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What is in a name? Eleventh Circuit holds there is no safe harbor for UCC errors in Florida

Ruthanne Hammett James Gambulos October 19, 2022

A recent bankruptcy ruling from the U.S. Court of Appeals for the Eleventh Circuit  [1] demonstrated how the simple abbreviation of a debtor’s name on a UCC1 financing statement can have costly implications for creditors whereby a creditor who has timely filed an otherwise proper UCC1 financing statement can be deemed unperfected.  The Eleventh Circuit’s September 29th ruling held that an all-assets UCC1 filing with the Florida Secured Transaction Registry by creditor Live Oak Banking Co. (“ Live Oak ”), in connection with a $3mm loan from Live Oak to “ 1944 Beach Boulevard LLC” (“ 1944 Beach ”) was “materially misleading” due to the fact that the UCC1 filing listed 1944 Beach’s name as “ 1944 Beach Blvd. LLC”, thus enabling 1944 Beach to invoke Section 544 [2] of the U.S. Bankruptcy Code to avoid Live Oak’s defectively perfected security interest.

Pursuant to Article 9 of the model Uniform Commercial Code (which has been adopted in Florida, along with all other states) (“ Article 9”) a financing statement must provide the “name of the debtor” which, for registered organizations is the “name on the public organic record most recently filed with or issued or enacted by the registered organization's jurisdiction of organization that purports to state, amend, or restate the registered organization's name.”[3]  Under this standard, the seemingly innocuous abbreviation of “Boulevard” to “Blvd.” in Live Oak’s financing statement proved fatal as the name specified in 1944 Beach’s Articles of Organization on file with the Florida Secretary of State included no such abbreviation.

Live Oak sought to invoke a defense under Florida’s Article 9 safe harbor, which provides that minor errors or omissions in a financing statement will only render such financing statement ineffective if such errors or omissions make the financing statement “seriously misleading."[4] Under Florida’s Article 9, determining if such an error or omission is “seriously misleading” is determined by whether or not a search of the records of the filing office under the debtor's correct legal name, using the filing office's standard search logic, if any, discloses such financing statement. [5]

Responding to a certified question from the Eleventh Circuit in this case[6], the Florida Supreme Court found that the Florida Secured Transaction Registry, which is designed to return a list of twenty entity names, beginning with the entity name that most closely matches the name entered and which is a point from which the search user can endlessly navigate forward and backward through the entirety of all entities indexed in the Florida search registry, actually has “no standard search logic” at all as a “search procedure that returns as hits, for any search string, all financing statements in the filing office's database cannot rationally be treated as a ‘standard search logic.’”[7] The Florida Supreme Court concluded that the Florida Secured Transaction Registry’s lack of “any standard search logic” renders the safe harbor described above unavailable as a defense.[8]  Accordingly, the Eleventh Circuit held that any error in the name of a registered organization on a financing statement filed in Florida is by definition “seriously misleading”, thereby rendering such financing statement ineffective. [9]

While the Eleventh Circuit’s ruling in this case is limited to filings in Florida, this case is a reminder to all creditors of the need for consistent due diligence and accuracy when preparing any UCC1 financing statement in any jurisdiction.  Such due diligence should include reviewing a debtor’s legal name as it is listed on a recently certified copy of its underlying charter documents in its jurisdiction of organization, and ensuring that such debtor’s name on a proposed UCC1 financing statement mirrors such.  While this case is a harsh reminder of how seemingly innocuous errors on a financing statement can have costly consequences, such risks can be greatly reduced by ensuring that proper due diligence processes are consistently adhered to prior to filing any financing statement. 

If you have any questions about this case, its implications, or anything else relating to UCC financing statements, please contact us.

James Gambulos and Ruthanne Hammett are members of Thompson Coburn’s Banking and Commercial Finance group.

[1] 1944 Beach Boulevard, LLC v. Live Oak Banking Co.  (In re NRP Lease Holdings, LLC), No. 21-11742 (11th Cir. Sept. 29, 2022)

[2]  Under Section 544 of the U.S. Bankruptcy Code, bankruptcy trustees and debtors in possession are given the status of a perfected lien creditor with priority over all unperfected security interests

[3] Fla. Stat. § 679.5021(1)(a)

[4] Fla. Stat. § 679.5061(1) 

[5] Fla. Stat. § 679.5061(3)  

[6] 1944 Beach Boulevard v. Live Oak Banking Co. (In re NRP Lease Holdings, LLC), 20 F.4th 746 (11th Cir. 2021)

[7] 1944 Beach Boulevard, LLC v. Live Oak Banking Co, 2022 WL 3650803, at *1 (Fla. Aug. 25, 2022

[8] Id

[9] 1944 Beach Boulevard, LLC v. Live Oak Banking Co.  (In re NRP Lease Holdings, LLC), No. 21-11742 (11th Cir. Sept. 29, 2022)