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

                                                                     FILED BY CLERK
                              IN THE COURT OF APPEALS                   JAN 25 2012
                                  STATE OF ARIZONA                        COURT OF APPEALS
                                    DIVISION TWO                            DIVISION TWO


DAYKA & HACKETT, LLC, a                       )
California limited liability company,         )    2 CA-CV 2011-0076
                                              )    DEPARTMENT A
                        Plaintiff/Appellee,   )
                                              )    OPINION
                   v.                         )
                                              )
DEL MONTE FRESH PRODUCE                       )
N.A., INC., a Florida corporation,            )
                                              )
                   Defendant/Appellant.       )
                                              )


       APPEAL FROM THE SUPERIOR COURT OF SANTA CRUZ COUNTY

                                    Cause No. CV08351

                           Honorable Kimberly A. Corsaro, Judge

                                AFFIRMED; REMANDED


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,                                   Phoenix
 and Andrew L. Pringle

and

K & L Gates, LLP
 By David R. Fine and Amy L. Groff                                       Harrisburg, PA
                                                                          Pro Hac Vice
                                                      Attorneys for Defendant/Appellant
B R A M M E R, 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

                                            2
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



                                                 3
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,



                                              4
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).
                                              5
¶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 Ramón 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 financer 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.”



                                                6
¶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. It classified Mexico as a category “D” jurisdiction

because “filing is a sufficient but unnecessary step due to the existence of alternative

methods of perfecting the secured party‟s interest without filing.”

¶14             Additional authority supports Furnish‟s and Bringas Acedo‟s conclusions.

A 2006 article by Rosenberg reiterates the concern that “Mexican law recognizes various

types of nonpossessory security devices in personal property that do not require

       1
           U.C.C. § 9-307(c) is the equivalent of Arizona‟s § 47-9307(C).
                                              7
registration yet may take priority over lien creditors and registered nonpossessory

pledges.” Arnold S. Rosenberg, Where to File Against Non-U.S. Debtors: Applying UCC

§ 9-307(c) [Rev] to Foreign Filing, Recording, and Registration Systems, 39 UCC L.J.,

no. 2, 2006, art. 1. A 2004 article recognized that “current mechanisms [in Mexico]

undermine secured transactions . . . [and] create secret liens, making it difficult for a

secured party to determine if potential debtor‟s assets are encumbered.”         Alejandro

Lopez-Velarde & John M. Wilson, A Practical Point-by-Point Comparison of Secured

Transactions Law in the United States and Mexico, 36 UCC L.J., no. 4, 2004, art. 1. And

a recent article by Furnish noted that, even after reforms in 2003, “the pre-existing secret

liens and diverse security mechanisms continued unabated.” Dale Beck Furnish, The

Impact of the Organization of American States Model Law of Secured Transactions in

Latin America: The First Decade, 43 UCC L.J., no. 4, 2011, art. 1. Another article

discussing the 2009 reforms noted that one motivation was Mexican companies‟

difficulty attracting secured lending from the United States “because of concerns as to the

reliability of Mexican . . . systems for filing and perfecting security interests . . . in

personal . . . property or goods.” John E. Rogers & Ramiro Rangel, Mexico’s Unified

Secured Transactions Registry: Implications for Secured Lending, Bankruptcy and

Cross-Border Filings (U.C.C. § 9-307), 43 UCC L.J., no. 4, 2011, art. 3. The authors

suggested Mexico‟s recent reforms may bring it into compliance with U.C.C. § 9-307(c)

and “may require U.S. lenders relying on accounts receivable collateral . . . to re-examine

their reliance on the filing of a UCC-1 financing statement in the District of Columbia

                                             8
pursuant to U.C.C. § 9-307(c),” noting “the traditional method of perfecting such security

interests” has been to file with the Recorder of Deeds in the District of Columbia. Id.

¶15           Del Monte expert Steven Weise specializes in UCC secured transactions.

He was the chairperson of the ABA committee on Article 9, and is a member of the

editorial board for the UCC. He is not an expert on Mexican law, and based his opinions

on the testimony of Bringas Acedo, Furnish, and a Mexican attorney hired by Del Monte.

Although he deferred to the interpretation of Mexican law offered by other experts,

Weise testified that, pursuant to § 47-9307(C), a jurisdiction‟s registration system should

be examined with regard to the specific collateral at issue, rather than for nonpossessory

secured interests as a whole.        Based on his interpretation of the other experts‟

descriptions of the Mexican system, he contended the Mexican security interest devices

discussed by Bringas Acedo were either similar to the UCC or irrelevant to grape crops.

He further opined that, based on his conversations with Del Monte‟s Mexican attorney, a

security interest in crops must be filed in Mexico to gain priority over third parties.2

¶16           Del Monte urges us to accept Weise‟s interpretation of § 47-9307(C) as

collateral-specific. There is no Arizona case law addressing the issue. One article by

Rosenberg on the topic acknowledged it is an “unsettled question” whether U.C.C.

§ 9-307(c) should be interpreted to require a system for the specific collateral or for


       2
        Portions of Weise‟s declaration suggest it is relevant that filing was available or
sufficient in Mexico in some circumstances. However, to satisfy § 47-9307(C), a
jurisdiction must “generally require[]” filing as a condition of obtaining priority, not
merely allow it.
                                              9
nonpossessory security interests as a whole, but noted a comprehensive test is the more

likely interpretation. Rosenberg, Where to File, supra. One reason supporting this

prediction is that U.C.C. § 9-307 cmt. 3 appears to support a comprehensive

interpretation of the phrase “generally requires,”3 stating in relevant part:

              The phrase “generally requires” is meant to include legal
              regimes that generally require notice in a filing or recording
              system as a condition of perfecting nonpossessory security
              interests, but which permit perfection by another method . . .
              in limited circumstances. A jurisdiction that has adopted this
              Article or an earlier version of this Article is such a
              jurisdiction.

¶17           Policy implications also favor interpreting § 47-9307(C) as requiring the

jurisdiction‟s system to satisfy the test generally. One risk of a comprehensive test is

that, if a jurisdiction‟s system satisfies § 47-9307(C) generally but leaves a void for a

particular type of collateral, a lender could find it impossible to perfect a security interest

in that type of collateral because it would be required to file in that jurisdiction. See

Rosenberg, Where to File, supra.          However, a comprehensive approach “has the

advantage of clarity and might reduce transaction costs,” and a collateral-specific

approach would require secured parties “to retain foreign counsel in almost all cases to

ascertain foreign law on the subject.” Id. As noted in Rosenberg‟s 2008 article, admitted

in evidence during Furnish‟s testimony, under a collateral-specific approach a debtor


       3
        Although Del Monte argues the phrase “with respect to the collateral” in
§ 47-9307(C) favors a collateral-specific approach, we think it more likely the phrase
merely refers to the “rights of a lien creditor” in collateral and does not modify the earlier
clause, especially when read in conjunction with U.C.C. § 9-307 cmt. 3.
                                              10
could be “located” in more than one jurisdiction and, “in a single transaction, a secured

party might have to file in the limited-purpose registry to perfect as to some security

interests or collateral, while having to file in the District of Columbia to perfect as to

others.”   For these reasons, and based on the comments to the UCC, we interpret

§ 47-9307(C) to adopt the comprehensive approach, requiring a system for perfecting

nonpossessory security interests as a whole.

¶18            The expert testimony and secondary authority on the topic establish that

Mexico‟s law in 2007 and 2008 did not meet the requirements of § 47-9307(C) and,

therefore, the growers for the purpose of perfecting security interests in their property

were located in the District of Columbia pursuant to the statute. Thus, D&H perfected its

security interest by filing in the District of Columbia, and its security interest in the 2008

crop and its proceeds had priority over Del Monte‟s conflicting, unperfected security

interest. See A.R.S. § 47-9322(A)(2) (“A perfected security interest . . . has priority over

a conflicting unperfected security interest . . . .”).

Conversion

¶19            Del Monte argues it cannot be liable for conversion because it sold the

grapes and applied the proceeds following the growers‟ default in accordance with

A.R.S. §§ 47-9610 and 47-9615. Del Monte contends the growers defaulted on their

obligations to it by breaching the marketing agreement. Section 47-9610 entitles a

secured party to dispose of collateral upon default and § 47-9615 provides for disposition



                                                11
of the cash proceeds.       We conclude, however, under these circumstances neither

§§ 47-9610 nor 47-9615 preclude liability for conversion.

¶20           The official comments to the UCC note that non-UCC law governs a junior

secured party‟s liability to a senior secured party for conversion when the junior party is

in possession of collateral, noting that normally “a junior who refuses to relinquish

possession of collateral upon the demand of a secured party having a superior possessory

right . . . would be liable in conversion.” U.C.C. § 9-609 cmt. 5 (2001). Conversion is

“„an act of wrongful dominion or control over personal property in denial of or

inconsistent with the rights of another.‟” Case Corp. v. Gehrke, 208 Ariz. 140, ¶ 11, 91

P.3d 362, 365 (App. 2004), quoting Sears Consumer Fin. Corp. v. Thunderbird Prods.,

166 Ariz. 333, 335, 802 P.2d 1032, 1034 (App. 1990). Because a secured party has a

right to take possession of collateral on default, its possessory interest is sufficient to

maintain an action for conversion. Id. And money “can be the subject of a conversion

claim if the money „can be described, identified or segregated, and an obligation to treat

it in a specific manner is established.‟” Id., quoting Autoville, Inc. v. Friedman, 20 Ariz.

App. 89, 91, 510 P.2d 400, 402 (App. 1973). A secured party also can bring a conversion

action against third parties that interfere with its rights in the collateral. Sears, 166 Ariz.

at 335, 802 P.2d at 1034.

¶21           The growers defaulted on their obligations to D&H by failing to pay D&H

and by pledging collateral to Del Monte without D&H‟s consent. D&H explicitly had a

security interest both in the growers‟ future crops and any proceeds from those crops.

                                              12
When the growers defaulted, D&H had the right under the security agreement to demand

payment and take possession of the collateral. The growers already had defaulted on

their obligations to D&H when Del Monte took possession of the crops, sold them, and

retained the sales proceeds. By doing so, Del Monte interfered with D&H‟s rights to the

collateral and its proceeds and D&H had a valid conversion claim. See Sears, 166 Ariz.

at 335, 802 P.2d at 1034; see also Gehrke, 208 Ariz. 140, ¶ 11, 91 P.3d at 365.

Moreover, the proceeds from the sale of the crops properly are the subject of D&H‟s

conversion claim because they are identifiable and because D&H‟s security agreement

with the growers required them to pay D&H the proceeds from the sale of the collateral.

See Gehrke, 208 Ariz. 140, ¶ 11, 91 P.3d at 365 (money can be subject of conversion

claim if it can be described, identified, and obligation to treat in specific manner

established); see also Empire Fire & Marine Ins. Co. v. First Nat’l Bank of Ariz., 26 Ariz.

App. 157, 159, 546 P.2d 1166, 1168 (1976) (sale of vehicle by dealer and retention of

proceeds constituted conversion where bank had both security interest in vehicle and

right to possession upon default). Accordingly, Del Monte properly was held liable for

conversion of the crop‟s sales proceeds.

¶22           Sections 47-9610 and 47-9615 do not alter the result here. A secured party

is entitled to take possession of the collateral after default, A.R.S. § 47-9609, dispose of

the collateral, § 47-9610, and apply the proceeds of the disposition, § 47-9615. Because

more than one secured party may be entitled to possession of collateral, conflicting rights

among secured parties are resolved by the priority rules. See U.C.C. § 9-609 cmt. 5 (“[A]

                                            13
senior secured party is entitled to possession as against a junior claimant.”). Here, D&H

and Del Monte each had a security interest in the collateral and proceeds. And the

growers defaulted on their agreements with both. But, as discussed above, D&H‟s

security interest had priority over Del Monte‟s and D&H was entitled to dispose of the

collateral and apply the proceeds pursuant to §§ 47-9610 and 47-9615. Del Monte‟s

interference with that right constituted conversion. See Gehrke, 208 Ariz. 140, ¶ 11, 91

P.3d at 365.

¶23            Del Monte contends the official comment five to U.C.C. § 9-610 precludes

liability for conversion. We disagree. Comment five states: “The exercise of [the right

to dispose of collateral after default] by a secured party whose security interest is

subordinate to that of another secured party does not of itself constitute a conversion or

otherwise give rise to liability in favor of the holder of the senior security interest.”

U.C.C. § 9-610 cmt. 5 (2001). This is so because normally “the disposition by a junior

would not cut off a senior‟s security interest” and “the junior‟s receipt of the cash

proceeds would not violate the rights of the senior,” instead the senior‟s secured interest

“ordinarily will survive the disposition by the junior.” Id. But here, although D&H‟s

rights in the crops were cut off when Del Monte sold them, D&H also had rights to the

sales proceeds, which survived the sale, and Del Monte violated those rights by retaining

those proceeds. See 7 U.S.C. § 1631(d) (buyer of farm product in ordinary course of

business takes free of security interest). Moreover, the same comment further provides

“[t]he holder of a senior security interest is entitled, by virtue of its priority, to take

                                            14
possession of collateral from the junior secured party and conduct its own disposition”

following default. U.C.C. § 9-610 cmt. 5. And “[i]t is well settled that a secured

creditor, upon default of the debtor, has an immediate right to possession of the

collateral” and can maintain an action for conversion if the collateral is transferred.

Citicorp Homeowners, Inc. v. Western Sur. Co., 131 Ariz. 334, 336, 641 P.2d 248, 250

(App. 1981). D&H was entitled to possession of the collateral but Del Monte discharged

D&H‟s interest by selling the collateral and retaining the proceeds.

¶24           Del Monte further contends it cannot be liable for conversion because D&H

encouraged it to sell the grapes and did not demand possession. But D&H was entitled to

immediate possession of the collateral upon default and that right is sufficient to maintain

an action for conversion. See Gehrke, 208 Ariz. 140, ¶ 11, 91 P.3d at 365. And the

authority Del Monte cites does not suggest a claim for conversion is precluded if a senior

secured party fails to demand possession of the collateral under circumstances similar to

those presented here. See Ins. Co. of N. Am. v. Gen. Elec. Credit Corp., 119 Ariz. 97,

100, 579 P.2d 601, 604 (App. 1978) (no possessory interest to support conversion claim

where secured party expressed desire not to assert possessory interest and filed claim

joining in request for appointment of receiver to assume possession of inventory); W.

Coach Corp. v. Kincheloe, 24 Ariz. App. 55, 58, 535 P.2d 1059, 1062 (1975) (demand

and refusal required for conversion action where defendants “had not dealt with the

[collateral] in a manner inconsistent with the rights of the one entitled to possession”).



                                             15
¶25          Moreover, the record reflects D&H did demand possession of the collateral.

In its April 24 letter, D&H notified Del Monte it was “entitled to take possession of the

grape crop and the proceeds of its sale.”       And it “insist[ed] that steps be taken

immediately to acknowledge [its] interest and that a means be agreed upon to protect its

interest by payment from the current season‟s sale proceeds.”            The letter clearly

expressed D&H‟s security interest in both the collateral and any proceeds from its sale.

And as the trial court noted, Del Monte acted wrongfully by retaining the sales proceeds.

Therefore, because Del Monte exercised control over the grape crops and retained the

sales proceeds in a manner inconsistent with D&H‟s senior security interest in those

crops and proceeds, the trial court did not err in awarding D&H summary judgment on

the conversion claim. See Gehrke, 208 Ariz. 140, ¶ 11, 91 P.3d at 365.

Right of Recoupment

¶26          Del Monte further argues that, even if its security interest was inferior to

D&H‟s security interest, it is entitled pursuant to A.R.S. § 47-9404 to a right of

recoupment under its marketing agreement with the growers. Section 47-9404(A)(1)

provides that the rights of an assignee are subject to “[a]ll terms of the agreement

between the account debtor and assignor and any defense or claim in recoupment arising

from the transaction that gave rise to the contract.” Del Monte contends the growers

were the “assignors” and D&H was the “assignee” because the growers had granted

D&H a security interest in the crops and proceeds. Del Monte further contends it is the

“account debtor” because it was obligated to pay the growers the sales proceeds from the

                                           16
grapes it sold.4 Consequently, it asserts, under § 47-9404, D&H‟s rights are subject to

the agreement between Del Monte and the growers, which included a right of

recoupment.

¶27           The trial court concluded that § 47-9404 did not apply because “[Del

Monte] is not suing to enforce an assignment of Grower‟s rights under the [marketing

agreement].” We agree. Section 47-9404 does not apply in actions for conversion

because “the basis for a conversion [action] is the secured party‟s superior property

interest in the inventory itself, not the assignment of the account held by the debtor.”

United States v. Handy & Harman, 750 F.2d 777, 786 (9th Cir. 1984). Here, D&H

brought a conversion action against Del Monte asserting its superior security interest in

the grape crops and their sales proceeds. It did not assert an interest in the growers‟

account with Del Monte, instead asserting an interest in the crops and proceeds.

Therefore, D&H was not “merely the assignee of an account against which setoffs are

generally permissible,” rather it had a senior security interest in the crops and their sales

proceeds. See In re Commercial Reprographics, Inc., 95 B.R. 174, 180 (Bankr. E.D. Cal.




       4
        Del Monte contends the trial court erred in relying on J.R. Simplot Co. v. Sales
King Int’l, Inc., 17 P.3d 1100 (Utah 2000), because that court, Del Monte asserts,
“plainly misunderstood the roles of the parties” and the terms “account debtor,”
“assignor,” and “assignee.” However, this argument is not relevant here because we
determine § 47-9404 is inapplicable.
                                             17
1988) (discussing Handy & Harman). Therefore, § 47-9404 does not entitle Del Monte

to a right of recoupment against D&H‟s claim for conversion.5

                                      Disposition

¶28           For the foregoing reasons, we affirm. Both parties request attorney fees on

appeal pursuant to A.R.S. § 12-341.01(A). We grant D&H, as the prevailing party in this

contract action, its reasonable attorney fees upon its compliance with Rule 21, Ariz. R.

Civ. App. P. We remand this matter to the trial court to take action consistent with this

decision and address any remaining issues, including any motion for sanctions pursuant

to Rule 68, Ariz. R. Civ. P.




                                         /s/ J. William Brammer, Jr.
                                         J. WILLIAM BRAMMER, JR., Judge


CONCURRING:



/s/ Peter J. Eckerstrom
PETER J. ECKERSTROM, Presiding Judge



/s/ Joseph W. Howard
JOSEPH W. HOWARD, Chief Judge
       5
        Del Monte also asks this court to vacate the award of attorney fees and costs to
D&H. The only argument supporting its request is that the entry of summary judgment in
favor of D&H was in error. Because we affirm the judgment, we deny Del Monte‟s
request to vacate the attorney fee award.
                                           18