Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca8-03-03191/USCOURTS-ca8-03-03191-0/pdf.json

Parties Involved:
Farm Credit Midsouth
Appellant
Farm Fresh Catfish Company
Appellee

Document Text:

1

The Honorable William R. Wilson, Jr., United States District Judge for the

Eastern District of Arkansas.

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

___________

No. 03-3191

___________

Farm Credit Midsouth, PCA, formerly *

known as Eastern Arkansas Production *

Credit Association, *

*

Appellant, *

* Appeal from the United States

v. * District Court for the 

* Eastern District of Arkansas.

Farm Fresh Catfish Company, *

*

Appellee. *

___________

 Submitted: April 16, 2004

 Filed: June 14, 2004

___________

Before WOLLMAN, McMILLIAN, and RILEY, Circuit Judges.

___________

RILEY, Circuit Judge.

Farm Credit Midsouth, PCA (Farm Credit) sued Farm Fresh Catfish Company

(Farm Fresh) alleging Farm Fresh had converted Farm Credit’s perfected security

interest in catfish purchased by Farm Fresh. On summary judgment, the district court1

concluded Farm Fresh did not convert Farm Credit’s security interest, because Farm

Credit failed to comply with the direct notice exception of the Food Security Act of

Appellate Case: 03-3191 Page: 1 Date Filed: 06/14/2004 Entry ID: 1776662 
-2-

1985 (Act). 7 U.S.C. § 1631(e)(1) (2000); see Pub. L. No. 99-198, 99 Stat. 1354

(1985) (codified throughout Title 7 of the United States Code, and referred to as the

Food Security Act of 1985). Farm Credit appeals. We affirm.

I. BACKGROUND

Farm Credit financed Reece Contracting, Inc.’s (Reece) purchase and operation

of an Arkansas catfish farm. To secure the financing, Reece granted Farm Credit a

first priority security interest in Reece’s catfish and catfish fingerlings. Farm Credit

filed a financing statement with the Arkansas Secretary of State and the counties in

which Reece raised catfish.

On July 2, 1998, Farm Credit sent Farm Fresh a letter informing Farm Fresh

that Farm Credit was financing Reece’s production costs, and Farm Credit had a first

priority lien in all of Reece’s catfish. On March 30, 2000, Farm Credit again sent

Farm Fresh a letter containing the same information as the July 1998 letter.

Farm Fresh regularly purchased catfish from Reece. After Reece defaulted on

its obligations, Farm Credit discovered Farm Fresh had allegedly not honored its

payment obligations under the Act for forty-four payments to Reece, totaling

$692,081.71. Although Farm Fresh usually paid with checks payable to Reece and

Farm Credit, on these forty-four catfish purchases, the Farm Fresh checks listed only

Reece as payee. Farm Credit sued Farm Fresh, contending Farm Fresh converted

Farm Credit’s security interest. 

On cross motions for summary judgment, the district court granted judgment

in Farm Fresh’s favor, concluding Farm Credit and its letters did not strictly comply

with the Act’s direct notice exception. Farm Credit appeals, contending it need only

substantially comply with the Act’s direct notice exception, and its letters to Farm

Fresh substantially complied with the direct notice exception.

Appellate Case: 03-3191 Page: 2 Date Filed: 06/14/2004 Entry ID: 1776662 
2

Since Farm Credit sent its March 2000 letter, Congress has amended the Act.

See Farm Security and Rural Investment Act of 2002, Pub. L. No. 107-171, § 10604,

116 Stat. 134, 512 (2002). The amendment does not affect the outcome of this

appeal.

-3-

II. DISCUSSION

“We review the district court’s grant of summary judgment de novo.”

Interstate Cleaning Corp. v. Commercial Underwriters Ins. Co., 325 F.3d 1024, 1027

(8th Cir. 2003). “We will affirm a district court’s grant of summary judgment ‘if the

pleadings, depositions, answers to interrogatories, and admissions on file, together

with affidavits . . . ’ demonstrate that no genuine issue of material fact exists and the

moving party is entitled to judgment as a matter of law.” Id. (quoting Fed. R. Civ. P.

56(c)).

We review a district court’s interpretation of a statute de novo. Jessep v.

Jacobson Transp. Co., 350 F.3d 739, 741-42 (8th Cir. 2003). “In analyzing a statute,

we begin by examining the text, not by ‘psychoanalyzing those who enacted it.’”

Carter v. United States, 530 U.S. 255, 271 (2000) (quoting Bank One Chicago, N.A.

v. Midwest Bank & Trust Co., 516 U.S. 264, 279 (1996) (internal citation omitted)).

We “assum[e] that the ordinary meaning of [a statute’s] language accurately expresses

the legislative purpose.” Engine Mfrs. Ass’n v. South Coast Air Quality Mgmt.

Dist., __ U.S. __, 124 S. Ct. 1756, 1761 (2004) (citation omitted).

Congress adopted the Act to protect farm products purchasers from double

payment.2

 See 7 U.S.C. § 1631(a)-(b). The Act provides:

Except as provided in subsection (e) . . . , a buyer who in the ordinary

course of business buys a farm product from a seller engaged in farming

operations shall take free of a security interest created by the seller, even

though the security interest is perfected; and the buyer knows of the

existence of such interest.

Appellate Case: 03-3191 Page: 3 Date Filed: 06/14/2004 Entry ID: 1776662 
-4-

Id. § 1631(d). According to the Act’s plain meaning, subsection (d) provides that a

farm products purchaser, unless the secured creditor complies with subsection (e),

buys farm goods free of a secured creditor’s security interest, even if the purchaser

knows of the security interest.

Subsection (e) declares a farm products purchaser “takes subject to a security

interest created by the seller if” (1) the secured creditor provided, within a year before

the sale, the farm products purchaser with direct written notice of the secured

creditor’s interest (direct notice exception), id. § 1631(e)(1)(A); or (2) the secured

creditor filed an effective financing statement covering the farm products if the state

has established a central filing system that complies with the Act (central filing

exception), id. § 1631(e)(2). Congress’s use of “if” emphasizes the farm products

purchaser takes the farm goods subject to the security interest only when the secured

creditor complies with the direct notice exception or the central filing exception.

Farm Fresh and Farm Credit agree Arkansas law applies, and Arkansas has not

established a central filing system that complies with the Act. Although only the

Act’s direct notice exception is applicable, a comparison of the two subsection (e)

exceptions is instructive for our analysis.

To comply with the direct notice exception, a secured creditor must send the

farm products purchaser a written notice listing (1) the secured creditor’s name and

address, (2) the debtor’s name and address, (3) the debtor’s social security number or

taxpayer identification number, (4) a description of the farm products covered by the

security interest and a description of the property, and (5) any payment obligations

conditioning the release of the security interest. Id. § 1631(e)(1)(A)(ii)(I)-(IV) &

§ 1631(e)(1)(A)(v). The description of the farm products must include the amount

of the farm products subject to the security interest, the crop year, and the counties

in which the farm products are located or produced. Id. § 1631(e)(1)(A)(ii)(IV).

Appellate Case: 03-3191 Page: 4 Date Filed: 06/14/2004 Entry ID: 1776662 
3

We reject the Kansas Supreme Court’s application of a substantial compliance

factor to the Act’s direct notice exception. See First Nat’l Bank & Trust v. Miami

-5-

To comply with the central filing exception, the secured creditor must file a

financing statement containing the same information as required in the written notice,

except the secured creditor need not include crop year or payment obligation

information. Compare id. § 1631(c)(4)(D)(i)-(iv) with id. § 1631(e)(1)(A)(ii)(I)-(IV)

and § 1631(e)(1)(A)(v). Notwithstanding errors contained in the financing statement,

a financing statement in a central filing state remains effective so long as the errors

“are not seriously misleading.” Id. § 1631(c)(4)(I).

Unlike the Act’s definition of an effective financing statement in a central

filing state, the Act’s direct notice exception does not contain language indicating the

required contents of the written notice are merely permissive or can be satisfied

through substantial compliance (i.e., “are not seriously misleading”). By including

substantial compliance language in defining an effective financing statement for the

central filing exception and excluding such language from the direct notice exception,

Congress presumptively and logically intended that a secured creditor must strictly

comply with the direct notice exception. See Lutheran Soc. Serv. of Minn. v. United

States, 758 F.2d 1283, 1289 (8th Cir. 1985) (noting “[w]here Congress includes

particular language in one section of a statute but omits it in another section of the

same [statute], it is generally presumed that Congress acts intentionally and purposely

in the disparate inclusion or exclusion”) (alterations in original; citation omitted).

Congress probably has its reasons for the disparate treatment, such as the desire to

encourage central filings and a goal to simplify the interstate and foreign agricultural

markets for farm products purchasers, and, ultimately, the farmer and the consumer.

Congress is the appropriate forum to consider and, if it wishes, to legislate substantial

compliance language in the Act’s direct notice exception. Cf. GMAC Commercial

Credit LLC v. Dillard Dep’t Stores, Inc., 357 F.3d 827, 829 (8th Cir. 2004) (noting,

while many similarities exist between a limited liability company and a corporation,

Congress is the appropriate forum to apply the same citizenship rule for limited

liability companies as for corporations).3

Appellate Case: 03-3191 Page: 5 Date Filed: 06/14/2004 Entry ID: 1776662 
County Coop. Assoc., 897 P.2d 144, 152 (Kan. 1995). We consider the decision

unpersuasive and contrary to established rules of statutory interpretation.

-6-

Forcing secured creditors to comply strictly with the direct notice exception

does not run afoul of the Act’s purpose. Congress adopted the Act to protect farm

products purchasers from double payment. 7 U.S.C. § 1631(a)-(b). Requiring a

secured creditor to comply strictly with the Act’s direct notice provision removes

ambiguity regarding compliance, and protects farm products purchasers from double

payment. Extending substantial compliance to the direct notice exception would have

the opposite effect, requiring a farm products purchaser to guess whether the written

notice substantially complied with the Act’s direct notice exception. If the purchaser

guesses wrong, the purchaser is exposed to double payment. Conversely, a farm

products purchaser may easily verify if the secured creditor strictly complied with the

Act’s direct notice exception.

Farm Credit’s July 2, 1998 and March 30, 2000 letters do not comply strictly

with the Act’s direct notice exception. Neither letter contains Reece’s taxpayer

identification number, Reece’s address, or the counties in which the catfish subject

to Farm Credit’s security interest are produced or located. Because the July 1998 and

March 2000 letters fail to comply with the Act’s direct notice exception, Farm Fresh

purchased the catfish free of Farm Credit’s security interest, even though Farm Fresh

knew of the existence of such interest. See 7 U.S.C. § 1631(d).

III. CONCLUSION

For the foregoing reasons, we affirm the district court’s well-analyzed order

granting summary judgment to Farm Fresh.

______________________________

Appellate Case: 03-3191 Page: 6 Date Filed: 06/14/2004 Entry ID: 1776662