Oyens Feed & Supply, Inc. v. Primebank, 15–0806.

• Citation: 879 N.W.2d 853
• Decision Date: 27 May 2016
• Docket Number: No. 15–0806.,15–0806.
• Parties: OYENS FEED & SUPPLY, INC., Appellant, v. PRIMEBANK, Appellee.
• Court: United States State Supreme Court of Iowa

879 N.W.2d 853

OYENS FEED & SUPPLY, INC., Appellant,

v.PRIMEBANK, Appellee.

No. 15–0806.

Supreme Court of Iowa.

May 27, 2016.

Joel D. Vos and James W. Redmond of Heidman Law Firm, L.L.P., Sioux City, and A. Frank Baron of Baron, Sar, Goodwin, Gill & Lohr, Sioux City, for appellant.

Scott C. Sandberg and John O'Brien of Snell & Wilmer, L.L.P., Denver, Colorado, and Charles L. Smith and Nicole Hughes of Telpner, Peterson, Smith, Ruesch, Thomas & Simpson, L.L.P., Council Bluffs, for appellee.

Robert L. Hartwig, Johnston, for amicus curiae Iowa Bankers Association.

HECHT, Justice.

Crooked Creek Corporation operated a farrow-to-finish hog facility where it bred gilts and sows and raised their litters for slaughter. See Ballard v. Amana Soc'y, Inc., 526 N.W.2d 558, 559 (Iowa 1995) (per curiam) (explaining the term “farrow-to-finish hog operation”); see also Iowa Code § 459.102(46) (2009) (defining “swine farrow-to-finish operation” for animal agriculture compliance purposes). After the company filed for bankruptcy, the hogs were sold, but the sale did not generate enough money to pay off competing liens asserted by two of Crooked Creek's creditors—Oyens Feed & Supply, Inc. and Primebank. Today we determine the creditors' relative priority in the remaining sales proceeds by answering two questions of law a federal district court certified to us.

I. Background Facts and Proceedings.

This case is before us for a second time. See Oyens Feed & Supply, Inc. v. Primebank, 808 N.W.2d 186, 195 (Iowa 2011) (answering a previous certified question from the United States District Court for the Northern District of Iowa). Our previous decision sets forth the relevant facts:

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 ... 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.

Id. at 187. Although the proceeds from the sale are insufficient to satisfy both parties' liens, $342,371.78 remains in escrow pending our resolution of the parties' competing claims.

Oyens Feed holds an agricultural supply dealer lien because it sold Crooked Creek feed “on credit ... to fatten the hogs to market weight.” Id. Livestock feed is an agricultural supply, see Iowa Code § 570A.1(3), and “[a]n agricultural supply dealer who provides an agricultural supply to a farmer shall have an agricultural lien,” id. § 570A.3. In our 2011 decision, we concluded Oyens Feed was entitled to superpriority in at least some of the sales proceeds of Crooked Creek's hogs even though it had not followed the statutory certified request procedure for notifying financial institutions of intent to provide a debtor with agricultural supplies on credit. Oyens Feed, 808 N.W.2d at 194–95. Because our decision did not resolve the amount of proceeds in which Oyens Feed had superpriority, the parties returned to the bankruptcy court for a trial to establish the extent of each party's entitlement.

At trial, Oyens Feed claimed it was entitled to all of the escrowed funds because its agricultural supply dealer lien has superpriority over Primebank's earlier perfected security interest. See Iowa Code § 570A.5(3). However, Primebank contended Oyens Feed is not entitled to the entire escrow amount.

First, Primebank asserted Oyens Feed had not properly perfected a lien for the entire amount of feed sold because it had not filed a financing statement “within thirty-one days after” each date Crooked Creek purchased feed. Id. § 570A.4(2) ; see id. § 570A.5 (granting priority to “an agricultural supply dealer lien that is perfected under section 570A.4 ”); In re Shulista, 451 B.R. 867, 874 (Bankr.N.D.Iowa 2011) (“[S]uper priority is allowed ... only insofar as the supply dealer has perfected its lien.”); James J. White & Robert S. Summers, Uniform Commercial Code § 21–8, at 738 (5th ed.2000) [hereinafter White & Summers] (“[Article 9 of the Uniform Commercial Code] grants potential super priority only to a ‘perfected agricultural lien.’ ”). Oyens Feed filed only two financing statements, one on May 28 and the other on August 14, 2009. Thus, Primebank contended Oyens Feed had only perfected its supply dealer lien for the thirty-one-day periods immediately preceding the filing of each of its financing statements, meaning it only had priority in, at most, the amount of funds equaling the price of feed sold between April 27 and May 28 and between July 14 and August 14.

Second, Primebank noted that under the statute, Oyens Feed only has priority “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.” Iowa Code § 570A.5(3) ; see Oyens Feed, 808 N.W.2d at 194. Although all of Crooked Creek's pigs came from gilts and sows it raised from birth and bred, Primebank asserted the acquisition price of the animals could not be zero because the acquisition price must include costs of feed, labor, transportation, facilities depreciation, utilities, and semen. As Primebank put it, “the pigs do not magically appear.”

The bankruptcy court concluded the plain meaning of section 570A.4 creates a “discrete window of time,” beginning with the farmer's purchase of feed and ending thirty-one days later, within which an agricultural supply dealer must file a financing statement to perfect its lien. Shulista, 451 B.R. at 876 ; accord In re Schley, 509 B.R. 901, 908 (Bankr.N.D.Iowa 2014) (“[A]ny superpriority lien ... would be limited under § 570A.4(2) to the 31 days before [the party asserting an agricultural supply dealer lien] filed a financing statement.”); cf. Caster v. McClellan, 132 Iowa 502, 506–07, 109 N.W. 1020, 1021 (1906) (declining to “extend the force of the enactment beyond the field marked out by the language employed” because “[i]f ... there should be an extension of the lien right, it is for the Legislature to make provision therefor in clear and unmistakable terms”). “If additional feed is sold after the ... 31-day period, another financing statement must be filed within 31 days of sale to perfect the lien on that transaction.” Shulista, 451 B.R. at 877 ; see also In re Big Sky Farms Inc., 512 B.R. 212, 219–20 (Bankr.N.D.Iowa 2014) (concluding Shulista remains good law after our previous Oyens Feed decision). Accordingly, the bankruptcy court concluded Oyens Feed had only perfected its lien as to amounts for feed delivered in the thirty-one days preceding the filing of each of its financing statements. See Schley, 509 B.R. at 908 (setting a maximum recovery under analogous circumstances of the “total amount of feed supplied during the 31 days prior to the first and second filings”). The court found Oyens Feed perfected its lien in $156,367.43 of the escrowed funds and the remainder of its lien was unsecured.

In reaching its decision on the extent of Oyens Feed's lien in the escrowed funds, the bankruptcy court reasoned the acquisition price of the hogs was zero because Crooked Creek raised hogs from birth rather than purchasing them. The court concluded “the ‘purchase price’ comprises the vast majority, if not all of, the ‘acquisition price’ for ... purposes of Iowa Code § 570A.5(3).” In adopting this formulation of “acquisition price,” the court rejected Primebank's contention that acquisition price includes all expenses prorated per hog. Further, the court concluded that while chapter 570A imposes some important limitations on feed suppliers' priority—for example, a thirty-one-day filing period—the legislature could not have intended to make feed suppliers engage in an elaborate accounting process to demonstrate the extent of their priority. Cf. Oyens Feed, 808 N.W.2d at 194 (declining to require feed suppliers to engage in an “impractical and cumbersome” certified request process because “[t]he legislature presumably sought to encourage a fluid feed market without burdening cooperatives and farmers”). The bankruptcy court awarded Oyens Feed $156,367.43 of the escrowed funds and awarded Primebank the remainder.

Both parties appealed to the federal district court. See 28 U.S.C. § 158(a)(1) (2012) (vesting federal district courts with jurisdiction to hear appeals from final judgments and orders in cases and proceedings referred to bankruptcy judges). Oyens Feed appealed the determination that chapter 570A requires agricultural supply dealers to file a new financing statement to perfect a lien for additional feed sold after filing the first financing statement. Primebank appealed the determination that the acquisition price for livestock born in Crooked Creek's farrow-to-finish facility is zero. A federal magistrate recommended that the district court certify two questions of law to us.

The United States District Court for the Northern District of Iowa adopted the magistrate's recommendation and certified the following questions:

1. Pursuant to Iowa Code section 570A.4(2), is an agricultural supply dealer required to file a new financing statement every thirty-one (31) days in order to maintain perfection of its agricultural supply dealer's lien as to feed supplied within the preceding thirty-one (31) day period?

2. Pursuant to Iowa Code section 570A.5(3), is the “acquisition price” zero when the livestock are born in the farmer's facility?

II. The Parties' Positions.

A. Oyens Feed. Oyens Feed asserts the answer to question one is “no” and the answer to question two is “yes.” It contends the word “within” in ...