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In re Dudley R. Webb, Jr.

Case No. 13-1495 (C.A. 8, Feb. 6, 2014)

When Dudley and Peggy Webb filed for Chapter 7 bankruptcy in February 2012 they listed in their bankruptcy schedules a large volume of rice grain and farming equipment owned in connection with the "Dudley R. Webb, Jr. Farms Joint Venture." The Bank of England asserted that it had a perfected security interest in this property arising out of unpaid loans between this joint venture and the bank. The bankruptcy trustee disagreed and sought an injunction to prevent the bank from exercising control over the rice grain and equipment. At an emergency hearing the bankruptcy court granted a permanent injunction aga inst the bank, concluding that the joint venture was not a separate partnership entity and thus the property belonged to the estate and the trustee could immediately sell it for the estate's benefit. The district court agreed, and we affirm.

Spouses Dudley and Peggy Webb executed a joint venture agreement in January 2003 to operate a rice farming business under the name "Dudley R. Webb, Jr. Farms Joint Venture." The agreement specified that each of them would have a 50% interest in the business, and that "during the duration of this partnership" both parties "shall . . . exercise their utmost skill, effort and endeavor for the furtherance of the interests, profits, benefits and advantage of this joint venture." Paragraph 13 of the agreement stated that "[n]othing herein shall be construed to create a partnership of any kind." During the operation of their business the Webbs borrowed funds from the Bank of England located in England, Arkansas, and from the United States Department of Agriculture Commodity Credit Corporation. Many of these loan agreements were executed in the name of the joint venture.

The Webbs jointly filed a Chapter 7 bankruptcy petition in February 2012. The couple listed in their bankruptcy schedules an ownership interest in an estimated 105,000 bushels of rice located in grain bins, an estimated 117,000 bushels of rice located at the Federal Dryer and Storage Company, and certain vehicles, rolling stock, and farm equipment. In early March 2012 the Bank of England filed in the bankruptcy court a motion for relief from the automatic stay imposed under 11 U.S.C. § 362, arguing that it had a perfected security interest in this rice and equipment arising out of nine unpaid loans made by the bank to the joint venture. The court scheduled a hearing on the bank's motion for April 26, 2012.
 

 

Judge(s): Diana Murphy
Jurisdiction: U.S. Court of Appeals, Eighth Circuit
Related Categories: Agriculture , Bankruptcy
 
Circuit Court Judge(s)
James Loken
Diana Murphy
Lavenski Smith

 
Trial Court Judge(s)
Audrey Evans
Price Marshall, Jr.

 

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couple created the joint venture to establish his wife's credit and to ensure that she of the agreement stated that "[n]othing herein shall be construed to create a january 2003 to operate a rice farming business under the name "dudley r. webb, dudley webb testified that he did not differentiate joint venture property from his factual findings for clear error and its conclusions of law de novo. in re m & s determination that the webbs did not intend to create a separate entity. cf. in re ____________ that the couple claimed the property on their individual tax forms. after reviewing for the eastern district of arkansas - little rock argument before the bankruptcy court or the district court. we will not consider such farming operations as "more than just my wife or spouse" and to help her establish temporary restraining order, preliminary injunction, and emergency hearing, the bankruptcy court granted a permanent injunction against the bank, concluding that1 interests that existed as of the time that the bankruptcy petition is filed." in re in sum, we conclude that the bankruptcy court did not clearly err in its holding then on march 29 the bankruptcy trustee, m. randy rice, filed a complaint slaton, 195 s.w.3d at 397. made on the record here, and thus we conclude that the argument is waived. see id. contract "that document will be controlling as to what was the parties' intention." this injunction on other issues in the bankruptcy case, only those in this single estate. we disagree. in considering the fact record presented in this case, the bankruptcy court llllllllllllllllllllldebtors evidence or argument would affect the outcome of the case." first bank investors' individual partner's bankruptcy estate under § 541. in re burnett, 241 b.r. 438, 439 that he never prepared any bills of sale to transfer property to the joint venture at the that paragraph 13 specifically states, "[n]othing herein shall be construed to create a exercising control over the rice grain and equipment. at an emergency hearing the erred in looking to other testimonial and documentary evidence because the encumbrances attach to the proceeds fromthe sale for the determination of theparties' the joint venture was not a separate partnership entity and thus the property belonged joint venture had never been registered as a separate entity with the arkansas m. randy rice paragraph 13. and where a contract is ambiguous, the trial court may consider dispositive, as the bank claims, we would then look to the other provisions in the the bankruptcy court. at 476–78. bankruptcy court issued a written order to this effect on july 3, 2012. credit. documents submitted at the hearing indicate that the webbs reported their returns rather than on a form 1065 partnership return, and dudleywebb testified that depends primarily on the intent of the parties to form and operate a partnership, a the couple created the joint venture to ensure that peggy webb had an interest in the from the webbs to the joint venture at the time it was created, and that the webbs bankruptcy estate but are property belonging to a separate entity, dudley r. webb jr. venture." the bank of england asserted that it had a perfected security interest in the bank of england appealed to the united states district court for the general partnership or other separate legal entity. thus, the rice grain and equipment ______________________________ sometime after april 2 because "the rice bushels are not property of the [webbs'] an argument unless it were to "involve[] a purely legal issue in which no additional joint venture." while we recognize the bank's concern about the potential impact of eastern district of arkansas. the district court affirmed, concluding that the record ____________ injunction enjoining the bank of england from taking control of the assets and estopped under ark. code ann. § 4-46-308 fromasserting that the joint venture is not parties "shall . . . exercise their utmost skill, effort and endeavor for the furtherance the bankruptcy court did not consider the lack of entity registration to be listed assets which the bank asserts belonged to the joint venture as individuallylisted bankruptcy court issued a temporary restraining order and set the matter for court did examine at length the language of the joint venture agreement as well as the the joint venture assets belonged to the estate. under 11 u.s.c. § 541(a)(1) the -2- trustee specifically requested a hearing on both his complaint and the bank's motion without awaiting a ruling from the bankruptcy court. moreover, in his motion for couple listed in their bankruptcy schedules an ownership interest in an estimated secretary of state. this evidence, we conclude that the bankruptcy court did not clearly err in its stated that there was no difference between the joint venture and himself, and that the only create ambiguity as to the webb's intent if they were read together with 50% interest in the business, and that "during the duration of this partnership" both agreement. these provisions, for example that the parties "agree to create an entity grain. the question of whether the webbs' entity was a partnership was a core both in this case and in all other dealings with persons purporting to be operating a partnership when entering into loan transactions. the webbs did not raise this district court agreed, and we affirm.2 listed in the name of the webbs' joint venture was owned by the webbs individually other evidence presented before reaching its decision. we conclude that the court's a "separate entity" test as part of its decision, because arkansas law does not mandate ordered that the trustee sell the contested rice grain and hold the proceeds from the the bank of england next argues that the webbs and the trustee should be the parties' intention." slaton, 195 s.w.3d at 397. paragraph 13 of the joint venture representative joey adams, and trustee rice, and reviewed over seventy exhibits. in re: dudley r. webb, jr.; peggy j. webb 105,000 bushels of rice located in grain bins, an estimated 117,000 bushels of rice farms joint venture." in response to this letter the trustee filed a motion for trust v. tarkio coll., 129 f.3d 471, 477 (8th cir. 1997) (internal citations omitted). the bank additionallyargues thatpublic policycompels reversal because while located at thefederal dryer and storagecompany,and certain vehicles,rolling stock, filed: february 6, 2014 bank argues that the joint venture agreement is the only controlling evidence of determinative of whether the webbs formed a partnership. as discussed above, the spouses dudley and peggy webb executed a joint venture agreement in united states court of appeals seeking an order authorizing him to sell all of the webbs' remaining rice grain free or isolated enterprise, plus the fact that loss-sharing is not as essential to joint the bankruptcy court may authorize the trustee to sell it under 11 u.s.c. § 363. authorize the trustee to sell the rice grain. the bank appeals. we apply the same ___________________________ had not intended to create a separate entity. 2012 they listed in their bankruptcy schedules a large volume of rice grain and inc., 235 f.3d 375, 379 (8th cir. 2000)). the honorable audrey r. evans, united states bankruptcy judge for the1 proceeding necessary to determine if the rice was part of the bankruptcy estate. 28 a partnership or separate legal entity because they held themselves out as a § 362, arguing that it had a perfected security interest in this rice and equipment -7- ventures as it may be for partnerships." slaton v. jones, 195 s.w.3d 392, 397 (ark. relying on this testimony and related documentation, the bankruptcy court the bank ofengland finallyargues that thebankruptcycourt erred by applying lllllllllllllllllllllappellee include "the ad hoc nature of joint ventures, or their concern with a single transaction the registration of a general partnership in order for it to be legally formed and valid. v. venture "is a relationship founded entirely upon contract," where there is an existing determined at the hearing that the joint venture created by the webbs was not a when dudley and peggy webb filed for chapter 7 bankruptcy in february loan agreements were executed in the name of the joint venture. while a "joint venture" can be a partnership if it fits the definition of such an -4- that the webbs had not created a separate legal entity and that the rice grain was thus ___________________________ u.s.c. § 157(b)(2)(a). if property is determined to be part of the bankruptcy estate, jr. farms joint venture." the agreement specified that each of them would have a ------------------------------ adversary proceeding are before us. the trustee sought an injunction here directly in to assert estoppel under this arkansas statute the bank must show that it relied on the curtis, 363 b.r. 572, 578 (bankr. e.d. ark. 2007). to avoid infestation or spoliation, but requested that all liens, claims, and and farm equipment. in early march 2012 the bank of england filed in the time it was created. neither party produced evidence indicating that the joint venture for purposes of a joint venture" and mandating the equal division of profits, could the bank of england objects to the bankruptcy court's conclusion. first, the temporary restraining order, preliminary injunction, and emergency hearing. the ventures have notable differences from general partnerships. these differences of the webbs' bankruptcy estate. it thus had jurisdiction to issue an injunction and scheduled a hearing on the bank's motion for april 26, 2012. for relief from the stay. in sum, we do not agree that public policy compels a the agreement was drafted to increase his wife's involvement and establish her credit, response to the bank's attempt to exercise authority over the disputed rice grain even if we were to conclude that the language of paragraph 13 is not the webbs jointlyfiled a chapter 7 bankruptcy petition in february2012. the the honorable d. price marshall, jr., united states district judge for the2 hearing dudley webb testified that he treated his property "all one in the same," that webbs' representation in executing the loan agreements. this showing has not been determined that the webbs had not created a partnership or any other separate legal eastern district of arkansas. that he never transferred property to the joint venture or executed a bill of sale, and "joint venture." uniform law comment 2 to ark. code ann. § 4-46-202. joint entity, an association is not classified as a partnership simply because it is called a income from the farming operations on schedule f of their form 1040 individual tax where a joint venture agreement exists, "that document will be controlling as to . . . the condition that influenced the bankruptcy court's decision—namely, the threat of partnership of any kind." during the operation of their business the webbs borrowed arising out of nine unpaid loans made by the bank to the joint venture. the court to determine the nature and extent of a debtor's interest in particular property because the court's ruling "will continue to negatively impact [the bank] and other creditors reversal. mahendra, 131 f.3d 750, 755 (8th cir. 1997). bankruptcy courts look to state law partnership of any kind." it also considered the testimony of dudley webb, who he submitted copies of these tax forms to the bank of england. he also explained before loken, murphy, and smith, circuit judges. -8- bankruptcy trustee disagreed and sought an injunction to prevent the bank from appeal from united states district court evidence outside the four corners of the agreement. see first nat'l bank of crossett irreparable harm if the rice grain spoiled or became infested—is no longer a concern, assets on various loan applications. in addition the bankruptcy court noted that the whether a partnership exists in this case. it asserts that the bankruptcy court clearly grading, inc., 526 f.3d 363, 367 (8th cir. 2008) (citing in re cedar shore resort, of the interests, profits, benefits and advantage of this joint venture." paragraph 13 murphy, circuit judge. states department of agriculture commodity credit corporation. many of these at the hearing the bankruptcy court heard testimony from dudley webb, bank part of the webbs' individual bankruptcy estate under 11 u.s.c. § 541. the accordingly,weaffirmthe order of the district court resolving this appeal from submitted: january 13, 2014 and should be included in the bankruptcy estate. the court entered a permanent for the eighth circuit that the bankruptcycourt had jurisdiction to determine whether the rice grain was part webbs did not file a partnership tax return, but instead included their farming income eastern district of arkansas. v. griffin, 832 s.w.2d 816, 819 (ark. 1992) (internal citations omitted). at the bankruptcy court a motion for relief fromthe automatic stay imposed under 11 u.s.c. -5- individual property, but rather treated assets "all one in the same." he explained that no. 13-1495 question of fact. gammill v. gammill, 510 s.w.2d 66, 68 (ark. 1974). as a joint was registered as a separate entity with the arkansas secretary of state's office. bankruptcy estate is comprised of "all of the debtor's legal and equitable property this property arising out of unpaid loans between this joint venture and the bank. the rights at a later time. the next day trustee rice received a letter from the bank's bank of england had an equal interest in the farming operation. the court found it significant that the -3- funds from the bank of england located in england, arkansas, and from the united ____________ to the estate and the trustee could immediately sell it for the estate's benefit. the app. 2004). under arkansas law the question of whether a partnership exists webbs' intent. emergency hearing on april 11. -6- "[p]roperty interests are created and defined by state law." id. (internal citation on their individual tax returns, that there were no bills of sale transferring property attorney indicating that the bank intended to liquidate the rice and equipment ____________ omitted). arkansas law specifies that partnership assets are not the property of an bankruptcy court therefore had jurisdiction to authorize the trustee to sell the rice agreement demonstrates a clear intention to create a separate entity. we agree that agreement in this case supports the bankruptcy court's determination that the webbs entity. the court looked first to the language of the joint venture agreement, noting standards of appellate review as the district court, in reviewing the bankruptcy court's (bankr. e.d. ark. 1999) (internal citations omitted). the bank of england asserts the bank of england nowchallenges thebankruptcycourt's determination that and clear of liens, claims, and encumbrances. he explained the need to sell the grain lllllllllllllllllllllappellant reference to the lack of entity registration merely served as further evidence of the indicated that the webbs had not intended to form a partnership. it further concluded grain and equipment should therefore be excluded from the couple's bankruptcy farming equipment owned in connection with the "dudley r. webb, jr. farms joint that the webbs' joint venture was a partnership under arkansas law and that the rice sale in an estate account pending the determination of the various parties' rights. the


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