Untitled Document

2015 Commercial Law Developments, Prepared by the Business Law Section Commercial Transactions Committee for the 2015 Business Law Section Annual Report
I. Personal Property Secured Transactions

A. Scope of Article 9 and Existence of a Secured Transaction

1. General

  • State v. Fay, 2015 WL 6113460 (Minn. Ct. App. 2015) – An individual boarded three of her horses. The boarding agreement provided that ‘[n]o horse shall be released or leave until the complete bill for charges has been paid in full.’ A state law criminalizes ‘intentionally and without consent, tak[ing] property out of the possession of a pledgee.’ The court held that the person caring for the horses was a “pledgee” within the meaning of the statute. It did not matter whether the agreement created a security interest under Article 9.*

2. Insurance

  • In re Montreal, Mine & Atlantic Railway, 799 F.3d 1 (1st Cir. 2015) – A debtor was entitled to a settlement payout under its insurance policy. The right to payment fell within Article 9’s insurance exclusion (UCC § 9-109(d)(8)), which provides that Article 9 does not apply to the ‘transfer of an interest in or an assignment of a claim under a policy of insurance.’ The creditor’s security interest was also unenforceable under Maine common law due to the creditor’s failure to put third parties on notice through adequate non-UCC perfection procedures.*

3. Consignments

4. Real Property

  • In re Davis, 528 B.R. 757 (Bankr. E.D. Tenn. 2015) – The right of the holder of a deed of trust to the proceeds of a settlement of an action for damage to the real property subject to the deed of trust was substitute collateral covered by the lien created by the deed of trust, not a general intangible under the UCC.

  • In re Endresen, 530 B.R. 856 (Bankr. D. Or. 2015) – The liens created by deeds of trust on real property extended to the postpetition settlement of a construction defect claim. The lien was not covered by Article 9 of the UCC, was perfected, and was not cut off by Bankruptcy Code § 552(a).

  • Merrillville 2548, Inc. v. BMO Harris Bank, 39 N.E.3d 382 (Ind. Ct. App. 2015) – A bank’s security interest in a borrower’s lease of real property was not governed by Article 9 of the UCC. Thus, the bank was not entitled to an order of possession prior to a sheriff’s sale of the leasehold.

  • Lankhorst v. Independent Savings Plan Co., 787 F.3d 1100 (11th Cir. 2015) – A credit agreement provided the seller of a water treatment system with a purchase money security interest in the water treatment system. Even if the system was a “fixture,” UCC § 9-604(c) permits a secured party with a security interest in fixtures to remove the fixtures from the real property. The seller did not have a security interest in the residence. Thus, the seller did not violate the Truth in Lending Act that applies to credit secured by a residence.

  • FirstMerit Bank v. Antioch Bowling Lanes, Inc., 2015 WL 3545412 (N.D. Ill. 2015) – Under applicable state law, the test for determining whether property constitutes “fixtures” is whether the property is essential to the use to which the real estate is put; removability and anticipated life expectancy are not the operative considerations. Under this test, the debtor’s bowling lanes, lane gutters, bowling ball return system, pin setting machines, and scoring consoles, were “fixtures” and therefore subject to a real property mortgage. In contrast, the laneside tables and chairs were not fixtures, were not subject to the mortgage, and thus could be removed and sold by the insider with a security interest in them.

5. Leasing

  • CD Construction, LLC v. Hard Hat Industries, Inc., 2015 WL 6509507 (Iowa Ct. App. 2015) – A sale-leaseback transaction for an excavator created a true 18-month lease, not a security interest, even though the lessee had a purchase option any time after the sixth month. The lease term was for less than the economic life of the excavator, there was no obligation or option to renew the lease, and the purchase option price was not nominal. Thus the transaction failed the bright-line test of UCC § 1-203(b). The court did not discuss the general test of subsection (a), the fact that the parties did not discuss the value of the excavator, or that its value apparently exceeded all the consideration due under the lease. [conform]

  • GE Capital Commer., Inc. v. Silver Labs, Inc., 86 U.C.C. Rep. Serv. 2d (Callaghan) 625 (App.Div. 2015) – UCC Article 9 protects a debtor from the commercially unreasonable disposition of collateral. However, this protection does not apply to personal property lessees. Where a lessee cannot prove that the “lease” was in fact a security interest, the lessee may not argue that the lease was a disguised security interest.

  • In re Gutierrez, 526 B.R. 449 (D.P.R. 2015) – An automobile lease agreement stated that it was a “lease” and not a secured transaction. The court held that the lessee had waived its right to have the lease treated under the UCC as a secured transaction, even though the lessor retained no residual interest in the automobile because the agreement was not subject to termination by the lessee and the agreement provided that the lessee would become the owner of the automobile at the end of the lease term.*

  • In re Johnson, 2015 WL 1508460 (Bankr. S.D. Miss. 2015) – A four-year lease of a truck with an option to purchase at the end for $8,500 was a true lease. The lessee did not show that the option price was nominal in relation to the anticipated fair market value of the truck at the end of the lease term or that the lessee’s costs of performing under the agreement compelled the lessee to exercise the option.

  • In re Wells, 2015 WL 3862969 (N.D. Ala. 2015) – A 91-month lease of a two-year old vehicle with an option to purchase at the end for $3,444 was a true lease because the term was not for the remaining economic life of the vehicle and, regardless of whether the option price was equal to 20% or 38.8% of the vehicle’s original value, it was not “nominal.”

  • GEO Finance, LLC v. University Square 2751, LLC, 2015 WL 1637310 (E.D. Mich. 2015) – A 10-year lease of a geothermal water supply system with an option to purchase at any time for approximately $300,000 and an option to renew for eight consecutive 5-year terms was a true lease because the system had a useful life of 50 years and the option price was not “nominal.” Consequently, the lessor did not need to file a financing statement and a buyer of the property in which the system was installed took subject to the lease and was liable in unjust enrichment for continuing to use the system without paying the monthly metered usage fee.

  • FDIC v. RLI Insurance Co., 784 F.3d 1104 (7th Cir. 2015) – The issuer of a financial institution bond was liable to the FDIC, as successor to the original beneficiary, for losses resulting from forged equipment leases because the bond covered any loss resulting from a forged ‘security agreement,’ which it defined as ‘a written agreement which creates an interest in personal property or fixtures and which secures payment or performance of an obligation.’ That the leases might not be security agreements under the UCC did not matter because the bond did not specify what type of “interest” the agreement had to create. While the bond required the original beneficiary to have possession of the forged documents, that requirement was satisfied by the FDIC’s possession of the forged lease schedules purportedly issued under a master lease, even though neither the original beneficiary nor the FDIC had possession of the master lease.*

6. Sales

7. Intellectual Property and Licenses

  • In re Trump Entertainment Resorts, Inc., 2015 WL 756873 (Bankr.D.Del. 2015) – The rights of trademark licensee not assignable without the affirmative consent of licensor.

  • Chao Xia Zhang v. Layer Saver LLC, 2015 WL 4467063 (N.D. Ill. 2015) – The buyer of the debtor’s ‘patent rights’ at a public sale conducted by the debtor’s secured party was not entitled to an injunction prohibiting the debtor from further use of those rights absent evidence that a patent had been issued on the patent application because an inventor’s inchoate rights after making an application for a patent, but before the patent is issued, do not entitle the inventor to injunctive relief against an infringer. The secured party and the foreclosure buyer had no greater rights.*

  • Macquarie Bank Ltd. v. Knickel, 793 F.3d 926 (8th Cir. 2015) – A secured party foreclosed on the debtor’s oil and gas leases in apparent satisfaction of the secured obligation. The secured party then used the debtor’s trade secrets that had also been pledged as collateral and was liable for misappropriation of those trade secrets. [check]

  • Brackfield & Associates Partnership v. Branch Banking & Trust Co., 2015 U.S. Dist. LEXIS 118653 (E.D. Tenn. 2015) – A secured party had a confidentiality agreement with a debtor. The secured party filed a UCC financing statement listing unredacted financial information subject to the confidentiality agreement that was not necessary to be included in the financing statement for purposes of perfecting the security interest. The secured party was subject to a breach of contract claim.*

  • Southern Audio Services, Inc. v. Carbon Audio, LLC, 2015 WL 6551820 (M.D. La. 2015) – A secured party accepted the trademark licensee’s rights in satisfaction of the secured obligation. The trademark licensor stated a claim against the secured party for violation of the license agreement by not paying royalties and by granting an unauthorized sublicense to another entity.

  • Ryan v. Editions West, _ F3d _ (9th Cir 2015) – The Copyright Act does not preempt the right to recover attorney’s fees under a contractual fees provision.

  • Adobe Systems, Inc. v. Christenson, _ F.3d _ (9th Cir. 2015) – A party raising a defense under the first-sale doctrine has the initial burden with respect to the defense. Once the party has met that burden, the copyright holder has the burden to show that it retained title to the software when the copies were first transferred.

  • Cyber Solutions International, LLC v. Priva Security Corp., _ F.3d _ (6th Cir. 2016) – A licensor of intellectual property agreed to assign future upgrades to a licensee. This meant that the licensor had a property interest in upgrades. When the licensor ultimately assigned the upgrades to the licensee, the licensee took the upgrades subject to the security interest of a secured party of the licensor.*

  • Santander Bank, N.A. v. Durham Commercial Capital Corp., _ F.Supp.3d _, 2016 WL 199408 (D.Mass. 2016) – A debtor had an agreement with an account debtor in which the debtor agreed to keep the account debtor’s information in the agreement confidential. The debtor granted a security interest in the accounts arising under the agreement to a secured party who then notified the account debtor to make payments on the accounts to the secured party. The notification indicated that the debtor had revealed the account debtor’s confidential information to the secured party. The account debtor contended that the notification for it to make payments to the secured party was ineffective because the confidentiality provision in the agreement between the debtor and the account debtor was breached. The court held that the notification was effective but that the account debtor may have a recoupment claim for any damages that the account debtor incurred by reason of the debtor’s breach of the confidentiality provision.

  • Lexmark International, Inc. v. Impression Products, Inc., _ F.3d _ (Fed. Cir. 2016) – A patentee, when selling a patented article subject to a single-use/no-resale restriction that is lawful and clearly communicated to the purchaser, does not by that sale give the buyer, or downstream buyers, the resale/reuse authority that has been expressly denied. A resale or reuse, when contrary to the known, lawful limits on the authority conferred at the time of the original sale, remains unauthorized and therefore remains infringing conduct under the terms of § 271. Although these restrictions arise out of contractual provisions, they are part of patent rights.*

  • Joy Group Oy v. Supreme Brands LLC, 2015 WL 8492041 (D. Minn. 2015) – The buyer of trademarks that filed an assignment in the Patent and Trademark Office was not entitled to a temporary restraining order prohibiting interference with its rights against a secured party that previously filed a financing statement against the seller’s general intangibles and subsequently filed an assignment in the PTO.

8. Tort

  • Rubenstein v. Smith, 2015 WL 5445994 (C.D. Cal. 2015) – A claim under Securities Exchange Act § 16(b) against an insider for short-swing profits is owned by the corporation. That claim is assignable and a corporation could grant a security interest in such a claim because its security agreement covered ‘choses in action’ and ‘commercial tort claims.’*

  • In re Modern Plastics Corp., 534 B.R. 723 (Bankr. W.D. Mich. 2015) – Although a security agreement purported to grant a security interest in ‘commercial tort claims,’ that covered claims by the debtor, not against the debtor and in any event the description was inadequate and the security interest could not extend to after-acquired commercial tort claims.

9. Government Debtors

  • Lili Collections, LLC v. Terrebonne Parish Consolidated Government, 175 So. 3d 434 (La. Ct. App. 2015) – UCC Article 9 does not apply to the extent that other state law expressly governs the creation, perfection, priority, or enforcement of a security interest created by the State or a governmental unit of the State. Provisions of the Louisiana Constitution and Revised Statutes restrict the ability of state agencies to borrow funds and pledge assets. Thus Article 9 does not apply to a contractor’s assignment of its right to payment from a state agency. Accordingly, Article 9’s anti-assignment rules did not render ineffective the clause in the contractor’s agreement with the agency prohibiting assignment.

  • Etzler v. Indiana Dept. of Revenue, 2015 WL 5093451 (Ind. Ct. App. 2015) – A secured party’s security interest in breeder’s award owed by the Indiana Horse Racing Commission was not excluded from Article 9 by Indiana’s non-uniform UCC § 9-104(d)(14), which refers to ‘the creation, perfection, priority, or enforcement of a security interest created by . . . a governmental unit of the state’ (emphasis added), because that provision deals with government debtors, not government account debtors. The Indiana Department of Revenue did not have priority over the secured party under UCC § 9-317(a) because it was not a lien creditor.

B. Security Agreement and Attachment of Security Interest

1. Security Agreement

  • Isuzu Motors America, LLC v. Jackson, 2015 U.S. Dist. LEXIS 115670 (D. Haw. 2015) – A shareholder did not have a security interest in assets of a corporation because none of the shareholder’s financing statement, the related promissory notes, nor any other document functioned as a security agreement granting a security interest in the assets.

  • Marhaba Partners LP v. Kindron Holdings, LLC, 457 S.W.3d 208 (Tex. Ct. App. 2015) – A document entitled ‘Assignment of Right to Reimbursement,’ stated that a developer ‘hereby grants to [its lender] a security interest in’ a specified receivable from the local utility district to secure a loan granted a security interest. The fact that another agreement between the parties provided that the developer ‘will prepare, execute, and forward all such additional documents and other instruments as may reasonably be required in order to have the [receivables] paid directly to’ the secured party did not undermine the creation of the security interest. The creation of a direct-pay mechanism for a receivable is not incompatible with creating a security interest in the receivable.*

  • Korea Trade Insurance Corp. v. Neema Clothing, Ltd., 2015 WL 363569 (S.D.N.Y. 2015) – Several signed notes and two unsigned security agreements were sufficient, when read together, to create a triable issue of fact as to whether they constituted an enforceable security agreement.*

  • In re Brannan, 532 B.R. 834 (Bankr. D. Kan. 2015) – A Weekly Payment Agreement and a Bill of Sale showed that the parties intended to enter into a sale agreement for two used trucks. The debtor signed and acknowledged on the reverse side of the title certificates that she was the buyer of the trucks and that they each were subject to the seller’s lien. She also signed an application for title indicating that the seller was a ‘1st Lienholder.’ Finally, the seller is identified on the Title and Registration Receipts as a lienholder. The sum of these documents, along with the seller’s credible testimony as to the custom and usages of its long standing financing program, were sufficient to demonstrate the existence of a security agreement.*

  • In re Brown, 2015 WL 2123819 (Bankr. N.D. Ga. 2015) – A debtor signed a letter granting her former romantic partner the right to drive her vehicle until the debtor paid a $3,000 debt (unless the former partner earlier allowed any female in the vehicle). The letter did not create a security interest because it provided only the right to drive the vehicle, not to repossess or sell the car in the event of a default.*

  • Royal Jewelers Inc. v. Light, 859 N.W.2d 921 (N.D. 2015) – The debtor must authenticate the security agreement. There is no requirement that the debtor separately authenticate or sign an exhibit that the security agreement references, even though that exhibit contains the description of the collateral.*

  • Hepp v. Ultra Green Energy Services, LLC, 2015 WL 1952685 (N.D. Ill. 2015) – The managing member of a LLC did not have actual authority to bind the LLC to a note and security agreement. The managing member also might not have had apparent authority, which requires conduct by the principal that causes a third party to believe that the agent is authorized.

  • In re Floyd, 540 B.R. 747 (Bankr. D. Id. 2015) – Individuals, the sole members of a limited liability company, granted a security interest in a vehicle owned by them personally when one of them signed a note and security agreement on behalf of the LLC. The member had the creditor’s interest noted on the certificate of title for the vehicle. The written and parol evidence demonstrated their intent to grant a security interest in their personal assets.*

  • United Bank v. Expressway Auto Parts, Ltd., 2015 WL 6697469 (Ohio Ct. App. 2015) – The individual who signed the security agreement on behalf of the debtor, a limited liability company of which he identified himself as a member, was neither a member nor a manager of the LLC, and thus lacked actual authority to bind the LLC. He had apparent authority and the LLC ratified his action by reporting the secured obligation as a liability on its federal income tax returns and making monthly payments for eight years.*

  • Old Battleground Properties, Inc. v. Central Carolina Surgical Eye Associates, P.A., 2015 WL 846697 (N.C. Super. Ct. 2015) – A security agreement described artwork as collateral. One portion of the art was expressly excluded from the collateral description in the secured party’s financing statement and the secured party sent a letter to another secured party denying that the first secured party had a security interest in that art. The remaining art was described in a security agreement purportedly executed by the debtor’s husband on the debtor’s behalf, but the debtor alleged that her husband was not authorized to sign on her behalf and that his signature was a forgery.

  • Martino v. American Airlines Credit Union, 2015 WL 4920015 (D. Mass. 2015) – A credit union violated the Truth in Lending Act by debiting a cardholder’s deposit account to cover indebtedness arising from a consumer credit transaction because the credit union did not satisfy the higher standards under 12 C.F.R. § 226.12(d)(2) and the Official Staff Commentary thereon for obtaining a consensual security interest in the deposit account. The language in the credit card agreement purporting to grant the credit union a security interest was not separately signed and did not reference a specific amount of deposited funds or a specific deposit account number. The placement of the relevant language of the agreement in a box with bolded text was insufficient to establish that the cardholder had affirmatively agreed to the security interest.

  • In re Hadley, 2015 WL 7455630 (Bankr. N.D. Ohio 2015) – The debtor’s lawyer, to whom the debtor had given possession of the certificates of title to two of the debtor’s vehicles, did not have a security interest in the vehicles because there was no authenticated security agreement. The lawyer had neither a common-law charging lien on the vehicles because such a lien encumbers only a judgment or other proceeds awarded to a client nor a common-law retaining lien because such a lien would conflict with the state’s Certificate of Motor Vehicle Title Law.

  • In re Cable’s Enterprises, LLC, 2015 WL 9412805 (M.D.N.C. 2015) – A secured party to whom the debtor had, at the time the loan was made, given possession of an excavator as security for the loan had a valid security interest despite the absence of an authenticated agreement.*

  • Citigroup Global Markets, Inc. v. KLCC Investments, LLC, 2015 WL 5853916 (S.D.N.Y. 2015) – Even if the debtor defrauded the secured party about the purpose of the loan, that did not render the security interest void, it only rendered the transaction voidable at the option of the secured party.

  • Commercial Law Corp. v. Federal Deposit Insurance Corporation, 777 F.3d 324 (6th Cir. 2015) – The security interest of a law firm was not effective against the FDIC.

2. Value and Obligation Secured

  • Citigroup Global Markets, Inc. v. KLCC Investments, LLC, 2015 WL 5853916 (S.D.N.Y. 2015) – The consideration necessary to support attachment of a security interest does not have to flow directly from the secured party to the debtor. The requirement that ‘value has been given’ is written in the passive. Accordingly, an LLC’s security interest could attach even though the funds for the loan came from the personal account of the LLC’s owner.*

  • In re DigitalBridge Holdings, Inc., 2015 WL 5766761 (Bankr. D. Utah 2015) – The funds loaned to the debtor came from an affiliate of the secured party. The security interest attached because the debtor authenticated a promissory note payable to the secured party and no other party claimed a right to collect the debt.

3. Rights in the Collateral

  • Wakefield Kennedy, LLC v. Baldwin, 2014 WL 910029 (D. Utah 2014), affirmed 2015 US App. LEXIS 9739 (10th Cir. 2015) – A debtor entered into a contract to sell a note and mortgage. The debtor placed the note into escrow as part of the sale. The debtor did not retain sufficient rights in the note to grant a security interest in the note superior to the rights of the buyer. Further, even if secured party had a security interest in the note, the buyer had possession and priority under UCC § 9- 330(d). Although contract had an effective choice-of-law provision choosing New York law, the court applied the law of the location of the note with respect to priority issues. UCC § 9- 301(2).*

  • Cantor v. FDIC (In re Downey Financial Corporation), _ F.3d _ (3d Cir. 2015) –A tax sharing agreement did not create an agency relationship because alleged principal did not ‘control’ the alleged agent. Thus property in the possession of the ‘agent’ was the agent’s property.

  • Edward Gillen Co. v. Insurance Co. of the State of Pennsylvania, 2015 WL 347954 (E.D. Wis. 2015) – The proceeds of a life or fire insurance policy belong to the owner of the policy. The proceeds of a liability policy, which protects the insured from suit, belong not to the policy owner but to the person harmed by the insured. Accordingly, a bank’s security interest in the debtor’s personal property did not attach to the proceeds of the debtor’s liability policy to the extent necessary to pay the judgment against the debtor giving rise to the insurance claim. However, the portion of the debtor’s settlement with its insurer that exceeded the amount owed to the judgment creditor (attributable to the fact that the insurer refused to provide a defense, forcing the debtor to incur additional costs and fees), does belong to the debtor and the bank’s security interest did attach to those funds.*

  • ACF 2006 Corp. v. William F. Conour Clerk’s Entry of Default Entered 11/18/2013, 2015 WL 417553 (S.D. Ind. 2015) – A secured party had a perfected security interest in a law firm’s accounts, which included the firm’s rights under contingent fee agreements with clients. The security interest did not encumber all the fees recovered upon resolution of the cases after the representation was switched to another firm, but only the quantum meruit portion of the fees to which the debtor was entitled.

  • Tokles v. Black Swamp Customs, LLC, 2015 WL 2329244 (Ohio Ct. App. 2015) – A debtor had sufficient rights in the restaurant equipment acquired by the debtor’s management consultant for the security interest of the debtor’s secured party to attach even though the consultant claimed to be the owner of the goods. The management agreement provided that expenditures made by the consultant on behalf of the debtor were to be made ‘in the name of and on account of, and upon the credit of’ the debtor.*

  • United States v. One 2006 Lamborghini Murcielago, 2015 WL 3752338 (C.D. Cal. 2015) – A floor plan financier had a security interest in an antique car dealer’s inventory. The security interest did not cover a Lamborghini that an individual purchased with 17 separate cash payments, using the car dealer’s name and information to avoid sales taxes. The car dealer did not pay for the vehicle, never attempted to sell the vehicle, never treated the vehicle as part of its business assets, and had no rights in the vehicle. Consequently the financier had no defense to the forfeiture of the vehicle due to the violation of 31 U.S.C. § 5324.

  • Allstate Ins. Co. v. Posnien, Inc., 352 P.3d 1 (Mont. 2015) – An insurance agent granted a security interest in its ‘book of business.’ The security interest covered more than the right to receive commissions and the option to receive a termination payment – both of which ended upon termination of the agency agreement. Nothing in the agency contract indicated that this broader right ended upon termination of the agency. Consequently, the secured party had a claim for conversion against the insurance company for exercising control over the book of business after the agent’s default.

  • In re Heien, 528 B.R. 901 (E.D. Mo. 2015) – A vehicle buyer contemporaneously signed a bailment agreement with the seller of the vehicle. The agreement provided that the purchase was conditioned on approval of the buyer’s financing and, until then, the vehicle remained the seller’s property. The buyer obtained delivery of the vehicle and UCC § 2-401 provides that retention of title by the seller of delivered goods is limited to a security interest. The vehicle was the buyer’s property and came into the buyer’s bankruptcy estate.*

  • In re 11 East 36th, LLC, 2015 Bankr. LEXIS 277 (Bankr. S.D.N.Y. 2015) – A debtor granted a security interest in its membership interest in a subsidiary LLC. A financing statement named the member as debtor but described the direct assets of the underlying LLC as the collateral, rather than the membership interest of the LLC. The financing statement was ineffective to perfect the security interest in the membership interest. Nor did the debtor have the power to grant a security interest in the assets of the subsidiary.

4. Restrictions on Transfer

  • SEC v. Helms, 2015 WL 1040443 (W.D. Tex. 2015) – An investor in Ponzi scheme partnership did not have knowledge of the fraud. An agreement attempting to grant a security interest was void because the partnership agreement did not permit that act and the grant of the security interest was a breach of the general partner’s fiduciary duty to the partnership and the limited partners. Even if the security interest had attached, its creation was an avoidable fraudulent transfer because it was made by the partnership with fraudulent intent and the investor’s attorney failed to conduct adequate due diligence, preventing the investor from qualifying as a good faith transferee.*

  • In re Parkview Adventist Medical Center, 2015 WL 4692538 (Bankr. D. Me. 2015) – The president of the debtor did not obtain advance approval from the debtor’s board of directors to grant a security interest in substantially all of its assets, which applicable state law required for a not-for-profit corporation. The security interest nevertheless attached because another state statute provides that no transfer of corporate personal property ‘shall be invalid by reason of the fact that the corporation was without capacity or power to . . . make . . . such a . . . transfer.’ Although 42 U.S.C. §§ 1395g(c) and 1396a(a)(32) prohibit direct payment of Medicare and Medicaid receivables to anyone but the provider, they do not prohibit the grant of a security interest in those receivables.*

  • Allstate Insurance Company v. Medical Lien Management, Inc., 348 P.3d 943 (Colo. 2015) – The victim of a motor vehicle accident did not validly assign to a medical debt company the victim’s right to recover from the tortfeasor’s insurer pursuant to a later settlement. Under the common law, contingent contract rights are assignable but future contract rights are not. Consequently, the medical debt company had no cause of action against the insurer for paying the victim after the company notified the insurer of the purported assignment. Although the victim’s agreement with the medical debt company also purported to assign the victim’s personal injury claim, the company did not base its claim on that portion of the agreement.

  • Clark v. Mo. Lottery Comm’n, 463 S.W.3d 843, 2015 Mo. App. LEXIS 676 (Mo. Ct. App. 2015) – Under Missouri law, proceeds of lottery prizes are assignable, despite a state lottery law that limits the assignment of lottery prizes. UCC § 9-406 generally states that regulations that prohibit or restrict the assignment of an account are ineffective to the extent that the regulation prohibits the assignment of the account. Because the definition of ‘account’ in UCC § 9-102(a)(2) specifically includes ‘winnings in a lottery or other games of chance operated or sponsored by a state,’ the state lottery law did not prohibit the assignment of proceeds of lottery prizes under UCC § 9-406.*

C. Description or Indication of Collateral and the Secured Debt — Security Agreements and Financing Statements

  • In re Hintze, 525 B.R. 780 (Bankr. N.D. Fla. 2015) – A promissory note that included language granting a security interest in ‘all of Maker’s assets’ was an insufficient description of the collateral. It could not be remedied through admission of parol evidence or by reading it in conjunction with an unsigned financing statement filed more than eighteen months later.*

  • In re Gracy, 522 B.R. 686 (Bankr. D. Kan. 2015), vacated sub nom., Morris v. Ark Valley Credit Union, 536 B.R. 887 (D. Kan. 2015), In re Gracy, 2015 WL 5552651 (Bankr. D. Kan. 2015) (on remand) — A mortgage that purported to encumber ‘fixtures’ on the real estate did not create a security interest in the debtor’s mobile home – even if the mobile home was a fixture – because under UCC § 9-108(e)(2) a description of collateral only by type is inadequate for consumer goods in a consumer transaction. The mortgage described the collateral not only as ‘fixtures,’ but as fixtures attached to specified real property. Thus, the description was not only by “type” of collateral and the security interest could attach to the mobile home if it was a “fixture”. The home was a fixture – and hence the security interest attached – because, even though the home retained is rail framework and could be removed from the ground without significant damage to either, the debtor placed the home on his land and inhabited it as his homestead for nearly 20 years. Further, the home added considerable value to the homestead property, and the debtor surrounded the home with brick skirting, built a porch and a back patio adjacent to it, and erected a large garage just by it. All this demonstrated that the debtor intended the home to be permanently affixed to the land.

  • 2513-2515 South Holt Road Holdings, LLC v. Holt Road, LLC, 40 N.E.3d 859 (Ind. Ct. App. 2015) – A mortgage and security agreement described the collateral to include all funds, claims, and general intangibles arising from any transaction related to the real property. It covered property tax refunds because the refunds are ‘funds’ and the payment of real estate taxes is a ‘transaction.’

  • In re Smith, 2015 WL 4594096 (Bankr. E.D.N.C. 2015) – A bank refinanced the debtor’s manufactured home loan and obtained a deed of trust that described the collateral as the property listed on a prior “deed”, not the property listed on a prior “deed of trust.” The secured party had a lien only on the debtor’s real property, not the debtor’s manufactured home, because the home was not a fixture. The manufactured home did not have a permanent foundation, had no block or curtain wall (only a faux stone curtain wall applied to wire mesh around its base), and was still registered with the state Division of Motor Vehicles as a motor vehicle.

  • Sirazi v. General Mediterranean Holding, SA, 2015 WL 1541087 (N.D. Ill. 2015) – A secured Party’s security interest in a debtor’s right to the proceeds of a sale of his membership interest in a limited liability company might have been unperfected because the collateral description in the filed financing statement referenced an exhibit that was apparently not attached. The security interest was nevertheless enforceable because . . . [update]

  • In re Sterling United, Inc., 2015 WL 7573240 (W.D.N.Y. 2015) – A financing statements describing the collateral as ‘[a]ll assets of the Debtor including, but not limited to, any and all equipment, fixtures, inventory, accounts, chattel paper, documents, instruments, investment property, general intangibles, letter of credit rights and deposit accounts . . . and located at or relating to the operation of the premises at 100 River Rock Drive, Suite 304, Buffalo, New York was effective despite the fact that the stated location of the collateral was incorrect. The language specifying the location modified the clause beginning ‘including, but not limited to,’ not the opening phrase ‘[a]ll assets of the Debtor.’ Even if the description was ambiguous, the purpose of filing is to provide inquiry notice and thus a searcher should investigate further.* [check to see if covered last year]

  • In re NMFC, LLC, 522 B.R. 820 (Bankr. D.S.C. 2015) – An entity purchased at an Article 9 disposition all of the debtor’s ‘general intangibles to include all Intellectual Property used . . . in the manufacture, sale or other commercialization of performance fibers (emphasis added). The buyers did not thereby acquire the debtor’s trade secrets relating to battery separator technology that was never manufactured, sold or otherwise commercialized by the debtor.*

  • PNC Bank v. Nature’s Pearl Corp., 2015 WL 1189599 (M.D.N.C. 2015) – A secured party with a perfected security interest in all the debtor’s inventory, equipment, and accounts was entitled, after default, to an order granting it immediate possession of the inventory and equipment. Although North Carolina civil procedure requires that the property be ‘particularly described,’ and that statute does not adopt the UCC’s rules for describing collateral, the term ‘inventory’ has a common accepted meaning, is not ambiguous, and satisfies the requirement.

D. Perfection

1. Automatic

  • In re SemCrude, L.P., 2015 WL 4594516 (D. Del. 2013) – A debtor’s oil suppliers had automatically perfected security interest in the oil under the law of the states where the suppliers were located. However, the default rule is that perfection is governed under the law of the jurisdiction where the debtor is located. That law did not provide for automatic perfection, the suppliers did not file a financing statement in the state where the debtor is located, and the suppliers were thus not perfected.*

  • In re University General Hospital System, Inc., 2015 WL 3879484 (Bankr. S.D. Tex. 2015) – A landlord had a consensual lien on a tenant’s personal property located at the leased premises. The security interest was not perfected because the lender had not filed a financing statement.

2. Certificates of Title

  • In re Hadley, 2015 WL 7455630 (Bankr. N.D. Ohio 2015) – A secured party’s possession of certificates of title to two of the debtor’s vehicles did not perfect a security interest in the vehicles. The secured party could perfect the security interest only by compliance with the state’s Certificate of Motor Vehicle Title Law by having the security interest noted on the certificates.

3. Control

  • Sign Builders, Inc. v. SVI Themed Construction Solutions, Inc., 30 N.E.3d 475, 86 U.C.C. Rep. 2d 219, 2015 Ill. App. LEXIS 214 (Ill. Ct. App. 2015) – A secured party with a security interest in a borrower’s ‘inventory, chattel paper, accounts, equipment and general intangibles’ failed to demonstrate that they had a perfected security interest in the borrower’s deposit account over which they did not have control.

  • In re Southeastern Stud and Components, Inc., 2015 WL 7750209 (Bankr. M.D. Ala. 2015) – A deposit account control agreement did not specify the accounts subjected to control. Discrepancies between the account numbers referenced in the control agreement and those actually maintained by the debtor at the bank did not undermine control. The debtor and the depositary bank were aware of the accounts to which the control agreement applied.

4. Possession

  • Cantor v. FDIC (In re Downey Financial Corporation), _ F.3d _ (3d Cir. 2015) – A tax sharing agreement did not create an agency relationship among its parties because the alleged principal did not ‘control’ alleged agent. Thus property in possession of ‘agent’ was agent’s property and the alleged agent did not “possess” the property for the alleged principle.

5. Authority to File Financing Statement

  • United States v. James, 2015 WL 7351394 (M.D. Fla. 2015) – The financing statements filed by a prison inmate against judges and prosecutors were fraudulent and thus would be declared null and void.

  • In re The Adoni Group, Inc., 530 B.R. 592, 2015 WL 2080521 (Bankr. S.D.N.Y. 2015) – A debtor can ratify an earlier, unauthorized filing of a financing statement.*

6. Financing Statements: Debtor and Secured Party Name; Other Contents

  • Korea Trade Insurance Corp. v. Neema Clothing, Ltd., 2015 WL 363569 (S.D.N.Y. 2015) – A financing statement need not describe the secured obligation.

7. Filing of Financing Statement — Manner and Location

8. Amendments, Termination and Lapse of Financing Statement

  • Official Committee of Unsecured Creditors of Motors Liquidation Company v. JPMorgan Chase Bank, N.A., 777 F.3d 100 (2nd Cir. 2015) – The court concluded that a mistakenly filed UCC termination statement was sufficiently authorized to be valid. ‘From these facts it is clear that although JPMorgan never intended to terminate the Main Term Loan UCC-1, it authorized the filing of a UCC-3 termination statement that had that effect.’ ‘Actual authority … is created by a principal’s manifestation to an agent that, as reasonably understood by the agent, expresses the principal’s assent that the agent take action on the principal’s behalf.’

  • Daniels v. Holman (In re Holman), 2015 Bankr. LEXIS 3039 (Bankr. D. Or. 2015) – An individual debtor made an unauthorized termination of a UCC financing statement filed against him. That act alone did not make the secured debt nondichargeable under Bankruptcy Code § 523(a)(2)(A)’s fraud exception to discharge.

  • In re Petersburg Regency LLC, 540 B.R. 508 (Bankr. D.N.J. 2015) – A secured party could re-perfect a security interest after a financing statement lapsed by filing a new financing statement.

E. Priority

1. Lien Creditors

  • Etzler v. Indiana Department of Revenue, 2015 Ind. App. LEXIS 608 (Ind. Ct. App. 2015) – A governmental creditor obtained a judgment lien against personal property owned by the debtor. Article 9 in that state has a nonuniform scope rule excluding government debtors from the scope of Article 9. The exception did not apply to a governmental creditor.

  • Inwood National Bank v. Wells Fargo Bank, 463 S.W.3d 228 (Tex. Ct. App. 2015) – The bank with a perfected security interest in the debtor’s investment account had priority over the rights of a garnishing judgment creditor even though the debtor, more than 45 days after the writ of garnishment was served, signed a new note extending the maturity date. The new note, which expressly stated that it was not a novation, was not an ‘advance’ within the meaning of UCC § 9-323(b) because no additional funds were loaned.*

  • ACF 2006 Corp. v. William F. Conour Clerk’s Entry of Default Entered 11/18/2013, 2015 WL 417553 (S.D. Ind. 2015) – A secured party’s perfected security interest in a law firm’s accounts had priority over a subsequent judgment lien and over the government’s subsequent restitution claim.

  • Iowa Department of Human Services v. Community Care, Inc., 861 N.W.2d 868 (Iowa 2015) – The expenses of a receiver appointed to manage a residential, long-term care facility may be charged against a secured party’s collateral only if the secured party consented to the appointment or to the extent the secured party benefits from the receiver’s services.

  • In re C.W. Mining Company, 531 B.R. 862 (D. Utah 2014) – Article 9 governed a transaction by which a mining company assigned its accounts to a coal broker. Whether the transaction was an outright sale or was security for a loan, the assignee failed to perfect its interest and the assignor’s bankruptcy trustee had priority.

2. Statutory Liens; Forfeiture

  • In re Craft Latimer, 2015 WL 5042108 (Bankr. N.D. Ga. 2015) – The IRS, which had filed a notice of federal tax lien before a secured party obtained and perfected a security interest in the taxpayer’s motor vehicle, had priority even though the certificate of title for the vehicle did not indicate the tax lien.

  • Minnesota Lawyers Mutual Insurance v. Conour, 2015 WL 2095344 (S.D. Ind. 2015) – A secured party had a perfected security interest in the debtor’s accounts and general intangibles, which included refunded insurance premiums. The security interest had priority over the lien created under 18 U.S.C. § 3613(c) by a judicial restitution order in favor of the United States because the security interest was perfected before the restitution order was issued or recorded.

  • SEC. v. Spongetech Delivery Systems, Inc., 98 F. Supp. 3d 530 (E.D.N.Y. 2015) – A secured party had a perfected security interest in the assets of a debtor. The SEC obtained a disgorgement judgment against the debtor. The secured party’s security interest had priority over the SEC’s unsecured claim. While the SEC’s distribution of the proceeds of a disgorgement action must be fair and reasonable – and thus can be affected by equitable factors – that standard does not apply to the relative priority of the SEC’s disgorgement claim and a secured party’s security interest.

  • PNC Bank v. Creative Cabinet Systems, Inc., 2015 WL 4171968 (Ohio Ct. App. 2015) – A secured party had a perfected security interest in the debtor’s assets. The secured party was not entitled to escrowed funds paid by the buyer of the debtor’s assets to the receiver for the debtor. The funds were contractually set aside for collected but unpaid sales taxes. Even though the receiver submitted evidence that the debtor owed use taxes, not sales taxes, the agreement with the buyer provided that any remaining escrowed funds were to be returned to the buyer if there were any unpaid and unwaived sales taxes. The evidence failed to establish that no sales taxes were owing. The debtor’s customers had been billed for and paid sales taxes and, even if such amounts were improperly collected, the debtor had a statutory duty to remit them to the state.

  • Consumers Produce Co., Inc. of Pittsburgh v. Fredericktown Produce Co., 2015 WL 728488 (W.D. Pa. 2015) – The statutory trust imposed by PACA encompasses the proceeds of a life insurance policy that a produce broker paid for with the proceeds from the sale of produce. Therefore, the bank that received a security interest in the policy had to disgorge to the PACA claimants the policy proceeds received upon the death of the insured.*

  • Brinager v. JAO Distributors, Inc., 2015 WL 4910970 (S.D. Ohio 2015) – A produce supplier’s PACA license lapsed but was then retroactively reinstated by the USDA. The supplier could assert a claim against the buyer’s secured party for violation of the PACA trust. The buyer believed that the supplier was a PACA licensee at the time of the purchases, the buyer did not discover the lapse in the supplier’s license until after its liquidation commenced, and the payments that the supplier sought to disgorge were made prior to the secured party becoming aware of the absence of a license. Factual issues remained as to whether the secured party qualified for the bona fide purchaser defense.

  • In re Bissett Produce, Inc., 2015 WL 868029 (E.D.N.C. 2015) – Growers that provided sweet potatoes to their own agent for storage, curing, packaging, and sale were not exempt from the PACA notice requirements. Because they did not comply with those requirements, they were not entitled to the benefits of a PACA trust against either the agent or its secured party.

  • Spada Properties, Inc. v. Unified Grocers, Inc., 2015 WL 4662930 (D. Or. 2015) – A produce supplier to a supermarket had no claim against the market’s secured party for violation of the PACA trust when the secured party withdrew payment from the market’s deposit accounts. Even though the supplier had provided the requisite PACA notices, its course of conduct with the market – in particular, their agreement that payments would be applied to the market’s oldest invoices first – meant that their agreements did not in fact require payment within 30 days. Hence, the supplier had waived its PACA rights.

  • Green River Marina, LLC v. Meredith, 2015 WL 1273887 (W.D. Ky. 2015) – A bank’s preferred ship mortgage on the debtor’s vessel had priority over a marina’s subsequent maritime lien for moorage fees.

  • Citizens Banking Co. v. Ott’s Body Shop, 2015 WL 1125045 (Ohio Ct. App. 2015) – The artisan lien of an auto body shop that restored vintage cars was subordinate to an earlier security interest in the car even though the security interest was perfected after the shop performed the services giving rise to its lien because state law expressly excluded such liens from the UCC.

  • C.R. Meyer and Sons Co. v. Custom Mechanical CSRA, LLC, 773 S.E.2d 361 (S.C. Ct. App. 2015) – Two secured parties’ perfected security interests in a subcontractor’s accounts were subordinate to the statutory lien of the workers who provided services on the project. It did not matter that the workers were employed by the subcontractor’s subsidiary, rather than by the subcontractor, because the statute makes no such distinction. Although the statutory lien applies to ‘money received,’ that did not prevent the workers from asserting a claim against the proceeds of an arbitration award. The award had been deposited in the trust account maintained by the subcontractor’s attorneys. The subcontractor owned the funds that the attorneys held on the subcontractor’s behalf.

  • Crest Infiniti II, LP v. Texas RV Outlet, 2015 WL 350621 (Tex. Ct. App. 2015) – A secured party repossessed the debtor’s car from a mechanic who had repaired the car and who had a possessory lien with priority over the security interest. The secured party was liable to the mechanic for conversion.

  • U.S. v. Amalgamated Bank, _ F.3d _ (2d Cir. 2015) – The court considered allowing payment of legal fees from a bank account that had been seized by federal prosecutors. The law firm could have been unaware that an account connected to its client’s conviction in a $21 million bank fraud was eligible for seizure.

3. Buyers and Other Transferees

  • In re SemCrude, L.P., 2015 WL 4594516 (D. Del. 2013) – Downstream buyers of oil and gas from the debtors were buyers for value who took free of the unperfected security interests of the debtors’ suppliers under UCC § 9-317(b) because the buyers gave value and lacked knowledge of the suppliers’ security interests. The buyers did not have the required knowledge, even though of allegedly knew of: (i) the state lien laws that created the security interests, (ii) the identities of some of the suppliers, and (iii) the fact that the suppliers were unpaid.

    The buyers were also buyers in ordinary course of business who took free of the supplier’s liens under UCC § 9-320(a) even though the volume sold was abnormally large during the time in question and the buyers purchased partially on credit and partially paid in kind through cross-product netting arrangements prevalent in the oil and gas markets.

  • Four County Bank v. Tidewater Equip. Co., 331 Ga. App. 753 (Ga. Ct. App. 2015) – A secured party provided financing for equipment and perfected its security interest by filing a financing statement. The equipment was subsequently sold. The secured party’s financing statement lapsed before the buyer resold the equipment. When a security interest becomes unperfected because of a lapse in filing, ‘it is deemed never to have been perfected against a purchaser of the collateral for value.’ UCC § 9-515(c). As a result, the buyers had superior rights in the assets compared to the secured party as its perfected interest had lapsed.

  • Los Angeles Federal Credit Union v. CarMax Auto Superstores California, LLC, 2015 WL 1524455 (Cal. Ct. App. 2015) – A used car dealer purchased a vehicle after a fraudulent sale by a towing company that cleared a perfected security interest from the vehicle’s certificate of title. The dealer qualified as a bona fide purchaser under the state’s ‘full title’ doctrine and as a good faith purchaser for value under UCC § 2-403 (which is an exception to UCC § 9-315(a)(1)). The dealer thereby acquired good title to the vehicle. As a result, the dealer did not breach the warranty of title when it resold the vehicle and was not liable to the secured party for unjust enrichment.

  • Mahdavi v. NextGear Capital, Inc., 2015 WL 1526538 (E.D. Va. 2015) – A buyer presented evidence that she was a buyer in ordinary course of business, including a signed Retail Purchase Agreement, evidence of a $23,000 down payment, and evidence of a credit union loan for the remainder of the purchase price. The secured party presented some evidence that she was not a BIOCOB, including that the test drive of the vehicle did not follow the standard procedure of most test drives, that the sale did not take place at the dealership, and that the buyer did not negotiate the terms of the sale. The court did not resolve the matter on summary judgment.

  • Credit Union Auto Buying Service, Inc. v. Burkshire Properties Group Corp., 776 S.E.2d 737 (N.C. Ct. App. 2015) – A secured party was located in New York and acquired its security interest in New York from a debtor located in New York. The secured party could be forced to litigate in North Carolina the priority claims of a buyer in North Carolina because the collateral had been delivered to the buyer in North Carolina and the state had quasi in rem jurisdiction over the controversy.

  • DZ Bank AG Deutsche Zentral Genossenschaftsbank v. Connect Ins. Agency, Inc., 2015 WL 3797162 (W.D. Wash. 2015) – A buyer of collateral was not an account debtor and thus, even if it had a claim against the debtor, the buyer could not use UCC § 9-404 to assert that claim against the secured party for conversion.*

  • BancorpSouth Bank v. 51 Concrete LLC, 2015 Tenn. App. LEXIS 30 (Tenn. Ct. App. 2014) – A borrower granted a security interest to a secured party on three pieces of equipment that the borrower subsequently sold to a buyer. The buyer did not perform a UCC search but instead relied on the borrower’s representation that no liens existed. The buyer later sold the equipment to third parties. At issue during the secured party’s conversion claim against the buyer was the appropriate level of potential damages. The court held that the appropriate level of damages for conversion of secured property is the fair market value of the secured property at the time of sale, not the value of the judgment entered in favor of the secured party against the borrower. Finally, the court held that the buyer’s failure to perform a UCC search in accordance with industry practice did not constitute sufficiently egregious conduct to merit punitive damages.*

  • MemoryTen, Inc. v. Silicon Mountain Holdings, 92 F. Supp. 3d 176 (S.D.N.Y. 2015) – A supplier entered into a subscription agreement with its customer, which gave the supplier an option to acquire a portion the customer’s distribution business under certain circumstances but which was expressly ‘[s]ubject to the rights of’ the customer’s secured parties. The supplier lost those rights when the customer’s secured party foreclosed and sold the business to a buyer.

  • Four County Bank v. Tidewater Equip. Co., 331 Ga. App. 753 (Ga. Ct. App. 2015) – A bank provided financing for equipment and perfected its security interest by filing a financing statement. The same equipment was subsequently sold to a buyer. The secured party’s UCC filing lapsed before the buyer resold the equipment. Under the Uniform Commercial Code, when a security interest becomes unperfected because of a lapse in filing, ‘it is deemed never to have been perfected against a purchaser of the collateral for value.’ As a result, the court found that although the debtor sold the collateral to the buyer during the effective period of the financing statement, the buyer (who was a ‘purchaser for value’ under state law) had a superior interest in the assets compared to the secured party as the secured party’s perfected interest had lapsed.*

4. Subordination and Subrogation

  • Selective Insurance Co. of America v. Environmental, Safety & Health, Inc., 2015 WL 914824 (E.D. Tenn. 2015) – An indemnity agreement between a contractor and the surety that issued bonds for construction projects provided that ‘all funds paid, due or to become due . . . under any contract in connection with which Surety shall have issued a Bond . . . shall be impressed with a trust in favor of and for the benefit of . . . Surety.’ The surety stated a cause of action against the contractor’s secured party for conversion based on the secured party’s receipt and retention of the proceeds of construction contracts.

  • EnviroFinance Group, LLC v. Environmental Barrier Co., LLC, 113 A.3d 775 (N.J. Super. Ct. 2015) – A secured party with a security interest in a developer’s ground lease and in the ownership interests in the developer lacked standing to challenge a contractor’s default judgment against the developer and its resulting construction liens on the ground lease because the secured party had declined to exercise its rights under the security agreement to essentially step into the developer’s shoes.

5. Set Off

  • In re Shafer Brothers Construction Inc., 525 B.R. 607 (Bankr. N.D.W. Va. 2015) – A secured party with an unperfected security interest in the debtor’s deposit accounts lost priority to the debtor’s lawyer, to whom the debtor had paid a retainer that the lawyer deposited into an account the lawyer controlled, to the extent that the debtor owed funds to the lawyer.

  • American Home Assurance Co. v. Weaver Aggregate Transport, Inc., 84 F. Supp. 3d 1314 (M.D. Fla. 2015) – A secured party had a perfected security interest a deposit account that the secured part maintained for the debtor. The secured party did not have setoff rights sufficient to defeat the rights of garnishing judgment creditor because the bank did declare the debtor in default before service of the writ of garnishment. Thus, while the bank had a prior perfected security interest in the deposit account and the debtor technically defaulted on the loan, because the bank did not declare the loan in default or follow procedures to enforce its rights, the bank did not have a present right to the funds or a basis on which to object to their release.*

  • Guaranty Bank & Trust Co. v. Agrex, Inc., 2015 WL 2453232 (N.D. Miss. 2015) – Even if the debtor’s commodity contracts were validly assigned, buyer of ten contracts – which had taken the crops from two grain terminals and qualified as a buyer in ordinary course of business – could not offset its damages for non-delivery under one contract against its obligation to pay the price under the other contracts. The debtor’s secured party had a perfected production-money security interest in the crops. The priority of the secured party’s security interest prevented the buyer from exercising its setoff rights under UCC § 9-404.

  • Evans v. Nielsen, 347 P.3d 32 (Utah Ct. App. 2015) – An arbitrator’s decided that a contract allowed the creditor to ‘setoff’ amounts due against the debtor’s ownership interest in a business venture, and that such right was not a ‘security interest’ subject to the enforcement rules of Article 9. The court held that the decision was not without foundation in reason or fact – even if incorrect – so as to justify refusing to enforce the decision based on irrationality or manifest disregard for the law.*

  • First American Bank v. Urbandale Laser Wash, LLC, 2015 WL 4642380 (Iowa Ct. App. 2015) – A creditor did not breach a forbearance agreement with the debtor by freezing and then setting off deposit account without prior notice because the debtor had not accepted the forbearance agreement and instead had proposed changes to it. Even if the delay in effecting setoff constituted a breach of contract, the debtor had no damages because the bank made the setoff retroactive to the date the freeze was imposed.

6. Competing Security Interests

  • Feresi v. The Livery, LLC, 182 Cal.Rptr.3d 169 (Cal. Ct. App. 2015) (as revised) – A perfected security interest of the manager of an LLC in the debtor’s membership interest in the LLC was equitably subordinated to the previously created but unperfected security interest of the debtor’s ex-wife, who was also a member of the LLC. The manager had breached his LLC fiduciary duty to the former wife by destroying the value of her security interest. The manager, knowing of the ex-wife’s security interest and that the debtor was in default on his obligations to his ex-wife, loaned money to the debtor, created a conflicting security interest, and then perfected it to gain an advantage over the former wife.

  • Bayer Cropscience LP v. Texana Rice Mill Ltd., 2015 WL 1474393 (E.D. Mo. 2015) – A secured party with a perfected security interest in the debtor’s commercial tort claim had priority in the debtor’s rights under an agreement settling that claim over another secured party with an earlier security interest in the debtor’s existing and after-acquired general intangibles. Even if the security interest in the general intangibles attached to the debtor’s rights under the settlement agreement, it was not perfected until the debtor entered into the settlement agreement, and thus the bank’s interest was perfected first. To the extent that the debtor’s right to payment under the settlement agreement was for damage to equipment – in which the secured party also had a security interest – the secured party did not have priority because it had already foreclosed its security interest and sold the equipment, thereby discharging its security interest.*

    On rehearing, 2015 WL 3843804 (E.D. Mo. 2015) – Priority is based on first to file or perfect, not first to perfect, but this did not alter the prior conclusion because the secured party foreclosed prior to execution of the settlement agreement and thus before its security interest attached to the debtor’s rights thereunder.*

  • HSBC Bank USA v. Perez, 165 So. 3d 696 (Fla. Ct. App. 2015) – The relative priority of two banks that each acquired an original promissory note representing the same mortgage loan was based not on the order in which they filed an assignment of the mortgage but pursuant to the first-to-file-or-perfect rule of Article 9. Accordingly, the bank that took possession of its note first had priority with respect to the mortgage.*

  • Citigroup Global Markets, Inc. v. KLCC Investments, LLC, 2015 WL 5853916 (S.D.N.Y. 2015) – The first security interest to attach to the debtor’s investment property was not perfected because there was no filed financing statement and the only control agreement had a different date than the control agreement referenced in the security agreement and it referred to a different loan. That secured party still had priority over another security interest that, if it attached at all, attached subsequently, because that second security interest was not perfected by a filed financing statement that described the collateral as consisting of a securities account that was empty.

  • First Financial Bank v. Bosgraaf, 2015 WL 4751190 (Mich. Ct. App. 2015) – A debtor did not have standing to object to a settlement between secured parties that resolves whose security interest has priority.*

  • In re Oak Rock Financial, LLC, 527 B.R. 105 (Bankr. E.D.N.Y. 2015) – The security interest of a secured party, as administrative agent, was perfected by the financing statement the secured party filed in its individual capacity in 2001 and later assigned to itself as administrative agent. The fact that the loan to the bank in its individual capacity was or might have been paid off is immaterial because the financing statement never lapsed and therefore was effective to perfect the later security interest, even if the subsequent security interest was not contemplated when the financing statement was filed. The fact that the secured party and the debtor expected that the security interest granted to the bank as administrative agent would be perfected by a financing statement filed in 2006 but which later lapsed is also immaterial because perfection is based on the public record, not the subjective intent of the parties. The assignment did not make the 2001 financing statement seriously misleading because a search conducted under the debtor’s name would have disclosed the financing statement. Finally, no new filing was needed in the location of a creditor that purchased a loan participation from the debtor, because that creditor was not the debtor.*

  • Cathama, LLC v. First Commonwealth Bank, 601 F. App’x 86 (3d Cir. 2015) – A secured party’s alleged oral promise to a debtor not to enforce its security interest in accounts receivable, which promise the debtor relayed to a factor, did not give the factor a cause of action against the bank for promissory estoppel or unjust enrichment. The factor did not confirm that the bank made the statement, never obtained a memorialized written agreement with the bank, and acquired a security interest in the shares of the debtor rather than in the debtor’s receivables.

  • Sovereign Bank v. Integrated Machinery, Inc., 2015 WL 4092871 (Ariz. Ct. App. 2015) – A junior secured party entered into a forbearance agreement with the debtor and the debtor’s lessee, which required the lessee either to return the leased equipment or make payment if the debtor defaulted. The secured party had a claim for breach against the lessee after it purchased the leased equipment at a foreclosure sale conducted by the senior secured party and the debtor defaulted. Although the sale terminated the junior secured party’s security interest and right to replevy the equipment, the lessee remained liable for its breach of the forbearance agreement by failing to pay the amount promised.

  • Continental Western Ins. Co. v. Black, 361 P.3d 841 (Wyo. 2015) – The insurer of refrigerated trailer that was damaged in an accident after the insured had transferred possession of the trailer to a buyer was responsible for the damage because the purchase agreement provided that the insured remained the owner until the buyer paid in full. The purchase agreement was not a conditional sales contract because there was no intent to pass immediate ownership and the buyer was not obligated for the purchase price because, even though the buyer also signed a promissory note, the agreement gave the buyer a right to return the goods and relieve himself of further liability.*

7. Purchase-Money Security Interests

  • In re Bibbs, 2015 WL 1843252 (Bankr. D. Kan. 2015) – The fact that a debtor refinanced the PMSI in her automobile less than 910 days before she filed her Chapter 13 bankruptcy petition did not alter the purchase-money nature of the security interest. However, the refinancing also did not alter the date when the PMSI was granted. Because that was more than 910 days before the petition, the hanging paragraph of Bankruptcy Code § 1325(a) did not apply.

  • Financial Federal Credit, Inc. v. Crane Consultants, LLC, 2014 WL 1883811 (W.D.N.Y. 2014), affirmed 604 F.3d Appx. 38 (2d Cir. 2015) – A seller’s retained PMSI in a crane had priority over the security interest of the buyer’s secured party under UCC § 9- 3214(a).

  • Guar. Bank & Trust Co. v. Agrex, Inc., 2015 U.S. Dist. LEXIS 67110, 86 U.C.C. Rep. Serv. 2d (Callaghan) 724 (N.D. Miss. 2015) – A properly perfected production-money security interest holder in the debtor’s crops prevailed over a competing creditor’s exercise of its contractual right to set off due to its ‘superpriority’ status. The ‘superpriority’ of the productionmoney security interest, though, is restricted to the production of crops.

8. Proceeds

  • Bayer Cropscience LP v. Texana Rice Mill Ltd, [cite] (WD Missouri 2015) – Priority was governed by order of perfection and a settlement of a tort claim not ‘proceeds’ of the tort claim.*

  • In re Purdy, 2015 WL 5176580 (Bankr. W.D. Ky. 2015) – A debtor used one bank account to conduct its dairy operations, commingling proceeds of owned cattle with proceeds of leased cattle. The debtor then used those commingled proceeds to acquire replacements for leased cattle culled from the herd. The lessor knew that the debtor was not complying with the terms of the lease obligating the debtor to notify the lessor of any sales and remit the proceeds to the lessor. The lessor paid for the cattle after they were delivered to the debtor. The debtor put the lessor’s brand on cattle regardless of whether the cattle were acquired with funds from the commingled account or from suppliers paid by the lessor. The lessor could not prove that the cattle were its property. In contrast, the bank’s security interest in the debtor’s existing and after-acquired cattle did attach to all the cattle because the debtor used the commingled funds – which were part of the secured party’s collateral – to acquire the cattle, even though the lessor reimbursed the debtor for those payments. Consequently, the secured party, not the lessor, was entitled to the proceeds of the cattle.

  • Schaumburg Bank & Trust Co. v. Alsterda, 2015 WL 1502927 (N.D. Ill. 2015) – A secured party with a perfected security interest in an LLC’s assets did not show that all the funds that the LLC’s bankruptcy trustee received from an insider in settlement of a fraudulent transfer claim were proceeds of the secured party’s collateral. Although the funds transferred to the insider were the secured party’s collateral, they were commingled with other funds credited to the insider’s deposit account. Thus the secured party’s collateral was limited to ‘identifiable’ proceeds, using the lowest-intermediate-balance rule.

  • In re Parkview Adventist Medical Center, 2015 WL 4692538 (Bankr. D. Me. 2015) – A secured party’s security interest in the proceeds of accounts did not become unperfected when the proceeds were deposited into a bank account over which the secured party did not have control. The secured party was not required separately to identify and differentiate among the proceeds of its receivables in order to preserve the perfection of its security interest.*

  • In Re: Tusa-Expo Holdings, Incorporated, _ F.3d _ (5th Cir. 2016) – Bankruptcy trustee has the burden of disproving tracing when bringing a preference claim even though the comments to UCC § 9-315 suggest that the burden is on the secured party.

F. Default and Foreclosure

1. Default

  • Lexel Imaging Systems, Inc. v. Video Display Corp., 2015 WL 403140 (E.D.Ky. 2015) – The scope of an arbitration clause in an agreement did not require arbitration to determine if a ‘default’ existed before the secured party was entitled to exercise selfhelp remedies.

  • Royal Jewelers Inc. v. Light, 859 N.W.2d 921 (N.D. 2015) – Although a debtor may designate, either in the security agreement or at the time of payment, to what obligation payments are to be applied, the evidence did not establish that the debtors in this case designated that their payments were to go first to their obligation secured by a wedding ring. As a result, that obligation was not satisfied and the secured party’s assignee was entitled to enforce the security interest in the ring.

  • Reile v. Live Stores, Inc., 2015 WL 6438352 (Cal. Ct. App. 2015) – A secured party that first accelerated the debt but later sought and obtained ex parte a judgment for the missed installments was barred by res judicata from seeking to collect the remainder of the debt or to foreclose the security interest.

  • Banner Bank v. Russell, 2015 WL 128044 (D. Or. 2015) – A bank with a security interest in crops, farm products, inventory, accounts, and equipment and that alleged that the debtors were in default and that the debt had been accelerated was entitled to a temporary restraining order preventing the debtors from disposing of any collateral outside the ordinary course of business, pending adjudication of the bank’s request for the appointment of a receiver.

2. Repossession of Collateral

  • Mahdavi v. NextGear Capital, Inc., 2015 WL 1526538 (E.D. Va. 2015) – Repossession agents did not breach the peace by going to the debtor’s home address at 1:00 am, hooking the debtor’s car up to the tow truck, thereby gaining dominion and control over the car, knocking on the front door of the residence and asking for the keys, and then leaving after the debtor refused to give the agents her keys. The agents did not use any force, violence, threats, or fraud to obtain control over the vehicle.

  • Daniel v. Morris, 2015 WL 7782828 (Fla. Ct. App. 2015) – An individual who co-owned and operated the debtor and who entered into a settlement agreement with the secured party pursuant to which the individual released her claims relating to an alleged breach of the peace during repossession could still pursue her claims against the repossession company and its agent. The company and its agent were not subsequent tortfeasors; they were jointly liable with the secured party for all the alleged injuries.

  • LNV Corp. v. Harrison Family Business, LLC, 2015 WL 5553701 (D. Md. 2015) – The secured party was entitled to have a receiver appointed to take control of the debtor – a real estate holding company – because the debtor had defaulted on the loans and had allowed affiliates to lease the property for no rent. A receiver would not be appointed to take control of the vessel in which the secured party had a preferred ship mortgage because, even though the mortgage purported to give the secured party the right to the appointment of a receiver after default, there was no evidence that the vessel was being mismanaged or operated differently from when the lien was created.

  • Nelson v. BMW Financial Services NA, LLC, 2015 WL 8328073 (D. Minn. 2015) – A repossession agent that repossessed the debtor’s car when the debtor was arguably not in default – because the secured party had accepted late payments and not provided notification that strict compliance with the payment schedule was required going forward – could be liable for violation of UCC § 9-609. However, because the agent is not a secured party, the agent could not be liable for statutory damages under UCC § 9-625(c).

  • Mahdavi v. NextGear Capital, Inc., 2015 U.S. Dist. LEXIS 44356 (E.D. Va. 2015) – A buyer of a car bought her car using the vehicle as collateral, then defaulted on her loan. As a result, a repossessor towed her car on behalf of the secured party. The repossessor did not breach the peace under the Virginia UCC when he or she took dominion and control over the debtor’s collateral without using force, violence, threats or fraud. Without a breach of the peace, the buyer could not claim that the repossession constituted trespass or conversion.

  • Nam v. Kim, 2015 IL App (1st) 141339-U, 2015 Ill. App. Unpub. LEXIS 374 (Ill. App. Ct. 1st Dist. 2015) – A car owner purchased a car using the proceeds of a loan she obtained from Acura Financial Services. Based on an agreement with the owner, a third party agreed to make the initial payments and monthly installments payments to Acura Financial Services but the car was to be financed in the name of the owner. The third party was in possession of and used the car. Subsequently, the third party breached the aforementioned agreement with the owner. The owner repossessed the car and was sued by the third party. The third party, who was never an owner of or lien holder in the car, was not allowed to rely on the provisions relating to failure to give notice before a repossession under the Illinois Vehicle Code as the same only addressed the rights of the owner and Acura Financial Services (i.e. the lien holder). The provisions of Article 9 of the Uniform Commercial Code relating to redemption were also not available to the third party because they also address only the owner’s right of redemption vis- a-vis the lien holder.

  • Beneficial Mutual Savings Bank v. Kwasnik, 2015 WL 6457843 (Pa. Super. Ct. 2015) – A secured party that obtained a consent judgment for the debtor to surrender 9,000 shares of bank stock in satisfaction of the secured obligation was entitled to submit evidence that the number of shares was a unilateral mistake for which relief was appropriate, and that the correct number was 132,383 shares.*

  • Wolfe Automotive Group, LLC v. Universal Underwriters Insurance Co., 2015 WL 8957856 (8th Cir. 2015) – An insurer that promised to defend and indemnify an automobile dealer against claims and liability arising from ‘wrongful repossession’ of a vehicle, was not obligated to defend or indemnify the dealer from claims that the dealer provided inadequate notification of a disposition of a repossessed vehicle and failed to provide a required accounting of the secured obligation. Although the repossession of a vehicle and its subsequent disposition are constituent parts of a single collection effort, the claims did not relate to the repossession and thus were not covered by the policy.

3. Notice of Foreclosure Sale

  • Ross v. Rothstein, 92 F. Supp. 3d 1041 (D. Kan. 2015) – The debtor was not entitled to notification of the sale of stock pledged as collateral because the debtor acknowledged his default and waived the right to notification in a superceding Pledge Agreement and even though the secured party agreed in the Forbearance Agreement not to take remedial action for a specified period of time, that did not eliminate the default by extending the time for payment.

  • Key Equipment Finance v. Southwest Contracting, Inc., 2015 WL 5159073 (D. Colo. 2015) – The debtor and the guarantors had waived the right to notification of a disposition of the collateral – a dredge – by signing an agreement, after default, that upon breach of a workout agreement, the total indebtedness then outstanding would be due and owing without ‘any other notice to [the debtor or the guarantors] whatsoever.’ Even if the secured party failed to comply with Article 9 by not providing notification of the sale, the debtor and guarantors presented no evidence that they could have paid the debt or produced a buyer who would have purchased the dredge at a higher price, and thus the presumption of no deficiency was rebutted. The debtor’s principal had looked for a buyer for approximately two years after he abandoned the dredge, but received had no offers.

  • In re Godfrey, 537 B.R. 271 (Bankr. N.D.W. Va. 2015) – Although both the parties’ security agreement and UCC § 9-611 required the secured party to send notification of a disposition of collateral to the debtor and the secondary obligor, the secured party complied with that duty by sending notification to the attorney for the debtor and secondary obligor, who was representing both of them with regard to the subject matter of the notification. However, the reasonableness of the notification remained in dispute because the secured party sent imprecise and varying communications regarding the proposed disposition and may have actually sold the collateral before the date specified in the notification.

  • Mossman v. Banatex, LLC, 2015 WL 2343538 (Tex. Ct. App. 2015) – The secured party that provided financing for vehicle car repairs and received from the mechanic an assignment of the receivable from the consumer and the supporting mechanic’s lien on the repaired vehicle was entitled to an order requiring the tax assessor collector’s office to file and serve the statutorily required notice of sale because the documents presented showed the secured party not as an assignee of the mechanic’s lien but as the mechanic’s attorney in fact and, in any event, nothing in the statute prohibits a mechanic’s lien from being assigned.

4. Commercial Reasonableness of Foreclosure Sale

  • Ross v. Rothstein, 92 F. Supp. 3d 1041 (D. Kan. 2015) – The secured party’s sale of stock on the over-the-counter QB tier market (‘OTCQB’) was conducted in a commercially reasonable manner because the stock was sold at standardized prices that were not the subject of individual negotiation, and thus the OTCQB is a ‘recognized market’ within the meaning of UCC § 9-627(b). Although a sale a few hours later would have generated several thousand dollars more, the secured party had at the time no benefit of hindsight and the fact that a greater amount could have been obtained by disposition at a different time is not sufficient to show that the disposition was unreasonable.

  • Harley Davidson Credit Corp. v. Galvin, 807 F.3d 407 (1st Cir. 2015) – Although the secured party’s sale of a repossessed aircraft through a dealer specializing in the sale of repossessed aircraft, if fairly conducted, is commercially reasonable, it is the secured party’s obligation to show that the sale was fairly conducted, which the secured party had not done when it moved for summary judgment, particularly given that the plane was vandalized while in the secured party’s possession, and sold without repair while the plane could not be flown.

  • Bank of America v. Dello Russo, 610 F. App’x 848 (11th Cir. 2015) – A secured party acted in a commercially reasonable manner when it relied on an investment broker hired by the debtor to market the collateral and find a buyer. The broker used a national marketing campaign to identify prospective purchasers for the assets. The secured party then negotiated with the only potential buyer expressing interest in an effort to increase the purchase price. There was no conflict of interest because one of the debtor’s executives was hired by the buyer following the acquisition nor was there any inference of collusion to sell the collateral for less than its value given that the secured obligation exceeded $17 million, the purchase price was $1.5 million, and the guaranty was capped at $5.95 million, so that the secured party was not able to collect the full amount owed.*

  • Key Equipment Finance v. Southwest Contracting, Inc., 2015 WL 5159073 (D. Colo. 2015) – The secured party’s sale of a dredge for $75,000 was commercially reasonable It engaged a company with experience in inspecting and evaluating commercial equipment, including dredges, to assess the condition of the dredge. That company hired a local individual who had knowledge and experience with dredges to assist in the process. After the company assessed the condition of the dredge and made a rough estimate of its value, the company tried to find a buyer both on the internet and by having its sales people directly contact possible buyers. These efforts continued for approximately one and a half years without success. Meanwhile, the dredge was again flooded when the Missouri River overflowed. Eventually, the secured party sold the dredge for a price significantly less than the originally estimated fair market value but in line with a revised estimate. The fact that the buyer was able to resell the dredge for $185,000 does not make the secured party’s sale commercially unreasonable.

  • Wells Fargo Bank, N.A. v. Bivona & Cohen, P.C., 2015 WL 5752595 (S.D.N.Y. 2015) – Although a guarantor had not waived a defense based on the secured party’s allegedly commercially unreasonable disposition of collateral, the secured party was nevertheless entitled to summary judgment on the issue because, with respect to accounts receivable, the commercially reasonable standard applies only when the secured party has taken possession or control so as to remove the debtor’s ability to collect, and in this case the secured party allowed the debtor’s agent – another guarantor – to collect and simply remit proceeds to the secured party. Although the secured party discharged the agent from her guaranty upon collection of $700,000, there was no evidence to suggest that her collection efforts were inconsistent with the debtor’s interests at any point.

  • In re Godfrey, 537 B.R. 271 (Bankr. N.D.W. Va. 2015) – Summary judgment could not be issued on the commercial reasonableness of the secured party’s private disposition of equipment because the secured party: (i) did not respond to other potential purchasers who had expressed interest; (ii) sold the equipment to an auctioneer, who two days later resold the equipment at a previously noticed public auction; and (iii) might not have provided the debtor an opportunity to arrange for friendly or competitive bidders and was not responsive to the debtor’s request for the details of the sale.

  • In re Karsten Gering, LLC, 2015 WL 7961937 (Bankr. D. Neb. 2015) – The managing member of the debtor raised a factual issue about whether the secured party conducted a disposition in a commercially reasonable manner by alleging that he offered to pay $5,000 more than the amount for which the secured party sold the collateral, but that the secured party rejected his offer.

  • Morgantown Excavators Inc. v. Huntington National Bank (In re Godfrey), 2015 Bankr. LEXIS 3164 (Bankr. N.D. W. Va. 2015) – In ruling in favor of the secured party’s request for summary judgment, the court determined the secured party did not violate Article 9 of the West Virginia Commercial Code when it did not provide the debtor with a notice of default or when it sent notice of disposition of the debtor’s collateral to the debtor only by care of the debtor’s attorney because the contract included a waiver of notice of default and providing notice of disposition to the debtor’s attorney, who was representing the debtor with regard to the targeted collateral, constituted sufficient notice to the debtor. However, a question of material fact did exist as to whether the secured party sold the debtor’s collateral with reasonable notice and in a commercially reasonable manner, as required by Article 9, because the secured party took questionable actions in selling the debtor’s collateral, including: (1) rendering inconsistent and incomplete communications to the debtor regarding the type of disposition of the collateral and the status of the collateral; (2) failing to communicate with other potential purchasers about the collateral; (3) potentially impeding on the debtor’s ability to secure friendly purchasers or competitive bidders; and (4) failing to provide the debtor with details about the bids the secured party received for the collateral.

  • GDI, LLC v. Cole Taylor Bank, N.A., 2015 IL App (1st) 132310-U, 2015 Ill. App. Unpub. LEXIS 1286 (Ill. App. Ct. 1st Dist. 2015) – Whether or not a disposition is commercially reasonable may be determined in light of the totality of the circumstances examining both the actions of the disposing party and the actions of the debtor. Thus, weighing the particular efforts the disposing party made to maximize the return on collateral and the obstructive actions taken by the debtor, such as removing inventory and depositing checks from outstanding receivables into a personal account, a sale under the alleged value of the collateral was commercially reasonable.

  • Valley Commer. Capital, LLC v. Radar Aviation, Inc., 2015 U.S. Dist. LEXIS 1403 (S.D.W. Va. 2015) [check state] – The borrower entered into a loan and granted a first-priority security interest in an airplane to the secured party. The borrower subsequently defaulted. The secured party sought a judgment against the borrower, which the borrower contested by claiming that the secured party first had an obligation to mitigate damages by selling the airplane. The court held that under UCC § 9-601, a secured party’s rights are cumulative. Therefore, the secured party was not obligated to sell the airplane before seeking a judgment, although the secured party may not obtain a double recovery. UCC § 9-608.

  • Eastman Credit Union v. Hodges, 2015 WL 557061 (Tenn. Ct. App. 2015) – A secured party was entitled to a judgment in its action against the debtor on the secured obligation even though the secured party had not repossessed or foreclosed upon the collateral.

  • Moutopoulis v. 2075 2081 Wallace Ave. Owners Corp., 10 N.Y.S.3d 823 (N.Y. City Civ. Ct. 2015) – A secured party disposing of shares in two cooperative apartments makes no warranty about the financial status of or liens against the cooperative – as distinguished from the shares of the apartments involved – and even if such a warranty would normally arise, it was properly disclaimed by language in the terms of sale providing that there was ‘no representation about either the title or any underlying mortgages on the premises or other obligations of the cooperative corporation.’ Accordingly, the high bidder who refused to consummate the purchase was not entitled to return of the deposits paid. [check out use of “warranty”]

  • Vulcan Capital Corp. v. Miller Energy Resources, Inc., 2015 WL 293839 (N.D. Tex. 2015) – The debtor stated sufficient facts to raise a defense of duress with respect to a pledge agreement by which the debtor provided replacement collateral for an outstanding indebtedness by alleging that the creditor threatened to have the debtor’s owner arrested and prosecuted if the debtor refused to sign the pledge agreement. The debtor failed to raise a defense based on fraud or breach of contract by claiming that the creditor promised not to go after the collateral and failed to provide promised financing because the pledge agreement contained a merger clause and thus evidence of any such promises was inadmissible.

  • Harden v. Autovest, LLC, 2015 WL 4583276 (W.D. Mich. 2015) – The claim of the secured party’s assignee against the debtor for a deficiency was barred by the UCC’s 4-year statute of limitations because the debtor had defaulted and the secured party had foreclosed five years before. The 6-year limitations period for a claim for an account stated, a claim on open account, and a claim for unjust enrichment did not apply because those claims do not apply when there is a written agreement between the creditor and the debtor, as there was in this case.

5. Effect of Failure to Give Notice, Conduct Commercially Reasonable Foreclosure Sale, or Otherwise Comply with Part 6 of Article 9

  • Venable v. Suntrust Bank, 2015 WL 7356300 (Ga. Ct. App. 2015) – A secured party’s claim for a deficiency following a sale of the collateral purchased under a conditional sales contract was governed by the four-year statute of limitations under Article 2, not the six-year period governing breaches of contract generally, and began running when the buyer defaulted. Although the contract granted a security interest in the vehicle, it was not intended to operate only as a secured transaction.

  • 3455, LLC v. ND Properties, Inc., 2015 WL 6951506 (11th Cir. 2015) – A commercial lease that provided that personal property of the tenant remaining on the premises after surrender is abandoned to the landlord was enforceable even though the lease also gave the landlord a security interest in the tenant’s equipment and fixtures. The landlord therefore did not have to comply with Article 9 with respect to personal property of the tenant that remained after surrender of the premises.

  • Lexel Imaging Systems, Inc. v. Video Display Corp., 2015 WL 403140 (E.D. Ky. 2015) – Even though the buyer and seller of all the stock in a corporate entity agreed to arbitrate disputes, the buyer was not entitled to a preliminary injunction ordering the seller to restore control of the entity to the buyer pending resolution of the arbitration because the seller retained a security interest in the stock and had an irrevocable power of attorney permitting it to exercise ‘any and all powers which may be exercised by the owners of said stock.’ [conform to arbitration]

  • Tafel v. Lion Antique Cars & Invs., Inc., 297 Ga. 334, 773 S.E.2d 743, 2015 Ga. LEXIS 443 (Ga. 2015) – Under the Georgia Commercial Code, if a creditor conducts a commercially unreasonable sale, a rebuttable presumption is created that the value of the collateral is equal to the indebtedness, potentially removing a creditor’s deficiency claim. The presumption may be rebutted by evidence showing the fair and reasonable value of the secured property and that the value of the collateral, as sold, was less than the debt. If the presumption is rebutted successfully, the creditor may retain its deficiency claim against the debtor for the difference.

  • Tafel v. Lion Antique Cars & Investments, Inc., 773 S.E.2d 743 (Ga. 2015) – Even if Article 9 applied to the parties’ transaction and continued to apply after the buyer turned over two automobiles to the seller pursuant to court order, and even if the seller acted in a commercially unreasonable manner in not promptly selling the cars as the court had directed, the seller would not be barred from pursuing the buyer for a deficiency. Instead, the rebuttable presumption rule applies. The trial court did not err in treating the amount for which the cars were insured as their value and crediting the buyer has having paid that amount toward the secured obligation.

  • In re Godfrey, 537 B.R. 271 (Bankr. N.D.W. Va. 2015) – The buyer of equipment at a private sale acted in good faith and therefore took title free of any claim or interest of the debtor even though the reasonableness of the disposition notification and the commercial reasonableness of the sale remained in dispute. The buyer had received the secured party’s representation that it had provided reasonable notification and the buyer has no duty to request and review the notification.

  • In re Estate of Nardoni, 2015 WL 1514908 (Ill. Ct. App. 2015) – A bank that, after default, received certificates in its own name for the pledged stock, placed the certificates in a vault, and for three years refused to either sell the stock or permit the debtor to sell the stock to pay off the secured obligation, acted in a commercially unreasonable manner. This discharged the guarantors from any further liability.*

  • Standard Bank & Trust Co. v. Hughes (In re Estate of Nardoni), 2015 IL App (1st) 131075-U (Ill. App. 2015) – A bank held collateral for over three years and refused to cooperate with the debtor’s estate in using the collateral to settle a loan. The court found that it was commercially unreasonable for the secured party to refuse to allow an insolvent debtor to liquidate the assets provided as collateral in order to pay off the debt.**

6. Successor Liability

  • Auto. Innovations, Inc. v. J.P. Morgan Chase Bank, N.A., 2015 N.J. Super. Unpub. LEXIS 204 (N.J. Super. Ct. App. Div. 2014) (20152) – Various creditors sought to enforce a judgment against a company that had previously granted a security interest to a third party. The company’s CEO purchased that secured obligation, foreclosed and sold the collateral at public auction to a purchaser-company owned by the CEO. The creditors sought to enforce the judgment against the purchasercompany and the CEO. Although the purchase of the collateral in satisfaction of the debt extinguished all subordinate interests, the judgment was not a subordinate interest because it was not yet executed or subject to an enforcement order. Therefore, the various parties were entitled to execute the judgment against the plaintiff’s assets based on successor liability.*

  • Tap Holdings, LLC v. Orix Finance Corp., _ NY_ _ (NY Sup. Ct. 2015) – Buyer from foreclosure sale buyer has ‘successor liability’ where ‘essentially’ the same entity.

  • Tap Holdings, Inc. v. Orix Finance Corp., _ NY _ (NY Sup. Ct. 2015) – Ultimate owner of collateral following foreclosure liable under successor liability following a transaction structured as retention of collateral followed by sale to affiliate of secured party.

  • Millbrook IV, LLC v. Production Services Associates, LLC, 2015 WL 1516531 (Ill. Ct. App. 2015) – The new entity formed to purchase the assets of the debtor at an Article 9 disposition was a mere continuation of the debtor because all four members of the board of managers were the same, the new entity voluntarily assumed the compensation and bonus agreements of the managers as well as specified debts to suppliers and vendors, and two of the three owners of the debtor owned a majority of the new entity. The court could ignore the fact that the effort of the previous majority owner of the debtor to abandon its interest might not have been effective under Delaware corporate law because that effort was de facto effective and the doctrine of successor liability is equitable in origin and nature.

  • Celestica, LLC v. Communications Acquisitions Corp., 2015 WL 5951451 (N.H. 2015) – The entity formed to buy the debtor’s assets at a foreclosure sale did not have successor liability under the de facto merger doctrine. Although the buyer did initially conduct the same business from the same location with the same management, that was to preserve the value of the assets as a going concern and in the ensuing months the management, location, and nature of the business changed. Although the owners of the buyer collectively had owned 40.5% of the debtor, the majority owner of the debtor had no stake in the buyer and the buyers put up substantial cash. Although the buyer did assume selected liabilities of the debtor, it assumed only those necessary to ensure continued operation of the business and did not assume substantial debts to insiders, including the two individuals who owned the buyer and who lost millions of dollars.

  • Becker v. Elm City Food Co op., Inc., 2015 WL 830285 (Conn. Super. Ct. 2015) – A director of a corporate debtor, who had been seeking access to corporate records before the debtor’s assets were sold in an Article 9 sale, was entitled to an order requiring the buyer, which now claimed to be the owner of the records, to make the records available for inspection.

G. Collection

  • In re Brican America LLC Equipment Lease Litigation, 2015 WL 235409 (S.D. Fla. 2015) – A buyer of equipment leases was not a holder in due course – and therefore took subject to the fraud defenses of the lessees – because: (i) the originator intended to defraud the lessees; (ii) the buyer knew that the originator (a) was marketing the lease transactions as ‘risk free,’ and (b) promised to buy back the leases if the advertiser stopped making the payments that were supposed to offset the rent due; and (iii) as the buyer learned more about the originator’s promises, it responded not with caution but by increasing its financing tenfold.

  • Nisbet, Inc. v. Wells Fargo Bank, 2015 WL 1408839 (W.D. Tex. 2015) – The bank with a security interest in a cabinet manufacturer’s accounts was an ‘assignee’ of those accounts so that an account debtor could raise defenses and claims in recoupment against the bank, even though the account debtor could not obtain any affirmative recovery against the bank.

  • Garrison Special Opportunities Fund LP v. Fidelity National Card Services, Inc., 15 N.Y.S.3d 7 (N.Y. Sup. Ct. 2015) – The credit card processor whose contract with the debtor entitled the processor to setoff from the proceeds of processed charges the card processing fees, servicing fees, and subservicing fees was entitled to exercise setoff before remitting the balance to the debtor’s secured party.

  • Swift Energy Operating, L.L.C. v. Plemco South, Inc., 157 So. 3d 1154 (La. Ct. App. 2015) – The factor that bought some accounts from the debtor and which obtained a security interest in the accounts that the debtor had not sold was an ‘assignee’ of such unsold accounts within the meaning of UCC § 9-406. Although the account debtor paid the debtor after receiving an e-mail message from the factor instructing the account debtor to pay the factor, the account debtor had no liability to the factor because the employee of the account debtor who received the message (along with contrary information from the debtor) informed the factor (and the debtor) that she was not the individual responsible for making payment decisions and informed the factor to whom it should send the assignment information. Consequently, the factor had not provided proper notification to the account debtor prior to the time the account debtor paid the debtor.

  • Forest Capital LLC v. BlackRock, Inc., 2015 WL 874611 (D. Md. 2015) – Putative secured party had no cause of action against account debtor for making payments totaling $1,050,000 directly to the debtor because: (i) the factoring agreement between the debtor and the secured party expressly excluded ‘prepayments to third parties for energy purchases,’ which is what the payments at issue were for; (ii) those payments were made pursuant to a contract which the debtor could not assign without third-party consent but the secured party never alleged that such consent was provided so it is unclear whether the secured party could have acquired a right to payment under it; and (iii) the secured party never notified the account debtor of its security interest; although the debtor provided such a notification, that communication was vague and did not ‘reasonably identify the rights assigned.’

  • Wheeling & Lake Erie Railway Co. v. Maine Northern Railway Co., 2015 WL 5440787 (D. Me. 2015) – An account debtor could exercise against the secured party with a security interest in the debtor’s accounts setoff rights that accrued after the account debtor obtained the debtor’s credit reports, which indicated the security interest, because those credit reports were not authenticated by the debtor or the secured party and thus were not operative under UCC § 9-404(a) to cut off later accruing setoff rights.

  • Vinings Bank v. Brasfield & Gorrie, LLC, 774 S.E.2d 701 (Ga. 2015) – The bank with a security interest in the accounts of a subcontractor that had gone out of business, and which had brought a collection action against the general contractor, was entitled to summary judgment on the contractor’s counterclaim for conversion based on the bank’s debit of the subcontractor’s deposit account because, even if some of the deposited funds were held in constructive trust for the subcontractor’s suppliers, whom the general contractor had voluntarily paid, the general contractor had no assignment of the suppliers’ rights and no standing to raise their claim.

  • Durham Commercial Capital Corp. v. Ocwen Loan Servicing, LLC, 2015 WL 4164780 (S.D. Fla. 2015) – The claim of a factor against an account debtor for wrongfully paying the debtor after receiving instructions to pay the factor would not be dismissed merely because the debtor was now in bankruptcy and the bankruptcy trustee might commence an adversary proceeding to avoid the factoring agreement.

  • Unum Life Insurance of America v. Witt, 83 F. Supp. 3d 687 (W.D. Va. 2015) – The bank that received an assignment of a life insurance policy as security for a loan, not the listed beneficiaries, was entitled to the proceeds of the policy even though the bank did not provide a copy of the assignment to the insurer prior to the insured’s death, as required by the policy. That requirement is solely for the benefit of the insurer and, because the insurer did not insist on compliance, the beneficiaries could not complain about it.

  • Wells Fargo Bank v. Jackson Jenkins Renstrom LLP, 2015 WL 1138419 (Cal. Ct. App. 2015) – The secured party with a perfected security interest in a law firm’s accounts was entitled to damages for breach of contract against a successor firm that took over some of the debtor’s cases and refused to remit the portion of the fee attributable to the work performed by the debtor. The secured party was a third-party beneficiary of the agreement between the debtor and the successor firm. It did not matter that the debtor breached the agreement with the successor by failing to provide tail insurance for professional liability because the agreement did not make the provision of such insurance a condition to the successor firm’s duty to remit proceeds. The successor firm was also liable for conversion because the successor’s unauthorized retention of fees due to the debtor constituted an impairment of the secured party’s security interest.*

  • Ameris Bank v. Lexington Insurance Co., 2015 WL 5680377 (S.D. Ga. 2015) – An insurer that insured collateralized equipment was liable for paying the insured debtor for damage to the equipment, rather than the secured party as the insurance contract required, even though an unnamed representative of the secured party informed the adjuster that the debtor’s payments were current and that there were no liens on the property. A single undocumented phone conversation with an unknown employee falls short of establishing that the insurer neither knew nor should have known that the secured party was due to receive the proceeds under the terms of the policy, and thus does not establish a basis for equitable estoppel.

H. Retention of collateral

  • March v. Linn, 865 N.W.2d 885 (Wis. Ct. App. 2015) – The seller of a restaurant, which retained a security interest in the assets sold, was entitled after the buyer’s default to an order granting the seller possession of the collateral but because the buyer’s agreement in the security agreement to a strict foreclosure was ineffective, the seller had to dispose of the collateral in a commercially reasonable manner.

  • John Hancock Insurance Co. (U.S.A.) v. Goss, 2015 WL 5569150 (N.D. Cal. 2015), 2015 WL 9303987 (N.D. Cal. 2015) – Although a premium financing agreement purported to give a life insurance financier the right, after default, to require the policy owner to make a full assignment of the policy, and after default the owner signed an assignment purporting to transfer the title to the policy to the financier, the financier did not have the right to retain the portion of the policy proceeds that exceeded the amount the financier had advanced because the assignment did not indicate that it was in satisfaction of the secured obligation and hence there was no ‘agreement’ after default, as required by UCC § 9-620. A letter sent by the financier to the owner after the assignment indicating that the assignment ‘constitute[d] a complete satisfaction and discharge of the loan’ also did not satisfy UCC § 9-620 because it was after the fact and thus could not be a ‘proposal’ to accept the collateral.

  • Pacific Life Insurance Co. v. Gordillo, 2015 WL 5569432 (N.C. Cal. 2015), 2015 WL 9303986 (N.D. Cal. 2015) – Although a premium financing agreement purported to give a life insurance financier the right, after default, to require the policy owner to make a full assignment of the policy, and after default the owner signed an assignment purporting to transfer the title to the policy to the financier, the financier did not have the right to retain the portion of the policy proceeds that exceeded the amount the financier had advanced because the assignment did not indicate that it was in satisfaction of the secured obligation and hence there was no ‘agreement’ after default, as required by UCC § 9-620.

    A letter sent by the financier to the owner after the assignment indicating that the assignment ‘constitute[d] a complete satisfaction and discharge of the loan’ also did not satisfy UCC § 9-620 because it was after the fact and thus could not be a ‘proposal’ to accept the collateral.

II. Real Property Secured Transactions | Table of Contents