Dayka & Hackett, LLC v. Del Monte Fresh Produce N.A., Inc.

• Citation: 269 P.3d 709,228 Ariz. 533,626 Ariz. Adv. Rep. 8
• Decision Date: 25 January 2012
• Docket Number: No. 2 CA–CV 2011–0076.,2 CA–CV 2011–0076.
• Parties: DAYKA & HACKETT, LLC, a California limited liability company, Plaintiff/Appellee, v. DEL MONTE FRESH PRODUCE N.A., INC., a Florida corporation, Defendant/Appellant.
• Court: Arizona Court of Appeals

228 Ariz. 533

269 P.3d 709

626 Ariz. Adv. Rep. 8

DAYKA & HACKETT, LLC, a California limited liability company, Plaintiff/Appellee,

v.DEL MONTE FRESH PRODUCE N.A., INC., a Florida corporation, Defendant/Appellant.

No. 2 CA–CV 2011–0076.

Court of Appeals of Arizona, Division 2, Department A.

Jan. 25, 2012.

Waterfall, Economidis, Caldwell, Hanshaw & Villamana, P.C. By D. Michael Mandig and Corey B. Larson, Tucson, Attorneys for Plaintiff/Appellee.

Mariscal, Weeks, McIntyre & Friedlander, P.A. By Richard A. Friedlander, Michael S. Rubin, and Andrew L. Pringle, Phoenix, and K & L Gates, LLP By David R. Fine and Amy L. Groff, Harrisburg, PA, Pro Hac Vice, Attorneys for Defendant/Appellant.

OPINION

BRAMMER, Judge.

¶ 1 Del Monte Fresh Produce, N.A., Inc. (Del Monte) appeals from the trial court's order granting summary judgment to Dayka & Hackett, LLC (D & H) on its claims of lien priority and conversion regarding the proceeds from the sale of Rolando Castelo de la Rosa and Maria Olivia Aguirre Ramos's (growers) 2008 table grape crop. Del Monte argues its security interest in the crop had priority over D & H's security interest in the same collateral, it had a right of recoupment pursuant to A.R.S. § 47–9404(A)(1), it did not engage in conversion because it had acted in accordance with A.R.S. §§ 47–9610 and 47–9615, and D & H had permitted it to sell the collateral without first having made a demand for possession. We affirm.

Factual and Procedural Background

¶ 2 We view the facts in the light most favorable to the party against whom summary judgment was entered, drawing all justifiable inferences in its favor. Modular Mining Sys., Inc. v. Jigsaw Techs., Inc., 221 Ariz. 515, ¶ 2, 212 P.3d 853, 855 (App.2009). In January 2007, D & H agreed to finance and sell the growers' 2007 grape crop to be grown in Sonora, Mexico. D & H entered into marketing and security agreements with the growers and, on January 18, 2007, it filed a financing statement pursuant to A.R.S. § 47–9307(C) in Washington, D.C. to perfect its interest. The security agreement granted D & H an interest in the 2007 and any future crops the growers produced together with any proceeds generated by the sale of the crops. The 2007 grape crop was not profitable and the growers were unable to repay to D & H what they owed. The growers subsequently defaulted on their obligations to D & H, eventually owing $688,587.71.

¶ 3 Del Monte, unaware of the relationship between the growers and D & H, advanced the growers funds to produce their 2008 crop. After conducting a lien search of the public registry in Sonora, Del Monte entered into a marketing and security agreement with the growers. Under its marketing agreement, Del Monte was obligated to market and sell the crop it was advancing the growers funds to raise, and to pay the growers a portion of the sales proceeds. The growers granted Del Monte a security interest in collateral, which included the 2008 crop and any proceeds from its sale. In May 2008, Del Monte registered its security interest with the public registry in Sonora.

¶ 4 On April 24, 2008, D & H sent Del Monte a letter informing Del Monte of its security interest in the growers' crops. Del Monte responded with a letter on May 14, 2008 asserting a superior interest in the crops. Del Monte marketed the 2008 crop and collected and retained all the sales proceeds.

¶ 5 D & H filed a complaint against the growers and Del Monte seeking to enforce its security interest in the growers' 2008 crop and its proceeds. The trial court granted summary judgment in favor of D & H on its conversion claim and awarded it damages of $688,587.71, the amount the growers owed D & H. The judgment also declared D & H's security interest in the 2008 crop and proceeds to be superior to Del Monte's interest and denied Del Monte's asserted right of recoupment. The court denied Del Monte's motion for reconsideration and entered a final judgment pursuant to Rule 54(b), Ariz. R. Civ. P. This appeal followed.

Discussion

¶ 6 Summary judgment is appropriate when “there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law.” Ariz. R. Civ. P. 56(c)(1). And a trial court should grant a motion for summary judgment “if the facts produced in support of the claim or defense have so little probative value, given the quantum of evidence required, that reasonable people could not agree with the conclusion advanced by the proponent of the claim or defense.” Orme Sch. v. Reeves, 166 Ariz. 301, 309, 802 P.2d 1000, 1008 (1990). “On appeal from a summary judgment, we must determine de novo whether there are any genuine issues of material fact and whether the trial court erred in applying the law.” Bothell v. Two Point Acres, Inc., 192 Ariz. 313, ¶ 8, 965 P.2d 47, 50 (App.1998).

Priority

¶ 7 Del Monte argues its security interest in the 2008 crop was superior to and had priority over D & H's security interest because D & H did not perfect its interest by taking possession of the collateral or by filing notice of its interest in a proper jurisdiction. D & H recorded its security interest with the Registrar of Deeds in Washington, D.C., on January 18, 2007. Del Monte recorded its security agreement in Mexico's Real Property Registry and Movables Registry on May 7, 2008 in Hermosillo, Sonora, Mexico. To assess which party's filing was effective to perfect its interest and give it priority, we must determine whether United States or Mexican law applies.

¶ 8 The Uniform Commercial Code (UCC) as adopted in Arizona provides that, “while a debtor is located in a jurisdiction, the local law of that jurisdiction governs perfection ... and the priority of a security interest in collateral.” A.R.S. § 47–9301(1). An individual generally “is located at the individual's principal residence,” A.R.S. § 47–9307(B)(1), and it is undisputed that the growers are residents of Sonora, Mexico. However, § 47–9307(B) applies only if:

[the] debtor's residence ... is located in a jurisdiction whose law generally requires information concerning the existence of a nonpossessory security interest to be made generally available in a filing, recording or registration system as a condition or result of the security interest's obtaining priority over the rights of a lien creditor with respect to the collateral.

§ 47–9307(C). If the requirements of § 47–9307(C) are not met, the debtor is considered to be “located in the District of Columbia.” Id.

¶ 9 Therefore, whether priority is determined by United States or Mexican law depends on whether, during the relevant time period, Mexican law “generally require[d]” such information “to be made generally available in a filing, recording or registration system” in order to obtain priority. See id. To determine whether Mexico's law meets the test in § 47–9307(C), we “may consider any relevant material or source, including testimony.” Ariz. R. Civ. P. 44.1. The issue is treated as a question of law, id, which we review de novo, Green v. Lisa Frank, Inc., 221 Ariz. 138, ¶ 48, 211 P.3d 16, 33 (App.2009).

¶ 10 Both parties presented expert testimony regarding whether Mexican law during the relevant period satisfied the conditions set forth in § 47–9307(C). D & H expert Dale Furnish has authored articles and book chapters on Mexican law, has consulted with the Mexican government regarding the amendment of its laws, and has assisted in drafting Arizona's secured transactions laws and the Organization of American States model on secured transactions. According to Furnish, Mexican law in 2007 and 2008 was a “crazy quilt” of different security devices that did not meet the requirements of § 47–9307(C). Checking public records in Mexico provided no assurance of the priority of an interest because it was “possible for several common types of credit guaranties to be unrecorded, and still gain priority over even a recorded security interest.” According to Furnish, one of the major flaws in the Mexican registration system preventing the growers from being “located” in Mexico is that it did not include a provision stating it applied to any device acting in practical effect as a security interest.

¶ 11 D & H expert Ramon Bringas Acedo has practiced law in Mexico for over twenty-eight years representing borrowers, growers, finance companies, and distributors in crop-financing transactions. He agreed that Mexican law does not “generally require[ ]” filing as described in § 47–9307(C), noting that a financier like Del Monte, to perfect its interest in a crop, need only “notify any third party who may be in possession of that same fruit ... such that perfection of the guaranty ... is not the result of recording in any registry but rather by way of notification.”

¶ 12 Amendments to Mexico's laws in 2009 recognized and defined a “security interest,” created a single federal registry for recording security interests, and generally required that all security interests be recorded in the federal registry. Furnish offered that the Mexican system before the 2009 amendments “resemble[d] the United States system prior to the 1962 advent of UCC Article 9.” Both Furnish and Bringas Acedo opined that once the 2009 amendments are implemented they will, for the first time, create a system that “ ‘generally requires' recording to establish priority between competing claims or security interests in personal property.”

¶ 13 Furnish added that “[e]very authoritative source available agrees that Mexico did not have ... a law” satisfying § 47–9307(C) in 2007 and 2008. For example, he discussed a 2008 article in evidence authored by Arnold S. Rosenberg and published in the book Practice Under Article 9 of the UCC by the UCC Committee of the American Bar Association (ABA). The article classified foreign filing systems into category “A”—jurisdictions clearly satisfying the test in U.C.C. § 9–307(c) ¹—through category “D”—jurisdictions that clearly fail the test....