Quality Plus Feeds, Inc. v. Compeer Fin., FLCA
| Decision Date | 13 January 2023 |
| Docket Number | 21-0774 |
| Citation | 984 N.W.2d 437 |
| Parties | QUALITY PLUS FEEDS, INC., Appellee, v. COMPEER FINANCIAL, FLCA, Appellant. |
| Court | Iowa Supreme Court |
Dustan J. Cross (argued) and Rick J. Halbur of Gislason & Hunter LLP, New Ulm, Minnesota, for appellant.
Thomas D. Story (argued) (until withdrawal), Alexander M. Johnson, and Jennifer E. Lindberg of Brown, Winick, Graves, Gross, and Baskerville, P.L.C., Des Moines, for appellee.
Mansfield, J., delivered the opinion of the court, in which all participating justices joined. May, J., took no part in the consideration or decision of the case.
Since the farm crisis of the 1980s, Iowa law has allowed agricultural suppliers to claim a lien on livestock consuming their products and has granted this lien priority over previously perfected liens in some circumstances. See Iowa Code § 570A.5(3) (2020). Here, a supplier furnished feed to two dairy farms that were related but separate legal entities; the supplier did not receive payment for the feed. About a year later, the farms closed down, and all the remaining cows and milk were sold. Relying on the agricultural supplier's lien statute, the supplier brought a foreclosure action to recover the amount of its unpaid bills from the sale proceeds. The district court granted the supplier's summary judgment motion, rejecting the arguments of a financial institution which had a much larger unpaid loan balance and a previously perfected blanket lien as to both farms. The court of appeals reversed that grant of summary judgment and remanded.
On further review, we affirm the district court for the most part. We find that the supplier was entitled to summary judgment enforcing its lien on the proceeds from one of the two farms. As to the other farm, there is one issue of fact. Under the statute, the supplier is entitled to enforce a superpriority lien only to "the extent of the difference between the acquisition price of the livestock and the fair market value of the livestock at the time the lien attaches or the sale price of the livestock, whichever is greater." Id. On this summary judgment record, we cannot say whether the cattle sale and milk sale proceeds from the livestock that consumed the supplier's feed, minus the acquisition price of those livestock, exceeded the amount of the supplier's unpaid bill from that farm. We do not read Iowa Code chapter 570A as incorporating a special standard of proof one way or another. To foreclose its lien as a superpriority, the supplier need only offer proof enabling a fact finder to conclude that the underlying statutory requirements have been met. The proof here does not allow that determination to be made as a matter of law as to one of the farms.
We further agree with the district court that the supplier was entitled to summary judgment on the financial institution's affirmative defenses, and we hold that the financial institution is entitled to summary judgment as to the milk sale proceeds generated by a third dairy farm. Accordingly, we affirm the district court in part, reverse it in part, and remand for further proceedings consistent with this opinion.
Our case is a priority dispute between two creditors, Compeer Financial, FLCA (Compeer), and Quality Plus Feeds, Inc. (Quality Plus). The debtors are Etcher Family Farms, LLC (EFF), Etcher Farms, Inc. (EFI), and Elmwood Farms, LLC. We refer to them collectively as the "Etcher Entities" or "Etcher." The Etcher Entities operated dairy farms in Henry County (EFF), Monroe County (EFI), and the State of Illinois (Elmwood) until early 2019.
A. Compeer's and Quality Plus's Dealings With the Etcher Entities. Compeer is a federal land credit association in the business of financing agricultural operations. From late 2014 through early 2019, Compeer extended credit to the Etcher Entities. The loans from Compeer were secured by both real property and personal property, including a blanket security interest in all of the Etcher Entities’ livestock and milk and proceeds therefrom. Compeer perfected its personal property security interests between December 11, 2014, and March 4, 2016, by filing UCC financing statements with the Iowa Secretary of State.
By late 2016, the Etcher Entities were struggling financially. The situation deteriorated to the point that in October 2017, Compeer accelerated the entire Etcher Entities’ debt. By then, the total sum owed exceeded $16 million. To continue to operate, Etcher purchased feed on credit. Quality Plus sold feed on credit to EFF and EFI, including mixes designated "calf starter," "big heifer," and "dry cow." Quality Plus filed financing statements with the Iowa Secretary of State commencing on October 5, 2017, and continuing thereafter. See Iowa Code § 570A.4. The financing statements identified the collateral in relevant part as "all cows now owned by debtor," "all milk produced from said cows," and "proceeds and/or product thereof." Quality Plus provided feed to EFF for which it wasn't paid from September 25, 2017, through March 29, 2018, and it provided feed to EFI for which it wasn't paid from July 28, 2017, to March 30, 2018.
On March 19, 2018, each of the Etcher Entities filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of Iowa. The cases were consolidated. Etcher was unsuccessful in reorganizing its debts, and Compeer filed a motion to dismiss the consolidated bankruptcy case. The bankruptcy was dismissed on or about January 10, 2019.
Meanwhile, Etcher continued to sell milk to their sole customer, Dairy Farmers of America (DFA). DFA issued checks totaling $317,308.51 from April to May 2019 for milk produced by cows at EFF, EFI, and Elmwood. The checks were joint checks naming Compeer and Quality Plus as additional payees. Compeer and Quality Plus were already disputing their relative priorities as to the milk proceeds. Currently, the $317,308.51 in proceeds are being held in trust pending resolution of this case. Of these proceeds, $149,683.32 came from the sale of EFF milk, $54,071.88 came from the sale of EFI milk, and $113,553.31 came from the sale of Elmwood milk.
Ultimately, Etcher was forced to close, and all of their remaining cattle were sold. EFF's 1,223 remaining cattle sold for a total of $714,764.55; EFI's 1,055 remaining cattle sold for a total of $313,139.54. Although EFI was a breeding facility with calves, heifers, and bulls, at least $83,185.80 of the EFI dispersal sale proceeds came from sales of cows.
B. The Etcher Cattle Herds Over Time. Quality Plus submitted an affidavit from an individual who worked as a nutritionist-consultant for Etcher. He attested that based on his experience and his review of detailed animal-by-animal records at EFF, 677 of the 1,223 cattle that were sold by EFF in March and April 2019 would also have been at EFF at some point from November 2017 through March 2018 and would have consumed Quality Plus feed.
Compeer provided an affidavit as to what happened to the Etcher herds over time. On June 30, 2017, EFF had 1,222 cattle and EFI had 3,354 cattle. By the end of March 2018, when Quality Plus stopped providing feed, the numbers had declined slightly so that EFF had 1,211 cattle and EFI had 3,339 cattle.
At the end of 2018, the EFI herd numbers had declined sharply: EFF had 1,282 cattle and EFI had only 1,559 cattle. Many cattle had died or been culled. Compeer also provided a table showing that as of March 31, 2018, EFF had 684 self-raised cows and 527 cows purchased from EFI. By September 30, 2018, EFF had 516 self-raised cows and 644 cows purchased from EFI. Also, at some point EFF purchased 117 cows from an unknown source.
Compeer also submitted a table showing that EFI's herd was 100% self-raised. Notably, Quality Plus provided "calf starter" feed to EFI, which was the farm where Etcher bred and raised calves during 2017 and 2018. As EFI heifers matured, they would be sold or transferred into the herds of cows maintained by EFF, EFI, or Elmwood. Compeer's table also indicated that in April 2018, EFI made an unexplained downward inventory adjustment of 259 cattle.
C. Proceedings in the District Court and the Court of Appeals. On March 13, 2020, Quality Plus filed a petition in the Monroe County District Court to foreclose its feed lien on the $1,027,904.09 of cattle sale proceeds and the $317,308.51 of milk sale proceeds. Quality Plus sought to recover a total of $348,306.30 from the proceeds, based on an unpaid balance of $239,437.81 for feed supplied to EFF and $108,868.49 for feed supplied to EFI.
Compeer answered, denying Quality Plus's asserted right of foreclosure and asserting affirmative defenses and a counterclaim for foreclosure of its blanket security interest on the proceeds. As a legal matter, Compeer did not dispute the priority of a feed lien as provided in Iowa Code section 570A.5 over a prior perfected security interest obtained by a regular lender. However, Compeer argued that Quality Plus had not properly established that it had a superior feed lien totaling $348,306.30 in the proceeds. At bottom, Compeer maintained that Quality Plus failed to trace its lien from the EFF and EFI livestock that received its feed in the fall and winter of 2017–2018 to the livestock that were actually sold and generated cash proceeds in March and April 2019. Compeer also urged that Quality Plus had failed to establish the acquisition prices of the cattle sold in 2019, noting that the lien is limited to "the difference between the acquisition price of the livestock and the fair market value of the livestock at the time the lien attaches or the sale price of the livestock, whichever is greater." Iowa Code § 570A.5(3). Further, Compeer maintained that there should be deductions taken from Quality Plus's feed lien for $25,000 in adequate protection payments that Quality Plus received during the automatic stay and...
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