8 F.4th 660
8th Cir.2021Background
- Agrifund loaned the Salters $4,195,612 under a promissory Note and took and perfected a security lien on the Salters’ 2017 crops; Agrifund notified potential purchasers and Heartland of its lien and instructed proceeds be remitted to Agrifund.
- Heartland, a cooperative lender, had a junior loan to the Salters (originally $150,000, later $500,000) and executed a Subordination Agreement subordinating its loan to Agrifund up to a specified amount.
- On November 21, 2017 the Salters paid Heartland a single check that satisfied Heartland’s open balance; the funds came from crop-sale proceeds subject to Agrifund’s lien, though Heartland did not know the source when it accepted the check.
- Agrifund sued Heartland for conversion; the parties stipulated facts and cross‑moved for summary judgment. The district court granted summary judgment to Agrifund, awarded $115,081.14 plus pre‑ and post‑judgment interest, and denied contractual interest and attorney fees.
- Heartland appealed the denial of its holder‑in‑due‑course defense; Agrifund cross‑appealed the district court’s refusal to award contractual interest and attorney fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Heartland qualified as a holder in due course, defeating conversion | Agrifund: Heartland converted Agrifund’s collateral by accepting proceeds subject to Agrifund’s lien | Heartland: took payment for value in good faith with no notice of Agrifund’s claim; thus holder in due course | Court: Heartland failed the notice/good‑faith inquiry; did not meet reasonable commercial standards and is not a holder in due course |
| Whether the Subordination Agreement incorporates the Note so contractual remedies apply | Agrifund: Subordination Agreement incorporates Note terms, so contractual interest and collection costs apply | Heartland: not a party to the Note; Subordination Agreement does not import Note terms | Court: Subordination Agreement does not incorporate Note terms; Heartland not bound by Note provisions |
| Whether damages should bear the Note’s contractual (higher) interest rate | Agrifund: entitled to contract rate on conversion damages | Heartland: conversion damages limited to fair market/principal plus statutory interest | Court: damages limited to principal; interest awarded at statutory (Iowa pre‑judgment) and federal (post‑judgment) rates rather than contractual rate |
| Whether Agrifund can recover attorney fees under the Note or Subordination Agreement | Agrifund: Note and/or Subordination Agreement authorize recovery of attorney fees | Heartland: not liable for attorney fees because it is not party to the Note and no contractual basis exists | Court: denial of attorney fees affirmed; no contractual/ statutory basis to award fees against Heartland |
Key Cases Cited
- LM Ins. Corp. v. Dubuque Barge & Fleeting Serv. Co., 964 F.3d 1247 (8th Cir. 2020) (summary judgment standard and de novo review on appeal)
- Bruhn Farms Joint Venture v. Fireman’s Fund Ins., 823 F.3d 1161 (8th Cir. 2016) (summary judgment appropriateness)
- Condon Auto Sales & Serv., Inc. v. Crick, 604 N.W.2d 587 (Iowa 1999) (definition of conversion)
- Waukon Auto Supply v. Farmers & Merchants Sav. Bank, 440 N.W.2d 844 (Iowa 1989) (holder in due course is an affirmative defense to conversion)
- Agriliance, L.L.C. v. Farmpro Servs., Inc., 328 F. Supp. 2d 958 (S.D. Iowa 2003) (holder in due course takes a negotiable instrument free of prior secured‑party claims)
- Agriliance, L.L.C. v. Runnells Grain Elevator, Inc., 272 F. Supp. 2d 800 (S.D. Iowa 2003) (notice/inquiry standard for holders)
- E.E.O.C. v. Waffle House, 534 U.S. 279 (2002) (a contract cannot bind a nonparty)
- Murray v. Conrad, 346 N.W.2d 814 (Iowa 1984) (measure of damages for conversion is fair market value/principal)