Oyens Feed & Supply, Inc. v. Primebank

808 N.W.2d 186

OYENS FEED & SUPPLY, INC., Appellant,

v.PRIMEBANK, Appellee.

No. 11–0532.

Supreme Court of Iowa.

Dec. 30, 2011.

Joel D. Vos, Lance D. Ehmcke, and Jacob B. Natwick of Heidman Law Firm, L.L.P., Sioux City, and A. Frank Baron of Baron, Sar, Goodwin, Gill & Lohr, Sioux City, for appellant.

John A. O'Brien and Brian P. Gaffney of Snell & Wilmer, L.L.P., Denver, Colorado, and Charles L. Smith and Aimee L. Lowe of Telpner, Peterson, Smith, Ruesch, Thomas & Simpson, LLP, Council Bluffs, for appellee.

Eldon L. McAfee, Mark C. Feldmann, and Julia L. Vyskocil of Beving, Swanson & Forrest, P.C., Des Moines, for amicus curiae Iowa Institute for Cooperatives.WATERMAN, Justice.

We are asked to interpret an Iowa statute enacted in the depths of the 1980s farm crisis to help debt-laden farmers buy livestock feed on credit to continue operations. Our answer is sought to resolve a dispute between two creditors in a bankruptcy proceeding with competing liens on the same hogs. A hog producer with outstanding loans to Primebank went deeper into debt by purchasing feed on credit from Oyens Feed & Supply to fatten the hogs to market weight. We answer a certified question from the federal district court by holding Primebank's prior perfected security interest in the hogs is trumped by Oyens Feed's agricultural supply dealer lien under Iowa Code section 570A.5(3) (2009) to the extent of the enhanced value of the livestock presumptively attributable to the feed—even though the bank received no certified request under section 570A.2 before the feed was sold on credit. Our interpretation effectuates the legislative intent to protect suppliers whose feed enhances the value of livestock while honoring the security interest of the earlier lender in the original value.

I. Background Facts and Proceedings.

This dispute between Oyens Feed and Primebank arises through Crooked Creek Corporation's chapter 12 bankruptcy in the United States Bankruptcy Court for the Northern District of Iowa. Crooked Creek is a farrow-to-finish hog producer located in Plymouth County, Iowa. Both Primebank and Oyens Feed claim liens on the proceeds of the sale of Crooked Creek's hogs. Primebank had a perfected article 9 security interest in the hogs to secure two promissory notes predating Oyens Feed's perfected section 570A.5(3) agricultural supply dealer lien in the hogs. The proceeds from the sale of the approximately 7500 hogs are insufficient to satisfy both parties' liens. Oyens Feed claims its lien trumps Primebank's security interest as to $358,841.10 of the sale proceeds. That amount is in escrow.

Crooked Creek filed an adversary proceeding to determine the priority of the liens, without taking a position as to which creditor should prevail. Oyens Feed filed an answer asking the bankruptcy court to deem its lien paramount to Primebank's interest. Primebank cross-claimed, asserting its perfected security interest in the hogs had priority. Primebank's cross-claim sought declaratory relief and damages. Primebank moved for partial summary judgment on its declaratory relief claim, asserting Oyens Feed is not entitled to superpriority under section 570A.5(3) because it failed to comply with the certified request process in section 570A.2. Oyens Feed resisted the partial summary judgment motion by arguing the superpriority rule in section 570A.5(3) operates independently of the certified request provision in section 570A.2. The bankruptcy court granted Primebank partial summary judgment on grounds that Oyens Feed failed to provide Primebank a certified request under section 570A.2.

Oyens Feed appealed the bankruptcy court's ruling to the United States District Court for the Northern District of Iowa. The Honorable Donald E. O'Brien sua sponte certified this question of law to our court:

Is the special priority afforded agricultural supply dealer liens for livestock feed under Iowa Code § 570A.5(3) susceptible to the affirmative defense afforded financial institutions under § 570A.2(3), or does § 570A.5(3) instead operate independently of or as an exception to § 570A.2(3), so as to allow an agricultural supply dealer supplying livestock feed to obtain a lien that, pursuant to § 570A.5(3), has priority over a financial institution's prior perfected security interest in the same collateral 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, without the dealer having complied with the requirements imposed by § 570A.2(1) and contemplated under § 570A.2(3)?

II. Our Discretion to Answer Certified Questions.

Iowa Code section 684A.1 allows this court to answer questions of Iowa law certified to us by a federal court that concludes controlling precedent is lacking when the answer may be determinative of the federal proceeding. See Foley v. Argosy Gaming Co., 688 N.W.2d 244, 246 (Iowa 2004). No disputed fact questions complicate our analysis. The question certified to us is a purely legal issue on the interpretation of an Iowa statute that will resolve the lien priority dispute in the federal proceeding. Our state appellate courts have not decided the question, and interpretations of the statute by Iowa district courts and federal courts are in conflict. Although Primebank initially opposed certification in the federal proceeding, neither Oyens Feed nor Primebank now urges us to decline to answer the question. Amicus curiae Iowa Institute for Cooperatives, representing Iowa farmers, agricultural suppliers and businesses, notes the importance of this issue to the availability of financing for farming operations so vital to our rural communities. Accordingly, we elect to answer this question certified to us.

III. Construction of Chapter 570A.

Chapter 570A creates an agricultural supply dealer lien. It was enacted in 1984. 1984 Iowa Acts ch. 1072, § 1. According to the senate file “Explanation,” it sought “to create[ ] a lien against all livestock consuming feed, to secure payment of the retail cost of the feed that was furnished.” S.F. 510 Explanation, 70th G.A. (Iowa 1984). Other legislative history is sparse. As with most Iowa statutes, there are no committee hearings or floor debates to review. Commentators contemporaneous to the chapter's enactment, however, noted, “It is generally believed that the enactment of chapter 570A of the Iowa Code was in response to the farm debt crisis” this state suffered in the 1980s. Thomas E. Salsbery & Gale E. Juhl, Chapter 570A Crop and Livestock Lien Law: A Panacea or Pandora's Box, 34 Drake L.Rev. 361, 363 (1984–85).¹ Farmers' assets were often encumbered by lender security interests, making agricultural suppliers hesitant to sell seed, feed, or other products to farmers on credit. Id. at 364. The commentators suggest the legislature intended the lien to encourage the credit sale of agricultural supplies by providing the supplier a secured lien in the farmers' crops or livestock. Id. By increasing available credit to debt-troubled farmers from suppliers, the legislature hoped farmers could continue to operate through difficult times. Id. The commentators also noted, however, that “Chapter 570A is a compromise between the interests of agricultural supply dealers and financial institutions” because the chapter provides lenders protection through the certified request process. Id. at 387.

Chapter 570A defines “agricultural supply dealer” or “dealer” as “a person engaged in the retail sale of agricultural chemicals, seed, feed, or petroleum products.” Iowa Code § 570A.1(4). Section 570A.3 creates the agricultural supply dealer lien. It provides dealers of agricultural chemicals, petroleum products, or seed a lien in crops, and it provides a feed dealer a lien in livestock that consumes the purchased feed. Section 570A.4 requires dealers to comply with article 9 perfection requirements. In 2003, chapter 570A was amended to comply with the requirements of revised article 9. Importantly, the legislature's accompanying “Explanation” states the amendment “maintains [the] priority status [of agricultural liens] over other security interests and liens.” S.F. 379 Explanation, 80th G.A. (Iowa 2003).²

The specific provisions at issue are section 570A.5, which sets forth the lien's priority rules, and section 570A.2, which provides financial institutions with perfected security interests an affirmative defense to a dealer who fails to provide the institution with a certified request.

A. Framing the Statutory Dispute. Iowa Code section 570A.5 contains three priority rules. Section 570A.5 states:

For an agricultural supply dealer lien that is perfected under section 570A.4, all of the following shall apply:

1. The lien shall have priority over a lien or security interest that applies subsequent to the time that the agricultural supply dealer lien is perfected.

2. Except as provided in section 570A.2, subsection 3, the lien shall have equal priority to a lien or security interest which is perfected prior to the time that the agricultural supply dealer lien is perfected. However, a landlord's lien that is perfected pursuant to section 570.1 shall have priority over a conflicting agricultural supply dealer lien as provided in section 570.1, and a harvester's lien that is perfected pursuant to section 571.3 shall have priority over a conflicting agricultural supply dealer lien as provided in section 571.3A.

3. A lien in livestock feed 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.

(Emphasis added.)

Section 570A.2 details the certified request process. Section 570A.2(3) provides a financial institution an affirmative defense to a...