## Facts

- Fin Ag, Inc. (Fin Ag) loaned money to Larry and Ronda Buck, d/b/a Buck Farms (Buck), and took a security interest in Buck’s 1999 corn crop.
- Fin Ag perfected its interest by filing a UCC financing statement and an effective financing statement (EFS) entered into Minnesota’s Food Security Act central filing system.
- Kent Meschke Poultry Farms, Inc. (Meschke), a farm-products dealer, purchased corn grown and marketed by Buck.
- Meschke knew Fin Ag claimed a security interest in Buck’s corn and typically issued checks naming Fin Ag as a payee when buying directly from Buck, but on two occasions it did not.
- Buck also sold corn using “fronting,” listing third parties as the sellers—two Buck employees and Buck’s minor children (collectively, the Tookers)—even though the corn and sale proceeds belonged to Buck.
- Minnesota’s central filing system showed no filings against the Tookers’ names, so Meschke paid the Tookers without including Fin Ag on the checks for seven such sales.
- The Tooker checks were deposited into Buck’s accounts; Buck did not remit those proceeds to Fin Ag and later defaulted on the loan.
- Fin Ag sued for conversion, naming multiple defendants (including parties in the case caption) and pursuing Meschke for the two direct Buck sales and the seven Tooker “front” sales.
- The district court granted summary judgment to Fin Ag; the court of appeals affirmed. The Minnesota Supreme Court granted review to address the effect of fronting under the Food Security Act (7 U.S.C. § 1631).

## Issues

1. Under the Food Security Act, 7 U.S.C. § 1631, does a buyer of farm products take free of a perfected security interest when the debtor sells through nominal third-party “fronts” whose names show no filings in the state’s central filing system?
2. Does § 1631’s buyer protection turn on whether the security interest was “created by the seller,” such that a buyer can treat the nominal front as the “seller” and avoid a security interest created by the true owner/debtor?

## Decision

- The Minnesota Supreme Court affirmed summary judgment for Fin Ag.
- The court held that Meschke did not take the corn free of Fin Ag’s perfected security interest merely because the corn was sold in the names of the Tookers.
- Applying § 1631’s “created by the seller” limitation, the court treated Buck—the true owner/debtor who granted the lien—as the relevant actor who created Fin Ag’s security interest, not the nominal front sellers.
- Because Fin Ag properly filed an EFS in Buck’s name in Minnesota’s central filing system (and Meschke also knew of Fin Ag’s interest in Buck’s corn), § 1631 did not shield Meschke from Fin Ag’s claim.
- Purchasing and paying out proceeds in a manner that defeated the secured party’s rights supported Fin Ag’s conversion claim, including as to the fronted sales.

## Legal Principles

- Under the Food Security Act, 7 U.S.C. § 1631, a buyer in the ordinary course may take farm products free of a security interest created by the seller unless the secured party provides statutory notice, including through an EFS in a qualifying state central filing system.
- Section 1631’s protection is limited to security interests “created by the seller”; when a nominal seller is used as a front, the statute looks to the true owner/debtor who granted the security interest, not the name inserted into the sales paperwork.
- A properly filed EFS in the true debtor’s name can defeat a buyer’s claim to take free of the lien in a fronting arrangement, preventing debtors from avoiding secured interests by routing sales through third parties.
- A secured party may recover for conversion when a buyer acquires and disposes of collateral (or directs payment) in a way that interferes with the secured party’s rights in the collateral.

## Conclusion

Fin Ag’s perfected lien on Buck’s 1999 corn remained enforceable against a farm-products buyer even when Buck sold through nominal third-party “fronts”; because the security interest was created by Buck and properly noticed through Minnesota’s EFS central filing system, the Food Security Act did not allow the buyer to take free of the lien, and summary judgment for conversion was affirmed.


Fin Ag, Inc. v. Hufnagle, Inc., 720 N.W.2d 579 (2006)