     Case: 15-60445   Document: 00513535144        Page: 1   Date Filed: 06/06/2016




                         REVISED June 6, 2016

        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT
                                                                  United States Court of Appeals
                                                                           Fifth Circuit

                                                                         FILED
                                    No. 15-60445                     April 28, 2016
                                                                    Lyle W. Cayce
GUARANTY BANK & TRUST COMPANY,                                           Clerk


             Plaintiff - Appellee

v.

AGREX, INCORPORATED, doing business as FGDI, Wholly Owned
Subsidiary of Mitsubishi Corporation,

             Defendant - Appellant




                Appeal from the United States District Court
                  for the Northern District of Mississippi


Before KING, SOUTHWICK, and HAYNES, Circuit Judges.
PER CURIAM:
      David Walker received a loan from Plaintiff–Appellee Guaranty Bank &
Trust Company to produce his 2012 crop of soybeans and corn. Guaranty took
a production-money security interest in Walker’s crops, and Walker later
delivered these crops to Defendant–Appellant Agrex, Incorporated, d/b/a
FGDI, under a series of contracts. Because Walker failed to fulfill all of his
contracts with FGDI, FGDI applied a set-off to the amount it owed Walker for
his crops in order to cover its losses arising from the undelivered crops.
Guaranty then filed the instant action against FGDI to recover the entire
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                                 No. 15-60445
amount due Walker under his contracts with FGDI and moved for summary
judgment, asserting that its security interest took priority over FGDI’s right to
apply set-offs under the contracts.     The district court granted summary
judgment to Guaranty.       Because FGDI took Walker’s crops subject to
Guaranty’s security interest under the Food Security Act of 1985, we AFFIRM
the judgment of the district court.
           I. FACTUAL AND PROCEDURAL BACKGROUND
      The farming partnership Murtaugh-Walker Farms (“MWF”) and
Defendant–Appellant Agrex, Incorporated, d/b/a FGDI (“FGDI”), entered into
four commodity futures contracts to deliver corn and soybeans in 2010. MWF
determined that it could not perform these contracts and dissolved soon after.
FGDI and David Walker, a farmer and former partner in MWF, agreed to
assign the commodity futures contracts to Walker. Walker and FGDI further
agreed to delay the required delivery of the agricultural goods until 2012. All
of these contracts contained provisions allowing FGDI to apply set-offs to
amounts owed to the farmer before making any payments of net proceeds. In
March, June, and July of 2012, Walker entered into three additional corn
commodity contracts. These contracts required delivery of agricultural goods
later in 2012.
      On April 12, 2012, Walker met with Plaintiff–Appellee Guaranty Bank
& Trust Company (“Guaranty”).          Walker signed an Agricultural Loan
Agreement (“ALA”), a Promissory Note, and an Agricultural Security
Agreement (“ASA”), for a production-money loan to finance his 2012 crops.
This loan was secured by Walker’s 2012 crops, farm products, equipment, and
accounts. On April 18, 2012, Guaranty filed a financing statement with the
Mississippi Secretary of State, perfecting its security interest in Walker’s 2012
corn and soybean crops.


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                                   No. 15-60445
      Over the course of the 2012 growing season, Walker drew over $400,000
to fund his growing operations. Following the 2012 season, Walker delivered
all of his corn and soybean crops to two Mississippi grain terminals. After
FGDI notified the terminals of its contracts with Walker, the terminals applied
the crops to FGDI’s account, and FGDI then sold the grain to the terminals.
According to FGDI, Walker fulfilled all of his corn contracts, but he did not
fulfill one soybean contract.     For the corn contracts and fulfilled soybean
contracts, FGDI concluded that it owed Walker $417,033.00. Before paying
Walker, however, FGDI applied a set-off in the amount of $359,853.62, based
on its loss resulting from the unfulfilled soybean contract. Guaranty, through
a demand letter, requested the proceeds of Walker’s 2012 crops from FGDI on
February 12, 2013. Guaranty claimed that its recorded financing statement,
covering Walker’s 2012 crops, gave its security interest in Walker’s crops
priority over any interest FGDI asserted, including its set-off rights. FGDI
issued a check payable to Walker and Guaranty for $57,179.38—the difference
between the amount that FGDI determined it owed Walker under the fulfilled
contracts and the set-off FGDI applied because of the unfulfilled soybean
contract.
      On April 26, 2013, Guaranty filed suit in state court against FGDI,
seeking to recover the full amount of the proceeds derived from Walker’s crops,
i.e., $417,033.00. FGDI removed the action to federal court on May 24, 2013,
asserting diversity jurisdiction. 1 On January 16, 2015, both Guaranty and
FGDI moved for summary judgment. On May 22, 2015, the district court
granted summary judgment to Guaranty, finding that it had paramount




      1  Guaranty also named as defendants the grain terminals to which Walker had
delivered his crops, but the district court later dismissed these non-diverse parties.
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priority in Walker’s crops and that Guaranty had possessory rights of Walker’s
crop proceeds before the application of FGDI’s set-off. 2 FGDI timely appealed.
                           II. STANDARD OF REVIEW
       This court “review[s] a district court’s grant of summary judgment de
novo, applying the same standard on appeal as that applied below.” Rogers v.
Bromac Title Servs., L.L.C., 755 F.3d 347, 350 (5th Cir. 2014). Summary
judgment is proper “if the movant shows that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of law.”
Fed. R. Civ. P. 56(a). “A genuine dispute as to a material fact exists ‘if the
evidence is such that a reasonable jury could return a verdict for the
nonmoving party.’”       Rogers, 755 F.3d at 350 (quoting Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986)). “[T]his court construes ‘all facts and
inferences in the light most favorable to the nonmoving party.’” McFaul v.
Valenzuela, 684 F.3d 564, 571 (5th Cir. 2012) (quoting Dillon v. Rogers, 596
F.3d 260, 266 (5th Cir. 2010)).
   III. SECURITY INTERESTS UNDER THE FOOD SECURITY ACT
       As an initial matter, we address the nature of Guaranty’s interest in the
crops Walker delivered to FGDI. On April 12, 2012, Walker signed an ALA, a
Promissory Note, and an ASA with Guaranty. The ASA granted Guaranty a
security interest in “All Inventory, Chattel Paper, Accounts, General
Intangibles, Crops, Farm Products, [and] Livestock.”                   The ASA further
provided that the collateral “include[d] any and all of [Walker’s] present and
future rights, title and interest in and to all crops growing or to be planted . . .
and all proceeds derived or to be derived therefrom.”                       Walker used
approximately $400,000 from Guaranty in the production of his 2012 crops.



       2The district court noted that this “contractual priority dispute is [a case] of first
impression in Mississippi.”
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      Because Walker used the money obtained through his loan with
Guaranty to grow crops and because this loan was secured by his crops,
Walker’s obligation to Guaranty was a production-money obligation and his
crops were production-money crops. See Miss. Code Ann. § 75-9-102(a)(64A)
(“‘Production-money crops’ means crops that secure a production-money
obligation incurred with respect to the production of those crops.”); Miss. Code
Ann. § 75-9-102(a)(64B) (“‘Production-money obligation’ means an obligation
of an obligor incurred for new value given to enable the debtor to produce crops
if the value is in fact used for the production of the crops.”).              Therefore,
Guaranty obtained a production-money security interest (“PMSI”) in Walker’s
crops because “[a] security interest in crops is a production-money security
interest to the extent that the crops are production-money crops.” Miss. Code
Ann. § 75-9-103A(a). Guaranty perfected its PMSI on April 18, 2012, when it
filed a financing statement with the Mississippi Secretary of State, consistent
with the requirements of Miss. Code Ann. §§ 75-9-310(a), 75-9-320(f). 3
      When Guaranty perfected its PMSI by complying with Mississippi law,
it also secured the protections of the Food Security Act of 1985 (“FSA”). See
7 U.S.C. §§ 1621, 1631; see generally Law of Secured Transactions Under the
UCC ¶ 8.08[4][A]–[B] [hereinafter LSC] (noting that Congress passed the FSA
to create consistency in the protections afforded to both buyers and secured
parties). Under the FSA, buyers of farm products take the products free of
security interests unless the buyer received direct notice of the security
interest or purchased the agricultural products in a state with a centralized
filing system. 4    7 U.S.C. § 1631(e).         Mississippi is such a state, as the



      3  FGDI does not dispute that Guaranty filed an appropriate financing statement,
consistent with the requirements of Mississippi law.
       4 Because neither party disputes FGDI’s status as a buyer, we assume for purposes of

this opinion that FGDI qualifies as a buyer, despite its set-off claim.
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Mississippi Secretary of State maintains a centralized filing system of
financing statements consistent with the requirements of the FSA.                                See
7 U.S.C. § 1631(c)(2) (describing the requirements of a centralized filing system
under the FSA); Miss. Code Ann. § 75-9-320(g) (directing the Mississippi
Secretary of State to “issue regulations implementing a central filing system
relating to farm products which conforms with the requirements of” the FSA).
Because Guaranty included all of the information required by the FSA to file
an “effective financing statement” when it filed its financing statement with
Mississippi’s centralized system, it secured the protections afforded by the
FSA. See 7 U.S.C. § 1631(c)(4) (describing the requirements of an “effective
financing statement”).
       The FSA provides that, in a state with an established, centralized filing
system:
       [a] buyer of farm products takes subject to a security interest
       created by the seller if . . . the buyer has failed to register with the
       Secretary of State of such State prior to the purchase of farm
       products; and . . . the secured party has filed an effective financing
       statement or notice that covers the farm products being sold. . . .
7 U.S.C. § 1631(e)(2). FGDI does not dispute that it failed to register with the
Secretary of State prior to the purchase of the farm products here. 5 Given that
FGDI failed to register and that Guaranty filed an effective financing
statement with Mississippi’s centralized system, FGDI took Walker’s crops
“subject to [the] security interest” created by Walker and held by Guaranty.
7 U.S.C. § 1631(e)(2). Accordingly, the district court committed no error in
concluding that Guaranty’s PMSI took priority over FGDI’s set-off rights under
its contracts with Walker.



       5 Under the FSA, “farm product” includes “agricultural commodit[ies] such as wheat,
corn, soybeans, . . . or a product of such crop . . . in its unmanufactured state . . . that is in the
possession of a person engaged in farming operations.” 7 U.S.C. § 1631(c)(5).
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                                      No. 15-60445
       FGDI’s arguments that the district court erred in holding that
Guaranty’s PMSI took priority are premised on an entirely different conception
of this case from that presented by Guaranty and accepted by the district court.
FGDI argues that, instead of the FSA, Miss. Code Ann. § 75-9-404 governs the
instant case, under which FDGI argues that its set-off rights take priority over
Guaranty’s PMSI.         More specifically, FGDI argues that Guaranty took a
security interest through assignment of Walker’s “accounts” as collateral, 6 that
Guaranty was an assignee under Miss. Code Ann. § 75-9-404, and that
Guaranty’s rights as assignee are subject to the “terms of the agreement
between the account debtor [FGDI] and assignor [Walker].” 7 See generally
Miss. Code Ann. § 75-9-404.
       We cannot agree with FGDI that Guaranty is merely an assignee of
Walker’s accounts. While Guaranty did take a security interest in Walker’s
accounts under the ASA, it also took a security interest in Walker’s crops and
crop proceeds. It is the latter interest on which Guaranty relies in asserting
the priority of its security interest over FGDI’s contractual set-off rights. The
fact that Guaranty also took a security interest in Walker’s accounts does not
destroy Guaranty’s PMSI in Walker’s crops or somehow change its PMSI to an
assignment.      See Miss. Code Ann. § 75-9-103A(c) (“A production-money
security interest does not lose its status as such, even if . . . [c]ollateral that is
not production-money crops also secures the production-money obligation.”).
       Neither can we agree with FGDI that this case is governed by Miss. Code
Ann. § 75-9-404 and not the FSA. On this argument, the Eighth Circuit’s
decision in Farm Credit Services of America, PCA v. Cargill, Inc., 750 F.3d 965


       6 “Account” is defined as “a right to payment of a monetary obligation, whether or not
earned by performance,” including “for property that has been or is to be sold.” Miss. Code
Ann. § 75-9-102(a)(2).
       7 “‘Account debtor’ means a person obligated on an account, chattel paper, or general

intangible.” Miss. Code Ann. § 75-9-102(a)(3).
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(8th Cir. 2014), is instructive. In Farm Credit, the Eighth Circuit addressed a
situation similar to the instant case. There, a farmer had a contract to deliver
corn grown in 2010 to a buyer, and a lender made a loan to the farmer secured
by that corn. Id. at 965–66. The farmer delivered only some of the corn
required under the contract, and the buyer claimed that its damages “exceeded
what it owe[d] [the farmer] for the corn it [did] receive.” Id. at 966. The lender
then brought an action in replevin to recover the corn in the buyer’s possession.
Id. at 965–66. The buyer argued that Nebraska’s analogue to Miss. Code Ann.
§ 75-9-404 controlled, but the Eighth Circuit rejected that argument. Id. at
966–67. The court explained that “[the lender] sued to recover the corn (or its
proceeds), not to collect on a ‘right to payment’ such as [the farmer’s] accounts
receivable[, so] [Neb. Rev. Stat. U.C.C. §] 9–404 d[id] not apply.” 8 Id. at 967;
see also United States v. Handy & Harman, 750 F.2d 777, 786 (9th Cir. 1984)
(noting that a statute analogous to Miss. Code Ann. § 75-9-404 does not apply
when “the secured party’s superior property interest [is] in the inventory itself,
not the assignment of the account held by the debtor”). The court further
explained that “[the buyer’s] sale of the corn d[id] not switch [the lender’s] suit
from one seeking corn, to one seeking a right to payment on an account.” Farm
Credit, 750 F.3d at 967. Accordingly, the court found in favor of the lender and
held that “[Neb. Rev. Stat.] U.C.C. § 9–404 does not apply in this case.” Id. at
698; see also LSC ¶ 8.08[4][E] (noting that compliance with the FSA “protects
the secured lender from a buyer’s recoupment [i.e., set-off] rights under the
UCC”).




       8 FGDI criticizes this case as involving an action in replevin, but the Eighth Circuit
made clear that its decision did not turn on the lender’s attempt to recover the corn instead
of the corn proceeds and noted that section 9–404 would not apply if the lender had “sued to
recover the corn . . . proceeds.” Id.
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       By way of contrast to the Eighth Circuit’s decision in Farm Credit, FGDI
points to the South Dakota Supreme Court’s decision in Consolidated
Nutrition, L.C. v. IBP, Inc., 669 N.W.2d 126 (S.D. 2003). There, the court held
that South Dakota’s analogue to Miss. Code Ann. § 75-9-404 applied and that
a buyer’s set-off rights took priority over a secured party’s security interest in
the proceeds of farm products. Id. at 133–34. However, Consolidated Nutrition
is inapposite here, as the South Dakota Supreme Court there explicitly held
that the FSA did not apply. See id. at 129 (“[The secured party] failed to give
the notice required to protect its security interest under the FSA.”). Because
the FSA did not apply in Consolidated Nutrition, the Eighth Circuit’s Farm
Credit decision is more analogous to the present case. Considering the Eighth
Circuit’s reasoning in Farm Credit, we hold that the district court committed
no error in determining that Miss. Code Ann. § 75-9-404 is inapplicable here
or that Guaranty’s PMSI takes priority over FGDI’s set-off rights.
       Having determined that Guaranty’s security interest takes priority over
FGDI’s set-off rights, we now turn to what Guaranty is entitled to recover
based on this interest. Guaranty is entitled to recover the proceeds from the
sale of Walker’s crops because the ASA Guaranty signed with Walker includes
the proceeds of Walker’s crops in addition to the crops themselves. 9 The
proceeds from the sale of Walker’s crops include the full value of those crops
under the contracts—not just the amount Walker received following the




       9 Even if the ASA included only the crops, Guaranty would still be entitled to recover
the proceeds of the sale of Walker’s crops because a “secured party may claim . . . any
proceeds” from the original collateral. Miss. Code Ann. § 75-9-315 cmt. 2; see also Miss. Code
Ann. § 75-9-315(a)(1)–(2) (“A security interest or agricultural lien continues in collateral
notwithstanding sale, lease, license, exchange, or other disposition thereof unless the secured
party authorized the disposition free of the security interest or agricultural lien; and . . . [a]
security interest attaches to any identifiable proceeds of collateral.”).
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application of FGDI’s set-off rights under the contracts.                  Mississippi law
defines “proceeds” as including:
       (A) Whatever is acquired upon the sale, lease, license, exchange or
       other disposition of collateral;
       (B) Whatever is collected on, or distributed on account of,
       collateral;
       (C) Rights arising out of collateral; . . .
Miss. Code Ann. § 75-9-102(a)(64).             FGDI valued the crops that Walker
delivered at $417,033.00 but paid only $57,179.38 after applying a set-off for
the costs that it incurred because of the crops that Walker failed to deliver.
FGDI argues that $57,179.38 constitutes the entirety of the “proceeds,” as this
was all that was “acquired upon the sale, lease, license, exchange or other
disposition of collateral.” Miss. Code Ann. § 75-9-102(64)(A). This argument,
however, lacks force because what was “acquired upon the sale” of Walker’s
crops was $417,033.00. 10 FGDI later reduced this amount based on crops that
were not delivered, but this failure to deliver was unrelated to the value of the
crops that were actually delivered. Therefore, the “proceeds” of Walker’s crops
include the entire $417,033.00.
       We find support for this conclusion in the official comments to Miss. Code
Ann. § 75-9-102, which provide that there is “no requirement that property be
‘received’ . . . for the property to qualify as proceeds.” Miss. Code Ann. § 75-9-
102 cmt. 13(d). Rather, “[i]t is necessary only that the property be traceable,
directly or indirectly, to the original collateral.” Id. We agree with the district
court that the entire $417,033.00 was traceable to Walker’s 2012 crops—the
original collateral.     Moreover, the Eighth Circuit similarly concluded that
“proceeds” include the full value of agricultural products. See Farm Credit,



       10 Similarly, “what [was] distributed on account of [the] collateral” was the full value
of the crops, and the “rights arising out of the collateral” included the right to payment for
the full value of the crops. Miss. Code Ann. § 75-9-102(a)(64)(B)–(C).
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750 F.3d at 967. Specifically, in stating that a secured party “sued to recover
the corn (or its proceeds), not to collect on a ‘right to payment’ such as [the
farmer’s] accounts receivable,” id., the Eighth Circuit distinguished between a
right to payment (what Walker was entitled to receive after FGDI applied its
set-off) and proceeds (the total value of the crops).             Because Guaranty is
entitled to the entire value of the crops as “proceeds” and not just the amount
that FGDI paid Walker after exercising its set-off rights, we find no error in
the district court’s conclusion that Guaranty has possessory rights in the entire
$417,033.00 of Walker’s crop proceeds. 11
                                  IV. CONCLUSION
       For the foregoing reasons, the judgment of the district court is
AFFIRMED.




       11 The parties do not dispute that Walker’s indebtedness to Guaranty exceeds this
amount. Because we conclude that Guaranty is entitled to the full value of the crops as
proceeds, we need not address whether the district court erred in determining that the
contracts originally signed by MWF were properly assigned to Walker. If they were not
properly assigned, then Guaranty would still be entitled to the full value of the crops.
Similarly, we need not address whether the district court erred when it explained that
Guaranty is entitled to the full value of the crops because the contracts between Walker and
FGDI concerned crops that were future goods under Miss. Code Ann. § 75-9-105 and that an
interest in future goods may not pass until the goods are existing and identified.
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