Safe Harbor Can’t Save This Creditor’s UCC Filing or Any UCC Filed in Florida: Sorry, Your UCCs Are Seriously Misleading
Florida is serious about UCC filings. A recent Court of Appeals decision left a creditor with an unperfected security interest, when its UCC Financing Statements were deemed Seriously Misleading because it identified its debtor as “1944 Beach Blvd., LLC” instead of “1944 Beach Boulevard, LLC.”
We previously reviewed this case (you can read our original post), hoping that perhaps Safe Harbor could rescue the creditor’s security interest. Unfortunately, in Florida, you must strictly comply with Article 9-503(a), or your security interest is toast.
Yep, You Know the Importance of Complying with Article 9-503(a)
You file UCCs. So, I know you already know how critical it is to strictly comply with Article 9, and you know Article 9-503(a) dictates how the debtor’s name should appear on the UCC Financing Statement. And yet, you and I watch as creditors lose their security because they fail to comply.
The difference between Boulevard and Blvd. may seem minor. It’s a common abbreviation, right? Sure, maybe in the context of a street address. But, when it’s an organization’s name and you are filing a UCC on that organization, you’re best served to list the organization’s name exactly as it appears on the public organic record.
Article 9-503(a) of the Uniform Commercial Code dictates how the debtor’s name should appear on the UCC Financing Statement.
Whether the debtor is a registered entity or an individual, Article 9 says:
- Registered Entity: list the name on the Financing Statement as it appears in the public organic record
- Individual: Alternative A or Alternative B
- Alternative A: if the debtor holds an unexpired driver’s license, the Financing Statement must list the debtor’s name as it appears on the unexpired driver’s license.
- Alternative B: the debtor’s driver’s license name, the debtor’s actual name or the debtor’s surname and first personal name may be used on the Financing Statement.
Now, there may be occasions where a minor error can be overlooked: enter Safe Harbor.
What Is Safe Harbor? Look to Article 9-506
Even if there are minor errors or omissions on your UCC filing, you may still have a valid filing. How? Safe Harbor essentially saves your UCC filing, if a search of your debtor’s name, using a filing office’s “standard search logic,” discloses the UCC – even with minor errors.
Now, the tricky thing here is although International Association of Commercial Administrators developed standard search logic rules, “standard search logic” is actually dictated by the filing office (not really standard, right?).
Case Recap & Decision
1944 Beach Boulevard, LLC (Beach Boulevard) filed for Chapter 11 bankruptcy and later filed a complaint to avoid Live Oak Banking’s (Live Oak) UCCs because Live Oak abbreviated Beach Boulevard’s name on the Financing Statements.
Live Oak listed Beach Boulevard’s name as “1944 Beach Blvd., LLC” and claimed the abbreviation of Boulevard to Blvd. was a minor error and didn’t unperfect its security interests.
While contemplating its decision, the Court of Appeals reviewed two different cases. The first case says “Hey, if the UCC doesn’t show on the first page of search results, it’s seriously misleading. End of story.” The second case says “Well, you know, the website says to view additional search results you can click previous or next. So really, the search on prior pages or subsequent pages, should be reviewed by the searcher, as long as it’s within reason.”
But, before the Court of Appeals could issue a decision on the fate of Live Oak’s security interest, it needed the Supreme Court to answer three questions:
(1) Is the “search of the records of the filing office under the debtor’s correct name, using the filing office’s standard search logic,” as provided for by Florida Statute § 679.5061(3), limited to or otherwise satisfied by the initial page of twenty names displayed to the user of the Registry’s search function?
(2) If not, does that search consist of all names in the filing office’s database, which the user can browse using the command tabs displayed on the initial page?
(3) If the search consists of all names in the filing office’s database, are there any limitations on a user’s obligation to review the names and, if so, what factors should courts consider when determining whether a user has satisfied those obligations?
The Supreme Court only needed to address one: “Is the filing office’s use of a ‘standard search logic’ necessary to trigger the safe harbor protection of section 679.5061(3)?” The answer, much to the dismay of Live Oak, is “Yes.”
In short, since the filing office doesn’t use “standard search logic” the creditor’s security interests can’t be saved by Safe Harbor.
Will Safe Harbor Ever Exist for Florida UCCs? Zero Tolerance
Safe Harbor is dependent on the filing office using a “standard search logic.” Since Florida’s registry doesn’t have a “standard search logic” that means Safe Harbor can’t save your UCC.
“Because the Registry lacks a “standard search logic,” the search contemplated by section 679.5061(3) is impossible, which means that filers are left with the zero-tolerance rule of section 679.5061(2).” 1944 Beach Boulevard, LLC v. Live Oak Banking Co., No. SC21-1717, 13 (Fla. Aug. 25, 2022)
A stark reminder to ALWAYS correctly identify your debtor on the UCC Financing Statement and complete a reflective search to ensure your UCC has been correctly filed.