Legal Alerts

Minnesota Decision Provides Agricultural Lenders Further Protection Against Feed Supplier Assertions of Priority Lien Rights

09.01.12

In a recent decision, First National Bank v. Profit Pork, LLC, the Minnesota Court of Appeals has again underscored the significance of the lien notice statement requirement under Minnesota's agricultural lien statute.  The Court of Appeals previously highlighted the statutory lien notice in Minnwest Bank, M.V. v. Arendsby finding that a feed supplier's failure to include the phrase "IMPORTANT-LEGAL NOTICE" on the outside of the envelope containing its lien notice statement was fatal to the feed supplier's ability to maintain a production-inputs lien.  (The Arends decision is discussed in our August 2011 legal alert here.)  The latest decision by the Court of Appeals provides agricultural lenders with further protection by refusing to allow feed suppliers to evade the lien notice requirement by claiming a feeder's lien instead of a production-inputs lien.

In Profit Pork, the farmer was indebted to its lender in the amount of $1.3 million secured by the farmer's livestock.  The farmer's feed supplier asserted a lien interest of over $500,000 in the farmer's livestock for unpaid feed.  The lender sought to take possession and liquidate the farmer's livestock in partial satisfaction of the indebtedness.  The feed supplier, however, claimed that it had priority over the lender's security interest.  Critically, the feed supplier acknowledged that it did not provide the lender with the lien notice statement required by statute to perfect a production-inputs lien, but maintained that it nevertheless qualified for a feeder's lien.  And because a feeder's lien does not require the additional lien notice statement, the feed supplier argued that it could establish a priority interest over the lender by merely filing a financing statement covering the livestock.  In other words, the feed supplier asserted that its provision of feed and services to the farmer qualified as both a production-inputs lien and a feeder's lien, and that it could--at its option--take advantage of the priority rights afforded by either lien.

The Court of Appeals, though, rejected the feed supplier's attempt to maintain multiple lien rights.  The court recognized that Minnesota's agricultural lien statute reflects an intent to provide those with the most direct contact to the livestock the highest priority in terms of lien rights.  The court concluded that those who supply feed to be used by another in raising livestock can only qualify for a production-inputs lien.  And in order to secure a feeder's lien for the cost of feeding livestock, a lien claimant must provide feed and labor directly to the livestock.  Since the feed supplier did not directly feed the livestock at issue, but instead supplied feed to the farmer who then fed the livestock, the court held that the feed supplier could not assert feeder's lien rights as a matter of law.

Agricultural lenders now have two recent favorable decisions interpreting Minnesota's agricultural lien statute.  The Arends decision confirmed that a feed supplier's failure to strictly adhere to the lien notice statement requirement can cause a feed supplier to lose its priority rights under the statute.  The Profit Pork decision will prevent feed suppliers from using a feeder's lien as a means to remedy their failure to follow the lien notice statement requirement of the production-inputs lien.

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LaFromboise, Antoine J.
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