489 B.R. 688
Bankr. N.D. Ohio2013Background
- Trustee files cross-motions for summary judgment seeking declaration that Bank lacks a perfected security interest in Debtor Gamma Center, Inc.'s accounts receivable and collected funds.
- Bank and Reddy assert a composite intent to secure proceeds and products of the Camera through the Security Agreement, and that perfection occurred via the filing of a UCC Financing Statement.
- Financing Statement (Ohio) filed December 30, 2004; continuation filed December 22, 2009; collateral described includes the Camera and related equipment and proceeds/products.
- Debtor filed Chapter 7; schedules list accounts receivable valued at $325,653.33, with net collected funds by Plaintiff of $91,353.90.
- Security Agreement describes collateral as the Camera and related equipment; unchecked box for 'Accounts and Other Rights to Payment' creates a dispute as to whether accounts are collateral.
- Courts analysis under Ohio law (UCC Article 9) focuses on sufficiency of collateral description and whether accounts receivable are proceeds or products of the Camera.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the Security Agreement create a security interest in accounts receivable as proceeds? | Whipple: accounts receivable not described as collateral; proceeds not adequately defined. | Bank/Reddy: proceeds clause covers accounts receivable as collateral under composite intent. | No security interest in accounts receivable. |
| Are accounts receivable proceeds of the Camera under the UCC definition? | Accounts receivable do not arise from the Camera's disposition; not proceeds. | Accounts receivable are 'proceeds' of collateral because collected on account of collateral. | Accounts receivable are not proceeds. |
| Are accounts receivable 'products' of the Camera per the UCC? | Accounts receivable are debt rights, not yield or return; not products. | Accounts receivable are products of the Camera under the security interest. | Accounts receivable are not products. |
| Is the Security Agreement sufficiently described to create a security interest in accounts receivable? | Unchecked box and broad language fail to describe accounts receivable as collateral. | The language purports to cover proceeds/products and box indicates intent. | Security Agreement does not create a security interest in accounts receivable. |
Key Cases Cited
- In re Standard Foundry Products, Inc., 206 B.R. 475 (Bankr.N.D. Ill. 1997) (burden to prove security interests; description sufficiency)
- Martin Grinding & Machine Works, Inc., 793 F.2d 592 (7th Cir. 1986) (extrinsic evidence cannot enlarge security interest)
- Butner v. United States, 440 U.S. 48 (Supreme Court 1979) (state law governs construction of liens)
- In re S & J Holding Corp., 42 B.R. 249 (Bankr.S.D. Fla. 1984) (security interest in equipment did not attach to cash from use)
- Carmona v. Toledo, 215 F.3d 124 (1st Cir. 2000) (evidence must support summary judgment; conclusory statements insufficient)