IN RE: I80 EQUIPMENT, LLC, Debtor, FIRST MIDWEST BANK, Plaintiff-Appellant, v. JEANA K. REINBOLD, not individually but solely in her capacity as Chapter 7 Trustee of the Estate of I80 Equipment, LLC, Defendant-Appellee.
No. 18-3291
United States Court of Appeals For the Seventh Circuit
Argued April 9, 2019 — Decided September 11, 2019
Appeal from the United States Bankruptcy Court for the Central District of Illinois. Nos. 18-08003 & 17-81749 — Thomas L. Perkins, Chief Bankruptcy Judge.
Before KANNE, BARRETT, and BRENNAN, Circuit Judges.
The facts necessary to resolve this appeal are straightforward. The debtor, I80 Equipment, LLC, is a business in Illinois that purchased and refurbished trucks for resale. I80 Equipment obtained a commercial loan from First Midwest Bank. To ensure repayment, the parties executed an agreement on March 9, 2015, which granted First Midwest a security interest in substantially all of I80 Equipment’s assets. These were described in twenty-six listed categories of collateral, such as accounts, cash, equipment, instruments, goods, inventory, and all proceeds of any assets.1 To perfect its interest in I80 Equipment’s assets, First Midwest timely filed a financing statement with the Illinois Secretary of State. The financing statement purported to cover “[a]ll Collateral described in First Amended and Restated Security Agreement dated March 9, 2015 between Debtor and Secured Party.”
Two years later, I80 Equipment defaulted on the loan and filed a voluntary bankruptcy petition under Chapter 7. The court appointed a trustee to manage the bankruptcy assets. First Midwest sued the trustee, seeking to recover $7.6 million on the loan. It also filed a declaration that its security interest in I80 Equipment’s assets was properly perfected and senior to the interests of all other claimants, including the trustee. The trustee countered that First Midwest’s security interest was not properly perfectеd because its financing statement did not independently describe the underlying collateral, but instead incorporated the list of assets by reference to the parties’ security agreement. The trustee also asserted a counterclaim to avoid First Midwest’s lien pursuant to
The bankruptcy court agreed with the trustee and ruled that “[a] financing statement that fails to contain any dеscription of collateral fails to give the particularized kind of notice” required by Article 9 of the UCC. With First Midwest’s consent, the trustee sold the estate’s assets for approximately $1.9 million and holds the net proceeds pending resolution of this dispute. The parties jointly certified under
On appeal, neither the validity of the loan nor the legitimacy of First Midwest’s security interest is in question. The trustee maintains only that First Midwest’s lien is avoidable because the financing statement failed to properly indicate the secured collateral, and First Midwest disagrees.
II
We review de novo questions of statutory interpretation. In re Robinson, 811 F.3d 267, 269 (7th Cir. 2016); United States v. Webber, 536 F.3d 584, 593 (7th Cir. 2008). When answering a nоvel question of state law, we look to “relevant state precedents, analogous decisions, considered dicta, scholarly works, and any other reliable data tending convincingly to show
In Illinois courts, statutory construction starts with thе statutory language itself. People v. Grant, 52 N.E.3d 308, 313 (Ill. 2016). If that language—given its plain and ordinary meaning3—is clear and unambiguous,4 “the court must give it effect and should not look to extrinsic aids for construction.” In re Robinson, 811 F.3d at 269; see also Home Star Bank & Fin. Servs. v. Emergency Care & Health Org., 6 N.E.3d 128, 135 (Ill. 2014) (when construing a statute, “[i]t is improper for a court to depart from the plain statutory language by reading into the statute exceptions, limitations, or conditions that conflict” with the expressed text); LaSalle Bank Nat’l v. Cypress Creek 1, LP, 950 N.E.2d 1109, 1113 (Ill. 2011) (when plain language is “clear and unambiguous, we will apply it as written”); Webber, 536 F.3d at 593 (“When the plаin wording of the statute is clear, that is the end of the matter.”).
We can give statutes their plain and ordinary meaning by applying contemporaneous dictionary definitions, Landis v. Marc Realty, LLC, 919 N.E.2d 300, 304 (Ill. 2009), and by reading the statutes in their entirety. Home Star Bank, 6 N.E.3d at 135 (statutory “[w]ords and phrases should not be viewed in isolation, but should be considered in light of other relevant provisions of the statute”). As the Illinois Supreme Court has explained: “A court must view the statute as a whole, construing wоrds and phrases in light of other relevant statutory provisions and not in isolation. Each word, clause, and sentence of a statute must be given a reasonable meaning, if possible, and should not be rendered superfluous.” People v. Perez, 18 N.E.3d 41, 44 (Ill. 2014) (citation omitted); see also In re Melching, 589 B.R. 846, 848–52 (Bankr. S.D. Ill. 2018) (court considered “the entire statutory scheme” when interpreting Illinois exemption statute). We apply these principles of interpretation to the statutes in this case.
A
At issue here is the text of Article 9 of the UCC,
According to
A financing statement that substantially satisfies these requirements is effective, even if it has minor errors or omissions that are not “seriously misleading.”
We must decide whether the statutory language of Article 9 requires that the four corners of the financing statement include a specific description of the secured collateral (either by type, category, quantity, etc.), or if incorporating such a description by reference to a security agreement sufficiently “indicates” the collateral.
The text of
In 2001, the Illinois version of the UCC was revised to no longer require that the financing statement “contain” a description of the collateral; after revision the statement must only “indicate” collateral. Under the revisions, “[a]n indication may satisfy the requirements of Section 9-502(a), even if it would not have satisfied the requirements of former Section 9-402(1).”
This section adopts the system of “notice filing.” What is required to be filed is not, as under pre-UCC chattel mortgage and conditional sales acts, the security agreement itself, but only a simple record providing a limited amount of information (financing statement). … The notice itself indicates merely that a person may have а security interest in the collateral indicated. Further inquiry from the parties concerned will be necessary to disclose the complete state of affairs.
serve as a “signal” that “point[s] out” or “direct[s] attention to” an underlying security interest.6 That plain reading of the text
This interpretation reflects how we and other courts have understood the UCC’s notice function. For example, we have recognized that Article 9 ensures “adequate public notice” of liens and security interests, In re Blanchard, 819 F.3d 981, 988 (7th Cir. 2016), and that “the goal of the filing system is to make known to the public whatever outstanding security interests exist in the proрerty of debtors.” Id. at 986 (citing In re Hoeppner, 49 B.R. 124 (Bankr. E.D. Wis. 1985)); see also Helms v. Certified Packaging Corp., 551 F.3d 675, 679 (7th Cir. 2008) (“The purpose of the financing statement is to put third parties on notice that the secured party who filed it may have a perfected security interest in the collateral described, and that further inquiry into the extent of the security interest is prudent.”) (citations and quotations omitted); In re Grabowski, 277 B.R. 388, 391 (Bankr. S.D. Ill. 2002) (holding the same). This is so Article 9 does not “create a windfall for a bankruptcy estate or a minefield for lenders.” In re Blanchard, 819 F.3d at 988–89 (citation omitted).
The financing statement itself is an “abbreviation of the security agreement.” Helms, 551 F.3d at 679. “It is a streamlined paper to be filed for the purpose of giving notice to third parties of the essential contents of the security agreement.” Id. (citation omitted); see also Grabowski, 277 B.R. at 391 (financing statement not required to share same level of detail as security agreement).
The security agreement defines and limits the collateral, while the financing statement puts third parties on notice that a creditor may have an existing security interest in the property and further inquiry may be necessary. In re Grabowski, 277 B.R. at 391. In recognizing this distinction between financing statements and security agreements, this court has said:
The purpose of the financing statement is to place would-be subsequent creditors on notice that а creditor has a security interest in the debtor’s property; it is the security agreement …
that defines that interest and by defining limits it. … The security agreement embodies the intention of the parties and is the document which creates the security interest. … The financing statement on the other hand need not particularize in detail the collateral secured under the security agreement because in accordance with the “notice filing” concept adopted under the [UCC] a financing statement serves to give notice that the secured party who filed may have a security interest in the collateral and that further inquiry with respect to the security agreement will be necessary to disclose the complete state of affairs.
Helms, 551 F.3d at 680 (citations and quotatiоns omitted). “Hence less detail is required in the financing statement.” Id.
B
Bankruptcy courts for all three districts in Illinois have recognized this distinction and have noted that incorporation by reference is an available method for describing collateral. The Southern District of Illinois bankruptcy court has held that a financing statement was sufficient to perfect a bank lender’s interest “[d]espite the generality of the Bank’s description” of collateral. In re Grabowski, 277 B.R. at 392. In Grabowski, Bank of America filed a financing statement indicating it had a lien on the debtor’s property consisting of “all inventory, chattel paper, accounts, equipment, and general intangibles.” Id. at 391-92. The court rejected the subsequent creditor’s argument that the description was “too general,” finding it still “fulfill[ed] the notice function of a finаncing statement under the UCC,” even though the financing statement misstated the debtor’s property address and did not otherwise specifically identify the security interest. Id. at 392. The court noted that “only a super-generic” description—such as “all the debtor’s assets” or “all the debtor’s personal property” without any limiting factor—is insufficient under the reasonable identification standard of
The Central District of Illinois bankruptcy court in In re Duesterhaus Fertilizer ruled that a financing statement with a collateral description incorporated by reference to the previous financing statement was insufficient under Article 9 because the previous statement had lapsed. 347 B.R. 646 (Bankr. C.D. Ill. 2006). The new financing statement included “no indication of collateral whatsoever,” and even the reference to the previous, lapsed statement did not specify that a description of the collateral subject to the security interest could be found there. Id. at 650. Even so, the court embraced incorporation by reference as an available method for indicating collateral, at least in new or “continuing” financing statements: “Absent an express state law requirement that the continuation statement contain a description of collateral, reference to another document in the same public record would appear to meet the notice requirements.” Id. at 651.
Two years before In re Duesterhaus, the bankruptcy сourt for the Northern District of Illinois suggested incorporation by reference may satisfy the UCC’s collateral description requirements for financing statements. In re Macronet Group, Ltd., 2004 WL 2958447 (Bankr. N.D. Ill. 2004). Ultimately the court held that the lender’s security interest failed to attach to the debtor’s collateral. Id. at *5. But that decision was based on the absence of an authenticated underlying security agreement from which the idеntity of the collateral could be objectively determined, not the
The approach of these courts to financing statements supports the conclusion that incorporation by reference is permissible in Illinois as “any other method” under
III
The plain and ordinary meаning of Illinois’s revised version of the UCC allows a financing statement to indicate collateral by reference to the description in the underlying security agreement. This interpretation is reinforced by how Illinois bankruptcy courts construe these statutes. For these reasons, we hold that the trustee is not entitled to avoid First Midwest’s lien under the Bankruptcy Code.
We REVERSE and REMAND for further proceеdings in the bankruptcy court.