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CHS Capital, LLC v. Hellenbrand Farms, LLC

United States District Court, W.D. Wisconsin

October 9, 2019

CHS CAPITAL, LLC, Plaintiff and Counter Defendant,
v.
HELLENBRAND FARMS, LLC, and SCOTT HELLENBRAND Defendants and Counter Claimant.

          OPINION AND ORDER

          William M. Conley District Judge.

         Despite defendant Hellenbrand Farms having an agricultural lien, entitling it to priority over all other liens and encumbrances under Wisconsin law, plaintiff CHS Capital, LLC, refused to endorse a joint, third-party check representing the proceeds from a crop auction and brought this lawsuit seeking a declaratory judgment that Hellenbrand Farms' lien is void and unenforceable. In response, Hellenbrand Farms counterclaimed for judgment declaring its right to approximately $143, 000 in auction proceeds, as well as asserting conversion and civil theft claims against CHS based on its refusal to recognize the agricultural lien and turn over the proceeds. CHS also asserts a claim against defendant Scott Hellenbrand, claiming that he personally defaulted on a real estate sale and seeking payment of $92, 000 in earnest money as liquidated damages.

         The parties subsequently filed cross motions for summary judgment, which are fully briefed. (Dkt. ##26, 27.) Because this is not a close case, for reasons explained below, the court will grant defendants' motion in full and deny plaintiff's motion, enter judgment in defendants' favor on all of its counterclaims and on all of plaintiff's claims, and hold a hearing to determine any additional remedies to which defendant Hellenbrand Farms may be entitled under its conversion and civil theft claims.

         UNDISPUTED FACTS[1]

         A. Background

         Plaintiff CHS Capital, LLC, is a Minnesota limited liability company, with its principal place of business in Inver Grove Heights, Minnesota. Over the years, CHS made various loans to True Blue Holsteins, a partnership of Kevin Ihm and Gerald Ihm. As security for these loans, Gerald Ihm, Kevin Ihm, and True Blue Holsteins executed and delivered to CHS various promissory notes and agricultural security agreements, including an interest in “all crops growing, grown or to be grown . . . in 2016 and subsequent years.” (Champion Aff., Ex. D (dkt. #26-2) 13, 20.) CHS perfected its security interest in the collateral as described in the security agreements by filing a UCC-1 Financing Statements with the Wisconsin Department of Financial Institutions on May 13, 2014, as filing number 140006255624. (Champion Aff., Ex. F (dkt. #26-2) 27-28.) As of July 2019, the Ihms and True Blue remain indebted to CHS under two promissory notes now totaling approximately $300, 000, including interest and other fees and charges.

         Defendant Hellenbrand Farms is a Wisconsin family farm and agriculture business, based in Middleton, Wisconsin, with its members consisting of spouses Ken and Jackie Hellenbrand and their sons Scott and Bruce Hellenbrand. Hellenbrand Farms cultivates land that it owns and leases. In addition, Hellenbrand Farms also performs custom harvesting for other farms, including True Blue Holsteins, for which it provided agricultural services for approximately 20 years.

         More specifically, Hellenbrand Farms performed these services for True Blue Holsteins from April through September 11, 2017. After the 2017 services were completed, Hellenbrand Farms sent True Blue Holsteins an invoice in the total amount of $143, 573.90. However, that invoice was not timely paid. Indeed, no amount has been paid on the invoice to date.

         Shortly after sending the 2017 invoice, Hellenbrand Farms learned that True Blue Holsteins was experiencing significant financial problems. On December 26, 2017, Hellenbrand Farms then filed an agricultural lien in the amount of $143, 573, 90 with the Iowa County Circuit Court, No. 17-OL-20, under Wis.Stat. § 779.50, which provides that “[t]he lien created by this section shall be preferred to all other liens and encumbrances.” (K. Hellenbrand Aff., Ex. B (dkt. #32-3).)

         In early 2018, Hellenbrand Farms learned from the Hennessey Auction Company that due to ongoing financial difficulties, True Blue Holsteins wanted to sell at auction the crops subject to the agricultural lien. Hellenbrand Farms stated that the auction was acceptable, provided that its lien was paid out of the proceeds. The auction took place on February 3, 2018, and resulted in total proceeds of $256, 778.82.

         B. Check from Auction Proceeds

         On February 20, 2018, plaintiff CHS contacted Bill Hennessey of Hennessey Auction and instructed him to issue a check in the amount of the total proceeds to all lienholders as joint payees, even though it had been aware of Hellenbrand Farms' lien since at least January 8, 2018. As directed by CHS, Hennessey Auction cut a check for $256, 778.82, payable to CHS Capital LLC, Hellenbrand Farms LLC and the Peoples Community Bank. Also consistent with CHS's instruction, Hennessey Auction sent the check to Peoples Community Bank. CHS did not request permission from Hellenbrand Farms to have the funds disbursed in this manner.

         Upon receipt, Peoples Community Bank promptly endorsed the check and sent it to CHS. While CHS received the check on February 26, 2018, it neither endorsed the check nor sent it on to Hellenbrand Farms. Rather, on February 28, 2018, CHS's attorney Jennifer Lurken called Ken Hellenbrand, asking him to sign the check so that CHS could retain the proceeds. Ken objected, explaining that the agricultural lien entitled him to first and full payment and that he would endorse the check only with that understanding.[2]Attorney Lurken refused this request, instead offering Ken $5, 000.00 in satisfaction of the $143, 573.90 agricultural lien.[3] After this exchange, Hellenbrand Farms retained counsel, Attorney Timothy Halbach.

         On March 6, 2018, Attorney Halbach wrote a letter to CHS, pointing out that pursuant to Wis.Stat. § 779.50, the agricultural lien was “preferred to all other liens and encumbrances.” (K. Hellenbrand Aff., Ex. C (dkt. #32-3).) On March 9, Lurken responded as follows:

CHS objects to the Hellenbrand Lien taking priority over CHS's lien because the Hellenbrand Lien was not recorded in the office of the register of deeds where the services were performed within 15 days from the date of the completion of the service as required by Wisconsin Statute § 779.50, subd. (3). The Hellenbrand Lien on its face indicates the last services were provided on September 11, 2017 but was not filed until December 26, 2017. Therefore, the Hellenbrand Lien was not properly perfected and shall not be preferred to CHS's lien on the funds from the sale of the crop.

(Laubmeier Aff., Ex. G (dkt. #30-7).) Attorney Lurken further requested that Hellenbrand Farms contact CHS to sign the check over to CHS or “CHS will move forward with its legal rights against the Hellenbrand Lien.” (Id.)

         On March 12, Attorney Halbach responded, pointing out to Attorney Lurken that the 15-day requirement under § 779.50(3) could only be invoked by “an innocent purchaser for value, ” which CHS clearly was not. (K. Hellenbrand Aff., Ex. D (dkt. #32-4).) Attorney Lurken responded the next day that she had informed her client of Hellenbrand Farms' position and “should have a response by the end of the week.” (Laubmeier Aff., Ex. H (dkt. #30-8).) However, Attorney Lurken did not respond that week or even within that month. Moreover, in its response to interrogatories, CHS disavowed any claim to being an “‘innocent purchaser for value'” under § 779.50(3). (Laubmeier Aff., Ex. A (dkt. #30-1) ¶ 2.) CHS further acknowledged in its interrogatory responses that Hellenbrand Farms did not need “to file its Threshing Lien within fifteen (15) days of the completion of its work as to CHS.” (Id. ¶ 3.)

         Nevertheless, by mid-May 2018, CHS was still holding the check and refusing to release funds to Hellenbrand Farms. Around this time, CHS began asserting that Hellenbrand Farms was not entitled to receive the $143, 573.90 amount subject to its agricultural lien because it did not file a foreclosure action within six months of the date of the last service to True Blue Holsteins __ in other words, by March 14, 2018.[4](Laubmeier Aff., Ex. I (dkt. #30-9).) In response to Attorney Halbach pointing out that with the grain had already been sold, and that thus there was nothing to foreclose, Attorney Lurken further argued “CHS was holding onto the funds and therefore Hellenbrands should have initiated a foreclosure action against those funds on or before March 14, 2018.” (Id.)

         C. Sale of Parcel 6

         With True Blue Holsteins' financial problems continuing in the spring of 2018, True Blue and its partners decided to put several real estate parcels up for auction as well. CHS does not dispute this, but points out that True Blue's creditors, include CHS, consented to the auction of land. The real estate auction companies were Hennessey Auction and Wilkinson Auction and Realty Company, LLC. One parcel up for auction was “Parcel 6, ” 176.5 acres of farmland, owned by Kevin and Michelle Ihm.

         The auction was held on April 20, 2018. Scott Hellenbrand submitted the highest bid at the auction for Parcel 6 in the amount of $922, 609.63. On that same day, Scott signed an “Earnest Money Receipt and Purchase Agreement, ” which indicated that the “sale is subject to confirmation.” (S. Hellenbrand Aff., Ex. A (dkt. #31-1) ¶ 9.) The agreement further states that the earnest money __ identified as 10% of the purchase price ($92, 260.97) __ was “not collected as no confirmation.” (Id. ¶ 2.)

         Next, the agreement provided that the “[c]losing shall take place on or before May 31, 2018, ” and that the “balance of the Purchase Price shall be paid in full at the closing.” (Id. ¶ 4.) The agreement also provided that “[p]rior to closing Seller at Seller's expense shall furnish Buyer a title commitment showing marketable title. Buyer shall take title with any and all encroachments, encumbrances, or defects in title.” (Id. ¶ 5.)[5]

         Finally, the agreement defines default and sets forth the consequences of default:

If the sale is approved and the Buyer for any reason fails to complete the purchase, then the Buyer shall be in Default. Upon Default, Buyer shall forfeit the Earnest Money amount to the Seller as liquidated damages for failure to fulfill this Agreement and as rent for use of the property. The liquidated damages shall not constitute an election of remedies or prejudice Seller's right to pursue any and all other remedies against Buyer, including specific performance.

(Id. ¶ 9.)

         The agreement was signed by Scott Hellenbrand as “Buyer” and Michelle Ihm as “Seller.” Kevin Ihm did not sign the agreement, nor did Michelle Ihm indicate on the agreement that she was signing it for him. CHS is not a party to the purchase agreement. The agreement includes no reference to CHS specifically nor to any creditor or lender generally.

         D. Post-Purchase ...


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