TERRY L. MYERS, CHIEF U.S. BANKRUPTCY JUDGE.
Before the Court is a motion for partial summary judgment, Adv. Doc. No. 93 ("Motion"), filed by cross-claimant Rabo Agrifinance Inc. ("Rabo"). Rabo asserts it is entitled to a ruling that, to the extent debtor Farmers Grain, LLC ("Farmers Grain") is the owner of grain inventory in its possession at the time the petition was filed, any grain producers' liens against such inventory are subordinate to Rabo's lien.
The undisputed facts are established through the parties' filings, competent declarations, and judicial notice.
Farmers Grain filed its chapter 11 petition on April 18, 2017, and the case was converted to chapter 7 on August 15, 2017. On June 16, 2017, Farmers Grain initiated this adversary proceeding against DC Land Operating Company, LLC ("DC Land"); Bill Ziegler; Chris Unruh ("Unruh"); Michael Hartley and associated DBAs ("Hartley"); Ensz Farms; Lloyd Saunders ("Saunders"); Ralph Thornley Farms, LLC; Rivercrest Farms, LLC; Roger Lang; Scott Cruickshank; Standage Farms, Inc.; Watson Agriculture, Inc.; WBH Farms, LLC; and Rabo. All defendants except Rabo are farmers who made pre-petition deliveries of grain to Farmers Grain, but remained unpaid as of the petition date (collectively referred to as the "Grain Producers"). Rabo is a lender that extended credit to Farmers Grain. Rabo asserts it is owed in excess of $8,000,000. See Case No. 17-0450-TLM, Claim No. 4-1. The complaint seeks a determination of the secured status of each defendant.
On August 7, 2017, Rabo filed a cross-claim against the Grain Producers, alleging its lien on Farmers Grain's property is superior to the interests of the Grain Producers because "the [Grain Producers] have no ownership interest in or perfected lien on" any of the property of Farmers Grain and that "even if such [Grain Producers] have an interest in any of the Farmers Grain [property], their interest is junior and inferior to the interest of Rabo." Adv. Doc. No. 13 at 8.
On November 2, 2017, the Court entered default judgment against Bill Zeigler; Gordon Trout; Scott Cruickshank; Ensz Farms; Rivercrest Farms, LLC; and Standage Farms, Inc., establishing that the claims of the defaulting defendants were unsecured. Adv. Doc. No. 55.
Defendant Robert Lang entered a stipulation with the chapter 7 trustee, Noah Hillen ("Trustee"), that Lang does not have a lien or other secured interest in any property of Farmers Grain and that amounts owed Lang for his grain deliveries are unsecured claims. On December 19, 2017, the Court approved that stipulation. Adv. Doc. Nos. 65, 66.
Rabo filed its Motion on February 28, 2018. Prior to the hearing on Rabo's Motion, cross-defendants WBH Farms, LLC and Ralph Thornley Farms, LLC stipulated to relief in favor of Rabo. These stipulating cross-defendants agreed they have no ownership interest in Farmers Grain's inventory and, to the extent they have any liens in Farmers Grain's property, such liens are junior and subordinate to Rabo's. Adv. Doc. No. 114. The Court entered an order granting the stipulation on April 20, 2018. Adv. Doc. No. 115.
Following the entry of default judgments and the stipulations, the remaining cross-defendants are Unruh, Hartly, Saunders,
Rabo seeks partial summary judgment holding that, assuming Farmers Grain owned the grain supplied by the Remaining Producers, "[Rabo's] lien on that grain and the proceeds of that grain is senior and superior to any lien or claim that these [Remaining Producers] have asserted or could assert under Oregon law." Adv. Doc. No. 94 at 4.
As this Court previously explained in its decision on DC Land's motion for summary judgment in this case:
In re Farmers Grain, LLC, 2018 WL 770360, *2 (Bankr. D. Idaho Feb. 7, 2018).
Rabo filed UCC-1 financing statements with the Oregon Secretary of State on August 1, 2015, and December 31, 2015. See Adv. Doc. Nos. 97-1, 97-2. In those filings Rabo asserted liens against Farmers Grain's property, including its grain inventory. Id. at 2.
Rabo's security interest in the listed collateral attached on September 28, 2015,
The question is whether the Remaining Producers have liens against the property of Farmers Grain and, to the extent any of them have liens, whether such liens are subordinate to Rabo's.
Under Oregon law, "[a]n agricultural producer that delivers or transfers grain for consideration has a lien on the inventory of the purchaser and proceeds received by the purchaser for sale of the inventory." O.R.S. § 87.755(1). The lien is automatically created and attaches to the inventory and proceeds on the date physical possession of the grain is transferred to the purchaser. Id. at (2). The producer need not file any notice in order to perfect its lien. Id. at (3). A grain producer's lien under O.R.S. § 87.755 expires 180 days after the lien attaches, unless the producer extends the lien by filing a notice of lien under O.R.S. § 87.762 or a notice of claim of lien under O.R.S. § 87.242. See O.R.S. § 87.762(1)-(2).
As between perfected security interests, the first one perfected generally has priority. O.R.S. § 79.0322(1)(a). It is undisputed that Rabo's lien was perfected prior to those of any of the Grain Producers and, under this general rule, would have first priority. However, an exception to this general rule provides that a lien created by O.R.S. § 87.755(1) is:
O.R.S. § 87.755(3). Thus, it is further undisputed that if any Remaining Producer has a valid lien created pursuant to O.R.S. § 87.755(1), such lien would be prior and superior to Rabo's.
Hartley; Watson Agriculture, Inc.; Saunders; and Unruh do not dispute that they did not extend their liens and, therefore, have no security interests in grain owned by Farmers Grain. Rather, these parties all assert that a portion of the grain in Farmers Grain's possession at the time it filed its bankruptcy petition was not actually owned by Farmers Grain, but was delivered by them to Farmers Grain solely for storage, and that these parties retained ownership.
Based on the undisputed facts, these parties have no security interest in inventory owned by Farmers Grain. To the extent the grain in Farmers Grain's possession at the time it filed its petition was sold to and owned by Farmers Grain, Rabo's security interest is superior to the interests of Hartley; Watson Agriculture, Inc.; Saunders; and Unruh. The question of whether Farmers Grain actually owned the grain in its possession, however, is not before the Court at this time and is not addressed in this Decision.
This Court previously granted summary judgment in favor of DC Land, holding that DC Land has a valid lien against Farmers Grain's inventory under O.R.S. § 87.755(1). In re Farmers Grain, LLC, 2018 WL 770360 (Bankr. D. Idaho Feb. 7, 2018). Rabo argues that DC Land's lien is, nonetheless, subordinate to Rabo's lien because DC Land failed to provide Rabo notice of its filing within twenty days, as required by O.R.S. § 87.762(3)-(4). That statute provides:
DC Land argues it filed a "notice of claim of lien" under O.R.S. § 87.242 rather than a "notice of lien" under O.R.S. § 87.762, and the twenty-day notice requirement found in O.R.S. § 87.762 is not applicable to O.R.S. § 87.242. Alternatively, DC Land argues it substantially complied with this twenty-day notice requirement.
For purposes of this Decision only, the Court will assume, without deciding, that DC Land was required to provide notice within twenty days of filing its notice of claim of lien with the Oregon Secretary of State. Accordingly, the critical issue is whether, under Oregon's recognition of the doctrine of substantial compliance with regard to notices, DC Land has substantially complied with the twenty-day notice requirement.
Substantial compliance is used to avoid the harsh result of insisting on literal compliance with statutory notice provisions where the purpose of the statute has been met. State v. Vandepoll, 118 Or.App. 193, 846 P.2d 1174, 1176 (1993). The doctrine requires the Court to determine the sufficiency of the notice given in light of the statute's objectives, and to ignore claims of technical deficiency when the purposes of the statute are served. Id.
With regard to a party's failure to send notice by certified mail, when required by statute, the Oregon Supreme Court has held that "actual notice is the equivalent of notice by certified mail." Brown v. Portland School Dist. No. 1, 291 Or. 77, 628 P.2d 1183, 1186 (1981) (citing Stroh v. SAIF, 261 Or. 117, 492 P.2d 472 (1972)). In Brown, a school district argued that a plaintiff's claim against it, notice of which was sent by standard mail, was ineffective due to the plaintiff's failure to provide notice to the school district by certified mail, as required by state statute.
While no Oregon case specifically addresses whether actual notice negates a lien claimant's failure to comply with the notice requirements of O.R.S. § 87.762(3)-(4), the Court finds the Oregon Supreme Court's reasoning in Brown compelling. The purpose of the lien notice statute at issue is to provide parties who claim a perfected security interest in another's property notice that some other entity claims a lien in that same property. See O.R.S. § 87.762(3).
DC Land unquestionably failed to send notice to Rabo by certified mail. However, on June 10, 2017, just three days after DC Land's filing with the Oregon Secretary of State, Rabo filed a memorandum in Farmers Grain's bankruptcy case with a copy of DC Land's filing attached. Case No. 17-0450-TLM, Doc. No. 53 at 7. Rabo, through a search of the Oregon Secretary of State lien filings, had actual notice of DC Land's claim of lien within the twenty-day period required by statute. Rabo's actual notice of DC Land's claim of lien through its own search effectively provided the same knowledge as a notice by certified mail would have.
It is true that DC Land did not undertake any affirmative step to provide notice, such as mailing notice by certified or regular mail, or by physically delivering a notice to Rabo. Thus, this situation does not precisely fit the situation presented in Brown and similar Oregon cases. But the statute here was designed to ensure notice is timely received by the holder of a security interest that competing liens are asserted. If that fundamental purpose is satisfied, the raison d'etre of the statute is met. The Court does not believe Oregon courts would subordinate a creditor's lien interest for failing to provide certified mail notice if the secured party had knowledge of the asserted lien. Rabo had notice of DC Land's lien three days after that lien was filed. DC Land was aware of this from Rabo's brief filed in this Court. At that point, DC Land still had seventeen days in which to provide the certified mail notice. But requiring such redundant notice does not advance the purpose of the statute.
Here, Rabo had actual knowledge of DC Land's lien interest. The purpose of the notice statute — providing seasonable and timely notice of a producer's lien — is thereby satisfied. The Court consequently finds and concludes that DC Land's lien interest is not subordinated to Rabo's security interest by operation of O.R.S. § 87.762(4).
To the extent Farmers Grain owned the grain inventory it possessed at the time it