In re Western Iowa Limestone, Inc.
| Decision Date | 19 March 2007 |
| Docket Number | No. 06-6068NE.,06-6068NE. |
| Citation | 375 B.R. 518 |
| Parties | In re WESTERN IOWA LIMESTONE, INC., Debtor. United Bank of Iowa, Appellant, v. Independent Inputs, et al., Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Eighth Circuit |
James J. Niemeier, Omaha, NE, Robert J. Bothe, on brief, Omaha, NE, for appellant.
Kirk E. Goettsch, Council Bluffs, IA, for appellee.
Before KRESSEL, Chief Judge, SCHERMER and VENTERS, Bankruptcy Judges.
This appeal involves a contest between a secured creditor and three would-be buyers in the ordinary course of business over the proceeds from the sale of several tons of agricultural lime. The bankruptcy court first awarded the proceeds to the secured creditor, but then reversed course and awarded the proceeds to the buyers. For the reasons set forth below, we reverse the decision of the bankruptcy court.1
We review findings of fact for clear error and conclusions of law de novo.2 The central issue on appeal — whether the Appellees qualify as "buyers in the ordinary course of business" under Iowa law — is a mixed question of law and fact, which is also subject to de novo review.3
The facts pertinent to this appeal are uncontested.4
In 2004, the Debtor, Western Iowa Limestone, Inc., began marketing agricultural lime ("lime"). The plan for marketing the lime entailed enlisting six fertilizer and chemical dealers, including the Appellees, Independent Inputs, L.L.C., Paul Leinen, and Leinen, Inc. (collectively, "Dealers"), to remarket and sell the lime.
In January 2005, Independent Inputs, L.L.C., ("Independent") purchased 5,000 tons of processed lime from the Debtor at a price of $7.75 per ton. At the time of purchase, Independent paid for all of the lime and received a bill of sale memorializing the transaction. The bill of sale noted that the lime could remain on the Debtor's premises. At the time the Debtor filed bankruptcy, Independent had removed only 416.54 tons of the lime it had purchased.
In February 2005, Mr. Leinen and Leinen, Inc., each purchased 6,700 tons of lime from the Debtor at a price of $7.46 per ton. Mr. Leinen and Leinen, Inc., also paid for the lime in full and received a bill of sale noting that the lime could remain at the quarry. At the time the Debtor filed bankruptcy, the Leinen entities had only removed 1,405.95 tons of the lime they had purchased.
The lime purchased by the Dealers was never segregated from the stockpiles of lime on the Debtor's premises or otherwise identified as having been sold to anyone (let alone to the Dealers). The bankruptcy court did find, however, that there was always sufficient lime available on the Debtor's premises to fulfill the Dealers' contracts.
At the time of these sales and after, the Debtor's business operations were financed, at least in part, by United Bank of Iowa ("United Bank"), which was owed approximately $6 million. That debt was secured by all of the debtor's assets, including inventory, accounts receivable, and proceeds. The lime was a part of the Debtor's inventory.
The Debtor filed a petition for relief under chapter 11 of the Bankruptcy Code on December 12, 2005. On January 3, 2006, the Debtor filed a motion to sell substantially all of its assets free and clear of liens, with the liens to attach to the proceeds. The bankruptcy court granted the Debtor's motion but, in recognition of the Dealers' claims of ownership of the lime, preserved the Dealers' rights to make claims against the proceeds of the sale. The Dealers did, indeed, file a joint objection ("Objection") to the proposed distribution of the sales proceeds, claiming a priority over United Bank to the extent of the value of the lime that they had purchased but which remained in the Debtor's possession. The Dealers argued (as they do in this appeal) that their interest in the proceeds from the sale of that lime is superior to United Bank's because they qualify as "buyers in the ordinary course of business" ("BIOC") who purchased the lime free and clear of United Bank's security interest under Iowa law. Independent seeks to be reimbursed $35,521.82 for the remaining 4,583.46 tons on its contract, and the Leinen entities seek to be reimbursed $89,507.88 for the remaining 11,994.05 tons on their contract. The parties submitted the matter to the bankruptcy court on affidavit evidence and briefs.
On May 24, 2006, the bankruptcy court entered an order ("Order # 1") overruling the Dealers' Objection. The bankruptcy court determined that the Dealers did not qualify as BIOCs because, under its interpretation of Iowa law: 1) a BIOC must have physical possession of the goods, 2) the goods to the contract must have been "identified" and the seller must have been insolvent at the time of the purchase, or 3) the Dealers must have been entitled to specific performance of the contract. After sorting through conflicting "testimony" which was offered by affidavit, the bankruptcy court determined that 1) the Dealers never took physical possession of the lime, 2) the goods purchased (the lime) had been "identified" to the contract as that term is used in article 2 of the Uniform Commercial Code ("UCC"), but that the Dealers had failed to prove that the Debtor became insolvent within ten days after the Dealers paid for the lime, and 3) that the Dealers were not entitled to specific performance because replacement, or "cover," goods were available. Therefore, the court held that United Bank was entitled to the proceeds received from the sale of the lime.
The Dealers filed a motion to alter or amend the judgment or for new trial under Fed.R.Civ.P. 59 on June 2, 2006. The Dealers' sole argument in the motion was that the bankruptcy court committed legal error when it concluded that a purchaser must have actual physical possession of goods to qualify as a BIOC; rather, the Dealers argued, the possession requirement for BIOC status is satisfied by "constructive possession," which they contend they had by virtue of the fact that the lime had been "identified" to the contract at the time of sale. The Bank objected to the Dealers' motion on procedural grounds, arguing that the Dealers'"constructive post session" argument was a new legal theory which could not be raised on a Rule 59 motion; on legal grounds, disputing the applicability of the concept of "constructive possession" to a determination of BIOC status; and on factual grounds, contending that the Dealers did not have constructive possession of the lime, even if constructive possession satisfies the possession requirement for BIOC status.
The bankruptcy court held a hearing on the Dealers' motion on July 5, 2006, at which no new evidence was presented. On September 26, 2006, the bankruptcy court issued an order ("Order # 2") holding that its original legal conclusion that BIOC status required actual physical possession of the goods was, indeed, erroneous. The court concluded that a party qualifies as a BIOC if it has "constructive possession" of the goods and that the Dealers had constructive possession of the lime because it had been "identified" to the contract as that term is used in article 2 of the UCC. Consequently, the bankruptcy court entered judgment in favor of the Dealers and awarded them the proceeds in question according to their respective interests. The Bank timely appealed the bankruptcy court's order granting the Dealers' motion to amend judgment.
We first address United Bank's contention that the bankruptcy court should not have addressed, and ultimately ruled on the basis of, the Dealers'"constructive possession" argument because it was a new legal theory inappropriately raised in the Dealers' Rule 59 motion to amend judgment. On this point, we find that the bankruptcy court did not abuse its discretion in considering the Dealers'"constructive possession" argument (although in the final analysis we conclude that the Dealers did not have constructive possession of the lime).
A bankruptcy court has broad discretion in determining whether to deny a motion to alter or amend judgment pursuant to Rule 59,5 and the determination of which arguments are properly before the court is implied in that grant of discretion. That determination cannot be reversed absent a clear abuse of discretion.6 A bankruptcy court abuses its discretion when it bases its decision on a legal error or a clearly erroneous finding of fact.7
In this case, while it is true that the Dealers did not advance the "constructive possession" argument in any pleadings related to the Objection, the bankruptcy court reviewed the transcript of the April 17, 2006 hearing on the Objection and found that the Dealers did, in fact, "mention" constructive possession at the hearing (found on page 19 of the transcript) and that that was sufficient to preserve the issue for purposes of a subsequent Rule 59 motion. That finding is not clearly erroneous.
United Bank contends that the Dealers' passing reference to constructive possession was insufficient to preserve that issue because the Dealers were not actually arguing that constructive possession satisfies the BIOC test when it "mentioned" it at the hearing. But that argument is splitting hairs (which we will not do under a clearly erroneous standard), and, moreover, ignores the overall context of the Dealers' argument that they could take "possession" of the lime without taking physical possession of it and that the "constructive delivery" or "constructive possession" — the Dealers used both terms — of the lime was not inimical or fatal to their contention that they are entitled to the protections afforded a BIOC.8
We turn next to the central issues of whether actual or constructive possession is required for BIOC status (the relevance of which is explained below) and whether the Dealers had constructive possession of the lime. Because we find that the...
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In re Western Iowa Limestone, Inc.
...concluding that the buyers did not have constructive possession of the goods under Iowa law. United Bank of Ia. v. Indep. Inputs (In re W. Ia. Limestone, Inc.), 375 B.R. 518 (8th Cir.BAP2007). We now reverse the BAP's judgment and reinstate the decision of the bankruptcy Western Iowa Limest......