Summary of a Recent
Judicial Development in
Secured Transactions

Statutory Trust is Created to Benefit Receiptholders
of Warehouses Licensed In-State

Walt McCarter
National AgLaw Center Research Associate

Summary of Decision

In Public Service Commission v. Minnesota Grain, Inc., 2008 ND 184 (N.D. 2008), the North Dakota Supreme Court held that claimants of a public trust fund were not "noncredit-sale receiptholders of the insolvent warehouseman," as necessary to entitle them to payment from the fund because they had not stored or sold grain in a warehouse licensed in the state.

Background

Minnesota Grain, Inc., was declared an insolvent grain warehouseman under N.D.C.C. ch. 60-04, and the district court appointed the state Public Service Commission (PSC) to serve as trustee of the trust fund created for the benefit of Minnesota Grain's receiptholders. Id. at 764. The PSC determined that there were no grain assets in the Minnesota Grain estate and that the $100,000 surety bond on file with the PSC was "needed to redeem outstanding claims for grain purchased for cash by Minnesota Grain, Inc. through its Rhame, North Dakota facility." Id. at 765. The Brotens had previously sold barley to Minnesota Grain, and the barley had been delivered to its warehouse in East Grand Forks, Minnesota. Id. After Minnesota Grain was found to be insolvent, the Brotens brought a claim to receive payment for the grain from the trust fund, but the PSC determined that the Brotens were not entitled to payment because their grain had been sold and delivered to the East Grand Forks, Minnesota facility. Id. The district court affirmed the decision, stating that North Dakota statutes required that the surety bond benefit persons storing or selling grain in warehouses licensed in the state. Id.

Arguments

The Brotens argued that they were "noncredit-sale receiptholders of the insolvent warehouseman" because the statutory definitions of "warehouseman" and "receipt" were broad enough that, so long as they were "receiptholders" from any Minnesota Grain warehouse facility, they were entitled to benefits regardless of where the specific facility was located or bonded. Id. at 768.

Analysis and Holdings

Upon the insolvency of any warehouseman, a trust fund is established for the benefit of noncredit-sale receiptholders of the insolvent warehouseman under N.D.C.C. § 60-04-03.1. Id. at 767. The court acknowledged the Brotens' argument that the terms were broadly defined, but reasoned that such interpretation was contrary to the intent of the statutory scheme and ignored crucial elements of the statute, including the PSC's responsibility of supervising public warehouses in the state. Id. at 768. Therefore, the court held that to be a "receiptholder" entitled to benefit from the trust fund under N.D.C.C. 60-04-03.1, a claimant's transactions with a public warehouseman "must at least designate the warehouse for which the public warehouseman is licensed and bonded in this state," and it affirmed the PSC's determination of ineligibility. Id. at 769.

The case was decided on October 22, 2008.