Court Determines Applicable Statute of Limitations for Iowa Ag Supply Dealer's Lien

March 31, 2009 | Roger McEowen

 

A lien gives the lienholder an enforceable right against certain property that can be used to pay a debt or obligations of the property’s owner.  Most states have laws that give particular parties a lien by statute in specific circumstances.  Statutory liens have generally taken priority over Uniform Commercial Code (UCC) perfected security interests.  The rationale behind statutory liens is that certain parties who have contributed inputs or services to another should have a first claim for payment.  For example, section 9-310 of the UCC states:

“When a person in the ordinary course of his business furnishes services or materials with respect to goods subject to a security interest, a lien upon goods in the possession of such person given by statute or rule of law for such materials or services takes priority over a perfected security interest unless the lien is statutory and the statue expressly provides otherwise.”

Iowa law provides for numerous statutory liens that can arise in an agricultural context – (1) a landlord’s lien; (2) a harvester’s lien; (3) a forwarding and commission merchant’s line; (4) an artisan’s lien; (5) a mechanics lien; (6) a custom cattle feedlot lien, and (7) a commodity production contract lien. 

Another type of lien that applies specifically in an agricultural context is the ag supply dealer’s lien.  The theory behind this type of lien is that parties who supply necessary inputs such as seed, fertilizer, chemicals and petroleum products should have a method whereby they are assured of payment for the inputs supplied to agricultural producers.  Several state legislatures passed agricultural supply dealer lien statutes during the farm debt crisis of the 1980s when an extraordinarily high number of farm and ranch operators went bankrupt and all of their property was claimed subject to perfected security interests under Article 9, leaving the supply dealer as an unsecured creditor with large unpaid bills. 

Agricultural supply dealer lien statutes are rather complex but most follow a common procedure.  When a farmer or rancher attempts to purchase supplies on credit or on open account, the supplier (in Iowa, the lien is available to a business engaged in the retail sale of specified agricultural supplies to famers) can obtain a lien on the crops and/or livestock produced with such inputs.  It is not necessary that the supplier have possession of the crops or livestock that secure the lien.  But, the supplier must discover what other parties, if any, have a security interest in the purchaser’s crops or livestock.  The supplier is required to contact these creditors and inquire about the purchaser’s financial abilities.  This puts the creditors on notice that the supplier may be attempting to take a statutory lien.  The creditors can either agree to finance the purchase or send the supply dealer the buyer’s financial records.  If the creditors refuse to extend credit, the supply dealer can make the sale and obtain a lien by filing in the appropriate office (in Iowa, it’s the Secretary of State’s office).  Most state statutes provide that the lien is superior to subsequently filed Article 9 security interests, and of equal priority to Article 9 interests already in existence. 

Sometimes questions can arise concerning the total amount of inputs that an ag supply dealer’s lien secures, and whether the lien applies to crops “produced” with the supplier’s inputs.  Another question that can arise, and was the issue involved in this case, concerns the applicable statute of limitations applicable to the ag supply dealer’s lien. 

Here, the plaintiff that provided feed for a farmer’s hog operation.  The defendant financed the hog operation, properly perfecting its interest in either late 2002 or early 2003.  Eventually, the farmer got behind on his feed bills.  When the farmer sold some of his hogs to a packer, the packer made the checks out to the defendant and the farmer, but not the plaintiff.  As a result, the plaintiff took the position that the packer had violated its ag supply dealer’s lien (Iowa Code §570A), which it had properly filed on November 26, 2003, and gave actual notice to the packer and the defendant on December 2, 2003.  The farmer sold another group of hogs in mid-December 2003 and late March 2004, but again the plaintiff’s name was not include on the check.  Instead, the farmer endorsed the packer’s check over to the defendant so that his credit line could be paid down.  The plaintiff sued the farmer for the unpaid feed bill and received a judgment in mid-2004 for approximately $145,000, but was only able to recover a bit less than $3,000.  The farmer ultimately filed bankruptcy and the plaintiff recovered an additional nominal amount from the bankruptcy estate for the unpaid feed bills. 

The plaintiff sued the packer and the defendant in August of 2007 to recover the unpaid balance of their feed bill on the basis that they improperly disregarded the plaintiff’s ag supply dealer’s lien in the farmer’s hogs.  The plaintiff claimed its supply dealer’s lien had priority over the defendant’s prior perfected security interest in accordance with Iowa Code §570A.5(3).  The defendant moved for summary judgment ,asserting, among other things, an affirmative defense that the plaintiff had filed its suit too late – beyond the two-year statute of limitations contained in Iowa Code §614.1(10).  That’s the statute of limitations applicable to claims that are “founded on a security interest in farm products.”  The defendant argued that the statute applied equally to “security interests” and statutory “liens.”  Conversely, the plaintiff argued that the five-year statute of limitation set forth in Iowa Code §614.1(4) applied and, as such, the suit was timely filed.  The defendant based its argument largely on legislative history.  For instance, when the two-year statute of limitation was enacted, the ag supply dealer lien did not exist.  When the lien was created in 1984, it was created along with a one-year statute of limitation.  But, that statute of limitation was repealed in 2003.  So, from the date of enactment of the ag supply dealer’s lien until 2003, the two-year statute of limitations had no application to the lien and, the plaintiff argued, only applied to UCC security interests.  After 2003, the plaintiff claimed, the five-year statute should apply for two reasons –(1) the legislature could have made reference to the two-year statute of limitations, but did not; and (2) the five-year statute makes sense in light of the five-year effectiveness of a filed financing statement.

The court noted that the issue of what statute of limitations applies to the Iowa ag supply dealer’s lien (since repeal of the specific statute of limitation in 2003) was a matter of first impression, and ultimately determined that the two-year statute applied.  The court reasoned that the two-year statute should apply because the ag supply dealer’s lien involved a “secured interest in farm products” and best achieved the purpose of the ag supply dealer’s lien – to quickly resolve claims founded on the lien.  As such, the plaintiff brought its claim more than two years after it knew that the packer had not made the plaintiff a payee on the checks for payment of the hogs, and the defendant was awarded summary judgment.  Farmers Cooperative Co. v. Swift Pork Co., et al., No. C 07-3056-MWB, 2009 U.S. Dist. LEXIS 21000 (N.D. Iowa Mar. 16, 2009).