Schley v. Peoples Bank (In re Schley)
509 B.R. 901
Bankr. D. Iowa2014Background
- Debtors (Gary and Julie Schley) operated a two-site pig "feeder-to-finish" operation and sold 1,490 of ~3,061 pigs prepetition; sale proceeds of $209,412.24 are escrowed.
- Three creditors claim first-priority interests in the proceeds: Cooperative Credit Company (CCC) (security agreements and UCC financing statement dating to 2004/2008), Peoples Bank (multiple security agreements and financing statement in 2008), and Watonwan Farm Service (WFS) (feed supplied Feb–Jun 2010; security agreement Feb 26, 2010; financing statements Mar 11 and Jun 30, 2010, the latter marked as an "Ag Lien").
- Bank paid WFS $117,858.24 on Debtors’ account in multiple payments in Mar–Jun 2010; WFS contends $136,373.57 of feed remained unpaid.
- WFS moved for partial summary judgment claiming a superpriority agricultural supply lien under Iowa Code ch. 570A on the livestock (and proceeds) for feed supplied; Bank and CCC moved seeking ruling that WFS has no priority in the escrowed proceeds.
- Key contested legal questions: whether WFS’s agricultural lien attaches to the specific pigs sold (i.e., whether those pigs consumed WFS feed), whether WFS was paid (and thus whether the statutory lien survived), and whether Iowa agricultural liens extend to proceeds of a prebankruptcy sale absent a court order.
Issues
| Issue | Plaintiff's Argument (WFS) | Defendant's Argument (Bank / CCC) | Held |
|---|---|---|---|
| Does WFS have an agricultural lien in the pigs sold (i.e., did the sold pigs consume WFS feed)? | WFS: invoices show feed supplied and pigs were fed WFS feed. | Bank/CCC: Debtors had two sites and multiple suppliers; record does not show the sold pigs consumed WFS feed. | Genuine factual dispute exists; summary judgment denied on this point. |
| Has WFS been paid such that its statutory lien is extinguished for the sold pigs? | WFS: substantial invoices remain unpaid (total claimed feed). | Bank/CCC: Bank paid WFS $117,858.24 on Debtors’ account and argue payments covered the relevant feed (31‑day lookback amounts). | Genuine factual dispute about which invoices were paid; summary judgment denied on this point. |
| Does Iowa’s agricultural supply dealer lien statute create a lien that continues into proceeds of a sale (absent a court order)? | WFS: statute and purpose (encouraging credit sales of feed) imply liens must attach to proceeds; practical effect otherwise would render the lien ineffective. | Bank/CCC: Iowa UCC § 554.9315(b) expressly allows security interests (but not agricultural liens) to attach to proceeds; omission shows legislative intent to limit agricultural liens to collateral only. | Court holds agricultural supply liens do extend to proceeds; statutory text and purpose interpreted to avoid an absurd and purposedefeating result. |
| Is WFS’s superpriority lien limited by the 31‑day lookback in § 570A.4(2) / related UCC provisions? | WFS seeks superpriority for all feed supplied Feb–Jun 2010. | Bank/CCC rely on Shulista and UCC look‑back limiting superpriority to amounts supplied in the 31 days before filing a financing statement. | Court follows In re Shulista: agricultural superpriority is limited to the 31‑day pre‑filing lookback; summary judgment granted/denied in part consistent with that limit. |
Key Cases Cited
- In re Shulista, 451 B.R. 867 (Bankr. N.D. Iowa 2011) (limiting agricultural lien superpriority under Iowa law and discussed look‑back application)
- Oyens Feed & Supply, Inc. v. Primebank, 808 N.W.2d 186 (Iowa 2011) (explaining statutory purpose: encourage credit sales of feed and create a fluid feed market; describes compromise between suppliers and lenders)
- Peoples Trust & Sav. Bank v. Sec. Sav. Bank, 815 N.W.2d 744 (Iowa 2012) (interpreting § 554.9315 and holding rights in proceeds are not waived by mere acquiescence in a sale)
- In re Crooked Creek Corp., 427 B.R. 500 (Bankr. N.D. Iowa 2010) (addressing agricultural lien priorities where livestock sales were approved by court and liens were carried into proceeds under court order)
- In re Coastal Plains Pork, LLC, 438 B.R. 845 (Bankr. E.D.N.C. 2010) (similar context: postpetition court‑approved sales where liens were made to attach to proceeds)
- Stockman Bank of Montana v. Mon‑Kota, Inc., 180 P.3d 1125 (Mont. 2008) (reached opposite conclusion — agricultural liens do not attach to proceeds — court here rejects that reasoning as inconsistent with Iowa law)