Farmland Capital Solutions, LLC v. Mich. Valley Irrigation Co.

• Decision Date: 14 January 2021
• Docket Number: No. 352689,352689
• Citation: 335 Mich.App. 370,966 N.W.2d 709
• Parties: FARMLAND CAPITAL SOLUTIONS, LLC, Plaintiff-Appellant, v. MICHIGAN VALLEY IRRIGATION COMPANY, Defendant-Appellee.
• Court: Court of Appeal of Michigan — District of US

335 Mich.App. 370

966 N.W.2d 709

FARMLAND CAPITAL SOLUTIONS, LLC, Plaintiff-Appellant,

v.MICHIGAN VALLEY IRRIGATION COMPANY, Defendant-Appellee.

No. 352689

Court of Appeals of Michigan.

Submitted January 8, 2021, at Grand Rapids.

Decided January 14, 2021, at 9:05 a.m.

Wardrop & Wardrop, PC, Grand Rapids (by Thomas M. Wardrop ) for Farmland Capital Solutions, LLC.

Smith Haughey Rice & Roegge, Grand Rapids (by Katherine E. Wendt and Krista A. Jackson ) for Michigan Valley Irrigation Company.

Before: Redford, P.J., and Markey and Boonstra, JJ.

Boonstra, J. Plaintiff appeals by right the trial court's order denying its motion for summary disposition and granting defendant's motion for summary disposition under MCR 2.116(C)(10). We affirm.

I. PERTINENT FACTS AND PROCEDURAL HISTORY

The largely undisputed facts of this case concern the priority of two creditors with regard to their respective security interests in specific farm equipment purchased in 2016 by Boersen Farms, Inc. (Boersen). Plaintiff's predecessor in interest, First Farmers Bank and Trust (First Farmers), recorded a Uniform Commercial Code (UCC) financing statement in 2014 as a secured creditor of Boersen, claiming as secured collateral the following:

All present and future right, title and interest in and to any and all personal property of the Debtor, whether such property is now existing or hereafter created, acquired or arising and wherever located from time to time, including without limitation, the following categories of property as defined in the Revised Article 9 of the Uniform Commercial Code (the "UCC"): goods (including inventory, equipment, fixtures, farm products and any accessions thereto), instruments (including promissory notes), documents, accounts (including health-care-insurance receivables), chattel paper (whether tangible or electronic), deposit accounts, letter-of-credit rights (whether or not the letter-of-credit is evidenced by a writing), commercial tort claims, securities and all other investment property, general intangibles (including payment intangibles and software), all supporting obligations and all proceeds, products, additions, accessions, substitutions and replacements of the foregoing property.

Any term used herein which is defined in the UCC shall have the meaning set forth in the UCC, and if the meaning is modified by an amendment, modification or revision to the UCC, such modified definition will apply automatically as of the date of such amendment, modification or revision to the UCC.

This financing statement covers, and is intended to cover, all personal property of the Debtor.^[1]

In 2016, Boersen ordered seven irrigation "pivots" from defendant. Pivots are large pieces of agricultural farm equipment. According to bills of lading provided to the trial court, the pivots were shipped, unassembled, to Boersen during the month of April 2016.

John McGee (McGee), who was the president of defendant in 2016, stated in an affidavit that it was defendant's goal to construct and install pivots within two to four weeks of delivery. McGee's affidavit further stated that defendant "originally invoiced Boerson [sic] for the pivots on April 22, 2016." Defendant attached invoices to its motion for summary disposition that bore an "invoice date" of April 22, 2016.²

The parties agree that Boersen did not pay for the pivots after receiving the initial invoices. On June 2, 2016, defendant issued Boersen another set of invoices for the pivots in the total amount of $465,599.00.

That same day, Boersen entered into an "equipment lease agreement" for the pivots with a lender, Bank of the West. The equipment lease agreement provided that Boersen would make annual rental payments of $89,125.76 to Bank of the West. It also contained a provision stating, in part:

18. OWNERSHIP, PERSONAL PROPERTY. This is a lease, and Lessee's rights to the Equipment are those solely of a lessee notwithstanding any trade-in or downpayment Lessee may make. Lessee will move the Equipment or Equipment Location [at] Lessor's request to [illegible]^{[3 ]} Lessor's ownership of the Equipment.

Attached to the equipment lease agreement was Schedule A, which described the pivots and provided the amount and due dates of the payments and also provided that the "Effective date for option to purchase" was "6/21." Additionally, Boersen executed several addendums to the equipment lease agreement, including a document entitled "Certificate of Acceptance," which noted that the leased equipment was described in the attached Schedule A and also stated, in relevant part:

LESSEE ACKNOWLEDGES RECEIPT OF ALL OF THE EQUIPMENT AND ITS ACCEPTANCE FOR PURPOSES OF THE LEASE.

LESSEE ACKNOWLEDGES THAT THE RENT FOR THE EQUIPMENT WILL BE BASED ON THE EQUIPMENT'S ACTUAL COST, EXCEPT AS MAY BE PROVIDED IN AN ADDENDUM TO THE LEASE.

LESSEE UNDERSTANDS THAT (i) BASED HEREON LESSOR WILL PAY FOR THE EQUIPMENT NOT PREVIOUSLY FUNDED ....

Another addendum was entitled "Lease Expiration Purchase Agreement" and stated in relevant part that "Lessor and Lessee agree that at the expiration of the Lease, Lessee will purchase, AS-IS-WHERE-IS, Lessor's interest in all, but not less than all, of the Equipment then leased or otherwise included under the Lease for the Residual Value of the cost to Lessor of such Equipment."

On June 8, 2016, Bank of the West filed a UCC financing statement identifying Boersen as a secured debtor and listing as collateral all equipment covered by the equipment lease agreement. On June 9, 2016, Bank of the West paid defendant the entire purchase price for the pivots.

The parties agree that at some point Boersen defaulted on its payments under the equipment lease agreement and that in January 2019, Bank of the West foreclosed on property in which it claimed a security interest, including the pivots. Bank of the West held a private foreclosure sale at which defendant purchased the pivots.

Plaintiff, which had become the holder of First Farmer's security interest in Boersen's personal property, filed suit in February 2019, arguing that it possessed a superior interest in the pivots by virtue of various UCC financing statements and asserting claims of common-law and statutory conversion, claim and delivery, and disgorgement. After discovery, both parties moved for summary disposition, each arguing that a different security interest had priority. Defendant argued that Bank of the West had properly recorded a purchase-money security interest (PMSI) in the pivots that took priority over plaintiff's interest in Boersen's personal property generally. Plaintiff argued that Bank of the West had failed to perfect its PMSI within 20 days of when Boersen took "possession" of the pivots, which it alleged was when the pivots were delivered or when the invoices were issued, and that Bank of the West's interest was therefore second in priority to plaintiff's earlier-recorded interest. After holding a hearing on the competing motions, the trial court granted defendant's motion and denied plaintiff's motion, concluding that Bank of the West had timely recorded its PMSI. This appeal followed.

II. STANDARD OF REVIEW

We review de novo a trial court's decision on a motion for summary disposition. Moser v. Detroit , 284 Mich. App. 536, 538, 772 N.W.2d 823 (2009). Summary disposition is proper under MCR 2.116(C)(10) if "there is no genuine issue as to any material fact, and the moving party is entitled to judgment ... as a matter of law." "A genuine issue of material fact exists when the record, giving the benefit of reasonable doubt to the opposing party, leaves open an issue upon which reasonable minds might differ." West v. Gen. Motors Corp. , 469 Mich. 177, 183, 665 N.W.2d 468 (2003). We consider the affidavits, pleadings, depositions, admissions, and other documentary evidence in the light most favorable to the nonmoving party. Liparoto Constr., Inc. v. Gen. Shale Brick, Inc. , 284 Mich. App. 25, 29, 772 N.W.2d 801 (2009). All reasonable inferences are to be drawn in favor of the nonmovant. Dextrom v. Wexford Co. , 287 Mich. App. 406, 415, 789 N.W.2d 211 (2010).

We review de novo as questions of law the interpretation and application of the UCC, MCL 440.1101 et seq . See Heritage Resources, Inc. v. Caterpillar Fin. Servs. Corp. , 284 Mich. App. 617, 632, 774 N.W.2d 332 (2009).

III. ANALYSIS

Plaintiff argues that the trial court erred by concluding that Bank of the West had timely perfected its PMSI in the pivots (and that the repossession and sale to defendant was therefore valid). We disagree.

As a threshold matter, although the agreement between Boersen and Bank of the West was termed an "equipment lease agreement" and purported to rent the pivots to Boersen with the bank retaining ownership, the parties seem to agree that the agreement was a security agreement, not a true lease. That is also how the trial court analyzed the issue. An agreement entitled an "equipment lease" may, by its terms, in fact constitute a security agreement. See MCL 440.1203 ; see also John Deere Co. v. Wonderland Realty Corp. , 38 Mich. App. 88, 91, 195 N.W.2d 871 (1972). Although the copies of the equipment lease agreement available to this Court are of extremely poor quality and are largely illegible, the equipment lease agreement does appear to bind Boersen to become the owner of the pivots and is not terminable by Boersen; such transactions generally create a security interest. MCL 440.1203(2)(b). In any event, because the trial court and the parties proceeded as though Bank of the West had financed Boersen's purchase of the pivots, we will analyze the issue in that manner as well.

As a further preliminary matter, we note that plaintiff only refers to its 2014 UCC financing statement in a single footnote of its brief on appeal, and it does so there in conjunction with a reference to a 2014 Security Agreement. Yet plaintiff does not explain the linkage, if any, between the two documents, and we note that the debtor named in the 2014...