Peoples Trust & Sav. Bank v. Sec. Sav. Bank

• Decision Date: 22 June 2012
• Docket Number: No. 10–1291.,10–1291.
• Citation: 815 N.W.2d 744
• Parties: PEOPLES TRUST & SAVINGS BANK, Appellee, v. SECURITY SAVINGS BANK, Appellant.
• Court: Iowa Supreme Court

815 N.W.2d 744

PEOPLES TRUST & SAVINGS BANK, Appellee,

v.SECURITY SAVINGS BANK, Appellant.

No. 10–1291.

Supreme Court of Iowa.

June 22, 2012.

Steven W. Hendricks of Kersten Brownlee Hendricks L.L.P., Fort Dodge, for appellant.

Gary A. Norton of Whitfield & Eddy, P.L.C., Des Moines, for appellee.

APPEL, Justice.

This case presents a battle between banks over the proceeds of the sale of cattle by a financially strapped borrower who had financial dealings with both banks. When Security Savings Bank (Security) obtained the proceeds of the sale, Peoples Trust and Savings Bank (Peoples) claimed a security interest in the proceeds and sued for conversion.

Peoples filed a motion for summary judgment. The district court found that under the undisputed facts, Peoples had a security interest in the proceeds of the sale of cattle superior to that of Security. The district court further held that the undisputed facts established that Peoples had not waived its superior security interest by course of conduct. As a result, the district court granted summary judgment in favor of Peoples on its conversion claim and entered judgment in the amount of $299,353.94.

Security appealed. After the filing of the notice of appeal, Peoples commenced garnishment proceedings against Security to enforce its judgment. Faced with the prospect of garnishment, Security paid the underlying judgment. Peoples then moved to dismiss the appeal, claiming that by paying the judgment, Security had waived its right to appeal.

We ordered that the motion to dismiss the appeal be considered along with the underlying merits of the case and transferred the case to the court of appeals. The court of appeals determined that Security had waived its right to appeal and dismissed the case. We granted further review.

At the outset, we first consider whether Security waived its pending appeal by paying an underlying judgment when Peoples had commenced garnishment proceedings to enforce the judgment it obtained in the district court. Based on the most persuasive modern authority, we conclude that a defendant faced with postjudgment garnishment does not waive a pending appeal by paying the judgment in order to avoid further enforcement proceedings.

We next turn to the underlying merits of the case. We conclude that under the undisputed facts of the case, the district court correctly determined that Peoples had a security interest in the cattle proceeds superior to Security's interest and that Peoples did not waive its superior position through its course of conduct. As a result, we affirm the judgment of the district court.

I. Factual and Procedural Background.

A. The Underlying Transactions. Jeffrey Gilley was a feeder cattle and cow calf operator with a long-term relationship with Peoples. Gilley and his spouse borrowed substantial funds from Peoples over time, including $235,000 on January 17, 2003; $100,000 on January 5, 2004; $54,200 on April 1, 2004; $30,340 on January 10, 2005; and $120,000 on January 11, 2005.

As security for the loans, Peoples obtained from the Gilleys a security interest in “Farm Products,” which specifically covered “livestock” and “cattle.” Peoples filed UCC-1 financing statements with the Iowa Secretary of State on January 3, 2000 and on December 16, 2003. By 2007, however, Peoples was concerned about the state of its credit line with Gilley and determined not to make additional loans to Gilley.

Beginning in January 2007, Gilley and Ray Wilson obtained financing from Security to finance additional purchases of cattle. Wilson had known Gilley for a long time, had been a customer of Security for many years, and was a cattle buyer for Swift & Co. Security agreed to provide financing for cattle purchases but required both Gilley and Wilson to be cosigners on the loan. Both Gilley and Wilson also signed security agreements, which were filed with the Secretary of State. Wilson would buy the cattle. The invoices listed Gilley as the purchaser and also charged Gilley a commission for Wilson's services. Wilson passed on the invoices to Gilley, who would write a check on Gilley's solely owned personal account at Security. The invoice would also be presented to Security, which would deposit funds in Gilley's personal account to cover the purchase. Gilley raised the cattle purchased with loan proceeds on his farm. When they were ready for sale, Wilson sold them to Swift & Co. The proceeds were generally payable to Gilley. During the spring of 2008, however, Wilson became suspicious that Gilley was selling cattle outside their agreed upon process. As a result, Wilson instructed buyers of the cattle to make checks out to Gilley and Security or to Wilson himself.

Peoples was unaware of the financial relationship between the Gilleys and Security until early 2008, when an employee of Peoples conducted a UCC search on Gilley and found the UCC financing statement filed by Security. The officer in charge of the Gilley line at Peoples, Jamie Brant, contacted Gilley and was told that the Security UCC filing was based on custom feeding occurring on his property. Gilley claimed that he was being paid for his custom feeding in cattle and that the cattle so obtained were subject to Peoples' security interest. Gilley stated that when the cattle were sold, he would pay down the Peoples indebtedness. On March 30 and April 1, 2008, Peoples sent notices to buyers and Gilley under the Food Security Act of 1985, informing them of Peoples' security interest in cattle owned by Gilley.

Gilley sold the cattle as represented to Peoples, but he paid the proceeds to Security. When Peoples learned of these facts, it filed in March 2009 a conversion action against Security seeking to recover the proceeds of the cattle sales. Peoples filed a motion for summary judgment, which the district court granted. The district court then entered a judgment against Security in the amount of $299,353.94, plus interest. Security filed a notice of appeal on July 23, 2010.

B. Events Related to Potential Waiver of Appeal. After Security filed its notice of appeal, the parties engaged in correspondence regarding the appeal status.¹ On August 2, 2010, Security asked Peoples what its position was regarding staying levy and execution pending appeal. Without specifically answering the inquiry, Peoples commenced garnishment proceedings against Security on August 16. On August 20, Security inquired of Peoples why garnishment was necessary, noting that Security would prefer to set up an escrow arrangement but would pay the judgment in full. Peoples responded on August 20 by stating that if Security paid the judgment in full with certified funds, “then doing so will consequently make the garnishment unnecessary.” Peoples further indicated on August 20 that it would accept payment of the sum of $301,430.73 “to fully satisfy the judgment” and that “[o]nce the payment is received, the garnishment procedure will be withdrawn.” Security responded on August 23 by stating that “[s]o there [is] no misunderstanding, this payment is made as a result of a demand to satisfy the judgment pending appeal.” Security further stated that it would “prepare a pleading to be filed acknowledging payment of the judgment without waiving the pending appeal.”

Security paid the judgment in full through a wire transfer on August 23. Security did not file a pleading acknowledging payment of the judgment without waiving the pending appeal as stated in its e-mail correspondence. Upon receipt of the funds, Peoples dismissed its garnishment summons and complaint.

Peoples filed a motion to dismiss this appeal, asserting Security waived its right of appeal by voluntarily paying the judgment in lieu of seeking a supersedeas bond pursuant to Iowa Rule of Appellate Procedure 6.601. Security resisted the motion to dismiss, arguing the payment was not voluntary because payment was tendered “only as a result of the garnishment and only because the judgment could not be stayed.” Security also asserted that a partydoes not waive its right to an appeal if payment is made after the notice of appeal is filed. In an affidavit attached to Security's resistance, the attorney for Security stated that he “advised Security Savings Bank that an appeal did not stay proceedings under a judgment or order unless the Appellant executed a bond, which was not available.” The attorney also stated,

After the Notice of Garnishment was served on Bankers Bank, I contacted [the attorney for Peoples Trust] to let him know that the Notice of Garnishment was embarrassing to my client and that we would like to make arrangements to get the judgment paid. The wire transfer was made as a result of the Notice of Garnishment. The payment was not voluntary but caused by the garnishment.

Also attached to Security's resistance were copies of the notice for entry of foreign judgment filed in Wisconsin, the e-mail correspondence quoted above, and the acceptance of service of the garnishment summons and complaint signed by Security's attorney.

The court of appeals dismissed the appeal. The court first rejected Security's argument that an appeal is not waived when judgment is paid after a notice of appeal is filed. The court relied on Credit Industrial Co. v. Bendixen, 255 Iowa 1020, 1022, 125 N.W.2d 262, 263 (1963), which held a party waives appeal when it satisfies a judgment before or simultaneously with a notice of appeal. The court found no “distinction of merit” between payment of judgment before or simultaneously with filing the notice of appeal. Id.

The court of appeals also rejected the argument that the garnishment proceedings rendered the payment involuntary. The court of appeals observed that Security could have filed a supersedeas bond to stay execution of the judgment. The court of appeals also noted that the e-mail correspondence confirmed that Security considered filing a supersedeas bond but ultimately rejected the idea in favor of paying the...