In re COASTAL PLAINS PORK LLC.

438 B.R. 845

In re COASTAL PLAINS PORK, LLC, Debtor.First National Bank Of Omaha, a National Banking Association, Plaintiff,

v.Farmers Cooperative Society, Sioux Center, Iowa, and Cooperative Elevator Association, Defendants.

Bankruptcy No. 09-08367-8-RDD.

Adversary No. 09-00214-8-RDD.

United States Bankruptcy Court,E.D. North Carolina, Fayetteville Division.

July 23, 2010.

ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT RANDY D. DOUB, Bankruptcy Judge.

Pending before the Court is the Plaintiff's Motion for Summary Judgment and Incorporated Memorandum of Law filed by Amos U. Priester IV, counsel for First National Bank of Omaha (“FNBO”) ¹ on February 3, 2010 (the “FNBO's Motion”), and the Defendants' Motion for Partial Summary Judgment and Incorporated Memorandum of Law filed by Jennifer K. Bennington on behalf of Cooperative Elevator Association (“CEA”) and Farmers Cooperative Society, Sioux Center, Iowa (“FCS”) on February 26, 2010 (the “Defendants' Motion”). The Court conducted an initial hearing in Wilson, North Carolina on March 2, 2010 to consider the FNBO's Motion and the Defendants' Motion. A second hearing on the motions was held on June 30, 2010 in Wilson, North Carolina.

BACKGROUND

On September 28, 2009, Coastal Plains Pork, LLC (“Coastal Plains”) filed a bankruptcy petition under Chapter 11 of the United States Bankruptcy Code. Prior to the filing of bankruptcy, Coastal Plains operated a farrow-to-finish farm for the production of swine in several states, including Iowa. In connection with its hog growing operation, Coastal Plains obtained a loan from FNBO and purchased feed from FCS and CEA. Feed purchased and received by Coastal Plains from FCS and CEA was consumed by the Coastal Plains' swine and hogs, in order for the animals to reach the appropriate market weight for sale. After the filing of the petition, and in compliance with other orders of this Court, the hogs that consumed feed from FCS and CEA were to be sold, and any liens, claims or other interests in the hogs would attach to the proceeds of the sale. In addition, the proceeds were to be marshaled, accounted for, and reported to this Court.

FNBO ² entered into two credit agreements and notes with Coastal Plains dated October 8, 2008; whereby FNBO loaned Coastal Plains funds for operations which were secured by security interests and liens in substantially all of Coastal Plains' assets, including livestock and any sale proceeds (the “FNBO Prepetition Loans”). ³ Funds from the FNBO prepetition loans were used to finance the hog growing operation in Iowa. In connection with the loan given to Coastal Plains, FNBO held a lien and security interest in the Coastal Plains hogs which consumed feed supplied by FCS and CEA.

FNBO's lien on the livestock and the proceeds from the sale of said livestock was properly perfected by the filing of a UCC-1 financing statement with the North Carolina Secretary of State on October 7, 2008, file number 200800903856. In order to maintain its secured status, FNBO continued to file all necessary financing statements in the proper offices and took all other necessary steps to maintain its perfected lien and security interest in its collateral. The parties do not dispute that FNBO properly filed the UCC-1 and has a properly perfected financial institution lien.

FCS and CEA are both suppliers of feed to livestock as contemplated by Iowa Code Chapter 570A. FCS and CEA admit that FNBO has a perfected security interest in the proceeds from the sale of the disputed livestock at issue in this case. However, FCS and CEA both claim they are entitled to first priority agricultural supply dealer liens, in front of FNBO, as suppliers of feed to livestock under Iowa Code Chapter 570A. FCS claims it has a perfected agricultural supply dealer lien as a supplier of feed to livestock. On September 11, 2009, FCS perfected an agricultural supply dealer's lien with respect to the pigs owned by Coastal Plains. CEA claims it has a perfected agricultural supply dealer's lien as a supplier of feed to livestock. The lien applies to hogs owned by Coastal Plains, and said lien was perfected by a financing statement filed June 30, 2009 in the office of the Secretary of State for North Carolina. FCS and CEA admit that neither requested the certification from FNBO as set forth in Iowa Code § 570A.2.

SUMMARY JUDGMENT STANDARD

“[S]ummary judgment is proper if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (internal quotations omitted). In making this determination, conflicts are resolved by viewing all facts and all reasonable inferences in the light most favorable to the non-moving party. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962). If there is no genuine issue of material fact, and the issue to be decided is a matter of law, a ruling on a motion for summary judgment is appropriate.

ISSUES BEFORE THE COURT

FNBO filed this adversary proceeding so that the Court could determine the relative priorities between FNBO's perfected security interest in Coastal Plains' personal property, including Coastal Plains' livestock, and the agricultural supply dealer liens claimed by FCS and CEA under Iowa Code § 570A. The Court is asked to decide the priority of the liens claimed against proceeds from the post-petition sale of Coastal Plains' livestock. FNBO asserts its Article 9 security interest is superior, whereas, FCS and CEA claim that as agricultural supply dealers their liens take first priority. FNBO relies on Iowa Code § 570A.2, to establish its senior Article 9 security interest. On the other hand, FCS and CEA contend that Iowa Code § 570A.5(3) is controlling, and that because FCS and CEA supplied livestock feed, Iowa Code § 570A.2(3) has no application.

The parties agree that there is no genuine issue of material fact. However, the legal issue before the Court is the interpretation of Iowa Code § 570A, and the Court's determination whether FCS and CEA have perfected liens under this statute which would give them priority over the properly perfected lien of FNBO. The parties agree that FCS and CEA did not prepare or send the certified request ⁴ or any certified mailings to FNBO as required by Iowa Code § 570A.2. The parties further agree that FCS and CEA did not send a statement of “the amount of the purchase and terms of the sale” to FNBO. See Iowa Code § 570A.2(1). Further, the parties agree that FCS and CEA did not send a waiver of confidentiality signed by the farmer or the $15.00 fee, as required by the Iowa Code, to FNBO.

FNBO argues that the statute provides it, as a financial institution, with an affirmative defense against the enforcement of an agricultural lien by a supply dealer who did not first serve it with a certified request or farmer's confidentiality waiver, as FCS and CEA failed to do. See Iowa Code § 570A.2(3). ⁵ FNBO asserts that having not received the certified request and waiver signed by the farmer as provided in Iowa Code § 570A.2, FNBO's lien is senior to and has priority to the statutory liens of FCS and CEA, regardless of the provisions of Iowa Code § 570A.5(3). Therefore, FNBO argues it has an affirmative defense to FCS' and CEA's enforcement of their liens under Iowa Code § 570A.5.(3). According to FNBO, this defense serves as “complete proof of the superior priority” of FNBO's security interest. Iowa Code § 570A.2(3).

In response to FNBO's argument, FCS and CEA admit that they did not provide FNBO with the certified requests and confidentiality waivers. FCS and CEA contend that Iowa Code § 570A.5, read in its entirety, must be interpreted as giving a special priority to agricultural supply dealer liens for livestock feed. Further, FCS and CEA assert that Iowa Code § 570A.5(3) provides that livestock feed suppliers “shall have priority over an earlier perfected lien or security interest to the extent of the difference between the acquisition price of the livestock and the fair market value of the livestock at the time the lien attaches or the sale price of the livestock, whichever is greater.” Finally they claim that this priority treatment is not susceptible to the affirmative defense provided to financial institutions in Iowa Code § 570A.2(3) and asserted by FNBO.

ANALYSIS

Chapter 570A of the Iowa Code establishes agricultural supply dealer liens and provides for priority of such liens whether perfected or unperfected. Crooked Creek Corp. v. Primebank, 427 B.R. 500, 505 (Bankr.N.D.Iowa.2010). At the core of the dispute between the parties is whether in order to establish a more favorable priority over FNBO's prior perfected security interest, FCS and CEA were required to provide FNBO with a certified request for a financial memorandum regarding Coastal Plains, as well as, provide FNBO with a confidentiality waiver from the farmer as set forth in Iowa Code § 570A.2(1). See Galva Holstein v. Holstein Dairy, No. EQCV014128 (Iowa Dist., June 21, 2010).

Iowa Code § 570A.2 states:

570A.2 Financial institution memorandum to agricultural supply dealers.

1. Upon the receipt of a certified request of an agricultural supply dealer, prior to or upon a sale on a credit basis of an agricultural supply to a farmer, a financial institution which has either a security interest in collateral owned by the farmer or an outstanding loan to the farmer for an agricultural purpose shall issue within four business days a memorandum which states whether or not the farmer has a sufficient net worth or line of credit to assure payment of the purchase price on the terms of the sale. The certified request submitted by the ...