Iowa Court Remands Priority Dispute Between Ag Lender and Ag Supply Dealer

The case is Quality Plus Feeds, Inc. v. Compeer Financial, FLCA, No. 21-0774 (Iowa Ct. App. April 27, 2022).

On April 27, 2022, the Iowa Court of Appeals determined that the district court’s grant of summary judgment was not appropriate because genuine issues of material facts existed in a case involving the priority of competing perfected security interests and agricultural-supply-dealer liens. After a dairy operation liquidated its assets, there were insufficient proceeds to satisfy all claims against the farm. A financial institution and a feed dealer each claimed to have priority to these proceeds. Because the record did not adequately provide the facts necessary to resolve the dispute under Iowa Code chapters 554 and 570A, the court denied both parties’ motions for summary judgment and remanded the case for further proceedings.

Background

A dairy farm obtained financing from the financial lender for several years. The farm operated under three different business entities all of which owned cattle. Two of the entities purchased feed from the feed dealer for their livestock. The farm suffered financial distress and these two entities sold their cattle in 2019. That year, the milk sales from all three entities and the cattle liquidation proceeds totaled $1,345,212.60. This amount could satisfy the unpaid balance owed to the feed dealer, but was insufficient to satisfy the claims of all creditors.

The feed dealer filed this lawsuit claiming to have an agricultural-supply-dealer lien[i] and, thus, priority in the proceeds. See Iowa Code § 570A.5(3). The financial lender denied the feed dealer’s claim and argued that its earlier, perfected security interest gave it priority. Both creditors filed motions for summary judgment. The district court granted the feed dealer’s motion and denied the motion of the financial lender. The financial lender appealed.

Summary Judgment

Summary judgment is appropriate if there are no disputed issues of material fact. Generally, the first creditor to perfect a lien has priority to the collateral. Iowa Code § 554.9322. However, agricultural liens can have super priority over an earlier perfected lien in certain circumstances. Agricultural-supply-dealer liens attach to the livestock consuming the feed and the proceeds from the livestock as long as the proceeds are identifiable and traceable. Iowa Code § 570A.3, In re Schley, 509 B.R. 901, 914 (Bankr. N.D. Iowa 2014).

Here, only two of the business entities purchased feed from the feed dealer. Thus, the agricultural feed dealer lien could only attach to those cattle. The court found that the record did not establish whether those animals were sold or added into the third entity’s herd. Consequently, the proceeds were not traceable.

Even if the cattle and proceeds were identified, it was unclear what the purchase price was for the cattle sold. The feed dealer could only have priority “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.” Iowa Code § 570A.5(3).

The feed dealer claimed that these were not material facts because there were enough proceeds to satisfy its claim against the farm. The court rejected this argument noting that resolving these questions could change the amount of contested proceeds available to the creditors.

Because these unanswered questions created a genuine issue of material facts, the court determined that neither party was entitled to summary judgment. Accordingly, it reversed the district court’s grant of summary judgment in favor of the feed dealer and remanded the case for further proceedings.