In re Crooked Creek Corp.

IN RE: CROOKED CREEK CORP., Debtor.

Bankruptcy No. 09-02352

UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF IOWA

March 9, 2017

Chapter 12

RULING ON OYENS FEED & SUPPLY, INC.'S OBJECTION TO PRIMEBANK'S THIRD AMENDED PROOF OF CLAIM

This matter came before the Court for telephonic hearing. Joel Vos appeared for Oyens Feed & Supply Inc. ("Oyens"). John O'Brien and Nicole Hughes appeared for Primebank. Carol Dunbar appeared for herself as Chapter 12 Trustee. The Court took the matter under advisement. The parties filed post-hearing briefs. This is a core proceeding under 11 U.S.C. § 157(b)(2)(A).

STATEMENT OF THE CASE

Oyens objects to the amount of Primebank's claim. Oyens argues that the Court already decided the amount of Primebank's claim when it ruled on Oyens' and Primebank's lien-priority dispute. Oyens argues that res judicata precludes Primebank from arguing that it is owed more than this Court already determined. Primebank argues that res judicata does not apply because lien priority, not the amount of its unsecured claim, was the issue before the Court in the adversary. The Court sustains Oyens' objection.

BACKGROUND

Crooked Creek Corp. ("Crooked Creek") ran a farrow-to-finish hog feeding operation. Crooked Creek owed Primebank and Oyens money. Both Primebank and Oyens had liens on Crooked Creek's hogs. Crooked Creek filed bankruptcy. This Court approved the sale of the hogs and the sale proceeds were escrowed in a cash collateral account. The creditors' liens attached to the proceeds in the same nature and priority as their liens attached to the hogs. The $358,841.10 in sale proceeds were insufficient to satisfy both parties' liens.

Crooked Creek filed adversary case 09-09093 to determine lien priority in the hog proceeds between Oyens and Primebank. Oyens and Primebank disputed the amount and priority of their respective liens. Oyens claimed a perfected superpriority agricultural supplier's lien under Iowa Code § 570A.5(3) in the proceeds for its full claim. Primebank disputed whether and to what extent Oyens had a superpriority agricultural supply dealer's lien. Oyen's disputed the amount of Primebank's claim.

The present issue is whether the Court decided the amount of Primebank's claim in that adversary. Oyens argues that the amount of Primebank's claim was raised and decided in the trial on the adversary. Primebank disagrees. Primebank argues that the adversary was about the relative priority of liens, not about how much it is owed.

To provide a complete background for this dispute, the Court will review three rulings in that adversary—all of which relate to guarantor payments that Primebank received on its claim against Crooked Creek and the effect of these payments on the amount of Primebank's claim.

The first ruling is on a motion to compel. As part of the adversary, Oyens submitted interrogatories and requests for production to Primebank. In particular, Oyens wanted information about whether Primebank received payments from guarantors on its claim against Crooked Creek, and if so, how much. Primebank did not respond to these interrogatories or produce documents related to its dealings with guarantors and how much it was owed. Oyens filed a motion to compel Primebank to answer and to produce the requested documents. Primebank filled a cross-motion for a protective order.

The Court issued a written ruling on this discovery dispute. Crooked Creek Corp. v. Primebank (In re Crooked Creek Corp.), Bankr. No. 09-02352, Adv. No. 09-9093S, 2013 WL 1332245, at *2 (Bankr. N.D. Iowa Mar. 28, 2013). As a part of that ruling, the Court granted Oyen's motion to compel with respect to information on Primebank's dealings with guarantors and how much Primebank was owed. Id. at *2-3. The Court noted that Primebank was not entitled to more than it was owed, and that, as a result, information about guarantor payments andhow much Primebank may have already been paid was properly discoverable in the adversary. Id. at *3.

The second ruling is on a motion for sanctions. In response to the Court's order to produce information on Primebank's dealing with the guarantors, Primebank stated that it had no such documents in its possession. This turned out to be false. Primebank did in fact have documents about receiving guarantor payments. As a result, Oyens filed a motion for sanctions. The Court, in another written ruling, granted Oyens' motion for sanctions against Primebank for falsely responding to the Court's order compelling Primebank to produce documents about the guarantor payments it received. Crooked Creek Corp. v. Primebank (In re Crooked Creek Corp.), 533 B.R. 274, 281 (Bankr. N.D. Iowa 2015).

The last and most important ruling in resolving this dispute is the Court's ruling on the trial. In that written ruling, the Court concluded as follows:

For the reasons stated above, the Court concludes that Oyens has a superpriority claim for $156,367.43 and an unsecured claim for $186,004.35. Debtor's unpaid yardage and vet fees of $16,570.00 are in addition to Oyens' unsecured claim for feed supplied, bringing the total unsecured claim to $202,574.35. Primebank's secured claim is limited to $315,270.19.

Oyens Feed & Supply, Inc. v. Primebank (In re Crooked Creek), Bankr. No. 09-02352, Adv. No. 09-9093, at 12 (Bankr. N.D. Iowa October 21, 2014). The Court ruled that "Oyens will receive $156,367.43 of the escrowed funds, and Primebank will receive the remainder." Id.

Oyens appealed this ruling to the United States District Court for the Northern District of Iowa. Primebank crossappealed. The District Court certified two questions of statutory interpretation to the Iowa Supreme Court about how to properly apply Iowa's agricultural suppliers lien under Iowa Code § 570A.5. Oyens Feed & Supply, Inc. v. Primebank, No. C14-4114-DEO, 2015 WL 2082963, at *4 (N.D. Iowa May 5, 2015), report and recommendation adopted, No. 14-CV-4114-DEO, 2015 WL 2130850 (N.D. Iowa May 7, 2015). The Iowa Supreme Court answered the certified questions. Oyens Feed & Supply, Inc. v. Primebank, 879 N.W.2d 853, 860 (Iowa 2016). The parties agreed that the Iowa Supreme Court's answers resolved all pending issues on appeal. Oyens Feed & Supply, Inc. v. Primebank, No. C14-4114-LTS, at 4 n.1 (N.D. Iowa July 7, 2016) (copy available at Adv. No. 09-9093, Doc. 198). Based on the Iowa Supreme Court's answers to the certified questions, the District Court affirmed this Court's decision and denied both appeals. Id. at 4.

Immediately following the District Court's affirmation, Primebank filed a Third Amended Proof of Claim for $741,865.50. Oyens objected to the Third Amended Proof of Claim. Oyens argued that, based on this Court's ruling, less subsequent payments, Primebank's claim is now only $62,796.52. Primebank responded that the amount in its Third Amended Proof of Claim is correct and that the Court did not "adjudicate" the amount of its unsecured claim in the adversary.

DISCUSSION

The parties dispute whether the Court has already decided the amount of Primebank's claim. Oyens argues that the amount of Primebank's claim was at issue in the adversary and that the Court determined the amount of the claim in its ruling. Oyens concludes that res judicata precludes Primebank from relitigating the amount of its claim. Primebank argues that the amount of its claim was not at issue in the adversary. Primebank argues that the only issue was about lien priority—in particular, whether and to what extent Oyens had an agricultural supplier's lien under Iowa Code § 570A.5. Primebank concludes that, because the amount of its claim was not at issue, the Court did not conclusively decide the claim amount and res judicata does not apply. Primebank also argues that Oyens' improperly takes write-offs, guarantor payments, and other actions into account in characterizing the amount of Primebank's claim that remains.

The primary issue here is the application of res judicata. Res judicata "bars a party from litigating claims that either were or could have been raised in an earlier proceeding." In re Legassick, 534 B.R. 362, 366 (Bankr. N.D. Iowa 2015) (citing Brown v. Felsen, 442 U.S. 127, 131 (1979)).

[Res judicata] is central to the purpose for which civil courts have been established, the conclusive resolution of disputes within their jurisdictions. . . . To preclude parties from contesting matters that they have had a full and fair opportunity to litigate protects their adversaries from the expense and vexation attending multiple lawsuits, conservesjudicial resources, and fosters reliance on judicial action by minimizing the possibility of inconsistent decisions.

Whole Woman's Health v. Hellerstedt, 136 S. Ct. 2292, 2331 (2016) (Alito, J., dissenting) (quoting Montana v. United States, 440 U.S. 147, 153-54 (1979)) (internal quotation marks omitted). "Res judicata incorporates the related concepts of issue preclusion and claim preclusion." Magee v. Hamline Univ., 775 F.3d 1057, 1059 (8th Cir. 2015); see also A.H. ex rel. Hubbard v. Midwest Bus Sales, Inc., 823 F.3d 448, 450 n.2 (8th Cir. 2016) ("Res judicata ... refer[s] both to claim preclusion and collateral estoppel (issue preclusion)."); Jaakola v. U.S. Bank Nat. Trust Ass'n, 609 F. App'x 877, 879 (8th Cir. 2015) (same); Sandy Lake Band of Miss. Chippewa v. United States, 714 F.3d 1098, 1102 (8th Cir. 2013) (same).

"Issue preclusion refers to the effect of a judgment in foreclosing relitigation of a matter that has been litigated and decided." Sandy Lake, 714 F.3d at 1102 (quoting Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75, 77 n. 1 (1984)) (internal quotation marks omitted). "The underlying goal of issue preclusion . . . is to promote judicial economy and finality in litigation." Liberty Mut. Ins. Co. v. FAG Bearings Corp., 335 F.3d 752, 758 (8th Cir. 2003). The party invoking res judicata has the burden to show that it applies. Legassick, 534 B.R. at 366.

To show that issue preclusion bars a claim in the...