Earnest Reiter v. Habbo G. Fokkena

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
__________________

Nos. 99-3951, 99-3954
__________________

___________ *
*
No. 99-3951 *
___________ *
*
In re Kevin J. Wedemeier; *
In re Kenda R. Wedemeier, *
*
Debtors, *
-------------------- *
*
Earnest Reiter; Louise Reiter, *
*
Appellees, * On Appeal from the United
* United States Bankruptcy
v. * Appellate Panel for the
* for the Eighth Circuit.
Habbo G. Fokkena, Chapter 7 Trustee, *
*
Appellant, *
-------------------- *
*
Arnold A. Bartz; Delores J. Bartz, *
*
Appellees, *
*
v. *
*
Habbo G. Fokkena, Chapter 7 Trustee, *
*
Appellant. *
 *
___________ *
*
No. 99-3954 *
___________ *
*
In re Kevin J. Wedemeier; *
In re Kenda R. Wedemeier, *
*
Debtors, *
-------------------- *
*
Earnest Reiter; Louise Reiter, *
*
Appellants, *
*
v. *
*
Habbo G. Fokkena, Chapter 7 Trustee, *
*
Appellee. *

___________

Submitted: November 2, 2000
Filed: January 16, 2001
___________

Before RICHARD S. ARNOLD, HANSEN, and BYE, Circuit Judges.
___________

RICHARD S. ARNOLD, Circuit Judge.

Debtors Kevin and Kenda Wedemeier (tenants) are Iowa farmers who leased
non-residential farmland from Ernest and Louise Reiter, and from Arnold and Delores

-2-
Bartz (the Reiters and Bartzes will be collectively referred to as “landlords”). Tenants
filed a Chapter 7 bankruptcy petition, and a dispute arose over the rights to the crops
planted on the leased farmland. Trustee Habbo G. Fokkena appeals from that part of
a final order1 of the United States Bankruptcy Appellate Panel which reversed the
Bankruptcy Court’s valuation of landlords’ administrative claims for rent; the Reiters
cross-appeal from that part of the Panel's final order which affirmed the Bankruptcy
Court’s grant of summary judgment to the trustee approving his avoidance of their
landlords’ liens in tenants’ crop proceeds. We affirm the judgment of the Bankruptcy
Appellate Panel.

In 1998, tenants leased 149.6 acres of farmland from the Reiters and 183 acres
of farmland from the Bartzes. Both lease contracts were for a term of one year. The
Reiter lease ran from January 16, 1998, to January 16, 1999, with a total rent of
$18,000, due in equal installments of $9,000 on March 1 and December 1, 1998.2 The
Bartz lease ran from March 1, 1998, to March 1, 1999, with a total annual rent of
$20,130: $4,500 due on March 1, 1998, and $15,630 due on November 15, 1998.

Tenants paid the March installment due under the Bartz lease, but failed to pay
the March installment due under the Reiter lease. Nevertheless, tenants planted crops
on the leased land in May. On June 8, before any of the landlords perfected a
contractual lien in tenants’ growing crops, tenants filed their bankruptcy petition.
Tenants continued to care for the crops during the postpetition period and remained in
possession of the leased farmland through harvest. Meanwhile, the trustee neither
assumed nor rejected either of the two leases. Therefore, by operation of 11 U.S.C.
§ 365(d)(4), the leases were deemed rejected on August 7, 1998.

1
In re Wedemeier, 239 B.R. 794 (BAP 8th Cir. 1999).
2
The Reiter lease document submitted on appeal indicates a total lease payment
of $16,456. Nevertheless, the parties assert here, as they did below, that the facts are
undisputed, and that the correct figure is $18,000.
-3-
 Thereafter, the First National Bank of Oelwin commenced an adversary
proceeding to determine the priority of interests in tenants’ 1998 growing crops. In a
court-approved settlement agreement, tenants, the trustee, and the bank stipulated (1)
that tenants would be employed by the trustee to harvest the growing crops at the
standard rate for such work; (2) that $34,538.25 in crop proceeds, representing the cash
rent due the landlords, would be escrowed; (3) that tenants and the bank would waive
all rights to escrowed funds; and (4) that the rights of the trustee and landlords would
be preserved subject to later determination by the Court. The trustee filed a motion for
summary judgment, seeking an order allowing him to avoid landlords’ liens in the crop
proceeds, and determinations as to whether landlords would be allowed administrative
claims for rent, and as to the value of these claims, if allowed. The parties stipulated
that the trustee’s postpetition use of the leased farmland produced a tangible benefit to
the bankruptcy estate, and that the leases specified reasonable rent for the farmland.

Following a hearing, the Bankruptcy Court granted summary judgment to the
trustee, holding that he was entitled to avoid landlords’ liens. The Court further
concluded, however, that landlords were entitled to administrative expenses for rent.
It calculated landlords’ administrative claims on a per diem basis by dividing the total
annual rent due under each lease by 365, then multiplying that figure by the number of
postpetition days (142) the leased land was used by the estate to grow crops.
Accordingly, the Bartzes were awarded $7,003.44, and the Reiters were awarded
$7,831.30.3

The Bankruptcy Appellate Panel affirmed the Bankruptcy Court’s grant of
judgment on the lien-avoidance issue, but reversed the order as to the calculation of the

3
We note that, even accepting the $18,000 figure cited in the Bankruptcy Court’s
opinion as the Reiter annual lease payment, it appears that the administrative awards
are reversed, that is, the Reiters’ award should be $7,003, and the Bartzes’ award
$7,831. However, the parties do not challenge the award figures in this Court except
as to the per diem calculation.
-4-
landlords’ administrative claims, ordering the case remanded with instructions to
determine separately the rental value of the land during the growing season and the
non-growing season, to apportion the total rent appropriately between the two seasons,
and to adjust the rental rate accordingly for the 142-day period.

Having reviewed the Bankruptcy Court’s findings of fact for clear error and its
conclusions of law de novo, see In re Gateway Pac. Corp., 153 F.3d 915, 917 (8th Cir.
1998), we conclude the Panel properly affirmed the Bankruptcy Court’s approval of the
trustee’s avoidance of the landlords’ lien over the crop proceeds, see 11 U.S.C.
§ 545(3) (trustee may avoid statutory lien on debtor property to extent that such lien is
for rent). The Reiters argue that the trustee should be estopped to exercise his section
545 power to avoid their liens because his deemed rejection of their unexpired lease is
inconsistent with his retaining possession of and harvesting the crop. See 11 U.S.C.
§ 365(d)(1), (4) (where trustee does not assume or reject unexpired lease of
nonresidential property within 60 days after order for relief, lease is deemed rejected
and trustee must immediately surrender such property to lessor). We reject this
argument. The trustee is authorized to take precisely these actions: although his duties
involve performing the debtors’ obligation until rejection, once rejection occurs,
whether by affirmative action or by operation of law, his duties also require him to
preserve the estate. See Hossaini v. W. Mo. Med. Ctr., 140 F.3d 1140, 1143 (8th Cir.
1998) (judicial estoppel is limited to those instances in which party takes position that
is clearly inconsistent with its earlier position). Furthermore, landlords failed to seek
the remedies available to them--e.g., filing a motion to compel turnover of the property,
or filing a motion for relief from the automatic stay--upon the trustee’s failure to
surrender the leased property immediately. Cf. In re JAS Enter., Inc., 180 B.R. 210,
216 (Bankr. D. Neb. 1995) (estoppel unwarranted where debtor’s maintenance of
possession of leased premises involved both debtor’s failure to surrender property in
violation of § 365(d)(4) and landlord’s failure to seek prompt judicial relief), aff’d, 113
F.3d 1238 (8th Cir. 1997).

-5-
 As to the valuation of landlords’ administrative claims for rent, the Bankruptcy
Appellate Panel was correct in holding that the reasonable rental value of the property
used provides the measure of landlords’ administrative claim for rent. Given the
intensive agricultural use of the land during the 142-day period, we further conclude
that the Panel properly recognized that the estate “extracted nearly all of the economic
value available from the land” during that time, and determine that the Bankruptcy
Court’s computation method was inappropriate in this case because the reasonable
rental value of the farmland was not constant during the entire lease term. Thus, we
hold that the Bankruptcy Court’s calculation unjustly enriched the bankruptcy estate
by not recognizing that the majority of the land’s economic benefit attached to the
growing season. See In re Dant & Russell, Inc., 853 F.2d 700, 707 (9th Cir. 1988)
(trustee’s liability for actual use and occupancy is founded upon equitable principle of
preventing unjust enrichment); cf. In re Longua, 58 B.R. 503, 504-06 (Bankr. W.D.
Wis. 1986) (recognizing two lines of cases regarding calculation of administrative
claims for rent--one based on reasonable value of portion of demised premises actually
used and occupied, and one on the reasonable value without regard to amount of space
used; holding that landlords were entitled to full rental payments, not “warehouse”
value of premises, until lease assumed or rejected).

Accordingly, we remand to the Bankruptcy Appellate Panel, with instructions
to remand to the Bankruptcy Court to determine, in accordance with this opinion, a
more precise measure of the 142-day period’s economic value to the bankruptcy estate,
using a calculation method which apportions the total rent between the growing season
(which includes the time field work is being done before planting and after harvest) and
the non-growing season (when the land is unproductive and not being worked). That
portion of the judgment of the Bankruptcy Appellate Panel having to do with avoidance
of the statutory lien is affirmed.

It is so ordered.

-6-
A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.

-7-