Nelson v. Pampered Beef-Midwest, Inc.

• Citation: 298 N.W.2d 281
• Decision Date: 12 November 1980
• Docket Number: BEEF-MIDWES,No. 64396,INC,64396
• Parties: H. Sherm NELSON, Joanne M. Nelson, Erwin Heimsoth, Lorene Heimsoth, Larry Wogahn, Elmer C. Gertsmeier, Eva Gertsmeier, Glen A. Dyslin, Jr., Kenneth Duane Peterson, Marjorie Mavis Peterson, Swen Albert Swanson, Bertha Elizabeth Swanson, Louie Witt, Everett W. Hultgren, Mildred I. Hultgren, John Merrick Patterson, and Mildred Arlene Patterson, Appellants, v. PAMPERED, Bryant Beef, Inc., and Robert Bryant, Appellees.
• Court: United States State Supreme Court of Iowa

Page 281

298 N.W.2d 281

H. Sherm NELSON, Joanne M. Nelson, Erwin Heimsoth, Lorene Heimsoth, Larry Wogahn, Elmer C. Gertsmeier, Eva Gertsmeier, Glen A. Dyslin, Jr., Kenneth Duane Peterson, Marjorie Mavis Peterson, Swen Albert Swanson, Bertha Elizabeth Swanson, Louie Witt, Everett W. Hultgren, Mildred I. Hultgren, John Merrick Patterson, and Mildred Arlene Patterson, Appellants, v. PAMPERED BEEF-MIDWEST, INC., Bryant Beef, Inc., and Robert Bryant, Appellees.

No. 64396.

Supreme Court of Iowa.

Nov. 12, 1980.

James L. Kramer and Dale A. Johnson of Johnson, Erb, Latham & Gibb, P. C., Fort Dodge, for appellants.

Robert R. Eidsmoe of Gleysteen, Harper, Eidsmoe, Heidman & Redmond, Sioux City, and David Sayre, Cherokee, for appellees.

Considered by LeGRAND, P. J., and UHLENHOPP, HARRIS, McCORMICK, and McGIVERIN, JJ.

UHLENHOPP, Justice.

This is an appeal in equity in which creditors seek to subject property formerly owned by their corporate debtor to an equitable lien. We review the case de novo. We give weight to the trial court's fact findings but are not bound by them. Iowa R.App.P. 14(f )(7).

We condense the facts to those necessary for determination of the case. The corporation in question was Pampered Beef-Midwest, Inc. (PBM). The stock of PBM was actually owned in its entirety by another corporation, Pampered Beef, Inc., but this is not determinative and we will consider the stockholders of Pampered Beef, Inc. as the PBM stockholders. At the times in question, PBM was owned by Dale P. Smith, Jr. (47%-he operated PBM), Robert Bryant (47%), Ron Steffes (5%), and Tom Parks (1%).

PBM owned livestock, feed, medicines, vehicles, and equipment, and an extensively improved feedlot in Cherokee County, Iowa. It brought young cattle to the feedlot, raised and fattened them, and delivered them to a packer. In 1973 it had obligations secured by liens on its personal property, and it owed Travelers Insurance Company $2,000,000 secured by a mortgage on the feedlot. It had a net worth of about $1,800,000.

On September 20, 1973, PBM entered into a loan agreement with banks of Albuquerque, New Mexico, and Cherokee, Iowa, for funds to retire existing loans and to operate the feedlot. The agreement contained various covenants and granted the banks a lien on PBM's personal property. Smith and his wife guaranteed the loan. PBM borrowed about $2,600,000 under the agreement.

The feedlot had some environmental problems, and neighbors sued PBM for nuisance. We will refer to those neighbors, who are also the plaintiffs in this suit, as Nelsons. On October 31, 1974, Nelsons and PBM settled that lawsuit for $80,000. PBM paid part of this amount at the time and agreed to pay the rest in installments; $40,000 was paid altogether. Under the settlement Nelsons could accelerate the balance on default and take judgment.

In the spring of 1975 PBM had about 13,000 cattle and they were worth about $60 per hundredweight. The cattle market collapsed, and by late summer the cattle were worth about $20 per hundredweight. PBM's net worth dropped to a negative figure of about $1,400,000.

At that time PBM owed the banks about $2,200,000. PBM defaulted on the required payments on the banks' loan. The banks demanded payment, but PBM could not pay. The banks could not collect from Smiths, the guarantors, for apparently their only substantial asset was their home.

The banks retained an attorney to foreclose the security agreement on PBM's personalty, and the attorney prepared the petition. PBM was headed for foreclosure and bankruptcy.

Robert Bryant, one of PBM's stockholders, personally had equities in some other properties. He tried to get the banks not to foreclose, but they refused to negotiate at all unless Bryant and his wife would first guarantee the 1973 loan agreement. Bryant and his wife did so. Bryant thus got the banks to talk but at the price of giving them leverage: PBM's personal property was insufficient to pay the banks' loan, Smiths were not good for the deficiency, but the banks could take Bryants' own assets under the guaranty. Negotiations between the banks and Bryant went forward.

The banks were not satisfied with Smith's management. Bryant was trying to avert foreclosure and bankruptcy, and he had substantial equities in his other properties. In the fall of 1975, he and the banks worked out a complicated arrangement involving a number of terms. Bryant paid the Cherokee bank about $400,000, part of which he borrowed from other banks. Thereafter that bank was out of the picture. Bryant bought all of the personal property of PBM for the amount of the (then) Albuquerque bank's secured loan. This was accomplished by the Bryants' taking over the bank's loan as the primary obligors and giving the bank their notes for that debt (one note was also signed by Smith), and by PBM's conveying its personalty to Bryant by bill of sale on October 2, 1975. Bryant contends he thus paid $2,300,000 for assets worth $1,158,980.33-at that time PBM had 4593 cattle. The bank also demanded additional security from Bryants personally. Bryants gave the bank a second mortgage on their home, which had an equity of about $120,000, a second mortgage on a quarter-section farm they owned having an equity of about $120,000, a second mortgage on a hog farm which had an equity of about $325,000, a second mortgage on 3300 additional cattle Bryant owned personally having an equity of about $330,000, and an assignment of Bryant's life insurance having a cash value of about $75,000. In addition, Bryant agreed not to sell or encumber his half interest in a 556-acre farm where his parents lived; that interest was worth about $336,000. The arrangement had numerous other terms for the bank's protection.

The bank withheld foreclosure and bankruptcy, and granted Bryant additional time to pay the loan.

Bryant took over the feedlot, operated it as "Bryant Beef," and made a number of changes. He had purchased the personal property but the feedlot was owned by PBM and was mortgaged to Travelers. PBM leased the feedlot to Bryant Beef. PBM's payments to Travelers were to come from Bryant Beef's rental payments to PBM. Bryant testified that the rental payments were insufficient for the purpose and PBM stockholders agreed to provide additional funds. He also testified those funds were not forthcoming.

Cattle prices remained depressed and the finances of PBM and Bryant Beef deteriorated further. Bryant was able to pay the bank and Travelers a total of about $77,000 a month for several months from his personal funds, but both the loan payments to the bank and the mortgage payments to Travelers became delinquent. Both of these lenders were about to foreclose. PBM and Bryants faced financial ruin.

Bryant strove to get further extensions of time from the bank and Travelers. Eventually an arrangement evolved which had several interdependent facets. The arrangement was consummated in March 1976. As further security to Travelers, Bryant gave it a second mortgage on his half interest in the 556-acre farm, apparently the last of his assets. He formed a corporation known as Bryant Beef, Inc., with Bryant as the sole shareholder, director, and officer. That corporation purchased the feedlot from PBM on March 4, 1976, by taking over the mortgage as the primary obligor, and Bryant conveyed to the new corporation the remaining personal property of that which PBM had previously conveyed to him. To make himself a more acceptable debtor to the bank, Bryant obtained releases of substantial guarantees he was under for other corporations by relinquishing his stock in those corporations to their stockholders. PBM's other officers resigned, and PBM came to an end by failing to make its annual report to the secretary of state.

PBM had unsecured creditors also, including Nelsons. These creditors were not paid and no provision was made to pay them. On January 19, 1977, Nelsons obtained judgment against PBM for $40,000 under the prior settlement. PBM having no assets, Nelsons brought the instant suit in equity in July 1977 against PBM, Bryant Beef, Inc., and Bryant.

The suit is in two counts. In the first count Nelsons allege that PBM transferred its personal property to Bryant and its real property to Bryant Beef, Inc., that the transfers are void, and that Nelsons have a lien on the property. They thus pray that the transfer be held void and that their judgment against PBM be confirmed as an equitable lien on the property of Bryant and Bryant Beef, Inc., and for such further relief as is equitable. In the second count they reallege the transfers, and they further allege that the transferees were a mere continuation of PBM, the transfers were fraudulent, and the transferees agreed to assume PBM's debts. Again they pray that the transfers be held void and that their judgment against PBM be confirmed as a lien on the property of Bryant and Bryant Beef, Inc., and for such further relief as is equitable.

After trial, the trial court held for PBM, Bryant, and Bryant Beef, Inc. Nelsons appealed.

In their appeal, Nelsons claim they are entitled to an equitable lien on the property PBM transferred to Bryant and Bryant Beef, Inc. They state, "This case is controlled by Smith v. Village Enterprises, Inc., 208 N.W.2d 35 (Iowa 1973)"-a decision we will consider in due course. They expound their position thus in their first proposition:

Where Pampered Beef Midwest Inc. transferred all of its assets to Robert Bryant and the corporation he controlled with the result that Pampered Beef Midwest Inc. (ceased) to exist without having paid its debts, Robert Bryant and Bryant Beef Inc. took the assets subject to (an) equitable lien in favor of Pampered Beef Midwest Inc.'s judgment creditors.

Bryant and Bryant Beef, Inc. present an issue of waiver which we must also consider, and our resolution of the appeal requires us to deal with a dispositional question as well.

I. Nelsons' rights arising from the...