Business Law

Droge v. AAAA Two Star Towing (Nev. Ct. App.)

The following is a case update written by Dean T. Kirby, Jr. a member of the firm of Kirby & McGuinn, A P.C., analyzing a recent decision of interest:

SUMMARY

The Court of Appeals of Nevada recently issued a detailed opinion, drawing on nationwide authority, interpreting section 9-609 of the Uniform Commercial Code, which authorizes a secured creditor to enter private property to recover possession of collateral so long as the repossession proceeds “without breach of the peace” (a term not defined in the UCC). The case is Droge v. AAAA Two Star Towing, 2020 WL3415636 (June 18, 2020).

A copy of the opinion may be found here.

FACTS

JPMorgan Chase Bank financed the purchase of a pickup truck by Russell Droge. The loan went into default when Russell was incarcerated. His parents, James and Cynthia Droge, agreed to store the truck at their home in Pahrump, Nevada. Chase retained Zane Investigations, Inc. to recover the truck. Kristal Romans was Zane’s only employee in Pahrump.

Romans kept her eye on the truck, which the Droges stored in their fenced back yard. Several months had gone by when Romans spotted the truck parked in the driveway, which was open to the street. She immediately contacted AAAA Two Star Towing, Inc. which dispatched its driver, Donald Shupp, to the scene. Meeting him on the street, Romans explained to Shupp that this would be a “no contact,” “grab and go” repo.

When Shupp backed the tow truck into the driveway and began to attach a chain to the pickup, the Droges appeared and a dispute ensued. James Droge grabbed the keys to the truck and moved it back to the fenced yard. Romans and Shupp later testified that Shupp was underneath the truck when James Droge backed it up, and that he was struck in the chest by a rear wheel of the moving truck. Shupp was not injured.

Someone called 911 and a Sheriff’s deputy arrived. When questioned, James Droge admitted that he knew that Shupp was on the ground behind the truck when he began to back it up. Mr. Droge was arrested on the spot and later charged with the crime of battery with a deadly weapon. A jury ultimately acquitted him.

The Droges sued Zane, Romans, Two Star and Shupp, alleging many claims for relief which included intentional and negligent infliction of emotional distress; unreasonable intrusion upon the seclusion of another (i.e., violation of privacy); negligent hiring, training and supervision, negligent performance of an undertaking and nuisance. The Court found that under principles of notice pleading the Droges could also assert claims for breach of the peace and trespass. James Droge pleaded a separate claim against Shupp for malicious prosecution based on his statements to the Sheriff’s deputy and the District Attorney. The trial court granted summary judgment against the Droges as to all of their claims. The Nevada Court of Appeal affirmed the summary judgment as to the malicious prosecution and negligence claims, but reversed as to all of the remaining claims.

REASONING

The central legal issue considered by the Court was whether the Defendants’ actions were authorized under Nevada’s version of Uniform Commercial Code section 9-609, which provides in relevant part that after default a secured party “may take possession of the collateral . . . pursuant to judicial process or without judicial process if it proceeds without breach of the peace.” The Court cited many cases decided in other states applying the standard of “breach of the peace,” a term not defined in the UCC.

The opinion states, with ample citations, that other courts deciding cases under the UCC’s repossession statute have generally held that the occurrence of violence is a breach of the peace, but that violence is not an essential element. Further, courts were said to generally agree that a breach of the peace has occurred when a repossession agent crosses a physical barrier (like climbing a fence or entering a closed garage) or destroys personal property (like cutting a lock). However, it is the general rule that “a mere trespass, standing alone, is not a breach of the peace.” The Droge opinion further observes that “[c]ourts routinely conclude that . . . the peace is breached when a repossession proceeds over the objection of the debtor or certain third parties, such as the debtor’s family or a person in control of the collateral.”

The Court then went beyond the UCC to the Restatement (Second) of Torts section 198(1), which provides that “[o]ne is privileged to enter land in the possession of another, at a reasonable time and in a reasonable manner, for the purpose of removing a chattel to the immediate possession of which the actor is entitled, and which has come upon the land otherwise than with the actor’s consent or by his tortious conduct or contributory negligence.” The Court ruled that it would follow Salisbury Livestock Co. v. Colorado Central Credit Union, 793 P.2d 470 (Wyo. 1990) which applied the Reinstatement’s “reasonableness test” to determine whether a breach of the peace had occurred within the meaning of UCC section 9-609. The Court held that “a breach of the peace occurs when a self-help repossession or attempted repossession under [UCC § 9-609] is undertaken in an unreasonable time or manner or both.” It concluded that material questions of fact existed as to the reasonableness of the manner in which the repossession was conducted in Pahrump. The Court focused on the question of when the Droges asked the repossession agents to leave their property, and whether they promptly complied.

The Court also carefully analyzed whether the Droges could assert tort claims based on violations of UCC § 9-609, in light of UCC § 9-625, which states if the collateral is consumer goods, damages may be recovered by “a debtor or a secondary obligor.” As the parents of the Debtor, the Droges were neither of those things. The Court concluded that § 9-625 was not an exclusive remedy, and cited a leading UCC treatise as supporting the following conclusion: “[T]he U.C.C. anticipates eligible claimants being able to recover damages in tort for violations of Article 9, with the secured party’s potential liability only being limited by the nature and number of tort claims in the relevant jurisdiction. See 4 James J. White et al., Uniform Commercial Code § 34:44 (6th ed. 2015). The principle significance of this dual claim approach is that debtors may recover punitive damages by way of tort claims that are unavailable through a statutory claim under statutes deriving from U.C.C. section 9-625.”

AUTHOR’S COMMENT

One wonders how the presence of a cell phone camera might have affected both the behavior of the parties and the outcome of the case. Regardless, one does not have to be a commercial lawyer to visualize the scene in that driveway, or to imagine the turn that events could have taken had Mr. Droge actually run over the repo man, or if any of those in attendance at the Pahrump Incident (as it may come to be known) had been armed.

The Pahrump Incident therefore demonstrates the need for clear, certain rules, with which trained repossession agents can be expected to be familiar. Viewed from that perspective, the Court’s holding seems inadequate, viz., that a breach of the peace occurs when a repossession “is undertaken in an unreasonable time or manner . . . .” The Court clearly had this in mind when it stated that the many specific cases cited in in its opinion “should not be disregarded merely because we have adopted the Restatement’s reasonable time and manner requirements.” Those more specific applications mentioned above (including the rule that the repo agent must depart if asked to leave) are more practically useful.

Pickup trucks are not only useful as utility vehicles but also as a font of law under the UCC and under Chapter 13 of the Bankruptcy Code. Droge v. AAAA Star Towing will itself be a useful vehicle in traversing the law of self-help repossession under the UCC.

These materials were written by Dean T. Kirby, Jr. a member of the firm of Kirby & McGuinn, A P.C., located in San Diego, California. Mr. Kirby is a member of the ad hoc group and a member of the Commercial Transactions Committee of the Business Law Section. Editorial contributions were made by the Honorable Meredith Jury (United States Bankruptcy Judge, C.D. Cal, Ret.), also a member of the ad hoc group. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.

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