Justia Agriculture Law Opinion Summaries

Articles Posted in Bankruptcy
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The case in question pertains to a dispute over the enforceability of dragnet clauses within mortgages used to secure loans funding Frank Welte’s farming operations. The Vera T. Welte Testamentary Trust, of which Frank Welte is the sole beneficiary, pledged its property as security for these loans, which were provided by Roger Rand, another Iowa farmer. The Trust's primary asset is 160 acres of farmland that were leased to Frank. Upon Rand's death, his estate initiated a foreclosure action against the Trust's farmland. The Trust subsequently filed for chapter 12 bankruptcy, which led to a stay of the foreclosure action against the Trust.The Estate filed a proof of claim and a motion to dismiss the Trust’s bankruptcy petition, alleging that the Trust was not a business trust as required by chapter 12. The Trust objected to the Estate’s proof of claim. The Iowa state court ruled that the dragnet clauses in the mortgage documents secured the loans made to Frank in excess of the face amount of the promissory notes.The United States Bankruptcy Court for the Northern District of Iowa, however, held that the dragnet clauses were not enforceable, thereby concluding that the Trust no longer owed a debt to the Estate. Following this, the United States District Court for the Northern District of Iowa gave preclusive effect to the judgment of the Iowa Court of Appeals concerning the enforceability of the clauses and the amounts owed thereunder.The Trust and the Estate both appealed the district court’s order. The United States Court of Appeals for the Eighth Circuit dismissed the appeal and cross-appeal due to lack of jurisdiction, as the district court's order was not final and required further proceedings in the bankruptcy court. View "The Security National Bank of Sioux City, IA v. Vera T. Welte Testamentary Trust" on Justia Law

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Appellant Spring Valley Produce, Inc. (SVP) is a creditor of Chapter 7 debtors Nathan and Marsha Forrest (the Forrests). The Forrests owe a pre-petition debt for produce which they are seeking to discharge. SVP initiated this adversary proceeding, seeking a declaration that the debt was nondischargeable under Section 523(a)(4). The bankruptcy court granted the Forrests’ motion to dismiss and held that Section 523(a)(4) does not apply to Perishable Agricultural Commodities Act (PACA) related debts. At issue on appeal is whether the Bankruptcy Code’s exception to discharge in 11 U.S.C. Sections 523(a)(4) applies to debts incurred by a produce buyer who is acting as a trustee under PACA.   The Eleventh Circuit affirmed the bankruptcy court’s order dismissing SVP’s claims because Section 523(a)(4) does not accept debts incurred by a PACA trustee from discharge. The court explained debts incurred by a produce buyer acting as a PACA trustee are not excepted from discharge under Section 523(a)(4). While a PACA trust does identify a trustee, beneficiary, and trust res, thus satisfying the first step of our analysis, it does not impose sufficient trust-like duties to fit the narrow definition of a technical trust under Section 523(a)(4). PACA does not impose the duties to segregate trust assets and refrain from using trust assets for a non-trust purpose, which are strong indicia of a technical trust. Instead, a PACA trust more closely resembles a constructive or resulting trust, which do not fall within Section 523(a)(4)’s exception to discharge. View "Spring Valley Produce, Inc., et al v. Nathan Aaron Forrest, et al" on Justia Law

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Plaintiffs brought an adversary proceeding in bankruptcy court, alleging that defendants wrongfully failed to pay debtor for produce held in trust for plaintiffs, in violation of the Perishable Agricultural Commodities Act. The Second Circuit agreed with the bankruptcy judge and district court and affirmed summary judgment for plaintiffs, but held that defendants should receive a pro rata share of assets of the trust established under the Act.Because assets subject to the Act are held in a ʺfloatingʺ trust for the benefit of unpaid produce suppliers and never become part of a bankruptcy estate, when a purchaser of produce files for bankruptcy under Chapter 7, a creditor covered by the Actʹs provisions is entitled to a pro rata share of trust assets, but not to a complete offset of mutual debts between it and the bankrupt. In this case, although defendants did not file a proof of claim after the district court issued a claims process order under the Act, they preserved their claims by providing statutorily required notice to debtor in connection with each pre‐bankruptcy sale of fresh produce; filed a proof of claim with the bankruptcy court before the district court had issued the claims process order; and reasonably, although mistakenly, thought that they could vindicate their rights as creditors using a bankruptcy offset. View "The PACA Trust Creditors v. Genecco Produce Inc." on Justia Law

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Perkins has actively operated a 200-acre Kentucky farm since 1970. Her operation expanded to cultivate approximately 9,500 acres in various partnerships. Perkins encountered financial trouble in 2014. The partnerships filed Chapter 11 bankruptcy cases. Perkins retired from teaching. The Chapter 11 bankruptcies were dismissed after liquidating substantially all of the partnerships’ assets and making over four million dollars of payments to BB&T. In 2016 Perkins sought Chapter 12 bankruptcy protection. Creditors' proofs of claim totaled $4,012,908.79. In the preceding year, Perkins received $279,000 of gross income from her farm, $764,472 from her partnerships, $161,571 of capital gains from equipment sales, and $132,360 from wages, pension, and social security. BB&T objected to her plan, which projected that $18,950 could be paid annually to unsecured creditors over the plan’s five-year life and that a Chapter 7 liquidation would produce no payments to unsecured creditors. The plan proposed to pay BB&T annual installments over 20 years at 4.5% interest. The bankruptcy court rejected BB&T’s objection and confirmed the plan. The Bankruptcy Appellate Panel affirmed. Chapter 12 relief, 11 U.S.C. 109(f), is available to family fishermen and family farmers, defined as an “individual . . . engaged in a farming operation whose aggregate debts do not exceed $4,153,150,” and who receives more than half of her gross income from “such farming operation.” The bankruptcy court properly found Perkins to be a family farmer and confirmed the plan as feasible, providing proper treatment to secured claims, and meeting the best interests of creditors test. View "In re: Perkins" on Justia Law

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Perkins has actively operated a 200-acre Kentucky farm since 1970. Her operation expanded to cultivate approximately 9,500 acres in various partnerships. Perkins encountered financial trouble in 2014. The partnerships filed Chapter 11 bankruptcy cases. Perkins retired from teaching. The Chapter 11 bankruptcies were dismissed after liquidating substantially all of the partnerships’ assets and making over four million dollars of payments to BB&T. In 2016 Perkins sought Chapter 12 bankruptcy protection. Creditors' proofs of claim totaled $4,012,908.79. In the preceding year, Perkins received $279,000 of gross income from her farm, $764,472 from her partnerships, $161,571 of capital gains from equipment sales, and $132,360 from wages, pension, and social security. BB&T objected to her plan, which projected that $18,950 could be paid annually to unsecured creditors over the plan’s five-year life and that a Chapter 7 liquidation would produce no payments to unsecured creditors. The plan proposed to pay BB&T annual installments over 20 years at 4.5% interest. The bankruptcy court rejected BB&T’s objection and confirmed the plan. The Bankruptcy Appellate Panel affirmed. Chapter 12 relief, 11 U.S.C. 109(f), is available to family fishermen and family farmers, defined as an “individual . . . engaged in a farming operation whose aggregate debts do not exceed $4,153,150,” and who receives more than half of her gross income from “such farming operation.” The bankruptcy court properly found Perkins to be a family farmer and confirmed the plan as feasible, providing proper treatment to secured claims, and meeting the best interests of creditors test. View "In re: Perkins" on Justia Law

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In 2008, Purdy borrowed from Citizens First, using his dairy cattle as collateral. Purdy refinanced in 2009, executing an “Agricultural Security Agreement" that granted Citizens a purchase money security interest in “all . . . Equipment, Farm Products, [and] Livestock (including all increase and supplies) . . . currently owned [or] hereafter acquired.” Citizens perfected this security interest by filing with the Kentucky Secretary of State. Purdy and Citizens executed two similar security agreements in 2010 and 2012, which were perfected. After the 2009 refinancing, Purdy increased the size of his herd, entering into “Dairy Cow Lease” agreements with Sunshine. The parties also executed security agreements and Sunshine filed financing statements. In 2012, milk production became less profitable. Purdy sold off cattle, including many bearing Sunshine’s brand, and filed a voluntary Chapter 12 bankruptcy petition. Both Citizens and Sunshine sought relief from the stay preventing the removal of the livestock. In 2014, the Sixth Circuit held that Citizens failed to demonstrate that the "Leases” were actually security agreements in disguise. On remand, the bankruptcy court determined that all cattle sold at a 2014 auction were subject to Citizens’ security interest. The district court affirmed, awarding Citzens $402,354.54. The Sixth Circuit affirmed; the bankruptcy court did not contravene its mandate by holding a hearing on the question of ownership. View "Sunshine Heifers, LLC v. Citizens First Bank" on Justia Law

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The Fergusons proposed to repay their farm debts under Bankruptcy Code Chapter 12, including a $300,000 loan from First Community Bank, secured by a mortgage plus a lien on farm equipment and crops, and a $176,000 loan from FS, secured by a junior lien on equipment and crops. The bankruptcy judge approved a sale of equipment and crops, which yielded $238,000. The Bank, as senior creditor, demanded those proceeds. FS argued that the Bank should be required to recoup through the mortgage, allowing FS to be repaid from the equipment sale; "marshaling" is not mentioned in the Code, but available under state law. The Fergusons wanted reorganization, to keep their farm. The judge awarded the Bank $238,000. The parties could not agree on a repayment plan. The judge converted the case to a Chapter 7 liquidation. The trustee sold the farm for $411,000, paying the Bank the balance of its claim. About $261,000 remains. FS wanted to be treated as a secured creditor and repeated its request for marshaling. The equipment sale generated federal and state tax bills, with priority among unsecured creditors, 11 U.S.C. 507(a)(8). FS’s status—as a secured creditor with marshaling, or a general unsecured creditor without it—determines whether the taxes will be paid during the bankruptcy. Tax debts are not dischargeable; the Fergusons opposed marshaling. The bankruptcy judge approved FS’s request, stating that he would have approved the original request had he known that the farm would be sold. The district court remanded, stating that marshaling is proper only if two funds exist simultaneously. One fund (equipment and crop proceeds) is gone, only the land sale fund still exists. The Seventh Circuit dismissed an appeal for lack of jurisdiction; the remand was not a final order. View "Ferguson v. West Central FS, Inc." on Justia Law

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A federal district court certified two questions of law to the Iowa Supreme Court in a priority dispute between competing creditors of a bankrupt hog operation. Crooked Creek Corporation operated a farrow-to-finish hog facility where it bred gilts and sows and raised their litters for slaughter. After the company filed for bankruptcy, the hogs were sold, but the sale did not generate enough money to pay off competing liens asserted by two of Crooked Creek’s creditors: Oyens Feed & Supply, Inc. and Primebank. Oyens Feed held an agricultural supply dealer lien because it sold Crooked Creek feed “on credit . . . to fatten the hogs to market weight.” Primebank had a perfected article 9 security interest in the hogs to secure two promissory notes predating Oyens Feed’s section 570A.5(3) agricultural supply dealer lien in the hogs. At trial, Oyens Feed claimed it was entitled to all of the escrowed funds because its agricultural supply dealer lien had superpriority over Primebank’s earlier perfected security interest. The bankruptcy court concluded the plain meaning of section 570A.4 created a “discrete window of time,” beginning with the farmer’s purchase of feed and ending thirty-one days later, within which an agricultural supply dealer must file a financing statement to perfect its lien. The bankruptcy court concluded Oyens Feed had only perfected its lien as to amounts for feed delivered in the thirty-one days preceding the filing of each of its financing statements. In reaching its decision on the extent of Oyens Feed’s lien in the escrowed funds, the bankruptcy court reasoned the acquisition price of the hogs was zero because Crooked Creek raised hogs from birth rather than purchasing them. The court concluded “the ‘purchase price’ comprises the vast majority, if not all of, the ‘acquisition price’ for . . . purposes of Iowa Code § 570A.5(3).” The United States District Court for the Northern District of Iowa asked the Iowa Supreme Court: (1) whether, pursuant to Iowa Code section 570A.4(2), was 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?; and (2) whether pursuant to Iowa Code section 570A.5(3), was the “acquisition price” zero when the livestock are born in the farmer’s facility? The Supreme Court answered both certified questions in the affirmative. View "Oyens Feed & Supply, Inc. v. Primebank" on Justia Law

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In Seifert’s chapter 12 bankruptcy petition, sale proceeds from the current year’s crop were described as $134,661 in “farm earnings,” consisting of checks jointly payable to the Farm Services Agency (FSA), CHS, and Seifert. Seifert claimed $91,258 as exempt under Minnesota Statute 550.37(13). FSA was an over-secured creditor and did not object to Seifert’s claimed exemptions or any of the filed plans. CHS and the trustee objected to Seifert’s exemption claim and to each plan, based on 11 U.S.C. 1225(a)(4): A debtor must demonstrate that: “the value, as of the effective date of the plan, of property to be distributed … [for[ each allowed unsecured claim is not less than … would be paid … if the estate … were liquidated under chapter 7.” They argued that because Seifert was not entitled to an exemption in the farm earnings, payments to the unsecured creditors must include that value. After the parties reached an agreement that reserved the issue of the exemption for later determination, CHS asserted that the exemption dispute was moot because the checks from the sale of the crop had been given to FSA and Seifert retained no interest in those funds. The bankruptcy court agreed. The Bankruptcy Appellate Panel reversed and remanded. Payment to FSA did not override the parties’ stipulation and did not constitute a determination of what would be paid to unsecured creditors. View "Seifert v. Carlson" on Justia Law

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Between 2009 and 2012, Sunshine and Purdy, a Kentucky dairy farmer, entered into “Dairy Cow Leases.” Purdy received 435 cows to milk, and, in exchange, paid monthly rent to Sunshine. Purdy’s business faltered in 2012, and he sought bankruptcy protection. Sunshine moved to retake possession of the cattle. Citizens First Bank had a perfected purchase money security interest in Purdy’s equipment, farm products, and livestock, and claimed that its perfected security interest gave Citizens First priority over Sunshine with regard to the cattle. Citizens argued that the “leases” were disguised security agreements, that Purdy actually owned the cattle, and that the subsequently-acquired livestock were covered by the bank’s security interest. The bankruptcy court ruled in favor of Citizens, finding that the leases were per se security agreements. The Sixth Circuit reversed, noting that the terms of the agreements expressly preserve Sunshine’s ability to recover the cattle. Whether the parties strictly adhered to the terms of these leases is irrelevant to determining whether the agreements were true leases or disguised security agreements. Neither the bankruptcy court nor the parties sufficiently explained the legal import of Purdy’s culling practices or put forward any evidence that the parties altered the terms of the leases making them anything but leases. View "In re: Purdy" on Justia Law