MAIN STREET BUSINESS FUNDING, LLC V JOHN P. LANE, JR.
- Summarized by David Banker , Womble Bond Dickinson
- 4 months 4 days ago
- Case Type:
- Business
- Case Status:
- Affirmed
- Citation:
- No. 23-2430 (3rd Circuit, Sep 05,2024) Not Published
- Tag(s):
-
- Ruling:
- Proceeds from embezzlement litigation was not collateral of a loan where the security agreement did not describe the litigation. Pennsylvania’s Article 9 of the Uniform Commercial Code ("UCC"), 13 Pa. Cons. Stat. § 9203(b)(2), (b)(3)(i). The UCC requires commercial tort claims be described with sufficient particularity. UCC § 9108(e)(1). Under PA's "gist of the action” doctrine, the embezzlement litigation “as a whole . . .boil[ed] down to a . . . commercial tort claim” as defined in UCC § 9102(13). Because the litigation did not qualify as collateral, nor did the proceeds.
- Procedural context:
- United States Court of Appeals for the Third Circuit affirmed the District Court for the District of Delaware's order affirming the Bankruptcy Court for the District of Delaware's decision to deny Appellant's motion seeking payment of settlement funds.
- Facts:
- Appellant, Lane, extended secured credit to Main Street Business Funding, LLC (the “Company”). The security agreement securing the loan (the "Security Agreement") was broad and purported to secure all of the company’s “tangible and intangible personal property . . . ., whether now owned or hereafter acquired . . . ., together with all proceeds thereof . . . .” Lane did not list any lawsuits (or their proceeds) in the Security Agreement. Thereafter, the Company filed suit against (among others) a former consultant. The complaint alleged that in 2015 (prior to when the Company and Lane entered into the Security Agreement), the consultant borrowed $700,000 under the Company’s name without authorization and promptly embezzled $620,000 of the proceeds (the “Embezzlement Litigation”).
Three of the Company’s creditors—Lane among them—filed a petition resulting in the Company’s involuntary Chapter 7 bankruptcy case in 2019. In 2021, the Bankruptcy Court approved settlements of the Embezzlement Litigation as to some of the defendants. Lane then filed a motion requesting the settlement funds in the Company’s bankruptcy estate be transferred to him because they were his collateral. The Bankruptcy Court denied his motion. It concluded the Security Agreement, as all encompassing as it purported to be, did not encumber the settlement monies.
- Judge(s):
- Ambro, Circuit Judge
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