7
lost before the filing of the bankruptcy petition.
6
The FSA argued below that Dye lacked any interest in the
property. This argument became obscured by the focus on the
option contract and the executory contract order under 11 U.S.C.
Section 365(d)(2) of the Bankruptcy Code. Whether Dye exercised
the option or not, the ultimate outcome is the same—he has no
interest in the farm. In addition, Dye’s petition would be dis-
missed in any event because he conceded at oral argument that
the government has leased the farm to others and he is thus not
an owner or operator of a farming operation as defined in 11
U.S.C. § 101(18)(A).
7
Dye waives his argument that the 1984 arrangement clogged
his equitable right of redemption and violated Indiana statutory
law by raising it for the first time in his reply brief. See, e.g.,
Wildlife Exp. Corp. v. Carol Wright Sales, Inc., 18 F.3d 502, 508 n.5
(continued...)
No. 03-2043 11
III.
This relatively simple case was complicated by an incom-
plete record coupled with Dye’s counsel’s attempts to con-
fuse the 20-year history of the ownership-leasehold interest
8
concerning the land parcels in question. This has forced us
to approach “playing archaeologist” with the record, a task
for which we are ill-suited in our appellate role. See DeSilva
v. DiLeonardi, 181 F.3d 865, 867 (7th Cir. 1999). Nevertheless,
the district court correctly dismissed Dye’s case because he
transferred his entire interest in the farm in 1984 and his
option to purchase the farm has lapsed since the expiration
7
(...continued)
(7th Cir. 1994). In any event, he admits that the 1984 conveyance
was voluntary. His various other contentions are all irrelevant or
waived due to his failure to develop the argument. See, e.g.,
Pelfresne v. Village of Williams Bay, 917 F.2d 1017, 1023 (7th Cir.
1990).
8
At oral argument, Dye’s counsel claimed that he did not “see
an indication” that Dye leased anything. However, the record
clearly reveals that Dye signed a lease in 1991, and counsel later
admitted that Dye signed what he terms a “form letter.” Counsel
states in briefs that Dye signed a “quit-claim deed” in 1984 and
that the transaction was merely to release his wife, with whom he
was in the process of a divorce, from liability on the mortgage.
However, instead, the record reveals that Bart Dye and his wife
signed a general warranty deed—Bart’s brother, Alvin, signed the
quit-claim deed. Also, the release language releases both Dye and
his then-wife from liability. Finally, at the hearing before the
bankruptcy judge, counsel made the obviously inaccurate
assertion that Dye received “nothing” for the deed in 1984.
However, the evidence clearly shows that Dye received a release
of liability for his previous indebtedness that exceeded the value
of the land.
12 No. 03-2043
of his lease in 1996. Dye is thus unable to take advantage of
Chapter 12 relief. We therefore AFFIRM the judgment of the
district court.
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—3-10-04