In Re Western Iowa Limestone, Inc.

538 F.3d 858 (2008)

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Nature of the Case

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Facts

Limestone marketed agricultural lime as a by-product of its operations in 2004. In January 2005, one of Independent Inputs (P) purchased 5,000 tons of ag lime, and in February 2005, two other dealers, Leinen, Inc. (P) purchased a total of 13,400 tons of ag lime. Ps paid for the ag lime at the time of the purchases, and each of the bills of sale noted that the ag lime would remain at the quarry until Ps sold the ag lime to their ultimate customers. Limestone maintained its ag lime in a single fungible pile on its premises. The ag lime that Ps purchased likewise remained in the fungible pile until resold to their customers and removed from the premises. United Bank (D) had a security interest in Limestone’s assets (inventory, accounts receivables, and proceeds). Limestone filed a petition under Chapter 11 on December 12, 2005. By that date, Inputs (P) had resold and removed 416 tons, and Leinen (P) had removed 1,406 tons. The ag lime remaining on the premises was sold in the bankruptcy proceedings as part of its inventory, and Ps filed a joint objection to the proposed distributions from the sale of the inventory, claiming priority over D as buyers in the ordinary course of business (BIOC) to the extent of the value of the ag lime they had purchased but had not yet removed from Limestone's premises. Inputs' (P) claim was for $35,522, and Leinen's (P) claims were for $89,508. The bankruptcy court first determined that Ps failed to take physical possession and thus were not buyers in the ordinary course of business. The bankruptcy court reversed itself, concluding that Ps had taken constructive possession of the ag lime and had satisfied the requirements for BIOC status. D appealed, and the Appellate Panel reversed, concluding that Ps did not constructively possess the ag lime under Iowa law for purposes of a priority contest between a secured creditor and a purchaser. Ps appealed.