Midwestone Bank v. Heartland Co-Op
| Decision Date | 17 April 2020 |
| Docket Number | No. 19-1302,19-1302 |
| Citation | 941 N.W.2d 876 |
| Parties | MIDWESTONE BANK, Appellee, v. HEARTLAND CO-OP, Appellant. Heartland Co-op, Counterclaim Plaintiff, v. MidWestOne Bank, Counterclaim Defendant. |
| Court | Iowa Supreme Court |
Johannes H. Moorlach and Peter J. Chalik of Whitfield & Eddy, P.L.C., Des Moines, for appellant.
Matthew L. Preston and Cara L. Roberts of Brady Preston Gronlund PC, Cedar Rapids, and H. Raymond Terpstra II of Terpstra & Epping, Cedar Rapids, for appellee.
Douglas E. Gross, John D. Hunter, Margaret A. Hibbs, and Ingrid M. Johnson of Brown, Winick, Graves, Gross, Baskerville and Schoenebaum, P.L.C., Des Moines, for amicus curiae Agriculture Legal Defense Fund.
Debra Hulett and Haley Hermanson of Nyemaster Goode, P.C, Des Moines, for amicus curiae Iowa Institute for Cooperatives.
Robert L. Hartwig of Iowa Bankers Association, Johnston, and Julie Johnson McLean of Davis Brown Law Firm, Des Moines, for amicus curiae Iowa Bankers Association.
In this appeal, we must adjudicate competing claims by a secured lender and a grain elevator over the costs of storing and drying grain. Each side is supported by amici curiae briefs filed by trade organizations warning of dire consequences of an unfavorable resolution. All agree that the drying and storage costs were necessary to preserve the corn for sale. The farmer is insolvent. The parties disagree over the governing statute of limitations, the application of the discovery rule, and whether the elevator’s common law unjust enrichment claims are superseded by the bank’s prior perfected security interest in the grain and proceeds as codified in Iowa’s Uniform Commercial Code (IUCC).
The dates and dollar amounts of the transactions as well as the terms of the relevant contracts and notifications are undisputed. There is no evidence that the bank directed the elevator to deduct the costs to preserve the collateral or that the bank had timely, actual knowledge and acquiesced in those deductions. The district court ruled in favor of the bank on cross-motions for summary judgment, allowing the bank to recoup those costs from the elevator. The district court ruled that the two-year limitations period in Iowa Code section 614.1(10) (2018) controlled rather than the five-year period in section 614.1(4), but it applied the discovery rule allowing the bank full recovery of those costs. The district court rejected the elevator’s unjust enrichment claims. The elevator appealed, and we retained the case.
On our review, we hold the controlling statute of limitations is Iowa Code section 614.1(10), which bars the bank’s claims filed more than two years from the date of sale of goods subject to its perfected security interest. The district court erred by applying the discovery rule. The district court correctly ruled the bank’s prior perfected security interest trumped the elevator’s claim for storage and drying costs. The legislature resolved the competing policy arguments in the IUCC. Predictability and certainty are vital in these multiparty commercial transactions. Accordingly, we reverse the summary judgment in part and remand this case for entry of a revised judgment dismissing the bank’s claims that are time-barred.
Justin Harker and his spouse, Ashley Harker, are farmers engaged in the commercial production of grains (corn and soybeans).
The Harkers routinely sold and delivered their grain to Heartland Co-op (Heartland), a licensed grain dealer that operates a grain warehouse and handling facility in Cambridge. The Harkers had a contract with Heartland for the storage, drying, and sale of their grain. The Harkers were also customers of MidWestOne Bank (MidWestOne), located in Story County. The Harkers borrowed money from MidWestOne to pay for their farm operating expenses, and MidWestOne in return obtained a security interest in the Harkers’ grain and sale proceeds.
Specifically, from 2013 through 2016, the Harkers borrowed money from MidWestOne under three promissory notes. MidWestOne filed a UCC-1 Financing Statement with the Iowa Secretary of State on February 29, 2012, and described as collateral "all farm products" and the "proceeds of any of the property [or] goods." On November 15, 2016, the Financing Statement was amended and timely continued.
Under an Agricultural Security Agreement dated February 20, 2014, MidWestOne obtained a security interest in the Harkers’ farm products and the proceeds from the sale of those products. The collateral as described in the agreement includes all crops. The agreement required the Harkers to update MidWestOne on the location of the collateral and prevented them from removing the collateral from its location without MidWestOne’s consent unless they did so in the ordinary course of their business:
Transactions Involving Collateral. Except for inventory sold or accounts collected in the ordinary course of [Harker’s] business, or as otherwise provided for in this Agreement, [Harker] shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral. [Harker] shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of [MidWestOne]. This includes security interests even if junior in right to the security interests granted under this Agreement.... Upon receipt, [Harker] shall immediately deliver any such proceeds to [MidWestOne].
The Harkers also agreed to ensure that the crops were properly maintained at their expense without allowing the attachment of liens by elevators:
Additionally, the agreement required the Harkers to provide MidWestOne with a Schedule of Buyers listing the grain warehouses that they may use to store and sell their grain with the buyer’s checks to be payable jointly to MidWestOne and the Harkers:
Pursuant to the security agreement’s terms, the Harkers gave MidWestOne a Schedule of Buyers for their corn and beans on three occasions between 2015 and 2016. The schedules identified Heartland as a buyer, and the Harkers verified that schedules were "a list of those buyers, selling agents, and commission merchants to whom [the Harkers] may sell, consign, or transfer the Farm Products as designated."
MidWestOne in turn gave Heartland documents titled "Notice to Buyer of Security Interest in Farm Products" on three occasions between 2014 and 2016. These notices informed Heartland that MidWestOne had a security interest in the Harkers’ grain and directed them to make a joint payment to the Harkers and MidWestOne for all proceeds from the eventual sale of the grain.
Six sales transactions in which the Harkers sold grain to Heartland are at issue:
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