United States of America v. McClintock Dairy, LLC et al

Filing 24

MEMORANDUM. Signed by Judge William M Nickerson on 10/1/14. (dass, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND

United States of America
v.
McClintock Dairy, LLC
et al.
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Civil Action No. WMN-13-3854

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MEMORANDUM
Before the Court is the United States’ Motion for Summary
Judgment.
review.

ECF No. 16.

The motion is fully briefed and ripe for

Upon a review of the papers, facts, and applicable law,

the Court determines (1) that no hearing is necessary, Local
Rule 105.6, and (2) the motion will be granted.
I. FACTUAL AND PROCEDURAL BACKGROUND
The United States, on behalf of the Farm Service Agency
(FSA), an agency of the Department of Agriculture (USDA),
instituted this action to foreclose its security interest in
property against the borrowers, McClintock Dairy, LLC, Steven
McClintock, Jeffrey McClintock, and the Estate of Gary
McClintock (Collectively “McClintock Dairy”).
In 2003, McClintock Dairy, LLC secured a $200,000 direct
operating loan from the FSA pursuant to the Consolidated Farm
and Rural Development Act (Act), 7 U.S.C. § 1921 et seq.

The

individual defendants each personally executed the FSA loan

promissory note in their individual capacities.

On May 23,

2003, the FSA filed a financing statement with the Maryland
State Department of Assessments and Taxation, and renewed the
statement as recently as April 30, 2013.

The FSA executed a

security agreement on June 9, 2003, including as collateral
crops, livestock, chattels, accounts, contract rights, and
general intangibles.

It also filed a lien against motor

vehicles included in the security agreement.
The security agremeent stated that “[d]efault shall exist
under this instrument if Debtor fails to perform or discharge
any obligation or to pay promptly any indebtedness secured by
this instrument. . . .”

ECF 1-2 at 7.

Upon default, FSA may

“[d]eclare the unpaid balance on the note and any indebtedness
secured by this instrument immediately due and payable, (b)
enter upon the premises and cultivate and harvest crops, take
possession of, repair, improve, use, and operate the collateral
or make equipment unusable, for the purpose of protecting or
preserving the collateral or this lien, or preparing or
processing the collateral for sale, and (c) exercise any sale or
other rights accorded by law.”

Id.

Although McClintock Dairy made payments on the loan, it
eventually fell behind and sought Chapter 11 bankruptcy on
January 3, 2007.

At that time, the FSA and McClintock Dairy

entered into a stipulation during bankruptcy proceedings that
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McClintock Dairy would make a monthly payment of $2,701
beginning January 2008 to discharge the remaining $96,100 on the
FSA loan.

Under the stipulation, both parties affirmed the

validity of the existing security agreement and eight prior
discontinued monthly payments were cured.

Then, in November

2009, the FSA sent notice of its intent to collect by
administrative offset.

Over McClintock Dairy’s objection, the

FSA collected payments due from the IRS, and two funds run
through the USDA: the Milk Income Loss Contract; and Direct and
Counter-Cyclical Payment Program.
Concurrently, the FSA began the default and acceleration
process by advising McClintock Dairy of the availability of
programs for delinquent debtors and providing sixty days to
apply for primary loan servicing.

It sent its Intent to

Accelerate notice on January 21, 2010, to which McClintock Dairy
requested reconsideration.

The FSA denied the request, finding

that McClintock Dairy failed to file a complete application for
primary loan servicing.

McClintock Dairy then requested

mediation, but the Maryland Agricultural Conflict Resolution
Service (ACReS) was unable to get in touch with McClintock Dairy
after repeated attempts.
FSA then accelerated the loan on December 9, 2010, for the
remaining $55,813.26 owed based on $19,969.58 of delinquent
payments.

As of June 11, 2014, the outstanding balance was
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$43,097.64.

The FSA states that it now holds a valid first

priority security interest with respect to all collateral under
the FSA loan and filed this action to enforce a money judgment
and take possession of collateral.

The United States has now

moved for summary judgment as to all claims.1
II. LEGAL STANDARD
Summary judgment is appropriate if the record before the
court “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); Celotex Corp. v. Catrett, 377 U.S. 317,
322-23 (1986).

See also Felty v. Graves-Humphreys Co., 818 F.2d

1126, 1128 (4th Cir. 1987) (noting that trial judges have “an
affirmative obligation . . . to prevent factually unsupported
claims and defenses from proceeding to trial” (internal
quotation marks omitted)).

A fact is material if it might

“affect the outcome of the suit under the governing law.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

In

determining whether there is a genuine issue of material fact,
the Court “views all facts, and all reasonable inferences to be
drawn from them, in the light most favorable to the non-moving
party.”

Housley v. Holquist, 879 F. Supp. 2d 472, 479 (D. Md.

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The United States did not provide a proposed order with its motion for
summary judgment. If it believes that some further order is required, the
United States may provide a proposed order within ten days of this order.

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2011) (citing Pulliam Inv. Co. v. Cameo Properties, 810 F.2d
1282, 1286 (4th Cir. 1987)).
III. DISCUSSION
As there is no dispute of material facts that the United
States has a valid security interest and McClintock Dairy has
defaulted on its loan obligations, the Court will grant the
United States’ motion for summary judgment.

Government security

interests are controlled by the commercial law of each state.
United States v. Kimbell Foods, Inc., 440 U.S. 715, 733 (1979).
Under Maryland law, a secured party may reduce a claim to
judgment upon a debtor’s default.
601.

Md. Code Ann., Com. Law § 9-

An interest in collateral is perfected when the creditor

gives value to collateral in the debtor’s possession, there is
an authenticated record, and the secured party files a financing
statement.

Id. § 9-308.

All parties agree that McClintock Dairy and the McClintock
family signed the promissory note.

They also agree that the

note was secured by an interest in collateral.
dispute that McClintock Dairy is in default.

And there is no

The United States

has also demonstrated that it complied with all administrative
formalities in accelerating the loan.
McClintock Dairy’s arguments to undermine the contract’s
formation are unavailing.

First, it argues that the true intent

of the loan was to buy cows rather than discharge debt; however,
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documentation made in anticipation of the loan clearly shows
that use of the loan to pay off pre-existing debts was
contemplated and desired by McClintock Dairy.

Second,

McClintock Dairy argues that the loan went against FSA’s own
regulations, yet an FSA loan to refinance debts was clearly
authorized under the federal regulation in place at the time of
the loan issuance.

7 C.F.R. § 1941.16(i).

Furthermore,

McClintock Dairy affirmed the validity of the loan a full five
years after entering into the loan when it entered into the
stipulation with the FSA during bankruptcy.

McClintock Dairy’s

failure to provide any evidence to suggest a misrepresentation
on the part of the United States or collusion between First
United and the FSA fails to raise a material dispute of fact.
See Anderson, 477 U.S. at 248 (stating that the nonmoving party
must provide “sufficient evidence supporting a claimed factual
dispute”).

As such, the United States is entitled to summary

judgment as a matter of law.
IV.

CONCLUSION
For the reasons stated above, the Plaintiff’s Motion for

Summary Judgment will be granted.
______________/s/__________________
William M. Nickerson
Senior United States District Judge

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