In re Mba Poultry, L.L.C.
| Decision Date | 30 May 2002 |
| Docket Number | No. 01-2480.,No. 01-2028.,No. 01-2026.,No. 01-2029.,01-2026.,01-2028.,01-2029.,01-2480. |
| Citation | 291 F.3d 528 |
| Parties | In re: MBA POULTRY, L.L.C., Debtor. Dapec, Inc., Appellant, v. Small Business Administration, U.S., Defendant/Appellee, City of Tecumseh, Interested Party, The Money Store; Bird Watchers, L.L.C., Interested Parties/Appellees. DAPEC, INC., Appellee, v. Small Business Administration, U.S., Defendant, City of Tecumseh, Interested Party/Appellant, |
| Court | U.S. Court of Appeals — Eighth Circuit |
John D. Marshall, Jr., argued, Atlanta, GA (Steven C. Turner, Omaha, NE, Thomas L. Cohen, Atlanta, GA, on the brief), for Appellant DAPEC, Nos. 01-2026/2028/2029.
David J. Koukol, argued, (Bruce Dalluge, Tecumseh, NE, on the brief), for Appellant City of Tecumseh, No. 01-2480.
Emmett D. Childers, argued, Omaha, NE, for Appellee The Money Store, Nos. 01-2026,2028/2029.
Stephen M. Cramer, AUSA, argued, Omaha, NE, for Appellee Small Business Administration.
John D. Marshall, argued (Steven C. Turner, Thomas L. Choen, on the brief), for Appellee DAPEC, No. 01-2480.
Before McMILLIAN and RILEY, Circuit Judges, and KORNMANN,1 District Judge.
These appeals arise out of the Chapter 11 bankruptcy of MBA Poultry, Inc. (MBA Poultry). At the time it declared bankruptcy, MBA Poultry owed debts to The Money Store (Money Store), the United States Small Business Administration (SBA), Dapec, Inc. (Dapec), and the City of Tecumseh, Nebraska (Tecumseh), as well as to other creditors who are not parties to these appeals. The Money Store and the SBA claim interests in advances made under two loan agreements, Dapec claims an interest in construction materials it furnished to MBA Poultry, and Tecumseh is trying to collect unpaid sewer and water bills. On appeal, we must determine whether the bankruptcy court was correct in determining the relative priorities of the claims of these parties. We affirm in part and reverse in part.
The debtor, MBA Poultry, is the former owner of a chicken processing plant in Tecumseh, Nebraska. When MBA Poultry purchased the plant from the Campbell Soup Company on June 16, 1998, it obtained financing from the Money Store. The Money Store made two loans to MBA Poultry on the date of the purchase. The first loan (the "A" loan) was a promissory note in the amount of $840,000, payable over a period of thirty years. The second loan (the "B" loan) was a promissory note for $973,000, payable over a period of one year.
The "A" loan and the "B" loan were each secured by a separate deed of trust filed in Johnson County, Nebraska, on June 17, 1998. In addition, as authorized by Nebraska's statutes on construction liens, a "notice of commencement" of renovations to the plant was also filed in Johnson County on June 17, 1998. See Neb. Rev.Stat. § 52-145. The notice of commencement was filed a few minutes after the Money Store recorded its trust deeds.
The Money Store began disbursing money under the two loans the day the promissory notes were signed. On June 16, 1998, the Money Store disbursed $382,556 of the "A" loan and $642,515 of the "B" loan. The balances of both loans were dispensed in installments, beginning on July 1, 1998, and ending on December 11, 1998.
MBA Poultry obtained additional financing from Heller Financial, Inc. (Heller). Heller's loan and security interest were executed on October 29, 1998, more than two months after Heller filed a financing statement with the Johnson County Clerk. Heller's financing statement covered, among other things, all of MBA Poultry's personal property, "whether now owned or existing or hereafter acquired or arising." From the appellate record, it is unclear how much Heller loaned MBA Poultry. When the bankruptcy petition was filed, MBA Poultry owed Heller $2,149,948.
MBA Poultry's business did not generate enough revenue to pay off the "B" loan in the one-year repayment period. Instead, MBA Poultry paid off the "B" loan by arranging a $1,000,000 loan from the Nebraska Economic Development Corporation (NEDCO). The NEDCO loan was secured by a deed of trust filed in Johnson County on December 16, 1998. MBA Poultry's president and CEO, Mark Haskins, also gave a personal guarantee for the loan. In January 1998, NEDCO provided the money to repay the "B" loan by issuing debentures guaranteed by the SBA. As part of this transaction, the Money Store assigned the "B" loan and the trust deed securing it to the SBA.2
Shortly after purchasing the plant, MBA Poultry began renovations by installing an "air-chill" system. MBA Poultry bought the air-chill system from Dapec for $709,000. On August 31, 1998, MBA Poultry gave Dapec a security interest in "all goods and fixtures" it purchased from Dapec, including "renewals, additions, or replacements thereto." Dapec claims it later provided additional materials worth $12,000. Dapec did not file financing statements reflecting its security interest until November 1998. On November 9, Dapec recorded a financing statement with the Nebraska Secretary of State. On November 13, Dapec recorded a financing statement in Johnson County. Both financing statements referred to "all goods or fixtures" which MBA Poultry purchased from Dapec. Dapec filed a construction lien for $721,000 plus interest on January 22, 1999.
MBA Poultry filed for Chapter 11 bankruptcy on January 25, 2000. On February 17, 2000, the bankruptcy court entered a final order giving Heller a super-priority interest in MBA Poultry's personal property and authorizing the sale of the "DAPEC Air Chill Line." Heller assigned its claim in bankruptcy to Bird Watchers, L.L.C., which then purchased all of MBA Poultry's real and personal property at auction for $4,800,000. The sale was approved by the bankruptcy court on June 7, 2000.
After the sale was approved, the bankruptcy court had to determine priority among MBA Poultry's creditors. With the exception of Dapec, the creditors agreed on priority in the following order: (1) Johnson County, (2) City of Tecumseh, (3) the Money Store, and (4) American National Bank. These creditors also agreed that either Dapec or the SBA should occupy the fifth priority position.
Dapec refused to join the agreement on priority. Instead, it claimed that its construction lien has priority, to some extent, over the liens of the Money Store and the SBA. Dapec raised two arguments in support of this claim. First, it argued that its construction lien dates back to June 17, 1998, when the notice of commencement was filed, and that it trumps any advances made after that date. Second, Dapec argued that the frame of the air-chill line — a stainless steel "superstructure" — is a fixture, and that its perfected security interest in the superstructure trumps the security interest held by the SBA.
The bankruptcy court rejected both of these arguments, finding that Dapec's construction lien did not attach before the Money Store made its cash advances and that the superstructure is not a fixture. The bankruptcy court then entered an order allowing the bankruptcy proceeds to be distributed in accordance with its rulings on these two issues. The district court affirmed all three of these decisions, but did not reach the merits of the fixture issue. Instead, the district court held that Dapec waived its fixture claim by failing to object to the bankruptcy court's February 17, 2000 final order.
The bankruptcy court also had to settle an issue of priority between Dapec and the City of Tecumseh. On January 19, 2000, Tecumseh certified MBA Poultry's delinquent sewer and water bills to the Johnson County Clerk. On January 25, 2000, when it declared bankruptcy, MBA Poultry owed Tecumseh $32,796.06 for sewer service and $31,028.57 for water service. The bankruptcy court held these unpaid bills were special assessments which automatically took priority over Dapec's construction lien.
The district court reversed the bankruptcy court's decision on this issue, holding that Tecumseh was not entitled to treat its sewer and water liens like special assessments with automatic priority over Dapec's construction lien. The district court remanded the case to bankruptcy court for a determination of whether Tecumseh's liens have priority if they are not treated like special assessments.
Dapec and Tecumseh now appeal the decisions of the district court. In its appeals, Dapec asserts that its construction lien and its security interest in the superstructure have priority over the deeds of trust held by the Money Store and the SBA. Tecumseh, in its appeal, asserts that MBA Poultry's sewer and water bills are special assessments with automatic priority over Dapec's claims.
In a bankruptcy appeal, this court sits as a second court of review and applies the same standards of review as the district court. In re Cedar Shore Resort, Inc., 235 F.3d 375, 379 (8th Cir.2000). Like the district court, we review the bankruptcy court's findings of fact for clear error and its conclusions of law de novo. Id.
The first issue on appeal pits Dapec's construction lien against the deeds of trust the Money Store took to secure the "A" loan and the "B" loan. The deed of trust for the "A" loan is still held by the Money Store, while the deed of trust for the "B" loan has been assigned to the SBA.
Under Nebraska law, as a general rule, "a construction lien has priority over subsequent advances made under a prior recorded security interest if the subsequent advances are made with knowledge that the lien has attached." Neb.Rev.Stat. § 52-139(2). In order to obtain priority under this statute, Dapec must show that the Money Store made its cash advances with knowledge that Dapec's construction lien had attached. The bankruptcy court found that the Money Store did not know about Dapec's construction lien until after December 11, 1998, when it finished making...
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