- No. 15-1967 (8th Cir. Sept. 20, 2016)
- The 8th Circuit reversed the decision of the district court (E.D. Mo. - St. Louis), finding the trial court erred in ruling that a creditor's foreclosure extinguished its rights to pursue proceeds of its original collateral. The 8th Circuit determined that creditor did not have an interest in an interpled settlement payment as an "after acquired general intangible." The drafters of the UCC, in implementing the heightened identification requirements of commercial tort claims including the requirement that the commercial tort claim to be in existence at the time it is encumbered, intended for the proceeds of a commercial tort claim to be excluded from an after-acquired general intangible clause. However, creditor did have an interest in the Settlement Payment to the extent the payment was for damage to the original collateral, and settlement represented proceeds of original collateral. Foreclosure sale on tangible collateral did not extinguish creditor's security interest in proceeds. The circuit court remanded to the district court to determine what part of the sum held in the registry of the court constituted proceeds of the original collateral.
- Procedural context:
- Plaintiff sued supplier in Texas state court; state court action was removed to federal court and made part of an ongoing multi-district litigation; plaintiff and defendant reached a settlement, with defendant paying settlement into the custody of the court as interpleader. Plaintiff's creditors asserted claims to funds, and cross moved for summary judgment. Trial court ruled against one creditor; creditor appealed to 8th Circuit.
- Debtor sued Bayer for damages allegedly related to contaminated, GMO rice. Debtor asserted damages to certain fixtures and equipment arising out of contamination. Debtor owed two banks an amount that exceeded Debtor's available assets. Each creditor asserted a superior priority interest in the proceeds. Stearns Bank asserted a perfected security interest senior to rights of Amegy Banks. Amegy held express security interest in debtor's tort claims. Stearns Bank argued that its senior security interest in "general intangibles" encompassed the settlement proceeds, as proceeds of its original collateral, which included fixtures and equipment that had allegedly been damaged by Bayer's negligence. Stearns Bank had conducted foreclosure sale on collateral, and purchased at strict foreclosure. However, Stearns Bank's security interest had attached to the right of recovery for damages to the equipment. To the extent that the Settlement Payment from Bayer to Texana included payment for damages to Stearns Bank’s original collateral, those sums were covered by Stearns Bank's original security agreement.
- Wollman, Benton, Shepherd
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