V. Secured Party and Borrower Liability
A. Regulatory and Tort Claims – Good Faith, Fiduciary Duties, Interference
With Prospective Economic Advantage, Libel, Invasion of Privacy
- Arias v. Elite Mortgage Group, 439 N.J. Super. 273 (N.J. App. Div.
2015) – Secured party does not breach duty of good faith by
terminating loan forbearance agreement when borrower defaults.
- BancorpSouth Bank v. 51 Concrete LLC, 2015 Tenn. App. LEXIS 30
(Tenn. Ct. App. 2014) – A borrower granted a security interest to
the 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.
The secured party prevailed on a conversion claim. 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.
- In re TPOP, LLC, 2015 Bankr. LEXIS 306 (Bankr. D. Del. 2015) –
Creditor does not have to forgive debt when debtor breaches
- In re Lehman Brothers Holdings, Inc., 541 B.R. 551 (S.D.N.Y. 2015) –
A secured party that made loans due on demand and whose
agreements with the debtor gave the secured party the right to
demand additional collateral at any time cannot be liable for
demanding additional collateral, even if the amount rendered the
secured party overcollateralized, because the obligation of good
faith and fair dealing does not impose duties inconsistent with the
express terms of the parties’ contractual relationship.
- In re Cable’s Enterprises, LLC, 2015 WL 9412805 (M.D.N.C. 2015) – A
secured party that used and negligently damaged the debtor’s
excavator, was liable for the damages caused thereby.
- Brackfield & Associates Partnership v. Branch Banking and Trust Co.,
2015 WL 5177737 (E.D. Tenn. 2015) – A secured party could not be
liable under the Right to Financial Privacy Act for filing a
financing statement containing a complete list of the debtor’s
assets and liabilities because the information was not provided to
a government authority.
- Brooklands, Inc. v. Sweeney, 2015 WL 1930239 (S.D. Fla. 2015) – A
prospective debtor that paid a $10,000 breakup fee and signed a
release of liability when it cut off negotiations with a prospective
secured party, but then sued when the prospective secured party
failed to terminate its financing statements, could bring no claim
under RICO or for fraudulent inducement or unjust enrichment
because such claims related to conduct that predated the release
and were therefore covered by it. However, the prospective
debtor could bring claims for tortious interference with an
advantageous business relationship and for slander of title based
on the failure to terminate the financing statement.
- Gregoria v. Total Asset Recovery, Inc., 2015 WL 115501 (E.D. Pa.
2015) – A repossession agent could be liable under RICO – but not
under the Fair Debt Collection Practices Act – for repossessing a
car after default because the 150% interest rate on the secured
obligation was usurious under Pennsylvania law. Even though
the security agreement provided that it was governed by
Delaware law – which has no prohibition on usury – Pennsylvania
law governed because the car was brought into the state, the
litigation occurred there, and Pennsylvania’s restrictions on usury
are fundamental policy of the state.
- Sirazi v. General Mediterranean Holding, SA, 2015 WL 6770537 (N.D.
Ill. 2015) – A buyer that conspired to acquire the debtor’s equity
interest in an entity in violation of a settlement agreement of
which the buyer was aware and under which the debtor had
granted a security interest in those rights and promised not to sell
them without notification to the secured party was liable for
intentional interference with contract and civil conspiracy. The
jury’s finding of a civil conspiracy supported its imposition of
modest punitive damages.
- Consolidated Electrical Contractors & Engineers, Inc. v. Center
Stage/Country Crossing Project, LLC, 175 So. 3d 642 (Ala. Ct. App.
2015) – The subcontractor that obtained a preliminary injunction
prohibiting the owner from selling generators that the
subcontractor had installed, based on an incorrect claim that it
retained a security interest in the generators, could be liable for
damages up to the amount of the $15,000 bond it posted.
However, because the subcontractor acted in good faith, it was not
liable for additional damages.
- In re TPOP LLC, _ B.R. _ (Bankr. D. Del. 2015) – An obligor’s
breach of an extension agreement meant that the creditor did not
have to forgive the debt.
- Arias v. Elite Mortgage Group, N.J. Super. _ (App. Div. 2015) -
Secured party does not breach duty of good faith when
terminating loan forbearance agreement when borrower defaults.
- City of Westland Police and Fire Ret. System v. Metlife, Inc., _ F.Supp.
3d _, 2015 WL 5311196 (S.D.N.Y. Sept. 11, 2015) - Court extended
the analysis in Omnicare, Inc. v. Laborers District Council
Construction Industry Pension Fund, 135 S.Ct. 1318 (Mar. 24, 2015)
from liability under Section 11 of the Securities Act of 1933 to
liability under Rule 10b-5. In both cases, in determining liability
for a statement of opinion in a disclosure document, the courts
emphasized the particular facts and circumstances and the
relevant context for ascertaining the reasonable expectations of the
reader regarding the work expected to be done as the basis for the
- ACE Securities Cotp. v. DB Structured Products, _ NY _ _ (2015) – for
statute of limitations purposes, representations and warranties
breached and statute of limitations begins running at closing.
Breach of related repurchase obligation does not start.
- Montgomery v. GCFS, Inc., _ Cal.App.4th _ (2015) – A licensed
finance lender under California law may make assignments to
non-licensed persons, as well as to institutional investors or
licensed finance lenders (as expressly provided in the finance
- Federal Trade Commission v. Commerce Planet, Inc., _ F.3d _ (9th Cir.
2019) – A corporation violated § 5 of the FTC Act and “unjustly”
received $18.3 million and thus owed restitution of that amount
under the Act (citation to the Restatement as to the general nature
of restitution). The president was determined to be jointly and
severally liable with the corporation under the Act. He had
“unjustly” received a mere $3 million and wanted his liability
limited to that amount under the “normal” rules of restitution.
Because of his joint and several liability with the corporation he
was liable for the full amount of restitution owed by the
corporation, even though it exceeded the amount that he had
B. Obligations Under Corporate and Securities Laws
- Yates v. United States, 135 S.Ct. 1074 (2015) – Knowingly disposing
of undersized fish in order to prevent government from taking
lawful custody and control of them did not violate Sarbanes–
Oxley Act (SOX) by destroying or concealing a ‘tangible object’
with the intent to impede, obstruct, or influence government’s
investigation into harvesting undersized grouper because
‘tangible object,’ within meaning of SOX, covers objects that one
can use to record or preserve information, and disposal of
undersized fish did not involve a tangible object for purposes of
- Veleron Holding, B.V. v. Morgan Stanley, 2015 WL 4503580 (S.D.N.Y.
2015) – The investment bank that entered into an Agency Disposal
Agreement with a secured party that authorized the investment
bank to sell the publicly traded stock collateral in the event of
default could be liable for insider trading – but not for market
manipulation – for selling the stock short after learning of a
default and the likelihood that the secured party would instruct it
to sell the collateral, thereby causing the stock price to fall.
Genuine issues of fact remained as to whether the information was
non-public and confidential.
- Medical Weight Control Specialists v. Commissioner, _ TC _ (2015) –
Revival of corporation that had not paid state franchise taxes does
not suspend statute of limitations that ran during suspension
- Northstar Financial Advisors v. Schwab Investments, _ F3d _ (9th Cir
2015) – Investment management firm had standing to sue
managers of a mutual fund for breach of duties owed to fund
shareholders who were the firm’s clients. Plaintiff – who alleged
that the managers failed to adhere to the fund’s fundamental
investment objectives of seeking to track a particular index and
not over-concentrating its investments in any one industry – stated
a claim for breach of contract. Shareholders’ adoption of the
investment objectives added a structural restriction on the power
conferred on the trustees that could only be changed by a vote of
the shareholders, and was subsequently reflected in the fund’s
registration statements and prospectuses, thus creating a contract
between the trustees and the investors. Plaintiff stated a claim that
the defendants breached their fiduciary duties by failing to ensure
the fund was managed in accordance with the fundamental
investment objectives and by changing the fundamental
investment objectives without obtaining required shareholder
authorization. Trustees owed a fiduciary duty to the shareholders,
rather than the fund, and so plaintiff was not required to proceed
by way of a derivative action.
- Quadrant Structured Products Company v. Bevin, _Del.Ch. _ (2015) –
A creditor may bring creditor derivative claim if the entity was
insolvent at time the claim was brought, even if the company later
- Speirs v. BlueFire Ethanol Fuels, Inc., _ Cal.App.4th _ (2016)
(unpublished) – A corporation’s officers do not have a fiduciary
duty to warrant holders because the warrants holders have only a
contractual claim and are not yet shareholders. Lender’s
commitment to make loan in partial exchange for warrants had
value. Holders of warrants could not seek both damages and
- Aviation West Charters LLC v. Freer, C.A. No. N14C-09-271 Wcc
Ccld (Del. Super. Ct. July 2, 2015) – Corporate officer could be
personally liable for corporate act where there is sufficient
personal participation in corporate fraud. Standard integration
clause in agreement did not operate as a non-reliance provision for
pre-contractual misrepresentations because it did not “explicitly”
C. Borrower Liability
- BBC Restaurant LLC v. BDC Ltd. LLC, 2015 WL 2329064 (Mich. Ct.
App. 2015) – Although the sole member of the debtor, which
operated a restaurant, instructed the restaurant manager to
remove equipment, the member was not liable in conversion to the
secured party with a security interest in equipment because the
member did not exercise dominion over the equipment and there
was insufficient evidence that the member instructed the manager
to remove the collateral.
- CNH Capital America LLC v. Hunt Tractor, Inc., 2015 WL 5554020
(W.D. Ky. 2015) – A minority shareholder that allegedly controlled
the debtor’s decision to use proceeds of inventory to pay down a
bank loan that the shareholder had guaranteed was not entitled to
summary judgment on the inventory lender’s conversion claim
because even though the proceeds had been deposited into the
bank, which had a security interest in deposits, the bank would
not have had priority in the deposited funds or the right to engage
in setoff unless the loan to the bank was in default, and that issue
was the subject of a factual dispute.
- M & M Financial Services, Inc. v. Hayes, 174 So. 3d 1172 (La. Ct.
App. 2015) – The secured party with a security interest in an
uninsured vehicle had no claim against the motorist who
damaged the vehicle or the motorist’s insurer because the secured
party’s claim is derivative of the debtor’s and, under the state’s
‘No Pay, No Play’ law, the owner of an uninsured vehicle has no
claim for the first $25,000 in property damage.
- Euro Motorcars Germantown, Inc. v. Manheim Remarketing, Inc., 2015
WL 1057887 (E.D. Pa. 2015) – A used car dealership stated a cause
of action for unjust enrichment against the auction house whose
employees systematically understated losses and overstated gains
in reporting vehicle auction sales to the dealership’s secured
creditor in connection with floor-plan audits, causing the
dealership to pay commissions that were never actually earned.
D. Disputes Among Creditors and Intercreditor Issues
VI. U.C.C. – Sales and Personal Property Leasing | Table of Contents