Bayer CropScience, LLC v. Stearns Bank National Association

In September 2002 Texana Rice, Inc. (debtor) took out a loan from Stearns Bank National Association (creditor). The security agreement gave Stearns a security interest in all general intangibles and all proceeds due to Texana on account of any third-party damage to the collateral. In February 2006, Texana took out a loan from Amegy Bank National Association (creditor). In November 2006, Texana brought a commercial tort claim against Bayer CropScience, LLC (plaintiff), claiming that Bayer contaminated its inventory. In June 2007, Texana and Amegy signed an agreement, under which Amegy agreed to forbear from certain of its rights as creditor in exchange for a security interest in any proceeds from Texana’s lawsuit against Bayer. In June 2010, Stearns foreclosed on its security agreement and bought the collateral at the foreclosure sale. In September 2012, Texana and Bayer settled the lawsuit, and Bayer made certain disbursements pursuant to the settlement, with approximately $933,700 remaining. This amount was less than Texana owed Stearns and Amegy. In November 2013, Bayer filed an interpleader action in the United States District Court for the Eastern District of Missouri, giving parties the opportunity to claim the remaining settlement proceeds. Stearns and Amegy each claimed priority to the remaining settlement funds, and each moved for summary judgment. The district court held that Stearns’s foreclosure on its security agreement and purchase of the collateral at the foreclosure sale terminated its security interest in any proceeds due to Texana. The district court granted Amegy’s motion and denied Stearns’s motion. Stearns appealed.