In re Purdy
United States Court of Appeals for the Sixth Circuit
763 F.3d 513 (2014)
Dairy farmer Lee Purdy (Purdy) borrowed from Citizens First Bank (Citizens First), granting it a purchase-money security interest in his farm equipment and livestock, including after-acquired property, and used the loan proceeds to execute five 50-month dairy-cow leases with Sunshine Heifers, LLC (Sunshine) requiring monthly payments and return of the cattle in resale condition. When Purdy filed for bankruptcy, both Citizens First and Sunshine sought to reclaim the cows, with Citizens First arguing the leases were disguised security agreements under state law because the 50-month term exceeded the cows' economic life — the bankruptcy court agreed, finding industry practice was to cull about 30 percent of a dairy herd annually with replacement cows, leaving none of the original cows by the lease's end, and ruled Citizens First's perfected purchase-money interest outranked Sunshine's claim; the district court affirmed, and Sunshine appealed.
Whether a lease is treated as a secured sale in disguise if the lease term exceeds the economic life of the leased goods or if the economics of the transaction otherwise suggest a sale.