Lyle Bruce Johnson v. Border State Bank ( 1999 )

United States Bankruptcy Appellate Panel
FOR THE EIGHTH CIRCUIT
98-6097MN
In re: *
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Lyle Bruce Johnson, *
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Debtor. *
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Lyle Bruce Johnson, * Appeal from the United States
* Bankruptcy Court for the
Debtor - Appellant, * District of Minnesota
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v. *
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Border State Bank, *
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Creditor - Appellee. *
Submitted: February 3, 1999
Filed: February 24, 1999
Before KOGER, Chief Judge, WILLIAM A. HILL and SCHERMER, Bankruptcy Judges
KOGER, Chief Judge
Debtor Lyle Bruce Johnson appeals the Order of the Bankruptcy Court1 denying his
motion to avoid the lien held by Border State Bank on various items of farm equipment
pursuant to 11 U.S.C. § 522(f)(1)(B)(ii).
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The Honorable Dennis D. O’Brien, United States Bankruptcy Judge for the District
of Minnesota.
We have jurisdiction to hear this appeal pursuant to 28 U.S.C. § 158(b) and (c).
Johnson filed his Petition for Relief under Chapter 7 of the Bankruptcy Code on June
25, 1998. He filed a motion to avoid Border State Bank’s lien against several items of
property which he asserted were implements or tools of his trade as a farmer under §
522(f)(1)(B)(ii). Border State Bank objected to Johnson’s motion. The Bankruptcy Court
held a hearing on October 14, 1998, and thereafter denied Johnson’s motion, finding that
Johnson was not a farmer and as a result, the items did not qualify as tools of his trade.
Johnson appeals the Bankruptcy Court’s decision and for the reasons that follow, we affirm.
We review the Bankruptcy Court’s findings of fact, whether based upon oral or
documentary evidence, for clear error, and review legal conclusions de novo. Fed. R. Bankr.
P. 8013; First Nat’l Bank of Olathe v. Pontow, 111 F.3d 604, 609 (8th Cir. 1997);
Chamberlain v. Kula (In re Kula), 213 B.R. 729, 735 (B.A.P. 8th Cir. 1997).
Section 522(f) of the Bankruptcy Code provides that notwithstanding any waiver of
exemptions, the debtor may avoid the fixing of a lien on an interest of the debtor in property
to the extent that such lien impairs an exemption to which the debtor would have been
entitled, if such lien is a nonpossessory, nonpurchase-money security interest in any
implements, professional books, or tools, of the trade of the debtor. 11 U.S.C. §
522(f)(1)(B)(ii).
Relevant here, Johnson seeks to avoid the lien held by Border State Bank on a 1070
Case Tractor with loader with a value of $5,000; a 1988 Polaris 400 snowmobile valued at
$1,200; a rock windrower valued at $1,000; and a Box V Snowplow valued at $1,000,
asserting they are tools of his trade as a farmer.
The determinative issue in this case is whether Johnson is a “farmer” for purposes of
lien avoidance under § 522(f). In the Eighth Circuit, courts determining whether a debtor
is a “farmer” for lien avoidance purposes are required to
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take into account the intensity of a debtor’s past farming activities and the
sincerity of his intentions to continue farming, as well as evidence that [the]
debtor is legitimately engaged in a trade which currently and regularly uses the
specific implements or tools exempted and on which lien avoidance is sought.
Production Credit Assoc. of St. Cloud v. LaFond (In re LaFond), 791 F.2d 623, 625 (8th Cir.
1986).
Under this test, we find that the evidence amply supports the Bankruptcy Court’s
finding that Johnson is not a farmer for purposes of avoiding a lien against farm equipment
under § 522(f)(1)(B).
Johnson is a 38-year-old man who resides in Warroad, Minnesota. After working on
his father’s farm following high school, Johnson started his own farming operation in 1985.
Over the years, he purchased three parcels of real estate on which he engaged in various
farming operations. He lost two of the three parcels when he was divorced from his wife
in 1997.
Johnson currently owns a 73-acre homestead property, and although he testified he
is not currently farming the land on which the homestead sits, Johnson had used the parcel
in the past for hay and pasture. He has no equity in this property and as of the hearing date,
he was in default to Border State Bank on a third mortgage against this property. He
conceded at the hearing that he was likely to lose this property to one of its lienholders
“sooner or later.”
Also as of the Petition Date, Johnson owned some 35 beef cows and 35 calves which
he kept at his father’s farm. Johnson’s father raised and tended to these cows in exchange
for part of the profits derived therefrom. Johnson does not actively participate in the work
related to raising or caring for these cows. Johnson testified at the hearing that he
anticipated the imminent sale of these cattle as well. Thus, according to his testimony,
Johnson expected that soon after the hearing date, he would be without any ownership
interest in any farming acreage or cattle.
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Meanwhile, Johnson is employed full time at Marvin Windows, where he has worked
for fourteen years. He candidly testified that he is not currently farming in any fashion,
except to help out at his father’s farm, for which he receives no compensation as such.2 In
fact, he testified that he has not engaged in farming, except to help out at his father’s farm,
since 1996. Further, not only does he list no income or expenses in relation to farming on
his bankruptcy schedules, he also testified at the hearing and the § 341 Meeting of Creditors
that his employment with Marvin Windows is his sole source of income and has been at least
since 1996.
Johnson suggests, and we agree, that it is certainly possible for a debtor to have two
trades. In such a case, a debtor may even claim exemptions for both trades. Accord In re
Robinson, 206 F.176 (D. Idaho 1913) (a debtor may claim exemptions for tools relating to
more than one trade, so long as the aggregate exemption claimed is within the dollar
limitation permitted for such exemption). We also agree with Johnson’s assertion that “other
sources of income do not prevent a debtor from having the trade of farming for purposes of
lien avoidance.” South Atlantic Productions Credit Assoc. v. Jones (In re Jones), 87 B.R.
738, 741 (Bankr. M.D. Ga. 1988); see also In re LaFond, 791 F.2d at 626 (agreeing that it
is nearly impossible for most farmers to subsist without outside employment). In fact, we
will agree that a debtor could be considered a “farmer” even when he is actually losing
money at farming and when his entire net income is derived from other trades or sources.
However, regardless of the amount of income derived from farming and regardless
of how many other trades the debtor is engaged in, in order to be considered a farmer for §
522(f)(1)(B)(ii) purposes, the debtor must be legitimately engaged in the enterprise of
farming and express a credible and sincere intent to continue farming into the future. See
LaFond, 791 F.2d at 625. Although Johnson may have been engaged in farming with
sufficient intensity at some point in the past, he conceded at the hearing that he is not
currently engaged in the activity of farming, he has not farmed since 1996, and he does not
2
Although Johnson does not receive any actual compensation for working on his
father’s farm, there was testimony that as a form of compensation for Johnson’s helping out
on his father’s farm, his father only took 50% of the profits from raising Johnson’s cattle
rather than the customary 75%.
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know exactly when he will resume farming. We find, as did the Bankruptcy Court, that this
does not satisfy the LaFond test.
Furthermore, Johnson’s reliance on In re LaFond to support his contention that he is
engaged in both the trade of farming and his job at Marvin Windows, is misplaced. While
LaFond does stand for the proposition that a debtor can be engaged in two trades, the facts
in that case are clearly distinguishable from Johnson’s situation. In LaFond, despite the fact
that the debtor-husband worked 100 hours per month as a police officer to supplement the
couple’s farming income, there was no question that Mr. LaFond was, at the time, also
actively and legitimately engaged in farming. He simply used his income as a police officer
to supplement his farm income. Additionally, the court determined in that case that it was
reasonable to assume that Mrs. LaFond was tending to farm chores as well, as evidenced by
the LaFonds’ tax returns which revealed that she had no significant source of income other
than farming. Id. at 626 (citing Thorp Credit & Swift Co. v. Pommerer (In re Pommerer),
10 B.R. 935, 942 (Bankr. Minn. 1981)). We find these facts to be clearly distinguishable
from the facts of this case.
In sum, we believe the Bankruptcy Court did not err in finding, as it announced from
the Bench, that the evidence and testimony demonstrate that Johnson is not a farmer. As the
Bankruptcy Court said, “[t]he fact that someone may be from time to time engaged in
farming does not make farming one’s trade.” Furthermore, we believe, as did the
Bankruptcy Court, that Johnson’s statements regarding his hopes or intentions to farm with
his brother when his father retires at some time in the future are not enough to satisfy the
LaFond test. As the Court said, “the mere fact that the debtor may at some time in the future
if circumstances are right take up the trade of farming is not sufficient to protect these items
as tools of the debtor’s trade in so far as lien avoidance is concerned.”
Because we determine that the Bankruptcy Court did not err in finding that Johnson
is not a farmer, the decision denying Johnson’s motion to avoid the lien held by Border State
Bank under § 522(f)(1)(B)(ii) is affirmed.
A true copy.
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Attest:
CLERK, U.S. BANKRUPTCY APPELLATE PANEL,
EIGHTH CIRCUIT.
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