Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-07-03102/USCOURTS-ca8-07-03102-0/pdf.json

Nature of Suit Code: 290
Nature of Suit: Other Real Property Actions
Cause of Action: 

---

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 07-3102

___________

Border State Bank, N.A., * 

*

 Plaintiff - Appellant, *

*

v. * Appeal from the United States

* District Court for the 

AgCountry Farm Credit Services, * District of Minnesota.

FLCA; and AgCountry Farm Credit *

Services, PCA, *

*

 Defendants - Appellees. *

*

___________

Submitted: May 12, 2008

Filed: August 1, 2008 

___________

Before WOLLMAN, MURPHY, and SMITH, Circuit Judges.

___________

MURPHY, Circuit Judge.

Border State Bank, N.A. (Bank) brought this action asserting that defendants

AgCountry Farm Credit Services, FLCA (FLCA) and AgCountry Farm Credit

Services, PCA (PCA) had improperly retained sale proceeds in excess of their secured

interests in the property sold and had failed to provide notice to the Bank of the sale

and an accounting of the proceeds. The parties filed cross motions for summary

Appellate Case: 07-3102 Page: 1 Date Filed: 08/01/2008 Entry ID: 3457285
1

The Honorable Joan N. Ericksen, United States District Judge for the District

of Minnesota.

-2-

judgment, and the district court1

 granted defendants' motion. The Bank appeals, and

we affirm.

The Bank, PCA, and FLCA all claimed security interests in the assets of Dutch

Friendship Farms, L.L.P. (Dutch Farms), a dairy farming operation in Lancaster,

Minnesota. The Bank's security interest was established by a promissory note for

$300,000 which it and Dutch Farms executed in 2005. A security agreement

accompanying the note gave the Bank a secured interest in assets belonging to Dutch

Farms which included its inventory, any accounts and rights to payment it might have,

and farm products such as livestock, crops, and agricultural supplies. 

PCA and FLCA claimed security interests in the Dutch Farms assets based on

loans each had earlier made to River Ridge Dairy, L.L.P. (River Ridge). Between

1998 and 2001 River Ridge borrowed a total of almost $1.8 million from PCA and

almost $3.0 million from FLCA. Under the security agreement for those loans, River

Ridge granted PCA and FLCA security interests in essentially all of its assets,

including livestock, equipment, accounts, and agricultural supplies and products, and

PCA and FLCA each also obtained a mortgage on the land belonging River Ridge.

River Ridge defaulted on its obligations to PCA and FLCA in early 2003 and

eventually ceased business operations entirely.

Some of the River Ridge principals together with a new investor formed Dutch

Farms, another dairy farming business which was to operate on River Ridge's land.

After it became clear that River Ridge would not be able to pay all its debts, it entered

into a forbearance agreement with its personal guarantors, FLCA, PCA, and Dutch

Farms in January 2003. As described in that agreement, River Ridge deeded its land

back to FLCA and PCA, and they agreed to allow Dutch Farms to purchase most of

Appellate Case: 07-3102 Page: 2 Date Filed: 08/01/2008 Entry ID: 3457285
2

There is a discrepancy in the record about how much money was received for

Dutch Farms' livestock. A Vice President of FLCA and PCA stated in a 2007

affidavit that the net proceeds from the dairy herd were $1,437,117.02, but in a 2006

letter the same Vice President wrote that the amount received was $1,482,687.81.

These differences are not material here because of the large outstanding debts to

FLCA and PCA.

-3-

the River Ridge assets and lease the farm. The agreement provided that payments

were to be made to reduce the principal and interest on River Ridge's debt to PCA to

$1.4 million. Dutch Farms was to assume the PCA debt and grant PCA a first priority

security interest in its personal property, including its livestock and equipment. The

forbearance agreement also stated that the River Ridge "personal property collateral"

– primarily livestock and equipment – would be "sold subject to the security interests

of Lender," and lender was defined to mean PCA and FLCA collectively. 

Later in 2003 Dutch Farms bought the assets of River Ridge. The asset

purchase agreement stated that the purchase price was $1.4 million and was paid by

Dutch Farms' assumption of "that debt and obligation owing to AgCountry."

Although FLCA did not provide any loans directly to Dutch Farms, an addendum to

the asset purchase agreement provided that "[a]ll Assets shall be transferred from

Seller [River Ridge] to Buyer [Dutch Farms] subject to the security interests of . . .

AgCountry Farm Credit Services, FLCA." 

After encountering its own financial problems, Dutch Farms defaulted on its

loans from the Bank and PCA. At the end of 2005 it decided to close its business and

liquidate its assets, which sold for approximately $1.7 million.2

 At the time of sale

Dutch Farms owed PCA more than $1.4 million, and the principal and interest on the

FLCA loans to River Ridge exceeded $2.6 million. PCA and FLCA obtained the

proceeds of the sale and applied them first to the PCA loans and the expenses of the

sale. The remaining balance was applied to the FLCA loans, but the funds were

insufficient to satisfy that debt. 

Appellate Case: 07-3102 Page: 3 Date Filed: 08/01/2008 Entry ID: 3457285
-4-

The Bank brought this action against PCA and FLCA, contending that it was

entitled to a portion of the proceeds from the Dutch Farms assets and an accounting.

It also alleged that PCA and FLCA had failed to give it notice of the disposition of the

assets as required by Minnesota statute, and it raised claims of unjust enrichment and

conversion. The defendants moved for summary judgment, and the Bank responded

with a cross motion for partial summary judgment. The district court granted the

defendants' motion, and the Bank appeals. The Bank admits that PCA had a senior

security interest in Dutch Farms' assets and does not challenge the payment of the

PCA debts. Rather, it argues that payment of the FLCA debts was improper because

FLCA did not have a valid security interest in the Dutch Farms assets. The Bank also

contends that the district court erred in determining that FLCA and PCA were not

obligated to give it notice of the liquidation sale and in denying its request for an

accounting. In reply, FLCA and PCA urge us to affirm in all respects. 

We review a grant of summary judgment de novo, viewing the evidence in the

light most favorable to the nonmoving party. Amrine v. Brooks, 522 F.3d 823, 830

(8th Cir. 2008). Summary judgment is proper if there is no genuine issue of material

fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P.

56(c); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986); Doe

v. Dep't of Veterans Affairs, 519 F.3d 456, 460 (8th Cir. 2008). In order to survive

a motion for summary judgment, the nonmoving party has the burden of setting forth

specific facts to show a genuine issue for trial, and "'[m]ere allegations, unsupported

by specific facts or evidence beyond the nonmoving party's own conclusions'" will not

suffice. Morris v. City of Chillicothe, 512 F.3d 1013, 1018 (8th Cir. 2008) (citation

omitted). If "the record taken as a whole could not lead a rational trier of fact to find

for the nonmoving party, there is no 'genuine issue for trial.'" Matsushita Elec. Indus.

Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citation omitted).

The Bank argues that there is a genuine issue of material fact about whether

FLCA had a valid security interest in Dutch Farms' assets when those assets were sold,

Appellate Case: 07-3102 Page: 4 Date Filed: 08/01/2008 Entry ID: 3457285
-5-

pointing out that FLCA never loaned money directly to Dutch Farms. FLCA and PCA

respond that the district court correctly determined that FLCA had a security interest

in the proceeds from the sale of the contested assets, and that the Bank was not

entitled to a distribution of those proceeds. 

FLCA had a security interest in River Ridge's assets, and Dutch Farms

purchased those assets subject to the FLCA security interest. The forbearance

agreement signed by River Ridge, Dutch Farms, and FLCA expressly provided that

the River Ridge "Personal Property Collateral" would be "sold subject to the security

interests of Lender." It defined the collateral to include property in which FLCA had

a security interest and defined "lender" to include FLCA. An addendum to the asset

purchase agreement specified that "[a]ll Assets shall be transferred from [River Ridge]

to [Dutch Farms] subject to the security interests of . . . FLCA . . . in the Assets." 

Under Minnesota law, FLCA's security interest in the River Ridge collateral

continued after the collateral was purchased by Dutch Farms. When Dutch Farms

sold that property, FLCA's interest attached to the proceeds of the sale. See Minn.

Stat. § 336.9-315(a)(1) ("a security interest or agricultural lien continues in collateral

notwithstanding sale, lease, license, exchange, or other disposition thereof unless the

secured party authorized the disposition free of the security interest or agricultural

lien"); id. § 336.9-315(a)(2) ("a security interest attaches to any identifiable proceeds

of collateral"). Thus, FLCA's security interest in the property of River Ridge could

be traced to the proceeds from the sale of the Dutch Farms assets. 

The Bank asserts that there is evidence that FLCA's debt was satisfied after

River Ridge ceased operations, and it submits that this evidence created a factual issue

which precluded summary judgment. In support, it refers to an affidavit by Michael

Muston, one of the principal investors in and personal guarantors of River Ridge and

Dutch Farms. Muston averred that "River Ridge (via its personal guarantors,

including me) paid an amount in excess of $1,000,000 to AgCountry Farm Credit

Appellate Case: 07-3102 Page: 5 Date Filed: 08/01/2008 Entry ID: 3457285
3

The Muston affidavit also stated that "FLCA agreed to accept the deed to the

River Ridge land back in satisfaction of its debt," but the district court properly

declined to rely on this statement because it contradicted the unambiguous terms of

the forbearance agreement. See Klawitter v. Straumann, 255 N.W.2d 407, 411 (Minn.

1977) ("[T]he excluded testimony would be an attempt by [a party] to say that while

they agreed in writing to one thing, they meant another. This is precisely the type of

evidence intended to be excluded by the parol evidence rule. . . ."); see also Hruska

v. Chandler Assocs., Inc., 372 N.W.2d 709, 713 (Minn. 1985) ("[W]hen parties reduce

their agreement to writing, parol evidence is ordinarily inadmissible to vary,

contradict, or alter the written agreement.").

-6-

Services."3

 The affidavit does not state when the alleged payments were made,

however, or whether FLCA received any portion of those funds. Furthermore,

evidence in the record indicates that more than $2.6 million was still owed on the

FLCA loans when the Dutch Farms collateral was sold. Because a rational trier of fact

could not infer from the Muston affidavit that FLCA had received $2.6 million from

the River Ridge personal guarantors after the Dutch Farms assets were sold, or that

a lesser amount was owed and paid, the affidavit did not create a triable issue of fact

about whether the FLCA debt was satisfied. 

The Bank also argues that a letter to its president from a senior loan officer with

AgCountry Farm Credit Services implied that FLCA's debt was satisfied. The 2003

letter reads, "[t]he long term assets of [River Ridge Dairy] were deeded back to

AgCountry and in turn, AgCountry has entered into a lease arrangement with Dutch

Friendship Farms on the facilities over a four (4) year period. AgCountry came up

substantially short on the long term loans but agreed this was the best method to

minimize our best options [sic] to net the most dollars back to AgCountry at the

present time." The letter does not state that the debts to FLCA were satisfied through

the deed back of the land, and at the summary judgment stage the Bank was only

entitled to those inferences which might be made without resorting to speculation.

See Johnson v. Ready Mixed Concrete Co., 424 F.3d 806, 810 (8th Cir. 2005).

Moreover, the forbearance agreement controverts any suggestion that the deed back

Appellate Case: 07-3102 Page: 6 Date Filed: 08/01/2008 Entry ID: 3457285
-7-

satisfied the FLCA debt, stating that "[e]ven if Lender acquires the Mortgaged

Property by recordation of the Deed and/or foreclosure of the Mortgages, this shall not

satisfy the Indebtedness other than with respect to the proceeds realized upon sale of

the Mortgaged Property, which proceeds shall be applied to the Indebtedness," and

there is no evidence that the land was sold. Because the forbearance agreement is

unambiguous, the 2003 letter would not be admissible to "vary, contradict, or alter the

written agreement." Hruska v. Chandler Assocs., Inc., 372 N.W.2d 709, 713 (Minn.

1985).

At oral argument the Bank asserted that FLCA had not properly perfected its

security interest in Dutch Farms' assets. We will not consider this contention since it

was not addressed by the district court or developed in the appellate briefs. See

Bearden v. Lemon, 475 F.3d 926, 929-30 (8th Cir. 2007) (court of appeals does not

ordinarily consider issues which district court did not rule upon); Meyers v. Starke,

420 F.3d 738, 743 (8th Cir. 2005) ("To be reviewable, an issue must be presented in

the brief with some specificity."). We also need not address the Bank's arguments that

FLCA had no security interest in the collateral under its lease with Dutch Farms since

we have already determined that it did have a security interest in respect to the

forbearance, security, and asset purchase agreements. 

The Bank next argues that the district erred in concluding that Minnesota statute

§ 336.9-611 did not require FLCA and PCA to give it notice of the disposition of the

Dutch Farms assets. FLCA and PCA answer that they had no statutory obligation to

notify the Bank of the sale since they themselves did not sell the Dutch Farms

livestock or equipment, but the Bank asserts that it produced sufficient evidence that

FLCA and PCA controlled the sale of the assets to create a triable issue of fact as to

whether they were required to give it advance notice of the sale. FLCA and PCA

respond that the Bank was not injured by any alleged failure on their part to provide

advance notice of the sale because it was actually aware of the sale before it occurred.

Appellate Case: 07-3102 Page: 7 Date Filed: 08/01/2008 Entry ID: 3457285
-8-

In Minnesota a secured party may sell or otherwise dispose of collateral

following default, see Minn. Stat. § 336.9-610, but (subject to certain exceptions not

relevant here) it "shall send . . . a reasonable authenticated notification of disposition"

to specified persons, including any other secured party with a properly perfected

interest. Minn. Stat. § 336.9-611. Section 336.9-611 only addresses a secured party

which disposes of collateral, however, and it does not mention a debtor which sells

encumbered property, as Dutch Farms did here. Although the Bank asserts that FLCA

and PCA controlled the sale of the Dutch Farms assets, its evidence only shows that

representatives of "AgCountry" discussed sale options with Dutch Farms and others

and that "AgCountry" required Dutch Farms to agree that all proceeds from the

primary means of selling the livestock would be remitted directly to it. 

Neither FLCA nor PCA foreclosed or possessed Dutch Farms' livestock or

equipment prior to the sale. Since the Bank has not produced sufficient evidence to

show that FLCA or PCA disposed of the contested assets as required by § 336.9-611,

a reasonable jury could not return a verdict in its favor and no genuine issue of

material fact exists for trial. See Anderson, 477 U.S. at 248-49; Sokol & Assocs., Inc.

v. Techsonic Indus., Inc., 495 F.3d 605, 610 (8th Cir. 2007). We conclude that the

district court did not err by granting FLCA and PCA's motion for summary judgment

on the alleged violations of § 336.9-611.

The Bank finally argues that the district court erred in granting summary

judgment to FLCA and PCA on its request for an accounting because the movants had

not produced adequately detailed information about how the liquidation proceeds were

applied to their debts. FLCA and PCA reply that they provided the Bank with the

accounting it originally sought by supplying information about the total proceeds

received from the Dutch Farms assets subject to its lien. How the proceeds were

specifically applied to their debt is immaterial according to FLCA and PCA since the

Bank has not disputed the balance owed on their loans and the proceeds were

insufficient to satisfy those amounts.

Appellate Case: 07-3102 Page: 8 Date Filed: 08/01/2008 Entry ID: 3457285
-9-

An accounting is an extraordinary remedy usually available only when legal

remedies are inadequate. See Lefkowitz v. Citi-Equity Group, Inc., 146 F.3d 609, 611

(8th Cir. 1998), citing Bradshaw v. Thompson, 454 F.2d 75, 79 (6th Cir. 1972). The

Bank's amended complaint requested "a complete accounting of all funds collected

and property seized related to the foreclosure, repossession and sale" of the contested

property. During discovery the Bank had the opportunity to obtain information about

the funds FLCA and PCA had collected from Dutch Farms, and FLCA and PCA

produced a letter to one of Dutch Farms' managing partners which listed the funds

received from the sale of its collateral and how those proceeds were applied to its

debts, as well as an affidavit listing the amounts due and collected. The Bank's

attorney deposed the Vice President who had written the letter and asked for

clarification of some of the figures, and the district court extended the discovery

deadline based on a stipulation by the Bank, PCA, and FLCA.

 

Although the Bank now highlights discrepancies in the information produced

by FLCA and PCA and argues that the information produced is not sufficiently

detailed, it does not explain why these deficiencies could not have been adequately

addressed through discovery. Furthermore, the discrepancies are not material since

there is no evidence that the amount collected by FLCA and PCA (at most slightly

over $1.7 million) exceeded the amount due on the debts to them (in excess of $4

million). We conclude that the district court's denial of an accounting was not error.

See Lefkowitz, 146 F.3d at 611; see also Bradshaw, 454 F.2d at 79. 

For these reasons we affirm the judgment of the district court. 

______________________________

Appellate Case: 07-3102 Page: 9 Date Filed: 08/01/2008 Entry ID: 3457285