Lisco State Bank v. McCombs Ranches, Inc.

• Decision Date: 03 October 1990
• Docket Number: No. CV89-0-491.,CV89-0-491.
• Citation: 752 F. Supp. 329
• Parties: LISCO STATE BANK, Plaintiff, v. McCOMBS RANCHES, INC., Defendant.
• Court: U.S. District Court — District of Nebraska

752 F. Supp. 329

LISCO STATE BANK, Plaintiff, v. McCOMBS RANCHES, INC., Defendant.

No. CV89-0-491.

United States District Court, D. Nebraska.

October 3, 1990.

COPYRIGHT MATERIAL OMITTED

David Pederson, Murphy, Pederson, Picclo & Pederson, North Platte, Neb., for plaintiff.

Gregory Michael Ruhnke, McCamish, Martin, Brown & Loeffler, Jonathon D. Pauerstein, San Antonio, Tex., and McCarthy & Gale, Glenn Van Velson, North Platte, Neb., for defendant.

MEMORANDUM AND ORDER ON MOTION FOR SUMMARY JUDGMENT

URBOM, District Judge.

By his report and recommendation dated September 19, 1990, Magistrate David L. Piester recommended that the defendant's motion for summary judgment be granted. The plaintiff has objected. I conclude that the magistrate's recommendation should be adopted.

The tenor of the plaintiff's brief in support of its objection is that the Food Security Act of 1985, on which the magistrate's recommendation is founded, is not applicable to this case because there is no danger in this case of "double jeopardy"—that is, of the buyer's having to pay twice for the same cattle.

The plaintiff argument is not persuasive. The plaintiff has no ownership interest in the cattle at issue, except by way of a claimed lien. The Food Security Act of 1985 by § 1631(d) deals directly with the matter of a buyer's taking free of security interests created by the seller. The conditions of that section have been met and the defendant takes free of the plaintiff's claim lien.

IT IS ORDERED that the motion of McCombs Ranches, Inc. for summary judgment, filing 16, is granted.

REPORT, RECOMMENDATION AND ORDER

September 19, 1990

DAVID L. PIESTER, United States Magistrate.

Pending before the court is a motion for summary judgment filed by the defendant, McCombs Ranch, Inc.

The purpose of a motion for summary judgment is to determine whether a "genuine issue of material fact" exists. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2509-10, 91 L.Ed.2d 202 (1986). All inferences of fact must be drawn against the moving party, who carries the burden of showing that no issue of material fact exists and that it is entitled to judgment as a matter of law. See, e.g., AgriStor Leasing v. Farrow, 826 F.2d 732, 734 (8th Cir.1987). Rule 56(c) mandates that summary judgment be granted when the non-moving party fails to make a sufficient showing on an element on which that party bears the burden of proof. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986):

The plain language of Rule 56(c) mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial. In such a situation, there can be "no genuine issue as to any material fact," since a complete failure of proof concerning an essential element of the non-moving party's case necessarily renders all other facts immaterial. The moving party is "entitled to judgment as a matter of law" because the non-moving party has failed to make a sufficient showing on an essential element of its case with respect to which it has the burden of proof.

Id.

This is a conversion action filed by Lisco State Bank in which it seeks to recover from the defendant the balance of its security interest in cattle previously owned by a debtor of the bank, Z.T. Bar, Ltd. The defendant, McCombs Ranch, a Texas corporation, purchased thirty-three head of cattle from two affiliated cattle companies in the State of Nebraska, Z.T. Bar, Ltd. and Cunningham Cattle, Inc. Thirty heifers were involved in the Z.T. Bar transaction, and the Cunningham Cattle transaction involved three head: a bull, nurse cow, and calf. The parties have agreed that the following facts are uncontroverted:

Lisco State Bank was an operating lender for Z.T. Bar, a partnership with a registered Gelbvieh cattle operation with its place of business in western Nebraska. As of April 24, 1987 Z.T. Bar was indebted to the plaintiff in an amount in excess of $250,000. The plaintiff's loans to Z.T. Bar were secured with security agreements and financing statements in which Z.T. Bar granted the plaintiff bank a security interest in all cattle owned or thereafter acquired by Z.T. Bar.

On April 24, 1987 the defendant entered into an agreement with Jerry Cunningham¹ for the purchase of thirty heifers, a bull, nurse cow, and calf for a total price of $100,000. The defendant issued a check for $45,000 payable to Z.T. Bar and Lisco State Bank for the thirty heifers, and a check for $55,000 for the three cattle purchased from Cunningham. The defendant took possession of the cattle at Broadwater, Nebraska. Alan Sparger, an agent for the defendant McCombs Ranch, signed four bills of sale for the cattle from Z.T. Bar and Cunningham Cattle.

Subsequent to the issuance of the first $45,000 check, the defendant learned that Dr. Charles Vincent was asserting a claim against Z.T. Bar's cattle. This check was not cashed, and after assurances from the Lisco State Bank and Z.T. Bar that Vincent's claim was invalid, the defendant issued a replacement check for $45,000, numbered 00880, again payable jointly to the plaintiff and Z.T. Bar. The defendant typed the following language on the second check: "Endorsement and cancellation of this check constitutes full release of all liens on the cattle bought from Cunningham Cattle Co., invoice no. 238 dated April 24, 1987." The plaintiff subsequently endorsed and cashed check number 00880.

In this action the plaintiff alleges that the $45,000 purchase price for the thirty heifers bought from Z.T. Bar was not the "true value" of those cattle, and seeks to recover from the defendant the remaining value in which it claims a security interest. The uncontroverted facts establish that the total sum of $100,000 was a fair market price for the thirty-three cattle purchased by McCombs. It is also undisputed that Jerry Cunningham informed Tom Olson, President of Lisco State Bank, after the sale that Z.T. Bar had sold the thirty heifers for $45,000. In addition, the parties agree that at the time of the sale the defendant was informed that the plaintiff had a lien against the Z.T. Bar cattle. However, the plaintiff now alleges that the defendant paid far below the fair market price for the Z.T. Bar cattle, asserting that the thirty heifers were actually worth "not less than $92,000.00." Plaintiff now seeks to recover the difference between that purchase price and the alleged fair market value of the thirty heifers.

In the motion for summary judgment the defendant asserts two grounds for summary disposition of this matter. First, the defendant asserts that the Food Security Act, codified at 7 U.S.C. § 1631, bars the present action in that the plaintiff failed to meet the notice requirements of that statute, and, therefore, the defendant took the cattle free from any security interest held by the plaintiff. Second, the defendant asserts that the plaintiff's action is barred by the doctrine of accord and satisfaction, since it endorsed and cashed the second $45,000 check with the restrictive endorsement typed thereon.

FOOD SECURITY ACT

The Food Security Act of 1985 (hereafter the "FSA") includes within its voluminous provisions a section which statutorily abrogates the widely enacted "farm products" exception of § 9-307(1) of the Uniform Commercial Code. Section 1324 of the Act, entitled "Protection For Purchasers of Farm Products," codified at 7 U.S.C. § 1631, was a congressional attempt to eliminate potential exposure of "purchasers of farm products to double payment liability," 7 U.S.C. § 1631(a)(2), and the concomitant burden on interstate commerce in farm products. § 1631(a)(4).

Section 1631(d) provides:

Except as provided in subsection (e) of this section and notwithstanding any other provision of Federal, State, or local law, a buyer who in the ordinary course of business buys a farm product from a seller engaged in farming operations shall take free of a security interest created by the seller, even though the security interest is perfected; and the buyer knows of the existence of such interest.

Subsection (e) then sets forth the circumstances under which a buyer takes the product subject to the security interest. Under the FSA survival of the security interest is conditioned upon either direct notice to the buyer or filing of an "effective financing statement" as part of a federally approved state "central filing system," § 1631(c)(2).

As noted above, the defendant asserts that the plaintiff's action is barred for its failure to comply with the provisions of § 1631(e). The plaintiff claims, however, that the defendant was given actual notice of Lisco's lien at the time of the sale since the defendant's own agent inquired as to any encumbrances on the cattle and was informed that the bank had a security interest in the thirty heifers. The plaintiff argues that the $45,000 check issued to both Z.T. Bar and Lisco State Bank is circumstantial evidence which indicates knowledge by the defendant of the lien.

The defendant does not contest the plaintiff's assertion that McCombs had actual knowledge of Lisco's lien on the Z.T. Bar cattle. The uncontroverted facts from the Order on Pretrial Conference explicitly provide, "the defendant through its agents and employees was informed at the time of the sale that Lisco had a lien in the Z.T. Bar cattle." (Filing # 41, p. 4 at ¶ 10). Notwithstanding that notice, the defendant argues that the plaintiff wholly failed to comply with the specific notice provisions of the FSA, thus giving the defendant clear title to the cattle.

In response, the plaintiff argues that even if it did not comply with the FSA, the defendant was required by the FSA and the Nebraska enabling legislation passed in response to the FSA...