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In re Reson Lee Woods

Case No. 12-1111 (C.A. 10, Feb. 19, 2014)

Appellant First National Bank of Durango (“First National Bank”) appeals from the Bankruptcy Appellate Panel’s (“BAP’s”) decision affirming the bankruptcy court’s confirmation of the Chapter 12 bankruptcy plan of Appellees Reson and Shaun Woods (“Debtors”). Although First National Bank raises several issues on appeal, we only reach the first: whether Debtors are permitted to seek relief under Chapter 12 as “family farmers.” In deciding this issue, we are presented with a question of first impression for our court—namely, when does a debt “for” a principal residence “arise[] out of a farming operation”? See 11 U.S.C. § 101(18)(A). We conclude that a debt so arises if it is directly and substantially connected to any of the activities constituting a “farming operation” within the meaning of 11 U.S.C. § 101(21). More specifically, when the debt at issue is loan debt, as here, we conclude that an objective “direct-use” test serves as the optimal vehicle for discerning when the direct-and-substantial-connection standard is satisfied. That is, if the loan proceeds were used directly for or in a farming operation, the debt “arises out of” that farming operation. This was not the test applied by the bankruptcy court (or the BAP).

Because we conclude that the bankruptcy court did not apply the proper legal standard and test in its analysis of Debtors’ eligibility for Chapter 12 relief, we deem it appropriate and prudent to remand for that court to apply the correct law to the facts of this case. Thus, we vacate the bankruptcy court’s judgment and remand the case to the bankruptcy court for further proceedings.

I



Debtors are a husband and wife who, in 2007, purchased farmland in southwestern Colorado on which to run their hay-farming operation. Until they filed for bankruptcy in November 2010, Debtors accumulated various debts, some of which were related to their farming operation and others of which were not. One such debt is a $480,000 loan Debtors obtained from First National Bank. Approximately $284,000 of this loan was used to pay off a loan from another bank that was obtained to purchase Debtors’ farmland. The parties do not dispute that this portion of the debt “arises out of” a farming operation; nor do they dispute that the majority of the remaining loan proceeds—what we call the “construction loan”—were used to construct Debtors’ principal residence on the farmland.
 

 

Judge(s): Jerome Holmes
Jurisdiction: U.S. Court of Appeals, Tenth Circuit
Related Categories: Bankruptcy , Finance / Banking
 
Circuit Court Judge(s)
Jerome Holmes
Scott Matheson
Terrence O’Brien

 
Appellant Lawyer(s) Appellant Law Firm(s)
Garry Appel Appel & Lucas PC

 
Appellee Lawyer(s) Appellee Law Firm(s)
Daniel Lowenberg Mountain Law Group LLC
Cheryl Thompson Thompson Brownlee

 

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the tests that courts have commonly applied. they have done so when construing drafted narrowly so as to limit chapter 12 eligibility to true ‘family’ farmers and the [debt for the] land, the [debtor] would have no farm.”). common sense and sufficient to support its conclusion under our newly fashioned test. to do so, we purposes of the rule (because the debt “arises out of” a farming operation). in in the end, we conclude that a debt “for” a principal residence “arises out “for” a principal residence would be applied to such activities. for example, a 4 ask, but for the debt “for the principal residence,” would there be a “farming reasons it identified. and, it in turn tacitly rendered the legal conclusion that the debt for we articulate here—which contemplates a direct and substantial connection just that—an exception. see clark, 489 u.s. at 739; beretta u.s.a. corp., 524 8 nancy c. dreher et al., bankruptcy law manual § 12:4, at 928–29 (5th ed. 2013) (8th cir. 1989) (rejecting the idea that “any loan secured by farmland” can be however, sheds light on the nature of that connection. were that the definition of “family farmer,” it would be clear that, in congress’s course: it excludes from the aggregate debt (of which one-half or more must be noncontingent, liquidated debts (excluding a debt for the principal residence of miller), 666 f.3d 1255, 1260 (10th cir. 2012) (quoting c.o.p. coal dev. co. v. february 19, 2014 connection standard. moreover, we are reinforced in our view that the some- 279, 283 (7th cir. 1989) (noting that “in order to achieve the congressional the bap agreed with the bankruptcy court that the construction loan arose convenient access to the farming operation. “arise out of” a farming operation. put another way, we do not categorically negate the no. 12-1111 of” a farming operation. in other words, in the normal course—reflecting the “considerable in amount” and “something of moment”). recall, under the rule, that ordinarily the debt for an individual’s principal farming operations described in § 101(21). rather, the debt “for” the principal reorganize under the code filed for relief under chapter 11. the plan (continued...) farming operation.” 11 u.s.c. § 101(18)(a); see also webster’s, supra, at 2503 for the tenth circuit court of appeals people to exit farming.” katherine m. porter, phantom farmers: chapter 12 of 8 u.s. 519, 530 (2009) (avoiding interpreting an exception in a manner that “would that the residence was “an integral part of the farm operation in [the] sense that” it is the construction loan that is our primary focus. this is because than the exceptions.”). objective “direct-use” test.4 contemporary, common meaning.” (internal quotation marks omitted)). connected to a farming operation—that is, directly used in a farming operation. the family farmer . . . need not be the actual tillage of the soil and may be a because we do not decide whether debtors are eligible for chapter 12 concluded that this test was met because the evidence supported the bankruptcy presumption that a given term is used to mean the same thing throughout a statute goods. thus, were the some-connection test the operative one, the exception applies—that is, “unless such debt [for a principal residence] arises out of a it is undisputed that the construction loan was used to build debtors’ 1290, 1292 (10th cir. 1997)) (internal quotation marks omitted). we begin by assessing whether the bankruptcy court’s findings are rel. hood v. au optronics corp., --- u.s. ----, 134 s. ct. 736, 743 (2014) 534 (2004) (quoting hartford underwriters ins. co. v. union planters bank, 24 the but-for test. see in re reak, 92 b.r. at 805–06 (describing the but-for test as debtors’ farming operation. we answer in the negative, recognizing that in the distributorship—a business venture completely unrelated to farming operations. distributorship and obtained a second loan to pay off the first. see in re kan 3 we do not accord that finding a deferential standard of review. see pahls, 718 f.3d at 288 (hr’g tr., dated may 6, 2011). such evidence is insufficient for us to conclude that a out of” to embody a direct-and-substantial-connection standard serves to ensure warren, 512 f.3d at 1248 (quoting gullickson v. brown (in re brown), 108 f.3d c.w. mining co. (in re c.w. mining co.), 641 f.3d 1235, 1240 (10th cir. 2011)) adopt the but-for test, the exception would rarely, if ever, apply. given its patent “for” the principal residence, in almost every instance, not being a but-for cause 9 plans without providing for payment in full to unsecured creditors.”). rule) relates to all “aggregate noncontingent, liquidated debts.” 11 u.s.c. on their eligibility for chapter 12 relief.8 of which were related to their farming operation and others of which were not. swallow the rule”); cf. minter v. prime equip. co., 451 f.3d 1196, 1212 (10th with the statute’s structure outlined, we now turn to its plain language. controlled by the context. this is undoubtedly true.”); see also antonin scalia & we next must determine what test provides the optimal vehicle for discerning 6 operation. see webster’s, supra, at 640 (defining “direct,” inter alia, as meaning are narrowly construed, as they are considered exceptions.”); cf. singer, supra, stemming from the debt were directly used in a farming operation. in that case, seldom be dispositive of the existence vel non of the farming operations at which the debt at issue is loan debt, asking solely whether the loan proceeds were that foundational view regarding principal-residence debt and render the definition of 11 u.s.c. § 101(18)(a). we read that provision as requiring a direct put another way, in light of our statutory analysis supra—indicating that because those proceeds would in fact be used instead to purchase or construct a require it to do so[;] it simply evaluated the facts of the case and decided that the debt for connection between the debt at issue and a farming operation. further analysis, function of the courts—at least where the disposition required by the text is not settlement with his three siblings to purchase their respective shares of their direct-and-substantial-connection standard. test that is congruent with this statutory interpretation, the objective direct-use exception more akin to the rule. yet, interpreting the phrase “arise out of” as statute as a whole.” (quoting robinson v. shell oil co., 519 u.s. 337, 341 (1997)) statutory standard is satisfied in the loan-debt context. we are only charged with enacting chapter 12, . . . congress allowed farmers to confirm reorganization construed along with its embedded exclusion, the rule provides that an individual 4 reflect the realities of the adjudicatory process. specifically, before deciding whether the of” as found in the exception. if a court were applying a but-for test, it would out of a farming operation’ the purpose of a debt must have some connection to loan context, that an objective “direct-use” test—akin to the one first national to “arise” means “[t]o originate; to stem (from)” or “[t]o result (from).” we believe that construing this language to mean that there must be a direct and omitted); see sandifer v. u.s. steel corp., --- u.s. ----, 134 s. ct. 870, 876 (2014) the farming operation. then, we proceed to determine what test is optimal in this v. villa, 589 f.3d 1334, 1343 (10th cir. 2009) (quoting bailey v. united states, follows perforce that a test requiring only some connection—no matter how and remand the case to the bankruptcy court for further proceedings. this debt “arises out of a farming operation.” with this background in mind, we turn to our specific interpretive task of kelley, note, chapter 12: entrepreneur punishment and family favorites, 15 impression.”). characterized as “arising out of a farming operation” “regardless of the purpose to the office. here, the only evidence relied on by debtors regarding the office is the farmer qualifies for chapter 12 relief—“not less than 50 percent place where the farmer keeps the clothing in which he farms. (internal quotation marks omitted)); cf. davis, 489 u.s. at 809 (“[s]tatutory thereby deprived of any special solicitude it might otherwise be owed on appeal”). were residence “arises out of” a farming operation for purposes of applying this nussle v. willette, 224 f.3d 95, 99 (2d cir. 2000)) (internal quotation marks residence of the putative family farmer, if it can be shown that the bankruptcy court disagreed with first national bank. it concluded that we begin our analysis by examining the subsection’s structure, as “the qualifying as family farmers. and, if debtors are not “family farmers,” they reson lee woods; shaun k. id. but “‘[r]ural’ and ‘farm’ are not synonymous[,]” porter, supra, at 730, and 36 debt would properly be viewed as having a direct and substantial connection to residence—at least most frequently—would arise out of the need for a farmer, view, family farmers’ principal residences ordinarily “arise out of” their farming we need not fully explicate here the various situations in which the insolvency are applied as of the time of filing, and the petitioner bears the burden (2) the residence was located on the farmland, placing it in proximity to the 23 exception has a different—in some respects more narrow—point of focus than the were we to hold that absurd—is to enforce it according to its terms.’” lamie v. u.s. tr., 540 u.s. 526, of the debtor” to answer whether a debt arose out of a farming operation because 38 how the loan proceeds are actually used. see 883 f.2d at 636. as applied, then, such a the difference between “arise” and “arises” as found in the rule and the matter, district courts) purported to (in debtors’ words) “simply evaluate[] the facts,” filed for bankruptcy in november 2010, debtors accumulated various debts, some aplee. br. at 22, in determining whether the requirements of a particular statute were exception. significantly, the parties have not identified any cases, and we are not principal residence.”). the exclusion prevents, for example, one from being but as we observed above, see supra note 7, we do not categorically exclude the omitted)); cherokee nation v. georgia, 30 u.s. (5 pet.) 1, 19 (1831) (“it has been examine the tests that courts have commonly applied in this statutory context to the farming operation could be said to have facilitated debtors’ farming chapter 12 proceeding that “the burden was debtor’s to elicit the relevant facts”); debtor [through the debt at issue], there would be no farm . . . .” (internal “direct-use” test is optimal for determining whether the direct-and-substantial-connection u.s.c. § 101(18)(a). we conclude that a debt so arises if it is directly and farming operation” under an earlier version of 11 u.s.c. § 101. see 812 f.2d at accordingly, in this scenario, the proceeds from the principal-residence debt from a loan “arises out of farming operations” is determined by substantially connected to any of the activities constituting a “farming operation” [debtors’] farming activities” and thus “including the construction . . . loan in the 27 appears to have begun with in re douglass, 77 b.r. 714 (bankr. w.d. mo. 1987), like anyone else, to have a place to live. remand is required.” 609 f.3d at 1131. bankruptcy court in in re kan corp., 101 b.r. 726 (bankr. w.d. okla. 1988); it operation. see 75 b.r. at 67–68. the debtor in in re rinker had entered into a lest there be any doubt: we do not express any opinion on the likely residence was “an integral part of the farm operation in [the] sense that,” first, law.”); pahls v. thomas, 718 f.3d 1210, 1232 (10th cir. 2013) (noting that when a trial u.s.c. § 101(21); at the very least, it would involve “raising of crops.” envision a connection—however remote—between a family farmer’s principal first national bank of present an unacceptable risk of precisely that outcome. that the debt arose out of a farming operation. id. at 68. after recognizing that legal standard and test in its analysis of debtors’ eligibility for chapter 12 relief, 16 because the “farm machinery was inescapably interwoven with his farming with that objective in mind, in chapter 12, congress provided “specialized bank advances—does in fact provide the optimal means of discerning whether the remand the case to the bankruptcy court to conduct a proper legal the rule by adding back into the equation debt “for” the principal filed a statutory standard requiring anything less than a direct and substantial stephens v. stephens (in re stephens), 704 f.3d 1279, 1283 (10th cir. 2013). section 101(18)(a) is perhaps best understood by breaking the provision derived from the construction loan were indirectly used in the farming operation saunders, 377 b.r. at 774–76 (collecting cases and concluding that “to arise out language to ascertain congressional intent.”). “[t]he bankruptcy code must be debts “arises out of” a farming operation, which would preclude debtors from the bankruptcy court concluded that the construction loan arose out of a incorrect legal test to determine whether the construction loan arose out of a operation, that fact alone would not be legally sufficient to make the loan debt state bank of s. utah v. gledhill (in re gledhill), 76 f.3d 1070, 1077 (10th cir. term. thus, we view the two terms as essentially identical and use them interchangeably. § 47:11, at 250–51 (“[w]here a general provision in a statute has certain limited as the rule clearly envisions, in many instances, the proceeds of a debt objective “direct-use” test would be similarly optimal in other contexts. of the loan were “directly applied to or utilized in the farming operation.” in re ultimately, because the bankruptcy court (and the bap) applied the wrong “marked by absence of an intervening agency, instrumentality, or influence: continue farming despite the economic realities that have caused many rural farming operation—viewed in isolation—will be legally irrelevant to the question an office and the farming operation’s books and records has not been shown by construction of their residence. the consequence of this situation—of the debt plan.”); see also tim wargo & sons, inc. v. equitable life assurance soc’y (in re because we conclude that the bankruptcy court did not apply the proper resnick & henry j. sommer, collier on bankruptcy ¶ 1200.01[2], at 1200-4 (16th produce the legally required nexus between the principal residence (and its associated 749, 753 (10th cir. 2000) (rejecting a proposed interpretation of a statutory set aside if clearly erroneous. more specifically, debtors make the rather perplexing the court in in re kan corp. focused solely on whether the loan proceeds second, “that the proximity of these debtors to their hands-on, day-to-day, however, we also are cognizant of the fact that the phrase as found in the application of the test would almost entirely eviscerate the exception; were we to principal residence will not “arise out of” a farming operation—we cannot farm debt calculation was proper.” id. at 1383. the bap’s decision here and applying the some-connection test). the bap the rule normally applies “unless” the exception is triggered. some way be directly applied to or utilized in the farming operation.” in re kan understand it, that phrase contemplates a direct and substantial connection newly fashioned test in the first instance. giving meaning to the phrase “arises out of” in this exception. in particular, we debtors to be anything more than an incidental matter.7 clerk of court liquidated debts (excluding a debt for the principal residence of operation. approximately $284,000 of this loan was used to pay off a loan from another creek metro. dist.), 143 f.3d 1381, 1384–85 (10th cir. 1998) (“the tests of significantly, in in re kan corp., the court refused to consider “the motive coupled with the use to which the borrowed funds were put . . . should be the kan corp., 101 b.r. at 727. in other words, the fact that the residence contains to conclude that congress contemplated. see cuomo, 557 u.s. at 530. the occupants of the principal residence may be farmers or the residence may be exception to the fifty-percent-farm-debt rule of 11 u.s.c. § 101(18)(a) as tenth circuit between the debt “for” the principal residence and the farming operation. it almost never apply. carefully crafted to help true family farmers satisfy the fifty-percent-farm-debt 3 and “but for [that debt], there would be no farm” (internal quotation marks “court commits legal error en route to a factual determination, that determination is requirements of a statute are satisfied by certain facts, a court must—even if the specific context in which that language is used, and the broader context of the confirmation of debtors’ chapter 12 plan. indirect connection of some kind to his or her farming operation; among other 2 drake j. agric. l. 485, 487–88 (2010) (noting that the statute provides “a non- finally, we turn to the exception. under the rule, ordinarily the debt for 20 the debtor’s farming activity.” aplt. app. at 1382 (emphasis added) (citation is wholly immaterial and, more specifically, that it has no meaningful thus, we conclude that the version of the use test applied in in re kan now properly defined in this opinion, we believe that debtors should have an notably, in the instant case, the bap adopted the some-connection test 2 objective “direct-use” test optimally fits with our direct-and-substantial- the “interpretive principle that statutory exceptions are to be construed narrowly southwestern colorado on which to run their hay-farming operation. until they make a new determination under the correct law.” united states v. hasan, 609 would almost certainly swallow the rule; this is not a result that we are prepared when this standard is satisfied. with this objective in mind, we examine below we are hard-pressed to conclude that congress intended. in other words, a “common thread” in analogous bankruptcy decisions and holding that the debt n.a., 530 u.s. 1, 6 (2000)); see united states v. sprenger, 625 f.3d 1305, 1307 soybean farmer could obtain a second mortgage on his principal residence in factual context—which involves loan debt—for discerning whether this direct- of treasury, 489 u.s. 803, 809 (1989); accord kunz v. united sec. bank (in re a consistent meaning”). indeed, it is noteworthy that the phrase “arises out of” is statute’s default—a debt “for” a principal residence does not “arise out of” any quotation marks omitted)); in re roberts, 78 b.r. at 537 (“but for the payment of confirmation requirements of chapter 11, however, often proved difficult for farm congress intends the words in its enactments to carry their ordinary, loan arose out of a farming operation was purely a factual determination that we can only principal residence. merely because the residence contained the farming lesser standard, in application, would present a serious and unacceptable risk of accordingly, we decline to endorse the some-connection test. test that optimally serves—at least in the loan-debt context—as a vehicle for debtors petitioned for chapter 12 relief as family farmers. a “family farmer” is, ! an exception that modifies the aggregate-debt computation of 6 relief. see ames v. sundance state bank (in re ames), 973 f.2d 849, 851 (10th principal residence could be said to have some connection to his or her farming congress sought to ensure that chapter 12’s more generous remedial provisions qualified in certain instances by an exception. that exception provides that the proximity to the farm—the bap concluded that the residence was “connected to office supportive of this legal characterization (i.e., “arises out of” a farming the use of the phrase “in [the] sense that” makes clear that the bankruptcy court found 2012). the bap elected to adopt the approach taken in in re saunders, 377 b.r. dairy farming, ranching, production or raising of crops, poultry, or livestock, and directly used in farming operations (as statutorily defined) leaves room for the nearly every family farmer’s principal residence could be said to have at least an the law.” (alteration in original) (citation omitted) (internal quotation marks embodying anything less than a direct-and-substantial-connection standard would 5 (“the definition of ‘farming operation,’ which has been in the code since its 2009) (applying the but-for test set forth in in re reak). 7 (emphasis added). although it is true that the bankruptcy court did not explicitly identify (“chapter 12 of the bankruptcy code helps family farmers in economic difficulty 3 tenuous and insubstantial, or indirect—between the principal-residence debt and debtors. “construction loan”—were used to construct debtors’ principal residence on the order to buy soybean seeds for planting—and then in fact buy the seeds. the 33 elements necessary for confirmation of a plan, including the feasibility of the in seeking to determine the appropriate legal test to apply in this factual setting “[w]e treat the bap as a subordinate appellate tribunal whose rulings are not u.s.c. § 101(18) excludes a debt such as a mortgage used for the purchase of the 2 from in re saunders, holding that “to arise out of a farming operation the purpose bankruptcy court relied can, as a matter of law, support classifying debtors’ however, we decline to adopt the some-connection test here. this test is out of a farming operation. it recognized that “[f]ew courts have considered when possibility that some of the funds stemming from a principal-residence debt actually put most simply, the debt “for” the principal residence arose out of 22 looking to “the use made of the loan proceeds” provides “more objective criteria.” corp.—an objective direct-use test—is the one that fully comports with the re watford, 898 f.2d at 1528 (“congress was also concerned that family farmers ed. 2013) (“before the enactment of chapter 12, most farmers seeking to outcome of the bankruptcy court’s application to the facts of this case of the columbia (in re watford), 898 f.2d 1525, 1528 (11th cir. 1990) (“congress’ asked whether “most hay farmers and horse ranchers live on their farms,” mr. arises out of a farming operation), on the date the case is filed, similar language contained within the same section of a statute must be accorded § 101(21). however, debtors have failed to adequately demonstrate that such a clear error.” in re miller, 666 f.3d at 1260 (internal quotation marks omitted). (...continued) the objective direct-use test that we adopt reflects an appropriately narrow in our view, the but-for test does not comport with the phrase “arises out total debt must “arise out of” a farming operation, excluding from the debt total as it appears in the rule and the exception.3 purpose test is essentially indistinguishable from an objective direct-use test. that was incurred to construct the principal residence debt that “arises out of” the a family farmer’s debt to “arise out of” a farming operation. part and parcel of of proving one of them is met . . . .” (citation omitted)). congress, however, created an exception: in the ordinary course, the rule in order to preserve the primary operation of the [general provision]” (quoting must begin: with the language of the statute itself.’” ransom v. fia card servs., substantial-connection standard we believe congress contemplated when it direct-and-substantial-connection standard. then, we conclude, at least in the “narrowly, lest it swallow the rule”); manchester v. annis (in re annis), 232 f.3d on the date the case is filed, [must] arise out of a farming argument that “[t]he bankruptcy court did not adopt any [legal] ‘test’ nor does the law operation, and thus “arises out of” that operation, if “the proceeds of the loan” are chapter 12—from those who are not, by requiring, inter alia, that at least one- this examination, we identify a test that will permit us to optimally discern—at comfortable looking for guidance to those cases that have construed the phrase 1026. specifically, the seventh circuit held that the money earned from the for instance, congress could have simply set forth the rule with a different although we must narrowly construe an exception, see clark, 489 u.s. at factual basis for parsing out the portion of their principal-residence debt used to construct with respect to the office, we do not categorically exclude the possibility part on the “motive of the debtor,” id.; such a test would be less certain in its we now turn to the facts of the instant case. the debtor inherited the farm from her mother. the estate taxes have to be paid deciding the case before us, which involves loan debt; so, we do not opine on whether an wagers), 514 f.3d 1021, 1022 (10th cir. 2007) (per curiam). “we review matters appellees. to exclude investors or speculators who use farm losses to shelter non-farm inc., --- u.s. ----, 131 s. ct. 1177, 1182 (2011) (internal quotation marks see in re stephens, 704 f.3d at 1283; caplan v. b-line, llc (in of law de novo, and we review factual findings made by the bankruptcy court for operation) and possibly other facts as well that may have some material bearing 29 phrase as found in the rule. notably, the former (that is, the exception) focuses the test applied by the bankruptcy court (or the bap). proposition should be construed narrowly. see comm’r of internal revenue v. farming operation pursuant to 11 u.s.c. § 101(18)(a). it urges us to apply a test 28 record permits only one resolution of the factual issue.”). woods testified that, “[t]o [his] knowledge, virtually all of them do that [he] was incurred for the principal residence as debt that arose out of a farming farming operation” because the loan proceeds were used to purchase a beer tacit legal assessment of the statutory requirements of the family-farmer provision. see reorganize their debts without losing their farms.”); watford v. fed. land bank of language cannot be construed in a vacuum.”). inconsistent with our interpretation of the statutory phrase “arises out of.” as we ¶ 1200.01[3][a][i], at 1200-5 (“the definition [of ‘family farmer’] has been bank that was obtained to purchase debtors’ farmland. the parties do not dispute only . . . benefit from the provisions of chapter 12.” (emphasis added)); in re omitted)); in re roberts, 78 b.r. 536, 537 (bankr. c.d. ill. 1987) (following in re appellant first national bank of durango (“first national bank”) appeals intent in passing chapter 12 of the bankruptcy code was to allow farmers to keep tr., dated may 10, 2011). in reaching this conclusion, the bankruptcy court found in short, under the interpretation of the statutory phrase “arise out of” that error. we disagree. a complete reading of the bankruptcy court’s statement objective direct-use test, the court held that “the proceeds of the loan must in that the exception operates narrowly, for this standard only permits limited play their land despite their financial troubles.”). residence almost always would be yes—that is, there almost always would still be loan debt were not directly used in the farming operation, such that they could be statement of policy is qualified by an exception, we usually read the exception legal test, we determine in part ii.b that neither of the factors upon which the functions to exclude debt for a principal residence “unless” the exception (2001) (“it is our duty ‘to give effect, if possible, to every clause and word of a the bankruptcy code, 79 am. bankr. l.j. 729, 735 (2005); see hall v. united inquiry ends and we simply give effect to the plain language of the statute.” added). used to acquire farmland was “inescapably interwoven with farming operations” a legal question; thus, we review the bankruptcy court’s interpretation of the exception] to near nothingness”); see also duncan v. walker, 533 u.s. 167, 174 we conclude infra that the two reasons that the court relied upon are not sufficient to of a farming operation, there must be a connection between the debt and the application because of the ultimately unfathomable nature of another’s thoughts. which the borrowed funds have been put”).5 omitted)); see also united states v. fort, 472 f.3d 1106, 1123 (9th cir. 2007) but for the debt, there would be no farm. see, e.g., in re reak, 92 b.r. 804, portion of the proceeds from the construction loan was directly and substantially debt “for” a principal residence “arise[] out of a farming operation”? see 11 conclude that, in enacting the rule’s exception, congress intended to obliterate mountain law group, l.l.c., montrose, colorado, with her on the brief), for cir. 2006) (interpreting the impeachment exception to fed. r. evid. 407 furthermore, it is no less patent that the purchase of the seeds with the proceeds furthermore, standing alone, the mere presence of an office in a farmer’s 3046348, at *2 (bankr. s.d. tex. oct. 15, 2007) (“the exclusion provision in 11 residence debt arises out of a farming operation, simply because this debt is less we use the phrase “loan debt” broadly to encompass any type of debt that black’s law dictionary 122 (9th ed. 2009); see webster’s third new id. at 727 (emphasis added). the court held that this debt did not “arise out of a confident that ordinarily the proximity of a farmer’s principal residence to his inter alia, an individual or individuals connection, in our view, could not have been envisioned by congress because a aplt. app. at 797 (emphasis debtor’s sale of his farm machinery was income from his farming operation a debt ‘arises out of a farming operation.’” id. at 1381 (b.a.p. op., filed feb. 27, debtors to meet, and the success rate for farm reorganizations was low. . . . in farming operation in terms of care of livestock and irrigation, that [the residence] 37 proper legal principles—including our newly articulated objective “direct-use” between the principal-residence debt and the farming operation—and under the the language of the phrase “arise out of” is of course essentially identical united states court of appeals (“though one might wish it were otherwise, drafters more than rarely use the succinctly stated, a loan debt has a direct and substantial connection to a farming farming operation. in support of this conclusion, the court stated that the concluding that the record leads ineluctably to only one result. see pullman- further proceedings consistent with this opinion. the legal test it applied in reaching its conclusion, the court necessarily must have appeal from the bankruptcy appellate panel vernon, 101 b.r. 87, 89 (bankr. e.d. mo. 1989) (“the provisions ensure that the [debtor] would have no farm.” id. (defining “unless” as “except on the condition that” or “except”). in other words, must decide how a court should determine whether a debt “for” a principal “arises out of” in the context of the fifty-percent-farm-debt rule. we do so below, 39 interpret the language [‘arise out of a farming operation’] as it is used the second farming operation.2 “directly applied to or utilized in the farming operation.” id. for the reasons bryan a. garner, reading law: the interpretation of legal texts 170 (2012) our task is one of statutory interpretation. the interpretation of a statute is embedded exclusion—e.g., that not less than fifty percent of a family farmer’s 11 u.s.c. § 101(18)(a). residence. put another way, congress surely envisioned that in many instances, ii the farming operation would dilute and conflict with this direct-and-substantial- garry r. appel, appel & lucas, p.c., denver, colorado, for appellant. residence, whereas the latter (that is, the phrase “arises out of” as found in the re kirkland), 572 f.3d 838, 840 (10th cir. 2009). and, in that regard, we conclude that an objective “direct-use” test provides the related agricultural business that fits within this broad definition.”); barnes gunn loan proceeds were directly applied to or used in a farming operation. this test ingenuity would be needed to conjure up an indirect connection of some kind appellant, farming operation were used to meet the payments on the loan, u.s.c. § 101(21) (emphasis added). this definition is not exhaustive. see 2 ask whether either of the two factors upon which the court relied allows us to construed liberally in favor of the debtor and strictly against the creditor.” in re operation, less than fifty percent of debtors’ aggregate noncontingent, liquidated independent examination of the statute and expressly underscore that our analysis criteria to determine whether the debt ‘arises out of a farming operation[.’]” 77 operations under 11 u.s.c. § 101(21). to the extent that their living in proximity entirely on the debt associated with the putative family farmer’s principal production of poultry or livestock products in an unmanufactured state.” 11 operations, it could have quite easily reflected this view in the statute’s terms. that focuses on “whether the funds that gave rise to the debt were used in the farming operation, the debt “arises out of” that farming operation. this was not in sum, we have interpreted the statutory term “arises out of” in the “although this appeal is from a decision by the bap, we review only the within the meaning of 11 u.s.c. § 101(21). more specifically, when the debt at court must first give a statute’s language legal meaning in order for it to determine disqualified from chapter 12 relief, even though all of one’s non-principal- for discerning when the direct-and-substantial-connection standard is satisfied. bar ls properties inc., part and parcel of the rule is an exclusion that applies in the ordinary they work. indeed, in this case, debtors’ farming operation preexisted the dispute that the majority of the remaining loan proceeds—what we call the aware of any, that have specifically interpreted the phrase “arise out of” as it is standard v. swint, 456 u.s. 273, 292 (1982) (“[w]here findings are infirm and substantial connection between the debt and the farming operation. next, we define a term, we typically give the phrase its ordinary meaning.” fcc v. at & t b concluding that two attributes of debtors’ principal residence—(1) that it contains such individual or such individual and spouse unless such debt arises out of a substantial connection between the debt for a principal residence and the farming “[t]he normal rule of statutory construction assumes that identical words used in exhaustive list of possibilities” of what constitutes a farming operation and that tacitly—conduct a legal analysis of what the statute’s terms require. in other words, a of a farming operation the purpose of a debt must have some connection to the substantial-connection standard—only takes us part of the way in the analysis. loan . . . went to pay off debtor’s obligation to [the first bank], conclude that the funds derived from the construction loan were directly used in half of the putative family farmer’s debt “arise out of” a farming operation. in the same act are intended to have the same meaning, . . . the presumption is not relied on in re armstrong to decide whether certain debt arose from a farming durango, at least in the loan-debt context, we consider that test an optimal fit for the which the exception could apply. connection test is not the one that congress envisioned because applying it in the threshold. see sandifer, 134 s. ct. at 877 (rejecting petitioner’s interpretation of id.; see also otoe cnty. nat’l bank v. easton (in re easton), 883 f.2d 630, 636 lee woods, d/b/a bar ls farms, 26 broadly as to swallow the rule. see cuomo v. clearing house ass’n, l.l.c., 557 exclusions broadly interpreted”). in other words, applying the foregoing settled demonstrates that the court concluded that the residence was “an integral part of the narrowly—is the related concept that exceptions must not be interpreted so “[i]nterpretation of the bankruptcy code starts ‘where all such inquiries 2 income.”). thus, the fifty-percent-farm-debt rule was one means of identifying woods, with a view to their place in the overall statutory scheme.” davis v. mich. dep’t § 101(18)(a). we are not prepared to say at this time that this difference in focus 25 time it appears in the statute[, i.e., immediately after the phrase “on the date the v. sec’y of treasury, 475 u.s. 851, 860 (1986) (internal quotation marks exclusion; and (2) the exception to the rule. the rule requires at least one-half of could be used in a farming operation—that is, “arise out of” a farming debtors are a husband and wife who, in 2007, purchased farmland in requirements. even if it only did this tacitly, the court’s interpretation of the statute’s loan] was to save debtor’s farmland and that the proceeds of the other courts have followed suit by relying on in re armstrong in applying distributorship. 10 factual finding on the question of nexus (i.e., its “integral-part” finding) is in error; thus, true family farmers, who would be eligible for chapter 12 relief. 31 omitted). consequently, in light of these interpretive principles, we are such a facially tenuous connection to a farming operation was sufficient, the one’s principal residence is not included in the aggregate debt; on the other hand, several issues on appeal, we only reach the first: whether debtors are permitted to operation, excluding debt “for” the individual’s principal residence. this rule is reson and shaun woods (“debtors”). although first national bank raises 1996) (“courts properly assume, absent sufficient indication to the contrary, that elisabeth a. shumaker found in the exception. instead, the courts that have interpreted this phrase—and, fifty percent of the individual’s aggregate debt “arises out of” a farming of whether the debt “for” that residence “arises out of” a farming operation. a statutory “exception” because it “runs the risk of reducing [the statutory “direct-use” test is the best fit. think some other approach might accor[d] with good policy.” (alteration in family farmers. “congress intended chapter 12 to encourage family farmers to residence is not included in the aggregate debt; it is not considered to “arise out appellees. the estate taxes, there would be no farm.”); in re rinker, 75 b.r. at 68 (“without 34 12 individual or such individual and spouse . . . . 739, employing the but-for test in this context would have a limiting effect that different parts of the same act are intended to have the same meaning.” sorenson possibility may be present here; nor have they specifically provided us with a legal or use) of the debt has “some connection” to farming operations. see in re narrowly in order to preserve the primary operation of the provision.”); city of the second factor that the bankruptcy court relied upon rests on an even debtors’ need to have a place to live, not out of the activities constituting farming seek relief under chapter 12 as “family farmers.” in deciding this issue, we are b.r. at 715. but the test was subsequently modified in important ways by the construction of the exception; however, it leaves open plausible circumstances in and, in that regard, we recognize that we are guided by the interpretive principle that exceptions to a general consequently, congress has identified precisely whom chapter 12 was intended there would be no farm.”); see also in re teolis, 419 b.r. 151, 161 (bankr. d.r.i. of [that farmer’s] aggregate noncontingent, liquidated debts . . . because of an erroneous view of the law, a remand is the proper course unless the “the farm’s office, books, and records . . . are maintained at the farmhouse,” and aplt. app. at 1382–83. requirements is subject to de novo review. cf. bose corp. v. consumers union of u.s., international dictionary 117 (2002) [hereinafter “webster’s”] (defining “arise” as states, --- u.s. ----, 132 s. ct. 1882, 1894 (2012) (breyer, j., dissenting) would have been directly used in a farming operation and, consequently, that debt loan-debt context, our true focus must be on whether the loan proceeds from the test, the bankruptcy court committed legal error. specifically, it did so in to de novo review. accordingly, we apply de novo review here to the bankruptcy court’s and (2) it was in proximity to the farming operation. aplt. app. at 797 (emphasis added). than the debt “for” one’s “principal residence.” f/d/b/a bar ls properties inc.; interest in assisting genuine family farmers, we cannot conclude that congress 1232 (“it follows that if the district court commits legal error en route to a factual 17 principal residence being the place where the farmer keeps the clothing in which operations. § 101(18)(a) because it “ar[ose] from farm operations.” aplt. app. at 797 (hr’g bankruptcy court’s confirmation of the chapter 12 bankruptcy plan of appellees otherwise be owed on appeal.”). debtor’s farming activity” (emphasis added) (internal quotation marks omitted)); farming operation. id. test in determining whether the debt “for” debtors’ principal residence “arises out u.s. 479, 501 (1998) (discussing “the established canon of construction that 516 u.s. 137, 145 (1995)) (internal quotation marks omitted); see salazar v. suggested in in re kan corp., we reject a version of this test that would focus in as noted, a “family farmer” is, in relevant part, an individual or an he farms or the computer or telephone through which he places orders or sells his operation”? see in re reak, 92 b.r. at 806 (“[b]ut for the land acquired by the new york v. beretta u.s.a. corp., 524 f.3d 384, 403 (2d cir. 2008) (following first national bank contends that the bankruptcy court applied the rigid, and the meaning [of the same words] well may vary to meet the purposes of 1 of a farming operation,” we vacate the bankruptcy court’s judgment and (2014) (“the role of this court is to apply the statute as it is written—even if we percent-farm-debt rule. 14 woods, d/b/a bar ls farms, f/d/b/a when determining whether debt “arises out of” a farming operation, in order to whether a given set of facts satisfies that statute. and it cannot be gainsaid that fact, or a finding of fact that is predicated on a misunderstanding of the governing rule of possibility that a debt for the construction of an office in a principal residence (10th cir. 2010) (“if the terms of the statute are clear and unambiguous, the 13 not have been used for the activities constituting farming operations, such as located on a farm, but the proceeds of the loan for the principal residence would standard is satisfied. that is, if the loan proceeds were used directly for or in a law to the facts of this case. thus, we vacate the bankruptcy court’s judgment dittmar (in re dittmar), 618 f.3d 1199, 1204 (10th cir. 2010). for chapter 12 protection as a “family farmer” because he was unable to pay his substantial connection between the two—the legal premise for the court’s purported aggregate debt for determining whether the fifty-percent-farm-debt threshold is 21 those facts are not material to the issue. whether a debt incurred statute de novo.1 kunz), 489 f.3d 1072, 1077 (10th cir. 2007). funds was directly and substantially connected to farming operations, as defined in reach a new conclusion; instead, [we] must remand to the [trial] court for it to connection standard is satisfied. specifically, we conclude that this test is an (or an individual and his or her spouse) qualifies as a family farmer if at least other words, if the exception applies, the aggregate debt and farm-debt portion of immediate”); id. at 2280 (defining “substantial,” inter alia, as meaning debtors had the burden of establishing their eligibility for chapter 12 original enactment in 1978, is broad in scope . . . . thus, the primary business of the but-for test provides that a debt “arises out of a farming operation” if direct-and-substantial-connection standard, at least in the loan-debt context. corp., 101 b.r. at 726. the court reasoned: discerning the import of a statute is a legal process; consequently, that process is subject cf. hamilton creek metro. dist. v. bondholders colo. bondshares (in re hamilton preserve the primary operation of the provision.’” (quoting clark, 489 u.s. at statute.’” (quoting united states v. menasche, 348 u.s. 528, 538–39 (1955))). original) (quoting comm’r of internal revenue v. lundy, 516 u.s. 235, 252 of a farming operation. see, e.g., in re quillian, no. 07-20199, 2007 wl 32 analysis—involving notably our newly stated objective “direct-use” test—and for in short, in order to satisfy its this rule is an embedded exclusion. it excludes from the aggregate-debt in proximity to the farming operation—were legally sufficient to classify debt that court had to decide what portion of the debtor’s income was derived “from a embodying a direct-and-substantial-connection standard, and we have identified a excluded from the debt total because it does not “arise out of” a farming v. operation’s office, books, and records does not mean, however, that the proceeds family farmer if at least one-half of one’s non-principal-residence debt arises out other words, the incurring of debt for family farmers’ principal residences would exception could apply. for our purposes, it is sufficient to underscore that when case is filed”]. . . . [t]his matter therefore appears to be one of first as noted, other courts have applied what we have labeled a “some- appeal—first national bank has maintained that, if the construction loan is farming operation in [the] sense that” (1) the farm’s office, books, and records were there, see united states v. cleveland indians baseball co., 532 u.s. 200, 213 (2001) in order for the debtor to keep the farm. but for the payment of the estate taxes, connection” test. this test focuses on whether the purpose (and sometimes the 35 “it is well established that ‘when the statute’s language is plain, the sole the term “farming operation” is defined to “include[] farming, tillage of the soil, would properly be deemed to “arise out of” the farming operation. that is, the “to originate from a specified source”). these definitions all connote at least farming operation), on the date the case is filed, arise out of a farming operation.” united states court of appeals debtors view the bankruptcy court’s statement that the residence was “an warren (in re warren), 512 f.3d 1241, 1248 (10th cir. 2008); accord parks v. because they allowed debtors to construct a residence, which in turn provided only family farmers—not tax shelters or large corporate entities—will benefit. this “integral” principal residence arose out of the farming operation. however, because optimal vehicle for discerning whether the direct-and-substantial-connection principal residence could be deemed to arise out of a farming operation. subjective intent; rather, they seek to identify the purpose of the loan by inquiring into inquiry into the “purpose” of the loan as being an inquiry relating to the debtor’s operation”—that is, “[h]e bought the machinery so the farm could exist and (fletcher, j., dissenting) (“[an] exception must be construed ‘narrowly in order to 246–47 (6th ed. 2000) (“subsidiary clauses which limit the generality of a rule “for” a principal residence will not be directly used in a farming operation, also said, that the same words have not necessarily the same meaning attached to ultimately, we conclude that—at least in the loan-debt context, as here—an is the version of the test found there that we ultimately adopt. omitted); see nat’l credit union admin. v. first nat’l bank & trust co., 522 the exception provides that if such debt “arises out of” a farming operation, then • that contains an exclusion—“excluding a debt for the novo review. such an outcome would be improper, at the very least because it would not cannot seek relief under chapter 12. see id. § 109(f). (quoting brown v. gardner, 513 u.s. 115, 118 (1994)) (internal quotation marks excluded”). ! a rule for assessing whether the debt of the putative family iii exemption because it “would swallow the rule”). if congress were of the view standard is satisfied—at least in the loan-debt setting. corp., 101 b.r. at 727 (emphasis added). 11 omitted) (internal quotations marks omitted). relying on the same two factors principles of statutory construction, we believe that construing the phrase “arise the debtor’s “purpose in settling the case was to preserve the[ ] farming least in the loan-debt context, as here—when the direct-and-substantial- livestock.” 11 u.s.c. § 101(21). this not the case, in virtually every instance in which bankruptcy courts (or, for that of a debt must have some connection to the debtor’s farming activity.” aplt. correct errors of law, including those that may infect a so-called mixed finding of law and principal residence of such individual”; and debtor’s farming activity.” (emphasis added)). irrelevant to how the proceeds of the construction loan were used. the fact that in the joints between the debt for the principal residence and the farming the construction loan should not be excluded from the debt total under the farming operation. bankruptcy court’s decision.” miller v. deutsche bank nat’l trust co. (in re holmes, circuit judge. (“although we generally presume that identical words used in different parts of the statute’s structure—setting forth a baseline rule and an to be sure, consistent with this opinion and its factual setting, we are met will include debt for the principal residence if the debt “arises out of” the farmhouse and that purpose was “connected to the [debtors’] farming activities.” f.3d at 403; see also burrage v. united states, --- u.s. ----, 134 s. ct. 881, 892 prosper. but for the machinery, there would be no farm.” id. exception, respectively, is only a product of references to the plural, “debts,” and singular, connection statutory standard. such a test is singularly focused on whether the one such debt is a $480,000 loan debtors obtained from first national bank. cheryl a. thompson, thompson brownlee, vail, colorado (daniel j. lowenberg, (internal quotation marks omitted)). further, “[i]t is a fundamental canon of (1) the farming operation’s office and records were located in the residence; and ambiguity of statutory language is determined by reference to the language itself, exception would swallow the rule—that is, virtually every family farmer’s to help.” (citation omitted)); see also resnick & sommer, supra, integral part of the farm operation” as a factual finding that we should review for clear exception—leads us to believe that the exception must be construed narrowly. 00261, 2013 wl 1385404, at *7–8 (bankr. n.d. iowa apr. 3, 2013) (relying on relief, we need not reach the other issues that first national bank raises regarding the court’s determination that the purpose of the construction loan was to construct a publish in re marlatt, 116 b.r. 703, 705 (bankr. d. neb. 1990) (“[f]or a debt to arise out the exception consuming the rule. for example, in many cases, very little parents’ farmland. see id. at 66. approximately six years later, the debtor filed between a family farmer’s principal residence and his farming operation. indeed, the phrase “arises out of” is left undefined. “when a statute does not i we begin by interpreting the phrase “arises out of” in the “family farmer” discerning whether that standard is satisfied—i.e., an objective direct-use test. the farming operation itself. indeed, quite the opposite is true; at best, the funds principal residence ordinarily will not be sufficient to establish that the debt “for” debt “arises out of” a farming operation: the “but-for” test, the “some-connection” clark, 489 u.s. 726, 739 (1989) (“in construing [statutes] in which a general some connection between the object and its source—that is, at least some it is included in the aggregate-debt calculation and also constitutes farm debt for opportunity in the context of a remand to try to establish facts regarding their because the bankruptcy court failed to apply the correct legal standard and were we to hold otherwise, the exception would swallow the rule. notably, when but that is not the scheme congress chose. accordingly, we must interpret one can easily imagine, however, instances when the proceeds of a loan the bankruptcy court in in re rinker, 75 b.r. 65 (bankr. s.d. iowa 1987), test, and the “direct-use” test. after examining the but-for and some-connection debt) and the farming operation—that is, they are insufficient to establish a direct and operation serves that end. cf. heffley v. comm’r of internal revenue, 884 f.2d tenth circuit common meaning.’” (quoting perrin v. united states, 444 u.s. 37, 42 (1979))); context of the exception would almost certainly result in the exception applied the but-for test); see also kelley, supra, at 492 (“the ‘but for’ test can be residence and his farming operation. in other words, nearly every family farmer’s exception to operate—but, appropriately, only in limited circumstances. a 1195, 1199 (10th cir. 2012) (“[w]e first and foremost look to the statute’s the office portion of that principal residence “arises out of” a farming operation. this appeal followed. courts have commonly applied at least three tests in discerning whether farming operation. in other words, in such a circumstance, the proceeds from the bankruptcy court’s finding that it was in the residence and mr. woods’s testimony that butterball, llc, 644 f.3d 1130, 1137 (10th cir. 2011) (“the plainness or in re: reson lee woods, a/k/a where the court held that “the reason or purpose for which the debt was incurred inc., 466 u.s. 485, 501 (1984) (“rule 52(a) does not inhibit an appellate court’s power to operation—because a portion of the principal residence that was built with those loan calculation any debt “for” the family farmer’s principal residence. thus, operation; indeed, the connection could be as tenuous and insubstantial as the the use made of the loan proceeds. in this case, the [second] isn’t just incidental . . . [it] is where they live.”6 772 (bankr. m.d. ga. 2007). accordingly, it applied the following test: “to ‘arise operation,” the court applied the but-for test, reasoning that “[w]ithout the land, selected the phrase “arise out of,” we discuss and endorse the “direct-use” test. mortgage would certainly amount to a debt “for” his principal residence. 1 11 u.s.c. § 101(18)(a). from the outset of this case—and again on circuit’s decision in in re armstrong, 812 f.2d 1024 (7th cir. 1987), where the debtors contend that the bankruptcy court’s decision that the construction app. at 1382 (internal quotation marks omitted); see also in re hemann, no. 11- into its two principal parts: (1) the fifty-percent-farm-debt rule, with its embedded 805–06 (bankr. e.d. wis. 1988) (identifying several cases where the courts deemed to be directly and substantially connected to that operation. once again, 18 the phrase “arise out of” in a way that allows the rule’s exception to function as swallowing the rule. for example, in many cases, it would not be difficult to from the bankruptcy appellate panel’s (“bap’s”) decision affirming the 19 tests and rejecting them because they are not congruent with the direct-and- debt “for” a principal residence “arises out of” a farming operation; that is, a percent-farm-debt rule. see, e.g., aplt. opening br. at 16 (“all of the cases of” a farming operation only if the debt is directly and substantially connected to that the bankruptcy court identified—that is, generally, the presence of the that this portion of the debt “arises out of” a farming operation; nor do they proportion of one’s debt that “arises out of” a farming operation. 739)); 2a norman j. singer, statutes and statutory construction § 47:11, at farm debt) the debt “for” one’s “principal residence.” in other words, one is a contemplated a test that would virtually negate a statutory exception that it other words, the fifty-percent-farm-debt rule provides a means to identify true armstrong and holding that “[t]he debts in question in the instant case arose when entitled to any deference (although they certainly may be persuasive).” mathai v. for clarity’s sake, then, the definition provides the following: determined that the facts on which it relied were legally sufficient to meet the statute’s “[t]his open-ended wording of the statute has left bankruptcy judges with the (1996)) (internal quotation marks omitted)); sandifer, 134 s. ct. at 878 (same). enters., inc., 489 u.s. 235, 241 (1989)); see united states v. west, 671 f.3d presented with a question of first impression for our court—namely, when does a the rule separates those who are family farmers—and thus can file under “debt,” respectively; this difference, in our view, is not germane to the meaning of the (“it is a ‘fundamental canon of statutory construction’ that, ‘unless otherwise tim wargo & sons, inc.), 869 f.2d 1128, 1130 (8th cir. 1989) (noting in a thus, in this context we decline to endorse the but-for test. arise out of a farming operation owned or operated by such we deem it appropriate and prudent to remand for that court to apply the correct defined, words will be interpreted as taking their ordinary, contemporary, before holmes, o’brien, and matheson, circuit judges. (internal quotation marks omitted); accord wagers v. lentz & clark, p.a. (in re know[s].” aplt. app. at 289. direct-and-substantial-connection standard is satisfied. satisfied, those courts’ determinations would be effectively insulated completely from de abundance of caution and in the interest of justice, because we have difficulty bankruptcy relief for farmers[,] . . . designed to be more generous to debtors than not less than 50 percent of whose aggregate noncontingent, any debt for a principal residence that does not arise out of a farming operation. logic tell us that the answer to this question with respect to debt for a principal when we find legal error, we ordinarily do not “weigh the facts . . . and individual and spouse “not less than 50 percent of whose aggregate be no farm.”). the but-for test was at least in part derived from the seventh the default rule is premised in part upon the view that ordinarily, debt for a shaun k. woods, a/k/a shaun because this is a scheme whereby a default rule is subject to an exception, expressed as: but for the indebtedness created by the family farmer, there would a farming operation, regardless of any debt obtained for a principal residence. in that a debt for the construction of an office in a principal residence could be found to same word to denote different concepts . . . .”). therefore, we conduct an operation” 30 that most or all principal residences of farmers “arise out of” their farming as the bap noted, not many have—have done so when interpreting the fifty- siblings the outstanding amount of the settlement agreement. see id. at 66–67. is at its most vigorous when a term is repeated within a given sentence.” miss. ex an office and the farming operation’s books and records, and (2) that it is located meaning of statutory language, plain or not, depends on context.” united states f.3d 1121, 1129 (10th cir. 2010). we follow such a course here, out of an determination, that determination is thereby deprived of any special solicitude it might the phrase “arise out of” as it appears in the fifty-percent-farm-debt rule. from cir. 1992) (“debtors [under chapter 12] bear the burden of establishing all construction loan were directly used in the farming operation. of that loan debt would constitute a “farming operation” within the meaning of 11 some courts, such as the eighth circuit in in re easton, do not view an farming operation’s office and records in the residence, and the residence’s case-by-case task of determining whose operations are included and whose are provides funds to spend on other goods or services. we only hold that an objective and-substantial-connection standard is satisfied. we conclude that an objective generally applicable bankruptcy law.” porter, supra, at 731; see 8 alan n. as the optimal vehicle for discerning when the direct-and-substantial-connection (b.a.p. no. 11-083-co) statutory construction that the words of a statute must be read in their context and 5 debtors’ principal residence is located on the farm cannot reasonably lead us to see 11 u.s.c. § 101(18)(a). intent[, certain] exceptions must be narrowly applied and the corresponding assess what test best fits the direct-and-substantial-connection statutory standard. 15 farming operation.” aplt. opening br. at 14. first, in part ii.a, we interpret that the residence was “integral” to the farming operation because of the two specific conclude that the construction loan is directly and substantially connected to conclude that a remand is required so that the bankruptcy court may apply our § 101(18)(a) and set forth the proper legal standard for determining whether a flowing from this interpretive principle—that we must construe exceptions implications for how congress intended the two phrases to operate in the statute. the aggregate debt increase by the same amount, which necessarily increases the legal standard . . . are a necessary condition for our review and, accordingly, a the court looked to the “subject of the settlement”—the farmland—in holding this particular residence does ‘arise out of’ a farming operation . . . .” aplee. br. at 21–22 could be found to “arise out of” a farming operation. with the legal landscape the debtor obtained a bank loan secured by his farmland to purchase a beer issue is loan debt, as here, we conclude that an objective “direct-use” test serves “dairy farming, ranching, [or] production or raising of crops, poultry, or repeated in the same sentence; for, as the supreme court has recently noted, “the n.a., --- u.s. ----, 131 s. ct. 716, 723 (2011) (quoting united states v. ron pair of the existence of the farming operation—would be that the exception would principal-residence debt as debt that “arises out of a farming operation.” and, we things, the connection could be as tenuous as the principal residence being the them when found in different parts of the same instrument: their meaning is such individual or such individual and spouse unless such debt “we made one bedroom [in the residence] larger specifically for an office.” aplt. app. at farmland. weaker foundation. the proximity of the residence to the farming operation is we recognize that divining the appropriate standard—viz., the direct-and- while it may be true that the purpose of [obtaining the second 7 is focused on the phrase “arises out of” as it appears in the exception to the fifty- were only available to those who could be said to be true family farmers. see in exceptions, all doubts should be resolved in favor of the general provision rather test. rather, as in hasan, “we simply conclude that findings under the proper and the proceeds of the [first] loan . . . were invested in a beer


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