Eleventh Circuit Maintains Florida’s UCC Register Subject to ‘Zero Tolerance Rule’ on Correct Borrower Designation | King and Spalding


On September 29, 2022, the United States Court of Appeals for the Eleventh Circuit, applying the Florida Supreme Court’s answer to a certified question, ruled that a creditor who had filed a UCC-1 financing statement under an abbreviated version of the borrower’s name had failed to properly perfect its security interest and overturned bankruptcy and district court orders that the financing statement was valid under a safe harbor provision. Live Oak Banking Company made two loans to 1944 Beach Boulevard, LLC and attempted to secure the loans with a general lien on all Beach Boulevard assets. On both UCC-1 financing statements, Live Oak identified the debtor as “1944 Beach Blvd., LLC”, instead of “1944 Beach Boulevard, LLC”, which was the name on the Articles of Incorporation filed with the Secretary of Florida. of state. After filing for bankruptcy, Beach Boulevard sought to invalidate Live Oak’s security interest on the grounds that the financial statements were “grossly misleading” under the UCC.

Bankruptcy and district courts found that the financing statements were effective under the safe harbor provision of the UCC because the registry’s standard search logic disclosed the financing statements on the page immediately preceding the initial page on the registry website. The Florida Supreme Court, to which the Eleventh Circuit certified the issue on appeal, indicated that the determinative question is whether the filing office’s use of “standard search logic” is necessary to trigger the UCC safe harbor protection. The Florida Supreme Court found that this was the case, but also that the Florida Secured Transaction Registry did not use standard search logic because it returned as results all funding statements in the bureau’s database. deposit. Such a search procedure “cannot rationally be treated as ‘standard search logic'”. Based on these guidelines, the Eleventh Circuit concluded that because the registry lacked “standard search logic”, no search would ever be eligible except for Safe Harbor, which means that “filers end up with the zero tolerance rule”. Thus, the Court ruled that any financing statement that fails to correctly name the debtor is “grossly misleading” and ineffective.

The case is 1944 Beach Boulevard, LLC v Live Oak Banking Co. (In re NRP Lease Holdings, LLC), no. 21-11742 (11th Cir. 29 Sept. 2022). Live Oak is represented by Ezra Scrivanich & Associates, PA. 1944 Beach Boulevard is represented by Thames Markey, PA. The opinion is available here.


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