Idaho Supreme Court: Feed lien doesn’t extend to cattle
Idaho Supreme Court overturns district court ruling granting feed suppliers a priority lean on the cattle from a dairy that defaulted on its bank loans.
Ruling could change how feed suppliers do business
By Carol Ryan Dumas
The Idaho Supreme Court found on Friday that a lien on feed does not carry though to the cattle that consume the feed.
The case pitted four feed suppliers against Farmers National Bank, which took possession of dairy cows at Green River Dairy in Buhl – owned by Herculano and Frances Alves before they defaulted on their bank loans.
The fight was over proceeds from the cattle sold by the bank after the owners went into default, said Bill Nichols, attorney for one of the dairy’s feed suppliers, Lewis Becker.
The feed suppliers asserted their lien extended to the cattle that consumed the feed and Farmers National Bank took the case to court in March 2012.
In May of 2012, the Twin Falls District Court ruled in favor of Green River Dairy and the feed suppliers, granting the feed suppliers a priority lien on the Alves’ cattle. That court held that commodity liens did extend to livestock that consumed the liened agricultural product, according to court documents.
Farmers National Bank appealed to the Supreme Court, which overturned the district court ruling.
“The (Supreme) court held it did not attach to the cattle … therefore, Farmers National Bank’s lien is superior,” Nichols said.
One problem Nichols sees is how the ruling affects dairymen or cattle feeders who are struggling to pay their bills and buying feed on credit. The ruling makes it unlikely that feed suppliers are going to extend that credit, he said.
“It’s going to have to be cash on the barrel head,” he said.
The only way for those struggling livestock producers to pay their bills is to keep their animals alive and in the case of a dairy, keep their cows milking. If they can’t buy feed, they won’t be able to do that, he said.
Nichols said Idaho has very few statutes to protect the little guys to help them through lean times.
“It’s a big, big issue,” and the first time it was considered at the state level, said Andy Wright, attorney representing two of the feed suppliers in the case, Ernest Daniel and Jack McCall.
It’s an issue that needs to be addressed by the Legislature to protect the interests of all parties involved, he said.
A lot of big livestock states have a feed lien that does attach to livestock, and there’s a way to draft lien legislation that is beneficial to the feed supplier, the livestock operator and the bank, he said.
“As is, it is not ideal from farmers’ perspective,” he said.
The Supreme Court’s ruling says the feed grower or supplier has no more security for the payment of feed secured through credit once the feed is consumed. Farmers need to weigh that into their decisions, he said.
Idaho Dairymen’s Association filed an amicus brief in the case, siding with Farmers National Bank, and is pleased with the court’s ruling, said Bob Naerebout, IDA executive director.
The ruling says banks have the first lien on the cattle. Attaching a feed lien to the cattle would limit dairymen’s ability to borrow on the cattle, he said.
The original district court ruling left uncertainty hanging over bankers and the dairy industry, he said.
John Ritchie, the attorney representing Farmers National Bank, said the feed suppliers have 21 days to request reconsideration by the Supreme Court and he would not comment on pending litigation.
The case is pretty much over since the court determined the feed suppliers don’t have a lien on the cattle, Nichols said.
The case goes back to the district court for a judgment that essentially says “we lose, the bank wins,” he said.