Written by: Amie Alexander, JD/MPS Candidate, William H. Bowen School of Law

The United States Bankruptcy Court for the Eastern District of California has held that agricultural service liens do not attach to milk proceeds.

The debtor in this case (In re: GREGORY JOHN TE VELDE Debtor. GREGORY JOHN TE VELDE Plaintiff, V. RABOBANK N.A., et al. Defendants, No. 18-11651-A-11, 2018 WL 4063365 (Bankr. E.D. Cal. August 23, 2018)), owns three dairies, and prior to filing bankruptcy, owed money to Rabobank and Overland Stockyard, Inc. (hereinafter “Consensual Lienholders”). Debtor gave a consensual lien to Consensual Lienholders against his farm’s livestock, crops, milk, milk checks, equipment, and other personal property in the amount of approximately $78 million. Debtor also owed approximately $1.1 million to various business (hereinafter “ASL Holders”) who provided goods and/or services the dairy farm.

Debtor was owed $1.2 million from Columbia River Processing in milk proceeds. Debtor brought an action against Consensual Lienholders and the ASL Holders to determine the validity of the agricultural service liens. The dairy at issue was located in Oregon.

Upon plain language and context interpretations of the Oregon state law, the Court stated that the agricultural service lien only reaches to crops and animals, the proceeds of crops or animals generated by their sale or disposition, and in limited circumstances, the products of crops or animals (such as unborn animals in utero or offspring). The text of the state statute provides that “non-possessory liens attach only to chattels.”

Thus, the Court determined that the text does not support the finding that milk, or funds from its sale, are proceeds within the meaning of the state statute. The Court found that “proceeds” mean the funds generated by the sale, or similar disposition, of the chattel subject to the lien, but not products except where expressly stated. The Court determined that the milk proceed funds from Columbia River Processing are not subject to the lien of ASL Lienholders or Consensual Lienholders.