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Bayer CropScience, LLC v. Stearns Bank Nat'l Ass'n - 837 F.3d 911 (8th Cir. 2016)

Rule:

A superior interest in proceeds of original collateral is not displaced simply because damage to that collateral gives rise to a subsequent commercial tort claim.

Facts:

Texana Rice Mill and Texana Rice, Inc. (Texana) sued Bayer CropScience (Bayer) in Texas state court for several claims related to the contamination of the United States rice supply by Bayer's genetically modified rice. Texana and Bayer reached a settlement for $2,137,500, and Bayer made payment into the custody of the Clerk of Court for the United States District Court for the Eastern District of Missouri. After two uncontested disbursements, $933,697.90 remained. Meanwhile, Texana owed separate debts to Stearns Bank and Amegy Bank, which totaled an amount in excess of the remaining settlement proceeds. Each bank argued that it has a superior priority interest in the proceeds. Consequently, Bayer brought the present interpleader action to determine its obligations with regard to the settlement. Stearns Bank and Amegy Bank filed motions for summary judgment. Stearns Bank argued its security interest had priority because it filed a UCC financing statement covering Texana's general intangibles before Amegy Bank filed its UCC statement covering the Bayer suit. On the other hand, Amegy Bank claimed in its summary judgment motion that Stearns Bank's interest in general intangibles could not cover the settlement in a subsequent commercial tort claim and that Stearns Bank's interest was discharged in the foreclosure. The district court granted Amegy Bank's motion and denied Stearns Bank' s motion, entering judgment for Amegy Bank, holding that when Stearns Bank foreclosed on the collateral after Texana's default and then purchased the existing collateral at auction, Stearns Bank's security interest was discharged. On appeal, Stearns Bank argued that once the Bayer commercial tort claim was settled and reduced to a contractual obligation to pay, it became a "payment intangible" under the UCC and Texas law. Because Stearns Bank's original security agreement with Texana included general intangibles, it argued that it has a superior claim to Amegy Bank.

Issue:

Did the district court err in granting Amegy Bank’s motion?

Answer:

Yes.

Conclusion:

The Court reversed the judgment of the district court, holding that Stearns Bank held a security interest in the proceeds of the suit as a right of recovery with respect to damage to its original collateral. According to the Court, to the extent that the Settlement Payment from the company to the debtor included payment for damages to the bank's original collateral, those sums were covered by the original security agreement. Hence, the Court remanded the case to the court of origin.

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