Fishback Nursery Inc et al v. PNC Bank NA et al

Filing 46

Memorandum Opinion and Order 30 Motion for Summary Judgment filed by Surface Nursery Inc, Fishback Nursery Inc is denied and 33 Motion for Summary Judgment filed by PNC Bank NA is granted. (Ordered by Judge Jane J. Boyle on 12/19/2017) (svc)

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
FISHBACK NURSERY, INC. and
SURFACE NURSERY, INC.,
Plaintiffs,
v.
PNC BANK, N.A. and
CRYSTAL FINANCIAL, LLC,
Defendants.

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CIVIL ACTION NO. 3:16-CV-03267-B

MEMORANDUM OPINION AND ORDER
This case comes to the Court in the aftermath of a bankruptcy proceeding. The parties claim
interests in the same property of now-bankrupt BNF Operations LLC (BNF). PNC asserts a lien over
substantially all of BNF’s assets because of loans it made to BNF, and Fishback Nurseries and Surface
Nurseries (the Nurseries) assert liens over agricultural products they sold BNF. Although PNC has
already received and liquidated BNF’s assets, the Nurseries contend that the bankruptcy court’s final
order entitles them to a portion of the proceeds because their liens are senior to PNC’s and
enforceable. PNC claims the opposite. Now, both the Nurseries and PNC have moved for summary
judgment. Finding the nurseries to lack senior, enforceable liens, the Court DENIES the Nurseries’
motion and GRANTS PNC’s.

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I.
BACKGROUND
A.

Factual History1
The Nurseries and PNC are creditors of now-bankrupt BNF Operations LLC (BNF). The

Nurseries are BNF’s creditors because they sold agricultural products to BNF and took security
interests in those products. Fishback Nursery shipped agricultural products to BNF in Oregon,
Michigan, and Tennessee. Doc. 29-1, Stipulation, Ex. 1; Doc. 29-2, Stipulation, Ex. 2; Doc. 29-3,
Stipulation, Ex. 3. Payment was originally due on these orders on their invoice dates and finally due
ninety days after the invoice dates. Id. Fishback filed a Uniform Commercial Code financing
statement2 for the Oregon order with the Oregon Secretary of State on June 21, 2016. Doc. 29-1,
Stipulation, Ex. 1. Fishback filed a UCC financing on the same date with the Michigan Secretary of
State for the Michigan orders. Doc. 29-2, Stipulation, Ex. 2. And Fishback filed with the Tennessee
Secretary of State a UCC financing statement for the Tennessee orders on June 28, 2016. Doc. 29-3,
Stipulation, Ex. 3. All three financing statements listed the debtor’s name as “BFN Operations, LLC
abn Zelenka Farms.” Doc. 29-1, Stipulation, Ex. 1; Doc. 29-2, Stipulation, Ex. 2; Doc. 29-3,
Stipulation, Ex. 3. But BFN’s founding documents list its name as “BFN Operations LLC.” Doc. 3519, App’x to PNC’s Mot. Summ. J., 444–45. Fishback filed also a notice of lien with the Oregon
Secretary of State for all orders on August 29, 2016. Doc. 29-9, Stipulation, Ex. 9A; Doc. 29-10,

1

This factual history is drawn from the facts to which the parties have stipulated.

2

The UCC, which many states have adopted, usually requires creditors in secured transaction to
file financing statements, which describe the debtor and the collateral securing the transaction. Mich.
Comp. Laws § 440.9310(1); Tenn. Code Ann. § 47-9-301(a); Or. Rev. Stat. § 79.0502.

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Stipulation, Ex. 9B; Doc. 29-11, Stipulation, Ex. 9C. In all, Fishback demands $1,178,831.44. Doc.
29-1, Stipulation, Ex. 1; Doc. 29-2, Stipulation, Ex. 2; Doc. 29-3, Stipulation, Ex. 3.
Surface Nursery shipped goods to BNF only in Michigan. Doc. 29-4, Stipulation, Ex. 4.
Surface tendered the invoices on March 3, 2016, and payment became finally due June 1, 2016. Id.
Surface filed a UCC financing statement with the Michigan Secretary of State on June 28, 2016, id.,
and a notice of lien with the Oregon Secretary of State on July 13, 2016, Doc. 29-12, Stipulation,
Ex. 10. Surface’s financing statement also lists the debtor’s name as “BNF Operations, LLC abn
Zelenka Farms.” Doc. 29-4, Stipulation, Ex. 4. In all, Surface demands $262,677.26. Id.
PNC is BNF’s creditor because PNC loaned BNF money and took a security interest in
substantially all of BNF’s assets. Doc. 29-15, Stipulation, Ex. 13.
On June 17, 2016, BNF filed for bankruptcy in the Northern District of Texas. Doc. 29,
Stipulation, ¶ 7. During the bankruptcy proceedings and with the bankruptcy court’s approval, PNC
provided debtor-in-possession (DIP) financing to BNF so that BNF could stay in business during the
bankruptcy proceedings. Id. at ¶¶ 43–44. The DIP financing was in addition to the prepetition loans
PNC made to BNF. The bankruptcy court ordered that PNC’s prepetition loan to BNF would be
considered part of the DIP financing and ordered that PNC’s DIP Lien
shall be a first priority senior and priming lien on the DIP collateral
(including the pre-petition collateral), subject and junior only to . . .
valid, enforceable, properly perfected, and unavoidable pre-petition
liens that are senior to the liens granted to Pre-Petition Lenders, PrePetition Agent, and Term Loan Agent pursuant to the Pre-Petition
Credit Agreement and other Pre-Petition Loan Documents.
Doc. 29-16, Stipulation, Ex. 14.

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B.

Procedural History
Seeking to capitalize on the above order of the bankruptcy court, the Nurseries filed this

lawsuit on November 21, 2016, Doc. 1, Compl., and an amended complaint on February 6, 2017,
Doc. 16, Am. Compl. The Nurseries seek a declaratory judgment that they have “valid, enforceable,
properly-perfected, unavoidable prepetition liens” senior to PNC’s DIP lien, and the Nurseries ask
the Court to order PNC to turn over money to satisfy their allegedly senior lien. Id. at ¶¶ 14–19.
PNC counterclaims for a declaratory judgment that the Nurseries lack senior and enforceable liens.
Doc. 18, Answer & Countercl., ¶¶ 25–34. On August 28, 2017, both the Nurseries and PNC filed
motions for summary judgment, which the Court will now resolve. Doc. 30, Nurseries’ Mot. Summ
J.; Doc. 33, PNC’s Mot. Summ. J.
II.
LEGAL STANDARD
Courts must grant summary judgment “if the movant 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). Here, no facts are in dispute.
III.
ANALYSIS
The only issue in this case is whether, as a matter of law, the Nurseries have valid,
enforceable, properly perfected, and unavoidable pre-petition liens senior to the Banks’ DIP lien. The
parties agree on the facts but not the law. Whereas the Nurseries argue that Oregon law determines
who has the senior lien, the Banks contend Michigan and Tennessee law apply to property BNF
received in those states. The parties disagree also on whether the Nurseries have senior liens under
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Oregon law.3 The Court will first resolve the choice-of-law issue, explaining that this lien dispute is
governed by the laws of the states in which BNF received products from the Nurseries. Second, the
Court will apply the appropriate states’ laws to determine whether the Nurseries have enforceable,
senior liens.
A. Choice of Law
The Court will first determine what states’ laws govern this lien dispute. Relevant to the
choice-of-law question is why the Court has subject matter jurisdiction over this case. The Nurseries
pleaded diversity jurisdiction in their Amended Complaint. Doc. 16, Am. Compl., ¶ 5. If the Court
is sitting in diversity, Texas law determines what choice-of-law principles apply. Klaxon Co. v. Stentor
Elec. Mfg. Co., 313 U.S. 487, 496 (1941). But although the Nurseries have pleaded diversity
jurisdiction, they have not pleaded facts supporting diversity jurisdiction. Whether the Court has
diversity jurisdiction, though, it certainly has jurisdiction under 28 U.S.C. § 1334(b) because this
case is “related to” a bankruptcy proceeding. See 28 U.S.C. § 1334(b) (“[T]he district courts shall
have original but not exclusive jurisdiction of all civil proceedings arising under [the Bankruptcy
Code], or arising in or related to cases under [the Bankruptcy Code].”). Indeed, the Nurseries’s claim
hinges on the final order of a bankruptcy court.
What choice-of-law principles govern in bankruptcy cases is an open question. Although the
bankruptcy laws rely on state law for definitions of many rights important in bankruptcy proceedings,
the Bankruptcy Code provides no method for resolving conflicts of state law. In Re SMEC, Inc., 160
B.R. 86, 89 (M.D. Tenn. 1993). The Fifth Circuit has not determined whether courts exercising

3

Given the outcome of the choice-of-law analysis, the Court will not apply Oregon law to
property BNF received in Michigan and Tennessee.

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bankruptcy jurisdiction should apply federal choice-of-law principles or those of the forum state. In
Re Mirant Corp., 675 F.3d 530, 536 (5th cir. 2012); In Re Brown, 521 B.R. 205, 228 (Bankr. S.D. Tex
2014). And other circuits have split on the issue.
To determine what state’s law to apply in bankruptcy cases, some courts apply federal
common law, asking which state has the most significant contacts to the case. Lindsay v. Beneficial
Reinsurance Co., 59 F.3d 942, 948 (9th Cir. 1995); SMEC, 160 B.R. at 91. Courts applying the mostsignificant-contacts test rely on dicta from Vanston Bondholders Protective Committee v. Green, 329
U.S. 156 (1946). There, the Supreme Court said, “What claims of creditors are valid and subsisting
obligations against the bankrupt at the time a petition in bankruptcy is filed, is a question which, in
the absence of overruling federal law, is to be determined by reference to state law.” But the Supreme
Court recognized also that
obligations . . . often have significant contacts in many states so that
the question of which particular state’s law should measure the
obligation seldom lends itself to simple solution. In determining which
contact is the most significant in a particular transaction, courts can
seldom find a complete solution in the mechanical formulae of the
conflicts of law. Determination requires the exercise of an informed
judgment in the balancing of all the interests of the states with the
most significant contacts in order best to accommodate the equities
among the parties to the policies of those states.
Id. at 161–62. Again, this is just dicta; in Vanston, the Supreme Court did not actually have to make
a choice of law. Courts have nonetheless taken Vanston to indicate that courts sitting in bankruptcy
should apply their independent judgment when resolving conflicts of state law. See, e.g., SMEC, 160
B.R. at 89–90. One such court has reasoned that forum states lack the interest in having their laws
applied in bankruptcy cases that they have in diversity cases. Id. at 90. Indeed, the location of a
debtor when it files for bankruptcy may have little relation to the location of its property and
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dealings. Id. Because debtors could have property dispersed among the states, federal courts should
apply the law(s) of the state(s) with the greatest interest in the proceeding. Id. Another argument
in favor of applying federal rules is that it prevents forum shopping by removing the incentive for
debtors “in the shadow of bankruptcy” to relocate so as to take advantage of a particular forum’s laws
in a way that would subject creditors to laws of states in which they never transacted. Id. at 90–91.
Other courts sitting in bankruptcy apply the forum state’s choice-of-law rules. See, e.g., In Re
Merritt Dredging Co., 839 F.2d 203, 206 (4th Cir. 1988) (“[I]n the absence of a compelling federal
interest which dictates otherwise, the Klaxon rule should prevail where a federal bankruptcy court
seeks to determine the extent of a debtor’s property interest.”). One such Court applying the forum
state’s choice-of-law rules reasoned that a uniform rule under which the forum state’s rules would
always apply would enhance predictability. Id. Additionally, these courts say that applying the rules
of the forum state accords with Erie4 and Klaxon’s5 admonition that the federal courts should only
apply federal law to federal issues and issues in which an important federal interest is at stake. Id.
Without an important federal interest at stake when determining state-law property interests,
applying one set of rules in diversity cases and another in bankruptcy cases would be anomalous. Id.
On this interesting question of what choice-of law principles to apply in bankruptcy cases,
the Court concludes that it need not resolve the issue because the end result is the same. The Fifth
4

In the seminal case Erie R.R. Co. v. Tompkins, the Supreme Court held that “[e]xcept in matters
governed by the Federal Constitution or by acts of Congress, the law to be applied in any case is the law of
the state.” 304 U.S. 64, 78. In so holding, the Supreme Court overruled Swift v. Tyson, in which the
Supreme Court applied “general principles of commercial law” to resolve a diversity case rather than any
state’s law. 41 U.S. 1, 18 (1842). Erie put to rest the notion of “federal general common law.” Erie, 304
U.S. at 78.
5

Relying on Erie, the Supreme Court held in Klaxon that federal courts sitting in diversity apply
the choice-of-law rules of the forum state. 313 U.S. at 496.

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Circuit has generally avoided the issue in cases in which federal and forum-state choice-of-law rules
produce the same result, emphasizing that the Supreme Court and the Fifth Circuit “have taken care
to avoid resolving this question .” Woods-Tucker Leasing Corp. of Ga. v. Hutcheson-Ingram Dev. Co.,
642 F.2d 744, 748 (5th Cir. 1981); see also Fahs v. Martin, 224 F.2d 387, 399 (5th Cir. 1955) (“[W]e
conclude that if we applied a federal rule or if we determined what result the courts of Florida would
reach, the answer would be the same. We do not determine which road the trial court should have
travelled [sic] to arrive at the common destination.”). And the Fifth Circuit has not decided a
bankruptcy case in which the outcome of applying state and federal choice-of-law rules would have
differed.6 Thus, rather than determine whether to apply federal or state choice-of-law rules, the
Court will instead show that the result would be the same under either.
Under Texas law, the law of the states in which BFN received the products from the
Nurseries applies. “While farm products are in a jurisdiction, the local law of that jurisdiction governs
perfection, the effect of perfection or nonperfection, and the priority of an agricultural lien on the
farm products.” Tex. Bus. & Com. Code § 9.302. Farm products include “goods, other than standing
timber, with respect to which the debtor is engaged in a farming operation which are . . . crops
grown, growing, or to be grown, including . . . crops produced on trees, vines, and bushes.” Tex. Bus.
& Com. Code § 9.102(a)(34). And an agricultural lien is

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Though, the Fifth Circuit has stated, “In this federal bankruptcy case the District Court is not
obliged to use the choice-of-law methodology of the forum state.” Wallace Lincoln-Mercury Co. v. Gentry,
469 F.2d 396, 400 n.1 (5th Cir. 1972). But this is just dicta in a footnote. Additionally, the rule of
orderliness requires the Court to follow an earlier panel opinion until it is overruled by the en banc Fifth
Circuit or the Supreme Court. Jacobs v. Nat. Drug Intelligence Ctr., 548 F.3d 375, 378 (5th Cir. 2008).
Because neither has overruled Fahs, decided in 1955, the Court will follow Fahs and avoid deciding
whether state or federal rules apply. The Fifth Circuit has done the same. See Mirant, 675 F.3d at 536
(declining to decide whether state or federal rules applied).

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an interest in farm products . . . that secures payment or performance
of an obligation for . . . goods or services furnished in connection with
the debtor’s farming operation . . . that is created by statute in favor
of a person that . . . in the ordinary course of business furnished goods
or services to a debtor in connection with a debtor’s farming
operation . . . whose effectiveness does not depend on the person’s
possession of the personal property.
Tex. Bus. & Com. Code § 9.102(a)(5).
Here, the Nurseries sold BNF various plants that are clearly farm products under Texas law.
Doc. 29-1, Stipulation, Ex. 1; Doc. 29-2, Stipulation, Ex. 2; Doc. 29-3, Stipulation, Ex. 3; Doc. 29-4,
Stipulation, Ex. 4. And the Nurseries’ liens on those goods were clearly agricultural liens. Thus,
Texas law would require the Court to apply the law of states to which the Nurseries shipped the
products to determine whether the Nurseries’ liens are senior to PNC’s and enforceable.
Applying federal choice-of-law rules leads to the same result. Under federal rules, federal
courts apply the substantive law of the state with the most significant contacts to the case. See
Mirant, 675 F.3d at 536 (referring to federal choice-of-law test as the “most significant relationship
approach” (quoting Restatement (Second) Conflict of Laws § 6 (1971) (internal quotations
omitted))); Brown, 521 B.R. at 228 (“Under federal conflict of law principles, the law of the state
with the most significant contacts applies.” (citing Vanston, 329 U.S. at 161–62)). The federal test
is “synonymous with the ‘most significant relationship’ approach adopted by [§ 6]” of the
Restatement (Second) Conflict of Laws. Mirant, 675 F.3d at 536. The Restatement says,
The validity and effect of a security interest in a chattel as between
the immediate parties are determined by the local law of the state
which, with respect to the particular issue, has the most significant
relationship to the parties, the chattel and the security interest under
the principles stated in § 6.
Restatement (Second) Conflict of Laws § 251(1) (1971). Section 6 states in turn that, when there
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is no statutory7 directive, courts should consider the following factors when determining what state’s
law to apply:
(a) the needs of the interstate and international systems,
(b) the relevant policies of the forum,
(c) the relevant policies of the other interested states and the relative
interests of those states in the determination of the particular issue,
(d) the protection of justified expectations,
(e) the basic policies underlying the particular field of law,
(f) certainty, predictability and uniformity of result, and
(g) ease in the determination and application of the law to be applied.
Id. This list of factors is non-exhaustive. In Re Cyrus II P’ship, 413 B.R. 609, 615 (Bankr. S.D. Tex.
2008); Restatement (Second) Conflict of Laws § 6 cmt. c.
In the secured-transaction context, the location of property strongly suggests which state’s
law should govern lien perfection and priority. Because all but one state have adopted the UCC, the
Fifth Circuit considers the UCC part of “the federal law of commerce—including secured
transactions.” Woods-Tucker, 642 F.2d at 749. And the UCC says, “While farm products are in a
jurisdiction, the local law of that jurisdiction governs perfection, the effect of perfection or
nonperfection, and the priority of an agricultural lien on the farm products.” U.C.C. § 9-302 (Am.

7

Section 6 actually says “state” directive. PNC seizes on the Restatement’s use of the word
“state,” arguing that even when applying federal choice-of-law principles, a court must apply statutory
choice-of-law rules of the forum state. PNC is incorrect. No courts applying federal choice-of-law
principles have followed PNC’s approach; federal courts applying federal-choice-of law rules do not
necessarily follow statutory directives of the forum state. Interpreting § 6 as PNC does would eliminate
the possibility that federal choice-of-law rules even exist because, under PNC’s interpretation, a federal
court applying federal choice-of-law rules would be bound to follow the choice-of-law rules of the forum
state. But the Fifth Circuit has recognized that federal choice-of-law rules exist and that these rules
require federal courts to apply their independent judgment. Mirant, 675 F.3d at 536. The better
interpretation of § 6 is that, for federal-court cases, “state” refers to the United States. Vanston supports
this interpretation because it states that federal courts should apply their independent judgment to
determine which state’s law applies when federal law does not direct courts to apply a particular state’s
laws. Vanston, 329 U.S. at 161–62.

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Law Inst. & Unif. Law Comm’n 1977).
Thus, the Court will take the UCC’s approach as the starting point for determining which
states’ laws apply in this case—just as the Fifth Circuit has. In Woods-Tucker, the Fifth Circuit
declined to decide what choice-of-law rules to apply in a bankruptcy case. 642 F.2d at 748–49. In
showing that Texas and federal rules would produce the same result, the Fifth Circuit followed a
UCC choice-of-law rule identical to a statutory directive of the forum state. Id.
The Restatement also generally supports the UCC’s approach in lien-dispute cases. Indeed,
§ 251 of the Restatement states, “In the absence of an effective choice of law by the parties, greater
weight will usually be given to the location of the chattel at the time that the security interest
attached than to any other contact in determining the state of the applicable law.” Restatement
(Second) Conflict of Laws § 251(2) (1971).
The § 6 factors also support the UCC’s approach. Id. § 6(2). As to factors (a) and (e),
preferring the law of the state in which property is located serves the interstate system of secured
transactions and the policies underlying secured-transaction law. See Woods-Tucker, 642 F.2d at 749
(referring to widespread adoption of UCC by states as “part of a national effort to establish a
nationally uniform law to govern the validity and effect of commercial transactions”). Credit can
more easily be extended on an interstate basis when creditors can easily determine the extent to
which collateral offered by potential debtors is already encumbered by liens. And creditors can most
easily determine the extent to which collateral is encumbered when they need only look to the law
of the state in which collateral is located. Mirant, 675 F.3d at 538 (choosing to apply the law of a
state because the state had adopted an approach many other states had adopted and noting that
applying that state’s law would serve the Restatement’s goal of uniformity of result).
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Factor (b), which directs courts to consider the policies of forum states, also supports the
UCC’s approach. The forum state has no special interest in applying its laws to lien disputes brought
in its borders just because it is the forum state. The property at issue would not necessarily be in the
state in which a case is brought. And a state has little interest in regulating property that sits in
another state. Rather, states in which property subject to competing liens is located have the
strongest interest in applying their laws in lien cases, which brings the Court to factor (c). Because
states generally have strong interests in determining interests in property in their borders, the third
factor strongly supports the UCC’s position. See Restatement (Second) Conflict of Laws § 6 cmt. f
(1971); Id. § 251(2).
Restatement factor (d) favors a choice of law that protects parties expectations. The UCC’s
approach protects parties expectations because almost every state has adopted at least part of its
secured-transactions article, In Re King Porter, 446 F.2d 722, 732 (5th Cir. 1971),8 which means most
contracting parties would expect their liens to be governed by the laws of states where encumbered
property is located. Essentially, the UCC approach is the norm. For the same reasons, factor (f),
which pertains to the predictability, certainty, and uniformity of the result, supports the UCC
approach. Applying the law of the state in which encumbered property is located is simply an easy
rule to apply—and predictable at that.
Finally, as to factor (g), applying the law of the state where property is located would be
relatively simple. Restatement (Second) Conflict of Laws § 6(2)(g) (1971). Mostly, the UCC will
govern, and lien priority and perfection rules are generally statutory, mechanical, and clear. Thus,

8

See also LII, Uniform Commercial Code Locator, https://www.law.cornell.edu/uniform/ucc (listing
states that have adopted parts of the UCC).

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the Restatement supports the UCC’s approach to choosing what law to apply in lien cases, so, in the
Court’s independent judgment, the law of states in which the encumbered property is located will
govern the priority of the competing liens in this case—just as it would under Texas law.
The Nurseries incorrectly contend that the contracts between Fishback9 and BNF require
the Court to apply Oregon law to all of the property in this case. Doc 31. Nurseries’ Mot. Summ. J.
Br., 7–8; Doc. 39-1, Nurserie’s Summ. J. Resp. Br., 8. The contracts state, “All matters regarding
these transactions shall be governed by Oregon law including but limited to ORS 87.700 et seq.”
Doc. 29-1, Stipulation, Ex. 1; Doc. 29-2, Stipulation, Ex. 2; Doc. 29-3, Stipulation, Ex. 3. But Courts
generally do not enforce choice-of-law provisions against parties who do not agree to them,10
including third-party creditors in lien disputes like this one.11
Nor does the UCC allow for parties to contract around the UCC’s choice-of-law rules for
agricultural products. The UCC states, “If one of the following provisions of [the Uniform
Commercial Code] specifies the applicable law, that provision governs and a contrary agreement is
effective only to the extent permitted by the law so specified: . . . Sections 9-301 through 9-307.”
U.C.C. § 1-301(c) (Am. Law Inst. & Unif. Law Comm’n 1977). Section 9-302 governs agricultural

9

The Surface contracts contain no choice-of-law provision. Doc. 29-4, Stipulation, Ex. 4.

10

In Re Zuckerhorn, 484 B.R. 182, 199 (B.A.P. 9th Cir. 2012); Mfrs. Hanover Tr. Co. v. Frymire,
No. 86 C 2440, 1991 WL 274972, at *7 (N.D. Ill. Dec. 17, 1991); David Frisch, Lawrence’s Anderson on
the Uniform Commercial Code § 9-103:12 (“A third party cannot have his rights altered, compromised, or
redefined by the provisions of a contract, including by a choice-of-law clause, that he has not accepted.”).
11

See Carlson v. Tandy Comput. Leasing, 803 F.2d 391, 394 (8th Cir. 1986); In Re Doughty’s
Appliance, Inc., 236 B.R. 407, 411 (Bankr. D. Or. 1999); In Re Eagle Enters., 223 B.R. 290, 294 (Bankr.
E.D. Penn. 1998); David Frisch, Lawrence’s Anderson on the Uniform Commercial Code § 1-106:67 (3d ed.
2017) (“A creditor is not bound by a choice-of-law provision when the creditor has not signed a contract
so providing.”).

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liens and does not allow parties to contract around its choice of law rules. Thus, the choice-of-law
provision in the Fishback contracts does not require the Court to apply Oregon law.
B. The Merits of the Lien Dispute
Michigan and Tennessee law govern the perfection and priority of liens on property the
Nurseries shipped to BNF in those states. Both Michigan and Tennessee require a creditor to file a
financing statement to perfect a lien. Mich. Comp. Laws § 440.9310(1); Tenn. Code Ann. § 47-9301(a). The financing statement must list the name of the debtor. Mich. Comp. Laws § 440.9502(1);
Tenn. Code Ann. § 47-9-502(a). A debtor’s name is the name listed on the document creating the
entity filed in the state under the laws of which the debtor was created. Mich. Comp. Laws §
440.9503(1)(a); Tenn. Code Ann. § 47-9-503(a)(1). However, both states have also a savings clause
under which an incorrect debtor name will not invalidate a financing statement if, and only if, a
search using the debtor’s correct name would produce the financing statement with the incorrect
debtor name. Mich. Comp. Laws § 440.9506(2); Tenn. Code Ann. § 47-9-506(b), (c).
Here, the Nurseries failed to include the correct debtor name on the financing statements
they filed in Michigan and Tennessee. The debtor’s name is BFN Operations LLC. Doc. 35-19,
App’x to PNC’s Mot. Summ. J., 444–45. But the Nurseries’ Michigan and Tennessee financing
statements list the debtor as BFN Operations, LLC abn Zelenka Farms. Doc. 29-2, Stipulation, Ex.
2; Doc. 29-3, Stipulation, Ex. 3; Doc. 29-4, Stipulation, Ex. 4. Thus, the Nurseries’ financing
statements incorrectly listed the debtor’s name.
And the states’ savings clauses do not save the Nurseries. PNC conducted searches of
Michigan and Tennessee records using the name BFN Operations LLC but did not find the
Nurseries’ financing statements. Doc. 35-20, App’x to PNC’s Mot. Summ. J., 446–47; Doc. 35-21,
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App’x to PNC’s Mot. Summ. J., 452–54; Doc. 35-22, App’x to PNC’s Mot. Summ. J., 470. That is
because the search logic Michigan and Tennessee use is not inclusive in the way, say, Google’s is.
Mich. Admin. Code r. § 440.509; Tenn. Comp. R. & Regs. § 1360-08-05.04. Michigan and
Tennessee detail their filing systems’ search logics, and neither state provides for inclusivity. Mich.
Admin. Code r. § 440.509; Tenn. Comp. R. & Regs. § 1360-08-05.04. In other words, although
Google would produce records under “BFN Operations, LLC abn Zelenka Farms” from a search for
“BFN Operations LLC” because the former includes the latter, a search of Michigan and Tennessee’s
databases would not because their search logic does not return a result just because the search term
is included in the result.
Because the Nurseries failed to file effective filing statements in Michigan and Tennessee,
they lack perfected liens as to goods they sent to BNF in those states. And because the Nurseries lack
perfected liens on goods shipped to Michigan and Tennessee they have no “valid, enforceable,
properly perfected, and unavoidable pre-petition liens” on property shipped to Michigan and
Tennessee senior to PNC’s lien. Thus, the Court GRANTS PNC’s motion for summary judgment
and DENIES the Nurseries’ motion as to goods the Nurseries sent to BNF in Michigan and
Tennessee.12
Fishback also sent products to BFN in Oregon. Doc. 29-1, Stipulation, Ex. 1. Oregon law
governs lien perfection and priority as to these products. Under Oregon Law, an “[a]n agricultural
producer that delivers or transfers agricultural produce for consideration to a purchaser has a lien for

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PNC argued also that the Nurseries untimely filed their financing statements in Michigan and
Tennessee. Doc. 34, PNC’s Mot. Summ. J. Br., 17. But because the Nurseries’ failure to include BNF’s
correct name on their Michigan and Tennessee financing statements rendered those financing statements
defective, the Court need not address PNC’s timeliness argument.

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the contract price of that produce.” Or. Rev. Stat. § 87.705(1). And the lien attaches on the date
the purchaser takes physical possession of the produce. Id. An agricultural producer need not file any
notice to perfect a lien under 87.705. Id. § 87.705(2).
A lien created under 87.705 “expires no later than the end of the 45th day after the date that
the final payment to the agricultural producer is originally due, unless the producer extends the lien.”
Id. § 87.710(1). A producer may extend a lien by filing a notice of lien or a notice of claim of lien
between the date final payment is due and the end of the 45th day after the date final payment is
due. Id. § 87.710(1), (2). As to the content of the notice of lien,
The notice must be supported by affidavit and contain:
(a) A true statement of the agricultural producer’s demand
after deducting all credits and offsets;
(b) The name of the purchaser that received the agricultural
produce to be charged with the lien;
(c) A description of the produce delivered or transferred by
the producer sufficient to identify the basis for the lien;
(d) A statement that the amount claimed is a true and bona
fide existing debt as of the date of the filing of the notice of
lien;
(e) The date that the final payment to the producer was
originally due; and
(f) Such other information as the Secretary of State may
require.
Id. § 87.710(2). If a producer files a notice, “the lien expires no later than the 225th day after the

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date that the final payment to the producer is originally due.” Id. § 87.710(1).13
Here, Fishback failed to extend its lien beyond the initial forty-five-day period. The date of
Fishback’s invoice pertaining to goods delivered to BFN in Oregon is March 29, 2016. Doc. 29-1,
Stipulation, Ex. 1. March 29 is also the original due date for payment. Doc. 29-1, Stipulation, Ex.
1. Payment became finally due on June 27, 2016, Doc. 29-1, Stipulation, Ex. 1, and payment was
forty-five days past due on August 11, 2016. Though Fishback had to file a notice of lien to extend
its lien on August 11, 2016, Fishback did not file the appropriate notice until August 29, 2016—after
the deadline set by Oregon law. Doc. 29-9, Stipulation, Ex. 9A.
But Fishback claims that its failure to timely file the notice of lien does not keep its lien from
being enforceable. Doc. 43, Nurseries’ Rep., 6. Fishback highlights that it filed a UCC financing
statement regarding the goods shipped to BFN in Oregon on July 13, 2016—before the deadline for
filing a notice of lien. According to Fishback, the UCC financing statement serves as a notice of lien
under Oregon’s doctrine of substantial compliance. Doc. 29-1, Stipulation, Ex. 1.
Fishback’s substantial-compliance argument fails. In Oregon, “[s]ubstantial compliance
requires compliance in respect to the essential matters necessary to assure every reasonable objective
of the statute.” Rogers v. Roberts, 717 P.2d 620, 622 (Or. 1986) (quoting Sabatini v. Jayhawk Constr.
Co., 520 P.2d 1230 (Kan. 1974)). “What constitutes substantial compliance with a statute is a
matter depending on the facts of each particular case.” Id. (quoting In Re Santore, 623 P.2d 702
(Wash. 1981)). In determining whether a litigant has substantially complied with a statute, Oregon
courts consider “degree of non-compliance with the letter of the statute, the policy which underlies

13

A creditor can extend a lien also by filing a notice of lien under Or. Rev. Stat. § 87.242. But §
87.242’s requirements match § 87.710’s.

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the particular statutory provision in question, and the prejudice which may have resulted to either
the owner of the property or other third parties.” McGregor Co. v. Heritage, 631 P.2d 1355, 1357 (Or.
1981).
Oregon’s substantial-compliance doctrine does not make Fishback’s UCC financing
statement a substitute for the notice of lien. Oregon law requires a lien holder to file to extend a lien
beyond 45 days after the final-payment due date. First, Fishback’s degree of noncompliance was high.
Oregon law specifically requires a notice of lien from persons who want to extend a lien. Or. Rev.
Stat. § 87.710(1), (2). Oregon law provides also for the filing of UCC financing statements like the
one Fishback filed. Id. § 79.0502. But though Oregon statutes make UCC financing statements
relevant to priority disputes, id. § 79.0322(1)(a), Oregon requires a different notice to extend a lien,
id. § 87.710(1), (2). Oregon’s legislature would not have provided for both filings if either could pull
double duty. Moreover, notices of liens contain information UCC financing statements need not
contain under Oregon law and that Fishback’s financing statement did not contain. See id. §
87.710(2) (notice-of-lien contents); id. § 79.0502(1) (financing-statement contents); Doc. 29-1,
Stipulation, Ex. 1 (Fishback’s financing statement). Fishback’s financing statement is not supported
by an affidavit, Or. Rev. Stat. § 87.710(2), and it lacks a “statement that the amount claimed is a
true and bona fide existing debt as of the date of the filing of the notice of lien,” § 87.710(2)(d). Nor
did Fishback use the form required by the Secretary of State, which Oregon law required Fishback
to use. Id. § 87.736(1); Or. Admin. R. 160-050-0110; Or Admin. R. 160-050-0130(4).
The policy underlying Oregon’s lien system and prejudice that would result to third parties
from allowing UCC statements to serve as notices of liens also support finding that Fishback has not
substantially complied with the statute. Although one purpose of Oregon’s lien system undoubtedly
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is to protect creditors like Fishback, another purpose is to enable people to discover whether property
is encumbered by liens. Cf. Comm. Bank v. Jones, 566 P.2d 470, 483 (Or. 1977) (noting that the aim
of Oregon’s secured-transaction laws is to “provide a simple and unified structure within which the
immense variety of present-day secured financing transactions can go forward with less cost and with
greater certainty”). Allowing UCC financing statements to double as notices of liens, would reduce
certainty because, though a UCC financing statement may indicate that the property described by
the statement is subject to a lien, a financing statement tells a viewer nothing about the duration of
the lien. See Or. Rev. Stat. § 87.710(1) (stating that an agricultural lien lasts for forty-five days unless
extended via the filing of a notice of lien). The only reason a person would file a notice of lien under
§ 87.710, however, would be to extend her lien. Thus, whereas a UCC financing statement tells a
viewer nothing about a liens duration, a notice of lien tells viewers that a creditor has extended her
lien. Allowing a financing statement to serve as a notice of lien would therefore, keep people from
determining whether liens have been extended.
Letting UCC financing statements pull double duty is prejudicial to third parties for largely
the same reasons. Searchers of Oregon’s lien index cannot determine the duration of a lien just by
looking at a financing statement.
Thus, because Fishback failed to comply substantially with Oregon law, any lien Fishback had
under Oregon law expired and is therefore unenforceable. The Court therefore GRANTS PNC’s
motion for summary judgment as it applies to goods the Nurseries sent to Oregon and DENIES the
Nurseries’ motion as to the same.

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IV.
CONCLUSION
The Court GRANTS PNC’s motion for summary judgment and DENIES the Nurseries’
motion. The Court thus DECLARES that the Nurseries lack “valid, enforceable, properly perfected,
and unavoidable pre-petition liens that are senior to the liens granted to Pre-Petition Lenders, PrePetition Agent, and Term Loan Agent pursuant to the Pre-Petition Credit Agreement and other PrePetition Loan Documents” and ORDERS that the Nurseries TAKE NOTHING on their turnover
claim.
SO ORDERED.
SIGNED: December 19, 2017.

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