Fifth Circuit determines priorities of liens on agricultural products
In Fishback Nursey, Incorporated; Surface Nursey, Incorporated v. PNC Bank, National Association, 920 F.3d 932 (5th Cir. 2019), the Fifth Circuit Court of Appeals was tasked with determining the relative priority of liens on agricultural products claimed by PNC Bank, National Association (“PNC”), Fishback Nurseries, Incorporated (“Fishback”) and Surface Nursey Incorporated (“Surface” and, together with Fishback, the “Nurseries”). The debtor in the case was BFN Operations LLC (“BFN”), a wholesale grower of trees, shrubs and other plants, with its headquarters in Texas and offices in Michigan, Oregon and Tennessee.
In May of 2015, PNC made a loan to BFN and took a security interest over most of BFN’s assets. The Nurseries contracted with BFN to sell BFN agricultural products and threafter took security interests in those products. BFN filed for bankruptcy in Texas on June 17, 2016 and received debtor-in-possession financing from PNC. The bankruptcy court ordered that the DIP financing would include PNC’s pre-petition loan to BFN and would be secured by a lien that would outrank other liens “subject and junior only to… valid, enforceable, properly perfected, and unavoidable pre-petition liens”. Fishback filed UCC financing statements in Oregon and Michigan on June 21, 2016, and in Tennessee on June 28, 2016. All three statements listed the debtor’s name as “BFN Operations, LLC abn Zelenka Farms” even though BFN’s founding documents listed its name as “BFN Operations LLC”. Surface filed a UCC financing statement in Michigan on June 28, 2016, which also listed BFN’s name as “BFN Operations, LLC abn Zelenka Farms”. Both Nurseries thereafter filed a notice of lien in Oregon.
The Nurseries sued PNC in November 2016 and sought a declaratory judgment that their liens on BFN’s assets were senior to those of PNC. The district court determined that, with respect to the lien priority issue, the law of the jurisdiction in which the farm products were located would be applicable. With respect to Michigan and Tennessee, the district court found that the Nurseries lacked perfected under Michigan and Tennessee law as a result of incorrectly listing BFN’s name on the financing statements, as required under Michigan and Tennessee law. With respect to Oregon, the district court noted that, while Oregon does not require the filing of a notice to perfect an agricultural lien, without such a notice, an agricultural lien expires 45 days after final payment is due unless an extension is filed. Since Fishback’s lien extension was due August 11, 2016, but Fishback failed to file an extension until August 29, 2016, the district court concluded that Fishback’s Oregon lien was unenforceable. Although Fishback argued that the filing of a financing statement in Oregon should effectively act as a notice of extension under Oregon law, the district court rejected that argument.
On appeal, the Court of Appeals affirmed the ruling of the district court. The Court affirmed the district court’s choice of law analysis, as well as its conclusion that the filing of a UCC financing statement was not sufficient to act as a notice of lien extension under Oregon law.
Article courtesy of Andrew Thomison (Baker Botts)