5th Circuit agrees nursery creditors do not have seniority among liens on bankrupt farm

By Charmaine Little | May 13, 2019

NEW ORLEANS – Two nurseries lost their appeal in an agricultural lien contest after the U.S. Court of Appeals for the 5th Circuit affirmed a district court’s ruling on April 10.

Fishback Nursery Inc. and Surface Nursery Inc. sued PNC Bank, National Association. All three were creditors of a bankrupt commercial farm, BFN, a wholesale grower of plants with headquarters in Texas and offices in Michigan, Tennessee and Oregon. Fishback and Surface sold trees and shrubs in Tennessee, Michigan and Oregon that were worth more than $1 million and claimed agricultural liens on the farm's assets.

At the same time, PNC claimed debtor-in-possession liens concerning the financing it gave the farm to help with operations during its bankruptcy.

The U.S. District Court for the Northern District of Texas had to determine if the states’ law oversaw the nurseries’ liens. It said the location of the plants determined the relevant lien law and discovered the nurseries’ liens couldn’t be enforced, making the bank’s lien “senior,” according to the ruling.

While the nurseries appealed, the appeals court affirmed. Circuit Judge Stuart Kyle Duncan wrote the opinion as Circuit Judges Jerry Edwin Smith and Kurt Engelhardt concurred.

In its decision, the appeals court evaluated the choice-of-law problem. While the nurseries said the lower court should not have used the locations of the plants to make its decision, the Appeals Court pointed out “the nurseries identify no authority for applying a choice-of-law provision in a contract to a lien dispute with a third party,” according to the opinion.

The nurseries also didn’t prove that the district court didn’t correctly apply the Texas or federal choice-of-law regulations, the ruling states.

The appeals court called out the nurseries for not recognizing the court's precedence as the nurseries alleged the lower court misapplied Section 6 of the Second Restatement of Conflicts of Law and Article 9 of the Uniform Commercial Code. The appeals court pointed to previous cases that prove the lower court ruled correctly.

Ultimately, the appeals court didn’t find anything wrong with the lower court’s determination that the nurseries’ liens weren’t more authoritative to PNC’s lien on the bankrupt farm’s assets.

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