## Facts

- Marine Midland Bank (later succeeded by HSBC Bank USA) obtained and perfected a 1998 security interest in a dairy farmer’s cattle, including after-acquired livestock.
- In 2001, Robert and Ruth Zink sold 54 cows to William and Frank Vanmiddlesworth and took a security interest intended to be a purchase-money security interest (PMSI) in the cows and related after-acquired or replacement cattle.
- The Zinks filed a financing statement to perfect their security interest, but did not provide written notice to HSBC of an intended PMSI in the livestock.
- The debtors took possession of the cows before the Zinks perfected their security interest.
- The debtors filed a Chapter 12 bankruptcy petition, triggering the automatic stay.
- The Zinks moved in bankruptcy court for adequate protection and relief from stay, asserting PMSI priority over HSBC and risk of loss in collateral value.
- The bankruptcy court denied both motions; the Zinks appealed to the district court.

## Issues

1. Whether the Zinks obtained PMSI super-priority in livestock over HSBC’s earlier perfected after-acquired livestock lien despite failing to notify HSBC and perfecting after the debtors had possession.
2. Whether the bankruptcy court erred in denying adequate protection and stay relief, including whether the Zinks bore the initial burden to show diminution in collateral value.

## Decision

- The district court affirmed the bankruptcy court’s order in full.
- The court held the Zinks lacked PMSI priority over HSBC because they did not satisfy statutory conditions for livestock PMSI super-priority, including required notice to the prior secured creditor and timely perfection tied to the debtor’s possession.
- The court held the bankruptcy court properly denied adequate protection because the Zinks, as moving creditors, did not show that the collateral value was declining or that their interest faced an uncompensated risk during the Chapter 12 case.
- Applying appellate standards, the court found no clear error in factual findings and no abuse of discretion in denying adequate protection and stay relief.

## Legal Principles

- A prior perfected security interest covering after-acquired livestock remains senior unless a competing creditor satisfies Article 9 requirements for livestock PMSI super-priority.
- For PMSI super-priority in livestock, the secured party must comply with statutory prerequisites, including notice to the earlier secured party and timely perfection measured in relation to the debtor’s receipt of possession.
- In bankruptcy, adequate protection is intended to guard against diminution in value of a secured creditor’s interest during the automatic stay and the debtor’s use of collateral.
- The moving creditor bears the initial burden to establish entitlement to adequate protection, including evidence of decline in collateral value or comparable risk; denial is reviewed for clear error (facts) and abuse of discretion (ultimate ruling).

## Conclusion

The district court upheld denial of stay relief and adequate protection because the cattle sellers failed to meet UCC conditions for livestock PMSI priority over a previously perfected floating lien and failed to prove any postpetition decline in collateral value warranting adequate protection.


Zink v. Vanmiddlesworth, 300 B.R. 394 (N.D.N.Y. 2003)