Cattle Call—Seller Has Beef with Lien Holder

Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.

By Daniel Gill

A cattle seller’s reclamation rights under the Uniform Commercial Code don’t trump the lienholder rights of an alleged secured lender, the Bankruptcy Appellate Panel for the Eighth Circuit Court of Appeals held Feb. 24 ( Sweetwater Cattle Co. v. Murphy (In re Leonard) , 2017 BL 57266, B.A.P. 8th Cir., No. 16-6029, 2/24/17 ).

A good faith lender with a lien on after-acquired cattle prevails over the unpaid seller of those cattle, Judge Arthur B. Federman explained.

The case is instructive on the relationship between competing UCC rights.

Leigh Murphy sold 395 head of cattle to Charles Leonard in Sept. 2015. Leonard financed the purchase through Sweetwater Cattle Company, with which Leonard had a line of credit and a history of business dealings.

Despite the fact that Sweetwater financed the purchase, only about $50,000 of the approximately $800,000 sale price cleared as good funds. Murphy won a Nebraska court judgment authorizing him to reclaim the herd, the court said. Reclamation under the UCC allows a seller to recover her goods when the buyer fails to pay.

Unfortunately for Murphy, Sweetwater—which extended a secured line of credit to Leonard and loaned him more than $500,000 for the purchase—had a lien on all of Leonard’s cattle, including heads acquired after the line of credit was established.

Because Murphy failed to show that Sweetwater wasn’t a “good faith purchaser” regarding Leonard’s credit line, Sweetwater had a superior claim to the proceeds from the Chapter 11 sale of Leonard’s cattle, the court held.

Judges Robert J. Kressel and Anita L. Shodeen joined the decision.

Croker & Huck represented Murphy. David W. Pederson, North Platte, Neb. represented Sweetwater.

To contact the reporter on this story: Daniel Gill in Washington at dgill@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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