Posted May 14, 2010
By Eldon McAfee, IPPA legal counsel
In early April, we reported that a Sioux County District Court judge ruled in the case of Doon Elevator v. American State Bank March 29 that a feed supplier’s lien for feed sold to a pork producer had priority over the producer’s bank’s lien. However, judges in two court decisions released May 7, one in federal Bankruptcy Court (Crooked Creek Corp. v. Primebank and Oyens Feed and Supply) and one in Ida County District Court (Galva Holstein Ag v. Holstein Dairy and American National Bank), ruled exactly opposite of the Sioux County judge and found that the pork producers’ banks’ liens had priority over the feed suppliers’ liens.
To briefly recap the problem, Iowa law provides a lien to businesses that sell ag supplies such as fertilizer, pesticides, seed, feed or petroleum products used for an ag purpose. This lien must be filed with the Iowa secretary of state within 31 days after the farmer purchases the ag supply. The disputed part of the law is that which provides that the supplier is to send a certified letter to the farmer’s lender. The lender must then respond whether the farmer has sufficient finances to assure payment of the ag supply and provide a full and complete relevant financial history. This section states that a supplier who sells an ag supply and files an ag supply lien will lose to the lender’s lien if the lender either did not receive the certified letter or received the letter and responded, along with the necessary financial history, that the farmer did not have sufficient finances to cover the price of the ag supply. If the lender responded that the farmer had sufficient finances, the ag supplier and the lender have equal priority under their liens. However, the law also states that for feed, the ag supplier will have priority (not just equal priority) in livestock sales proceeds for the difference between the livestock’s purchase price and the greater of the value of the livestock when the feed was sold or the livestock’s sales price. This section of the law dealing with feed does not specifically refer to the section of the law requiring a certified notice be sent to the lender. Because of this omission, the argument is that for a lien for feed, unlike a lien for other ag supplies, the supplier is not required to send a certified letter to the lender.
In all three court decisions, the feed suppliers properly filed their liens but did not send a certified notice to the bank. The judges then had to determine who had priority: the banks because they did not receive the certified notice or the feed supplier because the section of the law dealing with feed liens does not specifically refer to the certified notice requirement.
In both the Bankruptcy Court and the IdaCounty decision, the judges found that the law was clear and unambiguous that the feed supplier was required to send a certified notice to the bank for the feed supplier’s lien to beat the banks. The Bankruptcy Court stated that the law is “a well organized scheme for the creation, perfection, priority and enforcement of liens to secure the sale of agricultural supplies in Iowa.” This statement is directly contrary to the SiouxCounty judge’s statement that the law is ambiguous and “reasonable minds could differ or be uncertain as to the meaning of the statute.”
The Bankruptcy Court first noted that the Iowa Legislature attempted to deal with farm credit problems in 1984 by striking a balance between the various stakeholders – farmers, financial institutions, ag supply dealers and other lienholders. While the SiouxCounty judge concluded that the Legislature intended to give feed suppliers more protection than sellers of seed, chemicals and petroleum by giving feed sellers priority and by not requiring them to send a certified notice, the Bankruptcy Court ruled that not requiring feed sellers to send a certified notice to banks “would lead to an absurd result.”
The Bankruptcy Court then found that the requirement to send a certified notice to banks and other financial institutions applied to all ag supplies, including feed. The court ruled that first the feed supplier had to send the notice to get equal priority and once that was done, the feed supplier could get actual priority for the difference in the value of the livestock between sale and acquisition price. In other words, the fact that there is no specific reference in the law to sending a certified notice to banks for feed liens was not important because the law says both sections apply to all ag liens.
Another key part of the Bankruptcy Court decision is that if the bank receives a certified notice, the bank must respond with all relevant financial history on the farmer. If the bank responds that the farmer does not have sufficient net worth, but does not include the farmer’s “full and complete relevant financial history,” the result would be the same as if the bank did not respond at all in that the supplier would get equal priority with the bank and priority if the lien is for feed. The Bankruptcy Court concluded that the ag supplier cannot be “left twisting in the wind for relevant information.”
The Bankruptcy Court also stated that the result of not requiring a feed supplier to send a certified notice would be that the dealer would receive priority status over the bank “despite the farmer’s obvious inability to assure payment for the feed.” This, the Bankruptcy Court concluded, “ends up forcing upon the financial institution an involuntary loan to the farmer for the amount of the supply dealer’s lien, and the dealer receives this benefit by ignoring the statute’s obvious intent that the parties exchange information prior to” the sale of the feed. The Bankruptcy Court then concluded that not requiring feed suppliers to send a certified notice to banks “stands the statute on its head, and leads to an absurd result.”
There are still other cases on the feed suppliers’ liens yet to be decided. And, as stated in last month’s article, until there is a decision from the Iowa Supreme Court or until the law is changed by the Legislature, judges may rule for feed suppliers as in the SiouxCounty case or for banks as in the Bankruptcy Court case and the IdaCounty case. In other words, the status of feed liens in Iowa remains uncertain for now. IPPA will continue to watch these cases and report judge’s decisions as they are issued.
For additional information, see Crooked Creek vs. Primebank and Oyens Feed and Galva Holstein vs. Holstein Dairy.
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