Pub. 9 2014-2015 Issue 5

www.nebankers.org 12 Extraordinary Service for Extraordinary Members. I T’S THAT TIME OF YEAR AGAIN, TIME for resolutions and time for break- ing them. Here’s one that will definitely ring in the New Year: Get the Debtor Name Right. Sticking with this resolution will pay off in 2015 and beyond. Host America Corp. v. Coastline Fi- nancial, Inc. 1 is one of those cases cited from time to time to serve as a reminder about correctly recording a debtor’s name on a UCC-1 financing statement. Host America is not a particularly recent case, having been decided in 2006 by the United States District Court for the Dis- trict of Utah. Nor is the holding in Host America particularly troubling—the first creditor’s UCC-1 filing was ineffec- tive against a later creditor because the first creditor incorrectly recorded the debtor’s name. Upon finding that the first creditor failed to correctly provide the name of the debtor on the financ- ing statement as required by UCC § 9-503(a) and that the safe harbor for minor errors under UCC § 9-506(c) was unavailable to the creditor, the District Court concluded that the first creditor’s UCC-1 was seriously misleading as a matter of law under § 9-506(b), thus rendering the filing ineffective against COUNSELOR’S CORNER New Year’s Resolution: Get the Debtor Name Right Revisiting Host America & Thoughts About UCC Searches Thomas Roubidoux , Kutak Rock LLP the later-in-time creditor under UCC § 9-506(a). Host America does, how- ever, present some interesting facts and provides a convenient springboard to rethink a few practices in connection with UCC searches. The Facts Behind Host America In brief, Host America Corporation filed a UCC-1 financing statement with the Utah Department of Commerce, 2 listing the debtor as “K W M Electron- ics Corporation,” with spaces appearing between the letters “K,” “W,” and “M.” A little over a year after the Host America UCC-1 was filed, Coastline Financial, Inc. obtained and perfected its lien on the same collateral. 3 Although the District Court acknowledged there was some confusion regarding the precise name of the debtor, one thing that was not in dispute was that the correct name of the debtor included periods immedi- ately following each of the letters. 4 Host America filed its declaratory action with the District Court as to the priority of its security interest against Coastline and moved for summary judgment, claiming that its interest was superior to Coast- line’s on the basis that Host America had perfected its security interest prior to Coastline. In denying Host America’s motion for summary judgment (and, in the process, granting Coastline’s own cross motion for partial summary judgment as to Coastline’s priority), the District Court concluded that the debtor’s name identified in the Host America initial financing statement (i.e., without pe- riods) was incorrect and therefore did not meet the requirements of Utah’s version of UCC § 9-503(a)(1), 5 a defect 1 No. 2:06CV5, 2006 WL 1579614 (D. Utah May 30, 2006). 2 Host America’s debtor (K.W.M.) was a corporation organized under Utah law, hence the UCC filing was correctly made in the Utah filing office. As a technical matter, Host America acquired the loan and related security interest from the originating lender. It was this originating lender who had prepared and filed the initial financing statement at issue. 3 Again, as a technical matter, Coastline was actually a judgment creditor following an unlawful detainer action for rent. Coastline’s lien attached to goods covered by Host America’s financing statement when Coastline obtained a writ of attachment after which it seized the goods in execution on the writ. Although Coastline did not “perfect” its lien in the UCC sense (since Coastline’s judgment lien and its execution arise under other law instead of the UCC), Coastline’s execution on its writ has a practical and legal effect substantially identical to that enjoyed by a secured party holding a perfected security interest under the UCC. 4 In an attempt to rectify the error in the initial financing statement, Host America later made two more UCC filings, one adding periods to the debtor’s name (“K.W.M.”) and again to add not just the periods but also a space between “K.” and “L.” (“K. L.M.”) in the debtor’s name. Unfortunately, these filings came too late to cure Host America’s initial financing statement (the later filings were made after Coastline acquired its perfected lien), thus saving the District Court the trouble of determining which (or, perhaps, if) one of these two variations was, in fact, correct. 5 See § 9-503(a), which states that “[a] financing statement sufficiently provides the name of the debtor: (1) if the debtor is a registered organization, only if the financing statement provides the name of the debtor indicated on the public record of the debtor’s jurisdiction of organization . . .”) (emphasis added). As already stated, the debtor’s name as “indicated on the public record” in Utah included periods following each of the letters “K” “W” and “M” of the debtor’s name, while Host America’s financing statement did not.