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Clarks' Secured Transactions Monthly

  • May 17, 2023

    Explaining The 2022 UCC Amendments Through Illustrations

    Over the next months and perhaps years, the new 2022 Amendments to the Uniform Commercial Code will come before the legislatures of all fifty states. In fact, they are already enacted in several states. In addition to other significant revisions, the Amendments build into the existing UCC a new comprehensive statutory structure for electronic commerce. We devote this issue of the newsletter to the topic with this article written by Professor Stephen L. Sepinuck, an accomplished UCC scholar and author, who participated in the roughly four-year long drafting process. The article explains some of the more notable changes through the use of illustrations. Future issues of this newsletter will focus heavily on the Amendments themselves and the potential impact (both intended and unintended) the Amendments are likely to have on U.S. commercial law.

  • March 16, 2023

    Coordinating The Debtor’s Name In The Public Organic Record And Financing Statements

    Secured lenders and their counsel often review draft financing statements for a debtor that is a registered organization and which, in the past few months, had merged or changed its name. Unfortunately, a problem can arise if the relevant documents—either the articles of incorporation for a corporation or the operating agreement for a limited liability company— have been amended to restate the debtor’s name in an ambiguous way. The following are examples:

  • March 16, 2023

    A Primer On Proceeds

    Recently, a bankruptcy court ruled that a secured creditor with a perfected security interest in the debtor’s milk quota – a license to produce milk for the fresh milk market – but no security interest in the debtor’s cows, did not have a security interest in the milk the cows produced. In re Las Martas, Inc., 2023 Bankr. LEXIS 419 (Bankr. D.P.R. Feb. 15, 2023). The ruling is in line with a thoughtful opinion by then-Judge Bruce Markell holding that revenues generated from the operation of a monorail are not proceeds of the debtor’s franchise agreement permitting it to operate the monorail. See In re Las Vegas Monorail Co., 429 B.R. 317 (Bankr. D. Nev. 2010). The decision in Las Martas is also a reminder that, while the concept of proceeds is broad, it is not limitless. What follows is a primer on what the term “proceeds” covers, what it does not, and when a security interest in proceeds will be perfected.

  • March 16, 2023

    Wide-Ranging 2022 Amendments To The UCC Ready For Adoption By State Legislatures

    The Uniform Law Commission (ULC) and The American Law Institute (ALI), the sponsors of the Uniform Commercial Code (UCC), began a joint initiative in 2019 to adapt and modernize the UCC to address a set of transactions involving emerging technologies, including virtual (non-fiat currency) and distributed ledger technologies.

  • February 21, 2023

    Lessons Learned About The Use Of Attorney’s Liens; Protecting The Right To Get Paid

    Timely payment from clients without undue hassle is a universal goal of attorneys engaged in private legal practice. Getting paid oftentimes involves distributing the proceeds of case settlements and court judgements. Along with disbursing the client’s share, it is common practice for lawyers to disburse funds to themselves in payment for legal services and expenses depending on the fee arrangement.

  • February 21, 2023

    Federal Reserve Board Views Digitizing The U.S. Dollar As High Priority

    The Federal Reserve is on track to launch its new instant payments service between May and July 2023. The service is called FedNow. The creation of a Central Bank Currency (CBDC) is being promoted by the Federal Reserve as the "next step" toward modernization after implementation of the FedNow Service. President Biden has signed an executive order for federal agencies to more urgently explore plans to implement a CBDC in the U.S. The Wall Street Journal reports the global status as follows: "One hundred and fourteen countries are exploring digital currencies, and their collective economies represent more than 95% of the world’s GDP.... Some countries, including China, India, Nigeria and the Bahamas, have already rolled out digital currencies. Others, like Sweden and Japan, are preparing for possible rollouts. The U.S. is studying the issue and has run trials of various technologies to enable a digital currency, although Fed chair Jerome Powell has indicated the U.S. central bank has no plans to create one, and won't do so without direction from Congress." Originally published in the July 2021 edition of this newsletter, this story on what a digitized U.S. dollar would look like continues to be timely.

  • February 21, 2023

    Banks Need To Protect Themselves From Customer Dual-Signature Requirements

    Every banker knows that many business customers have a requirement, on the face of their checks, of two signatures (or more) in some situations. Most typically, the number of required signatures increases with the face amount of the check. In the usual case, a dual-signature requirement is imposed by the customer for its own internal security, and the bank is not involved. Yet the requirement imposes risks on the bank.

  • February 10, 2023

    Federal Marijuana Banking Safe Act In Limbo; Declining Asset Values Add Risks For Secured Lenders

    Federal legislation giving financial institutions the green light to bank marijuana-related businesses (MRBs) is stymied in Congress. The U.S .House of Representatives did pass the Safe Banking Act (SAFE Act) with bipartisan support, but the Senate failed to act upon the legislation during the 117th Congress.

  • February 10, 2023

    Oil And Gas Liens Assume More Prominent Role As Development Activity Increases

    With commodity prices skyrocketing and geopolitical events exerting an oversized impact on the oil and gas market, new oil and gas exploration and development activity in 2022 triggered major new investments. The outlook for 2023 suggests a clear upward trend even while the oil and gas industry is transitioning to clean energy long term. This uptick in activity means that lots of state-law liens designed to protect everyone from oil-field service providers to owners of rights in unextracted hydrocarbons may play a more prominent role and be the source of increased litigation in the coming years.

  • January 30, 2023

    How Subordination Agreements Affect Article 9 Priorities

    Any of the priority rules under Article 9 of the UCC can be modified or reversed by a subordination agreement. UCC 9-339 states the rule this way: “This Article does not preclude subordination by agreement by a person entitled to priority.” Given the important role subordination agreements play in reordering Article 9 priorities, how to recognize the key elements of an effective subordination agreement is good to know.

  • January 30, 2023

    Perfected Security Interest In Tax Refunds Defeats Equitable Lien

    The previous story discusses how the presence-or absence-of a clear subordination agreement can affect priority disputes under UCC’s Article 9. A decision by the Eighth Circuit is a good case on point. The case is BancorpSouth Bank v.Hazelwood Logistics Center, LLC, 706 F.3d 888, 2013 U.S. App. LEXIS 3081 (8th Cir. Feb 14, 2013) (BankcorpSouth Bank).

  • January 30, 2023

    Monumental Mistaken Wire Transfer Case Dismissed After Restitution To Citibank By Revlon Lenders

    In a knockout decision, the United States Court of Appeals for the Second Circuit ordered restitution of roughly $500 million of outstanding principal mistakenly prepaid on a $1.8 billion syndicated seven-year loan to Citibank, N.A., owed by Revlon, N.A., as the borrower, to the participating lenders.

  • November 30, 2022

    Remote Online Notarization: Developments In The Legal Framework

    Executing a document in person before a notary proved to be a challenge during the height of the COVID pandemic. Market pressures driven by the pandemic spurred the adoption by a majority of states of completely electronic notarization over the internet. This more sophisticated form of electronic notarization is known as Remote Online Notarization (RON).

  • November 30, 2022

    Fiduciary Duty In Loan Participation Agreements Not Owed Without Explicit Language

    In the setting of a loan participation, a fiduciary duty is not owed by the lead bank to participant banks unless there is explicit language in the participation agreement creating the duty. The rule is well-recognized. Yet, it is often overlooked in the drafting process.

  • November 10, 2022

    Uncertainty Over The “True Lender” Test Continues: California Court Alarms FinTechs Partnering With State Insured Banks

    The viability of the business model relied on by fintechs offering small dollar loans continues to be under attack. A leading industry defender is the internet lender Opportunity Financial, LLC.

  • November 10, 2022

    Reporting Suspicious Elder Financial Exploitation by Financial Institutions: An Overview of the Law and Best Practices

    Providing financial services to the elderly carries with it significant legal requirements as well as responsibilities for employing best practices.

  • September 27, 2022

    Bank Of America, U.S. Bank Pay Multimillion Dollar Fines Under Consent Orders With Fed Bank Regulators

    Two of the nation’s Big Banks recently entered into far-reaching Consent Orders with their federal banking regulators. Pursuant to the terms of the Consent Orders, both banks paid large multimillion dollar civil money penalties and agreed to remediation with allegedly harmed consumers.

  • September 27, 2022

    Negative Pledges And The Free-Assignability Principle Under UCC Article 9

    Secured lenders are wise not to rely on negative pledge agreements to create and protect security interests in collateral under Article 9 of the Uniform Commercial Code (UCC). Negative pledge agreements prohibit a transfer of the debtor’s rights in collateral or make the transfer a default.

  • July 18, 2022

    Overview: Possible Changes To Bank Overdraft Services Fees Regulatory Structure

    On the horizon are changes to the existing federal regulatory structure for overdraft services. The federal banking regulators have been encouraging banks, as a first step, to offer low-cost overdraft products geared toward customers facing economic hardships. They are counting on future regulatory changes, heightened regulatory enforcement, market competition, and public pressure to incentivize the marketplace to voluntarily step away from overdraft service fees across the board.

  • July 18, 2022

    CFPB Tapping Unused Supervision Authority To Examine Fintechs And Other Nonbank Entities Deemed To “Pose Risks” To Consumers

    In 2010 Congress granted the Consumer Financial Protection Bureau authority to supervise a nonbank financial company when it has “reasonable cause” to determine that the nonfinancial company is engaging in, or has engaged in, conduct that “poses risks” to consumers with regard to the offering or provision of consumer financial services and products.