This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2000).
STATE OF MINNESOTA
IN COURT OF APPEALS
Meadowland Farmers Coop.,
Kathleen A. Behrendt,
Haugen Feeds, Inc., et al.,
Affirmed in part, reversed in part, and remanded
Redwood County District Court
File No. C000114
Renee C. Rubish, Charles W. Ries, Maschka, Riedy & Ries, P.O. Box 7, Mankato, MN 56002 (for respondent)
J. Brian O’Leary, O’Leary & Moritz, Chartered, P.O. Box 76, Springfield, MN 56087 (for appellants)
Considered and decided by Shumaker, Presiding Judge, Harten, Judge, and Poritsky, Judge.*
U N P U B L I S H E D O P I N I O N
GORDON W. SHUMAKER, Judge
Appellant challenges the district court’s grant of summary judgment, arguing that respondent cannot sue in conversion because respondent is a subordinate lienholder and is not entitled to enforce its security interest. Appellant also argues that the court erred in entering summary judgment because genuine issues of material fact exist regarding the amount owed to respondent. We affirm in part, reverse in part, and remand.
Kenneth Behrendt is a hog farmer. He financed his operation through the Minnesota Valley Bank and granted the bank a security interest in all his hogs and in the proceeds of the sale of any hogs.
Behrendt purchased feed on credit from Meadowland Farmers Cooperative and granted Meadowland a security interest junior to the bank’s in all hogs and the proceeds of the sale of any hogs.
When Behrendt sold hogs, the purchase checks were made payable to Behrendt, the bank, and Meadowland. Ordinarily, Meadowland received no funds because the bank enjoyed a priority position.
In 1998, Behrendt went to work for Haugen Feeds, Inc., and Leland Haugen (collectively “Haugen”) and began selling hogs under a ledger contract that Haugen had with John Morrell & Co. Morrell made its checks for the hogs payable to Haugen, who retained a portion of the funds and gave the balance to Behrendt, who, in turn, made payments to the bank. The bank consented to this procedure. Haugen knew of Meadowland’s security interest but neither Haugen nor Behrendt told Meadowland of the new sales system. Nor was Meadowland named as payee on any of the Morrell checks.
Behrendt filed bankruptcy in August 1998. Meadowland objected to discharge of its debt, arguing that Behrendt and Haugen converted proceeds of hog sales and thereby defeated Meadowland’s security interest. The bankruptcy court allowed Meadowland’s objection and awarded judgment against Behrendt in the sum of $118,934.85, the entire amount of Behrendt’s outstanding indebtedness to Meadowland.
Meadowland then sued Kenneth’s wife, Kathleen Behrendt, Haugen Feeds, Inc., and Leland Haugen on a theory of conversion. Kathleen Behrendt signed a confession of judgment in the sum of $44,132.31 and the district court granted summary judgment against Haugen in the sum of $118,934.85. Haugen appeals.
D E C I S I O N
On appeal from summary judgment, the court asks whether any genuine issues of material fact exist for trial and whether the district court erred in applying the law. Pergament v. Loring Properties, Ltd., 599 N.W.2d 146, 149 (Minn. 1999).
The district court correctly held that Meadowland had a security interest that attached to the proceeds of the sales of Behrendt’s hogs. Minn. Stat. § 336.9-306(2) (2000) provides for such a security interest:
* * * [A] security interest continues in collateral notwithstanding sale, exchange or other disposition thereof unless the disposition was authorized by the secured party in the security agreement or otherwise, and also continues in any identifiable proceeds including collections received by the debtor.
When collateral is disposed of in derogation of a security interest, the secured party may exercise possessory rights or sue in conversion. See Minn. Stat. § 336.9-306 (West 1966) (since the transferee takes subject to the security interest, the secured party may repossess the collateral from him or her, or maintain an action for conversion). The district court did not err in finding that Haugen had converted sales proceeds that were subject to Meadowland’s security interest. See Wangen v. Swanson Meats, Inc., 541 N.W.2d 1, 3 (Minn. App. 1995) (conversion is the “intentional exercise of dominion or control over a chattel which so seriously interferes with the right of another to control it that the actor may justly be required to pay the other the full value of the chattel”), review denied (Minn. Jan. 25, 1996).
In a conversion action the secured party is entitled to the value of the converted collateral as of the time of the conversion. Id. And the Uniform Commercial Code provides that the secured party is entitled to the proceeds received “upon the sale * * * or other disposition of collateral or proceeds.” Minn. Stat. § 336.9-306 (1) (2000).
Here, the district court awarded judgment in the sum of the entire indebtedness to Meadowland. This was error, for there exist genuine issues of material fact as to precisely what was converted, when the conversion occurred, the value of the converted collateral, and any set-off that might be appropriate for costs of preserving the hogs. These amounts might or might not equal the total indebtedness, but they are issues to be resolved by the trier of fact. Thus, this matter must be reversed and remanded for trial on the question of damages.
Affirmed in part, reversed in part, and remanded.
* Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.