Iowa Supreme Court Issues Much-Anticipated Ag Supply Dealer Lien Answers

May 27, 2016
Kristine A. Tidgren

A federal bankruptcy case has been shaping interpretation of the Iowa agricultural supply dealer lien statute since the operator of a farrow-to-finish hog facility declared bankruptcy in 2009.

Today, the Iowa Supreme Court issued its second opinion in this case,[i] answering two key certified questions in this drawn out litigation. The answers to the two certified questions—which uphold the decision from the bankruptcy court--further refine the contours of the ag supply dealer lien established by Iowa Code chapter 570A. They also bring welcome certainty to a sometimes muddled area of the law.

While the questions are not simple, the facts are. The debtor’s hogs were sold, and the proceeds were insufficient to satisfy the liens of both the feed supplier that extended credit to the debtor for the purchase of feed, and the bank, which had a preexisting perfected security interest in the hogs. $342,371.78 remains in escrow pending resolution of the parties’ competing claims.

Certified Question One

Pursuant  to  Iowa  Code  section  570A.4(2),  is  an agricultural  supply dealer  required  to  file  a  new  financing statement  every  thirty-one  (31)  days  in  order  to  maintain perfection  of  its  agricultural  supply  dealer’s  lien  as  to  feed supplied within the preceding thirty-one (31) day period?

In answering this question, "yes," the Iowa Supreme Court held that an ag supply dealer in feed must file a new financing statement every 31 days to maintain perfection of its lien as to feed sold within the preceding 31-day period. In the Court’s words, “An agricultural supply dealer’s financing statement  cannot  perfect a lien under section  570A.4  for  quantities of  feed  sold on credit after the statement is filed. Instead, the agricultural supply dealer’s financing statement only perfects a lien for the feed purchases occurring during the thirty-one days preceding the filing of the financing statement.”

This ruling comports with the holding of In re Shulista and other cases from the United States Bankruptcy Court for the Northern District of Iowa.[ii] These rulings were not challenged on appeal. In the present case, the bankruptcy court had applied the holding of Shulista, without discussion. On appeal, the feed supplier challenged the position, arguing that once a financing statement was filed, it applied to all feed sold after the filing, in addition to feed sold within the 31-day period preceding the sale. In support of its argument, the feed dealer quoted from Iowa’s general agricultural lien statute, which states, “An agricultural lien is effective when it becomes perfected if the applicable requirements are   satisfied before the agricultural   lien becomes effective.” Iowa Code § 554.9308(2). The dealer argued that the applicable requirement for perfection was filing and this provision allowed the perfection to occur before the lien became effective. The Iowa Supreme Court rejected this argument, finding that Iowa Code 570A.4(2) (from the ag supply dealer lien statute) imposed a stricter 31-day filing requirement upon holders of ag supply dealer liens that did not apply to other agricultural liens. Thus, Iowa Code § 570A.4(2)’s “every 31-day requirement” “superseded” the “default settings” of the general agricultural lien statute. The Court stated, “The phrase ‘within thirty-one days after’ creates a rule that is specific to agricultural supply dealer liens and that modifies the general agricultural lien rule. “

Although filing a financing statement every 31 days can be a burdensome task for a feed supplier, the Court agreed with the finding of the Shulista court that the “serial filing of financing statements” is “fairly considered as a reasonable exchange for the super-priority status the filing helps to acquire.” The Court clarified that it was not suggesting that every individual sale would require a new financing statement: “For example, a supply dealer who sells feed on credit every week—say, on May 1, 8, 15, 22, and 29—could perfect a lien as to all amounts sold in that month by filing a financing statement on the last day of the month.”

Feed dealers hoping this decision would relieve their obligation to file financing statements every 31 days may be disappointed; however, the case did offer a victory to these dealers.

Certified Question Two

Pursuant  to  Iowa  Code  section  570A.5(3),  is  the “acquisition  price”  zero  when  the  livestock  are  born  in  the farmer’s facility?

In answering the second certified question, "yes," the Court ruled that the acquisition price for animals raised in a farrow to finish operation is “0.” This means that under Iowa law, an ag supply dealer of feed can receive a “super-priority” position as against other creditors to the full extent of the value of feed purchased, so long as they faithfully file their financing statements every 31 days.

Iowa Code § 570A.5(3) limits  a feed  supplier  lien’s  priority  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.” The statute does not define the term “acquisition price.” The feed dealer argued (and the bankruptcy court agreed) that the acquisition price in the context of a farrow-to-finish operation should be 0. This was because the debtor birthed and raised the hogs in the facility and did not purchase them. The bank argued that the debtor’s “acquisition price” in the livestock he raised was the “cost to produce each hog—facility maintenance costs, electricity, vet bills, semen, wages, expenses for the gilt, etc.” The Supreme Court agreed with the feed dealer, asserting that the bank confused “acquisition price” with “acquisition cost.” The Court also found that the bank’s interpretation of “acquisition price” would create undue burden, requiring “detailed and elaborate recordkeeping and accounting of  every  conceivable  cost—including  variable  items  like  utility  bills  and  facilities  depreciation—incurred  by  a  farmer  in  raising  a  constantly  changing  group  of  animals and would  frustrate  the  legislature’s  intent  “to  encourage  a  fluid  feed  market  without  burdening  cooperatives  and  farmers.”   

Conclusion

With both questions answered in the affirmative, the case returns to the federal district court. In light of the Iowa Supreme Court’s decision, the bankruptcy court’s opinion will be affirmed: The feed dealer has a super-priority claim for $156,367.43 and an unsecured claim for $186,004.35. Although the bank has a secured claim is in the amount of $315,270.19, it will only collect what is left after the feed dealer receives its $156,367.43.

This case is Oyens Feed & Supply, Inc. v. Primebank, No. 15–0806 (Iowa Sup. Ct. May 27, 2016). The federal district court case (from which these certified questions arose) is Oyens Feed & Supply, Inc. v. Primebank, 2015 U.S. Dist. LEXIS 58482 (N.D. Iowa May 5, 2015), an appeal from In re Crooked Creek Corp., No. 09-02352S, 2014 Bankr. LEXIS 4456 (Bankr. N.D. Iowa October 21, 2014).

 

[i] In 2011, the Iowa Supreme Court interpreted Iowa Code 570A.5(3)’s super-priority provision for livestock feed as trumping Iowa Code 570A.2’s certified request requirement for an ag supply dealer lien. Oyens Feed & Supply, Inc. v. Primebank, 808 N.W.2d 186 (Iowa 2011). Under that holding, properly perfected ag supply dealer liens in feed receive a super-priority status over the interests of previously perfected creditors even where the certified request procedures outlined by Iowa Code § 570A.2(3) are not followed. The value of this priority lien is “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.”

 

[ii] In re Shulista, 451 B.R. 867 (Bankr. N.D. Iowa 2011); In re Big Sky Farms, Inc., 512 B.R. 212 (Bankr. N.D. Iowa 2014); In re Schley, 2014 Bankr. LEXIS 1724 (Bankr. N.D. Iowa Apr. 18, 2014).

 

 

 

CALT does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. CALT's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.

RSS​ Facebook Twitter