LMS Holding Co. v. Core-Mark Mid-Continent, Inc.
50 F.3d 1520, 1995 WL 113351 (1995)
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Rule of Law:
Under Uniform Commercial Code § 9-402(7), a financing statement filed in the name of a debtor-transferor does not perfect a security interest in after-acquired property obtained by a third-party transferee. To perfect a security interest in the transferee's after-acquired property, the secured party must file a new financing statement naming the transferee as the debtor.
Facts:
- In 1988, MAKO, Inc., a convenience store chain, granted Coremark a security interest in its existing and after-acquired inventory.
- Coremark perfected its security interest by filing a financing statement that named MAKO as the debtor.
- MAKO later filed for Chapter 11 bankruptcy.
- As part of MAKO's court-approved reorganization plan, an unrelated company, Retail Marketing Company (RMC), acquired MAKO's assets, including the inventory subject to Coremark's security interest.
- The plan provided that Coremark's lien would continue in the assets acquired by RMC.
- RMC executed a new security agreement with Coremark, granting a security interest in its existing and after-acquired inventory.
- Coremark did not file a new financing statement naming RMC as the debtor.
- RMC subsequently sold all of the original MAKO inventory and replaced it with new, after-acquired inventory before filing for its own bankruptcy.
Procedural Posture:
- After RMC filed for Chapter 11 bankruptcy, Coremark filed a proof of claim asserting a perfected security interest in RMC's after-acquired inventory.
- RMC commenced an adversary proceeding in bankruptcy court to avoid Coremark's security interest, arguing it was unperfected.
- RMC moved for summary judgment in the bankruptcy court.
- The bankruptcy court denied RMC's motion, holding Coremark's original financing statement against MAKO was sufficient to perfect its interest in RMC's after-acquired inventory.
- RMC (appellant) appealed to the U.S. District Court.
- The district court reversed the bankruptcy court's decision and granted summary judgment in favor of RMC, finding the security interest was unperfected.
- Coremark (appellant) appealed the district court's judgment to the U.S. Court of Appeals for the Tenth Circuit, with RMC as the appellee.
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Issue:
Under UCC § 9-402(7), does a perfected security interest in a debtor's after-acquired inventory remain perfected as to new inventory acquired by a third-party transferee after the transferee acquired the original debtor's assets, if the creditor does not file a new financing statement naming the transferee as the debtor?
Opinions:
Majority - Baldock, Circuit Judge
No. A filed financing statement remains effective only with respect to the collateral actually transferred by the original debtor and does not extend to after-acquired property later obtained by the transferee. The plain language of UCC § 9-402(7) states that a financing statement remains effective 'with respect to collateral transferred by the debtor.' Inventory purchased by the transferee (RMC) after the transfer cannot be considered property 'transferred by the debtor' (MAKO). Therefore, to perfect its security interest in RMC's after-acquired inventory, Coremark was required to file a new financing statement naming RMC as the debtor. Because it failed to do so, its security interest in that specific collateral is unperfected.
Analysis:
This decision clarifies the limited scope of the continuation rule in UCC § 9-402(7) regarding transfers of collateral. It establishes that a creditor's perfected security interest does not automatically carry over to a transferee's after-acquired property. The ruling reinforces the notice function of the UCC filing system, ensuring that prospective creditors of a transferee can rely on a search under the transferee's name to discover existing security interests. It places the burden on the original secured party, who is aware of the transfer, to update the public record by filing a new financing statement against the new owner of the collateral.
