Sunshine Heifers, LLC v. Citizens First Bank (In Re Purdy)
870 F.3d 436
| 6th Cir. | 2017Background
- Lee Purdy operated a Kentucky dairy and had a 2009 purchase-money security agreement with Citizens First Bank (CFB) covering livestock; CFB filed financing statements and perfected liens.
- Purdy leased 435 cows from Sunshine Heifers under multi-year "Dairy Cow Lease" contracts that reserved a reversionary interest to Sunshine and required branding and guaranteed residual values.
- Purdy commingled funds in a Citizens First account, sold calves and cows, replaced culled cows with purchased animals, and applied inconsistent branding; by bankruptcy filing (Nov. 2012) ~389 cattle remained on the farm.
- Bankruptcy court initially held the leases were disguised security interests and awarded CFB proceeds from a trustee auction; this court reversed in 2014 on the disguised-lease issue and remanded for further proceedings.
- On remand the bankruptcy court held an evidentiary hearing, found CFB’s security interest attached to all auctioned cattle because the debtor used CFB-related funds to acquire them, and awarded auction proceeds to CFB; the district court affirmed and this appeal followed.
Issues
| Issue | Plaintiff's Argument (Sunshine) | Defendant's Argument (Citizens First) | Held |
|---|---|---|---|
| Whether the bankruptcy court violated the Sixth Circuit mandate by holding an ownership hearing on remand | Prior opinion already awarded Sunshine ~ $309,000; remand was narrow and precluded relitigation of ownership | Remand was general; prior opinion only decided leases vs. disguised security agreements, not detailed ownership | Court: remand was general; hearing and ownership findings did not violate mandate |
| Whether the bankruptcy court’s factual findings on ownership were clearly erroneous | Branding and other record evidence show Sunshine-owned cattle remained; Purdy’s testimony was not credible | Record shows commingled receipts, sales, and purchases through CFB account; branding evidence inconclusive; debtor testimony credited | Court: factual findings not clearly erroneous; bankruptcy court as factfinder credited Purdy and other evidence |
| Applicability of Kentucky Brand Statute (KRS §253.060) to establish Sunshine’s prima facie ownership | Sunshine’s registered brand entitles it to prima facie ownership of branded cattle regardless of timing | Sunshine’s brand registration postdated the petition; statute’s prima facie effect does not aid pre-petition ownership and was rebutted | Court: statute did not establish Sunshine’s ownership because registration was post-petition and any presumption was rebutted by evidence |
| Whether CFB met its burden to show its security interest attached to the cattle | Sunshine claims superior evidence of ownership and UCC Articles 2A/9 protect its interest; CFB failed to prove attachment to all cattle | CFB shows debtor used commingled/CFB-related funds to acquire or replace cattle so CFB’s after-acquired collateral interest attached | Court: CFB met its burden; attachment occurred when debtor used commingled/CFB funds to acquire cattle; Sunshine failed to prove ownership |
Key Cases Cited
- In re Purdy, 763 F.3d 513 (6th Cir. 2014) (prior panel reversed bankruptcy court on disguised-lease issue and remanded)
- Barlow v. M. J. Waterman & Assocs., Inc. (In re M.J. Waterman & Assocs., Inc.), 227 F.3d 604 (6th Cir. 2000) (standard of review for appeals from bankruptcy court)
- Onkyo Europe Elec. GMBH v. Global Technovations Inc. (In re Global Technovations Inc.), 694 F.3d 705 (6th Cir. 2012) (bankruptcy judge is finder of fact; factual findings reviewed for clear error)
- Brown v. United States, 622 F. Supp. 1047 (D.S.D. 1985) (commingling debtor/creditor funds can cause creditor’s lien to attach to after-acquired livestock)