837 F.3d 911
8th Cir.2016Background
- Texana sued Bayer for contamination of its rice and damage to property; settlement of $2,137,500 was paid into the court, with $933,697.90 remaining after disbursements.
- Stearns Bank held a 2002 security agreement (perfected by UCC filing) covering fixtures, equipment, and general intangibles, including "proceeds" and sums due from third parties who damaged collateral.
- Amegy Bank obtained a 2006 loan, and in a 2007 forbearance agreement Texana granted Amegy a security interest specifically in the Bayer commercial tort claim; Amegy perfected by UCC filing in 2007.
- Stearns foreclosed on its real-estate collateral in 2010 and purchased the foreclosed assets at auction; it later sought to claim priority in the Bayer settlement proceeds.
- Bayer interpleaded the settlement funds; district court awarded priority to Amegy. The Eighth Circuit reversed in part and remanded for allocation of proceeds.
Issues
| Issue | Plaintiff's Argument (Stearns) | Defendant's Argument (Amegy) | Held |
|---|---|---|---|
| Whether Stearns’ foreclosure/purchase at foreclosure extinguished its security interest in proceeds | Foreclosure discharged only the security interest in collateral but did not bar Stearns from enforcing rights in proceeds of the original collateral | Foreclosure extinguished Stearns’ interest in collateral and any claim to later-arising proceeds | Foreclosure did not extinguish Stearns’ right to proceeds arising from damage to its original collateral; district court erred to the contrary |
| Whether the Bayer settlement became a general/payment intangible that Stearns’ earlier UCC filing covered | Settlement reduced tort claim to a payment intangible and therefore falls within Stearns’ perfected general intangibles | Amegy’s separate, specifically described security interest in the commercial tort claim has priority | Settlement proceeds are not captured as after-acquired general intangibles by Stearns because UCC requires heightened identification for commercial tort claims; Amegy’s interest in the tort claim remains effective |
| Whether Stearns has an interest in settlement proceeds as "proceeds" for damage to original collateral | The settlement includes recovery for damage to Stearns’ collateral, so those amounts are "proceeds" covered by Stearns’ security agreement | The heightened identification for commercial tort claims prevents Stearns from taking proceeds after the claim arose | Stearns has a security interest in that portion of the settlement that compensates for damage to its original collateral (i.e., proceeds) |
| Remedy / Next step | Stearns seeks full recovery from the interpleaded funds | Amegy seeks entire fund as holder of the commercial tort claim lien | Court remanded to district court to determine allocation: what portion of the fund represents proceeds of Stearns’ original collateral versus other damages |
Key Cases Cited
- J.E. Jones Constr. Co. v. Chubb & Sons, Inc., 486 F.3d 337 (8th Cir.) (summary-judgment standard)
- Kunkel v. Sprague Nat’l Bank, 128 F.3d 636 (8th Cir.) (de novo review of UCC questions)
- Affeldt v. Westbrooke Condo. Ass’n (In re Affeldt), 60 F.3d 1292 (8th Cir.) (UCC interpretation precedents)
- Helms v. Certified Packaging Corp., 551 F.3d 675 (7th Cir.) (damage awards restoring collateral value are proceeds)
- Paskow v. Calvert Fire Ins. Co., 579 F.2d 949 (5th Cir.) (proceeds concept for awards and insurance recoveries)
- In re Wiersma, 483 F.3d 933 (9th Cir.) (settlement for damage to collateral constitutes proceeds)