Schley v. Peoples Bank (In re Schley)

• Decision Date: 18 April 2014
• Docket Number: Bankruptcy No. 10–03252.,Adversary No. 10–09255.
• Citation: 509 B.R. 901
• Parties: In re Gary L. SCHLEY and Julie M. Schley, Debtors. Gary L. Schley and Julie M. Schley, Plaintiffs, v. Peoples Bank, Watonwan Farm Service, and Cooperative Credit Company, Defendants. Peoples Bank, Cross–Claimant, v. Watonwan Farm Service, Defendant to Cross–Claim, Cooperative Credit Company, Cross–Claimant, v. Peoples Bank, Defendant to Cross–Claim, Peoples Bank, Cross–Claimant, v. Cooperative Credit Company, Defendant to Cross–Claim.
• Court: U.S. Bankruptcy Court — Northern District of Iowa

509 B.R. 901

In re Gary L. SCHLEY and Julie M. Schley, Debtors.

Gary L. Schley and Julie M. Schley, Plaintiffs,

v.Peoples Bank, Watonwan Farm Service, and Cooperative Credit Company, Defendants.

Peoples Bank, Cross–Claimant,

v.Watonwan Farm Service, Defendant to Cross–Claim,Cooperative Credit Company, Cross–Claimant,

v.Peoples Bank, Defendant to Cross–Claim,Peoples Bank, Cross–Claimant,

v.Cooperative Credit Company, Defendant to Cross–Claim.

Bankruptcy No. 10–03252.

Adversary No. 10–09255.

United States Bankruptcy Court, N.D. Iowa.

Signed April 18, 2014.

Donald H. Molstad, Sioux City, IA, for Plaintiffs.

Charles L. Smith, Council Bluffs, IA, Gary W. Koch, New Ulm, MN, Peter J. Leo, Koley Jessen P.C., L.L.O., Omaha, NE, Joel D. Vos, Heidman Law Firm, L.L.P., Sioux City, IA, for Defendants.

Aimee L. Lowe, Council Bluffs, IA, for Cross–Claimant.

Watonwan Farm Service, pro se.

RULING ON PEOPLES BANK'S, COOPERATIVE CREDIT COMPANY'S, AND WATONWAN FARM SERVICE'S CROSS MOTIONS FOR PARTIAL SUMMARY JUDGMENT

THAD J. COLLINS, Chief Judge.

These matters came before the Court on Peoples Bank's Motion for Partial Summary Judgment, Cooperative Credit Company's Motion for Partial Summary Judgment, and Watonwan Farm Service's Motion for Partial Summary Judgment. The Court held a telephonic hearing. Aimee Lowe appeared on behalf of Peoples Bank. Peter Leo appeared on behalf of Cooperative Credit Company. Keith Duffy appeared on behalf of Watonwan Farm Service. The Court took these matters under advisement. These are core proceedings under 28 U.S.C. § 157(b)(2)(K).

STATEMENT OF THE CASE

Debtors filed this adversary to determine the priority of liens held by Peoples Bank (the “Bank”), Cooperative Credit Company (“CCC”), and Watonwan Farm Service (“WFS”). All three parties claim a first priority lien in Debtors' livestock proceeds, which total $209,412.24 and are currently being held in escrow.

This case, like another case currently pending before this Court, addresses the continuing applicability or the extent of the reach of this Court's decision in In re Shulista, 451 B.R. 867 (Bankr.N.D.Iowa 2011) following the Iowa Supreme Court's decision in Oyens Feed & Supply, Inc. v. Primebank, 808 N.W.2d 186 (Iowa 2011). WFS argues that this Court's decision in Shulista should no longer apply. The Bank and CCC support the continuing validity and analysis from Shulista. After reviewing this case, and the other pending case challenging Shulista, the Court concludes that particular issue provides only a small part of the analysis needed to decide this case. For the separate reasons stated below, the Court grants, in part, and denies, in part, all Motions for Partial Summary Judgment.

BACKGROUND

Debtors Gary L. Schley and Julie L. Schley (collectively “Debtors”) run a “feeder to finish” pig operation. Their operation consists of two farm sites situated 15 miles apart. The “Lone Rock” site has the capacity to hold 3,000 pigs and the “Titonka” site has the capacity to hold 2,400 pigs.

A. Security Agreements with CCC

On September 29, 2004 and October 8, 2004, Debtors executed two security agreements in favor of CCC. The security agreements secured “all obligations, debts, and liabilities” incurred by Debtors “whether now existing or hereinafter arising.” The two security agreements list the secured collateral as Debtors' “Inventory, Chattel Paper, Accounts, Equipment, General Intangibles, Farm Products, Livestock (including all increase and supplies) and Farm Equipment.” Both security agreements included an after-acquired property clause. On October 1, 2004, CCC filed a financing statement covering the same collateral listed in the security agreements. On October 8, 2008, Debtors issued CCC a promissory note for $402,000. On September 8, 2009, CCC filed a continuation statement for the financing statement.

B. Security Agreements with the Bank

More than four years after executing the security agreements with CCC, on October 20, 2008, March 23, 2009, August 21, 2009, and September 23, 2009, Debtors executed four promissory notes in favor of the Bank for $388,000, $60,000, $760,000, and $152,000, respectively. These notes total $1,360,000. The four notes were each secured with security agreements dated July 3, 2008, October 17, 2008, December 30, 2008, and March 23, 2009, respectively. The security agreements granted the Bank a security interest in Debtors' livestock and proceeds. The Bank filed a financing statement with the Iowa Secretary of State on October 27, 2008.

In November and December 2009, Debtors purchased 3,061 pigs for $91,957.37. It is unclear whether these pigs were housed at the Lone Rock site, the Titonka site, or both. It is also unclear whether Debtors had pigs from other purchases. In 2010, while Debtors raised the pigs, Debtors purchased feed from two suppliers—Crystal Valley Cooperative and WFS. It is unclear what feed went to what site and fed what pigs.

C. Security Agreements With WFS

Between February 9, 2010 and March 11, 2010, WFS supplied Debtors with feed totaling $43,314.54. On February 26, 2010, Debtors executed a security agreement with WFS. The security agreement granted WFS an interest in Debtors' “farm products, crops, receivables, inventory, and all proceeds and products therefrom which are now owned and hereafter acquired.” On March 11, 2010, WFS filed a financing statement with the Iowa Secretary of State. This financing statement repeated the collateral description from the February 26, 2010 security agreement. The financing statement also marked the box indicating that it was an “Ag Lien.” Between March 12, 2010 and June 2, 2010, WFS supplied Debtors with feed totaling an additional $93,058.03. The total of the feed WFS supplied between February 9, 2010, and June 2, 2010 was $136,373.57.

D. Payments to WFS and Sale of the Pigs

On March 16, 2010, the Bank paid WFS $50,000 on Debtors' account in order to keep WFS supplying feed for the pigs. The Bank also paid WFS $60,000 on May 21, 2010, $3,975 on June 4, 2010, and $3,883.24 on June 10, 2010. All of those payments were on Debtors' account with WFS. The Bank's payments to WFS total $117,858.24.

Between June 1, 2010 and June 28, 2010, Debtors sold 1,490 of the 3,061 pigs to Premier Pork Marketing, Inc. (“Premier Pork”). Premier Pork paid for the pigs with nine checks made out jointly to Debtors, the Bank, and WFS. The checks total $209,412.24 and were deposited into an escrow account.

E. Second Financing Statement of WFS

On June 30, 2010, WFS filed a second financing statement with the Iowa Secretary of State. The financing statement describes the collateral secured as all of Debtors' “crops and livestock which are now owned or hereafter acquired and all proceeds and products therefrom.” The financing statement identifies itself as “filed to perfect an Agricultural Supply Dealer's Lien pursuant to Iowa Code Chapter 570A.”

F. Bankruptcy Filing and Motions Before the Court

Debtors filed a Chapter 12 bankruptcy petition on December 3, 2010. On December 17, 2010, Debtors filed this adversary action, asking the Court the priority of the three parties claiming liens or security interests in the $209,412.24 of sale proceeds. The Bank filed a Motion for Partial Summary Judgment on December 3, 2012. The Bank asserts that its interest in the proceeds takes priority over WFS's interest. The Bank does not seek summary judgment on the question of its priority against CCC. CCC joined the Bank's Motion for Partial Summary Judgment and also filed its own Motion for Partial Summary Judgment on December 19, 2012. CCC asserts that its interest in the proceeds also takes priority over WFS's interest. WFS also filed a Motion for Partial Summary Judgment on January 9, 2013. WFS asserts that its interest in the proceeds has superpriority over the Bank and CCC as an agricultural supply lien under Iowa Code § 570A.5. It believes it has a superpriority lien for all of the feed it supplied from February 9, 2010 to June 2, 2010.

CONCLUSIONS OF LAW AND DISCUSSION

A. Summary Judgment Standard

Summary judgment is governed by Federal Rule of Bankruptcy Procedure 7056. Rule 7056 applies Federal Rule of Civil Procedure 56 in adversary proceedings. Fed. R. Bankr.P. 7056. Rule 56 states, in relevant part, that: “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). Granting “[s]ummary judgment is proper if, after viewing the evidence and drawing all reasonable inferences in the light most favorable to the nonmovant, no genuine issues of material fact exist and the movant is entitled to judgment as a matter of law.” Hayek v. City of St. Paul, 488 F.3d 1049, 1054 (8th Cir.2007). Summary judgment is appropriate when only questions of law are involved. Anderson v. Hess Co., 649 F.3d 891, 894 (8th Cir.2011).

The burden of showing there are no genuine issues of material fact belongs to the moving party. Winthrop Res. Corp. v. Eaton Hydraulics, Inc., 361 F.3d 465, 468 (8th Cir.2004). “Once the movant has supported the motion, the non-moving party ‘must affirmatively show that a material issue of fact remains in dispute and may not simply rest on the hope of discrediting the movant's evidence at trial.’ ” In re Houston, 385 B.R. 268, 271 (Bankr.N.D.Iowa 2008) (quoting Barge v. Anheuser–Busch, Inc., 87 F.3d 256, 260 (8th Cir.1996)).

“A ‘material’ fact is one ‘that might affect the outcome of the suit under the governing law....’ ” Johnson v. Crooks, 326 F.3d 995, 1005 (8th Cir.2003) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). An issue of material fact is genuine if a reasonable fact-finder could return a verdict for the nonmoving party on the question. Anderson, 477 U.S. at 252, 106 S.Ct. 2505. Evidence that raises only “some metaphysical doubt as to the material facts” does not create a genuine issue of...