Fin Ag, Inc. v. Hufnagle, Inc.

• Decision Date: 19 July 2005
• Docket Number: No. A04-2176.,A04-2176.
• Citation: 700 N.W.2d 510
• Parties: FIN AG, INC., Respondent, v. HUFNAGLE, INC., f/k/a P & H Trucking, et al., Defendants, Kent Meschke Poultry Farms, Inc., Appellant.
• Court: Minnesota Court of Appeals

700 N.W.2d 510

FIN AG, INC., Respondent, v. HUFNAGLE, INC., f/k/a P & H Trucking, et al., Defendants, Kent Meschke Poultry Farms, Inc., Appellant.

No. A04-2176.

Court of Appeals of Minnesota.

July 19, 2005.

Jon R. Brakke, Vogel Law Firm, Fargo, ND, for respondent.

Britton D. Weimer, Blackwell Igbanugo, P.A, and John G. Berg, Minneapolis, MN, for appellant.

Considered and decided by LANSING, Presiding Judge; STONEBURNER, Judge; and MINGE, Judge.

OPINION

LANSING, Judge.

The district court granted summary judgment for a secured creditor on its claim against a commercial buyer of farm products for conversion of its security interest in farm products. In this appeal, the buyer challenges the secured creditor's capacity to sue under Minn.Stat. § 303.20 (2004), asserts that the buyer takes free of the secured creditor's interest under the Food Security Act (FSA), and claims that the secured creditor did not properly perfect its interest when it misfiled its financing statements. Because we conclude that the buyer's challenge to the secured creditor's capacity to sue has both procedural and evidentiary deficiencies, that the secured creditor satisfied an exception that preserves its security interest under the FSA, and that the secured creditor falls within the good-faith exception for misfiling its UCC financing statement, we affirm the district court's judgment but remand to the district court for determination of a motion ancillary to this appeal.

FACTS

Larry Buck is a farmer in Itasca County who raises crops, including corn and beans, for sale. To obtain financing for his farming operation, Buck signed a promissory note and security agreement with Fin Ag, Inc. in April 1999. As collateral, Buck granted Fin Ag a security interest in, among other things, his crops and farm products.

From the fall of 1999 through 2000, Buck sold his 1999 crops to several buyers, including Kent Meschke Poultry Farms, Inc. Meschke issued checks during this same time period to Mickey Buck, Ryan Buck, Mark Tooker, and Paul Zuk for the purchase of corn. Mickey and Ryan Buck are Buck's minor children, and Buck concedes that he was selling crops in their names. Tooker and Zuk were employees of Buck. It is the checks that Meschke issued to Tooker, Zuk, and the two Buck children for the corn purchases that are at the center of this litigation.

Buck encountered financial difficulty and was unable to pay the balance of the loan. Fin Ag and Crop Production Services, Inc. (CPS), another financing corporation with a secured interest in Buck's crops, litigated the priority of their conflicting security interests. The district court granted partial summary judgment in favor of CPS, concluding that its interests had priority over Fin Ag's.

Fin Ag sued Meschke and other purchasers of Buck's crops, seeking to enforce its security interest in the crops. Fin Ag moved for summary judgment. Meschke opposed the motion, asserting that, as a South Dakota corporation transacting business in Minnesota, Fin Ag could not maintain an action without a certificate of authority and that, under the FSA, Meschke was entitled to take the corn free of Fin Ag's interest. The district court granted Fin Ag's motion and ordered Meschke to pay Fin Ag $45,573.09 in damages. Meschke now appeals.

ISSUES

I. Has the farm-product buyer satisfied procedural and evidentiary requirements to create a disputed issue of material fact under Minn.Stat. § 303.20 (2004) on whether the secured creditor, a foreign corporation, has the capacity to sue in Minnesota courts?

II. Does a buyer who purchases a farm product in the ordinary course of business take free of a secured creditor's interest under the Food Security Act when it receives notice of the interest from the secretary of state and does not obtain waiver of the interest?

III. If a party files its UCC financing statement in the wrong county in good faith, is its security interest nonetheless enforceable against a party with actual knowledge of the security interest?

ANALYSIS

On appeal from summary judgment, we determine whether there are any genuine issues of material fact and whether the district court erred in its application of the law. Funchess v. Cecil Newman Corp., 632 N.W.2d 666, 672 (Minn.2001). In assessing the evidence, we view it in the light most favorable to the party against whom judgment has been granted. Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993). Our review of a summary judgment based on the application of statutory provisions to undisputed facts is de novo. Wiegel v. City of St. Paul, 639 N.W.2d 378, 381 (Minn.2002).

I

A foreign corporation that transacts business in Minnesota may not maintain an action in Minnesota courts unless it has obtained a certificate authorizing the transaction of business. Minn.Stat. § 303.20 (2004). Fin Ag, incorporated under the laws of South Dakota, is a foreign corporation. Fin Ag concedes that it has not obtained a certificate of authority to do business in Minnesota, but contends that Meschke's challenge has both procedural and evidentiary defects because Meschke did not assert the lack of capacity as a defense in its pleadings and because Meschke has not shown that the extent of Fin Ag's activities in Minnesota require it to obtain a certificate of authority. The district court rejected Meschke's challenge but did not indicate the basis for its rejection.

We first consider whether Meschke procedurally waived its objection by failing to assert it in its answer. Meschke claims that Fin Ag's failure to obtain a certificate to transact business in compliance with Minn.Stat. § 303.20 deprives Fin Ag of standing and divests the court of subject-matter jurisdiction. We disagree. The certificate-of-authority requirement regulates a foreign corporation's ability to maintain a cause of action in Minnesota. Minn.Stat. § 303.20. Subject-matter jurisdiction governs a court's authority to consider an issue and standing implicates a party's ability to bring a particular cause of action, but the "right to maintain an action" relates to the capacity to sue. Cochrane v. Tudor Oaks Condo. Project, 529 N.W.2d 429, 433-34 (Minn. App.1995), review denied (Minn. May 31, 1995).

Unlike challenges to standing and subject-matter jurisdiction, a challenge to a litigant's capacity to sue is waivable. See id. (observing that "the right to challenge capacity to sue is waived if not timely asserted"). Failure to challenge in the answer a plaintiff's capacity, without subsequent amendment of the pleading, may result in a waiver of the issue. See Minn. R. Civ. P. 9.01 (restricting capacity-to-sue challenge to negative averment in pleadings), 12.02 (requiring assertion of defenses in responsive pleading); Risvold v. Gustafson, 209 Minn. 357, 361, 296 N.W. 411, 413 (1941) (noting that challenge to foreign corporation's capacity to sue is waived if not raised in answer); Lehigh Valley Coal Co. v. Gilmore, 93 Minn. 432, 434, 101 N.W. 796, 797 (1904) (requiring that challenge to capacity be raised in pleadings). Meschke's failure to challenge Fin Ag's capacity to sue in its answer or to seek amendment provides a sufficient basis for the district court's rejection of Meschke's request to dismiss for failure to comply with the requirement to obtain a certificate of authority.

The record also provides an evidentiary basis for rejecting Meschke's argument that Fin Ag lacked capacity to sue. Meschke failed to present adequate evidence to support its claim that Fin Ag does not fall within an exception for foreign corporations that participate in limited or particular types of transactions in Minnesota. See Minn.Stat. § 303.03 (2004) (listing activities that qualify as exceptions to certificate-of-authority requirement). Fin Ag asserts that its limited activities of making loans and collecting on these loans qualify under Minn.Stat. § 303.03 as an exception to the certificate-of-authority requirement. This exception provides that a "foreign corporation shall not be considered to be transacting business in this state . . . solely by reason of carrying on" the activities of issuing loans and collecting them. Minn.Stat. § 303.03(f), (g). Because Meschke failed to present evidence that created a disputed issue of material fact that Fin Ag's activities in Minnesota exceeded this exception, the record fails to demonstrate an evidentiary as well as a procedural basis that can withstand summary judgment, and we affirm the district court's ruling on this issue.

II

The UCC, as adopted in Minnesota and other states, permits buyers in the ordinary course of business to take free of a secured interest created by the seller. Minn.Stat. § 336.9-307 (1998); U.C.C. § 9-307 (1972). The version of the UCC in effect at the time of Meschke's transaction, however, included an exception for farm products, which mandated that a buyer of farm products still took subject to the secured interest. U.C.C. § 9-307; Mark V. Bodine, Clear Title: A Buyer's Bonus, A Lender's Loss-Repeal of UCC § 9-307(1) Farm Products Exception by Food Security Act § 1324 7 U.S.C. § 1631, 26 Washburn L.J. 71, 74 (1986) (observing that UCC, prior to its revision, did not permit buyer of farm products to take free of secured interest). The farm-products rule, or farm-products exception, varied from state to state and often resulted in buyers paying twice for the goods: once to the farmer and again to the farmer's creditor. See Charles W. Wolfe, Comment, Section 1324 of the Food Security Act of 1985: Congress Preempts the "Farm Products Exemption" of Section 9-307(1) of the Uniform Commercial Code, 55 UMKC L.Rev. 454, 456 (1987) (discussing problems with farm-products exceptions and purposes behind FSA).

To provide uniformity in the laws governing secured transactions in farm products, Congress, in 1985, passed the Food Security Act (FSA), which has remained substantially unchanged since its enactment. 7 U.S.C. § 1631 (1999 & Supp. 2005); Bodi...