AGRILIANCE, L.L.C. v. FARMPRO SERVICES, INC.
328 F.Supp.2d 958 (2003)
United States District Court, S.D. Iowa, Central Division.
August 15, 2003.
In Iowa, the exercise of "wrongful control or dominion over another's property contrary to that person's possessory right to the property" is conversion. Condon Auto Sales & Serv., Inc. v. Crick,604 N.W.2d 587, 593 (Iowa 1999) (citing Ezzone v. Riccardi,525 N.W.2d 388, 396 (Iowa 1994)). To prevail on its conversion claim, Agriliance must have had a possessory right to the 2001 Mitchell crop. Although Farmpro makes much of the Subordination Agreement referring to Marvin Mitchell, nothing in the record suggests either of the Mitchells have specific rights to crops to the exclusion of the other. Despite their current argument to the contrary, paragraph six (6) of the Debt Settlement Agreement demonstrates that prior to this litigation, Farmpro considered the Mitchells' farming endeavors as a joint operation. The Court finds that the evidence in the record, which includes correspondence and negotiable instruments, demonstrates that the farming activities in question were a joint venture of the Mitchells. Thus, Marvin Mitchell's actions, as relating to the farming operations, bind Marlene Mitchell equally. See, e.g., Iowa Code § 486A.301(1) (stating "[e]ach partner is an agent of the partnership for the purposes of its business. An act of a partner ... for apparently carrying on in the ordinary course of the partnership business ... binds the partnership...."). The essential purpose of the Subordination Agreement was that Farmpro would subordinate its interest in the 2001 crop of the Mitchells in favor of Agriliance, and "[a] contract includes not only what is expressly stated but also what is necessarily to be
implied from the language used; and terms which may clearly be implied from a consideration of the entire contract are as much a part thereof as though plainly written on its face." See Fashion Fabrics of Iowa v. Retail Investors Corp.,266 N.W.2d 22, 27 (Iowa 1978) (quoting Freeport Sulphur Co. v. American Sulphur Royalty Co. of Tex., 117 Tex. 439, 6 S.W.2d 1039, 1042 (1928)). Having filed the appropriate financial statement with the Iowa Secretary of State on March 12, 2001, Agriliance holds a perfected security interest in the Mitchells' 2001 crops. See Agriliance, 272 F.Supp.2d at 802. "Agriliance's security interest gives it a possessory right to the Mitchells' 2001 crops, as against junior competing claims." Id. at 804.
The issue becomes whether Farmpro and Central Bank have "exercised wrongful control over the crops that were the subject of Agriliance's security interest." Id. at 805-06. To prevail on a claim for conversion, the "wrongful control must amount to a serious interference with the other person's right to control the property." Id. (quoting Condon Auto Sales & Serv., 604 N.W.2d at 593). In Iowa, to determine whether conduct amounts to a "serious interference" with the possessory rights of another, the following factors are used: (1) the extent and duration of the exercise of dominion and control; (2) the actor's intent to assert a right inconsistent with the other's right; (3) the actor's good faith; (4) the extent and duration of resulting interference; (5) the harm to the chattel; and (6) the inconvenience/expense of the other. Id. (citing Kendall/Hunt Publ'g Co. v. Rowe,424 N.W.2d 235, 247 (Iowa 1988), which in turn cites Restatement (Second) of Torts § 222A(2)). There is no question that the Defendants have exercised total control over the proceeds of the Mitchells' 2001 crop since receiving the Cashier's Check in February of 2002. In their pleadings and at oral argument, the parties treat the analysis of the good faith element of intentional conversion as equivalent with the good faith element of holder in due course status. For instance, Agriliance argues that the only Rowe factor requiring discussion was the "good faith" of Defendants, and then proceeded to analyze the good faith element simultaneously with the good faith requirement needing to be met in order to be according holder in due course status.
Agriliance points to the following factors as demonstrating bad faith, which justifies a finding of conversion while denying Defendants status as holders in due course: (1) 98 percent of all Farmpro business was related to financing crop inputs, suggesting Farmpro knew how this business was or should be run; (2) 25 percent of Farmpro's business was comprised of the Mitchells' loans, and Farmpro had some difficulty with the Mitchells repaying these loans; (3) Farmpro had never before been presented with a Cashier's Check when the Mitchells delivered the two on February 28, 2002; and (4) in light of the fact that Cashier's Checks, by definition, are "good funds", that Farmpro called to verify whether the funds were "good" indicates Farmpro was suspicious of the Mitchells.
Additionally, Agriliance points out the dispute surrounding the Mitchells' repaying Farmpro resulted in all parties obtaining attorneys, leading to a settlement agreement being reached. This type of settlement agreement was the first Farmpro had entered into with a borrower, and Agriliance argues that between 1999 and 2002, Farmpro had only two crop input loans which needed to be restructured and secured by real estate in similar fashion.
1. In addressing the affirmative defense that Farmpro and Central Bank failed to mitigate, Agriliance asserts, but provides no citation to evidence in the record, that upon becoming suspicious, it obtained a List of Potential Buyers from the Mitchells and served notice on them and others Agriliance believed might buy the crops. Agriliance argues neither ABC Grain or its owners were included on this List of Potential Buyers.
2. For purposes of this order, it is the $468,546.86 Citizens Bank Cashier's Check ["Cashier's Check"] that Agriliance claims represents proceeds of the Mitchells' 2001 crop.
3. Central Bank is involved because Farmpro would participate the loans it made, including this one, to Central Bank. Tim Brown held more than a 50 percent ownership interest in Central Bank and was also involved in Farmpro. After helping to establish Farmpro, he was a director and investor in the company. By January 2000, Farmpro had fallen on hard times and by January 1, 2002, of the original investors, only Tim Brown and one other remained at Farmpro. It is because of Brown's relationship with both Farmpro and Central Bank that Agriliance argues Central Bank should be imputed with the actions, notice, and knowledge of Farmpro.
4. Farmpro and Central Bank point out that because Agriliance has not alleged nor argued that the Court should disregard the separateness of the identity between Farmpro and Central Bank, Agriliance's ability to recover against Central Bank rests upon a showing that Central Bank received proceeds of the Cashier's Check which was funded by the Mitchells' 2001 crop, and that Central Bank is not a holder in due course.
5. Defendants also argue that Plaintiff makes no argument to support recovery against Central Bank and so, even if the summary judgment record supported judgment against Farmpro, there is no basis, on that record, for judgment against Central Bank.
6. See, e.g., Agriliance Ex. 61, App. p. 269 (February 28, 2002, letter from Mitchells to Agriliance and others wherein the Mitchells explain the grain Agriliance knew of was sold to ABC Grain on February 21, 2002); Agriliance Ex. 60, App. pp. 267-68 (two of ABC Grain's February 21, 2002, purchase orders for the Mitchells' crops in the combined amount of $468,546.86); Agriliance Ex. 52, App. pp. 235-37 (two ABC Grain checks dated February 21, 2002, made payable to Marvin and Marlene Mitchell and Lost Prairie, L.C., for the combined amount of $468,546.86); Agriliance Ex. 50, App. p. 197 (February 21, 2002, Cashier's Check drawn against Citizens Bank, made payable to Farmpro for the amount of $468,546.86).
7. The Court notes that Brown testified that at the time the Cashier's Checks were accepted, Farmpro was no longer loaning money, but instead focusing on collecting the loans it had provided and had run into difficult times. By January 2002, of the original investors in Farmpro, only Brown and one other remained involved.
8. Agriliance points out it did not make a demand on Central Bank for the return of crop proceeds before initiating this action because only became aware of Central Bank possessing proceeds from the Cashier's Check after certain depositions took place on November 25, 2002. Having imputed the knowledge of Farmpro to Central Bank, via Tim Brown, Central Bank cannot claim it was unaware of the Agriliance claims prior to this suit being filed.