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CONTINENTAL COFFEE PRODS. CO. v. BANQUE LAVORO S.A

May 23, 1994

CONTINENTAL COFFEE PRODUCTS CO., Plaintiff,
v.
BANQUE LAVORO S.A., BSI-BANCA DELLA SVIZZERA ITALIANA, PEDRO URIBE A. SUCESORES LTDA, BANQUE DU GOTHARD, BANQUE WORMS, BANQUE BRUXELLES LAMBERT (SUISSE) S.A., BANK MEES & HOPE NV, BAYERISCHE VEREINSBANK S.A. (BV FRANCE), BOZZO USA TRADING INC., A SUBSIDIARY OF BOZZO COMMERCE DE CAFE, BOZZO COMMERCE DE CAFE AND BOZZO BRAZIL S.A., and XYZ CORP., that name being fictitious, the true name of the defendant being unknown to plaintiff, the person intended being any party with a claimed right of payment in this matter, Defendants.


Leval. Sitting by designation.


The opinion of the court was delivered by: PIERRE N. LEVAL

PIERRE N. LEVAL, U.S.C.J.*

 This interpleader action concerns the proceeds of a shipment of coffee shipped by defendant Bozzo Commerce de Cafe to plaintiff Continental Coffee Products Co. *fn1" The Bozzo shipment to Continental fulfilled a number of contracts for the sale of coffee by Bozzo to Continental. These contracts, as well as the coffee they concerned, were used by Bozzo as security for credit it obtained in various financial transactions. Before Continental paid Bozzo for the shipment, several of the secured creditors from those transactions informed Continental of their claims to the proceeds of the shipment. Continental then deposited the full amount due Bozzo for the shipment with the Court, *fn2" and brought this action of interpleader under 28 U.S.C. § 1335, asking the court to absolve it of further responsibility and distribute the proceeds in whatever manner is appropriate.

 Several of the interpleader defendants move for summary judgment claiming the proceeds of specific contracts among those that comprised the shipment of coffee. *fn3" Plaintiff's motion for summary judgment and two defendants' procedural motions are also decided herein.

 Background

 A. Security interests under the New York State Uniform Commercial Code

 Defendants move for summary judgment on the basis that they held security interests in lots of coffee included in the shipment to Continental, or in Bozzo's accounts receivable for such coffee. Federal courts are bound by state law governing the rights of rival claimants to a given fund in interpleader actions brought under 28 U.S.C. § 1335. Equitable Life Assurance Society v. McKay, 837 F.2d 904, 905 (9th Cir. 1988); Continental Assurance v. Platke, 295 F.2d 571 (7th Cir. 1961); 7 Charles A. Wright et al., Federal Practice & Procedure § 1713 (2d ed. 1986).

 1. Creation and attachment of a security interest

 The New York Uniform Commercial Code (hereinafter "NYUCC") provides that a security agreement *fn4" is effective "between the parties, against purchasers of the collateral and against creditors." § 9-201. However, the creditor's security interest does not become enforceable against the debtor or third parties until three events have occurred:

 (1) Either the collateral has come into the possession of the secured party, or the debtor has signed a security agreement that contains a description of the collateral;

 (2) The secured party has given value to the debtor; and

 (3) The debtor has acquired rights in the collateral. N.Y.U.C.C. § 9-203(1).

 Once these three events have occurred, the security interest is enforceable and the interest is said to have "attached." § 9-203(2). *fn5" While the additional step of perfection of the security interest offers the secured party additional rights (see below), any security interest that has attached gives the secured party certain rights to the collateral. The agreement is "effective according to its terms between the parties, against purchasers of the collateral and against creditors," § 9-201, and, significantly, gives the secured party the right to proceeds of the collateral, as provided by § 9-306 (unless the agreement states otherwise, § 9-203(3)). Section 9-301 states that an unperfected security interest is subordinate to the rights of certain listed creditors, which implies that the unperfected interest has priority over the rights of creditors not listed in that section. See James J. White & Robert S. Summers, Uniform Commercial Code § 24-2 (3d ed. 1988): "The secured creditor, even an unperfected secured creditor, has greater rights in his collateral than any other creditor unless Article Nine provides otherwise."

 Each of the claimed security interests, whether in the coffee sold to Continental or the accounts receivable for that coffee, is evaluated below according to these criteria for the creation and attachment of security interests.

 2. Perfection of the security interest

 Perfection of a security interest provides additional security to the creditor, in that the creditor with a perfected security interest has priority over creditors with unperfected security interests (as well as priority over general creditors). See § 9-312 (prioritizing security interests); White & Summers, supra, at § 22-7 ("The perfected secured creditor is nearly as far above the unperfected secured creditor in the priorities pecking order as the unperfected secured creditor is above the general creditor.").

 Because methods of perfecting a security interest vary in different jurisdictions, the N.Y.U.C.C. includes choice of law provisions that determine which law governs the perfection and effect of perfection of a security interest. This case involves security interests in goods and in accounts. The applicable choice of law provisions follow.

 a. Choice of law - Perfection of security interest in goods

 The perfection and effect of perfection of a security interest in goods are governed by the law of the jurisdiction where the collateral was when the last event relevant to perfection occurred. § 9-103(1)(b).

 Several interpleader defendants claim that they held security interests in goods in the possession of Bozzo Commerce de Cafe. Those goods are coffee beans that were shipped from South America to ports in the United States. Section 9-103(1)(b) requires the security interests claimed in the coffee beans to be determined by the laws of the jurisdictions where the beans were located at the time the perfecting act is claimed to have occurred.

 b. Choice of law -- Perfection of security interest in accounts

 The NYUCC provides that the perfection and effect of perfection of a security interest in accounts is governed by the law of the jurisdiction where the debtor is located, with several provisions that apply when the debtor is located outside the United States, in a jurisdiction that does not provide for perfection of the security interest by filing or recording in that jurisdiction. § 9-103(3)(b). The code provides that for such a debtor, perfection of a security interest by filing is determined by the law of the jurisdiction where the debtor has its major executive office in the United States; or alternatively, if the debtor is located in neither the United States or Canada, perfection may be accomplished by notification to the account debtor. § 9-103(3)(c). The account debtor is the person who is obligated on an account covered by the security interest, § 9-105(1)(a), in this case, Continental Coffee.

 Uncontroverted submissions establish that Bozzo Commerce, the debtor in this case, is located in a jurisdiction which is not a part of the United States or Canada, and which does not provide for perfection of the security interest by filing. See Plaintiff's uncontroverted Rule 3(g) Statement (Bozzo Commerce de Cafe is a foreign corporation based in Switzerland, which does business through a wholly-owned subsidiary, Bozzo U.S.A. Trading Inc., whose office is in Westchester County, New York State); Pedrazzini's uncontroverted Cert. P 2 (Pedrazzini, a Swiss attorney, certifies that the law of Switzerland does not provide for perfection of security interests by filing). Therefore, the notice provisions of § 103(3)(c) come into play. A creditor claiming a security interest in any account receivable of Bozzo could perfect its interest by either of the methods available in § 9-103(3)(c): by following New York State law for perfection of a security interest, or by notifying Continental Coffee, the account debtor, of its interest in Continental's debt to Bozzo Commerce.

 c. Perfection under New York State Law

 As just noted, the perfection of a security interest in accounts may be achieved by following New York State law. New York law provides for perfection of any security interest by filing a financing statement (with limited exceptions not applicable in this case). § 9-302(1). *fn6" The filing is made with the department of state, and, in addition, if the debtor has a place of business in only one county of the state, the filing must be made in that county. § 9-302; 9-401(1)(c).

 Uncontroverted affidavits filed by a party to this case state that Bozzo Commerce de Cafe did business in the United States through its wholly-owned subsidiary, Bozzo U.S. Trading, Inc., and that the Bozzo U.S. was located in White Plains, in Westchester County. (Stern Aff. P 7, submitted by BSI-Banco Della Svizzera Italiana.) Thus, a creditor could perfect a security interest in a Bozzo Commerce account by filing a financing statement with the New York department of state and (assuming Bozzo U.S. trading has no other offices in New York State) with the filing officer in Westchester County.

 3. Priority of creditors

 Generally speaking, where two or more creditors claim security interests in the same collateral, the N.Y.U.C.C. establishes a hierarchy of creditors, which places the perfected secured creditor first, the unperfected secured creditor next, and the general creditor last. However, many exceptions to this hierarchy exist.

 a. Unsecured creditors with priority interests

 In limited circumstances, unsecured creditors may have priority over holders of unperfected security interests. These circumstances are listed in § 9-301. They include:

 
(1)(b) a person who becomes a lien creditor before the security interest is perfected;
 
(c) in the case of goods . . . a person who is not a secured party and who is a transferee in bulk . . . to the extent that he gives value and receives delivery of the collateral without knowledge ...

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