CNH Capital Am. LLC v. Trainor Grain & Supply Co. (In re Printz)

• Decision Date: 27 September 2012
• Docket Number: Bankruptcy No. 10–73865.,Adversary No. 11–7054.
• Parties: In re Robert J. PRINTZ and Julie M. Printz, Debtors. CNH Capital America LLC, Plaintiff, v. Trainor Grain and Supply Co.; Bank of Pontiac, as Successor in Interest to Bank of Dwight; John Francis Gschwendtner; Robert J. Printz; and Julie M. Printz, Defendants.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Central District of Illinois

478 B.R. 876

In re Robert J. PRINTZ and Julie M. Printz, Debtors.CNH Capital America LLC, Plaintiff,

v.Trainor Grain and Supply Co.; Bank of Pontiac, as Successor in Interest to Bank of Dwight; John Francis Gschwendtner; Robert J. Printz; and Julie M. Printz, Defendants.

Bankruptcy No. 10–73865.

Adversary No. 11–7054.

United States Bankruptcy Court,

C.D. Illinois.

Sept. 27, 2012.

Jonathan A. Backman, Bloomington, IL, Thomas W. O'Neal, Peoria, IL, for Debtors.

W. Kent Carter, Chicago, IL, for Plaintiff.

Alison E. McLaughlin, William P. Streeter, Peoria, IL, Emmet A. Fairfield, Springfield, IL, for Defendants.

John Francis Gschwendtner, Pontiac, IL, pro se.

Robert J. Printz, Bloomington, IL, pro se.

Julie M. Printz, Bloomington, IL, pro se

OPINION

MARY P. GORMAN, Bankruptcy Judge.

Before the Court is a Motion for Summary Judgment filed by CNH Capital America LLC (“CNH”), which in its Amended Complaint seeks a finding against Trainor Grain and Supply Co. (“Trainor”) that CNH holds a first-priority perfected security interest in $362,443.49 which Trainor set off against money it owed to Robert J. Printz and Julie M. Printz (“Debtors”). For the reasons set forth below, CNH's Motion for Summary Judgment will be granted. Judgment will be entered in CNH's favor and against Trainor for $362,443.49.

I. Factual and Procedural Background

The material facts of this case are undisputed. CNH and Trainor are creditors of the Debtors. Trainor is a grain elevator company which over the course of several years purchased grain from Debtors and provided Debtors with farm inputs to aid in Debtors' farming operations. CNH is a financial institution specializing in agricultural and construction financing and is a secured creditor of the Debtors, having lent money for farm inputs for crop years 2009 and 2010.

Debtors and CNH were parties to three CNH Capital Ag Resource Plussm Lines of Credit and Security Agreements. Two of these agreements are dated November 13, 2008. One agreement documented a loan to Debtors to pay off a preexisting operating loan with another lender, and the other agreement documented a loan for the 2009 crop year. The third agreement is dated January 12, 2010, and is for a loan for the 2010 crop year. All three agreements grant CNH a security interest in specific crops and proceeds from those crops. In addition, they grant CNH a security interest in other items of property Debtors then owned or thereafter would acquire, including “all accounts, general intangibles, chattel paper, leases, instruments, documents, investment property, agreements, drafts, acceptances, milk contract rights, and all other forms of obligations or receivables....” CNH filed a UCC Financing Statement on November 24, 2008, to perfect its security interest in the Debtors' crops, proceeds, and other personal property. In the agreements with CNH, Debtors identified Trainor as a potential purchaser of their crops. Accordingly, in four separate letters, two of which are dated August 10, 2009, and two of which are dated July 16, 2010, CNH notified Trainor of CNH's lien on Debtors' crops.

On April 23, 2009, at the request of CNH, Trainor released a UCC Financing Statement it had previously filed on April 26, 2006, which referenced a security interest Trainor held in Debtors' crops. The next day, Trainor filed a new UCC Financing Statement referencing its security interest in Debtors' crops.

During 2010, Trainor executed four written crop purchase contracts with Debtors. The first crop purchase contract was dated July 30, 2010, pursuant to which Debtors were to deliver to Trainor 100,000 bushels of corn at $3.70 per bushel. The second crop purchase contract was dated August 5, 2010, and called for Debtors to deliver to Trainor another 100,000 bushels of corn at a price of $3.80 per bushel. The third crop purchase contract also was dated August 5, 2010, and called for Debtors to sell Trainor another 100,000 bushels of corn, this time at a price of $3.90 per bushel. The fourth crop purchase contract likewise was dated August 5, 2010, pursuant to which Debtors were to deliver to Trainor 25,000 bushels of soybeans at a price of $10.00 per bushel. Debtors delivered all the corn and soybeans due under all four crop purchase contracts.

Separately, between January 1, 2006, and December 31, 2010, Trainor and Debtors entered into a series of verbal agreements whereby Trainor provided to Debtors various farming inputs, such as lime, potash, and other fertilizers and chemicals. In late 2010 when Debtors failed to pay Trainor for the inputs, Trainor retained the sum of $362,443.49 from the proceeds due to the Debtors under the corn and soybean purchase contracts and applied the retained funds to the amounts Debtors owed.

Debtors filed their voluntary petition under Chapter 11 on December 31, 2010. CNH filed this adversary proceeding on April 4, 2011. CNH filed its Amended Complaint on January 12, 2012.¹ In the Amended Complaint, CNH seeks a determination of the validity, priority, and extent of the competing liens and interests of CNH and Trainor in the funds set off by Trainor from the proceeds of the corn and soybeans delivered by the Debtors to Trainor in 2010. CNH seeks turnover of the withheld funds from Trainor. CNH also seeks a determination that none of the other named Defendants, including the Debtors, hold an interest superior to CNH in the disputed funds.²

Trainor answered the Amended Complaint by denying some of the material allegations set forth therein and by raising the affirmative defense that it has a superior interest in the funds it set off pursuant to the provisions of the federal Food Security Act of 1985. Additionally, Trainor asserted that its contracts with the Debtors for the delivery of corn and soybeans provide it with a right of setoff.

Discovery is complete. CNH filed its Motion for Summary Judgment alleging that there are no material facts in dispute and that it is entitled to judgment in its favor as a matter of law. Trainor has responded by agreeing that no material facts are in dispute but claiming that it is entitled to judgment as a matter of law. The issues have been fully briefed and are ready for decision.

II. Jurisdiction

This Court has jurisdiction to hear this matter pursuant to 28 U.S.C. § 1334. The determination of the validity, priority, or extent of liens is a core proceeding. See28 U.S.C. § 157(b)(2)(K).³

III. Legal Analysis

A. Summary Judgment Standards

Motions for summary judgment are governed by Federal Rule of Civil Procedure 56, which is made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7056. SeeFed.R.Civ.P. 56; Fed. R. Bankr.P. 7056. Summary judgment is an efficient method for resolving disputes and summary judgment should be granted when the movant shows that there is no genuine dispute about any material fact and that the controlling substantive law demands a result in its favor. See Celotex Corp. v. Catrett, 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A judge's function in evaluating a motion for summary judgment is not to weigh the evidence, but merely to determine whether there is a genuine issue of material fact for trial. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A factual dispute is material only if its resolution might be case-determinative. See Frey v. Fraser Yachts, 29 F.3d 1153, 1156 (7th Cir.1994). The movant bears the burden of establishing that no genuine issue of material fact exists. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 585–86, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

Here, both parties agree that there are no material facts in dispute and in its Response to CNH's Motion for Summary Judgment, Trainor specifically acknowledges that resolution of the case by summary judgment is appropriate. Having reviewed all documents filed by the parties on the disputed issues, this Court agrees that there are no material issues of fact in dispute and that the parties have correctly identified the issues here as ones that can be resolved as a matter of law on CNH's Motion for Summary Judgment.

B. CNH Has a Valid, Perfected, First–Priority Security Interest in Debtors' 2009 and 2010 Crops and Crop Proceeds under Illinois Law.

CNH claims a valid, perfected, first-priority security interest in the Debtors' 2009 and 2010 crops and the proceeds from the sale of those crops. It is not disputed that CNH and the Debtors executed loan documents for both the 2009 and 2010 crop years and that CNH advanced funds pursuant to those documents. It is also not disputed that the Debtors executed security agreements with CNH pledging, inter alia, their 2009 and 2010 crops and the proceeds of those crops and that CNH filed a UCC Financing Statement with the Illinois Secretary of State on November 24, 2008, which identified its lien on the Debtors' crops and proceeds. Trainor admits that its financing statement, filed to perfect a lien on the Debtors' crops at issue here, was not filed until April 24, 2009. Trainor also admits that it released its previously filed financing statement at the insistence of CNH with full knowledge that the release would place CNH in first place as to the future crops and crop proceeds of the Debtors.

In Illinois, a security interest is enforceable when the secured party has given value, the debtor has rights in the collateral, and the debtor has authenticated a security agreement that describes the collateral. See810 ILCS 5/9–203(b). To be fully effective against third parties, a security interest must be perfected and agricultural liens are perfected by the filing of financing statements. See810 ILCS 5/9–310(a). Once properly perfected, a security interest in agricultural products continues notwithstanding the sale of those products and the perfected interest also attaches to the proceeds of sale. See810 ILCS 5/9–315(a). In the event of a dispute between...