Robert Joseph Podzemny and 7H Feeders Inc.

IN THE UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re:
ROBERT JOSEPH PODZEMNY and
7-H CATTLE FEEDERS, INC., 	Jointly administered under
Case No. 09-14226-j11
Debtors.
MEMORANDUM OPINION
The matter came before the Court on January 31, 2011 on Robert J. Podzemny’s
Supplemental Motion for Order Authorizing Use of Cash Collateral for the 2011 Grazing Cattle
and Corn Crop (the “Supplemental CC Motion”)(Docket No. 394), filed January 13, 2011.
Counsel appeared as noted on the record. The Court has considered the evidence and argument
of counsel, and has determined that the Supplemental CC Motion should be granted with certain
conditions as set forth below.
SUMMARY OF THE PARTIES’ POSITIONS
The Debtor Robert J. Podzemny (the “Debtor”) requests authorization for use of over
$12 million in cash collateral as follows: 	1) up to $800,0001 to develop an additional 750 acres
of farmland on the Mock Farm that includes installation of an irrigation system on that acreage;
2) approximately $4.5 million to plant, cultivate and harvest a 2011 corn crop on approximately
7,170 acres, including the newly developed acreage; 3) approximately $6 million of cash
collateral to acquire up to 9,000 head of wheat cattle in February, March and April of 2011; and
4) approximately $1.2 million to acquire up to 2,000 head of cattle to graze on grass pasture.
The Debtor also seeks use of cash collateral to graze and care for the newly acquired cattle.
Great Plains Ag Credit, P.C.A and Great Plains Ag Credit, F.L.C.A. (collectively, “GPAC”)
objects to use of cash collateral to develop 750 acres of land and expand farming operations on
1 The Supplemental CC Motion requests an estimated $950,000 to develop the irrigation system for the Mock Farm.
Though testimony offered at the final hearing on the Supplemental CC Motion, this figure was reduced to $800,000.
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the Mock Farm. GPAC asserts that expansion of the Mock Farm is outside the ordinary course of
the Debtor’s business, should not be permitted on fourteen days’ notice with minimal disclosure,
and that development of the Mock Farm is the first step of a sub rosa plan. 	GPAC further
objects to the Debtor acquiring more than 4,500 head of wheat pasture cattle in the first half of
2011 because it is concerned that if the conditions in 2011 are dry, there is too great a risk that
the wheat pasture will not support more than 4,500 head of cattle, particularly in view of the
water needed to grow the corn crop. GPAC further argues that the Debtor’s proposed use of cash
collateral would not leave GPAC adequately protected. GPAC believes that the Debtor’s plan of
reorganization fails to reduce his operations to a more manageable and realistic level in light of
the Debtor’s age, and urges that the Debtor should be required to rein in his operations and use
available cash to pay down debt.
Subject to adequate protection consistent with prior cash collateral orders in this case, and
additional adequate protection payments, GPAC consents to the Debtor’s use of cash collateral to
plant, cultivate and harvest a corn crop on the Debtor’s existing irrigated farmland and to the use
of cash collateral for the Debtor to acquire, graze and care for up to 4,500 head of wheat pasture
cattle and up to 2,000 head of grass pasture cattle.
The Official Committee of Unsecured Creditors (“UCC”) supports the Debtor’s request
to use cash collateral to purchase additional cattle at the levels he requests, but objects to the
Debtor’s request to use cash collateral to develop the Mock Farm and grow a corn crop on 750
acres of the Mock Farm in 2011 because of its concern that the Mock Farm cannot be developed
in time to plant a corn crop for 2011. 	Dalhart Consumers Fuel Association, Inc. (“Dalhart”), a
holder of an unsecured nonpriority claim in the amount of $878,893.95, objects to expenditures to
develop and farm the Mock Farm on the ground that it would put at risk the distributions to be made
to Dalhart under the Debtor’s proposed plan of reorganization. 	Dalhart views the Debtor’s request
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to develop the Mock Farm as an expansion of the Debtor’s business outside his ordinary course of
operations.
BACKGROUND AND PROCEDURAL HISTORY
On September 17, 2009, the Debtor filed a voluntary petition for relief under Chapter 11
of the Bankruptcy Code, commencing the above-captioned bankruptcy case. On September 19,
2009, 7-H Cattle Feeders, Inc. (“7-H”) filed a voluntary petition for relief under Chapter 11 of
the Bankruptcy Code as Case No. 09-14232-j11. The two cases are now jointly administered
under Case No. 09-14226-j11. The Debtor is the sole owner of 7-H. The Debtor continues in the
management and possession of his business and property as debtor in possession pursuant to 11
U.S.C. §1107 and 11 U.S.C. § 1108.
The Court has entered at least eight orders authorizing the Debtor to use cash collateral,
including the Fourth Cash Collateral Order entered April 8, 2010 (Docket No. 200) (the “Fourth
CCO”), the Fifth Cash Collateral Order entered July 21, 2010 (Docket No. 295) (the “Fifth
CCO”), the Supplemental Wheat Crop Cash Collateral Order entered September 2, 2010 (Docket
No. 305), the Wheat Expense Cash Collateral Order entered September 2, 2010 (Docket No.
326) (the Supplemental Wheat Crop CCO and Wheat Expense CCO are collectively called the
“Wheat CCO”), and the Wheat Pasture Cattle Cash Collateral Order entered November 2, 2010
(Docket No. 359) (the “Wheat Pasture Cattle CCO”).
GPAC, on the one hand, and Podzemny and 7-H, on the other, have filed competing
plans. 	It is likely that a confirmation hearing on the competing plans will be conducted in the
first half of 2011. The GPAC plan is largely a liquidating plan. The Debtor’s plan is largely a
plan to restructure debt and continue operations.
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FACTS
The Debtor has approximately thirty-eight years of experience farming crops and raising
cattle. 	His farms include the Apache Farm, Mock Farm, Perico Farm and Sedan Farm. 	The
Debtor’s current business operations consist primarily of growing corn on approximately 6,400
acres of irrigated land, pasturing cattle on approximately 6,500 acres of wheat, and pasturing
cattle on grass.
The Debtor’s principal indebtedness consists of approximately $27 million owed to
GPAC and approximately $1.5 million owed to holders of unsecured nonpriority claims. 2 The
indebtedness to GPAC is secured by liens on all or substantially all of the Debtor’s assets.
GPAC estimates that the loan to value ratio for its $27 million secured claim is 60% to 70%.
The Debtor’s expert estimated the loan to value ratio at 52.52%.
The Debtor realized a profit from operations in 2010 in the amount of approximately $3.6
million. 	Better than normal weather and market conditions in 2010 contributed to the profit.
The Debtor currently has over $3 million of cash on hand, approximately 7,500 head of cattle on
pasture scheduled to be sold by the end of June 2011, and corn inventory expected to be sold by
the end of April 2011.
The Debtor purchased the Perico Farm in 1998 as grassland, and subsequently developed
it into an irrigated farm. 	The Debtor purchased the Mock Farm in 2007 or 2008 as grassland.
When he purchased the Mock Farm, he hoped eventually to develop it as irrigated farmland.
Other than the Perico Farm and Mock Farm, there is no evidence before the Court that the
Debtor has purchased unimproved land for the purpose of developing it into irrigated acreage
2 This estimate of unsecured non-priority claims is based on the testimony of Robert Podzemny at the final hearing
on the Supplemental CC Motion, and may include some of the unsecured claims associated with 7-H.
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suitable for farming. 	The Debtor is in the business of farming crops and growing cattle. 	He is
not in the business of buying and developing farms.
After the Debtor purchased the Mock Farm, the New Mexico State Engineer declared a
water basin that included the Mock Farm. The Debtor drilled wells and hired a hydrologist and
an attorney specializing in water law to seek a water permit for the Mock Farm. The hydrologist
and water rights attorney are Court-approved professionals for the Debtor in the Debtor’s chapter
11 case. In January 2011, the New Mexico State Engineer issued a permit for 3,000 acre feet of
water per year for the Mock Farm. 	The Debtor testified that the permit will enable him to
develop and farm 1,500 acres on the Mock Farm. 	He also testified he can use the test wells
drilled on the farm to irrigate 750 acres.
The Debtor estimates the cost to develop 750 acres of the Mock Farm as irrigated
farmland is approximately $750,000 to $800,000. A cost detail is set forth on Exhibit 2 admitted
in evidence at the final hearing. 	The Debtor based those estimates on telephone quotes he
received from vendors. He also testified that subject to meeting with his gas service provider, he
believes the Mock Farm can be developed in time to grow corn on the land in 2011, although he
may need to plant a faster growing corn variety.
Blake Prather, qualified by the Court as an expert in farming operations, testified that
based on the expected yield, corn price, and farming costs for growing corn on 750 acres of the
Mock Farm, the projected profit for the corn crop on the Mock Farm for the 2011 corn crop is
$426,250.
The Mock Farm has no track record to support predictions of crop productivity. 	No
agronomic work has been conducted to test the soil or estimate corn yields on the Mock Farm.
There are certain risks inherent in farming, such as market conditions, hail damage and other
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weather conditions that affect productivity and costs. The likelihood that the Debtor will realize
close to his projected profit of $426,250 by farming 750 acres of the Mock Farm in 2011 is
uncertain.
The Debtor requests authority to use of cash collateral to acquire up to 9,000 head of
cattle to graze on wheat pasture and up to 2,000 head of cattle to graze on grass pasture. In the
first half of 2010, the Debtor pastured cattle in numbers generally consistent with the number of
cattle he wishes to acquire for grazing in the first half of 2011. The Debtor’s historical death loss
on his cattle is consistent with industry averages.
To mitigate market risk, the Debtor has agreed have price protection in place for cattle he
acquires and the corn he grows in 2011, consistent with price protection in place for cattle
acquired and corn grown in 2010. 	The Debtor also agreed that his cattle raised in 2011 will be
sold as feeder cattle, and that he will not feed the cattle at a feedlot either individually or through
7-H.
In the Debtor’ business judgment, his profitability in 2011 will be substantially higher if
he is permitted to acquire the additional cattle he seeks to acquire in the first half 2011 and to
develop and farm the Mock Farm in 2011. The Debtor believes he has sufficient water to grow
the corn, including the corn he plans to grow on the Mock Farm, and to pasture up to 9,000 head
of cattle on wheat in the first half of 2011, taking into account his permitted water supplemented
by anticipated precipitation.
GPAC’s expert testified that, in his estimation, the Debtor will have sufficient water to
grow the corn and to pasture only approximately 4,500 head of cattle on wheat in the first half of
2011 if it turns out that conditions are very dry. 	No reasonable prediction can be made at this
time whether 2011 will turn out to be a drought year or a particularly wet year, or something in
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between, in the area where the Debtor farms and grows cattle. Historically, the Debtor has never
used his entire water allotment for his wheat pasture and farmland. No evidence was presented
regarding whether or to what extent there are unpaid administrative expenses in this case.
DISCUSSION
Use of cash collateral is governed by 11 U.S.C. § 363 which provides, in relevant part:
The trustee3 may not use, sell or lease cash collateral . . . unless –
(A) each entity that has an interest in such cash collateral consents; or
(B) the court, after notice and a hearing, authorizes such use . . . in accordance
with the provisions of this section.
11 U.S.C. § 363(c)(2).
Section 363 further provides that, at the request of a secured creditor, the Court “shall prohibit or
condition such use [of cash collateral] . . . as is necessary to provide adequate protection” of the
secured creditor’s interest. 11 U.S.C. § 363(e). Section 361, in turn, gives examples of the types
of adequate protection that may be provided under 11 U.S.C. § 363.4
A debtor will generally be permitted to use cash collateral if the creditor’s interest in cash
collateral is adequately protected.5 “[C]ourts have considered ‘adequate protection’ a concept
3 A debtor in possession has the powers of a trustee. See 11 U.S.C. §1107.
4 Section 361 provides, in relevant part:
When adequate protection is required under section . . . 363. . . of this title of an interest of an entity in
property, such adequate protection may be provided by –
(1) requiring the trustee to make a cash payment or periodic cash payments to such entity, to the
extent that . . . use sale or lease under section 363 of this title . . . results in a decrease in the
value of such entity’s interest in such property;
(2) providing to such entity an additional or replacement lien to the extent that such . . . use . . .
results in a decrease in the value of such entity’s interest in such property; or
(3) granting such other relief, other than entitling such entity to compensation allowable under
section 503(b)(1) of this title as an administrative expense, as will result in the realization by
such entity of the indubitable equivalent of such entity’s interest in such property.
11 U.S.C. § 361.
5See MBank Dallas, N.A., v. O'Connor (In re O'Connor), 808 F.2d 1393, 1396 (10th Cir.1987) (“The whole purpose
in providing adequate protection for a creditor is to insure that the creditor receives the value for which the creditor
bargained prebankruptcy.”); In re Amaravathi Ltd. P’ship, 416 B.R. 618, 624 (Bankr.S.D.Tex. 2009)(“Section 363
mandates that a trustee or a debtor-in-possession provide adequate protection before the rents can be utilized by the
estate.”).
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which is to be decided flexibly on the proverbial ‘case-by-case’ basis.”6 The party requesting
court approval to use cash collateral over a secured creditor’s objection must prove there is
adequate protection for that creditor. 7 An equity cushion can serve as adequate protection for
purposes of 11 U.S.C. § 363.8
A. Use of Cash Collateral To Plant 2011 Corn Crop on Existing Farmland
GPAC consents to the Debtor’s use of cash collateral to plant, cultivate, and harvest corn
in 2011 on his existing farmland, excluding the Mock Farm. 	This portion of the Supplemental
CC Motion thus meets the requirements of 11 U.S.C. § 363(c)(2)(1), which authorizes use of
cash collateral upon the consent of each entity holding an interest in such cash collateral. 	The
UCC and Dalhart likewise support this effort. As further outlined below, all cash collateral that
the Debtor is authorized to use will continue to be subject to the restrictions imposed by prior
cash collateral orders, including periodic payments to GPAC.
B. Use of Cash Collateral to Purchase Up to 9,000 Head of Cattle in 2011
GPAC argues that pasturing up to 9,000 head of cattle on wheat is not within the scope of
reasonable business judgment and would not leave GPAC adequately protected with respect to
its security interest in cash collateral and other assets. 	GPAC asserts that in a year in which
conditions are dry there is substantial risk that the Debtor’s available wheat pasture will not
6 MBank Dallas, 808 F.2d at 1396-1397 (citing In re Martin, 761 F.2d 472 (8 th Cir. 1985)(remaining citation
omitted)).
711 U.S.C. § 363(p)(1)(providing that “the trustee [or the debtor in possession with the powers of a trustee] has the
burden of proof on the issue of adequate protection”); In re Carbone Companies, Inc., 395 B.R. 631, 635
(Bankr.N.D.Ohio 2008)(stating that, “[a] debtor requesting court approval to use cash collateral has the burden of
proof as to the issue of ‘adequate protection.’”).
8Baybank-Middlesex v. Ralar Distributors, Inc., 69 F.3d 1200, 1203 (1 st Cir. 1995)(noting that “[a] sufficient equity
cushion is itself a recognized form of adequate protection . . .”); In re Shubh Hotels Pittsburgh, LLC, 439 B.R. 637,
646 (Bankr. W.D.Pa. 2010)(finding that the lender was adequately protected by the equity cushion and the debtor’s
willingness to make periodic interest payments); In re Las Torres Dev., L.L.C., 413 B.R. 687, 697 (Bankr. S.D.Tex.
2009)(finding that an equity cushion of more than 20% constituted sufficient adequate protection). See also Sharon
Steel Corp. v. Citibank, N.A. (In re Sharon Steel Corp.), 159 B.R. 165, 169 (Bankr.W.D.Pa. 1993)(acknowledging
that the existence of an equity cushion can alone constitute adequate protection for debtor’s use of cash collateral,
but stating that where the size of the equity cushion is insufficient, or likely to erode, it is not sufficient standing
alone to constitute adequate protection).
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support more than 4,500 head of additional wheat cattle, particularly in view of the water usage
needed to grow the corn crop. GPAC further objects because the Debtor’s proposed use of cash
collateral to purchase cattle does not obligate the Debtor to sell the cattle as feeder cattle by a
date certain, does not prohibit the Debtor from feeding the cattle in a feedlot, and does not
require the Debtor to implement appropriate price protection on all cattle despite today’s
“frothy” cattle market. 	GPAC presented no evidence and did not cross examine the Debtor or
his consultant in support of its contention that high cattle prices or other market conditions
indicate that prudent risk management should include implementation of appropriate price
protection for all cattle.
The Court finds, in the circumstances of this case and subject to certain conditions set
forth below, that GPAC’s interest in cash collateral is adequately protected with respect to the
Debtor’s purchase up to 9,000 head of cattle for grazing on wheat pasture and up to 2,000 head
of cattle for grazing on grass, and such cattle purchases are within the Debtor’s sound business
judgment. 	The Debtor’s consultant testified that the Debtor has sufficient water to graze up to
9,000 head of cattle on wheat pasture and irrigate the corn crop as needed. He also testified that
the Debtor has not used his entire permitted water in the past. 	Although the Debtor did not
present evidence in support of this conclusory testimony regarding the amount of his permitted
water, the amount of permitted water used in past years to grow his corn crop or graze cattle on
wheat, and whether and to what extent he has stocked the pastures with more or less cattle as a
result of variations in weather conditions, the unrefuted testimony is that the Debtor has never in
the past run out of water, even in a dry year.
Further, in view of the cattle purchases being consistent with the number of cattle
purchased in 2010, the Debtor’s profitability in 2010, the extent of GPAC’s security cushion, and
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the amount of the Debtor’s other pre-petition indebtedness, the Court will afford the Debtor more
latitude in the exercise of his business judgment. These same factors support the Court’s finding
that GPAC’s interest in collateral is adequately protected. 	GPAC’s concerns about the Debtor
being obligated to sell the cattle as feeder cattle by a date certain, being prohibited from feeding
the cattle in a feedlot, and being required to implement price protection on cattle are addressed in
the conditions that will be imposed on the use of cash collateral. 	The Court, therefore, will
authorize use of up to $6 million of cash collateral to acquire cattle as requested, subject to
further conditions as outlined below.
C. Use of Cash Collateral to Develop Mock Farm
The Debtor did not by the Supplemental CC Motion, or otherwise, specifically request
authority under 11 U.S.C. § 363(b)(1)9 to engage in a transaction outside the ordinary course of
business, though, as discussed below, the Debtor’s request to develop the Mock Farm constitutes
the use property of the estate other than in the ordinary course of business, within the meaning of
11 U.S.C. § 362(b)(1). 	The Bankruptcy Code does not define “ordinary course of business” for
purposes of 11 U.S.C. § 363(b)(1).10 In evaluating whether a debtor’s proposed business
transaction falls within the ordinary course of the debtor’s business, courts generally employ two
tests: 	1) a “horizontal test” which considers whether the transaction, from an industry-wide
perspective, is of the typed commonly undertaken by companies in that industry; and 2) a
“vertical test” which considers the reasonable expectations of a hypothetical creditor and whether
the proposed business subjects such creditor to economic risks that differ from the risks the
9 11 U.S.C. §363(b)(1) provides, in relevant part:
The trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business,
property of the estate . . .
11U.S.C. § 363(b)(1).
10 See In re Git-N-Go, Inc., 322 B.R. 164, 171 (Bankr. N.D.Okla. 2004)(noting that “[t]he Bankruptcy Code does not
define the term ‘ordinary course of business.’”).
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creditor accepted when first extending credit to the debtor.11 “The purpose of both tests is to
determine whether a transaction is so out of the ordinary as to entitle creditors to notice and a
hearing beforehand.”12 Both tests must be satisfied in order for a transaction to be within the
ordinary course of business. 13
The evidence before the Court is that the Debtor purchased and developed one of his four
farms, the Perico Farm, in 1998. 	The Debtor has not farmed the Mock Farm. 	He has only
recently obtained a water permit for the farm, and now seeks to develop the farm by installing an
irrigation system so he can grow crops on the farm. 	The Debtor is in the business of growing
cattle and farming crops. 	He is not in the business of acquiring and developing farms. His
acquisition and development of a farm is an infrequent event. Nor is there any evidence that a
farmer and rancher in the business of growing crops and cattle for sale ordinarily and regularly
develops new farmland. 	The Court finds, whether viewed under the vertical test or the
horizontal test, that the transaction is so out of the ordinary as to entitle creditors to notice and a
hearing beforehand, and consequently, concludes that the development of the Mock Farm is
outside the Debtor’s ordinary course of business.
11 In re Straightline Investments, Inc., 525 F.3d 870, 879 (9 th Cir. 2008)(stating that “[t]wo tests have emerged for
determining whether a transaction is within the ordinary course of business for purposes of § 363(c)-the vertical
dimension, or creditor's expectation, test, and the horizontal dimension test.”)(citations omitted); Braunstein v.
McCabe, 571 F.3d 108 , 124 (1 st Cir. 2009)(same); Medical Malpractices Ins. Ass’n v. Hirsch (In re Lavigne), 114
F.3d 379, 384 (2 nd Cir. 1997)(same); In re Roth American, Inc., 975 F.2d 949, 952-953 (3 rd Cir. 1992)(same).
12 Braunstein, 571 F.3d at 124 (citing Burlington N. R.R. Co. v. Dant & Russell, Inc. (In re Dant & Russell, Inc.),
853 F.2d 700, 705 (9 th Cir. 1988)).
13 In re First Protection, Inc., 440 B.R. 821, 833 (9th Cir.BAP 2010). See also, In re Enron Corp. 2003 WL
1562202, *16 (Bankr. S.D.N.Y 2003)(stating that the “tests are intended to be both expansive and flexible and both
elements of this inquiry must be satisfied in order for a transaction to be within the ordinary course of business.”);
Streetman v. United States, 187 B.R. 287, 292 (W.D.Ark.1995)(noting that “a transaction must satisfy both tests in
order to be considered in the ordinary course of business.”)(citations omitted).
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(a) The Notice Given of the Request to Develop the Mock Farm was Sufficient
A debtor in possession may use property of the estate consisting of cash collateral other
than in the ordinary course of business “after notice and a hearing.” 	11 U.S.C. 	§ 363(b)(1).
“After notice and a hearing” is defined in the Bankruptcy Code as “after such notice as is
appropriate in the particular circumstances, and such opportunity for a hearing as is appropriate
in the particular circumstances.” 11 U.S.C. § 102(1)(A). GPAC complains that a hearing on the
Debtor’s request to develop the Mock Farm on 14 day’s notice was not sufficient in the
circumstances. 	This Court disagrees. 	GPAC is by far the Debtor’s largest creditor and has
consistently taken an active role in the bankruptcy case. It has negotiated at least eight prior cash
collateral orders and is familiar with the Debtor’s business. 	GPAC has filed its own disclosure
statement and competing plan of reorganization. 	Granting the Debtor’s requested use of cash
collateral will not prejudice GPAC in regard to confirmation of its competing plan. Finally, the
Debtor did not obtain the water permit until early 2011 and needs to know whether authority will
be granted in time to develop the Mock Farm and plant a corn crop in 2011. 	Under these
circumstances, the Court finds that the notice and hearing in connection with the Supplemental
CC Motion was sufficient.
(b) 	Development of the Mock Farm is within the Scope of the Debtor’s Sound
Business Judgment
In considering a debtor’s request to use estate property outside the ordinary course of
business, the Court must determine whether the debtor has sufficiently justified the proposed
transaction.14 This requires a showing of an “articulated business justification” for use of the
14 See In re ASARCO LLC, ___ B.R. __, 2010 WL 3452384 , *9 (S.D. Tex. August 20, 2010)(stating that
“[a]pproval of § 363(b) transactions requires that the bankruptcy court find that the debtor ‘justify[ ] the proposed
transaction.’”)(quoting Institutional Creditors of Continental Air Lines, Inc. v. Continental Air Lines, Inc. (In re
Continental Air Lines, Inc.), 780 F.2d 1223, 1226 (5th Cir. 1986)(citing In re Lionel Corp. 722 F.2d 1063, 1071 (2 nd
Cir. 1983)). See also, In re Friedman’s, Inc. 336 B.R. 891, 895 (Bankr.S.D.Ga. 2005) (stating that
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estate property.15 In reviewing the Debtor's exercise of its business judgment, the Court
considers whether the proposed transaction (1) represents a business decision, (2) is made with
disinterestedness, (3) is made with due care, (4) is made in good faith, and (5) does not constitute
an abuse of discretion or waste of corporate assets.16
The Debtor provided an itemized cost estimate to develop the Mock Farm. 	He seeks
authority to use up to $800,000 for the development which includes a cushion for cost overruns.
He testified he had verbal quotes from vendors regarding the purchase and installation of
equipment, and met with his electricity provider and has a planned meeting with his natural gas
provider, but has no written quotes or commitments from any vendors. 	The Debtor views it as
“not a problem” to complete the development of the Mock Farm within his $800,000 cost
estimate in time to plant corn in 2011 subject to the results of his meeting with the natural gas
provider. 	The Debtor did not seek or obtain any written price quotes or any written
commitments to deliver and install equipment by any particular time. The Debtor testified that to
grow a corn crop in 2011 on the Mock Farm he needs to plant the corn mid-April; 2011, or by
mid-May 2011 at the latest if he plants a shorter variety of corn.
The Debtor’s consultant, Blake Prather, testified that he estimated corn sale proceeds of
$907,500 from the Mock Farm based on 750 acres of planted corn, a yield of 220 bushels per
acre, and a sales price of $5.50 per bushel. His estimated yield was based on the Debtor’s 2010
corn yield of 208 bushels per acre on 6400 acres of farmland, an anticipated higher yield on
“[c]ourts review a debtor’s use of estate property outside of the ordinary course of business pursuant to a
debtor’s demonstration of sound business judgment.”)(citations omitted); Shubh Hotels, 439 B.R. at 639
(“Courts have held that in determining whether to authorize a debtor's use, sale or lease of property of the
estate under Section 363(b)(1), the debtor-in-possession is required to show that a sound business purpose
justifies the debtor's contemplated actions”)(citations omitted).
15ASARCO LLC, 2010 WL 3452384 at *9 (quoting Continental Airlines, 780 F.2d at 1226 (citing Lionel Corp., 722
F.2d at 1071).
16In re Adelphia Communications Corp., 2004 WL 1634538, *2 (Bankr. S.D.N.Y. June 22, 2004)(unreported).
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newly developed land, and corn production figures in Texas panhandle area. No testimony was
given concerning how the Debtor’s corn yield in 2010 compared with prior years. 	Mr. Prather
estimated direct expenses of $431,250 based on the Debtor’s 3-year historical crop production
costs and cost estimates for growing corn prepared by Texas A&M. The projected sale proceeds
less projected direct costs yields projected net income from corn on Mock Farm of $476,250. No
testimony was given whether growing corn at the Mock Farm would increase fixed or indirect
costs.
Because no soil testing was performed, and there is no history of yields at the Mock
Farm, the production estimate of 220 bushels per acre is subject to more than the ordinary risk
associated with projecting production. The Debtor recently obtained a permit to use 3,000 acre
feet per year of water at the Mock Farm. However, there was no testimony regarding the amount
of irrigated water needed to grow corn on 750 acres at the Mock Farm.
The Court finds that it is within the Debtor’s sound business judgment to develop the
Mock Farm, provided he can plant the corn in time to grow a crop in 2011 and obtains written
quotes and commitments from vendors consistent with his cost and timing estimates and
implements adequate price protection for the crop. In the circumstances of this case, where the
Debtor made a $3.6 million profit in 2010, the Debtor’s principal creditor, GPAC, has a security
cushion on its $27 million claim of at least $11.5 million, and the Debtor’s remaining pre-
petition unsecured non-priority indebtedness is approximately $1.5 million, the Court should
afford the Debtor more latitude in the exercise of his business judgment to expend up to
$800,000 to develop the Mock Farm. 	Farming an additional 750 acres in 2011 represents an
approximate 12% increase in the Debtor’s farmed acreage. 	Wells are already in place for the
irrigation system. 	The Debtor has operated profitably since commencing this chapter 11 case,
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due in part to good weather and market conditions and corn prices remain relatively high. 	The
Debtor is highly motivated to obtain confirmation of his plan of reorganization, as an alternative
to GPAC’s proposed liquidating plan, and has made a judgment that such development would
not render his plan infeasible.
GPAC also asserts that development of the Mock Farm is the first step of a sub rosa17
plan. 	The Court disagrees. 	“Where a transaction has the effect of dictating the terms of a
prospective chapter 11 plan, it will constitute a prohibited sub rosa plan.” 18 The sub rosa plan
concern could be of particular import here because competing plans are on file. 	However, the
proposed use of cash collateral does not specify the terms of a future plan of reorganization.19
Except for the development of the Mock Farm, the proposed use of cash collateral permits the
Debtor to continue to operate in the ordinary course of business. 	Development of the Mock
Farm does not prejudice GPAC with respect to confirmation of its competing liquidating plan.
To the contrary, the recent issuance of the water permit and development of the Mock Farm
enhances its liquidation value. If the GPAC plan were confirmed, arrangements could be made
to complete and harvest the 2011 crop.
17 “Sub rosa” literally means “under the rose” and historically is used to mean “confidential, secret, or not for
publication.” Black’s Law Dictionary 1441 (7 th ed. 1999).
18Shubh Hotels, 439 B.R. at 644 (citations omitted). See also, Pension Benefit Guar. Corp. v. Braniff Airways, Inc.
(In re Braniff Airways, Inc.), 700 F.2d 935, 940 (5 th Cir. 1983)(stating that “[t]he debtor and the Bankruptcy Court
should not be able to short circuit the requirements of Chapter 11 for confirmation of a reorganization plan by
establishing the terms of the plan sub rosa in connection with a sale of assets.”); In re General Motors Corp, 407
B.R. 463, 495 (Bankr. S.D.N.Y. 2009)(stating that “[a] proposed 363 sale may be objectionable, for example, when
aspects of the transaction dictate the terms of the ensuing plan or constrain parties in exercising their confirmation
rights, such as by placing restrictions on creditors’ rights to vote on a plan.”)(citations omitted).
19 See Shubh Hotels, 439 B.R. at 644 (noting that the Fifth Circuit has articulated that “a transaction would amount
to such a sub rosa plan of reorganization if it: 1) specifies the terms of any future reorganization plan; 2)
restructures creditors’ rights; and 3) requires that all parties release claims against the Debtor, its officers and
directors, and its secured creditors.”)(citing Official Comm. of Unsecured Creditors v. Cajun Elec. Power Coop. by
& through Mabey (In re Cajun Elec. Power Coop.), 119 F.3d 349, 354 (5 th Cir. 1997)(citing Braniff, 700 F.2d at
940)).
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D. Adequate Protection and Additional Conditions on Debtor’s Use of Cash Collateral
GPAC has an equity cushion of at least 30% on the estimated outstanding loan balance of
$27 million. 	This security cushion, when combined with the additional adequate protection
provided to GPAC as set forth in prior cash collateral orders entered by this Court and as set
forth below, provides GPAC with adequate protection for the Debtor’s development of 750 acres
of the Mock Farm, his farming corn on that acreage, and his acquisition of up to 9,000 head of
wheat pasture cattle and 2,000 head of cattle for pasture on grass, and his care and maintenance
of those cattle. The adequate protection as set forth in prior cash collateral orders entered by this
Court includes an acknowledgement of the amount of indebtedness owed to GPAC and of its lien
position, replacement liens, periodic cash payments in the amount of interest accrual, price
protection on the cattle and corn to limit market risks, operating within a budget to control
expenses, reporting requirements and access for inspections to enable GPAC to monitor
compliance, insurance, and various default provisions.
The Court will require adequate protection of GPAC’s interest in cash collateral, as a
requirement for the Debtor’s use of cash collateral to develop and farm the Mock Farm and to
acquire and raise wheat pasture cattle and cattle on grass, as follows:
1. 	Before expending any funds to develop the Mock Farm, the Debtor must have
written bids from vendors for the purchase and installation of irrigation pumps and sprinklers, for
the purchase of gear drives, for the purchase of PVC, and to rebuild caterpillar motors and
equipment, and a written estimate of the cost to install gas lines to sprinklers and electric lines to
wells that supports use of $800,000 or less to complete the development of 750 acres of the
Mock Farm in time to plant a spring 2011 corn crop on that land, and provide copies of those
bids and written estimate to counsel for GPAC and counsel for the UCC. 	In addition, before
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expending any funds to develop the Mock Farm, the Debtor must have received written
assurances from his gas and electric providers that they expect that the gas lines and electric lines
can be installed in time to plant and irrigate the 2011 corn crop, and provide copies of the same
to counsel for GPAC and counsel for the UCC.
2. 	The Debtor will be required to forward contract his 2011 corn crop consistent
with the requirements in prior cash collateral orders entered by this Court applicable to the 2010
corn crop, including requirements relating to the percentage of the expected yield to be
contracted, the time frame for forward contracting and the delivery dates.
3. 	The Debtor will be required to forward contract or otherwise hedge cattle
acquired in the first half of 2011 consistent with the requirements in prior cash collateral orders
entered by this Court applicable to cattle acquired in 2010, including requirements relating to the
percentage of cattle to be forward contracted or otherwise hedged, the time frame for forward
contracting or hedging, and the delivery dates.
4. 	The Debtor will be required to sell the cattle acquired in the first half of 2011 as
feeder cattle no later than June 30, 2011, or such other date the Court may fix on the consent of
the Debtor, GPAC and the UCC, or after notice and a hearing, and 	the Debtor may not feed
those cattle in a feed yard.
5. 	The Debtor will be authorized to use cash collateral for the usual, customary, and
ordinary cost of the inputs, care, and cultivation of his 2011 wheat (or wheat blend) crop, subject
to the budget and limitations set forth on Exhibit A to the Supplemental Motion and any budgets
attached to prior cash collateral orders relating to that crop.
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6. 	The Debtor will be authorized to use cash collateral for the care, feeding,
maintenance, insurance, risk management, and health needs of the livestock subject to the budget
and limitations set forth on Exhibit A to the Supplemental Motion.
7. 	The Debtor will be required to exercise prudent ranch and grazing management
practices so as not to over-graze the wheat pasture.
8. 	Use of cash collateral as described above will be subject to and conditioned upon
the same terms, conditions and forms of reporting and adequate protection (including periodic
cash payments as set forth in paragraph 12.ii of the Fifth CCO) and as otherwise provided in the
Fourth CCO, the Fifth CCO, the Wheat CCO, and the Wheat Pasture Cattle CCO, each of which
will remain in full force and effect except as modified by Seventh Cash Collateral that will be
entered in accordance with this opinion.
CONCLUSION
Based on the foregoing, the Court concludes that the Supplemental CC Motion should be
granted subject to the adequate protection and additional conditions outlined above. Subject to
those conditions, GPAC’s interest in cash collateral is adequately protected. Further, planting
the 2011 corn crop on existing farmland, purchasing up to 9,000 head of cattle to graze on wheat
and grass pasture in 2011 and developing the Mock Farm to plant a corn crop in 2011 on 750
acres falls within the Debtor’s sound business judgment and does not impermissibly interfere
with the pending competing plans. 	An order consistent with this Memorandum Opinion will be
entered.
____________________________________
ROBERT H. JACOBVITZ
Date entered on docket: February 8, 2011 	United States Bankruptcy Judge
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COPY TO:
George M. Moore
Moore, Berkson & Gandarilla, P.C.
Attorney for Debtor
PO Box 7459
Albuquerque, NM 87194
Michael K Daniels
Attorney for 7-H Feeders Inc.
PO Box 1640
Albuquerque, NM 87103-1640
Jennie D Behles
Attorney for Unsecured Creditors Committee
PO Box 7070
Albuquerque, NM 87194-7070
Roger S Cox
Underwood Law Firm
Attorney for Great Plains Ag Credit PCA
PO Box 9158
Amarillo, TX 79105
James A Askew
Arland & Associates, LLC
Attorney for Great Plains Ag Credit PCA
201 3rd ST NW, STE 505
Albuquerque, NM 87102-3331
Karla K. Poe
Arland & Associates, LLC
Attorneys for Dalhart Consumers Fuel Association, Inc.
201 Third Street NW, Suite 505
Albuquerque, NM 87102
Gilbert Houston Frith
Attorney for Gene Atchley
100 N. Guadalupe St., Ste A
Santa Fe, NM 87501-2039
United States Trustee
PO Box 608
Albuquerque, NM 87103
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