2017 UNIFORM COMMERCIAL CODE UPDATE - · PDF file2017 UNIFORM COMMERCIAL CODE UPDATE -...

2017 UNIFORM COMMERCIAL CODE UPDATE - EVERYTHING YOU NEED TO

KNOW ABOUT THE PAST YEAR

First Run Broadcast: January 12, 2017

1:00 p.m. ET/12:00 p.m. CT/11:00 a.m. MT/10:00 a.m. PT (60 minutes)

The overlapping articles of the UCC impact most business, commercial and real estate

transactions. From the perfection of security interests to the enforceability of promissory notes

and investment contracts to equipment leases and the sale of goods, the UCC plays a role in most

significant transactions. This program, led by one of the nation’s leading authorities on the UCC,

will provide you with a wide-ranging discussion of developments under the many articles of the

UCC, including secured transactions, investment notes, sales, and equipment leasing.

Reviewing of significant Uniform Commercial Code developments

Impact on business, commercial, and real estate transactions

UCC Article 9, asset-based transactions and secured transactions

Sales of goods contracts

Equipment leases

Investment contracts, notes, guarantees and letters of credit

Speaker:

Steven O. Weise is a partner in the Los Angeles office Proskauer Rose, LLP, where his practice

encompasses all areas of commercial law. He has extensive experience in financings, particularly

those secured by personal property. He also handles matters involving real property anti-

deficiency laws, workouts, guarantees, sales of goods, letters of credit, commercial paper and

checks, and investment securities. Mr. Weise formerly served as chair of the ABA Business Law

Section. He has also served as a member of the Permanent Editorial Board of the UCC and as an

Advisor to the UCC Code Article 9 Drafting Committee. Mr. Weise received his B.A. from Yale

University and his J.D. from the University of California, Berkeley, Boalt Hall School of Law.

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2017 Uniform Commercial Code Update: Everything You Need to Know About the Past Year

Teleseminar January 12, 2017

1:00PM – 2:00PM 1.0 MCLE GENERAL CREDITS

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CERTIFICATE OF ATTENDANCE

Please note: This form is for your records in the event you are audited Sponsor: Vermont Bar Association Date: January 12, 2017 Seminar Title: 2017 Uniform Commercial Code Update: Everything You Need to Know About

the Past Year Location: Teleseminar - LIVE Credits: 1.0 MCLE General Credit Program Minutes: 60 General Luncheon addresses, business meetings, receptions are not to be included in the computation of credit. This form denotes full attendance. If you arrive late or leave prior to the program ending time, it is your responsibility to adjust CLE hours accordingly.

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2015-2016 COMMERCIAL LAW DEVELOPMENTS

Steven O. Weise PROSKAUER ROSE LLP

Los Angeles, California

Teresa Wilton Harmon SIDLEY AUSTIN LLP

Chicago, Illinois

John F. Hilson UCLA SCHOOL OF LAW

Los Angeles, California

Stephen S. Sepinuck GONZAGA UNIVERSITY SCHOOL OF LAW

Gonzaga, Washington

Edwin E. Smith MORGAN, LEWIS & BOCKIUS LLP

New York, New York and Boston, Massachusetts

Lynn A. Soukup PILLSBURY WINTHROP SHAW PITTMAN LLP

Washington, DC June 2016

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TABLE OF CONTENTS

Page

I. PERSONAL PROPERTY SECURED TRANSACTIONS ........................................... 1

A. Scope of Article 9 and Existence of a Secured Transaction .......................................................................................... 1

1. General ....................................................................................... 1

2. Insurance ................................................................................... 1

3. Consignments ........................................................................... 1

4. Real Property ............................................................................ 2

5. Leasing ....................................................................................... 3

6. Sales ............................................................................................ 5

7. Intellectual Property and Licenses ........................................ 5

8. Tort ............................................................................................. 8

9. Government Debtors ............................................................... 9

B. Security Agreement and Attachment of Security Interest .................................................................................................. 9

1. Security Agreement ................................................................. 9

2. Value and Obligation Secured ............................................. 13

3. Rights in the Collateral .......................................................... 13

4. Restrictions on Transfer ........................................................ 15

C. Description or Indication of Collateral and the Secured Debt — Security Agreements and Financing Statements ....................................................................... 17

D. Perfection ........................................................................................... 19

1. Automatic ................................................................................ 19

2. Certificates of Title ................................................................. 20

3. Control, .................................................................................... 20

4. Possession ................................................................................ 21

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5. Authority to File Financing Statement ................................ 21

6. Financing Statements: Debtor and Secured Party Name; Other Contents ................................................ 21

7. Filing of Financing Statement — Manner and Location ........................................................................... 21

8. Amendments, Termination and Lapse of Financing Statement .............................................................. 21

E. Priority ............................................................................................... 22

1. Lien Creditors ......................................................................... 22

2. Statutory Liens; Forfeiture .................................................... 24

3. Buyers and Other Transferees .............................................. 27

4. Subordination and Subrogation ........................................... 30

5. Set Off ....................................................................................... 30

6. Competing Security Interests ............................................... 32

7. Purchase-Money Security Interests ..................................... 34

8. Proceeds ................................................................................... 35

F. Default and Foreclosure .................................................................. 38

1. Default ..................................................................................... 38

2. Repossession of Collateral .................................................... 39

3. Notice of Foreclosure Sale ..................................................... 40

4. Commercial Reasonableness of Foreclosure Sale ............................................................................................ 42

5. Effect of Failure to Give Notice, Conduct Commercially Reasonable Foreclosure Sale, or Otherwise Comply with Part 6 of Article 9 .................................................................................... 48

6. Successor Liability .................................................................. 50

G. Collection ........................................................................................... 52

H. Retention of collateral ...................................................................... 55

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II. REAL PROPERTY SECURED TRANSACTIONS .................................................. 57

III. GUARANTIES .................................................................................................. 59

IV. FRAUDULENT TRANSFERS ............................................................................. 60

V. CREDITOR AND BORROWER LIABILITY .......................................................... 64

A. Regulatory and Tort Claims – Good Faith, Fiduciary Duties, Interference With Prospective Economic Advantage, Libel, Invasion of Privacy ........................ 64

B. Obligations Under Corporate and Securities Laws .................... 68

C. Borrower Liability ............................................................................ 71

D. Disputes Among Creditors and Intercreditor Issues .................................................................................................. 72

VI. U.C.C. – SALES AND PERSONAL PROPERTY LEASING .................................. 73

A. Scope ................................................................................................... 73

1. General ..................................................................................... 73

2. Software and Other Intangibles ........................................... 73

B. Contract Formation and Modification; Statute of Frauds; ‘Battle of the Forms’; Contract Interpretation; Title Issues .............................................................. 73

1. General ..................................................................................... 73

2. Battle of the Forms ................................................................. 73

C. Warranties and Products Liability ................................................. 73

1. Warranties ............................................................................... 73

2. Limitation of Liability ............................................................ 75

3. ‘Economic Loss’ Doctrine ...................................................... 75

D. Performance, Breach and Damages ............................................... 75

E. Personal Property Leasing .............................................................. 75

VII. COMMERCIAL PAPER AND ELECTRONIC FUNDS TRANSFERS ....................... 77

A. Negotiable Instruments and Holder in Due Course ................................................................................................ 77

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B. Electronic Funds Transfer ............................................................... 81

VIII. LETTERS OF CREDIT, INVESTMENT SECURITIES, AND

DOCUMENTS OF TITLE ................................................................................... 82

A. Letters of Credit ................................................................................ 82

B. Investment Securities ....................................................................... 82

IX. CONTRACTS ................................................................................................... 84

A. Formation, Scope and Modification .............................................. 84

B. Interpretation and Meaning of Agreement .................................. 88

C. Adhesion Contracts, Unconscionable Agreements, Good Faith and Other Public Policy Limits, Interference with Contract ................................................. 89

D. Risk Allocation .................................................................................. 91

E. Personal Jurisdiction ........................................................................ 95

F. Choice of Law and Forum ............................................................... 97

G. Damages and Remedies ................................................................ 100

H. Arbitration ....................................................................................... 102

X. OTHER LAWS AFFECTING COMMERCIAL TRANSACTIONS ......................... 106

A. Bankruptcy ...................................................................................... 106

1. Bankruptcy Estate ................................................................ 106

2. Automatic Stay ..................................................................... 106

3. Substantive Consolidation .................................................. 106

4. Secured Parties, Set Off, Leases ......................................... 106

5. Avoidance Actions ............................................................... 107

6. Executory Contract .............................................................. 107

7. Claims .................................................................................... 107

8. Plan ......................................................................................... 108

9. Other ...................................................................................... 108

B. Consumer Law ................................................................................ 109

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C. Professional Liability ..................................................................... 110

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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

Continental Western Ins. Co. v. Black, 361 P.3d 841 (Wyo. 2015) – The insurer of a 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

* We remember our good friend Jeff Turner.

I. Personal Property Secured Transactions

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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.*

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


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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.

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


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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


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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.*

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.*

6. Sales

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.*

7. Intellectual Property and Licenses

Ryder v. Lightstorm Entertainment, Inc., _ Cal.App.4th _ (2016) - A person claiming misuse of a submitted idea under IP law must show “substantial similarity” of the submitted idea allegedly incorporated into the ultimate product to prevail under theories of breach of implied contract and breach of fiduciary duty.


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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.

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


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paying royalties and by granting an unauthorized sublicense to another entity.

Ryan v. Editions West, _ F.3d _ (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


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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.


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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


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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.*

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.*


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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.


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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.


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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


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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.*


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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 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


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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


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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


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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.

In re Sterling United, Inc., 2015 WL 7573240 (W.D.N.Y. 2015) – A financing statement 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,


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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.*

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


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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.


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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.’


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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

Stierwalt v. Associated Third Party Administrators, _ F.Supp.3d _ ( 2016) - A security interest in “contract rights” applies to payments for goods and the security interest continues in proceeds deposited to a deposit account. The security interest was traceable because only a “negligible” amount of funds in the deposit account came from other sources. However, the court misapplied UCC § 9-332(b), which protects certain “transferees” of funds from a deposit account. In Orix a few years ago the court held that a turnover of funds from the deposit account to a garnishing lien creditor was a “transfer” for purposes of UCC § 9-332(b) and the lien creditor (who met all the other requirements) took free of a perfected security interest in the deposit account. In this decision, the court applies and extends Orix and holds that the levy by the garnishing lien creditor (without a transfer of funds to the lien creditor) effects the “transfer” and the lien creditor takes free of the secured party’s perfected security interest in the deposit account. The secured party had timely asserted its security interest in the deposit account and there had not yet been a turnover of funds to the lien creditor. This leaves a secured party almost defenseless and makes a perfected security interest in a deposit account (even if the secured party had control) almost worthless. Under the court’s theory the debtor’s commencement of a bankruptcy and the creation of the


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bankruptcy estate could equally be a “transfer” that defeats the rights of the perfected secured party. Alternatively (and equally bad), Bankruptcy Code § 544(a)(1) could mean that because the hypothetical lien creditor would beat the secured party, the trustee wins.

In Re Digitalbridge Holdings, Inc., 2015 Wl 5766761 (Bankr. D. Utah 2015) - A secured party did not injure unsecured creditors in breach of an alleged fiduciary duty by obtaining a security interest in exchange for making a loan. Further the lender could agree by contract on the scope of its obligations to the borrower.

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


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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.


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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.


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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.


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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.


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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.*


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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 secured party provided financing for equipment and perfected its security interest by filing a financing statement. The debtor later sold the equipment 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


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buyer (who was a ‘purchaser for value’) 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

In Re Digitalbridge Holdings, Inc., 2015 Wl 5766761 (Bankr. D. Utah 2015) - A secured party did not injure unsecured creditors in breach of an alleged fiduciary duty by obtaining a security interest in exchange for making a loan. Further the lender could agree by contract on the scope of its obligations to the borrower. Thus subordination was not justified.

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


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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 not 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 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.*


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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.

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


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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


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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.

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


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creditor’s exercise of its contractual right to set off due to its ‘superpriority’ status. The ‘superpriority’ of the production-money security interest, though, is restricted to the production of crops.

8. Proceeds

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.*

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


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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 _, 2016 WL 360795 (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. A bankruptcy trustee claimed that the


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payments to a junior secured party were not made from the junior secured party’s collateral accounts. The court concluded that it needed to determine whether the proceeds of the accounts receivable remained junior secured party’s collateral after being transferred (1) into the senior secured party’s lockbox, (2) out of the lockbox when swept by the senior secured party, and (3) into the debtor’s operating account. As to the first issue, the trustee argued that the deposits into the lockbox constituted transfers of “money,” and therefore the transferee – which the trustee argued was the senior secured party – took free of the junior secured party’s security interest under UCC § 9-332(a). The court concluded that the funds credited to the lockbox, although administered by the senior secured party, were property of the debtor. As a result, the senior secured party was not at this stage the transferee and hence UCC § 9-332(a) did not apply. While the conclusion was correct the underlying premise – that the deposits involved “money“ – was wrong. “Money” is defined in the UCC as a medium of exchange authorized or adopted by a domestic or foreign government (UCC § 1-201(b)(24)) so there was almost certainly no money transferred to the lockbox or held in the lockbox. As to the transfers out of the lockbox – the sweeps by the senior secured party – the trustee argued that UCC § 9-332(b) applied. That subsection provides that “a transferee of funds from a deposit account takes free of a security interest in the deposit account,” subject to an exception for collusion that is not material to this case. The court rejected this argument based on § 9-332(b)’s “plain language” referring only to “a security interest in [the] deposit account” as opposed to a security interest in the deposited “funds.” In other words, the court concluded that the protection afforded by UCC § 9-332(b) is limited and does not strip a security interest in deposited funds as opposed to the deposit account itself. The court made two errors: (i) the purported distinction between the deposit account and the deposited funds, as assets, is incorrect (a deposit account is not a bailment or a trust and never


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“contains” any “funds;” a deposit account is the depositor’s unsecured right to be repaid by the bank; and as a result, there is not and cannot be a security interest in the funds as distinct from the depositor’s right to be repaid some or all of the balance of deposit account) and (ii) UCC § 9-332(b) applies regardless of whether the security interest in question originated with receivables traced into the account or with the deposit account as original collateral. UCC § 9-332(b) did apply, so when the senior secured party swept the lockbox, it took free of the junior secured party’s security interest.

In re Energy Future Holdings Corp. (Bankr. D.Del. April 12, 2016) – Chapter 11 plan distributions are not covered by intercreditor agreement as “proceeds” of a specific fund.

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 self-help 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.


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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


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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).

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


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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


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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.

Nam v. Kim, 2015 IL App (1st) 141339-U, 2015 Ill. App. Unpub. LEXIS 374 (Ill. App. Ct. 1st Dist. 2015) – A third party, who made payments but 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. That code addressed only the rights of the owner and the lien holder. The provisions of Article 9 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.

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.*

Chase v. Wells Fargo Bank, 2016 WL 143496 (N.Y. App. Div. 2016) -- Under New York’s non-uniform Article 9 provisions for security interests in an interest in a stock cooperative, the rights


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to a co-operative apartment consist of the shares of stock allocated to the apartment and the proprietary lease to that apartment, are treated as personal property, not real property. Thus a security interest in them is governed by Article 9 of the New York Uniform Commercial Code (not by real property law). After a debtor defaulted, the secured party sent notification that it intended to dispose of her shares and proprietary lease by private sale. The court rejected the debtor’s claim that a nonjudicial sale of co-op would not be commercially reasonable. The court’s stated “A disposition of collateral is made in a commercially reasonable manner if the disposition is made . . . at the price current in any recognized market.’” UCC § 9-627(b)(2).

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,


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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


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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


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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)– 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


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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.

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


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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.’

Tafel v. Lion Antique Cars & Investments, Inc., 773 S.E.2d 743 (Ga. 2015) – 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


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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. Even if the seller/secured party 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 foreclosure 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 had 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 either to sell the stock or to 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. The secured party brought a claim against a guarantor for the amount owing on the loan. The court concluded that the secured party’s acts had ended the guarantor’s liability, looking to comment 3 of UCC § 9-610 for the proposition that “[i]f a secured party . . . holds collateral for a long period of time without disposing of it, and if there is no good reason for not making a prompt disposition,


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the secured party may be determined not to have acted in a ‘commercially reasonable’ manner.” Even if the secured party’s prolonged inaction was commercially unreasonable, this should not necessarily have negated liability on the guaranty. Instead, the guarantor (as a secondary obligor and debtor) should have been required to prove the amount of damages caused by the lender’s conduct. See UCC § 9-625(b), (c)(1) (imposing liability for losses caused to obligors and debtors, among others, by a person’s failure to comply with Article 9). Article 9’s rebuttable presumption against recovery would be inapplicable here because the lender’s suit does seek recovery for a deficiency. See § 9-626(a) (governing the burden of proof as to “liability . . . for a deficiency”).*

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 purchaser-company 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, 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. Ultimate owner/buyer from foreclosure sale buyer had ‘successor liability‘ where ‘essentially’ the same entity.


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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


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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


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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


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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.*


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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


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§ 9-620 because it was after the fact and thus could not be a ‘proposal’ to accept the collateral.

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II. REAL PROPERTY SECURED TRANSACTIONS

Rivera v. Bank Of America N. A., 607 Fed.Appx. 358 (5th Cir. 2015) - Under applicable real property mortgage law, the statute of limitations for foreclosure begins running on the actual acceleration of the secured debt under an optional acceleration clause. Where the mortgagee accelerated and then accepted payments, the statute of limitations started over again on a new acceleration following the acceptance of payments.

Brown v. Deutsche Bank National Trust Company, _ Cal.App.4th _ (2016) - Without deciding that a borrower may bring an action to stop a pending foreclosure on the basis that the foreclosing party can not bring the foreclosure because it never obtained a valid assignment of the note, there was sufficient evidence to conclude that the assignment had occurred.

Sciarratta v. U.S. Bank National Association, _ Cal.App.4th _ (2016) - When a purported holder of a note secured by a mortgage has received the note pursuant to a “void” transfer, the act of foreclosure alone, even if the secured debt exceeds the value of the home, causes sufficient “prejudice” to permit a claim to be stated.

Lehman Bros Holdings, Inc. v. PMC Bancorp, 2015 U.S. App. Lexis 8060) (9th Cir. 2015) (unpublished) – California anti-deficiency full credit bid rule does not apply when person making the bid is not an agent of the secured party.

DM Residential Fund II, LLC v. First Tennessee Bank National Association, _ Cal.App.4th _ (2015) – A two-year delay in bringing a suit to rescind a real estate purchase deprived the buyer of the equitable remedy of rescission under California law. The buyer took actions during that period that were inconsistent with unwinding the contract, including encumbering the property, building improvements, and attempting to sell it.

II. Real Property Secured Transactions

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Coker v. JPMorgan Chase Bank, N.A., _ Cal.4th _ (2016) – Code of Civil Procedure § 580b’s antideficiency protection applies when a defaulting borrower arranges a short sale. The borrower cannot waive that protection when agreeing to short sale.

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III. GUARANTIES

JPMorgan Chase Bank v. Winget, 2015 WL 728060 (6th Cir. 2015) – A guaranty would not be reformed in absence of a mistake of fact or scrivener’s error.

136 Field Point Holding Company v. Invar International Holdings, _ F.Supp.2d _ (S.D.N.Y. 2015) – Guarantor waivers sufficient to make claim under guaranty enforceable, even if guarantied obligation itself is not enforceable (as a penalty).

In re Adamson Apparel (Stahl v. Simon), _ F.3d _ (9th Cir. 2015) – Guarantor’s bona fide waiver of indemnification means it’s not a ‘creditor’ and not exposed to preference. The bankruptcy issue involved in the case hinged on whether a guarantor ‘deferred’ or instead ‘waived’ his reimbursement claim against the borrower in the circumstance where the guarantor had paid the guaranteed debt. The security agreement said that the guarantor had ‘defer[red]’ his claim, while the guaranty itself said that he ‘irrevocably waive[d]’ his reimbursement claim. The court, citing the usual NY authorities that the court must review the contract ‘as a whole’, stated: ‘Here, the district court properly concluded that the discrepancy discussed above creates an ambiguity as to whether [the guarantor’s] … right to indemnification was fully waived. One set of documents says that the right is simply deferred until [the lender] … has been fully paid, while the other set of documents says that the waiver is unconditional. Because these two positions are inconsistent, we find no error in the district court’s remand of the case to the bankruptcy court to resolve the ambiguity.’

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IV. FRAUDULENT TRANSFERS AND VOIDABLE TRANSACTIONS

Korea Trade Ins. Corp. v. Neema Clothing, Ltd., 2015 U.S. Dist. LEXIS 9975 (S.D.N.Y. 2015) – A seller of goods filed a lawsuit alleging that a buyer did not make payment to the seller for the goods purchased by the buyer. The buyer’s CEO and majority shareholder then transferred nearly $2 million from the buyer’s corporate accounts to his personal accounts. The seller subsequently brought an action for fraudulent conveyance. At issue in this case was whether the CEO’s transfer was made without fair consideration, an element of a fraudulent conveyance claim. The court rejected summary judgment relief because the CEO claimed that the transfers were made as repayment of a secured loan, explaining that a transfer to an insider is not inherently a fraudulent transfer if that insider is a secured party.

Trustco Bank v. Mathews, 2015 Del. CH. LEXIS 18 (Del. Ch. 2015) – Applying common law choice-of-law concepts, the court held that the place of harm caused by a fraudulent transfer determines the law applicable to a fraudulent transfer.*

Kentucky Petroleum Operating Ltd. v. Golden, 2015 WL 927358 (E.D. Ky. 2015) – The recipient of an arbitration award was entitled to avoid the mortgage and security interest granted by the arbitration defendants to related parties after the arbitrator closed the hearing but before the arbitration award. The timing of the grant of the security interest was a classic badge of fraud and the debtors submitted no evidence of good faith. Moreover, the corporate veil among the debtors and the secured party would be pierced because all were under common ownership and control, none observed corporate formalities, and continued recognition of their supposedly separate corporate forms would sanction injustice.

Sourcing Management, Inc. v. Simclar, Inc., 2015 WL 4587974 (N.D. Tex. 2015) – A judgment creditor stated a cause of action that the transfer of all of the debtor’s assets, allegedly valued at $44 million, at a collusive private disposition under Article 9 with

IV. Fraudulent Transfers and Voidable Transactions

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respect to a $9 million secured obligation, was both an actually fraudulent and constructively fraudulent transfer. Because the complaint alleged that the property disposed of was worth substantially more than the secured obligation, it was not excluded from the definition of ‘assets’ under the UFTA. The creditor also stated a claim against the buyer for successor liability as a mere continuation of the debtor by alleging that the buyer entered into a collusive agreement to avoid the debtor’s debts, that the buyer informed the debtor’s customers that it was merely operating under a ‘new legal name,’ that the buyer retained many of the same employees, continued operations in the same location, and used the same telephone numbers, and that the debtor’s shareholders became members of the buyer.

Villaverde v. IP Acquisition VIII, LLC, 39 N.E.3d 144 (Ill. Ct. App. 2015) – A secured party’s foreclosure sale, at which it acquired the debtor’s only asset – intellectual property – through a credit bid could not be an avoidable fraudulent transfer because the intellectual property was fully encumbered, and thus not an ‘asset’ under the Uniform Fraudulent Transfer Act. The secured party did not acquire successor liability under the theory that the foreclosure sale was an improper attempt to escape liability for the debtor’s obligations because the only evidence of the collateral’s current value was that it was worth substantially less than the secured obligation. The secured party was not a mere continuation of the debtor because there was no continuity of ownership, although the owner of the debtor did become an employee of the secured party.

Klein v. King & King & Jones, _ F.3d _ (10th Cir. 2014) – Law firm not subsequent transferee for fraudulent transfer purposes when received funds directly from transferor.

Janvey v. The Golf Channel, 780 F.3d 641 (5th Cir. 2015) – Seller of advertising space to operator of Ponzi scheme received a fraudulent transfer because no value for creditors of transferor.


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Hogan Lovells LLP v. Howrey LLP, _ F.Supp.3d _ (N.D. Calif. 2015) – Dissolved law firm does not have property interest in pending matters and cannot bring Jewel claim against firms where former partners are working.

MC Asset Recovery v. Commerzbank AG, _ F.Supp.3d _ ( 2015) – Creditors acceptance of guarantee not a fraudulent transfer. Acceptance of guarantee following inadequate due diligence on borrower not absence of good faith.

In re Brooke Corp., 2015 WL 7568202 (Bankr. D. Kan. 2015) – Parent corporation guarantied debt of its insolvent subsidiary. Downstream guaranty could be a constructively fraudulent transfer unless the creditor demonstrated the value of the indirect benefit received by the parent in exchange for the guarantee.

Sentinel Management Group, Inc. 8, 2016 WL 98601 (7th Cir. 2016) – In defense of “actual intent” fraudulent transfer action, transferee may assert “good faith” defense under Bankruptcy Code section 548(c). To use that defense transferee must make diligent investigation when it becomes aware of suspicious facts relating to the legitimacy of a loan transaction. The transferee must be on “inquiry notice”, which required it to investigate the collateral the borrower was using to secure the loan where the transferee had “awareness of suspicious facts that would have led a reasonable firm, acting diligently, to investigate further and by doing so discover wrongdoing ... and … an investigation would have revealed that the bank could not in good faith accept assets of [transferor’s] customers as security for the bank’s loans to Sentinel.” These facts also did not justify equitable subordination, unless they amounted to “fraud.” That standard would require that the bank believed there was a high probability of fraud and acted deliberately to avoid confirming its suspicion. The secured party’s suspicion of potential wrongdoing without any follow up might be negligent, but that is not an adequate basis for imposing equitable subordination.


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Grede v. Bank of New York Mellon Corp., et al. (In re Sentinel Mgmt. Group, Inc.), Case No. 15-1039 (7th Cir., January 8, 2016) – Bank loses status as a secured creditor because it was on inquiry notice that the borrower’s pledged assets had been fraudulently conveyed to the bank. The bank’s claim is not, however, subject to equitable subordination because there is no evidence of a belief of a high probability of fraud and action deliberately to avoid confirmation of that suspicion.

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 although the note and security agreement were signed only on behalf of the LLC. The court concluded that the certificate of title executed by a member and given to the creditor, on which the creditor inserted her name and filed it with the DMV, were sufficient to constitute an authenticated security agreement. The written and parol evidence demonstrated their intent to grant a security interest in their personal assets. This case also analyzes whether the security interest and a transfer of real property by the debtors in connection with the creditor’s forbearance in collection against the LLC was a fraudulent conveyance because in return for the transfers (and for guaranteeing the debtor) the debtors received “only the ability as the [LLC]’s members to see if the entity’s financial situation could be saved” which did not constitute reasonably equivalent value.*

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V. CREDITOR AND BORROWER LIABILITY

A. Regulatory and Tort Claims – Good Faith, Fiduciary Duties, Interference With Prospective Economic Advantage, Libel, Invasion of Privacy

Vasilenko v. Grace Family Church, _ Cal.App.4th _ (2016) - A car struck an individual while crossing the street (in the middle of the block) from a parking lot maintained by the owner of the individual’s destination. The owner owed a duty of care to the individual because there was a “dangerous condition” that the owner had “created”. Thus, although an owner of real property ordinarily has no obligation for injuries that do not occur on the owner’s land, here the owner exposed the individual to an unreasonable risk of injury offsite and had a duty to reduce the risks.

U.S. v. Bank of America Corp., _ F.3d _ (2d Cir. 2016) - The breach of a promise in a contract does not establish a claim for fraud (in addition to a claim for breach of contract) unless the promisor intended at the time of making the promise not to perform it.

Bertsch v. Mammoth Community Water District, _ Cal.App.4th _ (2016) - The rule of primary assumption of risk doctrine applies to physical activity done for “enjoyment” and thus affects and reduces any duty that another person would have not to increase the risks of an activity.

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.

o 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

V. Creditor and Borrower Liability

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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 forgiveness agreement.

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.


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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, 439 N.J. Super. 273 (App. Div. 2015) – Secured party does not breach duty of good faith when terminating loan forbearance agreement when borrower defaults.


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City of Westland Police and Fire Ret. System v. Metlife, Inc., _ F.Supp. 3d _, 2015 WL 5311196 (S.D.N.Y. 2015) – Court extended the analysis in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S.Ct. 1318 (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 opinion.

ACE Securities Corp. v. DB Structured Products, 25 N.Y. 3rd 581 (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 lender statute).

Federal Trade Commission v. Commerce Planet, Inc., 2016 U.S. App. LEXIS 3992 (9th Cir. 2016) – 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 personally received.


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B. Obligations Under Corporate and Securities Laws

Indiana Public Retirement System v. Saic, Inc., 2016 Wl 1211858 (2d Cir. 2016) – An issuer of securities did not disclose a federal criminal investigation into a kickback scheme Involving a large contract with the City of New York. The court held that allegations of a violation of ASC 450-20 (formerly FAS 5) requires disclosure of an unasserted claim, even if not “probable” if there is a “reasonable possibility” that the claim will be asserted.

Dieckman v. Regency Gp LP, C.A. No. 11130, 2016 WL _ (Del. Ch. March 29, 2016) - A limited partnership agreement effectively eliminated all fiduciary duties where it provided that the requisite approval of partners precluded fiduciary duty claims.

Singh v. Attenborough, 2016 WL _ (Del. 2016) - When there is not a stockholder vote (and absent an exculpatory charter provision), the damages liability standard for an independent director or other disinterested fiduciary for breach of the duty of care is gross negligence, even if the transaction is a change-of-control transaction. When there is a fully informed, uncoerced vote of the disinterested stockholders, the test is waste. For advisors, there is no liability unless scienter is shown. However, an advisor whose bad-faith actions cause its board clients to breach their situational fiduciary duties is liable for aiding and abetting. The advisor is not absolved from liability based on the entity’s actions were taken in good-faith reliance on misleading and incomplete advice tainted by the advisor’s own knowing disloyalty.

In the Matter of Kenneth Cole Productions, Inc., Shareholder Litigation, _ N.Y.3d _ (NY 2016) - A going private transaction was not subject to heightened scrutiny of the entire fairness of the transaction where it was conditioned on approval by (1) a special, independent committee of the board and (2) receiving a majority vote of the minority shareholders. Instead the business judgment rule applied.

Yates v. United States, 135 S.Ct. 1074 (2015) – Knowingly disposing of undersized fish in order to prevent government from taking


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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 SOX.

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 period.

Northstar Financial Advisors v. Schwab Investments, _ F.3d _ (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


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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 became solvent.

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 warrant 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 specific performance.

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” disclaim reliance.

Marblegate Asset Management, LLC v. Education Management Corp., No. 14 Civ. 8584 (S.D.N.Y. 2015) – Interpreting Section 316(b) of Trust Indenture Act and concluding that proposed restructuring violated bondholder rights.


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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.


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D. Disputes Among Creditors and Intercreditor Issues

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VI. U.C.C. – SALES AND PERSONAL PROPERTY LEASING

A. Scope

1. General

2. Software and Other Intangibles

B. Contract Formation and Modification; Statute of Frauds; ‘Battle of the Forms’; Contract Interpretation; Title Issues

1. General

2. Battle of the Forms

C. Warranties and Products Liability

1. Warranties

Hetzel v. Hennessy Industries, Inc., _ Cal.App.4th _ (2016) - A manufacturer of a machine used to grind brake linings, which contained asbestos, could be liable for breach of a duty to warn of the risk of the release of asbestos dust when using the machines. Almost all of the machines were used to grind the brake linings and thus the risk was “inevitable”.

Webb v. Special Electric Company, Inc., _ Cal.4th _ (2016) - A supplier of a dangerous product that has a duty to warn of the hazardous nature of the product can satisfy that duty if the supplier knows that a “sophisticated intermediary” knows of should know of the problem (such as when the supplier warns the intermediary) and reasonably expects the intermediary to pass on the warning.

Rondon v. Hennessy Industries, Inc., _ Cal.App.4th _ (2016) - A manufacturer of brake arcing machines who’s “inevitable” (but not necessarily “exclusive”) use (grinding brake linings)

VI. U.C.C. – Sales and Personal Property Leasing

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involved exposing a worker to asbestos, breached a duty to protect the worker or to warn of the risk.

Ranes & Shine, LLC v. MacDonald Miller Alaska, Inc., 355 P.3d 503 (Alaska 2015) – Although the statute of limitations had run on an equipment buyer’s claim against the seller for breach of the warranty of title arising from a security interest that encumbered the equipment, the buyer could maintain a claim against the seller for misrepresentation. The fact that the secured party had filed a financing statement was insufficient to put the buyer on constructive notice so as to defeat reliance on the misrepresentation.

Benson v. Southern California Auto Sales, Inc., 239 Cal.App.4th 1198 (2015) – Under the ‘lemon law’ provisions of the Consumer Legal Remedies Act, a dealer’s offer to rescind contract and accept return of the vehicle with a refund of all payments and satisfaction of any outstanding debt is an adequate offer of an ‘appropriate correction.’

Hernandezcueva v. E.F. Brady Company, Inc., 243 Cal.App.4th 249 (2015) – Drywall subcontractor potentially liable for strict liability for injuries arising from asbestos released from products that subcontractor purchased and installed if subcontractor was more than an ‘occasional seller’ of the products whose provision of those products was only incidental to its services. Subcontractor could be liable if it derived a considerable benefit from supplying the products, which were essential to its obtaining its subcontracting work – and where its relevant contracts always involved the provision of drywall and related materials.

T.H. v. Novartis Pharmaceuticals, 245 Cal.App.4th 589 (2016) – A manufacturer of a drug sold the drug. A subsequent owner manufactured and sold the drug. The drug was used for an “off-label” purpose and fetuses were injured. The injured children were allowed to state a claim against the original owner for negligently failing to warn about the adverse side


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effects of the off-label use when the original owner should have known about that use. The children argued that had the original owner included a warning to physicians, the physician who prescribed the drug for the mother of the infants would not have done so. There was no claim for products liability because the original owner had not manufactured the drug actually used by the mother.

Pavoni v. Chrysler Group, LLC, 789 F.3d 1095 (9th Cir. 2015) – Manufacturer may be held strictly liable for placing a defective product on the market if the injured person’s injury results from a reasonably foreseeable use of the product.

Moran v. Foster Wheeler Energy Corporation, _ Cal.App.4th _ (2016) – In a negligence or strict liability case based on a failure to warn, the sophisticated user defense applies if the injured person has specialized training or a profession that would cause the person to know or should know about the product’s inherent hazards. In that circumstance, the failure to warn about those dangers is not the legal cause of any harm that product may cause.

2. Limitation of Liability

3. ‘Economic Loss’ Doctrine

D. Performance, Breach and Damages

Mahlum v. Adobe Systems Incorporated, 2015 U.S. Dist. LEXIS 2085 (N.D. Calif. 2015) – Early termination fee is not ‘liquidated damages’ and thus not analyzed to determine if it’s a ‘penalty’.

E. Personal Property Leasing

Axis Capital, Inc. v. Jaina Systems Network Inc., 13 N.Y.S.3d 860 (N.Y. Sup. Ct. 2015) – An equipment lessor with a security interest in the leased equipment was not entitled to a temporary restraining order prohibiting the defaulting lessee from moving or transferring the equipment because such an order may be issued


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only if immediate and irreparable injury would otherwise result and the lessor’s alleged injury would be compensable by money damages.

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VII. COMMERCIAL PAPER AND ELECTRONIC FUNDS TRANSFERS

A. Negotiable Instruments and Holder in Due Course

U.S. Bank N.A. v. Yashouafar, 232 Cal.App.4th 639 (Cal.Ct.App. 2015) – No prepayment fee due until defendants actually prepaid the note’s indebtedness.

Aurora Loan Services, LLC v. Taylor, 2015 WL 3616293 (NY 2015) – As a matter of common law (not UCC Articles 3 and 9) the person in possession of a note has the right to enforce it and the related mortgage follows the note.

Charles R. Tips Family Trust v. PB Commer. LLC, LLC, 459 S.W.3d 147, 2015 Tex. App. LEXIS 1657, 85 U.C.C. Rep. Serv. 2d (Callaghan) 886 (Tex. App. Houston 1st Dist. 2015) – The debtor, a trust, entered into a residential loan agreement with the secured party, which was guaranteed by the trustee. The debtor also issued a note, which was secured by real property, in favor of the creditor. The loan agreement, the note, and the guaranty described the principal loan amount in words as being as ‘one million seven thousand and no/100 dollars’ and in numerals as being ‘$1,700,000’. On the maturity of the loan, the debtor paid $595,586 to the creditor, which subsequently foreclosed on the note by selling the collateral and recovered $ 874,125. Thereafter, it sued the debtor for the balance $815,214.50 on the basis that the principal amount of the loan was $1,700,000. Based on the provisions of UCC § 3-114 ‘If an instrument contains contradictory terms, typewritten terms prevail over printed terms, handwritten terms prevail over both, and words prevail over numbers.’ Accordingly, the amount of the promissory note and the guarantee obligations was held to be $1,007,000.

JP Morgan Chase Bank v. Jenkins, 2015 U.S. Dist. LEXIS 17134 (N.D. Ill. 2015) -The court held that a creditor had standing to foreclose a note as the creditor was in possession of the note, thereby making it the holder of the note even though the debtor contended that the creditor had only acquired a right to service the loan when it had

VII. Commercial Paper and Electronic Funds Transfers

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acquired the assets of another bank (which was the original creditor of the debtor). A holder is defined to be a person in possession of a negotiable instrument that is payable either to the bearer or to an identified person in possession of the instrument. However, the creditor had attached a copy of the note to the complaint which under applicable state law in a foreclosure action is prima facie evidence of ownership and possession. Thus the note was payable to the creditor who qualified as a holder of the note.

Schaumburg Bank & Trust Co., N.A. v. Bellony Real Estate & Dev., LLC-PSM J.V., 2015 IL App (3d) 130896U, 2015 Ill. App. Unpub. LEXIS 212 (Ill. App. Ct. 3d Dist. 2015) – A promissory note had been transferred to a creditor by the successor of a failed bank by execution of a purchase and assumption agreement. The promissory note was given in relation to a construction loan obtained by the debtor from the failed bank. Here the court held that the transfer of possession of an instrument allowed a transferee to have the rights of a holder of an instrument under the provisions of Article 3 of Uniform Civil Code.

DZ Bank AG Deutsche Zentral Genossenschaftsbank v. McCranie, 2015 WL 5234569 (M.D. Fla. 2015) – The bank with possession of a negotiable promissory note properly endorsed to it was a holder in due course despite the fact that the original payee had sold a participation interest in the note to another entity that did not file a financing statement or take possession of the note, because the bank had no notice of any claim to the note. Accordingly, the bank could enforce the note against the maker and, even if the maker had defenses to payment against the original payee for breach of contract, those defenses were not effective against the bank.

Wells Fargo Bank, N.A. v. Erobobo, 9 N.Y.S.3d 312 (N.Y. App. 2015)– Obligor on mortgage note does not have standing to complain that there were defects under trust agreement in transfer of note to trust.


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Phillips v. Bank of America, _ Cal.App.4th _ (2015) – State law prohibition on a debit by a national bank is not preempted by federal law.

In re MPM Silicones, LLC., 531 B.R. 321 (S.D.N.Y. 2015) – The court interpreted the use in an indenture of the term ‘senior debt’. The court required that agreement must provide explicitly for a make-whole premium in the event of an acceleration of a debt.

Madden v. Midland Funding, LLC, _ F.3d _ ( 2d Cir. 2015), cert. denied – National Bank Act provision that protects an original lender from state law usury claims does not prevent claim against assignee that is not covered by the Act.

o Note: the case does not discuss the long-standing “valid-when-made” rule that allows an assignee to step into the shoes of its assignor.

Edwards v. Macy’s, Inc., 2016 US Dist. LEXIS 31097 (SDNY 3/9/2016) – A credit card holder sued the issuing bank (a national bank) and department store for which the bank issued branded credit cards for unfair and deceptive practices relating to a credit protection plan and related fees charged to the cardholder. The issuer and department store argued preemption of the cardholder’s claims by OCC regulations and the court agreed. The court conceded that the Second Circuit in Madden had held that OCC preemption extends to an entity that is not a national bank only where the entity is an agent or subsidiary of a national bank or is otherwise acting on behalf of the national bank in carrying out the bank’s business. However the court concluded that the department store, while not a national bank or subsidiary of a national bank, was acting on behalf of the of the bank in carrying out the bank’s business of issuing credit cards (e.g. providing marketing services, credit processing and collections and customer service).

In re Energy Futures Holding Co., 533 B.R. 106 (Bankr. D. Del. 2015), affirmed 2016 U.S. Dist. LEXIS 48671 (D. Del. 2016) – Make-whole


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premium provision interpreted not to apply as a matter of contract law as a result of filing of bankruptcy.

CitiMortgage, Inc. v. Okahata, 2015 IL App (2d) 140651-U, 2015 Ill. App. Unpub. LEXIS 1205 (Ill. App. Ct. 2d Dist. 2015) – Under Illinois law, an original secured party had standing to foreclose on a mortgage despite having transferred its interest in the loan to a third party, because the original secured party was the holder of the promissory note, meaning it retained physical possession of the note that contained an indorsement in blank.

HSBC Bank USA, N.A. v. Perez, 40 Fla. L. Weekly D 1064 (Fla. Dist. Ct. App. 4th Dist. 2015) – As a result of a fraudulent scheme by a debtor, two banks took possession of nearly identical promissory notes secured by the same mortgage. One of the original banks assigned its interest to a third bank. After default, both banks tried to foreclose. The court was required to determine whether the UCC or the recording statute controlled priority. Article 9 of the UCC as adopted by Florida, generally does not apply to a real property mortgage. However, the court found that when the note in a real property mortgage is sold or assigned, Article 9 applies to the security interest created in favor of the assignee or purchaser of that note. Therefore, when the two banks attempted to collect on a real property mortgage, and one had been assigned the mortgage, Article 9 applied to the security interest in the mortgage.

Yvanova v. New Century Mortgage Corporation, 62 Cal.4th 919 (2016) – The transfer of a note secured by a mortgage automatically transfers the related mortgage. The original beneficiary of the note (and therefore the deed of trust), or its assignee or agent, may direct the trustee to sell the property. The maker of the note does not have standing to challenge a “voidable” transfer, as that person cannot assert someone else’s rights. The maker does have standing to challenge a “void” transfer. The court characterizes its ruling as “narrow” and “limited” and applicable only to the standing question. The court did not address when a transfer is “void.”


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Saterbak v. JPMorgan Chase, _ Cal.App.4th _ (2016) – Under the California Supreme Court’s recent Yvanova decision a homeowner did not have standing to challenge prospectively the foreclosure of her home based on an alleged defect in the assignment of the mortgage. The court held that Yvanova applies only to post-foreclosure actions. Further, under New York law, the alleged defect in the assignment would make the assignment voidable, but not void.

B. Electronic Funds Transfer

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VIII. LETTERS OF CREDIT, INVESTMENT SECURITIES, AND

DOCUMENTS OF TITLE

A. Letters of Credit

Dorchester Financial Holdings Corp. v. Banco BRJ, S.A., _ F.Supp.3d _ (S.D.N.Y. 2016) – A letter of credit cannot come into existence without a letter of credit agreement. The court concluded that the purported letter of credit agreement and the letter of credit were forgeries. The court found support for this inclusion because the terms of the agreement were not consistent with typical letter of credit transactions. The court also found that there was no “plausible commercial reason” for the alleged issuer to have entered in the transaction. Other indicia of fraud included inconsistent terms and language.

B. Investment Securities

Citigroup Global Markets, Inc. v. KLCC Investments, LLC, 2015 WL 5853916 (S.D.N.Y. 2015) – A securities intermediary could not be liable for damages resulting from its refusal to complete a transfer requested by the secured party with whom it had a control agreement because the intermediary initiated an interpleader action when faced with competing claims to the assets credited to the account, and all the claimed damages therefore arise from acts that were within the intermediary’s rights granted by law.*

Amegy Bank v. Deutsche Bank Alex.Brown, 619 F. App’x 923 (11th Cir. 2015) – Sufficient evidence supported the jury’s verdict that a broker colluded with its customer to violate the rights of a secured party with a security interest in the customer’s stock, and hence was not shielded by UCC § 8-115 from liability for conversion, because there was evidence from which the jury could infer that the broker knew that the customer’s conduct – redeeming a partnership interest in exchange for stock in the corporate general partner and then immediately liquidating the stock – was an effort to violate the secured party’s rights and there was evidence that the broker provided substantial assistance to the debtor by setting

VIII. Letters of Credit, Investment Securities, and Documents of Title

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up a margin account, personally picking up the certificate from the debtor’s office, selling the stock without reviewing the certificate, and wiring the proceeds to the debtor’s bank account the next day.

In re Appraisal of Dell, Inc., 2015 WL 4313206 (Del. Ch. 2015) – Due to ministerial re-titling of stock in the name of a new nominee through the DTC system, the nominee acting for the beneficial owners was not a ‘shareholders of record’ for the required period for purposes of Delaware’s corporate appraisal statute. The Delaware appraisal statute looks to record (and not beneficial ownership).

Harris v. TD Ameritrade, Inc., 805 F.3d 664 (6th Cir. 2015) – An entitlement holder does not have private remedy for a securities intermediary’s breach of its obligations under UCC §§ 8-504, 8-506, 8-507(a), and 8-508). Decision does not refer to UCC § 1-305(b) (‘Any right or obligation declared by [the UCC] is enforceable by action unless the provision declaring it specifies a different and limited effect.’)*

Knoll Capital Management L.P. v. Advaxis, Inc., 2016 Del. Ch. LEXIS 17 (Del. Ch. 2016) – A potential buyer of corporate stock could not enforce an oral agreement with the issuer under Delaware corporate law. DCGL § 157. The absence of a written agreement and board approval was a “defective corporate act” under DGCL § 204 and could be ratified under Section 205. The court did not mention UCC § 8-113’s rule that the statute of frauds does not apply to agreements to sell securities.

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IX. CONTRACTS

A. Formation, Scope and Modification

o Angelita Aquino v. Toyota Motor Sales USA Inc., _ F.Supp.3d _ (ND Calif. 2016) - An employer sent an agreement by e-mail to employees providing for an agreement to arbitrate disputes. The notice stated in conspicuous language that the employee could opt out. The act of the employee in continuing employment operated as a acceptance of the agreement.

o Espejo v. Southern California Permanente Medical Group, _ Cal.App.4th _ (2016) - A declaration of an employee sufficiently demonstrated that an electronic signature was “the act” of the other party to the agreement.

o Mind & Motion Utah Investments, LLC v. Celtic Bank Corporation, 2016 UT _, _ P.3d _ (Utah 2016) - An owner of real estate entered into an agreement to sell the real estate to a buyer. The sales agreement provided that the seller “shall record” a plat map by a specific date. The plat map could not be recorded until local government officials gave certain approvals. There was no legal requirement on when the officials had to provide those approvals and they did not do so before the contract deadline. So the recording was not made by the deadline. The buyer sued for breach of contract. The issue was weather the “shall record” language was a “covenant” or a “condition.” If a condition, the seller would not be in breach. The seller argued that it must be a “condition” because the timing was “beyond [the seller’s] control.” The court agreed that the timing was “beyond [the] control” of the seller. After noting that the word “shall” is inherently mandatory (in comparison to “until”), the court pointed out that a party to a contract can agree to do what the party cannot “control”: “It is a basic principle of contract law that parties are generally ‘free to contract according to their desires in whatever terms they can agree upon.’ This includes assuming risks that third parties … will fail to conform to the parties’ expectations.

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And absent language in the contract to the contrary, ‘[a] party who contracts knowing that governmental permission … will be required ordinarily assumes the obligation of assuring that permission will be granted.’ [the seller] ‘assumed the risk’ that its application would not be approved before the recording deadline.’

o In re Facebook Biometric Information Privacy Litigation, 2016 WL 2593853 (N.D. California) - For contracts formed on the Internet, “clickwrap” agreements are more likely to be enforceable and “browsewrap” agreements are less likely to be enforceable the other. On the issue of the notice provided by the offeror, a clickwrap agreement differs from a browsewrap. In a clickwrap agreements, the user is “presented with a list of terms and conditions of use” before being asked to agree to them, and that procedure “forces the user actually to examine the terms before assenting. In a browsewrap agreement, the “website’s terms and conditions of use are generally posted on the website via a hyperlink at the bottom of the screen and the Terms of Use not listed on the site itself but available only by clicking on a hyperlink.” For clickwrap agreements, users are “required to click on an ‘I agree’ box”; they must expressly manifest assent to the terms and conditions. For browsewrap agreements, the user “gives his assent simply by using the website. The closer digital agreements are to the clickwrap end of the spectrum, the more often they have been upheld as valid and enforceable. A hybrid single-click “Sign Up” and assent may be enforceable where the contract was not “foisted” upon the party “simply by passively viewing a website.” The court, applying, Restatement (Second) of Conflict of Laws § 187, then refused to enforce the California choice-of-law clause because the application of California law would be contrary to “fundamental” policy of the state whose law would apply in the absence of the choice-of-law clause and that other state has a materially greater interest in the application of its policy.

o ESG Capital Partners II, LP v. Passport Special Opportunities Master Fund, LP, C.A. No. 11053-VCL), 2015 WL _ (Del. Ch. 2015) - The

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decision involved a side letter and limited partner rights to securities held by a limited partnership pursuant to a side letter. The limited partners did not have a property interest in specific partnership property. Rights under the relevant LP act did not provide the exclusive remedy to recover distributions. The integration clause in the subscription agreement made the side letter a nullity. Finally, the GP of the LP lacked authority to grant the enter into many of the rights purportedly provided under the side letter.

o In re Energy Futures Holding Co, 2015 Bankr. LEXIS 3701 (Bankr. D. Del. 2015) , affirmed 2016 U.S. Dist. LEXIS 48671 (D. Del. 2016) – Make-whole premium provision interpreted not to apply as a matter of contract law as a result of filing of bankruptcy.

o Grand Prospect Partners, L.P. v. Ross Dress For Less, Inc., 232 Cal.App.4th 1332 (2015) – Court finds no procedural unconscionability where party refuses to negotiate with respect to a particular term.

o Legras v Aetna Life Insurance Company, 786 F.3d 1233 (9th Cir. 2015) – As a matter of Federal common law, when counting days within which an act must occur, if the last day falls on a weekend the act may be performed on the next weekday.

o Life Plans, Incorporated v. Security Life of Denver Insurance Company, 800 F.3d 343 (7th Cir. 2015) – Provision of agreement regarding three year term and termination was ambiguous.

o In re Residential Capital, LLC, 2015 WL 2226232 (Bankr. S.D.N.Y. 2015) – A depositary bank may use a ‘change of terms’ provision to make a depositor into a guarantor of debts of affiliates of fee depositor owed to bank.*

Teletracking Technologies, Inc. v. Gori, _ A.3d _ (Pa. 2015) (non-precedential) – Right of first refusal does not prohibit transfer. A right of first refusal gives the holder of the right the legal privilege to purchase the object, subject to the right to purchase for the same

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price that the offeror is willing to pay for it. There is no legal requirement that the holder of the right be ‘capable’ of purchasing the object for same price.

Mohamed v. Uber Technologies, Inc., _ F.Supp.3d _ (N.D. Calif. 2015) – Electronic signature process is effective. But arbitration provision delegating ‘gateway’ issues not enforceable because not ‘clear and unmistakable’ and provision is unconscionable as is unilateral amendment provision.

Transverse, LLC v. Iowa Wireless, LLC, 617 Fed. Appx. 272 (5th Cir. 2015) – May interpret contract by words that are typically objects of verbs used.

Cobb v. Ironwood Country Club, 233 Cal.App.4th 960 (2015) – Good faith makes contract with unilateral modification right not illusory.

Whitlow v. Rideout Memorial Hospital, 237 Cal.App.4th 631 (2015) – A hospital emergency room could be liable for acts of an independent contractor emergency room physician under principles of ostensible authority. The court held that such a doctor could be an ‘ostensible agent’ of the hospital, even though the admissions form, signs in the emergency room, and insignia on the doctor’s garments emphasized that the doctor was not an employee of the hospital. The court noted that because the patient was in ‘excruciating’ pain it may not be ‘reasonable’ to expect the patient to understand the import of all of the non-agent statements.

Kochins v. Evolution Marketing (N.Y. Sup. Ct., Appellate Division, First Department April 2, 2015) – Contract can be formed by e-mail if e-mails contain ‘essential’ terms of deal.

Bank of Brewton v. Travelers, 777 F.3d 1339 (11th Cir. 2015) – A fraudulently obtained stock certificate not ‘counterfeit’ for purposes of an insurance policy.

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Granadino v. Wells Fargo Bank, 236 Cal.App.4th 411 (2015) – There is no claim for promissory estoppel in absence of proof of oral promise for home loan modification and given other pleading deficiencies.

International Union v. General Motors, LLC, 612 Fed. Appx. 830 (6th Cir. 2015) – Integration clause not dispositive because scope of that clause itself has to be interpreted.

Siga Technologies Inc. v. Pharmathene Inc., 2015 Del. LEXIS 678 (Del. 2015) – A party that breaches a “preliminary agreement” by not negotiating a definitive agreement in good faith may be liable for expectation damages (i.e., damages based on lost profits) if the non-breaching party can show that a definitive agreement would have been reached had the other party negotiated in good faith. The non-breaching party has to show “certainty” of the “fact” of damages, but not their amount. The breaching party bears the risk of the uncertainty of showing the amount of damages.

Bank SNB v. Flemming, 2016 U.S. Dist. LEXIS 10065 (W.D. Okla. 2016) – Under Uniform Electronic Transactions Act borrower’s e-mails sufficiently acknowledged debt to create an enforceable signed agreement.

Campbell-Ewald Co. v. Gomez, 136 S.Ct. 663 (2016) – Under basic principles of contract law, an offer to make a contract, once rejected, has no continuing efficacy.

In Touch Concepts, Inc. v. Cellco Partnership, 788 F.3d 98 ( 2d Cir. 2015) (applying New York law) – Party to an agreement may exercise unilateral termination right. Implied duty of good faith does not restrict exercise of that right.

B. Interpretation and Meaning of Agreement

Chebotnikov v. Limolink, Inc., 2015 U.S. Dist. LEXIS 166367 ( D. Mass. 2015) – As a general matter of contract interpretation, disputes “arising under,” “arising out of,” or “arising from” the

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terms of an agreement must have their inception in the agreement itself. That language does not encompass matters ‘related’ to the agreement or the relationship of the parties. The phrase “arising out of” is construed by courts. The courts give a broader reading to “with reference to,” “relating to,” or “in connection with.”

Long v. Provide Commerce, Inc., _ Cal.App.4th _ (2016) – A consumer did not agree to the terms and conditions of a vendor (including an arbitration provision) in a “browsewrap agreement” by placing an order through a website because the reference to the terms and conditions were not sufficient “conspicuous” put a reasonably prudent Internet user on inquiry notice of the terms of use. The placement of the link to the terms and conditions did not make them conspicuous and there was no affirmative statement that the use of the site constituted an agreement to the terms and conditions.

BOKF, N.A. v. Caesars Entertainment Corporation, 2015 U.S. Dist. LEXIS 113794 (S.D.N.Y. 2015), 2016 U.S. Dist. LEXIS 638 (S.D.N.Y. 2016)(denying summary judgment) – Although the plain meaning of ‘and’ is ‘conjunctive’ and the plain meaning of ‘or’ is ‘disjunctive’, the meaning of words in a contract depends on ‘the context and usage in a particular contract’ to implement the ‘intent’ of the parties. The court said that those words could each have the opposite meanings, depending on the ‘context and usage’.

C. Adhesion Contracts, Unconscionable Agreements, Good Faith and Other Public Policy Limits, Interference with Contract

MeehanCombs Global Credit Opportunities Funds, LP v. Caesars Entertainment Corp., No. 14-CV-7091 SAS, 2015 WL 221055 (S.D.N.Y. 2015) – Trust Indenture Act § 316(b) requires unanimous consent as to protection of each noteholder’s right to obtain payment.

Grand Prospect Partners, L.P. v. Ross Dress For Less, Inc., 232 Cal.App.4th 1332, modified by 2015 Cal. App. LEXIS 130 (2015) –

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No procedural unconscionability where party refuses to negotiate with respect to a particular term.

Pringle v. Garcia, 2015 WL 3606391 (N.D. Ind. 2015) – The jury waiver in the parties’ Guaranty and Collateral Agreement was enforceable. The agreement was among sophisticated parties, the parties had the opportunity to read the agreement, and the waiver was printed in all capital letters and applied to all parties. As to the remaining defendants, there was no right to a jury with respect to the creditor’s request for an appointment of a receiver for the collateral, because that is an equitable remedy, but there was a right to a jury with respect to the count seeking replevin and foreclosure because those are legal remedies.

Tibble v. Edison Int’l, 135 S. Ct. 1823 (2015) – Trustee of ERISA trust has common law trust duty to monitor appropriateness of investments at regular intervals.

Montgomery v. GCFS, Inc., _ Cal.App.4th _ (2015) – California finance lender may sell notes to unlicensed persons.

In re County of Orange, 784 F. 3d 520 (9th Cir. 2015) – Court held the federal rule on jury waivers to be a constitutional minimum and incorporated into federal law California’s more protective law on jury waivers. The court declined to enforce the jury trial waiver.

Bozzio v. Emi Group Limited, 811 F.3d 1144 (9th Cir. 2016) – A third-party beneficiary of a contract can bring an action, even if another aligned party is suspended and cannot bring an action.

Orcilla v. Big Sur, Inc., 244 Cal.App.4th 982, modified by 2016 Cal. App. LEXIS 184 (2016) – Loan and loan modification documents were unconscionable where there was slight procedural unconscionability because the documents were in English only and English was the second language of the parties. Under the “sliding scale” test, the substantive unconscionability was “harsh” because the revised monthly loan payments exceeded their income by more than $1,000.

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Baltazar v. Forever 21, Inc., _ Cal.4th _ (2016) – A review of an agreement for “unconscionability” is not a process to relieve a party of a “bad bargain.” Thus a provision that entitled each party to seek preliminary injunctive relief was not unconscionable because it only stated what existing law would provide in any case.

James v. National Financial, LLC, C.A. No. 8931-VCL, 2016 WL _ (Del. Ch. 2016) – The court rescinded a payday loan agreement as unconscionable. That requires a finding of “unfair advantage” by one party over the other. The court will not remake “bad bargains” but will act if the contract is so “one-sided as to be oppressive.” The court looks at these questions at the time the contract was made. The court applies procedural and substantive unconscionability as a “unitary” test, applying the a sliding scale test. The court looks for “disadvantageous clauses” that are “inconspicuous” or written in “language that is incomprehensible to a layman.” The court also states in a contract of adhesion, the analysis “does not take into account whether the consumer has read the document.”

D. Risk Allocation

Lewis v. YouTube, LLC, 244 Cal.App.4th 118 (2016) – Contract clause stating that service provider would bear no liability “whatsoever” for damages resulting from “errors or omissions in any content or for any loss or damage of any kind incurred as a result of your use of and content posted, emailed, transmitted, or otherwise made available via the services, whether based on warranty, contract, tort, or any other legal theory” applied to contract claim. Limitation of liability was particularly appropriate in connection with provision of free service.

Nomura Home Equity Loan, Inc., Series 2006-FM2 v. Nomura Credit & Capital, 2015 N.Y. Slip Op. 07458 (1st Dept. 2015) – Contract provided that the “sole remedy” for misrepresentations or breaches of warranty was “to cure [the defect or breach] or repurchase” the loan. The cure or repurchase remedy was

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impossible (because the loans had been liquidated or foreclosed). The “sole remedy” provision would “leave plaintiffs without a remedy.” The court applied an equitable exception to the contractual limitation on remedies (which is generally enforceable under freedom of contract). This is similar to UCC section 2-719, Comment 1 provision that there should be a “minimum adequate remedy.”

Le Metier Beauty Investment Partners LLC v. Metier Tribeca, LLC, NYLJ 1202719289123 (Sup.Ct. App/ Div. 2015) – The enforce-ability of a defective non-reliance clause was evaluated as a ‘general disclaimer’.

MEG Holdings, LLC v. Sapphire, 3 N.Y. S.3d 598 (N.Y. Sup. Ct. 2015) – For an indemnity to cover two-party claims it must ‘unequivocally’ do so.

ACA Financial Guarantee v. Goldman Sachs & Co, 25 N.Y.3d 1043 (2015) – Recipient of misrepresentation that has ‘peculiar’ knowledge must investigate before reasonably relying.

Jimenez v. 24 Hour Fitness USA, Inc., 27 Cal.App.4th 546 (2015) – Prospective release may not release gross negligence or worse and nonverbal gestures may constitute a ‘representation.’

Heckart v. A-1 Self Storage, Inc., 243 Cal.App.4th 525 (2015), review granted and opinion depublished 2016 Cal. LEXIS 1589 (2016) – Storage unit rental agreement, which provided for allocation of liability for damage or loss to stored property, was not ‘insurance’. The principal object of the rental agreement was the rental of storage space and thus the storage facility did not engage in the unlicensed sale of insurance.

Starbrands Capital v. Original MW, Inc., 2015 U.S. Dist. LEXIS 121454 (D. Mass. 2016) – A contractual indemnity clause should be interpreted to give effect to intention of parties and thus should not be interpreted to be limited to third party claims. A party to a contract is prohibited as a matter of public policy from indemnifying itself or exempting itself from liability for its grossly

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negligent conduct or intentional misconduct. The reason for the prohibition is that permitting parties to limit their liability contractually for gross negligence or intentional torts “could fail to adequately disincentivize, punish, or compensate for wrongful conduct.” The prohibition applies to limited as well as total releases from liability and it applies to contractual as well as tort claims.

Alcoa World Alumina LLC v. Glencore Ltd., C.A. 15C-08-032 EMD CCLD (Del. Superior Court 2016) – Indemnification agreements are construed “strictly” against the indemnitee. The indemnification provisions of the 1995 Agreement did not expressly indemnify for “contractual liability” generally or the 1989 Agreement specifically. An indemnification agreement must have an “unequivocal undertaking” before there is an obligation to indemnify for a contractual liability that the indemnitee has assumed from the indemnitor. An agreement to hold the indemnitee “harmless” does not satisfy this requirement for any and all claims and is insufficient to meet this test.

Trueblue, Inc. v. Leeds Equity Partners IV, LP, 2015 WL _ (Del. Ch. 2015) – A stock purchase agreement included a non-reliance provision. The seller made a pre-contractual promise that the agreement did not include. The non-reliance provision and the agreement’s integration provision did not preclude a claim for promissory fraud because the non-reliance provision excluded claims by the buyer for “actual fraud”. A claim for non-contractual fraud could be excluded only by an “explicit and unambiguous” non-reliance provision.

Connelly v. State Farm Mutual Automobile Insurance Company,, _ A.3d _ (Del. 2016) – An insurance claim accrues for purposes of the statute of limitations based on a bad-faith failure-to-settle claim accrues when an excess judgment in the underlying action becomes final and non-appealable. The analysis is consistent with Delaware courts’ traditional approach to indemnity claims, which are analogous to insurance claims in that both involve a contractual obligation to compensate the indemnified party that

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arises only once certain conditions are met. Both cases require that the underlying cause of action must be resolved and the indemnified party must suffer a loss before the indemnifying party is required to cover the indemnified party’s liability. Under an express contract of indemnification, an indemnitee is not entitled to recover under the agreement until he or she has made an actual payment or has otherwise suffered an actual loss.

Certain Underwriters at Lloyds, London v. Arch Specialty Insurance Company, _ Cal.App.4th _ (2016) – Court would not enforce “other insurance” clause, which limited an insurer’s duty to defend to matters in which there was no “other insurance” afforded a defense. The court did not enforce the clause in an equitable contribution action between successive primary insurers. Enforcement would violate public policy.

FdG Logistics LLC v. A&R Logistics Holdings, 2015 WL _ (Del. Ch. 2016) – A choice-of-law clause based on the Delaware statute supplants the rule of Restatement of Conflicts of Law (Second) § 187 by satisfying the various requirements of that section. It does not bring into play all of Delaware statutory law that would not otherwise apply (such as state securities law). It does include tort claims relating to the enforcement of the agreement. The contract’s non-reliance clause was not sufficiently “specific” and “clear” to rule out pre-contractual statements. The court emphasized that the person asserting a claim based on a misrepresentation should affirmatively state what it has and has not relied upon. It was not sufficient for the seller to disclaim making other representations.

Lorely Financing v. Wells Fargo, _ F.3d _ (__ Cir. 2015) – Klaxon choice-of-law rule (Federal court applies state choice-of-law rule in diversity cases) should also apply when the Federal court’s jurisdiction is based on a Federal question, but the court is also considering state law claims. New York law of disclaimers requires that the disclaimer ‘contain explicit disclaimers of particular representations that form the basis of the fraud claim’.

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E. Personal Jurisdiction

Insurance Corp. of Ireland v. Compagnie Des Bauxites de Guinee, 456 U.S. 694 (1982) – Requirement of personal jurisdiction represents an individual right and can be waived.

Daimler Ag 27 v. Bauman, 134 S. Ct. 746, 754 (2014) – Defendant’s affiliations with the forum must be “so ‘continuous and systematic’ as to render them essentially at home” in the forum (quoting Goodyear, 131 S. Ct. at 2851).

In re Western States Wholesale Natural Gas Antitrust Litigation, 715 F. 3d 716 (9th Cir. 2013) – A lawsuit arises out of a defendant’s contacts with the forum state if a direct nexus exists between those contacts and the cause of action (“but for” test).

Martinez v. Aero Caribbean, 764 F.3D 1062 (9th Cir. 2014) – Service of process on a corporate officer temporarily present in the State may not be sufficient to establish general personal jurisdiction over the corporation.

Daimler Ag v. 25 Bauman, 134 S. Ct. 746 (2014), – “[A] corporation can purposefully avail itself of a forum by directing its agents or distributors to take action there.”

Walden v. Fiore, 134 S. Ct. 1115 (2014) – In the tort context, specific jurisdiction may be “based on intentional conduct by the defendant that creates the necessary contacts with the forum.”

New Earthshell Corp. v. Lycos Internet Ltd., 2015 WL 170564 (D.N.J. 2015) – A secured party that had a pending action in New York against the debtor, a Delaware entity with its principal place of business in California, and several foreign entities was not entitled to a preliminary injunction in a New Jersey action against commingling or transferring any portion of the collateral with other revenues, accounts receivable or the proceeds because it was not clear that the court had personal jurisdiction over the defendants. There was no allegation that the defendants knew

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that the secured party’s principal place of business was in New Jersey or that they made any contact with the secured party in New Jersey. The allegation that defendants improperly took possession of the collateral arises out of transactions among the defendants, Israeli and Indian entities, that did not involve the secured party, were negotiated and executed in Israel, are governed by Israeli law, and are subject to the jurisdiction of Israeli courts.

Brown v. Lockheed Martin Marietta Corporation, _ F.3d _ (2d Cir. 2016) – State does not have general personal jurisdiction over corporation registered to do business in the state where the corporation does significant business in the state. Registration is not consent to jurisdiction and corporation is not “at home” in the state where it is not formed under the law of that state nor does it have its chief executive office in that state.

Americold Realty Trust v. Conagra Foods, Inc., _ U.S. _ (2016) – A real estate investment trust is a citizen of the state of its shareholders and members for purposes of diversity jurisdiction.

BNSF Railway Company v. Superior Court for the County of Los Angeles (Kravoletz), _ Cal.App.4th _, 185 Cal. Rptr. 3rd 391 (2015) – A very large railway company was held not subject to the general jurisdiction of California courts, even though it had very significant operations in California, because its California operations were small compared to its operations in other jurisdictions.

Genuine Parts Company. v. Cepec, _ A.3d _ (Del. 2016) – A state does not obtain general jurisdiction over a foreign corporation by reason of the corporation qualifying to do business in the state. Further a state cannot coerce a corporation to consent to jurisdiction as a condition to qualifying to do business in the state. The decision carefully says that it’s permissible to consent to jurisdiction by contract.

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F. Choice of Law and Forum

Brown & Brown v. Johnson, _ NY _ _ (NY 2015) – Contractual choice of law provision will be upheld unless application of the chosen law would be ‘truly obnoxious.’

Verdugo v. Alliantgroup, L.P., 187 Cal. Rptr. 3d 613 (Cal. App. 2015), _ Cal.App.4th _ (2015) – Court refused to enforce a Texas choice-of-forum clause because the court concluded that a Texas court was more likely to enforce the Texas choice-of-law clause than would be a California court, thus resulting in the complaining party’s loss of important California rights. The court noted that the party seeking to enforce the choice-of-forum clause argued that the Texas court was not likely to enforce the Texas choice-of-law clause. The court did not accept that argument.

DirecTv, _ U.S. _ (2015) – An agreement had a California choice-of-law clause and a pre-Concepcion arbitration provision. Under California law on the date of the agreement the arbitration clause was unenforceable under California law wiped out by Concepcion. A California appellate court, as a matter of California contract law, held that the California choice-of-law clause meant that the parties intended to apply California law as it (purportedly) existed on the date of the agreement, even though it turned out that California law on arbitration was not effective on that date (as subsequently explained in Concepcion). Thus the California court held the arbitration clause unenforceable under California cases abrogated by Concepcion. The U.S. Supreme Court acknowledged that it had no place expressing its views on California contract law. But the Supreme Court found the ‘reasoning’ so lacking that the Supreme Court held that the California decision was an ‘obstacle’ to the implementation of the federal policy in the Federal Arbitration Act and thus the Supreme Court held that the FAA preempted the result reached by the California court. The Court emphasized that lower courts have to follow the Supreme Court’s decisions and cannot get around national policy by tricky state law doctrines.

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In re County of Orange, _ F.3d _ (9th Cir 2015) – Federal courts sitting in diversity will import, as the federal rule, state law governing jury trial waivers when state law is more protective than federal law of the jury trial right.

Utilipath, LLC v. Hayes, A., _ (Del. Chan. 2015) – Non-exclusive forum clause precludes objection to forum.

In re Libor-Based Financial Instruments Antitrust Litigation, _ F.Supp.3d _, 2015 WL 4634541 (S.D.N.Y. 2015) – The court addressed concepts of general jurisdiction and specific jurisdiction. In particular, concluded that specific jurisdiction had to be based on acts in the jurisdiction that included the wrongful acts. Court also considered whether forum selection clause operates as consent to jurisdiction and whether ‘related to’ language in clause applies to tort claims ‘related to’ the contract.

McDonald v. Whitewater Challengers, _ A _ (Pa. Superior Court 2015) – The place of accident governs contract under choice of law and exculpatory clause enforced.

Gucci America, Inc. v. Li, _ F.3d _ (__ Cir. 2015) – Court cannot assert general jurisdiction over foreign financial institution with local branch in absence of formation locally or principal office locally.

Ascension Insurance Holdings LLC v. Underwood, _ A. _ _ (Del.Ch. 2015) – Under Restatement of Conflict of Laws (Second) § 187, a choice-of-law clause providing for the application of Delaware law to a covenant not to compete not be enforced.

Cardoni v. Prosperity Bank, _ F.3d _ (5th Cir. 2015) – Employment contracts contained Texas forum-selection and choice-of-law clauses, as well as noncompetition and nonsolicitation covenants that were valid under Texas law. Applying Section 187 of the Restatement (Second), the court found that, in the absence of the choice-of-law clauses, Oklahoma law would govern the contracts, and then compared the policies of the two states – ‘Texas’s view

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which prioritizes parties’ freedom to contract and Oklahoma’s which emphasizes the right to earn a living and competition.’ The Court found that that Oklahoma had a greater interest in applying its law than Texas. The court examined the third prong of Section 187(2), which is whether the application of Texas law would violate a ‘fundamental policy’ of Oklahoma. The court answered ‘yes’ with regard to the noncompetition covenants and ‘no’ with regard to the nonsolicitation covenants.

Swan v. Santander Consumer USA, 2015 WL 1242767 (D. Md. 2015) – The debtors on a car loan were required to arbitrate, on a non-class basis, their claims against the secured party for violation of the Credit Grantor Closed End Credit provisions of the Maryland Commercial Law Code because the arbitration clause in the security agreement gives each party the right to impose arbitration and thus is not substantively unconscionable.

Taylor v. Santander Consumer USA, Inc., 2015 WL 5178018 (D. Md. 2015) – The debtors on a car loan were required to arbitrate their claims against the secured party for violating the Maryland Commercial Law Code in repossessing their vehicles because the debtor’s purchase orders, which contained the arbitration clause, had to be read together with simultaneously executed retail installment contracts. Although the arbitration allows the secured party to bring some claims in court, those exceptions did not invalidate the clause.

Martinez v. Bloomberg, 740 F.3d 211 (2d Cir. 2014) – Federal law determines the enforceability of a choice-of-court clause choosing foreign courts.

Lorely Financing v. Wells Fargo, _ F.3d _ (__ Cir. 2015) – Klaxon choice-of-law rule (Federal court applies state choice-of-law rule in diversity cases) should also apply when the Federal court’s jurisdiction is based on a Federal question, but the court is also considering state law claims. New York law of disclaimers requires that the disclaimer ‘contain explicit disclaimers of particular representations that form the basis of the fraud claim’.

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Hayes v. Delbert Services Corporation, _ F.3d _ (4th Cir. 2016) – A loan agreement provided that it was “subject solely to the exclusive laws and jurisdiction of the Cheyenne River Sioux Tribe.” It went on to provide that it was not “subject to the laws of any state of the United States of America.” The Court held that the provision was unenforceable. It distinguished Italian Colors on the basis that the Supreme Court in Italian Colors said that an arbitration clause could not waive the claim itself (there an antitrust claim), although it could make pursuing it really hard. In this case, the arbitration clause waived the claim itself (arising under Federal law) by purporting to say that Federal law did not apply (in the guise of a choice of law clause). It would have been as if the arbitration clause in Italian Colors said that the antitrust laws did not apply.

G. Damages and Remedies

Ace Secs. Corp., Home Equity Loan Trust, Series 2006-Sl2 v. Db Structured Prods., 25 N.Y.3D 581, 597, 15 N.Y.S.3D 716, 723 (2015), _ N.Y.3d _ (NY 2015) - A contractual demand requirement may be a “demand that is a condition to a party’s performance and a demand that seeks a remedy for a preexisting wrong.” If the latter, it does not affect the commencement of the statute of limitations.

Mahlum v. Adobe Systems Incorporated, _ F.Supp.2d _ (N.D. Calif. 2015) – An early termination fee is not ‘liquidated damages’ and thus not analyzed to determine if it’s a ‘penalty’.

Phillips v. Carlton Energy Group, LLC, SW _ (Texas 2015) – Lost profits damages must be proven with ‘reasonable certainty.’

Agam v. Gavra, _ Cal.App.4th _ (2015) – Plaintiff has burden of proof to show expenses arising from breach and defendant has burden to show that losses would have occurred anyway.

Diaz v. Kulber Corporation, _ F.3d _ (9th Cir. 2015) – Creditor may recover prejudgment interest under California law if the debt in question was certain or capable of being made certain at that time.

IX. Contracts

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PNC Bank, Nat. Ass’n v. Wolters Kluwer Financial Services, Inc., _ F.Supp.3d _ (S.D.N.Y. 2014) – Evaluates whether damages are ‘consequential’ or ‘direct’ and enforces exclusion of ‘consequential’ damages.

Calandrillo v. GoDaddy, _ N.J. _ (N.J. Superior Court 2015) – Economic loss doctrine applies where claim essentially seeks economic damages and relationship is contractual.

CHMM v. Freeman Marine Equipment, _ F.3d _ ( 9th Cir. 2015) – Discusses the ‘other property’ exception to the economic loss doctrine. The case concerned whether property added to a ship by the buyer before delivery was ‘other property’. The Court, applying California law, held that it was ‘other property’, summarizing the rule as follows: ‘Where the manufacturer of a product had no responsibility for manufacturing or assembling items that the user adds to the product, the user-added items are considered “other property” for purposes of the economic loss doctrine.’ The Court pointed out that the seller’s warranty would not typically apply to the buyer-added property, so that it was fair to allow the buyer to bring an action in tort for damage to the buyer-added property, which would not be an ‘end run’ on contract law.

In re Borsos, (Bankr. E.D.Calif. 2016) – A judgment debtor filed for bankruptcy. The creditor commenced a proceeding in the Bankruptcy Court to declare the debt nondischargeable. Under then existing law, the court ruled that the debt was nondischargeable and for that reason allowed the creditor to garnish the wages of the debtor, which it did ($15,000). The Supreme Court then ruled (in a different case) on an issue that prompted the Bankruptcy Court to reverse its earlier judgment of nondischargability. The debtor then sought restitution of the amounts that had been garnished. Citing to Restatement (Third) of Restitution sc 18, the court awarded restitution, for property taken based on a judgment subsequently reversed.

IX. Contracts

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Boston LLC v. Juarez, _ Cal.App.4th _ (2016) – A lease, as a contract, may be terminated only for a “material” breach. A “trivial” or “technical” breach is not sufficient. This is so even if the contract provides that a non-material breach is sufficient to allow the termination of the contract.

H. Arbitration

National Football League Management Council v. National Football League Players Ass’n (Brady), _ F.3d _ (2d Cir. 2016) - A court’s review of an arbitration award is “very limited.” The court is “not authorized to review the arbitrator’s decision on the merits despite allegations that the decision rests on factual errors or misinterprets the parties’ agreement.” The court may “inquire only as to whether the arbitrator acted within the scope of his authority as defined by the collective bargaining agreement. Because it is the arbitrator’s view of the facts and the meaning of the contract for which the parties bargained, courts are not permitted to substitute their own.”. The court’s “task is simply to ensure that the arbitrator was ‘even arguably construing or applying the contract and acting within the scope of his authority’ and did not ‘ignore the plain language of the contract.’”

Lexel Imaging Systems, Inc. v. Video Display Corp, 2015 WL 403140 (E.D.Ky. 2015) – Scope of arbitration clause does not require arbitration to determine if ‘default’ exists before secured party exercises self-help.

Kaveny v. OneMain Financial, Inc., 2015 WL 3491528 (Ill. Ct. App. 2015) – An arbitrator should have decided whether the debtor’s action against his secured party for violating the Illinois Vehicle Code by failing to release its lien and deliver a clean certificate of title within 21 days of when the secured obligation was paid off fell within the scope of the parties’ arbitration clause, which exempted from its scope actions ‘to the extent necessary to obtain a judicial order for the purpose of . . . establishing, perfecting or clearing title, with respect to an interest in property.’ However, the court had to determine whether the defendant was covered by

IX. Contracts

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the arbitration clause, which extended to the initial secured party and ‘its past, present or future respective parents, subsidiaries, affiliates, predecessors, assignees, [and] successors.’

Berent v. CMH Homes, Inc., 466 S.W.3d 740 (Tenn. 2015) – While a one-sided arbitration clause can be unconscionable, a clause that required arbitration of all claims except those falling within the jurisdiction of small claims court and the seller’s claims to enforce its security interest or to seek preliminary relief was not unconscionable because the seller provided a business justification for the limited exception for foreclosure proceedings. Consequently, the debtor’s claims against the seller for breach of contract, fraud, and violation of the Tennessee Consumer Protection Act were subject to arbitration.

Machado v. System4 LLC, Mass _ (Mass. 2015) – Court permitted a nonsignatory to bind a signatory to an arbitration agreement.

Pershing v. Bevis (cite) (Texas 2015) – No agreement to arbitrate.

Atalese v. U.S. Legal Services Group, L.P., A. _ (2014) – Arbitration clause not enforceable unless clearly discloses waiver of right to sue.

Sanford v. Bracewell & Guiliani, LLP, _ F.3d _ ( 3rd Cir. 2015) – A person that seeks to enforce a contract is equitably estopped from opposing enforcement of an arbitration clause in that contract by the other party.

Sanchez v. Valencia Holding Co., LLC, _ Cal. 3d _ (2015) – After Concepcion, FAA allows unconscionability evaluation if not directly concerning arbitration. Substantive unconscionability does not protect against ‘bad bargain.’

Williams v. Superior Court, _ Cal.App.4th _ (2015) – Because Private Attorney General Claim ‘innures’ to state under Iskanian, PAGA claim cannot be split into personal and non-personal aspects and none are arbitrable.

IX. Contracts

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Conway v. CLC Bio, LLC, _ NE _ _ (Mass. App. 2015) – Arbitrator has broad discretion to review scope of arbitration and under Italian Colors may decide statutory claims.

Royston, Rayzor v. Lopez, _ SW _ _ (Texas 2015) – Texas Supreme Court enforces an arbitration provision. It holds that a largely one-sided provision is not unconscionable (by characterizing the one-sidedness as a scope provision).

Natalini v. Import Motors Inc., _ Cal.App.4th _ (2015) (unpublished) – Party seeking arbitration must prove the existence of an agreement to arbitrate.

Lexel Imaging Systems, Inc. v. Video Display Corp., _ F.Supp.3d _, 2015 WL 403140 (E. D. Ky. 2015) – Scope of arbitration clause does not require arbitration to determine if ‘default’ exists before secured party exercises self-help.

Chesapeake Appalachia, LLC v. Scout Petroleum, LLC, _ F.3d _ (3d Cir. 2016) – The availability of class arbitration constitutes a ‘question of arbitrability’ to be decided by the court – and not the arbitrators – unless the parties’ arbitration agreement ‘clearly and unmistakably’ provides otherwise. Ordinary state law rules of contract interpretation are modified to include that requirement in this circumstance.

Credit Suisse Securities (USA) LLC v. Tracey, No. 15-345-Cv, _ F.3d _ (2d Cir. 2016) – FINRA rules do not prevent pre-dispute agreement to arbitrate before a non-FINRA forum.

Katz, Nannis & Solomon, P.C. v. Levine, __ NE __ (Mass. S.J.C. 2016) – The parties to a contract cannot vary by agreement the grounds for judicial review of an arbitration decision under the Massachusetts arbitration statute.

Case Del Caffe Vergnano S.P.A. v. Italflavors LLC, _ F.3d _ (9th Cir. 2016) – Enforceability of a contract that includes an arbitration clause is determined under Federal law, which applies “general

IX. Contracts

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principles” of contract law, usually as stated in the Restatement of Contracts (Second). Applying those principles, the court held that the contract was unenforceable because a simultaneous agreement between the parties said that the contract that included the arbitration agreement was of no effect. Thus the court concluded that that contract was a “sham.”

Conway v. Done Rite Recovery Services, Inc., 2015 WL 1989665 (N.D. Ill. 2015) – A debt collector that allegedly violated the Fair Debt Collection Practices Act and several state statutes could invoke the arbitration clause in agreement between the borrower and the secured party because the clause covered ‘any third party providing any good or services in connection with the origination, servicing and collection of amount due under the Contract.’

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X. OTHER LAWS AFFECTING COMMERCIAL TRANSACTIONS

A. Bankruptcy

1. Bankruptcy Estate

Cantor v. FDIC (In re Downey Financial Corporation), ___ F.3d ___ (3d Cir. 2015) – Tax sharing agreement did not create agency relationship because alleged principal did not ‘control’ alleged agent; thus property in possession of ‘agent’ was agent’s property.

2. Automatic Stay

In re Energy Futures Holdings Corp., 2015 Bankr. LEXIS 3701 (Bankr. D. Del. 2015) , affirmed 2016 U.S. Dist. LEXIS 48671 (D. Del. 2016) – Court refused to allow a creditor to obtain relief from the automatic stay to de-accelerate a debt. De-acceleration was important because the credit documents provided for a make-whole premium in the event of a voluntary prepayment, but not in the case of an ‘involuntary’ prepayment occurring upon automatic acceleration of the debt in the event of bankruptcy. The court cited the borrower’s counsel’s opinion’s bankruptcy exception as putting the secured parties on notice that the make-whole might not be due in the event of bankruptcy.

In re Caesars Entertainment Operating Co., Inc., _ B.R. _ (N.D.Ill. 2015) – Court would not enter injunction staying actions against non-bankrupt parent (guarantor of claims against debtor) of Chapter 11 debtor because claims not ‘sufficiently related’

3. Substantive Consolidation

4. Secured Parties, Set Off, Leases

In re ADI Liquidation Inc. (Bankr. Dela. 2015) – Debtor in Chapter 11 may use credits and overpayments owed to vendors (e.g., overpayments) to offset secured claims and administrative costs.

X. Other Laws Affecting Commercial Transactions

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Bank of America, N.A. v. Caulkett, 575 U.S. __ (2015) – The Supreme Court held that a Chapter 7 debtor may not void a junior mortgage lien under Bankruptcy Code § 506(d) when the debt owed on a senior mortgage lien exceeds the current value of the collateral if the creditor’s claim is both ‘secured’ by a lien and ‘allowed’ under Bankruptcy Code § 502. The Court relied on its decision in Dewsnup v. Timm, 502 U.S. 410 (1992), which construed the term ‘secured claim’ in § 506(d) to mean any claim supported by a security interest in property, regardless of whether the value of the property would be sufficient to cover the claim, which is fully allowed pursuant to § 502.

In re Domistyle, 2015 U.S. App. LEXIS 22787 (5th Cir. 2015) – Bankruptcy trustee was able to charge a secured lender for costs of preserving its collateral.

5. Avoidance Actions

In re Great Lakes Quick Lube LP, ___ (7th Cir 2016) - The termination of a lease could be a “transfer” for preference purposes. The Bankruptcy Code has an expansive definition of the term “transfer”, which includes each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with (i) property; or (ii) an interest in property.” 11 U.S.C. § 101(54)(D). The court concluded that valid prepetition lease terminations can be subject to avoidance in a subsequent bankruptcy, stating “[the debtor] had an interest in property—namely the leaseholds—which it parted with by transferring that interest to [the landlord]. That was a transfer to one creditor of what might have been an asset to [the debtor’s] other creditors had the transfer not taken place; and if so it was a preferential transfer and therefore avoidable.”

6. Executory Contract

7. Claims

Husky International Electronics v. Ritz, _ U.S. _ (2016) - A person can engage in “actual fraud” under Bankruptcy Code sc 523(a)(2)(A) without making a false representation. For this


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purpose, “actual fraud” “encompasses forms of fraud, like fraudulent conveyance schemes, that can be effected without a false representation”. The test can be satisfied if the debtor’s actions “impair” a creditor’s ability to collect the debt, such as in a fraudulent transfer.

Baker Botts LLP v. Asarco, LLC, _ U.S. _ (2015) – Bankruptcy Code Section 330(a) does not allow bankruptcy courts to award attorneys’ fees for defending their fee applications.

8. Plan

Bullard v. Blue Hills Bank, 575 U.S. __ (2015) – Bankruptcy court’s order denying confirmation of a Chapter 13 debtor’s proposed repayment plan is not a ‘final’ order and thus is not immediately appealable as long as the debtor has the right to propose an alternative plan. The Supreme Court reached this conclusion first and foremost ‘because only plan confirmation – or case dismissal – alters the status quo and fixes the rights and obligations of the parties’. (Emphasis added).

In re The Village at Lakeridge, LLC, _ F.3d _ (9th Cir. 2016) – A person who acquires a claim from a statutory “insider” is not automatically an “insider.” “Insider” refers to the claimant, not the claim, which does not itself carry “insider” status. A creditor could be a non-statutory insider if the creditor had a close relationship with the debtor and did not negotiate the relevant transaction at arm’s length. Thus the creditor was not precluded from certain votes in the debtor’s Chapter 11 proceeding.

In re Village Green I, GP, _ F.3d _ (6th Cir. 2015) – Artificial impairment in a plan is permissible. The court should inquire whether the plan was proposed in good faith.

9. Other

Wellness International Network, Ltd., et al. v. Sharif, 575 U.S. __ (2015). The Supreme Court held that Article III, §1, of the Constitution permits bankruptcy judges to adjudicate Stern v.


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Marshall claims with the parties’ knowing and voluntary consent. The Court concluded that ‘allowing bankruptcy litigants to waive the right to Article III adjudication of Stern claims does not usurp the constitutional prerogatives of Article III courts.’ Because bankruptcy judges are subject to control by the Article III courts, their work poses no threat to the separation of powers. Further, the Court found that litigants do not have to expressly consent to adjudication by the bankruptcy courts. Litigants consent can be implied based on ‘actions rather than words’ (quoting Roell v. Withrow, 538 U.S. 580, 589, 590 (2003)), so long as such consent is knowing and voluntary.

In re Lake Michigan Beach Pottawattamie Resort, LLC, (Bankr. N.D.Ill. 2016) – A provision in an LLC operating agreement by which a lender became a “special member” entitled to block a bankruptcy filing by the LLC was not effective because it effectively precluded the LLC’s right to file for bankruptcy. The opinion suggests that the court might have come out differently if the special member had been required by the operating agreement to consider the interests of the LLC rather than the lender’s own interests.

B. Consumer Law

Spokeo Inc. v. Robins, _ U.S. _ (2016) - A consumer cannot bring an action for technical violations of the Fair Credit Reporting Act. A court must consider whether an injury is both particularized and concrete to demonstrate Article III standing.

Pierre v. Planet Automotive, Inc., 2015 WL 5793316 (E.D. N.Y. 2015) – The voluntary assignee of a car loan from the dealership that sold the car could not be liable for the dealership’s alleged violation of the Truth in Lending Act relating to the sale of extended warranty coverage because the alleged violation did not appear on the face of the disclosure statement.

Vantu v. Echo Recovery, LLC, 85 F. Supp. 3d 939 (N.D. Ohio 2015) – A repossession company could be liable under the Fair Debt Collection Practices Act for the repossession of the debtor’s car at


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gunpoint because even though the enforcement of security interests generally does not constitute debt collection within the meaning of the act, a repossession company is a ‘debt collector’ for the purposes of _____ § 1692f(6), which prohibits taking of property when there is no present right to possession, and the enforcer of a security interest loses the right to present possession of the collateral by breaching the peace.

Jesinoski v. Countrywide Home Loans Inc., _ U.S. _ (2015) – Borrowers only have to notify creditors in writing of the borrower’s intention to rescind a mortgage within three years under the Truth In Lending Act. Borrowers do not have to file a lawsuit to rescind a mortgage within three years of the home loan’s issuance.

Hawkins v. Community Bank of Raymore, _ U.S. _ (2016) – A spousal guarantor may not bring a claim under the Equal Credit Opportunity Act because the spouse is not an ‘applicant’. The per curiam decision has the effect of affirming the Eighth Circuit’s decision, but is not precedential. There is a split in the circuits on this (the Sixth Circuit ruled the opposite in RL BB Acquisition, LLC v. Bridgemill Common Development Group, LLC, 754 F.3d 380 (6th Cir 2014)).

Prescott v. Seterus, Inc., 2015 U.S. App. LEXIS 20934 (11th Cir. 2015) – In consumer loan, lender could not collect estimated expenses of foreclosure/collection under FDCPA. Loan agreement did not expressly provide for collection of estimated future expenses/charges.

C. Professional Liability

Fulbright & Jaworski LLP v. Verano Land Group, LP, 2015 WL 481177 (Nev. 2015) No personal jurisdiction over out-of-state law firm.

Becker v. Bar Plan Mutual Insurance Co., 2015 WL 9459771 (Kan. Ct. App. 2015) – A malpractice insurer was not obligated to pay the claim against an insured lawyer who failed to conduct a proper UCC search or inform her client of a prior perfected security interest in the collateral because the policy provided coverage only for claims made and reported during the current policy period,


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not for claims as to which the insured had, in a prior policy period, knowledge of the act or omission constituting the basis of the claim but did not report the act or omission to the insurer. The client had, in a prior policy period, informed the lawyer of the lawyer’s error, stated that the lawyer had failed to comply with the applicable standard of care, claimed damages in an unknown amount, and advised the lawyer to notify her insurance carrier.

Peterson v. Katten Muchin Rosenman LLP, 792 F.3d 789 (7th Cir. 2015) – The bankruptcy trustee for some investor funds that made loans secured by nonexistent collateral stated a cause of action for malpractice against the law firm that failed to advise them that, by not confirming with the account debtor the existence of the accounts and structuring the transaction so that the funds putatively coming from the account debtor flowed through another entity owned and controlled by the borrower, there was a risk that the borrower was engaged in a massive Ponzi scheme.*

Vossoughi v. Polaschek, 859 N.W.2d 643 (Iowa 2015) – Creditor’s malpractice action against his attorney for failing to obtain a mortgage lien on real property and a perfected security interest in personal property accrued, for the purpose of the statute of limitations, when the debtor stopped making payments even though the creditor had learned of the attorney’s failure previously.

Elling v. Hauck, 2015 WL 5401653 (N.D. Ill. 2015) – The attorney for a corporate debtor, who prepared loan documentation and filed in the wrong jurisdictions financing statements intended to perfect a security interest in the debtor’s assets, owed no duty to the secured party – the chairman of the debtor’s board of directors – because there was no direct communication and no attorney-client relationship between the secured party and the attorney.

Rolnick v. Sight’s My Line, Inc., 2015 WL 9436697 (Tex. Ct. App. 2015) – Texas courts did not have personal jurisdiction over the Florida lawyer who recommended Texas counsel to assist a client in selling a chain of Texas stores to a Delaware corporation –


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which involved perfecting a security interest in the assets sold – and which counsel failed to file a financing statement in Delaware. The Florida lawyer’s only contacts with the Texas counsel were a few phone calls and e-mail exchanges, and he necessarily exercised his legal judgment in Florida.

Paul v. Patton (cite) (Cal. 2015) – Attorney may owe duty of care to trust beneficiaries.

Kumaraperu v. Feldsted, _ Cal.App.4th _ (2015) – Lawyers did not commit malpractice when they could not reasonable foresee that advice to client would lead to criminal prosecution.

Taylor v. Bell, 340 P. 3d 951 (Wash. App. 2014) – Client of a Washington law firm received a third-party opinion from Idaho counsel for the other party to a transaction. The opinion was wrong on an issue of Idaho law. The client sued the opinion giver for negligent misrepresentation and its own Washington law firm for malpractice. The court’s opinion suggests, at least in some circumstances, that obtaining for a client an opinion from counsel for the other party may not be sufficient to discharge the duty the recipient’s counsel owes its client with regard to the matters covered by the opinion.

Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Co., Inc., _ Cal.App.4th _ (2016) – When law firm engagement letter provided for application of California law, FAA did not apply. Thus question of legality of engagement agreement as a whole was for court, and not arbitrators, to decide. Due to conflict with another client, engagement letter was unenforceable. “Boilerplate” waiver of future conflicts was not effective on the facts because it was not “informed.”

Mosier v. Stonefield Josephson, Inc., _ F.3d _ (9th Cir. 2016) – Receiver for company sued accountants who audited company’s financial statements. Company obtained investors and receiver alleged that incorrect financials kept company going longer than it should have. Company had to show loss “caused” by incorrect financial statements, which would include showing reliance. Court held


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that company (run by fraudsters) could not rely on incorrect financial statements. Nor was there any evidence that outsiders relied.

RBC Capital Markets, LLC v. Jervis, A.3d _, 2015 WL 7721882 (Del. 2015) – A financial advisor was liable for aiding and abetting breaches of fiduciary duty by directors of a corporation during a sale of control transaction if the financial advisor “knowingly participated” in the breach by “exploiting its own conflicted interests to the detriment of [the corporation] and by creating an informational vacuum.” The Court characterized its holding as “narrow”. A third party has this liability if it “knows that the board is breaching its duty of care and participates in the breach by misleading the board or creating the informational vacuum.”.

Paul v. Patton, ___ Cal.App.4th ___ (Calif. 2015) – Attorney for settlor of trust may owe duty of care to trust beneficiaries.

Ontiveros v. Constable, _ Cal.App.4th _ (2016) – A lawyer could not concurrently represent a corporation and its majority shareholder in a dispute with a minority shareholder. The majority shareholder could not consent on behalf of the corporation because the shareholder’s interests were adverse to the corporation’s interests. A minority shareholder has standing to seek disqualification of the lawyer.

Excelsior Capitol LLC v. K & L Gates LLP, _ A.D.3d _ (_ Dep’t 2016) – The court considered a claim for a law firm’s alleged malpractice. The trial court in a matter seeking to enforce the relevant, underlying transaction documents prepared by the law firm ruled in a way that suggested that a law firm had been negligent in preparing those documents. In that matter, an appellate court reversed the trial court. In the following malpractice action, the former client sought damages based on its cost of appealing the matter from the erroneous trial court decision in the enforcement action. The court in the malpractice action held that the law firm had not committed malpractice in handling the transaction. The appellate court also held that the law firm was not liable for the


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costs of appeal in the action on the documents because ‘The trial court’s error in that enforcement action was ‘independent of or far removed from the [attorney’s] conduct,’ and therefore constituted an intervening cause, breaking any proximate cause by the defendants [the law firm].’

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