Leonard v. Murphy (In re Leonard)

• Decision Date: 08 April 2016
• Docket Number: CASE NO. BK15-82016,CASE NO. A15-8044
• Parties: IN THE MATTER OF: CHARLES DONALD LEONARD and MARGARET ROSE LEONARD, Debtor(s). CHARLES DONALD LEONARD and MARGARET ROSE LEONARD, doing business as LEONARD CATTLE COMPANY, Plaintiffs, v. LEIGH MURPHY, doing business as MURPHY CATTLE COMPANY, Defendant.
• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — District of Nebraska

IN THE MATTER OF:

CHARLES DONALD LEONARD and MARGARET ROSE LEONARD, Debtor(s).

CHARLES DONALD LEONARD and MARGARET ROSE LEONARD,doing business as LEONARD CATTLE COMPANY, Plaintiffs, v. LEIGH MURPHY, doing business as MURPHY CATTLE COMPANY, Defendant.

CASE NO. BK15-82016

CASE NO. A15-8044

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF NEBRASKA

April 8, 2016

CHAPTER 11

ORDER

This matter is before the court on the parties' motions for summary judgment (Fil. No. 18 and Fil. No. 34). Victor E. Covalt III represents the Plaintiffs (individually and collectively, "Leonard") and Robert M. Gonderinger and David J. Skalka represent the Defendant ("Murphy"). Evidence and briefs were filed and, pursuant to the court's authority under Nebraska Rule of Bankruptcy Procedure 7056-1, the motions were taken under advisement without oral arguments.

For the reasons discussed below, Leonard's motion is denied and Murphy's motion is granted.

This is a dispute over the validity and priority of interests in cattle. In brief, Leonard arranged to purchase feeder cattle from Murphy. The cattle were delivered to a third party's feedlot and Leonard issued checks to Murphy and other sellers as payment for the cattle. Several of the checks were not honored. Murphy received only partial payment for the cattle and filed a state law replevin action. The state court issued an order of replevin shortly before the bankruptcy petition was filed. Murphy relies on the Nebraska Uniform Commercial Code in attempting to exercise his right to reclaim the cattle. Leonard argues that the right of reclamation is unenforceable in light of the debtor in possession's avoidance powers under the Bankruptcy Code.

Summary judgment requires an analysis of the case's facts and a determination as to whether or not any genuine factual issues exist. Entry of summary judgment is appropriate only if the record, when viewed in the light most favorable to the non-moving party, shows there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Fed. R. Civ. P. 56(c) (made applicable to adversary proceedings in bankruptcy by Fed. R. Bankr. P. 7056); see, e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50 (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." Id. (quoting Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)).

Background

The parties agree on the following facts:

1. At the times of the events in question, Leonard was in the business of buying and selling cattle as a commission dealer and for his own account.

2. Murphy is an individual residing in New Mexico and doing business as Murphy Cattle Company. He has entered an appearance in the above-captioned bankruptcy proceeding.

3. Leonard filed for relief under Chapter 11 of the Bankruptcy Code on December 14, 2015.

4. Exhibit A to the amended complaint is a true and correct copy of a contract entered into on or about July 10, 2015, under which Leonard agreed to purchase yearling steers from Murphy under terms and conditions set forth therein.

5. Leonard paid a down payment of $10,000.00 at the time of execution of the contract, which was received and accepted by Murphy.

6. On September 23, 2015, Murphy transferred to Leonard and Leonard received and accepted delivery of 395 steers from Murphy at Fraser, Colorado. The steers' average weight was more than 1,030 pounds per steer. The remaining purchase price for the steers was $802,910.00.¹

7. Leonard paid the balance of the purchase price to Murphy via five checks totaling $802,910.00:

a. Check No. 20015 in the amount of $150,680.97 payable to Ketchem Livestock.

b. Check No. 20016 in the amount of $7,729.74 payable to Bridger Ketchem.

c. Check No. 20017 in the amount of $7,729.74 payable to Pike Ketchem.

d. Check No. 20018 in the amount of $41,208.96 payable to Andy Murphy.

e. Check No. 20019 in the amount of $595,560.59 payable to Murphy Cattle Company.

8. On September 23, 2015, Leonard caused possession of the 395 steers purchased from Murphy to be delivered to Sweetwater Cattle Company ("Sweetwater") in Buffalo County, Nebraska, to be fed, marketed, and sold.

9. On the same date, Leonard received a loan of $598,402.16 from Sweetwater.

10. Check No. 20018 for $41,208.96 was honored by Pinnacle Bank on October 5, 2015, but Check No. 20019 to Murphy for $595,560.59 was returned for insufficient funds on October 6, 2015. Check Nos. 20015, 20016, and 20017 were returned on or about October 14, 2015, as "closed account."

11. Leonard informed Murphy sometime after October 1, 2015, that the four checks would not be honored by the bank.

12. Leonard paid a total of $51,208.96 ($10,000.00 down payment and Check No. 20018) to Murphy on the contract, which amounts to payment for 24 head.

13. The remaining indebtedness on the purchase contract due from Leonard to Murphy is $761,701.04.

14. At all relevant times, the 395 steers were in the possession of Sweetwater.

15. On or about November 3, 2015, Murphy served a summons and a complaint against Leonard and Sweetwater entitled Murphy v. Leonard, et al., Case No. CI15-610, in the District Court of Buffalo County, Nebraska, in an attempt to reclaim 371 of the steers under a state law claim for reclamation under Neb. U.C.C. §§ 2-507 and 2-511 (hereafter "Replevin Action").

16. On November 3, 2015, Murphy also served on Leonard a request for delivery of the 371 steers.

17. Leonard answered and defended the Replevin Action. Sweetwater answered and defended said Replevin Action.

18. The district court issued an "Order to Clerk in Replevin" which was filed on December 2, 2015. The order states as follows:

Being duly advised in the premises and based upon the evidence presented, the Court finds as follows:

1. Defendant Sweetwater Cattle Company, L.L.C. ("Sweetwater") is in possession of 395 steers identifiable by Leonard's brand registered in the State of Colorado (the "Assets").

2. The Assets are the subject of a July 10, 2015 cash sale contract between Plaintiff Leigh Murphy ("Murphy") as seller and Defendant Charles Leonard ("Leonard") as buyer, the terms of which required payment upon delivery to Leonard.

3. At Murphy's delivery of the Assets to Leonard on September 23, 2015, Leonard paid the remaining purchase price to Murphy by giving Murphy five checks totaling $802,910.

4. One check for $41,208.96 cleared and Murphy received those funds. The other four checks were dishonored by Leonard's bank and were returned to Murphy. Leonard has not paid the remaining purchase price for the Assets.

5. Leonard delivered the Assets to Sweetwater on September 23, 2015 to be cared for, fed, marketed and sold on terms between him and Sweetwater. Sweetwater did not purchase the Assets. On September 23, 2015, Sweetwater and FCS [Farm Credit Services of America] advanced $598,402 to Leonard as a loan. There are other loans from Leonard to Sweetwater and assigned to FCS. Sweetwater and FCS claim the loans from Leonard are secured by a first priority lien on the Assets which claim this Court need not and does not rule upon in this Order.

6. Leonard has not paid for 371 steers of the Assets.

7. Leonard has no current right to possess 371 steers of the Assets, any prior right to possession is not resolved herein.

8. Murphy is entitled to reclaim the 371 steers that have not been paid for as against Leonard, and replevin is the appropriate means to enforce Murphy's right to reclaim. Peck v. Augustin Bros. Co., 203 Neb. 574, 279 N.W.2d 397 (1979). Murphy's complaint for replevin was timely filed.

9. Plaintiff has raised a bona fide issue as to whether the Plaintiff is the owner of said property and whether Plaintiff has a special ownership or interest in 371 steers of the Assets, but that it appears sufficiently probable to the Court that Plaintiff will prevail on the merits. This finding is not in any manner a determination regarding the right and priority to the proceeds of the sale of those 371 steers as between Plaintiff, Sweetwater, and FCS.

10. There is a bona fide issue as to whether said property is wrongfully detained by the Defendant Sweetwater.

11. Sweetwater, FCS, and the Plaintiff have stipulated that the 371 steers shall remain at Sweetwater to be fed, marketed, and sold by Sweetwater as agent for Plaintiff based upon Sweetwater's usual and customary practices and terms of payment for Sweetwater's services equivalent to those being charged Leonard, with the proceeds of any sale of [sic] to be paid into this court until determination of those parties' dispute as to the rights and priorities to such proceeds between Plaintiff, Sweetwater, and FCS; provided, that Sweetwater will be entitled to be paid from the sale proceeds the actual and reasonable feed and yardage expense related to care of the 371 steers consistent with this stipulation, with the balance of the proceeds to remain in the Court until further Order as previously provided herein.

The Plaintiff claims in his Complaint that at no time did title ever transfer to Leonard. This Court need not and does not decide that issue. The Plaintiff claims Defendants Sweetwater and FCS have no right to possess the Assets superior to Plaintiff. With the stipulation between those parties this Court does not decide that issue at this time. Sweetwater and FCS claim that they have a lien or liens in the Assets securing repayment of indebtedness owed by Leonard to Sweetwater to which it claims Murphy's interest is subject to. This Court need not and does not decide that issue, as it is not an issue regarding possession. The issue in replevin is the right to immediate possession of the property. Arcadia State Bank v. Nelson, 222 Neb. 704, 386 N.W.2d 451 (1986). Matters foreign thereto ". . . must be excluded from consideration and are not available as defenses." Id at7

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