Peoples Bank v. Bryan Bros. Cattle Co.
2007 U.S. App. LEXIS 24018, 504 F.3d 549, 64 U.C.C. Rep. Serv. 2d (West) 113 (2007)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
Summary judgment is improper when a genuine issue of material fact exists regarding a business's legal structure, as this determination is critical to whether a principal's personal creditors have an enforceable security interest in the business's assets sold to a third party.
Facts:
- On October 5, 1999, Brooks L. 'Louie' Dickerson granted Cornerstone Bank a security interest in all his livestock to secure a loan; Cornerstone filed a financing statement under the name 'Louie Dickerson.'
- In 2001, Dickerson, Ellen Hardy, and the Weeks brothers began forming a cattle enterprise, Glenbrook Cattle Company, to which Hardy and the Weeks brothers contributed significant cash.
- On February 13, 2002, Dickerson established a bank account in the name 'Louie Dickerson, dba Glenbrook Cattle Company,' identifying it as a sole proprietorship and using his personal social security number.
- In November 2002, a Certificate of Formation for 'Glenbrook Cattle Company, LLC' was filed with the state. Around the same time, Dickerson granted Peoples Bank a security interest in his cattle, and Peoples filed a financing statement under 'Brooks L. Dickerson.'
- Beginning in 2003, Glenbrook purchased cattle on behalf of Bryan Brothers Cattle Company, pre-conditioned them, and then shipped them to Bryan after receiving payment via wire transfer to the sole proprietorship bank account.
- In May 2004, Glenbrook informed Bryan Brothers that it had run out of money to feed and care for approximately 1,600 head of cattle being held for Bryan.
- As Bryan Brothers attempted to take possession of the cattle, a local court issued a restraining order preventing further shipment.
Procedural Posture:
- A local justice court issued a restraining order preventing Bryan Brothers Cattle Company from taking possession of cattle from Glenbrook Cattle Company's property.
- Bryan Brothers deposited funds with the court, took possession of the cattle, and removed the case to the U.S. District Court for the Northern District of Mississippi.
- The district court granted summary judgment in favor of Bryan Brothers, holding that it purchased the cattle free of any liens from Peoples Bank or Cornerstone Bank.
- The district court also denied a motion by Peoples Bank claiming its security interest was superior to that of Cornerstone Bank.
- Peoples Bank and Cornerstone Bank (appellants) appealed the district court's judgment to the U.S. Court of Appeals for the Fifth Circuit.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Is summary judgment appropriate for a buyer of farm products when a genuine issue of material fact exists as to whether the seller operated as the individual debtor's sole proprietorship, which would subject the products to the debtor's liens, or as a separate legal entity like a partnership or LLC?
Opinions:
Majority - Reavley, J.
No, summary judgment is not appropriate because a genuine issue of material fact exists as to the business form of Glenbrook Cattle Company. The court found that whether the banks' security interests attach to the cattle depends on Glenbrook's legal status. If Glenbrook was Dickerson's sole proprietorship, Dickerson had rights in the collateral, and the banks' security interests in his property would attach to the cattle. The financing statements filed under Dickerson's individual name were effective under Mississippi law. However, if Glenbrook was a separate legal entity like a partnership or an LLC, it owned the cattle, and Dickerson, as an individual, could not encumber the entity's property with his personal debts. The court pointed to conflicting evidence: indicia of a sole proprietorship (the d/b/a bank account, use of his SSN) versus indicia of a separate entity (LLC filing, capital contributions and ownership beliefs of other principals). Because a rational jury could find for either side on this crucial factual question, the case must be remanded for trial. The court also affirmed that Cornerstone's lien had priority over Peoples' because its use of the name 'Louie Dickerson' was not seriously misleading and its security agreement implicitly covered after-acquired property.
Analysis:
This case highlights the critical importance of determining the correct legal form of a business entity in secured transactions. It demonstrates that a creditor's security interest in an individual's property may not attach to assets used in a business if that business is legally structured as a separate entity, such as a partnership or LLC. The ruling emphasizes that courts will look beyond formal documentation, like an LLC filing, to the operational realities of a business, such as how its bank accounts are titled and managed. This creates uncertainty for creditors, who must conduct thorough due diligence to understand the true ownership of assets when lending to individuals involved in unincorporated or poorly documented business ventures.
