From 2009 to 2011, jacqueline fjellin and james van liew, acting as co‑trustees (the “plaintiffs”) of the leonard van liew living trust (the “trust”), made three loans (the “loans”) to four m corporation, a nebraska corporation (the “corporation”). The corporation was engaged in, among other things, operating three dairy queen stores. To secure the loans, the corporation granted the trust a security interest in certain of its property, including the dairy queen stores. The trust’s security interest was perfected by the filing of a financing statement with the nebraska secretary of state that named the trust as a secured party, the corporation as a debtor and set forth the collateral in which the trust held a security interest (the “financing statement”). Defendants myron kaplan (“kaplan”) and his law firm, mcgill, gotsdiner, workman & lepp, p.c., l.l.o. (and together with marvin penning and mary penning, the “defendants”), acted as counsel to the corporation and prepared the documents relating to the loans, including the security agreement (the “security agreement”) and financing statement, but did not represent the trust directly. In 2012 the corporation sold the assets of three of its dairy queen stores, including the collateral in which the trust had a security interest. Although the defendants prepared and obtained the consent from the trustor of the trust, the consent of the plaintiffs was not obtained as required by the security agreement. On april 11, 2012, the sale closed with a purchase price of $1,035,000 in exchange for instruments of transfer of the sold assets, including the trust’s collateral. Five (5) days after the assets were sold, the defendants filed a termination statement to the trust’s financing statement, stating that “effectiveness of the financing statement identified above is terminated with respect to security interest(s) of the secured party authorizing this termination statement.” Subsequently thereto, the plaintiffs filed suit, alleging that instead of verifying that the trust was paid the entire amount of the outstanding loans as part of the sale to the third party, funds were misappropriated and the sale proceeds were kept from the trust. The plaintiffs further alleged that kaplan and his law firm acted without authority when terminating the trust’s financing statement and were forbidden to take that action without the trust’s knowledge or prior approval. In their complaint, the plaintiffs asserted specifically that (i) kaplan owed a duty to the trust to see that its secured debt was paid in full before terminating the financing statement, (ii) kaplan’s law firm is vicariously liable for kaplan’s wrongful acts and omissions, (iii) under neb. Rev. Stat. U.c.c. § 9‑509(d), kaplan was allowed to terminate the trust’s financing statement only if the trust authorized the filing (which it did not) and (iv) kaplan and his law firm were liable for the amount of loss caused by kaplan’s failure to comply (neb. Rev. Stat. U.c.c. § 9‑625). The defendants filed a motion to dismiss, arguing that (i) u.c.c. § 9‑625 applied only to actions of a secured party and not to those of corporate counsel for the debtor, (ii) they did not owe a duty of care to the trust because it was not their client and (iii) there was no causal relationship between the termination of the financing statement and the plaintiffs’ alleged damages. In addressing the case at hand, the united states district court for the district of nebraska (the “court”) first considered whether the filing of the unauthorized termination statement could be remedied by u.c.c. § 9‑625, and looked to the language of the following subsections of u.c.c. § 9‑625:
(a) if it is established that a secured party is not proceeding in accordance with this article, a court may order or restrain collection, enforcement, or disposition of collateral on appropriate terms and conditions.
(b) subject to subsections (c), (d), and (f), a person is liable for damages in the amount of any loss caused by a failure to comply with this article. Loss caused by a failure to comply may include loss resulting from the debtor’s inability to obtain, or increased costs of, alternative financing. [emphasis added.]
The court explained that subsection (a) unambiguously authorized relief only against secured parties, while subsection (b) provided a broader monetary remedy against any person harmed by the failure of any other person to comply with article 9, whether or not the wrongdoer is a secured party. The court then queried whether the distinction in subsections (a) and (b) between a secured party and a person, respectively, was intentional. To further evaluate this distinction, the court looked to interpretive guidance. First, the court turned to the official comments of u.c.c. § 9‑625, which the defendants set forth as confirming the statute’s limited applicability to secured parties. The court emphasized that although the official comments to the uniform commercial code, as adopted by nebraska, are not binding, the comments could still be used as an aid for matters of interpretation. In this regard, the court noted that comments 2 and 3 of u.c.c. § 9‑625 below supported the conclusion that u.c.c. § 9‑625 has limited applicability to secured parties:
Subsections (a) and (b) provide the basic remedies afforded to those aggrieved by a secured party’s failure to comply with this article … subsection (c) identifies who may recover under subsection (b). It affords a remedy to any aggrieved person who is a debtor or obligor … subsection (c) also affords a remedy to an aggrieved person who holds a competing security interest or other lien … [emphasis added.]
In addition, the court noted that the title of the uniform commercial code section itself mentioned only secured parties, and not persons, as the wrongdoers. Examining the statutory language and the relevant interpretive guidance, the court held that u.c.c. § 9‑625 applied to secured parties only. Accordingly, the court upheld the defendants’ motion to dismiss with respect to the claim under u.c.c. § 9‑625.
In addition to their u.c.c. claim above, the plaintiffs also brought a common negligence law claim against the defendants, alleging that kaplan owed a duty to the trust to see that its secured debt was paid in full before terminating the financing statement. The court noted that, in order for a negligence claim to prevail, a plaintiff’s allegations must show the required causal connection between the defendant’s wrongful conduct and the plaintiff’s losses. Examining the case at hand, the court found that there was not enough of a connection to draw a reasonable inference that the filing of the unauthorized termination caused the damages suffered by the plaintiffs. The court emphasized that the “purpose of a financing statement is ‘merely to give notice to subsequent purchasers or creditors of a possible security interest.’” since the presence or absence of the financing statement did not affect the validity of the security interest, but only affected the validity of its priority, the court held that the termination of the financing statement did not invalidate the trust’s security interest in the collateral even after the collateral’s sale. The court emphasized that at the time of the sale’s closing in 2012, the trust still had a security right in the property and could have exercised its rights to the proceeds of the sale pursuant to the terms of the security agreement. Therefore, the termination of the financing statement would not have prevented the trust from foreclosing on the collateral, because the security interest remained intact. For the foregoing reasons, the court rejected the plaintiffs’ common negligence claim. Accordingly, the court approved the defendants’ motion to dismiss. However, the court granted the plaintiffs’ request to file amended complaint when they requested to assert other claims against the defendants that included aiding and abetting the defendants’ conversion, negligence and intentional misrepresentation, detrimental reliance, and civil conspiracy. Fjellin v. Penning, 41 f. Supp. 3d 775 (d. Neb. 2014).
