A Rose by Any Other Name Might Get Your Lien Stripped Under Florida Law

To the long list of things people love about lawyers we can add last week’s holding by the Eleventh Circuit Court of Appeals that “Blvd.” is utterly unrecognizable as “Boulevard” – at least by Article 9 of the Uniform Commercial Code as enacted in Florida.

Debtor 1944 Beach Boulevard, LLC invoked section 544 of the Bankruptcy Code to avoid creditor Live Oak Banking Company’s blanket lien on Beach Boulevard’s assets. 1944 Beach Boulevard v. Live Oak Banking Co. (In re NRP Lease Holdings, LLC), 20 F.4th 746 (11th Cir. 2021). Section 544 confers on trustees and debtors in possession the status of a hypothetical perfected lien creditor with priority over all unperfected security interests, along with the power to avoid liens that are defective under applicable law as of the date of the bankruptcy petition. Live Oak had filed two financing statements with the Florida Secured Transactions Registry. The financing statements identified the debtor as “1944 Beach Blvd., LLC” rather than by its legal name of “1944 Beach Boulevard, LLC,” which is the name of the organization as it appeared in the articles of organization filed with the Florida Secretary of State. Whether Live Oak’s $3 million loan to Beach Boulevard was a secured or unsecured claim turned on the consequences of this mistake.

The Law Giveth . . .

The consequences turned out to be fatal. An abbreviation condemned the security interest as sure as a comma did for Sir Roger Casement. And as with Casement, it was a statute that sealed Live Oak’s fate. Florida’s UCC statute, like the model version of Article 9, requires just three elements for a typical non-fixture financing statement. A financing statement is sufficient only if it: (a) provides the name of the debtor; (b) provides the name of the secured party or a representative of the secured party; and (c) indicates the collateral covered by the financing statement. Fla. Stat. § 679.5021(1). And a financing statement sufficiently provides the name of the debtor:

if the debtor is a registered organization . . . only if the name that is stated to be the registered organization’s name on the public organic record most recently filed with or issued or enacted by the registered organization’s jurisdiction of organization that purports to state, amend, or restate the registered organization’s name.

Fla. State. § 679.5031(1)(a).

According to that standard there was and could be no dispute that Live Oak got the debtor’s name wrong on its financing statement. Filing with the wrong name can be a serious error, but the statute appears to afford a bit of wiggle room:

(1) A financing statement substantially complying with the requirements of this part is effective, even if it has minor errors or omissions, unless the errors or omissions make the financing statement seriously misleading.

(2) Except as otherwise provided in subsection (3), a financing statement that fails sufficiently to provide the name of the debtor in accordance with s. 679.5031(1) is seriously misleading.

(3) If a search of the records of the filing office under the debtor’s correct name, using the filing office’s standard search logic, if any, would disclose a financing statement that fails sufficiently to provide the name of the debtor in accordance with s. 679.5031(1), the name provided does not make the financing statement seriously misleading.

Fla. Stat. § 679.5061.

Misleading? Seriously?

On cross-motions for summary judgment, Beach Boulevard contended that Live Oak’s abbreviation of “Boulevard” to “Blvd.” rendered the financing statements “seriously misleading” and therefore ineffective, because a search of the Registry did not turn up a record of Live Oak’s liens. Live Oak argued that the abbreviation constituted a “minor error or omission” that is not defective or seriously misleading, because its financing statements did in fact appear on the Registry’s website after a searcher clicked the “Previous” command a single time on the initial webpage of twenty debtor names yielded by a Registry search under the correct name; Live Oak’s financing statements could be found within one page of the initial results. 20 F.4th at 751. According to Live Oak, the financing statement appeared within a search of the Registry and therefore fell within the safe harbor of section 679.5061(3).

The Beach Boulevard bankruptcy court agreed that the safe harbor applied “because the Registry’s standard search logic discloses the Financing Statements on the page immediately preceding the initial page on the Registry’s website.” 20 F.4th at 751. In entering judgment for Live Oak, the bankruptcy court reasoned that “the Registry’s search logic takes a user to the point in the alphabetical list of all debtor names contained in the Registry that most closely matches the name input for the search.” Id. at 754. In other words, the “search results” included more than just the initial page displayed, thanks to the user interface that permitted a searcher to move forward and backward through an alphabetical list of records. Id. at 755.

Uncharted Waters

On appeal, the Eleventh Circuit was not nearly so sure. Bankruptcy courts in Florida had split on this exact issue, indeed on these exact facts. A 2003 Florida bankruptcy court decisionheld that the disclosure of the relevant filing through use of the “Previous” command in effect obligated a searcher to “check the preceding names on the alphabetical list” produced by the initial search. Id. (quoting In re Summit Staffing Polk Cnty., Inc., 305 B.R. 347, 354 (Bankr. M.D. Fla. 2003)). According to the Summit Staffing court, the “search” therefore comprised the entirety of the Registry. By contrast, another Florida bankruptcy court had held that section 679.5061 was unambiguous: the initial page of twenty search results, and only that page, constituted the “search” for purposes of applying the safe harbor. Id. at 756 (discussing In re John’s Bean Farm of Homestead, Inc., 378 B.R. 385 (Bankr. S.D. Fla. 2007)). Faced with diametrically opposed interpretations of the underlying statute and doubts about how the Florida Supreme Court might resolve them, the Eleventh Circuit certified to the Florida high court the question of what constitutes “a search of the records of the filing office under the debtor’s correct name, using the filing office’s standard search logic, if any” under Fla. Stat. § 679.5061(3): was it the twenty names on the initial page, or all names in the Registry; and if the latter, what limits might apply to the user’s obligation to review every name in the Registry? 20 F.4th at 758.

The Florida Supreme Court did not reach these questions.Instead it answered a question that the Eleventh Circuit had not asked, one that proved to be dispositive: the safe harbor requires the use of a “standard search logic,” but Florida’s Registry does not employ one.1944 Beach Boulevard, LLC v. Live Oak Banking Co. (In re NRP Lease Holdings, LLC), No. 21-11742, slip op. at 2-3 (11th Cir. Sept. 29, 2022). Subsection (2) of section 679.5061 creates a “zero tolerance” rule for any error in a debtor’s name; thus any deviation from the organization’s official name of record makes the financing statement “seriously misleading.” The only possible exception is disclosure of the otherwise defective financing statement “using the filing office’s standard search logic.” Id. at 6-7.

No Port in the Storm

But instead of a “standard search logic,” the Florida Registry is designed to return a list of twenty names, beginning “with the name that most closely matches the name entered, which is but a point from which the user can navigate forward and backward through all of the names indexed in the Registry.” Id. at 9-10. The Florida Supreme Court observed that a “standard search logic” should instead yield discrete “hits”:

[T]he meaning of “standard search logic” as used in Article 9 of the Uniform Commercial Code . . . is well understood within the industry and is reasonably accepted to mean a procedure that identifies the set (which might be empty) of financing statements on file that constitute hits for the search, or stated differently, that produces an unambiguous identification of hits.

Id. at 9(internal alterations and citation omitted). The court concluded that the Registry simply has no “standard search logic”: “a search procedure that returns as hits, for any search string, all financing statements in the filing office’s database cannot rationally be treated as a ‘standard search logic.’” Id. at 10 (internal quotation marks and citation omitted).

Because the Registry employs no standard search logic, section 679.5061(3) is a dead letter. Any error in the name of a registered organization on the financing statement is by definition “seriously misleading” and renders the financing statement ineffective. Id. at 11.The Eleventh Circuit reversed and remanded the district court’s decision affirming the bankruptcy court’s entry of judgment in favor of Live Oak.

Always Buy a Vowel

The result in Beach Boulevard is harsh, but its lessons are clear. And of course clarity is a principal objective of the Uniform Commercial Code. As the Eleventh Circuit noted in certifying its questions, “The rules governing secured transactions form an integral part of our modern commercial system, and uniformity in their application promotes predictability and stability in economic relationships.” 20 F.4th at 757. The Florida Registry likely has a bit of work ahead of it to align its online search platform with the statute. In the meantime, before filing a UCC-1 financing statement in Florida, be sure to look up the official name of recordfor your borrower as it appears in its jurisdiction of origin. (You can search Florida businesses here.) And whether your borrower is a Florida entity or not, be sure to file a UCC-3 amendment if your borrower’s name has changed, or if your original UCC-1 uses an abbreviation.