Cattle as collateral complicates Minnesota bankruptcy case

ST. PAUL — Cattle being used as a collateral has led to a complicated bankruptcy case in Minnesota.

A judge recently ruled that a livestock sale barn that bought cows being used as collateral against a loan still owes the lender money, even after the lender and livestock producer settled their part of the bankruptcy case.

The case involves Tri-County Livestock Exchange of Motley, Minnesota, and AgCountry Farm Credit Services, which loaned money to cattle farmers Shawn and Emily Becker between 2009 and 2017, according to a ruling by the Minnesota Court of Appeals.

Court records show that the Beckers lived near Vining, Minnesota, in Otter Tail County.

When the Beckers defaulted on two loans, owing nearly $700,000, a court in December 2019 ordered the Beckers to deliver the collateral, including the livestock, to AgCountry. The Beckers filed for bankruptcy.

In February 2020, AgCountry sued Tri-County Livestock Exchange, saying the Beckers sold cattle in 2015 and 2017 that constituted as collateral for the defaulted loans to Tri-County without paying AgCountry, which had a Uniform Commercial Code filing on the Beckers' collateral. In such cases, lenders are supposed to be parties to checks for sales of collateral.

In the complaint filed in Todd County District Court, AgCountry alleges Tri-County "either failed to check AgCountry's effective financing statement filed with the Minnesota Secretary of State's office, or disregarded the effective financing statement of AgCountry ... ."

Meanwhile, AgCountry also went after the Beckers in court, arguing “that the Beckers defaulted on the loans and with willful and malicious intent converted some of the collateral property by selling it and failing to remit the proceeds to AgCountry.”

The Beckers agreed to pay AgCountry $50,000 to settle that part of the bankruptcy case.

Tri-County, represented by Best and Flanagan of Minneapolis and Waite and McWha of North Platte, Nebraska, then argued in Todd County District Court that AgCountry’s settlement with the Beckers meant the end of any obligations it might have on the cattle used as collateral.

AgCountry, represented by the Vogel Law Firm in Fargo, North Dakota, argued that the agreement only settled the Beckers’ debt to AgCountry, rather than settling the debt itself.

The district court judge agreed with Tri-County but AgCountry appealed.

In a ruling on April 24, the Minnesota Court of Appeals, said “Because the agreement functioned only to release the Beckers personally from liability on the debt, but not to settle the debt itself and … we conclude the district court erred.”

The case has been sent back to Todd County District Court “for further proceedings consistent with this opinion,” the appeals court said.

Further complicating the case is that Tri-County Livestock Exchange changed hands in 2020. Mitch Barthel now owns the business and changed the name to Tri-County Stockyards LLC. The previous owner, Joe Varner, is listed as a field representative on the Tri-County Stockyards website.

Varner has owned numerous sale barns in the region and in 2010 pleaded no contest to a charge of grand theft after 188 head of yearling heifers that were under U.S. Bankruptcy Court control went missing from Watertown Livestock Auction in South Dakota in 2009 .

Varner told Agweek that Tri-County Livestock Exchange Inc. no longer exists. Attorney David Krco of Best and Flanagan could not be reached for comment.