In re: the Assignment for the Benefit of Creditors of William Sczepanski.

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2018).

STATE OF MINNESOTA
IN COURT OF APPEALS
A18-1873

In re: the Assignment for the Benefit of Creditors of William Sczepanski.

Filed July 22, 2019
Affirmed
Reyes, Judge

Marshall County District Court
File No. 45-CV-17-39

Philip Kaplan, Anthony, Ostlund, Baer & Louwagie, P.A., Minneapolis, Minnesota (for
appellant GF Finance, Inc.)

Erik A. Ahlgren, Ahlgren Law Office, P.L.L.C., Fergus Falls, Minnesota (for respondent
assignee of William Sczepanski)

Jeffrey A. Peterson, Christopher W. Harmoning, Gray, Plant, Mooty, Mooty & Bennett,
P.A., St. Cloud, Minnesota (for respondent Choice Financial Group)

Michael S. Dove, Seth I. Harrington, Gislason & Hunter, L.L.P., New Ulm, Minnesota (for
respondent John Deere Financial)

Considered and decided by Bjorkman, Presiding Judge; Rodenberg, Judge; and
Reyes, Judge.
U N P U B L I S H E D O P I N I O N
REYES, Judge
In this priority dispute between three creditors, one appellant-creditor challenges a
district court’s order authorizing an auction of unit retains1 in an assignment for the benefit

1 The retained portion of payments otherwise due shareholders of a cooperative.

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of two respondent-creditors, arguing that the district court erred in (1) determining
ownership of the unit retains ; (2) finding that respondent creditors created valid securit y
interests in the unit retains; and (3) ordering the auction of unit retains that belonged to
entities not involved in the assignment proceeding. We affirm.
FACTS
American Crystal Sugar Company (American Crystal) is a Minnesota agricultural
cooperative that is owned exclusively by sugar-beet growers. Owners of American Crystal
are the “common shareholders” of record, and are defined in American Crystal’s bylaws
as “ [a]ny person, firm, partnership, or corporation who is a bona fide sugar beet farm
operator.” To become a common shareholder of American Crystal, a person or entity must
purchase both common-stock shares and preferred-stock shares in American Crystal.
Common shareholders are entitled to payment in return for delivering sugar beet
crops to American Crystal. The b ylaws authorize American Crystal to retain a portion of
the payments otherwise due to its common shareholders in order to capitalize the company.
This retainage is referred to as “unit retains.” The bylaws provide that the unit retains
ultimately shall be paid out to the common shareholder of record from whom they were
withheld. Historically, American Crystal’s board returns the unit retains after seven years.
William Sczepanski (Sczepanski), a sugar-beet grower, owned 35 common -stock
shares in American Crystal, plus the requisite preferred -stock shares, in his individual
capacity. Because Sczepanski was the common shareholder of record for these shares,
American Crystal issued unit-retain payments by check to him personally.

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Separately, Sczepanski joined 22 different sugar-beet entities as a managing or
general partner. The 22 sugar-beet entities included various limited-liability partnerships,
limited partnerships, and joint ventures , created by contract. Sczepanski contributed one
common-stock share of American Crystal, and another individual contributed preferred-
stock shares of American Crystal, to each sugar-beet entity. Sczepanski did not contribute
preferred-stock shares to any of the 22 sugar-beet entities.
In 2004, a nonparty bank filed a UCC -1 financing stateme nt, which named
Sczepanski and his wife , in their individual capacities, as debtors, and appellant GF
Finance, Inc. (GF Finance) as one of several secured parties. The financing statement cited
collateral including “[a]ll American Crystal Sugar Co. unit retains.” In 2007, Sczepanski,
in his individual capacity, executed a security agreement in favor of GF Finance. The asset
list attached to the security agreement included “[a]ll [u]nit retains of American Crystal
Sugar Company.”
Between 2009 and 2010, all 22 sugar-beet entities executed a first set of notices of
security interest in favor of respondent Choice Financial Group (Choice Financial) , as
creditor. All but two sugar-beet entities executed a later set of notices of security interest
in favor of respondent John Deere Financial (John Deere), as creditor. Each of the notices
of security interest was signed by Sczepanski, on behalf of the relevant sugar-beet entity,
signed by Choice Financial or John Deere , and involved the sugar -beet entities’ “unit
retains from [American Crystal] .” Each of the notices also contained a request for
American Crystal to issue joint unit-retain checks to the “borrower” (the common
shareholder) and the “secured party” (the creditor). American Crystal signed these notices.

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In 2009 and 2010, Choice Financial and John Deere, respectively, also obtained security
interests in Sczepanski’s personal unit retains, subsequent in priority to GF Finance’s 2007
security interest.
In January 2017, Sczepanski participated in an assignment for the benefit of his
creditors, transferring to assignee Erik A. Ahlgren all of his assets. An addendum to the
assignment provided that Sczepanski’s assets included, among other things, Sczepanski’s
“35 Shares in American Crystal Beet Stock” and his interest in “$1,200,000 [of] American
Crystal Unit Retains.” The assignment identified GF Finance, Choice Financial, and John
Deere as creditors of Sczepanski.
Ahlgren filed a motion in district court to authorize (1) the sale of the expected
American Crystal unit retains by auction, free and clear of liens and (2) the distribution of
the proceeds from the sale. His motion proposed to distribute to GF Finance the proceeds
from the sale of the unit retains payable directly to Sczepanski , as GF Finance had first
priority in those unit retains, and to distribute to Choice Financial and John Deere the
proceeds from the sale of the unit retains payable directly to the sugar-beet entities.2 GF
Finance objected to Ahlgren’s motion, claiming that it had a first-priority security interest
in both the “35 Shares in American Crystal Beet Stock” and the “$1,200,000 [of] American

2 Choice Financial and John Deere claimed conflicting security interests in the unit retains
owned by the sugar -beet entities. However, Choice Financial filed its earliest relevant
financing statement in 2009, and John Deere filed its earliest relevant fin ancing statement
in 2010. Accordingly, Choice Financial had a first -priority security interest in the unit
retains at issue, and John Deere had a second-priority security interest.

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Crystal Unit Retains,” because Sczepanski personally owned all of them, including the unit
retains for which the sugar-beet entities were listed as the common shareholder of record.
On April 9, 2018, the district court issued an order authorizing auction of the unit
retains an d distribution of the sale proceeds in the manner proposed by Ahlgren . The
district court made express findings of fact , which it also included in the following
conclusions of law:
(i) [E]ach respective [s]ugar [b]eet [e]ntity granted a first
priority security interest in its unit retains to [Choice
Financial].

(ii) John Deere has a second priority interest in the unit
retains of the [s]ugar [b]eet [e]ntities based on its
notices.

(iii) GF Finance has a third priority security interest in the
unit retains of the [s]ugar [b]eet [e]ntities payable to
[Sczepanski] as Grower, Managing Partner, or General
Partner based on its UCC -1 financing statement and
security agreement from 2004 and 2007, respectively.

(iv) GF Finance has a first priority security interest in the
unit retains payable to [Sczepanski].

Thereafter, GF Finance moved for amended findings. The district court made slight
modifications to three of its findings of fact for clarifica tion but otherw ise denied GF
Finance’s motion. This appeal follows.
D E C I S I O N
We review a district court’s denial of a motion for amended findings for an abuse
of discretion. Zander v. Zander, 720 N.W.2d 360, 364 (Minn. App. 2006 ), review denied
(Minn. Nov. 14, 2006). A district court’ s findings “shall not be set aside unless clearly

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erroneous.” Minn. R. Civ. P. 52.01. A finding is “clearly erroneous” when this court has
“the definite and firm conviction that a mistake has been made.” Vangsness v. Vangsness,
607 N.W.2d 468, 472 (Minn. App. 2000) (quotation omitted). When determining whether
findings are clearly erroneous, this court views the record in the light most favorable to the
district court’s findings. Id.
I. The district court did not err in finding that Sczepanski does not own the sugar-
beet entities’ unit retains in his individual capacity.

GF Finance argues that it has a first-priority security interest in all of the unit retains
at issue because (1) Sczepanski, individually, owns them; (2) he never transferred his right
to receive them to the sugar beet entities; and (3) he owns the unit retains because the sugar-
beet entities’ contracts state that they are his sole property. We disagree.
GF Finance’s three arguments require interpretation of American Crystal’s bylaws
and the sugar-beet entities’ contracts. We review de novo a district court’s interpretation
of an entity’s written document s, such as its bylaws and contracts. In re Stisser Grantor
Trust, 818 N.W.2d 495, 502 (Minn. 2012).
Article VI, Section 5 of American Crystal’s bylaws provide that unit retains shall
be paid out to the common shareholder of record. The bylaws clearly state that, to become
a common shareholder of American Crystal, an “eligible person, firm, partnership or
corporation must purchase one share of common stock of [American Crystal] and further
purchase the preferred stock of [American Crystal].” (Emphasis added.)
Here, Sczepanski contributed one common -stock share to each sugar -beet entity,
and another individual contributed preferred-stock shares. As the owner of both types of

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shares, the sugar -beet entities are the common shareholders of record. Therefore,
Sczepanski, individually, cannot be the common shareholder of record for the sugar -beet
entities, and is not the owner of the sugar -beet entities’ unit retains. Because the sugar-
beet entities owned most of the disputed unit retains, and each sugar -beet entity granted
Choice Financial a security interest in them, Choice Financial has a first -priority security
interest in these unit retains.
GF Finance next relies on the district court’s c onclusion in its April 9, 2018 order
that “GF Finance has a first priority interest in the unit retains payable to [Sczepan ski].”
GF Finance argues that this conclusion of law proves that it is undisputed that Sczepanski,
individually, owns all of the unit retains at issue, and that GF Financial has a first-priority
security interest in them. In its September 10, 2018 order denying GF Finance’s motion to
amend findings, the district court amended several of its findings of fact to further clarify
that “Sczepanski, individually, was not the [c]ommon [s]hareholder of record for the
[s]ugar [b]eet [e]ntities.” Rather, he was the common shareholder of record only for the
35 shares he owned individually. Accordingly, the district court did not err by finding that
GF Finance only has a first -priority security interest in the unit retains owned by
Sczepanski individually.
GF Finance finally argues that the sugar-beet entities’ partnership and joint-venture
contracts expressly indicate that Sczepanski shall remain the sole owner of the entities’ unit
retains. GF Finance relies on language in the various contracts indicating either that the
unit retains are the sole property of Sczepanski or that they shall be allocated to him. But
this language is found in sections of the contracts that provide for the “Distribution of

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Assets on Terminati on,” “Division of Proceeds ,” adjustments to “Allocation and
Distribution of Partnership Income ,” or distribution of joint -venture income. The record
does not indicate that any of the sugar-beet entities terminated or that division of proceeds
is an issue. Further, as a matter of course, American Crystal must first pay the unit retains
to the common shareholder of record before any proceeds can be distributed. As a result,
the relevant contract provisions either are not triggered or are irrelevant as to who is the
immediate owner of the unit retains. We conclude that the district court did not err in
finding that the disputed unit retains are the property of the sugar-beet entities.
II. The district court did not clearly err in finding that Choice Financial and John
Deere created valid security interests in the sugar-beet entities’ unit retains.

GF Finance contends that, even if the sugar-beet entities owned most of the disputed
unit retains, GF Finance nonetheless still has a first-priority security interest in all of them
because Choice Financial’s and John Deere’s attempts to establish security interests in the
sugar-beet entities’ unit retains failed under Minnesota law. We disagree.
A security interest is enforceable against the debtor and third parties if (1) value has
been given; (2) the debtor has the power to transfer rights in the collateral; and (3) if one
of several condi tions is met, including that the debtor has authenticated a security
agreement that provides a description of the collateral. Minn. Stat. § 336.9-203(b)(1)-
(2), (3)(A) (2018). A “security agreement” is “an agreement that creates or provides for a
security interest.” Minn. Stat. § 336.9-102(a)(74) (2018). A se curity agreement is
“authenticated” when it is signed by the debtor. Minn. Stat. § 336.9-102(a)(7)(A) (2018).
In Minnesota, a valid security agreement “must somehow state that a lien is created in

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identifiable collateral.” Allete, Inc. v. GEC Eng’g, Inc., 726 N.W.2d 520, 523 (Minn. App.
2007). It must be clear from the face of the instrument that the parties intended to create a
security interest. Vacura v. Haar’s Equip., Inc., 364 N.W.2d 387, 392 (Minn. 1985).
In August 2017, Sczepanski, on behalf of each of the 22 sugar -beet entities,
executed security agreement s in favor of Choice Financial. These security agreements
satisfy the statutory requirements for creating a valid security interest. First, the security
agreements convey value bec ause they provide that “ the Debtor [the relevant sugar beet
entity] grants the Secured Party [Choice Financial] a security interest . . . in the following
property (‘the Collateral’) .” The “[c]ollateral” includes “[a]ll American Crystal Sugar
Company unit retains.” S econd, Sczepanski had the authority to execute the security
agreements on behalf of the sugar-beet entities through the signed and executed 2011
“Loan and Guaranty Agreement [s]” between the relevant sugar -beet entity and Choice
Financial. Each loan agreement provides that:
The [sugar beet entity partner] and the Debtor [Sczepanski and
his wife, as individuals ] hereby agree that the Debtor may
execute on behalf of the [sugar beet e ntity], an Agricultural
Security Agreement , Financing Statement , Assignment of
Indemnities, and any other loan documents reasonably
requested by [Choice Financial] to properly secure the
guaranty by granting a lien on the sugar beet crop.”

(Emphasis added.) Third, Sczepanski authenticated each of the 22 security agreements on
behalf of the “[d]ebtor” (the relevant sugar beet e ntity). Further, on September 14, 2017,
Choice Financial filed UCC-1 financing statements with respect to each of the sugar beet

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entities.3 By filing the financing statement, Choice Financial perfected its security interest
in the sugar beet entities’ collateral. Minn. Stat. § 336.9-310(a) (2018 ) (providing t hat
filing a financing statement perfect a security interest).
The execution of the security agreements and the filing of the financi ng statement
occurred in August and September of 2017, respectively, after Sczepanski’s January 2017
assignment for the benefit of his creditors. As a result, GF Finance argues, Sczepanski
lacked the authority to enter into the security agreements in August 2017 because “he did
not have any right, title, or interest left in the [u]nit [r]etains to assign.” The district court
found that the assignment transferred Sczepanski’s financial interest in the sugar -beet
entities’ unit retains to Ahlgren. But the district court found that Sczepanski retained the
right to enter into security agreements on behalf of the sugar beet entities, “so long as those
agreements did not harm the financial interests of the entities.” The record supports these
findings. Therefore, we conclude that t he district court did not err in finding that Choice
Financial and John Deere created valid security interests i n the unit retains of the sugar -
beet entities.
The district court found that, even assuming that Sczepanski lacked the authority to
execute the security agreements and that the corresponding financing statements are invalid
because they occurred after the assignment, the sugar-beet entities nevertheless “effectively
granted an earlier, enforceable security interest” to Choice Financial and John Deere
through the execution of the 2009 and 2010 notices of security interest.

3 One of the sugar -beet entities, Sczepanski and R.K.A. Limited Partnershi p, filed a
financing statement with a second nonparty bank instead of Choice Financial.

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The district court found that the notices of security interest , executed before
Sczepanski’s 2017 assignment for the benefit of his creditors , also satisfy the three
statutory requirements for an enforceable security agreement . First, all 22 notices convey
valuable collateral—the relevant sugar -beet entity’s “unit retains from American Crystal
Sugar Company.” Second, Sczepanski had the authorit y to execute the notices on behalf
of the sugar -beet entities through the “Loan and Guaranty Agreement [s].” Third, the
notices contain the debtor’s signature (Sczepanski on behalf of the relevant sugar -beet
entity) and provide a description of the collate ral. Additionally, the notices contain
language that the “[relevant sugar beet entity] . . . has granted to [Choice Financial] . . . a
security interest in [relevant sugar beet entity’s] unit retains from American Crystal Sugar
Company,” and this unequivocally demonstrates the parties’ intention to create a security
interest.
GF Finance contends that the notices of security interest purporting to grant a
security interest in favor of Choice Financial fail because the notices reference a “fictional”
security agreement, which Choice Financial acknowledged does not exist. GF Finance also
argues that the notices of security interest purporting to grant a security interest in favor of
John Deere fail because the notices reference security agreements dated May 4, 2010, and
November 1, 2015 , that were executed without the consent of Sczepanski’s sugar-beet
entity partners. The Uniform Commercial Code applies to “a transaction, regardless of its
form, that creates a security interest in personal property or fixtures by contract.” Minn.
Stat. § 336.9 -109(a)(1) (2018) (emphasis added) . And GF Finance fails to cite to any
authority stating that if a notice of security interest references “fictional” or unauthorized

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documents, it is rendered deficient. Despite the claimed errors in the Choice Financial and
John Deere notices of security interests, the crucial statutory components that create a
security agreement are present.
Viewing the record in the light most favorable to the district court’s findings, we are
not left with “the definite and firm conviction ” that the district court erred in finding that
Choice Financial and John Deere created valid security interests in the sugar-beet entities’
unit retains through the security agreements, financing statements, and the notices of
security interests.4 Vangsness, 607 N.W.2d at 472.
III. The district court did not err in ordering the auction and distribution of the
unit retains from Sczepanski’s assignment for the benefit of his creditors.

GF Finance argues that, after the district court determined that the sugar-beet entities
owned the disputed unit retains, it erred in authorizing the auction of all of the unit retains
in Sczepanski’s assignment because the sale implicated unit retains that Sczepanski no
longer owned. We disagree.
In its April 9, 2018 order, t he district court determined that the broad language of
the assignment transferred Sczepanski’s financial interests in the sugar -beet entities to
Ahlgren. As previously stated, Sczepanski had the authority to assign as long as he did not
harm the financial interests of the entities . We conclude that the district court did not

4 The district court also found that the notices of security interest doubled as joint -check
agreements. Relying on caselaw from the United States Bankruptcy Court for the District
of Hawaii, it determined that the joint -check agreements qualify as security agreements.
We do not reach this issue.

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clearly err in authorizing the auction and distribution of proceeds of the disputed unit
retains.
Affirmed.