Iowa Supreme Court Rules that an Iowa Feed Supplier Lien Prevails over a Lender’s Security Interest

The disagreement among the various Iowa and federal courts on the correct interpretation of Iowa’s feed lien law has been settled by the Iowa Supreme Court. In the case of Oyens Feed & Supply, Inc. v. Primebank, a decision of major importance to feed suppliers and lenders as well as livestock producers, the Supreme Court ruled on Dec. 30th that that the feed lien is superior to the secured lender’s security interest even though a certified notice of the feed lien is not sent to the lender. Click here for a copy of the Supreme Court’s decision.

Background – Iowa’ feed lien law and conflicting court decisions.

The Oyens case was referred to the Iowa Supreme Court by the federal district court for the Northern District of Iowa for a definitive ruling on the priority of the liens. This referral was necessary because Iowa and federal courts have issued conflicting rulings on the priority of feed supplier liens vs. a lender’s security interest in a producer’s livestock. Iowa district court judges in Sioux and Clay County, as well as a Minnesota district court judge and a North Carolina federal court, have ruled that a feed supplier’s lien for feed sold to a pork producer had priority over the producer’s bank’s lien. On the other hand, judges in federal bankruptcy court in Iowa and an Ida County district court judge ruled exactly opposite and found that the pork producers’ banks’ liens had priority over the feed suppliers’ liens.

To briefly recap the problem, Iowa law provides a lien to businesses that sell ag supplies such as fertilizer, pesticides, seed, feed or petroleum products used for an ag purpose. This lien must be filed with the Iowa Secretary of State within 31 days after the farmer purchases the ag supply. The disputed part of
the law is that which provides that the supplier is to send a certified letter to the farmer’s lender. The lender must then respond whether the farmer has sufficient finances to assure payment of the ag supply and provide a full and complete relevant financial history. This section states that a supplier who sells an ag supply and files an ag supply lien will lose to the lender’s lien if the lender either did not receive the certified letter or received the letter and responded, along with the necessary financial history, that the farmer did not have sufficient finances to cover the price of the ag supply. If the lender responded that the farmer had sufficient finances, the ag supplier and the lender have equal priority under their liens. However, the law also states that for feed, the ag supplier will have priority (not just equal priority) in livestock sales proceeds for the difference between the livestock’s purchase price and the greater of the value of the livestock when the feed was sold or the livestock’s sales price (this difference was labeled as “new value” created by the feed supplier). This section of the law dealing with feed does not specifically refer to the section of the law requiring a certified notice be sent to the lender. Because of this omission, the analysis is that for a lien for feed, unlike a lien for other ag supplies, the supplier is not required to send a certified letter to the lender.

In all of the court decisions, the feed suppliers properly filed their liens with the Iowa Secretary of State but did not send a certified notice to the bank. The judges then had to determine who had priority: the banks because they did not receive the certified notice or the feed supplier because the section of the law on feed liens does not specifically refer to the certified notice requirement.

Iowa Supreme Court Settles the Conflict

In the Oyens case, the Iowa Institute of Cooperatives filed a brief supporting Oyens Feed & Supply. In addition to supporting Oyens’ legal arguments, the Institute helped convince the Court of the statewide importance of this case. As the Court stated in the decision, “Amicus curiae Iowa Institute for Cooperatives, representing Iowa farmers, agricultural suppliers and businesses, notes the importance of this issue to the availability of financing for farming operations so vital to our rural communities.”

With this background, the Iowa Supreme Court first noted that Iowa legislature intended to give feed suppliers more protection than sellers of seed, chemicals, and petroleum because the legislature in writing the feed lien portion of the law did not specifically reference the certified letter requirement as was done for the lien for seed, chemicals and petroleum. The Supreme Court ruled that if the certified letter sections of the law were intended to apply to feed liens, the legislature “would have expressly said so as it did” for the other ag supply liens. The Court went on to note that the certified letter requirement was in a more general section of the law for ag liens and the section specific to feed liens did not contain the certified letter requirement. The Court relied on the time-honored legal principle that when there is a conflict between specific and general statutes, the specific controls over the general.

The Court summed up its decision with the following analysis:

“It makes sense the legislature would give superpriority status to livestock feed suppliers limited to the new value created, without requiring compliance with the certified request procedure. Livestock feed is often supplied on an ongoing basis, and it would be impractical and cumbersome to require serial certified requests with ever changing dollar amounts and recurring fees. Livestock feed is grown and sold by farmers. The legislature presumably sought to encourage a fluid feed market without burdening cooperatives and farmers with the certified request process. By contrast, sales of crop seed, herbicides, and fertilizer are more often bulk transactions by large vendors for whom the certified request process is less cumbersome.

Importantly, the superpriority provision only allows feed suppliers to trump perfected secured lenders to the extent the acquisition value of the livestock is exceeded by the livestock’s value at the time the lien attaches or its ultimate sale price. Accordingly, the secured lender generally retains its secured position up to the livestock’s acquisition price. The feed supplier’s superpriority corresponds to the livestock’s increase in value that typically results from consuming feed. The legislature reasonably could conclude the feed supplier who made the credit sale, not the secured lender, should be entitled to superpriority in this new value. This interpretation furthers the legislature’s goal to encourage feed sales to livestock producers already burdened with bank debt.”

After years of uncertainty it is now settled law that Iowa’s feed lien law does not require a feed supplier to send a certified notice to a lender with a security interest in the livestock. The Iowa feed supplier’s lien is superior to a lender’s security interest if the feed supplier files a UCC-1 with the Iowa Secretary of State within 31 days after the feed is purchased. In other words, each UCC-1 covers the previous 31 days of feed purchases and if feed is purchased beyond a 31 day period, another UCC-1 must be filed for the feed supplier to have priority for those feed purchases.

Anyone with questions about the details of the Supreme Court’s decision or about utilizing the feed supplier lien should contact an attorney for individual legal advice. For general questions about the lien, contact the Iowa Institute of Cooperatives.