Southern Case Summary-re Jeff Benfield Nursery, Inc., 565 B.R. 603 (Bankr. W.D. N.C. 2017)

Pre-petition waiver of automatic stay unenforceable and relief from automatic stay otherwise not warranted where grow contracts disguised financing arrangements. In re Jeff Benfield Nursery, Inc., 565 B.R. 603 (Bankr. W.D. N.C. 2017).

The Debtor operated a commercial wholesale nursery, growing trees, shrubs, and similar agricultural products on approximately 1,000 acres in western North Carolina. In 2016, the Debtor filed for chapter 11 bankruptcy relief. A landscape supply company (the “Creditor”) contended that the debtor waived the protections of the automatic stay prepetition and that it was otherwise entitled to relief from stay.

First, the Court determined that the pre-petition waiver agreement was unenforceable as a matter of public policy. The Court also determined that the grow agreements between the Creditor and the Debtor did not give rise to bailment, but were instead in the nature of secured financing agreements. More specifically, the Court determined that the provisions of the parties agreements were incompatible with a finding of exclusive possession and control by the Debtor. Instead, the Court determined that the agreements were akin to financing agreements because all costs of planting and maintaining the trees advanced to debtor had to be repaid to the Creditor in the form of credits when the trees were harvested and sold to the Creditor. The Court noted that the law considers the substance and not merely the form or outward appearance of a transaction. Moreover, the Court determined that the Creditor was not entitled to stay relief based on an alleged lack of adequate protection. Specifically, the record demonstrated that the Debtor had maintained the disputed trees and that their value was increasing rather than decreasing.