First National Bank of Omaha v. Farmers Co-Operative Society, Sioux Center, Iowa e

IN THE 	UNITED 	STATES 	DISTRICT 	COURT
FOR 	THE 	EASTERN DISTRICT OF NORTH 	CAROLINA
SOUTHERN DIVISION
NO. 	7:10-CV-202-H
FARMERS 	COOPERATIVE 	SOCIETY
OF SIOUX 	CENTER, 	IOWA 	and
COOPERATIVE 	ELEVATOR
ASSOCIATION,
Appellants,
ORDER
v.
FIRST NATIONAL 	BANK OF OMAHA,
Appellee.
ON APPEAL 	FROM 	THE 	UNITED 	STATES BANKRUPTCY 	COURT
FOR 	THE 	EASTERN DISTRICT OF NORTH 	CAROLINA
WILSON DIVISION
This 	matter 	is 	before 	the 	court 	on 	appeal 	from 	an 	order 	of
the 	united 	States 	Bankruptcy 	Court 	for 	the 	Eastern 	District 	of
North 	Carolina. 	The 	jUdgment 	rendered 	July 	23, 	2010, 	by 	Judge
Randy 	Doub 	is 	in 	the 	adversary 	proceeding 	brought 	by 	First
National 	Bank 	of 	Omaha 	("First 	National 	Bank") 	against 	Farmers
Cooperative 	Society 	("Farmers 	Cooperative") 	and 	Cooperative
Elevator 	Association 	("Cooperative 	Elevator"). 	All 	facts
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necessary 	to 	resolve 	the 	issue 	of 	law 	on 	appeal 	are 	undisputed.
The 	parties 	have 	thoroughly 	briefed 	the 	issues 	on 	appeal, 	and
the 	matter 	is 	now 	ripe 	for 	adjudication.
Appellants 	Farmers 	Cooperative 	and 	Cooperative 	Elevator 	are
northwest 	Iowa 	feed 	suppliers, 	and 	supplied 	feed 	to 	the 	debtor,
Coastal 	Plains 	Pork, 	LLC 	("Coastal 	Plains 	Pork") 	Coastal
Plains 	Pork 	is 	a 	North 	Carolina 	limited 	liability 	company,
although 	a 	majority 	of 	its 	finishing 	sites 	were 	located 	in
northwest 	Iowa. 	Together, 	Farmers 	Cooperative 	and 	Cooperative
Elevator 	provided 	feed 	to 	the 	debtor's 	pigs 	at 	more 	than 	80
finishing 	sites 	in 	northwest 	Iowa, 	resulting 	in 	a 	combined 	feed
bill 	of 	$1,912,524.50.
Both 	appellants 	had 	filed 	financing 	statements 	with 	the
Iowa 	and 	North 	Carolina 	Secretaries 	of 	State 	in 	order 	to 	perfect
agricultural 	supply 	dealers' 	liens 	arising 	under 	Iowa 	law. 	The
entirety 	of 	the 	unpaid 	feed 	bill 	arose 	during 	the 	period 	of 	time
that 	appellants 	had 	perfected 	agricultural 	supply 	dealers'
liens.
First 	National 	Bank 	had 	earlier 	filed 	a 	security 	interest
which 	covered 	the 	hogs 	owned 	by 	the 	debtor. 	There 	is 	no 	dispute
that 	the 	security 	interest 	of 	First 	National 	Bank 	was 	perfected
prior 	to 	the 	date 	that 	appellants 	perfected 	their 	agricultural
supply 	dealers' 	liens.
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During 	the 	course 	of 	the 	bankruptcy 	proceedings, 	all 	of 	the
debtor's 	hogs 	were 	liquidated. 	The 	proceeds 	of 	the 	hogs 	are
insufficient 	to 	satisfy 	the 	liens 	of 	First 	National 	Bank,
Farmers 	Cooperative 	and 	Cooperative 	Elevator.
On 	motion 	for 	summary 	judgment, 	the 	sole 	issue 	decided 	by
the 	bankruptcy 	court 	was 	the 	relative 	priority 	of 	the
appellants' 	and 	appellee's 	security 	interests. 	First 	National
Bank 	has 	a 	perfected 	Article 	9 	security 	interest, 	and 	it 	is
undisputed 	that 	its 	security 	interest 	was 	perfected 	prior 	in
time 	to 	the 	perfection 	of 	the 	agricultural 	supply 	dealers' 	liens
of 	Farmers 	Cooperative 	and 	Cooperative 	Elevator, 	which 	are
agricul tural 	liens 	created 	by 	Iowa 	Code 	Chapter 	570A 	("Chapter
570A"). 	The 	lien 	priority 	claims 	of 	Farmers 	Cooperative 	and
Cooperative 	Elevator 	depend 	on 	the 	interpretation 	of 	Chapter
570A, 	particularly 	the 	interplay 	between 	§§ 	570A.2 	and 	570A.5.
The 	bankruptcy 	court 	ruled 	that 	the 	lien 	priority 	rule 	in
570A.5(3) 	was 	subject 	to 	the 	certified 	request 	requirements
found 	in 	570A.2(1) 	and 	the 	affirmative 	defense 	in 	570A.2(3) 	and
therefore 	determined 	that 	First 	National 	Bank's 	lien 	takes
priority 	over 	the 	agricultural 	supply 	dealers' 	liens 	of 	Farmers
Cooperative 	and 	Cooperative 	Elevator.
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COURT'S 	DISCUSSION
I. 	Standard of 	Review
The 	court 	will 	not 	set 	aside 	any 	findings 	of 	fact 	by 	the
bankruptcy 	court 	unless 	they 	are 	clearly 	erroneous. 	See 	Fed. 	R.
Bankr. 	P. 	8013. 	However, 	a 	bankruptcy 	court's 	conclusions 	of
law 	are 	reviewed 	de 	novo. 	Terry 	v. 	Meredi th 	(In 	re 	Meredi th) ,
527 	F.3d 	372, 	375 	(4th 	Cir. 	2008).
II. 	Analysis
Iowa 	Code 	Chapter 	570A 	establishes 	agricultural 	supply
dealers' 	liens 	and 	provides 	for 	priority 	of 	such 	liens. 	Iowa
Code 	§ 	57 OA . 3 	( 2009) . 	As 	a 	statutory 	agricultural 	lien, 	the
provisions 	of 	that 	Chapter 	set 	forth 	the 	manner 	of 	lien
perfection 	and 	establish 	lien 	priority 	compared 	to 	other
agricultural 	liens 	or 	Article 	9 	security 	interests. 	Iowa 	Code
§ 	570A.4 	& 570A.5 	(2009)
The 	core 	dispute 	in 	this 	matter 	is 	the 	interplay 	of
§ 	570A.2 	and 	§ 	570A.5, 	specifically 	whether 	in 	order 	to
establish 	a 	more 	favorable 	priority 	over 	First 	National 	Bank's
prior 	perfected 	security 	interest, 	Farmers 	Cooperative 	and
Cooperative 	Elevator 	were 	required 	to 	provide 	First 	National
Bank 	with 	a 	certified 	request 	for 	a 	financial 	memorandum
regarding 	Coastal 	Plains, 	as 	well 	as 	provide 	First 	National 	Bank
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with 	a 	confidentiality 	waiver 	from 	the 	farmer 	as 	set 	forth 	in
Iowa 	Code 	§ 	570A.2(1).
Iowa 	Code 	§ 	570A.2 	provides 	a 	procedure 	whereby 	an
agricultural 	supply 	dealer 	can 	send 	specified 	documents 	(the
"Notice") 	to 	a 	financial 	institution 	that 	holds 	a 	prior-
perfected 	security 	interest 	in 	livestock 	owned 	by 	a 	farmer 	to
which 	such 	agricultural 	supply 	dealer 	intends 	to 	sell 	supplies.
If 	the 	financial 	institution 	states 	that 	the 	farmer 	is 	credit
worthy, 	the 	agricultural 	supply 	dealer 	can 	obtain 	a 	statutory
letter 	of 	credit 	from 	such 	financial 	institution 	in 	the 	amount
of 	the 	sales 	price 	of 	the 	supplies 	sold. 	Furthermore,
§ 	570A.2(3) 	provides 	an 	affirmative 	defense 	to 	a 	financial
institution 	holding 	a 	prior-perfected 	security 	interest 	in 	a
farmer's 	livestock 	over 	an 	agricultural 	supply 	dealer 	lien 	when
either 	(a) 	the 	agricultural 	supply 	dealer 	never 	provides 	the
required 	Notice 	to 	the 	financial 	insti tution 	or 	(b) 	the
agricultural 	supply 	dealer 	provides 	the 	Notice, 	but 	the
financial 	institution 	timely 	responds 	that 	the 	subject 	farmer 	is
not 	creditworthy. 	Iowa 	Code 	§ 	570A.2.
The 	priority 	rules 	at 	issue 	are 	set 	forth, 	in 	pertinent
part 	in 	§ 	570A.5:
For 	an 	agricultural 	supply 	dealer 	lien 	that 	is
perfected 	under 	section 	570A. 4, 	all 	of 	the 	following
shall 	apply:
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1. The 	lien 	shall 	have 	priority 	over 	a 	lien 	or
security 	interest 	that 	applies 	subsequent 	to
the 	time 	that 	the 	agricultural 	supply 	dealer
lien 	is 	perfected.
2. Except 	as 	provided 	in 	section 	570A.2,
sUbsection 	3, 	the 	lien 	shall 	have 	equal
priority 	to 	a 	lien 	or 	security 	interest 	which
is 	perfected 	prior 	to 	the 	time 	that 	the
agricultural 	supply 	dealer 	lien 	is 	perfected.
However, 	a 	landlord's 	lien 	that 	is 	perfected
pursuant 	to 	section 	570.1 	shall 	have 	priority
over 	a 	conflicting 	agricultural 	supply 	dealer
lien 	as 	provided 	in 	section 	570.1, 	and 	a
harvester's 	lien 	that 	is 	perfected 	pursuant 	to
section 	571.3 	shall 	have 	priority 	over 	a
conflicting 	agricultural 	supply 	dealer 	lien 	as
provided 	in 	section 571.3A.
3. A 	lien 	in 	livestock 	feed 	shall 	have 	priority
over 	an 	earlier 	perfected 	lien 	or 	security
interest 	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 	(2009).
The 	statute 	provides 	livestock 	feed 	liens 	with 	a 	higher
priority 	than 	other 	agricultural 	supplies 	such 	as 	chemicals,
seed 	or 	petroleum 	products. 	The 	legislature 	created 	a 	priority
rule 	for 	agricultural 	supplies 	in 	§ 	570A.5(2) 	which 	is
specifically 	subjected 	to 	the 	affirmative 	defense 	provided 	in
§ 	570A.2(3). 	However, 	in 	§ 	570A.5(3), 	the 	legislature 	created 	a
special 	priority 	for 	livestock 	feed 	and 	did 	not 	subject 	it 	to
the 	affirmative 	defense 	found 	in 	§ 	570A.2(3).
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The 	Bankruptcy 	Court, 	however, 	construed 	§ 	570A.2(3) 	as
applicable 	to 	the 	special 	priority 	rule 	for 	livestock 	feed 	liens
contained 	in 	§ 	570A.5(3). 	Appellant 	argues 	this 	is 	error,
because 	while 	§ 	570A.5 (2) 	expressly 	acknowledges 	that 	its
priority 	rule 	is 	subject 	to 	the 	affirmative 	defense 	created 	by
§ 	570A.2 (3), 	no 	similar 	language 	is 	found 	in 	§ 	570A.5 (3) .
Appellee 	cites 	three 	guiding 	principles 	of 	statutory
construction 	for 	the 	court 	to 	use 	in 	interpreting 	the 	interplay
of 	the 	statutory 	sections 	discussed 	above. 	First, 	a 	statute
must 	be 	read 	and 	interpreted 	as 	a 	whole 	in 	a 	manner 	that 	avoids
an 	interpretation 	under 	which 	certain 	parts 	of 	the 	statute
become 	redundant 	or 	irrelevant 	and 	in 	a 	manner 	that 	avoids
absurd 	results. 	See 	Farmers 	Coop. 	v. 	SwiftPork 	Co, 	602 	F. 	Supp.
2d 	1095, 	1107-08 	& 	n.6 	(N.D. 	Ia. 	2009). 	Next, 	if 	a 	statute 	is
clear 	and 	unambiguous, 	a 	court 	should 	not 	look 	beyond 	the 	four
corners 	of 	the 	statutory 	language 	and 	should 	interpret 	the
statute 	in 	a 	manner 	that 	is 	consistent 	with 	its 	plain 	and
ordinary 	meaning. 	See 	id. 	at 	1107-08 	n.6. 	Finally, 	when 	a
"general 	and 	specific 	statute 	cover 	the 	same 	matter, 	the
specific 	statute 	governs 	over 	any 	conflict 	with 	the 	general
statute. 	Larsen 	v. 	Reinbeck, 	776 	N.W.2d 	301, 	303 	(quoting
McElroy 	v. 	State, 	647 	N.W.2d 	488, 	494 	(Iowa 	2004».
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In 	applying 	these 	rules 	of 	statutory 	construction, 	this
court 	agrees 	with 	the 	appellant 	that 	if 	the 	Iowa 	legislature 	had
wanted 	to 	subject 	the 	priority 	rule 	stated 	in 	§ 	570A.5(3) 	to 	the
affirmative 	defense 	created 	by 	§ 	570A.2 (3), 	it 	is 	clear 	they
knew 	how 	to 	do 	that. 	Where 	the 	legislature 	includes 	particular
language 	in 	one 	section 	of 	a 	statute 	but 	omits 	it 	in 	another
section 	of 	the 	same 	Act, 	it 	is 	generally 	presumed 	that 	[the
legislature] 	acts 	intentionally 	and 	purposely 	in 	the 	disparate
inclusion 	or 	exclusion. '" 	Russello 	v. 	United 	States, 	464 	U. S.
16, 	23 	(1983) 	(quoting 	United 	States 	v. 	Wong 	Kim 	Bo, 	472 	F.2d
720, 	722 	(5th 	Cir. 	1972)). 	"The 	presumption 	is 	much 	stronger,
when, 	as 	here, 	the 	comparison 	is 	between 	two 	subsections 	of 	the
same 	section 	of 	a 	statute." 	Chestnut 	v. 	Montgomery, 	307 	F. 3d
698, 	701-02 	(8th 	Cir. 	2002)) . 	The 	omission 	of 	the 	affirmative
defense 	language 	from 	§ 	570A.5(3) 	must 	be 	presumed 	to 	be
intentional, 	and 	leads 	to 	the 	conclusion 	that 	§ 	570A.5 (3) 	was
not 	intended 	to 	be 	subject 	to 	the 	affirmative 	defense 	in
§ 	570A.2 (3). 	Had 	the 	legislature 	intended 	for 	the 	affirmative
defense 	in 	§ 	570A.2(3) 	to 	apply 	to 	the 	priority 	rule 	for
livestock 	feed 	liens, 	they 	could 	have 	simply 	added 	the 	first
clause 	in 	§ 	570A.5(2) 	to 	the 	beginning 	of 	§ 	570A.5(3). 	However,
the 	legislature 	did 	not 	write 	the 	statute 	that 	way, 	and 	the
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court 	will 	not 	assume 	the 	absence 	of 	this 	language 	to 	be 	a
mistake 	in 	draftsmanship.
Two 	cases 	from 	the 	state 	court 	of 	Iowa 	support 	this
interpretation 	of 	the 	statute. 	While 	not 	binding, 	this 	court
finds 	them 	helpful 	in 	interpreting 	the 	statutes 	at 	issue. 	In
Doon 	Elevator 	v. 	American 	State 	Bank, 	No. 	LACV022572 	(Iowa 	Dist.
Ct. 	March 	29, 	2010), 	Judge 	Ackerman 	decided 	the 	same 	issue 	as 	is
before 	this 	court 	in 	the 	instant 	matter, 	and 	concluded 	that
§ 	570A.5 (3) 	applied 	to 	give 	the 	feed 	supplier 	priority 	over 	the
prior 	secured 	creditor 	and 	that 	the 	affirmative 	defense 	found 	in
§ 	570A.2(3) 	did 	not 	apply 	to 	the 	feed 	supplier's 	lien 	claim.
Judge 	Ackerman 	notes 	the 	distinction 	between 	§ 	570A.5(2) 	and
§ 	570A.5(3), 	with 	the 	former 	subsection 	explicitly 	providing
that 	its 	priority 	rule 	is 	subj ect 	to 	the 	affirmative 	defense
created 	in 	§ 	570A.2(3) 	while 	the 	latter 	subsection 	excludes 	any
language 	making 	the 	affirmative 	defense 	created 	in 	§ 	570A.2 (3)
applicable 	to 	a 	lien 	for 	livestock 	feed. 	Judge 	Ackerman 	states:
One 	can 	justify 	the 	preferential 	treatment 	given
to 	feed 	sellers 	because 	there 	is 	a 	logical 	and 	readily
discernible 	basis 	to 	measure 	the 	increase 	in 	the 	value
of 	the 	livestock 	resulting 	from 	the 	feed 	(i.e, 	market
value 	or 	sales 	price 	of 	the 	livestock 	over 	the
acquisition 	price 	of 	the 	livestock.) 	There 	is 	no
similar 	way 	to 	measure 	the 	benefit 	resulting 	from 	the
sale 	of 	chemicals, 	seed 	or petroleum.
Doon 	Elevator, 	slip 	op. 	at 	16.
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In 	the 	recent 	decision 	of 	First 	State 	Bank 	v. 	Kerber
Milling 	Co., 	No. 	CVCV027234 	(Iowa 	Dist. 	Ct. 	Aug. 	2, 	2010), 	the
court 	also 	determined 	that 	" [tJ he 	provisions 	of 	section
570A.2(3) 	do 	not 	apply 	to 	the 	lien 	priority 	provision 	in 	section
570A.5 (3) ." 	Kerber 	Milling, 	slip 	op. 	at 	11. 	Judge 	Courtney
followed 	the 	same 	reasoning 	as 	Doon 	Elevator, 	noting 	that 	"[iJf
section 	570A.2 (3) 	applied 	to 	both 	subsections 	it 	should 	have
been 	referenced 	in 	both 	subsections." 	Id. 	at 	12.
First 	National 	Bank 	argues 	that 	this 	court 	should 	rely, 	as
the 	bankruptcy 	court 	did, 	on 	Galva 	Holstein 	v. 	Holstein 	Dairy,
No. 	EQCV014128 	(Iowa 	Dist. 	Ct. 	June 	21, 	2010) 	First 	National
Bank 	contends 	that 	§ 	570A.5(3) 	cannot 	stand 	or 	be 	read 	alone 	and
that 	reviewing 	chapter 	570A 	in 	its 	entirety, 	this 	court 	should
conclude 	that 	the 	protection 	given 	a 	financial 	institution 	in
§ 	570A.2(3) 	applies 	to 	all 	actions 	to 	enforce 	agricultural
supply 	dealer 	liens 	against 	the 	interest 	of 	a 	financial
insti tution 	secured 	by 	the 	same 	collateral, 	regardless 	of 	the
type 	of 	agricultural 	supply 	the 	dealer 	has 	provided 	to 	the
farmer. 	However, 	this 	court 	finds 	this 	argument 	to 	be
untenable. 	This 	court 	would 	have 	to 	ignore 	the 	distinction
between 	§570A.5 (2) 	and 	§ 	570A.5 (3) . 	As 	discussed 	supra, 	this
court 	cannot 	do 	so.
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CONCLUSION
Therefore, 	the 	court 	holds 	that 	the 	affirmative 	defense
found 	in 	§ 	570A.2(5) 	does 	not 	apply 	to 	the 	feed 	lien 	priority
rule 	in 	§ 	570A.5 (3) 	and 	holds 	that 	Farmers 	Cooperative 	Society
and 	Cooperative 	Elevator 	Association 	are 	entitled 	to 	priority
under 	§ 	570A.5 (3) 	to 	the 	extent 	of 	the 	difference 	between 	the
acquisition 	price 	of 	the 	livestock 	and 	the 	fair 	market 	value 	of
the 	livestock 	at 	the 	time 	they 	were 	sold. 	The 	judgment 	of 	the
Bankruptcy 	Court 	is 	hereby 	VACATED, 	and 	this 	matter 	is 	remanded
to 	the 	Bankruptcy 	court 	for 	entry 	of 	judgment 	consistent 	with
this 	order.
The 	clerk 	is 	directed 	to 	close 	this 	case.
This 	I~~ay of 	September 	2011.
~Malcolm 	J. 	Howard
Senior United 	States 	District 	Judge
At 	Greenville, 	NC
#26
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Case 7:10-cv-00202-H Document 28 Filed 09/15/11 Page 11 of 11
Case 09-00214-8-RDD Doc 93 Filed 09/19/11 Entered 09/19/11 16:11:55 Page 11 of
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