E53 Federal Credit Union v. Perez (In Re Perez)
73 U.C.C. Rep. Serv. 2d (West) 257, 89 A.L.R. Fed. 2d 717, 440 B.R. 634 (2010)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
A federal credit union's security interest in a member's non-negotiable, non-transferable certificate of deposit is perfected either by control under the UCC, which treats the CD as a deposit account, or automatically upon loan origination under the Federal Credit Union Act, which creates a statutory lien that preempts state law.
Facts:
- Suzanne Perez was employed as a head teller at Four-Sixteen Federal Credit Union.
- On February 7, 2002, Perez obtained a line of credit from the credit union, which was later increased to $160,000.
- The loan was secured by a pledge of Perez's own Certificate of Deposit (CD) and another CD owned by her grandmother and sister.
- The CD form used by the credit union for Perez's account was marked 'NON-NEGOTIABLE + NON-TRANSFERABLE'.
- Perez's grandmother and sister subsequently denied having authorized the pledge of their CD as collateral for her loan.
- The credit union found that the security agreements for the family members' CD were signed only by Perez, not the owners.
- Consequently, the credit union released the family's CD (worth approximately $80,000), leaving Perez's loan inadequately secured.
- On March 31, 2009, Perez filed a petition for Chapter 7 bankruptcy.
Procedural Posture:
- Suzanne Perez and E53 Federal Credit Union entered into a settlement agreement regarding her pledged CD.
- The Credit Union filed a Motion to Approve the Settlement Agreement in the U.S. Bankruptcy Court.
- On July 22, 2010, the Bankruptcy Court entered an Order approving the settlement agreement and vacating the automatic stay.
- The Chapter 7 Trustee, who was not served with the original motion, filed a Motion for Reconsideration of the court's order.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does a federal credit union have a perfected security interest in a member's non-negotiable, non-transferable certificate of deposit that is unavoidable by a Chapter 7 bankruptcy trustee?
Opinions:
Majority - Michael B. Kaplan
Yes, the credit union has a perfected security interest in the Debtor's certificate of deposit that is unavoidable by the bankruptcy trustee. The court found two independent grounds for this holding. First, under the Uniform Commercial Code (UCC), the non-negotiable, non-transferable certificate of deposit is classified as a 'deposit account,' not an 'instrument.' A security interest in a deposit account is perfected by control, and a bank maintains control over an account held at its own institution. Because the Credit Union held the CD, its security interest was perfected by control. Second, and in the alternative, the Federal Credit Union Act grants federally chartered credit unions a statutory lien on a member's accounts, which attaches and is perfected automatically at the time a loan is made. This federal statute preempts conflicting state UCC provisions. Since the loan was originated in 2002, long before the 2009 bankruptcy filing, the lien was perfected pre-petition and cannot be avoided by the Trustee under § 545 of the Bankruptcy Code.
Analysis:
This decision provides significant protection for federal credit unions by offering two distinct legal pathways to secure loans against member deposits. It clarifies that under the modern UCC, a non-negotiable CD is treated as a 'deposit account,' simplifying the perfection process to one of 'control' rather than possession or filing. More broadly, it strongly affirms the preemptive power of the Federal Credit Union Act's statutory lien, insulating credit unions from potential state-law perfection defects and strengthening their position against the avoidance powers of a bankruptcy trustee.
Unlock the full brief for E53 Federal Credit Union v. Perez (In Re Perez)