Case Type:
Case Status:
Reversed and Remanded
21-11742 (11th Circuit, Sep 29,2022) Published
The 11th Circuit reversed the district court’s order affirming the bankruptcy court’s grant of appellee’s motion for summary judgment. The 11th Circuit concluded, based on a finding from the Florida Supreme Court to which the 11th Circuit had certified three questions, that the statutory safe harbor for financing statements that fail to correctly name the debtor did not apply to appellee’s financing statement and thus appellee’s financing statement was “seriously misleading” rendering appellee’s security interest in appellant’s property not properly perfected. The 11th Circuit remanded.
Procedural context:
Appellant 1944 Beach Boulevard, LLC initiated an adversary proceeding arguing that appellee Live Oak Banking Company’s liens were unperfected and subject to avoidance pursuant to § 544(a) of the Bankruptcy Code. The parties filed cross-motions for summary judgement. The bankruptcy court granted Live Oak’s motion for summary judgment, concluding that “safe harbor” of Florida Statute § 679.5061(3) applied to render the perfection effective. Beach Boulevard appealed. The district court affirmed, and Beach Boulevard appealed again. The 11th Circuit deferred decision and certified three questions of Florida law to the Florida Supreme Court, which in turn considered a separate threshold question it found dispositive of the issues on appeal before the 11th Circuit. The case thus returned to the 11th Circuit.
1944 Beach Boulevard, LLC, and its affiliated businesses, filed voluntary petitions for relief under chapter 11. Prior to the filing of the bankruptcy petitions, Beach Boulevard was liable on two loans owed to Live Oak Banking Company. To secure the loans, Live Oak filed two UCC-1 Financing Statements with the Florida Registry. Both filings identified the debtor as “1944 Beach Blvd., LLC” instead of its legal name “1944 Beach Boulevard, LLC.” Because its correct legal name was not used on the financing statements, Beach Boulevard argued that Live Oak’s financing statements were “seriously misleading” under Florida Statute § 679.5061(2) and perfection of the liens was ineffective. Beach Boulevard asked the bankruptcy court to avoid the unperfected liens. In response, Live Oak sought refuge under the safe harbor provisions of Florida Statute § 679.5061(3), which protects perfection if a search of the records using the debtor’s correct legal name “using the filing office’s standard search logic, if any, would disclose” the existence of the financing statements which used the debtor’s incorrect name. It was uncontested that a search of the Florida Registry using the debtor’s correct name did not result in Live Oak’s liens being displayed on the first page of search results. Search results of debtor names in the Registry display in alphabetical order. So, if a search of Beach Boulevard’s correct legal name is conducted, Live Oak’s liens would be displayed if the searcher pressed the “PREVIOUS” tab once to navigate to the prior page of search results. Live Oak argued that the safe harbor applied because the liens would be disclosed from a search using the debtor’s correct legal name if the searcher navigated backwards from the initially displayed search results. The bankruptcy court, and subsequently the district court, agreed with Live Oak that the backwards navigation method of searching the Registry, which displayed Live Oak’s liens, was sufficient for the safe harbor to apply. Reviewing the questions certified to it by the 11th Circuit, the Florida Supreme Court recognized the resolution of the controversy was not as complex as it had been made. The Florida Supreme Court determined that Florida does not even employ a “standard search logic.” Because the safe harbor of Florida Statute § 679.5061(3) requires “standard search logic” to be employed, the Florida Supreme Court concluded the safe harbor was not triggered in this case. Based on this clarification from the Florida Supreme Court, the 11th Circuit found that Live Oak did not perfect its security interest in Beach Boulevard’s assets. The 11th Circuit thus reversed and remanded, holding that the district court erred in affirming the bankruptcy court’s order granting Live Oak’s motion for summary judgment.
Newsom, Lagoa, Anderson

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