In Re: Lee H. Purdy, Debtor,
Citizens First Bank, Appellee. Sunshine Heifers, LLC, Appellant,
Argued: July 26, 2017
from the United States District Court for the Western
District of Kentucky at Bowling Green. No.
1:15-cv-00110-Joseph H. McKinley Jr., District Judge.
from the United States Bankruptcy Court for the Western
District of Kentucky at Bowling Green. No. 12-11592-Joan A.
Michael D. Almassian, KELLER & ALMASSIAN, Grand Rapids,
Michigan, for Appellant.
A. Bachert, KERRICK BACHERT PSC, Bowling Green, Kentucky, for
Michael D. Almassian, Nicholas S. Laue, KELLER &
ALMASSIAN, Grand Rapids, Michigan, for Appellant.
A. Bachert, Ashley D. Gerughty, KERRICK BACHERT PSC, Bowling
Green, Kentucky, for Appellee.
Before: COLE, Chief Judge; BATCHELDER and MOORE, Circuit
NELSON MOORE, Circuit Judge.
August 14, 2014, a panel of this court held that Citizens
First Bank ("Citizens First" or "CFB")
failed to demonstrate that the "Dairy Cow Leases"
it had with farmer Lee Purdy ("Debtor") were
actually security agreements in disguise. Sunshine
Heifers, LLC v. Citizens First Bank (In re Purdy), 763
F.3d 513, 521 (6th Cir. 2014). The case was subsequently
remanded to the United States Bankruptcy Court for the
Western District of Kentucky "for further proceedings
consistent with this opinion." Id. On remand,
the bankruptcy court determined that "all cattle sold at
the auction in April 2014 were subject to CFB's security
interest. Therefore, the Court determines that all the
proceeds of the [bankruptcy] auction, less the Trustee's
fee, the costs of care and feeding of the cattle and expenses
related to the sale, are the property of CFB." In Re
Purdy, No. 12-11592(1)(12), 2015 WL 5176580, at *15
(Bankr. W.D. Ky. Sept. 2, 2015). Sunshine Heifers, LLC
("Sunshine") appealed to the district court, which
"affirm[ed] the Bankruptcy Court's decision that
'net sales proceeds, exclusive of all costs associated
with the sale and care of the cattle sold, totaling $402,
354.54 are awarded to Citizens First Bank.'"
Sunshine Heifers, LLC v. Purdy, No.
1:15-cv-00110-JHM, 2016 WL 4392815, at * 5 (W.D. Ky. Aug. 15,
2016). Sunshine now appeals the district court's judgment
and argues that the bankruptcy court deprived Sunshine of its
right to a portion of the bankruptcy auction proceeds.
Sunshine requests that we remand the case to the bankruptcy
court and require the bankruptcy court to award to Sunshine
$301, 318.63 in proceeds from the bankruptcy auction. For the
reasons stated below, we AFFIRM.
Purdy operated his dairy farm in Barren County, Kentucky. In
2008, he entered into a loan relationship with Citizens
First, using his herd of dairy cattle as collateral. Purdy
refinanced his loan on July 3, 2009, executing an
"Agricultural Security Agreement" in exchange for
additional principal in the amount of $417, 570. As part of
the security agreement, Purdy granted Citizens First a
purchase money security interest in "all . . .
Equipment, Farm Products, [and] Livestock (including all
increase and supplies) . . . currently owned [or] hereafter
acquired . . . ." Three days later, Citizens First
perfected this purchase money security interest by filing a
financing statement with the Kentucky Secretary of State.
Purdy and Citizens Bank executed two similar security
agreements in August 2010 and May 2012. Citizens First
perfected these purchase money security interests as well.
after refinancing his loan with Citizens First in 2009, Purdy
decided to increase the size of his dairy-cattle herd. He
contacted Jeff Blevins of Sunshine regarding the prospect of
leasing additional cattle. Sunshine was amenable to the idea,
and on August 7, 2009, Purdy and Sunshine entered into the
first of five contracts, three of which are relevant here:
(1) a July 21, 2011 agreement, involving fifty head of
cattle; (2) a July 14, 2012 agreement, rolling up two prior
agreements and involving 285 head of cattle; and (3) another
July 14, 2012 agreement, involving 100 head of cattle.
these agreements is titled a "Dairy Cow Lease, "
and under their terms, Purdy received a total of 435 cattle
for fifty months in exchange for a monthly rent. The
agreements prohibited Purdy from terminating the leases, and
Purdy agreed to "return the Cows, at [his] expense, to
such place as Sunshine designate[d]" at the end of the
lease term. Additionally, Purdy guaranteed "the net
sales proceeds from the sale of the Cows . . . at the end of
the Lease term [would] be [a set amount between $290 and
$300] per head (the 'Guaranteed Residual
Value')." Purdy further promised to maintain
insurance on the cattle, to replace any cows that were culled
from the herd, and to allow Sunshine the right to inspect the
herd. When the parties signed these contracts, they also
executed security agreements, and Sunshine filed financing
statements with the Secretary of State.
dairy business, farmers must "cull" a portion of
their herd every year, replacing older and less productive
cows with younger, healthier ones. Many times, dairy farmers
will replace the culled cows with their calves. Purdy, in
contrast, sold off the calves of Sunshine's cows and
purchased more mature replacements. See In re Purdy,490 B.R. 530, 534 (Bankr. W. D. Ky. 2013). This practice
contravened the terms of the leases, but Sunshine was aware
of Purdy's behavior and acquiesced in it. Nonetheless,
the terms of the lease required Purdy to apply Sunshine's
brand and a yellow ear tag to the original cows and their
replacements. In contrast, Purdy applied a white ear tag to
the cattle covered by Citizens First's security interest.
In re Purdy, 490 B.R. at 535. By July 2012, ...