IN THE COURT OF APPEALS OF IOWA

No. 17-1356

Filed March 6, 2019

CHURCH CROP INSURANCE SERVICES, INC.,

Plaintiff-Appellee,

vs.

GEMCAP LENDING I, LLC,

Third-Party Interpleader Defendant-Appellant.

________________________________________________________________

Appeal from the Iowa District Court for Polk County, Robert B. Hanson 

(motion for summary judgment) and Eliza J. Ovrom (trial), Judges.

A third-party creditor appeals the grant of declaratory judgment in favor of 

the plaintiff in this interpleader action. REVERSED AND REMANDED.

Larry J. Brock of Brock Law Office, Washington, for appellant.

Sarah K. Franklin and Sarah E. Crane (until withdrawal) of Davis, Brown, 

Koehn, Shors & Roberts, PC, Des Moines, for appellee.

Heard by Tabor, P.J., Bower, J., and Carr, S.J.*

*Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2019).
2

CARR, Senior Judge.

GemCap Lending I, LLC (GemCap) appeals the district court’s grant of 

declaratory judgment in favor of Church Crop Insurance Services, Inc. (Church 

Crop). The district court found Crop USA Insurance Agency, Inc. (Crop USA), as 

a debtor of GemCap, could not pledge as security funds representing commissions 

it owed to Church Crop. The court ordered the release of the disputed funds to 

Church Crop. Although we do not fault Church Crop for feeling proprietary about 

the funds, we think the relevant contracts and Article 9 jurisprudence compel a 

different result. We find Crop USA had rights in the disputed funds and could 

legally pledge the funds as security. Therefore, we reverse and remand for further 

proceedings.

I. Background Facts and Proceedings

Church Crop sells federal crop insurance1 and other crop insurance 

products. In order to sell crop insurance, Church Crop entered into an 

 

1 The Eighth Circuit Court of Appeals has provided the following background on federal 

crop insurance:

In 1938, Congress enacted the Federal Crop Insurance Act [7 

U.S.C. sections 1501 to 1524] to “improv[e] the economic stability of 

agriculture” by establishing a federal crop insurance program. 7 U.S.C. 

§ 1502(a). To implement the program, Congress created the Federal Crop 

Insurance Corporation [(FCIC)], a wholly owned government corporation 

within the United States Department of Agriculture. Id. § 1503; 7 C.F.R. 

§ 400.701. In 1996, Congress created the Risk Management Agency 

[(RMA)], which administers the federal crop insurance program on behalf 

of the FCIC. We refer to the FCIC and the RMA jointly as the FCIC.
3

“Independent Agent Contract” with Crop USA in 2010.

2

 Under the “Independent 

Agent Contract,” Church Crop is authorized to solicit applications for insurance 

coverage for certain insurers contracted with Crop USA. Crop USA in turn is 

obligated to pay commissions to Church Crop based on premiums generated when

these applications result in placement of a policy. Thereafter, Crop USA entered 

into a “Sales Agent–Company Agreement” with Diversified Crop Insurance 

Services (Diversified). As a result of these agreements, Church Crop was 

authorized to write crop insurance policies with Diversified through Crop USA, 

Diversified was required to pay compensation to Crop USA for these policies, and 

Crop USA was required to pay the appropriate commissions to Church Crop. 

Angela Church, president of Church Crop, testified Crop USA paid all commissions 

due to Church Crop for 2011 and 2012 and part of the commissions due for 2013.

GemCap makes asset-based loans to small-to-medium-sized businesses. 

In 2011, GemCap and Crop USA entered into a “Loan and Security Agreement.”3 

 

The FCIC contracts with approved private insurance companies to 

offer crop insurance policies to eligible farmers. 7 U.S.C. § 1502(b)(2). 

Under the program, farmers purchase policies from the designated private 

insurance companies, and insurance agents receive commissions for the 

policies they write for those companies. Those companies are in turn 

reinsured by the FCIC in accordance with the terms of a standard 

reinsurance agreement [(SRA)]. Thus, when a farmer incurs a loss to an 

insured crop, the farmer files a claim with the private insurance company. 

The insurance company assesses the amount of the loss, pays the farmer’s 

claim for damage, and then seeks reimbursement from the FCIC. The FCIC 

reimburses the company for all or part of the amount paid to the farmer, 

depending on the particular arrangement set forth in the SRA. The FCIC 

also subsidizes a portion of the premiums paid by the insured farmers.

U.S. v. Hawley, 619 F.3d 886, 888–89 (8th Cir. 2010).

2 The “Independent Agent Contract” states it “shall be construed in accordance with the 

laws of the State of Idaho.” 

3 The “Loan and Security Agreement” states it “SHALL BE GOVERNED BY AND 

CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE 

STATE OF CALIFORNIA.”
4

Under the agreement, GemCap agreed to lend money to Crop USA. As collateral, 

Crop USA agreed to convey to GemCap “a first priority continuing security interest 

in and Lien upon all now owned and hereafter acquired property and assets of 

[Crop USA] and the Proceeds and products thereof.” GemCap and Crop USA

subsequently entered into an “Amended and Restated Loan and Security 

Agreement,” which granted GemCap a security interest in the same property. Crop 

USA also authorized GemCap to withdraw funds from all of its deposit accounts. 

As part of their agreements, Diversified paid commissions and certain subsidies 

into an account—called a “blocked account”—under the control of Gemcap. To 

this end, Crop USA executed a “BLOCKED ACCOUNT CONTROL 

AGREEMENT,” instructing the depository bank that GemCap has a security 

interest in and “sole dominion and control” of the blocked account. 

At trial, Ray Johnson Taylor, president of Crop USA, testified sales of crop 

insurance policies “occur long before the receipt of the commissions,” and Crop 

USA entered into the agreements with GemCap as “a financing arrangement for 

that interim period.” Taylor explained between that, as Crop USA had done with 

previous lenders, Crop USA would draw from its line of credit with GemCap to pay 

its obligations: “Pay bills, pay commissions, pay salaries,” including its contractual 

obligations with Church Crop and its other sales agents. He agreed with counsel 

that the blocked-account agreement meant “monies that were due from Diversified 

to Crop USA under its contract were paid by wire transfer by Diversified into a 

controlled account, controlled by GemCap,” and “GemCap was entitled to take all 

funds that were wire-transferred into the blocked accounts.”
5

In 2013, GemCap issued a notice of default to Crop USA, claiming Crop 

USA had violated several of its obligations under the loan, including failing to make 

required payments, using loan funds for unauthorized purposes, and 

misrepresenting material facts. After providing notice of its right to accelerate the 

loan, GemCap filed suit against Crop USA and several other defendants in 

California federal district court asserting breach of the loan agreement and other 

claims. See Gemcap Lending I LLC v. Crop USA Ins. Agency Inc., CV 13-05504 

SJO (MANx), 2015 WL 12746212, at *2 (C.D. Cal. Aug. 17, 2015). The court soon 

issued a temporary restraining order followed by a preliminary injunction, both 

barring Diversified from distributing any proceeds potentially owed to Crop USA or 

its agents or subagents during the action. See id. In 2014, GemCap reached a 

confidential settlement with some of the defendants. See id. at 3. GemCap then 

sought release of the enjoined funds, which the court denied on multiple occasions. 

See id. On August 17, 2015, the court determined it could not identify the lawful 

recipients of the enjoined funds in the action before it, and it dissolved the 

preliminary injunction without ordering Diversified to release the enjoined funds. 

See id. at *7–8.

On October 3, 2014, during the California litigation, Church Crop filed a 

petition in Iowa district court against Crop USA and Diversified seeking a 

temporary injunction—which the court granted—preventing the defendants from 

transferring any funds representing the commissions owed to it. Church Crop then 

filed a petition for declaratory judgment, asking the court to determine its unpaid 

commissions are neither the property of Crop USA nor subject to any 

encumbrances by GemCap. Diversified filed a counterclaim, cross-claim, and 
6

third-party interpleader petition naming Chuch Crop, GemCap, and Crop USA and 

requesting a determination of the rights of the parties with respect to certain funds 

in its possession. Diversified later filed a motion for leave seeking to place with 

the court “$545,767.31 in commissions and underwriting gains, after accounting 

for all premium and other contractually permitted or required offsets, payable to 

Crop USA as a result of policies placed through Crop USA by [Church Crop] for 

crop year 2013” (the Diversified funds). The court granted Diversified’s motion to 

deposit the funds, and trial was held May 3 and 4, 2017. On June 21, the court 

issued its “Ruling and Order” finding Crop USA had no rights in the Diversified 

funds. Therefore, the court found GemCap could not encumber the commissions, 

and it released the Diversified funds to Church Crop. GemCap now appeals.

II. Standard of Review

At the outset, the parties disagree about the standard of review. Our “review 

of a declaratory judgment action depends upon how the action was tried to the 

district court.” Van Sloun v. Agans Bros., Inc., 778 N.W.2d 174, 178 (Iowa 2010). 

“To determine the proper standard of review, we consider the ‘pleadings, relief 

sought, and nature of the case [to] determine whether a declaratory judgment 

action is legal or equitable.’” Id. (quoting Passehl Estate v. Passehl, 712 N.W.2d 

408, 414 (Iowa 2006)).

Multiple factors indicate this case was tried at law below. The outcome 

depends on the interpretation of contracts and statutes. See id. at 179. The court 

ruled on objections at trial. See id. The court issued a “Ruling and Order” and not 

a “Decree.” See id. at 178. Therefore, we find the case was tried at law. See id. 

We review cases tried at law for errors at law. See id. at 179. “Under this standard 
7

of review, the trial court’s findings carry the force of a special verdict and are 

binding if supported by substantial evidence. We are not, however, bound by the 

trial court’s legal conclusions.” Id.

III. Analysis

The district court framed the issue before it as “whether Crop USA could 

legally pledge as security all payments received from Diversified, which included 

the commissions owed to Church Crop, under the California Uniform Commercial 

Code.” California Commercial Code section 9203 (2013) places several 

requirements and conditions on the attachment and enforceability of a security 

interest. One of those requirements is, “The debtor has rights in the collateral or 

the power to transfer rights in the collateral to a secured party.”4 Cal. Com. Code 

§ 9203(b)(2); see also id. § 9203 cmt. 6 (“[I]n accordance with basic personal 

property conveyancing principles, the baseline rule is that a security interest 

attaches only to whatever rights a debtor may have, broad or limited as those rights 

may be.”). The Code “does not define the term ‘rights in the collateral.’” In re 

Coupon Clearing Serv., Inc., 113 F.3d 1091, 1103 (9th Cir. 1997). However, 

“[w]here a debtor has rights to collateral beyond naked possession, a security 

interest may attach to such rights.” Id.; see also Larry Lawrence, Lawrence’s 

Anderson on the Uniform Commercial Code § 9-203:205 (3d ed.) (“The fact that 

the owner of property is subject to a duty to a third person with respect to the 

property does not negate the existence of the owner’s rights in the property. It 

merely means that the rights are less than full title.”). 

 

4

Iowa, having enacted the Uniform Commercial Code, has a similar statute. See Iowa 

Code § 554.9203(2)(b) (2013).
8

Beyond question, Church Crop had a contract right to be paid commissions 

they earned writing policies with Diversified through Crop USA, and Crop USA was 

contractually obligated to pay commissions to Church Crop. However, as the 

district court stated, the issue is “whether Crop USA could legally pledge as 

security all payments received from Diversified.” We find Crop USA could do so. 

Church Crop has not shown any statute or rule denying Crop USA rights to 

payments coming directly from Diversified or otherwise preventing it from granting 

a security interest in such funds. No contract exists between Church Crop and 

Diversified that could deny Crop USA rights to payments from Diversified. The 

“Sales Agent—Company Agreement” between Diversified and Crop USA is silent 

on Church Crop or any other agent of Crop USA, and the only payments from 

Diversified this agreement addresses is the “Agency Compensation” payable to 

Crop USA. The “Independent Agent Contract” between Church Crop and Crop 

USA does not affect the rights of payments coming directly from Diversified, and it 

explicitly makes Crop USA solely responsible for commissions to Church Crop:

So long as this contract remains in full force and effect, [Crop 

USA] will pay commissions on premiums received by the Insurer and 

recorded by us on coverage issued from applications procured by 

you in accordance with the attached Commission Schedule, and 

subject to the provisions of this contract. Commission payments 

shall be calculated at the percentage rates listed in your Commission 

Schedule. The Commission Schedule may be supplemented or 

amended by us from time to lime.

The commissions payable under this contract shall be 

compensation in full for all applications written by [Church Crop], for 

all services performed by [Church Crop], and for all expenses 

incurred. It is expressly understood that [Crop USA is] solely 

responsible for all commissions to which [Church Crop] may be 

entitled pursuant to this contract and that the Insurers represented 

by [Crop USA] and listed in the attached Commission Schedule have 

no obligation to [Church Crop] for any commissions, expense 
9

allowances, or any other form of compensation whatsoever for 

[Church Crop’s] performance under the terms of this contract.

(Emphasis added.) 

Church Crop points to language from the “Independent Agent Contract” 

stating its commissions are paid “on premiums received by the Insurer.” The 

district court found this language recognized Crop USA was a mere intermediary 

that passed commissions from Diversified to Church Crop. Such an interpretation 

ignores language in the next paragraph stating “that [Crop USA is] solely 

responsible for all commissions to which [Church Crop] may be entitled.” This 

language directly contradicts any interpretation that Crop USA was only a conduit 

for commissions from Diversified. When reading the contract as a whole, the 

language requiring Crop USA to “pay commissions on premiums received by the 

Insurer” reflects its obligation to pay commissions based on the compensation 

schedule and calculated using the amounts of premiums Diversified received. 

Church Crop notes a California court has found a debtor had no interest in 

its account to grant a security interest where a claimant can trace the funds back 

to proceeds that were due it. Oxford St. Props., LLC v. Rehab. Assocs., LLC, 141 

Cal. Rptr. 3d 704, 713 (Cal. Ct. App. 2012). However, there the court also found 

the debtor had no right to pledge the disputed proceeds as security because the 

security agreement with the creditor was never intended to cover the disputed 

proceeds. Id. As explained above, no statute, rule, or contract denies Crop USA 

rights to the Diversified funds. Additionally, while the “Sales Agent—Company 

Agreement” requires Crop USA to “maintain a monthly account of [Church Crop’s] 
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commissions,” the Diversified funds at issue here come directly from Diversified 

and not from a separate account of commissions for Church Crop.

Church Crop asserts additional evidence indicates the parties intended for 

it to have the sole right to funds representing its commissions that come directly 

from Diversified. We only consider additional evidence if the contract is 

ambiguous. See Knipe Land Co. v. Robertson, 259 P.3d 595, 601 (Idaho 2011) 

(“Where a legal instrument is found to be unambiguous the legal effect must be 

decided by the district court as a matter of law; it is only when the instrument is 

found to be ambiguous that evidence as to the meaning of that instrument may be 

submitted to the finder of fact.”). We find no ambiguity in the contracts as to the 

parties’ rights to the Diversified funds. Therefore, we need not consider this 

additional evidence. See id. 

Even if we were to consider the additional evidence, it would not change 

our opinion. Diversified prepared a series of commission recaps for Church Crop, 

showing the amount of commissions owed to Church Crop for crop year 2013. 

While these recaps show Diversified knew how much in premiums Church Crop 

generated and how much in commissions these premiums generated, the recaps 

do not indicate Diversified owed the commissions directly to Church Crop. While 

Angela Church testified she believed Diversified was required by law to track agent 

commissions, nothing in the record explains why Diversified provided these 

commission recaps to Church Crop.5 As such, the commission recaps are not 

 

5 We note the commission recaps are dated October 27, 2014, less than one month after 

Church Crop filed its petition for a temporary injunction, and more than a year after Crop 

USA defaulted on its GemCap obligations.
11

inconsistent with Crop USA having rights to pledge payments from Diversified as 

security.

We also note the record includes a letter from Crop USA to Diversified dated 

November 21, 2011. The letter notifies Diversified of the financing arrangement 

between Crop USA and GemCap, including the grant of a security interest to 

GemCap of “all payments, proceeds and other sums to which” Crop USA is entitled 

under the Sales Agency—Company Agreement between Crop USA and 

Diversified. The letter asks Diversified to acknowledge that granting a security 

interest in these payments “does not constitute a default by” Crop USA under their 

agreement. The accounting manager for Diversified “[a]cknowledged and agreed

to” the letter by signing it without addendum. The fact Crop USA sought, and 

Diversified granted, permission to pledge payments from Diversified as a security 

interest supports our conclusion that Crop USA had rights in these payments and

was not merely acting as a conduit for Church Crop’s commissions.

Finally, the district court noted the complaint GemCap filed in federal district 

court, in which it asserted the role of Crop USA in the crop insurance system “is to 

collect premiums and to ensure [Crop USA’s] agents confirm policyholders make 

the premium payments from the sale of policies and distribute appropriate 

commissions to the selling agents, charging a fee for doing so.” The district court 

believed this passage amounts to GemCap recognizing Crop USA was only a 

conduit for its agents’ commissions. We cannot assign such a broad effect to this 

language, and we do not view this passage as inconsistent with Crop USA having 

rights to payments from Diversified. GemCap filed this complaint July 30, 2013, 

well before GemCap and Church Crop entered into any legal action with each 
12

other. Because GemCap filed its federal complaint before it would have reviewed 

the “Independent Agent Contract” between Crop USA and Church Crop, it could 

not have fully understood the legal relationship between Crop USA and Church 

Crop when it filed the federal complaint.

While both parties advance other issues, the only question properly before 

us is whether Crop USA had the “rights in the collateral” needed to grant a security 

interest. See Cal. Com. Code § 9203(b)(2). We find Crop USA had such rights in 

the Diversified funds; Crop USA was more than a mere intermediary holding 

possession without title. See id.; see also Coupon Clearing Serv., Inc., 113 F.3d 

at 1103 (finding the debtor had rights in the disputed funds “that went beyond 

naked possession, including the rights to receive and retain the [funds], to 

commingle the [funds] with its general operating funds, to use the [funds] in its 

operations and to apply the [funds] to any payments made” to claimants). Having 

concluded, we think in error, that Crop USA did not have rights in the collateral 

sufficient to grant a security interest, the trial court did not reach the other two 

elements necessary to prove the Gemcap security interest attached to the 

Diversified funds in the hands of Crop USA. See Bank of the W. v. Commercial 

Credit Fin. Servs., Inc., 852 F.2d 1162, 1166 (9th Cir. 1988) (Noting elements of 

attachment). We confine our opinion to the question presented. We express no 

opinion about attachment, perfection (including its necessity), or the relative 

priorities of the parties in the fund on deposit with the court.

IV. Conclusion

Crop USA had rights in the funds coming directly from Diversified and 

representing commissions owed to Church Crop, and it could legally pledge these 
13

payments as security. Therefore, we reverse the district court’s grant of 

declaratory judgment and remand for further proceedings.

REVERSED AND REMANDED.