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“Saddle Up! Livestock Lenders and Livestock Leasing” – American Bankruptcy Institute, authors: Adams and Reese attorneys Richard Carmody and Dawn Hardesty, December 2014

Article summary: In a dispute regarding entitlement to proceeds resulting from an auction of livestock in possession of a dairy farmer/debtor, the U.S. Court of Appeals for the Sixth Circuit issued an order on Aug. 14, 2014, in favor of a dairy cattle lessor, despite the secured creditor’s pre-existing security interest in all livestock that is “currently owned or hereafter acquired.” The court found that the dairy cattle leases were not disguised security agreements, as the bankruptcy and district courts in Kentucky had concluded, but were instead true leases. As a result, the lessor — not the debtor — owned the leased livestock that was auctioned, and the cows were not subject to the secured creditor’s security interest. This case provides important lessons for creditors seeking to obtain a security interest in livestock, including what precautions those creditors should take to ensure that their interests in the livestock are protected.