CNH Capital America LLC v. Trainor Grain & Supply Co. (In re Printz)
478 B.R. 876
| Bankr. C.D. Ill. | 2012Background
- CNH Capital America LLC holds a perfected, first-priority security interest in Debtors' 2009 and 2010 crops and the proceeds from their sale.
- Trainor set off $362,443.49 from proceeds due to Debtors and applied it to Debtors' obligations for farming inputs.
- CNH filed a UCC Financing Statement on November 24, 2008; Trainor released its earlier 2006 statement and filed a new one in 2009.
- Debtors and CNH entered three crop-lien/security agreements; CNH notified Trainor of CNH's lien in 2009 and 2010.
- Trainor contracted to buy crops from Debtors in four 2010 crop purchase contracts and delivered all crops; Debtors remained owing for prior inputs.
- Debtors filed Chapter 11; CNH initiated adversary proceeding seeking turnover of the setoff funds and a determination of priority.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| CNH’s lien priority over Trainor | CNH had a first-priority, perfected security interest in crops and proceeds. | Trainor argues FSA protections and setoff rights trump CNH's priority. | CNH has first-priority, perfected security interest; setoff invalidated. |
| Effect of the Food Security Act on Trainor's setoff | CNH entitlement to proceeds should be unaffected by FSA protections. | Trainor is entitled to setoff free of CNH’s lien under the FSA as a buyer in the ordinary course. | FSA does not authorize setoff of proceeds; CNH proceeds remain superior. |
| Trainor’s contractual setoff rights vs CNH’s security | Contracts assign a right to setoff that could subordinate CNH’s lien. | 9-404(a) allows defenses only if there is an assignment of an existing account; no assignment here. | 9-404(a) does not trump CNH’s security interest; no effective assignment. |
| Prejudgment interest | Illinois Interest Act allows prejudgment interest to CNH. | No creditor-debtor relationship between CNH and Trainor; Debtors were payees, not CNH. | Prejudgment interest denied. |
Key Cases Cited
- Farm Credit Midsouth, PCA v. Farm Fresh Catfish Co., 371 F.3d 450 (8th Cir. 2004) (notice provisions of §1631(e)(1) required complete, precise notice)
- Food Servs. of Am. v. Royal Heights, Inc., 871 P.2d 590 (Wash. 1994) (distinguishes protection for buyers vs. setoff by creditors)
- Consolidated Nutrition v. IBP, Inc., 669 N.W.2d 126 (S.D. 2003) (FSA protection not available for setoff by purchaser acting as creditor)
- Cornerstone Bank and Trust v. Consol. Grain and Barge Co., No. 353 Ill.Dec. 816, 956 N.E.2d 944 (Ill. App. Ct. 2011) (distinction between buyer protection and creditor setoff under FSA)
- U.S. Bank Nat’l Ass’n v. U.S. Rent a Car, Inc., 2011 WL 3648225 (D. Minn. 2011) (assignees take subject to defenses of assignor; applied to account receivables)