On September 29, 2022, the U.S. Court of Appeals for the Eleventh Circuit, applying the Florida Supreme Court’s answer to a certified question, held that a creditor that filed a UCC-1 financing statement under an abbreviated version of the borrower’s name did not properly perfect its security interest and reversed the bankruptcy and district courts’ orders that the financing statement was valid under a safe harbor provision. Live Oak Banking Company made two loans to 1944 Beach Boulevard, LLC and attempted to secure the loans with a blanket lien on all of Beach Boulevard’s assets. On the two UCC-1 financing statements, Live Oak identified the debtor as “1944 Beach Blvd., LLC,” instead of the “1944 Beach Boulevard, LLC,” which was the name listed on the articles of organization filed with the Florida Secretary of State. After filing for bankruptcy, Beach Boulevard sought to invalidate Live Oak’s security interest on the ground that the financing statements were “seriously misleading” under the UCC.

The bankruptcy and district courts found that the financing statements were effective under the UCC’s safe harbor provision because the registry’s standard search logic disclosed the financing statements on the page immediately preceding the initial page on the registry’s website. The Florida Supreme Court, to which the Eleventh Circuit certified the issue on appeal, instructed that the dispositive question is whether the filing office’s use of a “standard search logic” is necessary to trigger the UCC’s safe harbor protection. The Florida Supreme Court found that it was but also that the Florida Secured Transaction Registry did not use a standard search logic because it returned as hits all financing statements in the filing office’s database. Such a search procedure “cannot rationally be treated as a ‘standard search logic.’” Based on that guidance, the Eleventh Circuit concluded that because the registry lacks a “standard search logic,” no search would ever qualify for the safe harbor exception, which means that “filers are left with the zero-tolerance rule.” Thus, the Court held that any financing statement that fails to correctly name the debtor is “seriously misleading” and ineffective.

The case is 1944 Beach Boulevard, LLC v. Live Oak Banking Co. (In re NRP Lease Holdings, LLC), No. 21-11742 (11th Cir. Sept. 29, 2022). Live Oak is represented by Ezra Scrivanich & Associates, PA. 1944 Beach Boulevard is represented by Thames Markey, PA. The opinion is available here.