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United Prairie Bank v. Galva Holstein AG L.L.C.

Court of Appeals of Minnesota

December 2, 2013

United Prairie Bank, Appellant,
v.
Galva Holstein Ag, L.L.C., et al., Respondents, New Vision Feed, LLC, et al., Defendants, Kerber Milling Co., Respondent, Northwestern Bank, Defendant.

UNPUBLISHED OPINION

Nicollet County District Court File No. 52-CV-10-356.

Thomas P. Melloy, Gray, Plant, Mooty, Mooty & Bennett, P.A., St. Cloud, Minnesota (for appellant)

Justin E. LeVan (pro hac vice), Beving Swanson & Forrest, P.C., Des Moines, Iowa; and Robert Ward, William Oehler, Rochester, Minnesota (for respondents Galva Holstein)

Michael K. Riley, Sr., Krystal Pierce, Riley-Tanis & Associates PLLC, St. Peter, Minnesota (for respondent Kerber Milling Co.)

Joseph J. Witt, Minnesota Bankers Association, Eden Prairie, Minnesota (for amicus curiae Minnesota Bankers Association)

Considered and decided by Hudson, Presiding Judge; Halbrooks, Judge; and Ross, Judge.

HUDSON, Judge

This is an appeal from declaratory judgment establishing priority over payments received for feed during the liquidation of a borrower's hog farm operation, as between appellant bank's security interest and respondents' agricultural supply dealers' liens established pursuant to Iowa Code §§ 570A.1–5 (2013). Appellant bank argues that the district court erred in declining to reduce the value of respondents' priority liens: (1) by the amount of payments received during each 31-day perfected lien period, with respect to those periods; (2) by the amount of payments received from appellant during a later period in which appellant paid respondents directly for feed; and (3) proportionately with respect to previously received livestock proceeds that were not placed in an escrow account for distribution. By notice of related appeal, respondents argue that the district court erred by limiting recovery on the liens to funds in the escrow account and by declining to add interest and finance charges to the lien amounts. We affirm.

FACTS

Jeffrey Ward, a resident of Nicollet County, owned and operated a livestock operation that raised and fed hogs in barns in Minnesota and Iowa. Ward obtained financing for his operation through a Waseca branch of appellant United Prairie Bank (UPB). In May 2009, Ward signed a promissory note and security agreement in the amount of $4, 500, 035, which consolidated or renewed prior loans and provided additional funding for his hog operation. The security agreements for the May 2009 and previous loans granted UPB a security interest in Ward's farming property, including livestock and their proceeds, personal property, and deposit accounts. The May 2009 agreement contained an "open end credit" feature, which allowed Ward to borrow up to its full amount by August 5, 2009. UPB perfected its security interest by filing a financing statement.

Ward used a single checking account for his hog business; he deposited all proceeds from hogs sold into that account and received advances on the credit line with UPB into that account. He purchased feed for the hogs on open accounts from, among other feed suppliers, respondents Galva Holstein Ag, LLC; Hubbard Feeds, Inc.; and Kerber Milling Co.[1]

By 2009, Ward's operation was experiencing cash-flow problems because of high grain prices and low hog prices; his accounts with the feed suppliers had unpaid balances, with accrued interest charges. During the summer of 2009, after some of the feed suppliers indicated that they would not continue to supply feed for the operation unless they were paid, UPB decided to move Ward's operation to liquidation. Although UPB and the feed suppliers could not agree on the priority of their security interests or how to deal with unpaid invoices, they decided to wait to sell the hogs until the hogs were fed to market weight. As the hogs were sold to Tyson Foods, a packer in Iowa, Ward delivered the checks from Tyson to UPB, which held them uncashed. UPB then filed this action, seeking a judgment declaring that respondents' security interests or statutory liens asserted as to the hogs and their proceeds were unenforceable or inferior to UPB's security interest. The uncashed checks were placed in an escrow account, which held $2, 629, 530.49 prior to trial.

Galva, Hubbard, and UPB moved for summary judgment. The district court granted in part Galva's and Hubbard's motions, concluding that, as suppliers asserting agricultural liens, they were not required to comply with the statutory certified-request procedure outlined in Iowa law in order to obtain lien priority.[2] The district court also concluded that an agricultural lien arising under Iowa Code § 570A.3(2) follows and attaches to the proceeds of the livestock that consumed the feed. The district court concluded, however, that genuine issues of ...


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