## Facts

- Louis Samuel James, Jr. and Carolyn Ann James (the “Jameses”), doing business as Sammy James Farms, leased farm ground in Woodruff County, Arkansas, from members of the Morrison family and related entities, doing business as McCaughan Farms.
- Under the lease, the Jameses agreed to pay annual cash rent of $189,963, due at the beginning of each December, in exchange for the right to grow crops on the leased land.
- For the 2005 crop year, the Bank of McCrory extended approximately $1,150,000 in operating credit to Sammy James Farms and took a security interest in collateral that included all crops growing or to be grown in Woodruff County, Arkansas, including crops grown on the Morrison/McCaughan Farms land.
- The Bank perfected its security interest by filing a financing statement on April 21, 2005.
- The Jameses grew, harvested, and stored the 2005 crops but failed to pay the December 2005 rent when due.
- Relying on Arkansas’s agricultural landlord-lien statute, the Morrison interests claimed a statutory landlord’s lien in the 2005 crops grown on the leased premises to secure the unpaid rent.
- Before mid-2006, the Morrison interests filed suit to foreclose their landlord’s lien, and the Jameses later filed bankruptcy.
- The Bank initiated an adversary proceeding in the bankruptcy case seeking a determination of the extent and priority of liens in the 2005 crops and proceeds as between the Bank and the landlords.
- The Bank argued, among other things, that Arkansas law restricted assignment of a landlord’s lien without notice and that this affected priority; the landlords responded that their statutory lien arose and was enforced in a timely manner.

## Issues

1. Whether the Morrison interests held a valid Arkansas statutory landlord’s lien in the 2005 crops grown on the leased premises to secure unpaid 2005 rent, including whether enforcement was timely.
2. Whether that statutory landlord’s lien had priority over the Bank of McCrory’s perfected Article 9 security interest in the same crops and their proceeds.
3. Whether the Bank’s assignment/notice argument under Arkansas law defeated or subordinated the landlords’ claimed lien rights.

## Decision

- The court held that the Morrison interests had a valid Arkansas statutory landlord’s lien securing the unpaid 2005 rent in the crops grown on the leased premises.
- The court found that the landlords had timely pursued foreclosure/enforcement of the statutory lien such that it remained effective in the bankruptcy case.
- The court held that the statutory landlord’s lien had priority over the Bank’s perfected security interest in the 2005 crops and proceeds to the extent of the unpaid rent.
- The court rejected the Bank’s argument that an assignment/notice theory under Arkansas law displaced the landlords’ statutory lien priority on the facts presented.
- The court determined that the Bank’s security interest attached to the crops/proceeds only after satisfaction of the superior landlord’s lien.

## Legal Principles

- Under Arkansas law, a landlord of agricultural land is granted a statutory lien on crops grown on the leased premises to secure rent for that crop year.
- The statutory crop landlord’s lien is not dependent on filing a U.C.C. financing statement to arise and, by statute, is given priority over encumbrances the tenant places on the crops.
- Where the landlord-lien statute imposes a time limit for enforcement, the lienholder must pursue foreclosure/enforcement within that period to preserve the lien’s effectiveness.
- A lender may hold a properly perfected Article 9 security interest in crops, but state law can place that interest behind a statutory landlord’s crop lien for unpaid rent.
- In bankruptcy, lien validity and priority generally follow applicable state law, and a bankruptcy court may determine such priority in a core proceeding involving lien ranking.

## Conclusion

In re James resolved a priority contest over 2005 crop value after the tenant-farmers failed to pay annual cash rent: the bankruptcy court held that the landlords’ Arkansas statutory lien for unpaid rent—timely pursued—ranked ahead of the bank’s earlier perfected crop security interest, leaving the bank secured only in any remaining crop proceeds after the rent claim was paid.


In re James, 368 B.R. 800 (2006)