Creditor Did not Have Perfected Security Interest in Dairy Cattle Because She Failed to Show Proper Notice to Third Parties Through Industry Custom.

The bankruptcy court originally found that a creditor had a perfected security interest in 16 of the debtors’ dairy cows before the 90-day bankruptcy preference period. Specifically, the bankruptcy court found that the security agreement and filed financing statement, which included a barn name and ear tag ID number for each cow, provided sufficient notice to third parties, despite missing and mismatched ear tags, because industry custom included the inspection of Holstein registration certificates for each cow.  The district court vacated the decision and remanded for further factual findings, determining that the bankruptcy court did not adequately support its determination of the existence and scope of an industry custom of identifying dairy cattle using registration certificates. On remand, the bankruptcy court ruled that the creditor’s interest was unperfected because the evidence was insufficient to support a reliance on industry custom to prove proper notice to third parties. There was no proof of a regularly observed practice in the dairy cattle industry by third party lenders or creditors of utilizing registration certificates to identify cattle, subject to a prior security interest in the course of their due diligence.  In re Baker, Case No.: 08-62748, 2014 Bankr. LEXIS 2318 (Bankr. N.D. N.Y. May 28, 2014).