FMB-First Michigan Bank v. Van Rhee, G86-275 CA.

• Decision Date: 05 October 1987
• Docket Number: No. G86-275 CA.,G86-275 CA.
• Citation: 681 F. Supp. 1264
• Parties: FMB-FIRST MICHIGAN BANK, Plaintiff, v. Gary VAN RHEE, et al., Defendants.
• Court: U.S. District Court — Western District of Michigan

681 F. Supp. 1264

FMB-FIRST MICHIGAN BANK, Plaintiff, v. Gary VAN RHEE, et al., Defendants.

No. G86-275 CA.

United States District Court, W.D. Michigan, S.D.

October 5, 1987.

Cunningham, Mulder, & Breese, P.C. by Ronald J. Vanderveen, Holland, Mich., for plaintiff.

Dunn, Schouten & Snoap by Perry G. Pastula, Wyoming, Mich., bankruptcy trustee for estates of Kenneth and Kathleen Van Rhee.

Kluczynski, Firtz & Vogelzang by Richard Radke, Jr., Grand Rapids, Mich., for Wayland Livestock Auction.

C. Blair Mohney, Grand Rapids, Mich., for Lake Odessa Livestock Auction Inc.

Mohney, Goodrich & Titta by Bruce C. Necker, Grand Rapids, Mich., for Lake Odessa Livestock Leasing Co.

James H. Sullivan, Wyoming, Mich., for Gary Van Rhee, Karen Van Rhee, Kenneth Van Rhee, and Kathleen Van Rhee.

Miller, Johnson, Snell & Cummiskey by Richard Postman, Steven Bratschie, Grand Rapids, Mich., for Maynard VanNoord and Bank of Hudsonville.

OPINION

BENJAMIN F. GIBSON, District Judge.

I. INTRODUCTION

This matter comes before the Court pursuant to defendants' motions for summary judgment and an appeal of a magistrate's Order denying cross-plaintiff's motion to file a fourth amended complaint. This case involves the disposition of defendants Kenneth Van Rhee and Gary Van Rhee's dairy cows and funds received as a result of said disposition. The funds in dispute include monies paid by defendants Lake Odessa Livestock Leasing Company and Lake Odessa Livestock Auction, Inc. (collectively "Lake Odessa"), Wayland Livestock Auction Inc. ("Wayland"), and Hopkins Livestock Auction ("Hopkins"). The funds also include payments under the Department of Agriculture, Agriculture Stabilization and Conservation Service's ("ASCS") Dairy Termination Program ("DTP"), currently on deposit with the Court pursuant to Orders of the Court dated May 2, 1986 and February 23, 1987. All parties, including the Department of Agriculture, stipulated to the entry of said Orders.

Defendants Bank of Hudsonville ("Hudsonville") and Maynard VanNoord ("VanNoord") have filed a motion for summary judgment challenging plaintiff FMB-First Michigan Bank's ("FMB") interest in the deposited funds. The defendants also challenge the authority of the Court to assert control over the funds pending final disposition of this matter. Defendant Wayland has also moved for summary judgment. It is Wayland's position that the claims against it are barred under the Michigan Commercial Code. In a letter dated May 1, 1987, defendants Hudsonville and VanNoord requested oral argument on this matter. However, after careful review, the Court finds that oral argument is unnecessary for resolution of this matter. Accordingly, defendants' request is denied.

II. STANDARD OF REVIEW

Summary judgment is appropriate only where no genuine issue of material fact remains to be decided and the moving party is entitled to judgment as a matter of law. Atlas Concrete Pipe, Inc. v. Roger J. Au & Son, Inc., 668 F.2d 905, 908 (6th Cir.1982), see Willetts v. Ford Motor Co., 583 F.2d 852, 854 (6th Cir.1978); Felix v. Young, 536 F.2d 1126, 1130 (6th Cir.1976). The function of a motion for summary judgment is not to allow the court to decide issues of fact but rather to determine whether there is an issue of fact to be tried. United States v. Articles of Device, Etc., 527 F.2d 1008, 1011 (6th Cir.1976); Aetna Ins. Co. v. Cooper Wells & Co., 234 F.2d 342, 345 (6th Cir.1956). The moving party bears the burden of clearly establishing the non-existence of any genuine issue of fact material to a judgment in his favor. Adickes v. S.H. Kress and Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970); Articles, 527 F.2d at 1011. In determining whether there are genuine issues of fact warranting a trial, the evidence will be viewed in the light most favorable to the party opposing the motion. United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962); Bohn Aluminum & Brass Corp. v. Storm King Corp., 303 F.2d 425, 427 (6th Cir.1962). If a disputed question of material fact remains, the motion for summary judgment must be denied. Atlas, 668 F.2d at 908; Felix, 536 F.2d at 1030; Bohn, 303 F.2d at 427.

III. HUDSONVILLE AND VANNOORD'S MOTION FOR SUMMARY JUDGMENT

The motion filed by defendants Hudsonville and VanNoord presents three issues for resolution. The first issue concerns whether FMB has a perfected security interest in the funds received by the Van Rhees pursuant to the DTP. The second issue presented is whether any security interest enuring to FMB was extinguished by the federal regulations governing the DTP. Assuming defendants are entitled to summary judgment, the third issue presented is whether sanctions should be imposed on the remaining parties for pursuing this cause of action. These issues will be discussed seriatim.¹

Defendants, Kenneth Van Rhee and Gary Van Rhee, are dairy farmers. Plaintiff FMB made loans to Gary Van Rhee and received a security interest in certain assets of Gary and Karen Van Rhee including, but not limited to, livestock, products from livestock, and proceeds thereof. FMB also received an assignment of milk proceeds. Security agreements identifying FMB's interest were executed on or about February 16, 1981; April 26, 1982 and September 16, 1983. In each instance, the appropriate financing statement perfecting FMB's interest was executed and filed. Specifically, the security agreement dated September 16, 1983, provides, in relevant part, the following description of collateral:

ALL LIVESTOCK of every kind and description whether now or hereafter owned, existing or acquired, including all products and proceeds thereof;

ALL FARM PRODUCTS consisting of growing crops whether now or hereafter owned, existing or after acquired, including the products thereto used in the debtor's farming operation located in Ottawa County.

It is clear that FMB was not specifically granted a security interest in the DTP payments. Thus, if FMB has any interest in the payments, it must arise through interpretation of the general language in the security agreement. See Apple v. Miami Valley Production Credit Association, 614 F.Supp. 119 (S.D.Ohio 1985), aff'd, 804 F.2d 917 (6th Cir.1986); Bank of North Arkansas v. Owens, 76 B.R. 672 (E.D.Ark. 1987); In re Bechtold, 54 B.R. 318 (Bankr. D.Minn.1985). It is defendants' position that the security agreement does not cover the DTP funds because the funds are not "proceeds" and that, as a result, FMB has no interest in the monies on deposit with the Court. FMB contends that the funds are in fact "proceeds" as defined by the Michigan Uniform Commercial Code, M.C. L.A. § 440.9306(1), and that as such the monies are subject to their security interest.²

The DTP program operates in the following manner. In exchange for an agreement to slaughter or export currently owned livestock and to refrain from engaging in milk production for a period of five years, ASCS agrees to pay the producer, in this case the Van Rhees, a sum of money calculated to compensate for such actions. The amount of compensation paid is based on two things: 1) a bid amount per hundred weight of milk and 2) the base amount of milk marketed by the producer. 7 C.F.R. § 1430.455. It is clear from these factors that a farmer's decision to participate in the program would take into account both the value of the farmer's livestock, at least to the extent it differs from the slaughter value of such livestock, and the value of income the producer would have derived from the sale of the milk produced, but for participation in the program.

Courts addressing the same or similar issues have held that a creditor with a perfected security interest in similar property, "livestock, farm products, and proceeds thereof," possesses an interest in payments made pursuant to an ASCS program. Apple v. Miami Valley Production Credit Association, 614 F.Supp. 119, 123; In re Cupp, 38 B.R. 953 (Bankr.N.D.Ohio 1984). Other courts have held that in order for creditors to have a perfected interest in such payments, the security interest must extend to contract rights or general intangibles. In re Sunberg, 729 F.2d 561 (8th Cir.1984); Bank of North Arkansas v. Owens, 76 B.R. 672; In re Frasch, 53 B.R. 89 (Bankr.D.S.D.1985). Apple v. Miami Valley Production Credit Association addressed the issue of the characterization of funds received under a "payment-in-kind" ("PIK") program, an ASCS program similar to the DTP program at issue here, 614 F.Supp. 119. The court held that a security interest in collateral identified as "all interests in crops including but not limited to ... corn, wheat and soybeans" was sufficient to cover payments received for goods furnished by the Government in lieu of crop production. Id. at 124. In reaching its conclusion, the court relied on the liberal definition to be given proceeds under the Uniform Commercial Code and determined that the definition was sufficiently broad to encompass payments received under the PIK program.

On appeal, the decision of the lower court was affirmed, on alternative grounds, by the Sixth Circuit Court of Appeals. Apple v. Miami Valley Production Credit Association, 804 F.2d 917. The Court of Appeals found the language in the security agreement providing for a security interest in "all" of the debtor's "interest" in the farm products controlling. Based on this language, the Court held it was not necessary to decide whether the proceeds of the sale of PIK entitlements were "proceeds of crops" or not. The Court found that the debtor's interest in the PIK entitlements was contractual and further found that the express terms of the security agreement gave the creditor a security interest in that contractual right. Id. at 919.

Contrary to defendants' assertions, the court in Grunzke v. Security State Bank of Wells, reached a similar conclusion, 68 B.R. 446 (D.Minn.1987). In Grunzke, the district court upheld the finding of the...