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Agribusiness Alert: Minnesota Court of Appeals Rules that Feed Supplier Must Give Proper Notice to Secured Lender to Obtain Priority Livestock Production Input Lien

August 17, 2011 | Alert

On August 15, 2011, the Minnesota Court of Appeals ruled that a livestock production input supplier must properly mark the envelope “IMPORTANT – LEGAL NOTICE” for the notice to be effective and for the livestock production supplier to obtain a priority lien in the livestock. Minnwest Bank, M.V. v. Chadley Arends, et al., Case No. A10-2167.

Minnesota Statute § 514.966 provides that a livestock production input supplier may obtain a priority lien in livestock if the supplier provides notice to the secured lender and the secured lender fails to respond to the notice within 10 days. Minn. Stat. § 514.966 subd. 3(b) provides that the notice shall be mailed in an envelope marked  “IMPORTANT – LEGAL NOTICE.”

Chad Arends (“Arends”) was a hog producer. Minnwest Bank (“Minnwest”) financed the operations of Arends. Arends granted Minnwest an Article 9 security interest in his hogs and the proceeds of the hogs. Minnwest filed a UCC-1 with the Minnesota Secretary of State in 2005. New Vision Co-op (“New Vision”) supplied feed to Arends through the spring and summer of 2009. New Vision sent a lien notification statement to Minnwest by certified mail in an envelope that was not marked “IMPORTANT – LEGAL NOTICE.” The notice was received by Minnwest in July of 2009 and Minnwest did not respond to the lien notification statement.

After Arends defaulted on his loan with Minnwest, New Vision asserted a priority statutory lien against the hog proceeds under Minn. Stat. § 514.966 for feed supplied before the lien notification was received by Minnwest. Minnwest contested the priority of the lien. The District Court ruled that the Minnwest lien had priority over the New Vision lien because: (1) New Vision failed to comply with Minn. Stat. § 514.966 because the envelope was not marked  “IMPORTANT – LEGAL NOTICE,” and (2) any statutory lien would not have priority as to feed supplied before the lien notification was received Minnwest.

New Vision appealed, arguing that because Minnwest actually received the lien notification statement, New Vision only had to substantially comply with Minn. Stat. § 514.966 and it was not necessary to mark the envelope with the words “IMPORTANT –LEGAL NOTICE.” The Minnesota Court of Appeals affirmed the District Court on this issue, stating: “New Vision’s failure here is not merely a defective attempt to comply with the requirement to place notice on the exterior of the envelope but a complete failure to attempt compliance with this requirement.” The Court further stated that “[t]his notice both assists the lender with a preexisting security interest and protects [the lender] against any error the livestock-feed supplier may have made in addressing the notification to the appropriate division of the lender’s organization.” The Court of Appeals did not rule on whether a lien claimant may assert a statutory livestock production input lien for feed supplied before the lien notification was provided to the secured lender.

Contact Phil Kunkel, Tom Melloy, or Jeff Peterson if you have any questions about this case or other issues related to agricultural liens or agricultural financing. You can also view a copy of the Court of Appeals decision and the District Court decision or visit our Agribusiness & Food Web page for more information.

This article is provided for general informational purposes only and should not be construed as legal advice or legal opinion on any specific facts or circumstances. You are urged to consult a lawyer concerning any specific legal questions you may have.

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