in Farmers Coop. Co. v. Ernst & Young Inc. (In re Petition of Big Sky Farms Inc.)

• Decision Date: 18 April 2014
• Docket Number: Bankruptcy No. 12–01711.,Adversary No. 13–09038.
• Citation: 512 B.R. 212
• Court: U.S. Bankruptcy Court — Northern District of Iowa
• Parties: In re Petition of BIG SKY FARMS INC. by ERNST & YOUNG, INC., as its Receiver, Debtor in a Foreign Proceeding. Farmers Cooperative Company, Hinton, Iowa, Plaintiff, v. Ernst & Young Inc., in its official capacity as Receiver for Big Sky Farms Inc., and Big Sky Farms, Inc., Defendants.

512 B.R. 212

In re Petition of BIG SKY FARMS INC. by ERNST & YOUNG, INC., as its Receiver, Debtor in a Foreign Proceeding.Farmers Cooperative Company, Hinton, Iowa, Plaintiff,

v.Ernst & Young Inc., in its official capacity as Receiver for Big Sky Farms Inc., and Big Sky Farms, Inc., Defendants.

Bankruptcy No. 12–01711.

Adversary No. 13–09038.

United States Bankruptcy Court,

N.D. Iowa.

Signed April 18, 2014.

Lance D. Ehmcke, Heidman Law Firm, L.L.P., Sioux City, IA, Peter J. Leo, Koley Jessen P.C., L.L.O., Omaha, NE, for Plaintiff.

Peter J. Leo, Koley Jessen P.C., L.L.O., Omaha, NE, Julie Johnson McLean, Des Moines, IA, for Defendants.

RULING ON CROSS–MOTIONS FOR SUMMARY JUDGMENT

THAD J. COLLINS, Chief Judge.

These matters came before the Court on the Cross–Motions for Summary Judgment. Plaintiff Farmers Cooperative Company, Hinton, Iowa and Defendant Ernst & Young, Inc., in its official capacity as Receiver for Big Sky Farms, Inc., each filed summary judgment motions. The Court held a telephonic hearing. Lance Ehmcke and Peter Leo appeared on behalf of Plaintiff Farmers Cooperative Company, Hinton, Iowa. Julie McLean and Elizabeth Meyer appeared on behalf of Debtor in a Foreign Proceeding, Big Sky Farms, Inc., and Ernst & Young, Inc., in its official capacity as Receiver for Big Sky Farms, Inc., as appointed in the Canadian bankruptcy proceeding and recognized by this Court in this Chapter 15 case. The Court took the summary judgment motions under advisement. This is a core proceeding under 28 U.S.C. § 157(b)(2)(K).

STATEMENT OF THE CASE

Farmers Cooperative Company, Hinton, Iowa (“FCC”) filed this case asserting its lien priority in cash held in a bank account by Ernst & Young, Inc. (the “Receiver”). The parties dispute whether the Receiver, which holds approximately $1.5 million to pay Debtor's creditors, has paid FCC's claim to the extent required. This case, like another case currently pending before this Court, addresses the continuing applicability of this Court's decision in In re Shulista, 451 B.R. 867 (Bankr.N.D.Iowa 2011) following the Iowa Supreme Court's decision in Oyens Feed & Supply, Inc. v. Primebank, 808 N.W.2d 186 (Iowa 2011). FCC argues that this Court's decision in Shulista should no longer apply. The Receiver supports the continuing validity and analysis from Shulista. The parties characterize this case as a legal question on undisputed facts. For the reasons stated below, the Court finds that one factual issue exists, but that the Receiver's Motion for Summary Judgment and FCC's Motion for Summary Judgment may both be granted in part.

BACKGROUND

Debtor is a Canadian corporation that operates part of its hog business in Iowa. Debtor had serious financial problems and filed for bankruptcy in Canada. On September 10, 2012, the Canadian Court of Queen's Bench for Saskatchewan, Judicial Centre of Saskatoon appointed Ernst & Young, Inc. as Receiver for Debtor.

On September 12, 2012, the Receiver filed a Chapter 15 Petition with this Court, seeking recognition of the foreign proceeding. On a request from the Receiver, this Court entered an Order on December 3, 2012 recognizing the Canadian bankruptcy proceeding, granting comity, and giving full force and effect to the Canadian proceedings. The Order also authorized the Receiver to act for Debtor with respect to Debtor's property located in the United States. The Order required the Receiver to continue to feed and then sell Debtors' entire remaining hog inventory once it was ready for market. The Order then required the Receiver to set aside $1,500,000 of the proceeds from the sale into an account to pay Debtor's creditors. Additionally, the Order specifically provided that liens on the livestock would continue in the proceeds from the sale. The Receiver sold the hogs and as of January 11, 2013, the proceeds in the account totaled $1,506,928.04.

FCC is a feed supplier to Debtor. FCC submitted a proof of claim to the Receiver for $120,444.51. On February 1, 2013, the Receiver paid FCC $74,045.15 of its claim. FCC filed this adversary, seeking payment of the remainder of its claim from the hog proceeds.

FCC argues that it has a perfected agricultural lien under Iowa Code § 570A and is entitled to payment of the full amount of its claim from the proceeds. FCC has argued, like other suppliers in currently pending cases and matters under submission to this Court, that this Court's decision in In re Shulista, 451 B.R. 867 (Bankr.N.D.Iowa 2011) is inconsistent with the Iowa Supreme Court's interpretation in Oyens Feed & Supply, Inc. v. Primebank, 808 N.W.2d 186 (Iowa 2011). FCC argues that under Oyens Feed, this Court is required to revise the Shulista rule. Under this revised rule, FCC maintains that it is perfected for the full amount of its claim. The Receiver resists, arguing that this Court's interpretation of the Agricultural Supply Dealer Lien in Shulista continues to be valid and thus FCC only has a perfected agricultural lien in the amount of $74,045.15. The Receiver alleges that under Shulista, the remaining $45,729.36 of FCC's claim is not perfected as an agricultural lien because FCC did not file a financing statement within 31 days of selling the feed to Debtor.

The parties have two additional disputes. The parties disagree about how payments should be applied to outstanding invoices. FCC argues that the oldest outstanding invoice should be paid first. The Receiver argues that payments from the Receiver to FCC should be applied to the invoice the Receiver intended to pay. If Shulista is still valid and FCC is only perfected for the 31 days prior to filing a financing statement, then the determination of which invoices remain unpaid alters the amount that FCC's agricultural lien is perfected. Additionally, the Receiver argues that FCC does not have a perfected agricultural lien for the fees that were included with each order. FCC disagrees and argues that these fees are part of the retail cost and are covered under the agricultural lien statute.

CONCLUSIONS OF LAW AND DISCUSSION

A. Summary Judgment Standard and Parties' Arguments.

Summary judgment is governed by Federal Rule of Bankruptcy Procedure 7056. Rule 7056 applies Federal Rule of Civil Procedure 56 in adversary proceedings. Fed. R. Bankr.P. 7056. Rule 56 states, in relevant part, that: “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). Granting “[s]ummary judgment is proper if, after viewing the evidence and drawing all reasonable inferences in the light most favorable to the nonmovant, no genuine issues of material fact exist and the movant is entitled to judgment as a matter of law.” Hayek v. City of St. Paul, 488 F.3d 1049, 1054 (8th Cir.2007). Summary judgment is appropriate when only questions of law are involved. Anderson v. Hess Co., 649 F.3d 891, 894 (8th Cir.2011).

The burden of showing there are no genuine issues of material fact belongs to the moving party. Winthrop Res. Corp. v. Eaton Hydraulics, Inc., 361 F.3d 465, 468 (8th Cir.2004). “Once the movant has supported the motion, the non-moving party ‘must affirmatively show that a material issue of fact remains in dispute and may not simply rest on the hope of discrediting the movant's evidence at trial.’ ” In re Houston, 385 B.R. 268, 271 (Bankr.N.D.Iowa 2008) (quoting Barge v. Anheuser–Busch, Inc., 87 F.3d 256, 260 (8th Cir.1996)).

“A ‘material’ fact is one ‘that might affect the outcome of the suit under the governing law....’ ” Johnson v. Crooks, 326 F.3d 995, 1005 (8th Cir.2003) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). An issue of material fact is genuine if a reasonable fact-finder could return a verdict for the nonmoving party on the question. Anderson, 477 U.S. at 252, 106 S.Ct. 2505. Evidence that raises only “some metaphysical doubt as to the material facts” does not create a genuine issue of fact. Matsushita Elec. Indus. Co. v. Zenith Radio, Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). “ ‘Where 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.’ ” In re Patch, 526 F.3d 1176, 1180 (8th Cir.2008) (quoting Matsushita Elec. Indus. Co., 475 U.S. at 587, 106 S.Ct. 1348).

“Where the litigants concurrently pursue summary judgment, each motion must be evaluated independently to determine whether there exists a genuine dispute of material fact and whether the movant is entitled to judgment as a matter of law.” St. Luke's Methodist Hosp. v. Thompson, 182 F.Supp.2d 765, 769 (N.D.Iowa 2001). “[T]he filing of cross motions for summary judgment does not necessarily indicate that there is no dispute as to a material fact.” Sam's Riverside, Inc. v. Intercon Solutions, Inc., 790 F.Supp.2d 965, 975 (S.D.Iowa 2011) (quoting Wermager v. Cormorant Twp. Bd., 716 F.2d 1211, 1214 (8th Cir.1983)). “The Court may discover questions of material fact even though both parties, in support of cross-motions for summary judgment, have asserted that no such questions exist.” Bieber v. Associated Collection Servs., Inc., 631 F.Supp. 1410, 1414 (D.Kan.1986) (citing Wright v. Credit Bureau of Georgia, Inc., 548 F.Supp. 591, 593–94 (N.D.Ga.1982)). “Thus, the Court can resolve legal issues raised by the parties on cross-motions for summary judgment only if it has no doubt that the relevant facts are beyond dispute.” Id.

The parties' disputes can be separated into three distinct issues. The first issue is whether Oyens Feed effectively overruled Shulista. The outcome of this issue determines if FCC has a perfected agricultural lien for feed purchased outside the 31–days preceding the date FCC filed a financing statement. The second issue is whether payments made by the Receiver apply to the oldest invoice or to the invoice the...