Farm Credit of Northwest Florida, ACA v. Easom Peanut Co.

• Decision Date: 03 November 2011
• Docket Number: MC-035,A11A0816
• Parties: FARM CREDIT OF NORTHWEST FLORIDA, ACA v. EASOM PEANUT COMPANY ET AL.
• Court: Georgia Court of Appeals

FARM CREDIT OF NORTHWEST FLORIDA, ACA v. EASOM PEANUT COMPANY ET AL.

A11A0816

MC-035

Court of Appeals of Georgia

November 3, 2011

***PLEASE NOTE: THE OPINION DECIDED 9/14/11 IS VACATED. THIS IS THE SUBSTITUTE OPINION.

FOURTH DIVISION ANDREWS, DILLARD and MCFADDEN, JJ.

NOTICE: Motions for reconsideration must be physically received in our clerk's office within ten days of the date of decision to be deemed timely filed. (Court of Appeals Rule 4 (b) and Rule 37 (b), February 21, 2008)

McFadden, Judge.

This dispute arises out of the bankruptcy of a peanut broker, Fidelity Foods. At issue are competing claims to proceeds from the sale of 2008 peanut crops. Easom Peanut Company, which warehoused and processed the peanuts, brought this action against multiple peanut growers and Farm Credit of Northwest Florida, ACA, which had loaned money to Fidelity, the now-bankrupt broker. The several parties raise a large number of issues in support of their claims that their interests in the proceeds are superior to the other parties' interests. We conclude that Farm Credit has a perfected security interest in the proceeds and that the growers have an unperfected security interest in the proceeds. Easom has a bailee's lien in the proceeds, and it may have an independent right to be paid. Whether a lack of good faith may alter the priorities of the parties' interests in the proceeds is a fact question.

The trial court granted summary judgment to Easom, ruling it was entitled to the entire amount it sought. Subject to Easom's claims, the court granted summary judgment to the growers. It denied Farm Credit's motions for summary judgment. Farm Credit appeals, contending that its security interest in the peanuts was superior to the growers'; that the trial court lacked the authority to re-order the priority of the security interests; that it was entitled to summary judgment on the growers' tort and breach of contract cross-claims; and that any lien Easom had over the peanut proceeds was inferior.

We find that Farm Credit had a security interest in the peanuts. In so finding, we hold, as to what appears to be an issue of first impression in Georgia, the term "possession" as used in § 9-110 of the UCC includes constructive possession. But we find that whether Farm Credit's security interest is superior to the growers' and Easom's interests depends on an issue that the factfinder must resolve: whether Farm Credit acted in bad faith. We therefore reverse the grant of summary judgment to the growers on these issues but affirm the denial of summary judgment to Farm Credit. We affirm the trial court's denial of Farm Credit's motion for summary judgment on the growers' conversion claims because whether Farm Credit had the right to exercise dominion over the peanuts depends on the priority of the parties' interests, which, in turn, depends on a resolution of the factual issue of bad faith. We reverse the trial court's denial of Farm Credit's motion for summary judgment on the growers' claims for punitive damages because, as a federal instrumentality, Farm Credit is immune from punitive damages awards. We affirm the trial court's denial of Farm Credit's motion for summary judgment on the growers' claims for indemnity and contribution because whether Farm Credit and the growers are joint obligors is not clear at this point. We affirm the trial court's denial of Farm Credit's motion for summary judgment on the growers' claims of fraud and misrepresentation, because whether Farm Credit misrepresented Fidelity's financial condition to the growers, thereby fraudulently inducing them to sell their peanuts to Fidelity, is a question for the factfinder. We reverse the trial court's denial of Farm Credit's motion for summary judgment on J. E. Golden Farms, Inc.'s breach of contract and promissory estoppel claims because enforcement of these claims is barred by the statute of frauds. We find that although Easom has a bailee's lien in the peanut proceeds, whether the lien has priority depends on whether the parties' priorities should be re-ordered because of bad faith, and thus reverse the trial court to the extent that it held otherwise. Finally, we find that the trial court erred in calculating the amount to which Easom may be entitled under a theory of quantum meruit; we reverse and remand on this issue so that the amount to which Easom is entitled under the doctrine of quantum meruit, if any, can be determined.

A trial court properly grants a motion for summary judgment when there is no genuine issue of material fact and the movant demonstrates entitlement to judgment as a matter of law. We review, de novo, a grant of summary judgment, viewing the evidence, and all reasonable conclusions and inferences drawn therefrom, in a light most favorable to the nonmovant.

(Punctuation omitted.) Bank of Dawson v. Worth Gin Co., 295 Ga. App. 256 (671 SE2d 279) (2008).

1. Fidelity Foods is a peanut broker, now in bankruptcy. In January 2008, Farm Credit, a cooperative bank, extended a $5 million line of credit to Fidelity to fund its operations. In exchange, Fidelity granted Farm Credit a security interest in its inventory, accounts, and other assets, including collateral, defined as "[a]ll peanuts of every kind and description shelled and unshelled, and wherever located and including but not limited to all peanuts owned by Debtor and stored at and/or processed by companies listed on 'Exhibit A.'" Listed on Exhibit A were six companies, including Easom. On January 10, 2008, Farm Credit filed UCC financing statements in the applicable jurisdictions. The financing statements described the property in which Farm Credit had a security interest in the same words as those used in the security agreement. In March 2008, Fidelity entered agreements with Easom for the shelling and storage of peanuts.

Later in 2008, Fidelity entered contracts with the growers for the purchase of their 2008 peanut stock. Most of the contracts provided that

the Seller retains all beneficial interest thus having control and title in the Peanuts until such time as title to said Peanuts is transferred to [Fidelity] and the warehouse receipt(s) relating to such Peanuts are delivered to [Fidelity]. Until such time, any damage to the Peanuts remains the responsibility of the Seller.¹

The contracts did not specify how title would transfer, nor how or where the peanuts would be delivered. No warehouse receipts were ever delivered.

Before entering the contracts, some of the growers spoke with Rick Bitner, Farm Credit's East Region Lending Manager, about Fidelity's financial stability and ability to pay for the peanuts.

Fidelity directed that the peanuts be delivered to Easom and sent trucks to the farms for that purpose. Some of the growers were only partially paid and others were never paid at all. Fidelity paid Easom $547,134.87 of the $1,109,802.09 invoiced for its services in processing and storing the peanuts. Fidelity filed for bankruptcy protection on April 14, 2009. The bankruptcy court allowed Easom to sell the peanuts, and the proceeds were put in escrow pending the resolution of this lawsuit. The parties have agreed that any rights they may have had in the peanuts have become equivalent rights in the proceeds.

Easom filed this lawsuit against Fidelity, Farm Credit, and 17 growers, seeking to recover the reasonable value of its services. The growers answered and filed cross-claims against Farm Credit. Farm Credit answered and filed motions for summary judgment against four growers. The growers moved for partial summary judgment against Farm Credit, and Easom moved for summary judgment.

The trial court granted summary judgment to Easom for the full value of its claim and to the growers, awarding them their proportionate shares in the proceeds remaining after Easom is paid. It denied Farm Credit's summary judgment motion on the growers' cross-claims. Farm Credit filed this appeal.²

2. The Priorities of Farm Credit's and the Growers' Security Interests

Farm Credit argues that its perfected security interest in the peanuts was superior to the growers' unperfected security interests. The trial court found that Farm Credit did not have a valid security interest.

(a) Choice of Law

Both the security agreement between Fidelity and Farm Credit and the contracts between Fidelity and most growers³ provide that Florida law controls. It is unnecessary to decide whether the Florida or the Georgia version of the Uniform Commercial Code governs the priorities of the growers' and Farm Credit's interests, however, because both Georgia and Florida have adopted the uniform versions of the provisions of the Uniform Commercial Code that are at issue. Compare Mull Drilling Co. v. SemCrude,L.P., 407 BR 82 (Bankr. D. Del. 2009) (engaging in choice of law analysis when Kansas, one of the three jurisdictions at issue, had enacted a non-uniform amendment to its version of the Uniform Commercial Code).

(b) Priorities

Georgia and Florida law both require that the "debtor [have] rights in the collateral or the power to transfer rights in the collateral to a secured party" before a security interest will attach to the collateral. OCGA § 11-9-203 (b) (2); Fla. Stat. § 679.2031 (2) (b). "[I]t is self-evident that in the absence of special circumstances a security interest can attach only to the extent of the interest of the debtor. . . . One cannot encumber another man's property in the absence of consent, estoppel, or some other special rule." First Natl. Bank & Trust Co. v. Smithloff, 119 Ga. App. 284, 290 (5) (167 SE2d 190) (1969). Contrary to Farm Credit's argument, Fidelity had to have rights in the peanuts for Farm Credit's security interest to attach, notwithstanding the broad language in the security agreement and UCC financing statement purporting to grant Farm Credit a security interest in "[a]ll peanuts of every kind and description shelled and unshelled and wherever located and including but not limited to all...