Agrifund, LLC; And Hampton Pugh Company, LLC v. Regions Bank; Hill Seed & Elevator, Inc.;optimum Agriculture, LLC; And Hubbard Brake, LLC
602 S.W.3d 726
Ark.2020Background
- Scott Day operated multiple partnerships: the "Old Entities" (2014) financed by Regions Bank, which perfected a security interest in "all crops," and the "New Entities" (2015) formed after the Old Entities defaulted.
- Regions refused to finance the 2015 season; Day obtained financing from AgriFund/ARM for the New Entities, and ARM perfected security interests against the New Entities and Day individually.
- 2015 crop proceeds (~$2.9M) were encumbered by competing claims from Regions, ARM (AgriFund), suppliers (Hill, Hampton Pugh), and Optimum (which subleased land and claimed an agricultural landlord’s lien); Hubbard Brake owned the original lease.
- Bench trial findings: the court concluded Day controlled the entities and the New Entities were sham/alter egos used to evade Regions’ lien; the court found ARM had knowledge of Day’s dishonesty and of Regions’ prior lien.
- The circuit court held Regions’ prior perfected lien had priority over ARM’s later lien; it also recognized Optimum’s statutory landlord lien; the Supreme Court affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether ARM’s lien (perfected against Day and New Entities) has priority over Regions’ earlier perfected lien against the Old Entities when the entities are found to be alter egos | ARM: alter-ego findings should collapse entities to Day, and ARM holds the only perfected lien against Day, so ARM is first | Regions: alter-ego findings mean Regions’ lien continued against proceeds; Regions was first to perfect and has priority | Court: Affirmed Regions’ priority; trial court did not clearly err in treating entities as Day’s alter egos and awarding Regions priority |
| Whether equity awards priority to creditors who actually financed the 2015 crop over earlier perfected security interests that did not finance that crop | ARM: equity favors the lender that financed the crop; Regions did not finance 2015 so should not get proceeds | Regions: priority is governed by UCC first-to-perfect; no judicially-created exception for lenders who funded production | Court: Rejected ARM’s equitable argument; applied UCC first-in-time, first-in-right rule and declined to create a financing-priority exception |
| Whether a sublessor (Optimum) may assert an agricultural landlord’s lien against a subtenant | ARM: sublessor cannot assert landlord’s lien because only original landlord has that right | Optimum: sublessor is a landlord to the subtenant and statutorily "every landlord" has a lien; both original landlord and sublessor can hold liens | Court: Optimum may assert a landlord’s lien against the subtenant; statutory lien covers subtenants and sublessors |
| Whether Optimum’s sublease was invalid for lack of consent from the original landlord, defeating Optimum’s lien | ARM: sublease invalid as violation of original lease so Optimum’s lien unenforceable | Optimum/Hubbard Brake: Hubbard Brake advanced claims but settled; no judgment invalidating the sublease was entered | Court: No trial determination invalidating the sublease; Optimum entitled to assert landlord’s lien (settlement left no adverse judgment) |
Key Cases Cited
- Winchel v. Craig, 55 Ark. App. 373, 934 S.W.2d 946 (veil-piercing example relied on by ARM)
- Anderson v. Stewart, 366 Ark. 203, 234 S.W.3d 295 (standard for piercing corporate veil; equitable doctrine)
- Searcy Farm Supply, LLC v. Merchants & Planters Bank, 369 Ark. 487, 256 S.W.3d 496 (refusal to create super-priority for suppliers over perfected security interests)
- Riceland Foods, Inc. v. Pearson, 2009 Ark. 520, 357 S.W.3d 434 (statutory landlord lien priority under Arkansas law)
- Miller County Bank & Trust v. Beasley, 165 Ark. 44, 262 S.W. 981 (sublessor and original landlord lien interaction)
- Jaber v. Miller, 219 Ark. 59, 239 S.W.2d 760 (sublessor is both tenant and landlord; sublease creates new tenancy)
- Hartness v. Nuckles, 2015 Ark. 444, 475 S.W.3d 558 (appellate standard for reviewing bench-trial factual findings)
- Gulfco Louisiana, Inc. v. Brantley, 2013 Ark. 367, 430 S.W.3d 7 (questions of law reviewed de novo)
- K.C. Properties of N.W. Arkansas, Inc. v. Lowell Inv. Partners, LLC, 373 Ark. 14, 280 S.W.3d 1 (principles governing veil-piercing vary with circumstances)
- Matter of Estate of Spears, 314 Ark. 54, 858 S.W.2d 93 (discussion of when claims or interests crystallize)