Border State Bank v. Agcountry Farm Credit Serv.

• Decision Date: 01 August 2008
• Docket Number: No. 07-3102.,07-3102.
• Citation: 535 F.3d 779
• Parties: BORDER STATE BANK, N.A., Plaintiff-Appellant, v. AGCOUNTRY FARM CREDIT SERVICES, FLCA; and AgCountry Farm Credit Services, PCA, Defendants-Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

535 F.3d 779

BORDER STATE BANK, N.A., Plaintiff-Appellant, v. AGCOUNTRY FARM CREDIT SERVICES, FLCA; and AgCountry Farm Credit Services, PCA, Defendants-Appellees.

No. 07-3102.

United States Court of Appeals, Eighth Circuit.

Submitted: May 12, 2008.

Filed: August 1, 2008.

Steven Harris Silton, argued, Minneapolis for appellant.

Jon R. Brakke, argued, Caren L. Stanley, on the brief, Fargo, ND, for appellees.

Before WOLLMAN, MURPHY, and SMITH, Circuit Judges.

MURPHY, Circuit Judge.

Border State Bank, N.A. (Bank) brought this action asserting that defendants AgCountry Farm Credit Services, FLCA (FLCA) and AgCountry Farm Credit Services, PCA (PCA) had improperly retained sale proceeds in excess of their secured interests in the property sold and had failed to provide notice to the Bank of the sale and an accounting of the proceeds. The parties filed cross motions for summary judgment, and the district court¹ granted defendants' motion. The Bank appeals, and we affirm.

The Bank, PCA, and FLCA all claimed security interests in the assets of Dutch Friendship Farms, L.L.P. (Dutch Farms), a dairy farming operation in Lancaster, Minnesota. The Bank's security interest was established by a promissory note for $300,000 which it and Dutch Farms executed in 2005. A security agreement accompanying the note gave the Bank a secured interest in assets belonging to Dutch Farms which included its inventory, any accounts and rights to payment it might have, and farm products such as livestock, crops, and agricultural supplies.

PCA and FLCA claimed security interests in the Dutch Farms assets based on loans each had earlier made to River Ridge Dairy, L.L.P. (River Ridge). Between 1998 and 2001 River Ridge borrowed a total of almost $1.8 million from PCA and almost $3.0 million from FLCA. Under the security agreement for those loans, River Ridge granted PCA and FLCA security interests in essentially all of its assets, including livestock, equipment, accounts, and agricultural supplies and products, and PCA and FLCA each also obtained a mortgage on the land belonging River Ridge. River Ridge defaulted on its obligations to PCA and FLCA in early 2003 and eventually ceased business operations entirely.

Some of the River Ridge principals together with a new investor formed Dutch Farms, another dairy farming business which was to operate on River Ridge's land. After it became clear that River Ridge would not be able to pay all its debts, it entered into a forbearance agreement with its personal guarantors, FLCA, PCA, and Dutch Farms in January 2003. As described in that agreement, River Ridge deeded its land back to FLCA and PCA, and they agreed to allow Dutch Farms to purchase most of the River Ridge assets and lease the farm. The agreement provided that payments were to be made to reduce the principal and interest on River Ridge's debt to PCA to $1.4 million. Dutch Farms was to assume the PCA debt and grant PCA a first priority security interest in its personal property, including its livestock and equipment. The forbearance agreement also stated that the River Ridge "personal property collateral"—primarily livestock and equipment—would be "sold subject to the security interests of Lender," and lender was defined to mean PCA and FLCA collectively.

Later in 2003 Dutch Farms bought the assets of River Ridge. The asset purchase agreement stated that the purchase price was $1.4 million and was paid by Dutch Farms' assumption of "that debt and obligation owing to AgCountry." Although FLCA did not provide any loans directly to Dutch Farms, an addendum to the asset purchase agreement provided that "[a]ll Assets shall be transferred from Seller [River Ridge] to Buyer [Dutch Farms] subject to the security interests of ... AgCountry Farm Credit Services, FLCA."

After encountering its own financial problems, Dutch Farms defaulted on its loans from the Bank and PCA. At the end of 2005 it decided to close its business and liquidate its assets, which sold for approximately $1.7 million.² At the time of sale Dutch Farms owed PCA more than $1.4 million, and the principal and interest on the FLCA loans to River Ridge exceeded $2.6 million. PCA and FLCA obtained the proceeds of the sale and applied them first to the PCA loans and the expenses of the sale. The remaining balance was applied to the FLCA loans, but the funds were insufficient to satisfy that debt.

The Bank brought this action against PCA and FLCA, contending that it was entitled to a portion of the proceeds from the Dutch Farms assets and an accounting. It also alleged that PCA and FLCA had failed to give it notice of the disposition of the assets as required by Minnesota statute, and it raised claims of unjust enrichment and conversion. The defendants moved for summary judgment, and the Bank responded with a cross motion for partial summary judgment. The district court granted the defendants' motion, and the Bank appeals. The Bank admits that PCA had a senior security interest in Dutch Farms' assets and does not challenge the payment of the PCA debts. Rather, it argues that payment of the FLCA debts was improper because FLCA did not have a valid security interest in the Dutch Farms assets. The Bank also contends that the district court erred in determining that FLCA and PCA were not obligated to give it notice of the liquidation sale and in denying its request for an accounting. In reply, FLCA and PCA urge us to affirm in all respects.

We review a grant of summary judgment de novo, viewing the evidence in the light most favorable to the nonmoving party. Amrine v. Brooks, 522 F.3d 823, 830 (8th Cir.2008). Summary judgment is proper if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56(c); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Doe v. Dep't of Veterans Affairs, 519 F.3d 456, 460 (8th Cir.2008). In order to survive a motion for summary judgment, the nonmoving party has the burden of setting forth specific facts to show a genuine issue for trial, and "`[m]ere allegations, unsupported by specific facts or evidence beyond the nonmoving party's own conclusions'" will not suffice. Morris v. City of Chillicothe, 512 F.3d 1013, 1018 (8th Cir.2008) (citation omitted). If "the record taken as a whole could not lead a rational trier of fact to find for the nonmoving party, there is no `genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (citation omitted).

The Bank argues that there is a genuine issue of material fact about whether FLCA had a valid security interest in Dutch Farms' assets when those assets were sold, pointing out that FLCA never loaned money directly to Dutch Farms. FLCA and PCA respond that the district court correctly determined that FLCA had a security interest in the proceeds from the sale of the contested assets, and that the Bank was not entitled to a distribution of those proceeds.

FLCA had a security interest in River Ridge's assets, and Dutch Farms purchased those assets subject to the FLCA security interest. The forbearance agreement signed by River Ridge, Dutch Farms, and FLCA expressly provided that the River Ridge "Personal Property Collateral" would be "sold subject to the security interests of Lender." It defined the collateral to include property in which FLCA had a security interest and defined "lender" to include FLCA. An addendum to the asset purchase agreement specified that "[a]ll Assets shall be transferred from [River Ridge] to [Dutch Farms] subject to the security interests of ... FLCA ... in the Assets."

Under Minnesota law, FLCA's security interest in the River Ridge collateral continued after the collateral was purchased by Dutch Farms. When Dutch Farms sold that property, FLCA's interest attached to the proceeds of the sale. See Minn.Stat. § 336.9-315(a)(1) ("a security interest or agricultural lien continues in collateral notwithstanding sale, lease, license, exchange, or other disposition thereof unless the secured party authorized the disposition free of the security interest or agricultural lien"); id. § 336.9-315(a)(2) ("a security interest attaches to any identifiable proceeds of collateral"). Thus, FLCA's security interest in the property of River Ridge could be traced to the proceeds from the sale of the Dutch Farms assets.

The Bank asserts that there is evidence that FLCA's debt was satisfied after River Ridge ceased operations, and it submits that this evidence created a factual issue which precluded summary judgment. In support, it refers to an affidavit by Michael Muston, one of the principal investors in and personal guarantors of River Ridge and Dutch Farms. Muston averred that "River Ridge (via its personal guarantors, including me) paid an amount in excess of $1,000,000 to AgCountry Farm Credit Services."³ The affidavit does not state when the alleged payments were made, however, or whether FLCA received any portion of those funds. Furthermore, evidence in the record indicates that more than $2.6 million was still owed on the FLCA loans when...