Dayka & Hackett, LLC v. Del Monte Fresh Produce, N.A., Inc.
269 P.3d 709, 228 Ariz. 533, 626 Ariz. Adv. Rep. 8 (2012)
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Rule of Law:
Under UCC § 9-307(c), if a foreign debtor is located in a jurisdiction whose law does not generally require public filing to obtain priority for nonpossessory security interests, the debtor is deemed to be located in the District of Columbia for the purpose of perfecting a security interest. A junior secured party who disposes of collateral and retains the proceeds in violation of a senior perfected party's rights is liable for conversion.
Facts:
- In January 2007, Dayka & Hackett, LLC (D & H) agreed to finance a grape crop for growers Rolando Castelo de la Rosa and Maria Olivia Aguirre Ramos, residents of Sonora, Mexico.
- D & H and the growers entered into a security agreement granting D & H an interest in the 2007 crop, all future crops, and any proceeds from their sale.
- The 2007 crop was unprofitable, causing the growers to default on their obligations and leaving them indebted to D & H for $688,587.71.
- For the 2008 crop, Del Monte Fresh Produce (Del Monte) advanced funds to the same growers and entered into a separate marketing and security agreement covering the 2008 crop and its proceeds.
- On April 24, 2008, D & H sent a letter to Del Monte, notifying them of its pre-existing security interest in the growers' crops and proceeds.
- Despite the notice, Del Monte proceeded to market the 2008 crop, collected all sales proceeds, and retained them.
- Del Monte conducted a lien search only in Sonora, Mexico, while D & H had filed its financing statement in Washington, D.C.
Procedural Posture:
- Dayka & Hackett, LLC (D & H) filed a complaint against the growers and Del Monte Fresh Produce (Del Monte) in an Arizona trial court.
- D & H's complaint sought to enforce its security interest and included a claim for conversion against Del Monte.
- The trial court granted summary judgment in favor of D & H.
- The trial court's judgment declared D & H's security interest superior to Del Monte's, found Del Monte liable for conversion, and awarded damages to D & H.
- Del Monte filed a motion for reconsideration, which the trial court denied.
- Del Monte, as the appellant, appealed the final judgment to the Arizona Court of Appeals.
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Issue:
Does a secured party perfect its security interest in collateral owned by a debtor residing in Mexico by filing a financing statement in Washington D.C., when Mexico's laws at the time did not generally require public filing to establish priority for nonpossessory security interests?
Opinions:
Majority - Brammer, Judge.
Yes. A secured party perfects its security interest by filing in Washington D.C. when the debtor's foreign jurisdiction lacks a reliable, comprehensive public filing system for establishing priority. The court reasoned that the location of the debtor for perfection purposes is governed by A.R.S. § 47-9307. While the growers resided in Mexico, § 47-9307(C) specifies that this location only governs if the jurisdiction's law 'generally requires' public filing for priority. Based on expert testimony, the court found that Mexico's legal system in 2007-2008 was a 'crazy quilt' that allowed for unrecorded 'secret liens' to gain priority and thus did not meet the statutory requirement. Consequently, the statute dictates that the debtors are deemed 'located in the District of Columbia.' Therefore, D & H properly perfected its security interest by filing in D.C., giving it priority over Del Monte's unperfected interest. Del Monte's subsequent sale of the crop and retention of the proceeds constituted conversion because it interfered with D & H's superior, perfected right to possession of the collateral and its proceeds upon the growers' default.
Analysis:
This decision provides critical guidance for U.S. creditors lending to debtors in foreign countries. It solidifies the 'comprehensive approach' for evaluating a foreign jurisdiction's filing system under UCC § 9-307(c), meaning the system must be adequate for nonpossessory security interests as a whole, not just for the specific collateral type at issue. This ruling reinforces Washington, D.C. as the safe-harbor filing location when a foreign debtor's country has an inadequate or unclear public registration system for secured transactions. It reduces uncertainty for creditors and standardizes the perfection process for international transactions involving jurisdictions with developing commercial laws.
