Scarver v. Silverline Services Inc.

RUPTCP

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IT IS ORDERED as set forth below: vaste

Date: May 31, 2019 Art 2B oxisin

Paul Baisier

U.S. Bankruptcy Court Judge

UNITED STATES BANKRUPTCY COURT

NORTHERN DISTRICT OF GEORGIA

ATLANTA DIVISION

In re: : CASE NO. 18-52501-PMB

WASTETECH, LLC, f/k/a NTC WASTE :

GROUP, : CHAPTER 7

Debtor. :

CATHY L. SCARVER, :

Chapter 7 Trustee, :

: ADVERSARY PROCEEDING

Plaintiff, :

: NO. 18-5070

Vv. :

SILVERLINE SERVICES INC., :

Defendant. :

ORDER GRANTING MOTION OF

CHAPTER 7 TRUSTEE FOR SUMMARY JUDGMENT

The above-referenced matter (the “Adversary Proceeding”) comes before the Court on the

Motion for Summary Judgment against Defendant (Docket No. 27)(the “Motion’’) filed by Plaintiff,

the Chapter 7 Trustee (the “Trustee”), for the estate (the “Estate”) of the above-named Debtor (the

“Debtor”), against Defendant Silverline Services Inc. (the “Defendant”) on December 28, 2018. In

support of the Motion, the Trustee also filed a Brief in Support (Docket No. 32) and Statement of

Material Facts Not in Dispute (Docket No. 33)(“Statement of Material Facts”), as well as a Notice

of Filing of Plaintiff’s First Request for Admissions to Defendant, Notice of Filing of Defendant’s

Response to Plaintiff’s First Request for Admissions, Notice of Filing of Discovery, and an Affidavit

of Cathy L. Scarver (the “Affidavit”)(Docket Nos. 28, 29, 30, and 31, respectively). In response,

the Defendant filed a Memorandum of Law in Opposition to the Motion (“Defendant’s Brief in

Opposition”) and Defendant’s Response to Statement of Material Facts in Opposition to Summary

Judgment (“Defendant’s Response to Statement of Material Facts”) on January 18, 2019 (Docket

Nos. 34 and 35, respectively). The Trustee thereafter filed Trustee’s Reply to Defendant’s Response

on February 1, 2019 (Docket No. 36).

FACTS

The following material facts of this case are undisputed.1 The Debtor is a limited liability

company organized under the laws of the State of Georgia in July 2016. The Debtor officially

changed its name from NTC Waste Group, LLC to Wastetech, LLC, and filed a Certificate of

Amendment with the Secretary of State of Georgia effecting that change, on July 7, 2017. See

Statement of Material Facts, ¶ 5; Exhibit “B,” attached to Affidavit.2

1 See Statement of Material Facts and Defendant’s Response to Statement of Material Facts, at Docket Nos. 33 and

35, respectively.

2 Defendant does not dispute that the Debtor filed its name change with the Secretary of State’s office, but states it

lacks knowledge regarding whether the Debtor changed its name in its Articles of Amendment of Articles of

Organization. See Defendant’s Response to Statement of Material Facts, ¶ 5. However, the Defendant did not

controvert the copy of the filed Certificate of Amendment to which the Articles of Amendment are attached, that are

collectively attached as Exhibit “B” to the Affidavit as referenced in paragraph 7, and further described in the

Statement of Material Facts in paragraph 5. Pursuant to Federal Rule of Civil Procedure 56(e)(2), applicable herein

through Federal Rule of Bankruptcy Procedure 7056, the Court considers this fact undisputed in light of the foregoing.

During 2017, the Debtor executed six (6) Purchase and Sale of Future Receivables

Agreements in favor of the Defendant, dated as of June 13, 2017; July 6, 2017; July 19, 2017;

August 3, 2017; August 18, 2017; and September 26, 2017, respectively (the “Receivables

Agreements”).3 Each of the Receivables Agreements contains the following language in paragraph

15:

Grant of Security Interest/UCC-1 Financing Statements. To secure

the performance of [Debtor’s] obligations hereunder, [Debtor]

grants to [Defendant] a continuing security interest in all of

[Debtor’s] Future Receivables, inventory, equipment, goods,

accounts, investment property, and other personal property and

assets, and [Debtor] authorizes [Defendant] to file one or more

UCC-1 Financing Statements prior to each sale of Future

Receivables for purposes of providing public notice of the purchase

by [Defendant] from [Debtor] of the Receivables Purchased Amount

of Future Receivables and [Defendant’s] security interest in all of

[Debtor’s] Future Receivables, inventory, equipment, goods,

accounts, investment property, and other personal property and

assets. The UCC-1 Financing Statements will state that the sale of

the Future Receivables is an outright sale and not an assignment for

security.

Statement of Material Facts, ¶ 8; see also Exhibit “A,” attached to Notice of Filing of Plaintiff’s

First Request for Admissions (Docket No. 28). The Defendant filed and recorded a UCC-1

financing statement (the “Financing Statement”) with the Clerk of the Superior Court of Coweta

County, Georgia, on November 14, 2017. (Statement of Material Facts ¶ 9; copy also attached to

3 The Receivables Agreements contain language conveying to the Defendant for purposes of securing the performance

of the Debtor’s obligations to Defendant a continuing security interest in the future receivables of the Debtor,

inventory, equipment, goods, accounts, investment property, and other personal property and assets. See Receivables

Agreement dated June 13, 2017 attached to Notice of Filing of Discovery, at pp. 27-29 (Docket No. 30). True and

accurate copies of all the Receivables Agreements are attached as Exhibit “A” to the Notice of Filing of Plaintiff’s

First Request for Admissions to Defendant. See Docket No. 28; see also Defendant’s Response at Docket No. 29

(acknowledging same).

Notice of Filing of Discovery, p. 37). The debtor identified on the Financing Statement is NTC

Waste Group, LLC. The collateral description on the Financing Statement is as follows:

Certain future receivables sold by said business seller and purchased

by Crown Funding Group, Inc., as buyer, pursuant to that certain

purchase and sale of future receivables agreement between seller and

purchaser dated 8/7/2017 (the “agreement”).4

Statement of Material Facts, ¶ 10. The Defendant did not file any financing statements in Georgia

that listed the name “Wastetech LLC” or “Wastetech” as the debtor. Statement of Material Facts,

¶ 11. As discussed below, the Trustee alleges that a search of the Georgia Superior Court Clerks’

Cooperative Authority’s Lien records (“GSCCCA”) for the entity “Wastetech” or “Wastetech

LLC” would not have disclosed the existence of the Financing Statement. Statement of Material

Facts, ¶ 12.5

The Debtor filed this case under Chapter 7 of title 11, United States Code (the “Bankruptcy

Code”) on February 13, 2018 (the “Filing Date”). The Trustee was designated the interim trustee

in this case and became the permanent trustee upon the conclusion of the meeting of creditors on

March 13, 2018, pursuant to Section 702(d) of the Bankruptcy Code. The Trustee initiated the

Adversary Proceeding on April 9, 2018 and filed the Amended and Restated Complaint to

Determine Validity, Priority, or Extent of Liens and for Avoidance (Docket No. 9)(the “Complaint”)

4 The Defendant does not dispute that it claims a perfected security interest in Debtor’s Accounts Receivable based

on the Financing Statement, but does assert that it relies on other evidence in support of its claim such as the allegation

that the Debtor continued to execute receivables agreements under its former name. See Defendant’s Response to

Statement of Material Facts, ¶ 9 (Docket No. 35). The Court concludes that this contention is not relevant to its

analysis of the Financing Statement. See p. 13, infra.

5 The Trustee testified in her Affidavit at paragraph 10 (Docket No. 31) that “in the first month of this Bankruptcy

Case, [her] counsel searched the records of the Georgia Superior Court Clerks’ Cooperative [Authority] for filed

financing statement naming ‘Wastetech’ or ‘Wastetech, LLC’ as the debtor. [Her] counsel found no financing

statement naming ‘Wastetech’ or ‘Wastetech, LLC’ as debtor on a financing statement filed by [the Defendant] as the

secured party.” The Defendant asserted in the Defendant’s Brief in Opposition that the Trustee had not met her

burden in showing how a search of the GSCCCA’s Lien records for the entity “Wastetech” or “Wastetech LLC” would

not have disclosed the existence of the Financing Statement. As discussed below, the record has now been

supplemented regarding this allegation.

against the Defendant on May 17, 2018. On July 2, 2018, the Defendant filed its Answer and

Affirmative Defenses (Docket No. 15). In this Adversary Proceeding, the Trustee seeks entry of

judgment adjudicating that:

1) any alleged liens held by the Defendant under the Receivables Agreements against

property of the Estate are subordinate to the interest of the Trustee as a subsequent hypothetical

judgment creditor under Section 544 of the Bankruptcy Code;

2) pursuant to Section 544 of the Bankruptcy Code, the Trustee is entitled to avoid the

transfers by the Debtor to the Defendant of any security interest (the “Transfers”) in the Debtor’s

accounts receivable (the “Accounts Receivable”) based on the Receivables Agreements and the

recordation of the Financing Statement”)(attached as Exhibit 3 to the Complaint) such that the

Defendant is an unsecured creditor; and

3) the Trustee is entitled to recover the above avoided Transfers under Section 550 and

preserve the same for the benefit of the Estate under Section 551 of the Bankruptcy Code.

The Defendant denies that the Trustee is entitled to this relief.

ISSUE FOR DECISION

The determinative issue is whether as of the Filing Date the Defendant’s security interest in

the Debtor’s Accounts Receivable was unperfected under Georgia law, either because (i) the

Debtor’s name listed in the Financing Statement is inconsistent with its name on the public record

as of the date of recording due to a name change prior to the filing of the Financing Statement, or

because (ii) the description of the collateral in the Financing Statement does not adequately identify

the collateral because the agreement date referenced in the collateral description is inaccurate and

the secured creditor name contained in the collateral description is also inaccurate (making it

impossible to locate the agreement describing the collateral). Regarding the former, a key question

is whether the Financing Statement is seriously misleading as defined under Georgia law in

O.C.G.A. § 11-9-506(b) because it fails to provide the Debtor’s correct name at the time of its

filing, and more particularly whether the Financing Statement qualifies for the safe harbor

provision in Section 11-9-506(c).

Upon consideration of all the pleadings and briefs filed in this matter, as well as the

supplemental filings of record, and based on the undisputed facts, for the reasons discussed below

this Court holds that the perfection of the Defendant’s security interest in the Debtor’s Accounts

Receivable is ineffective under O.C.G.A. §§ 11-9-503(a)(1) and (3), 11-9-504, and 11-9-506(a)-(b)

and the Transfers are avoidable and recoverable under 11 U.S.C. §§ 544, 550, and 551. Therefore,

the Trustee’s Motion will be granted.

LEGAL ANALYSIS6

I. Standard of Review

Summary judgment may be granted pursuant to Federal Rule of Civil Procedure 56, which

as noted above is made applicable herein by Federal Rule of Bankruptcy Procedure 7056, “if the

movant shows that there is no genuine dispute as to any material fact and the movant is entitled to

judgment as a matter of law.” Fed.R.Civ.P. 56(a).7 In deciding a motion for summary judgment,

the court “is not . . . to weigh the evidence and determine the truth of the matter but to determine

whether there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106

S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986).

6 This court has jurisdiction over this Adversary Proceeding pursuant to 28 U.S.C. § 1334. This matter is a core

proceeding under 28 U.S.C. § 157.

7 In determining the materiality of facts, “the substantive law will identify which facts are material.” Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).

The initial burden of proving the absence of dispute as to any material fact rests with the

moving party. Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11th Cir. 1991). In meeting this

initial burden, the moving party must identify “the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the affidavits, if any, which it believes

demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S.

317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986)(internal quotations omitted). Once the

party moving for summary judgment has identified those materials demonstrating the absence of a

genuine issue of material fact, the non-moving party cannot rest on mere denials or conclusory

allegations, but must go beyond the pleadings and designate, through proper evidence such as by

affidavits or personal knowledge or otherwise, specific facts showing the existence of a genuine

issue for trial. See Fed.R.Civ.P. 56(c) & (e); see also Matsushita Elec. Indus. Co., Ltd. v. Zenith

Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Johnson v. Fleet

Finance Inc., 4 F.3d 946, 948-49 (11th Cir. 1993); Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115-

16 (11th Cir. 1993). Further, all reasonable doubts should be resolved in favor of the non-moving

party, and “[i]f reasonable minds could differ on any inferences arising from undisputed facts,

summary judgment should be denied.” Twiss v. Kury, 25 F.3d 1551, 1555 (11th Cir. 1994)(citing

Mercantile Bank & Trust v. Fidelity & Deposit Co., 750 F.2d 838, 841 (11th Cir. 1985)).

II. Trustee’s Avoidance Powers and the Perfection of the Defendant’s Security Interest

Pursuant to 11 U.S.C. § 544(a), the Trustee is provided with the rights of a hypothetical

judicial lien creditor and has authority to seek the avoidance of unperfected security interests. See

In re Pierce, 581 B.R. 912, 916 (Bankr. S.D. Ga. 2018)(internal citations omitted).

Wrong Name on UCC-1

Under the Official Code of Georgia Annotated, for a security interest in accounts receivable

to be perfected, a financing statement must be filed. O.C.G.A. § 11-9-310(a)(2019). Furthermore,

for a financing statement to be effective, the name of the debtor, among other things, must be

provided. O.C.G.A. § 11-9-502(a)(1). With respect to a registered organization like the Debtor,

the name of the debtor provided in the financing statement is sufficient only if it is consistent with

the name of the debtor indicated on the public record of the debtor’s jurisdiction of organization.

O.C.G.A. § 11-9-503(a)(1). With a single exception, where a financing statement fails to

sufficiently provide the name of the debtor, the financing statement is seriously misleading and as

a result is ineffective. O.C.G.A. § 11-9-506(a)-(b). The single exception to this rule applies only

in a scenario where “a search of the records of the filing office under the debtor’s correct name,

using the filing office’s standard search logic” would disclose such financing statement. O.C.G.A.

§ 11-9-506(c).

Here, the Defendant filed the Financing Statement on November 14, 2017. The Debtor’s

name on the Financing Statement is shown as NTC Waste Group, LLC. However, at the time of

the filing, the Debtor’s correct name as shown on the public record was Wastetech, LLC. Therefore,

the Debtor’s name on the Financing Statement is insufficient, unless the single exception (or safe

harbor) applies. In this case, the single exception does not apply to the Financing Statement because

a UCC index search of the Lien records of the GSCCCA using the correct name for the entity

“Wastetech” or “Wastetech LLC” would not have disclosed the existence of the Financing

Statement.

As noted above, in the Motion the Trustee cited to the Statement of Material Facts, ¶ 12,

and paragraph 10 of the Affidavit where she averred that she asked her counsel to conduct a search

using the name “Wastetech” or “Wastetech, LLC” as the debtor, which produced no financing

statements under those names as debtor on any financing statement filed by the Defendant as the

secured party. In reply, the Defendant argued in the Defendant’s Brief in Opposition that the

Trustee has not met her burden in establishing the absence of dispute regarding the fact that a search

using the Debtor’s correct name would not have revealed the Financing Statement. However, the

Defendant provided no basis or evidence to support this assertion with regard to the Trustee’s

statement of fact in paragraph 12. In addition, the Defendant provided no evidence to support the

opposite contention - that a search of the Lien records of the GSCCCA for the entity “Wastetech”

or “Wastetech LLC” would have disclosed the existence of the Financing Statement.

Under Fed.R.Civ.P. 56(c) and (e), once a party moving for summary judgment cites to

materials in the record, such as an affidavit, and presents evidence in support of its contention as to

the absence of a genuine issue regarding a material fact, the opposing party cannot rely on mere

denials or conclusory allegations but must instead present affirmative evidence of facts tending to

counter the assertion. See Johnson v. Fleet Finance, supra, 4 F. 3d at 949, citing Anderson v.

Liberty Lobby, supra, 477 U.S. at 257. See also Lubin v. Murphy (In re Murphy), 2017 WL

4620879, *2 (Bankr. N.D. Ga. Oct. 13, 2017).

Because the Trustee’s Affidavit only stated that a search using the Debtor’s correct name

produced no financing statement in that name (as opposed to a financing statement in the name of

NTC Waste Group, LLC), however, the Court concluded that the Trustee had not properly

supported this operative fact, and further, that the Defendant had not properly addressed the

assertion of that fact. Thus, on May 3, 2019, the Court entered an Order Allowing Opportunity To

Properly Support or Address Fact (Docket No. 37)(the “Order to Supplement”) in accordance with

Fed.R.Civ.P. 56(e), applicable herein through Fed.R.Bankr.P. 7056. In the Order to Supplement,

the parties were allowed to supplement the record on this issue.

On May 16, 2019, pursuant to the Order to Supplement, the Trustee filed her Notice of Filing

of Affidavit of Preston M. Mueller in Accordance with Court Order (Docket No. 39)(the “Mueller

Affidavit”), and on that same date, the Defendant filed its Notice of Filing of Affidavit of Alan

Poliner In Accordance with Court Order (Docket No. 40)(the “Poliner Affidavit”). Neither party

has controverted the evidence so provided by the other as of the date of this Order.

In the Mueller Affidavit, counsel for the Trustee avers that he recently conducted several

UCC index searches through the GSCCCA database using the Debtor’s correct name as well as its

former name. The search results are attached thereto as Exhibits “B” through “E.” According to

the Mueller Affidavit, statewide “searches using the search terms ‘Wastetech’ or ‘Wastetech LLC’

did not lead to finding the Financing Statement.” Mueller Affidavit, ¶ 6. Only searches using the

former name of the Debtor produced the Financing Statement. Further searches conducted using

the standard search logic in the Debtor’s name through the GSCCCA database in the Coweta

County UCC Index along with a stem search for the Debtor’s name also failed to return the

Financing Statement, though UCC-1’s for another entity were disclosed. Mueller Affidavit, ¶ 7.

Finally, additional statewide stem searches using the Debtor’s name did not disclose the Financing

Statement. Mueller Affidavit, ¶ 8. Based on these results, the Trustee through counsel states that

“a search of the Coweta County UCC Index, and the Georgia Statewide UCC Index, using a debtor

name stem search in the GSCCCA database for the Debtor’s correct legal name of record did not

disclose the Financing Statement.” Mueller Affidavit, ¶ 10.

By comparison, in the Poliner Affidavit counsel avers that a search of the UCC records

under “NTC” did produce the Financing Statement, and that a search of “wastetech” in the records

of the Georgia Corporations Division led to Wastetech LLC, which was formerly known as NTC

Waste Group, LLC. Results of these searches are attached to the Poliner Affidavit as Exhibit “A.”

These searches are not, however, relevant to the single exception, which specifically requires that

a search of the relevant records under the correct name yield the Financing Statement. It does not

appear, then, that the Defendant conducted a UCC search using the Debtor’s correct legal name,

but instead relies on a corporate search and further inquiry based on that result – a test that does not

address the requirements of O.C.G.A. § 11-9-506(c).

Lacking evidence from the Defendant to contradict the Trustee’s search results, the Court

acknowledges the Trustee’s testimony and evidence presented through counsel regarding the failure

of a search to disclose the existence of the Financing Statement using the name Wastetech or

Wastetech, LLC as the only relevant evidence on this issue. Accordingly, the Financing Statement

is seriously misleading, and thus is legally ineffective due to the Defendant’s failure to sufficiently

provide the correct name of the Debtor in compliance with O.C.G.A. § 11-9-506(a)-(b), and further,

the safe harbor provision under O.C.G.A. § 11-9-506(c) does not apply.8

The Defendant cites Western Auto Supply Co. v. McKenzie, 489 S.E.2d 537 (Ga. App. 1997)

to support its contention that Georgia courts are reluctant to disturb the senior lienholder’s rights:

“Western Auto was the first to file a financing statement perfecting its security interest in the

collateral of the store...[n]either a name change nor a change in the corporate structure affects this

priority.” Western Auto, supra, 489 S.E.2d at 539. The facts in Western Auto are, however,

distinguishable. In that case, the change in the debtor’s name occurred after the filing of the

financing statement. Here, the name change occurred before the filing of the Financing Statement.

8 The Defendant had challenged the Trustee’s initial assertion is her Affidavit regarding the search results as being

conclusory without any basis in fact. That challenge is no longer relevant, in light of the Mueller Affidavit, which

alone provides a sufficient basis for these findings.

The court in Western Auto held a post-filing change in the debtor’s name did not affect the first

lienholder’s priority in collateral acquired before the change date and up to four months thereafter,

a result specifically called for by a statutory section not applicable here. See O.C.G.A. § 11-9-

507(c)(1). Thus, Western Auto is not relevant to this case.

The Defendant also cites Rebel Auction Co., Inc. v. The Citizens Bank, 805 S.E.2d 913 (Ga.

App. 2017) to support its contention that this Court should not grant summary judgment because

there remains an issue of material fact – whether a judicial lien creditor would have been able to

find the Financing Statement in the public records. However, Rebel Auction Company is also

distinguishable. As discussed above, the Trustee has in this case presented evidence through the

Mueller Affidavit as to whether a UCC index search for the Debtor’s correct name would have

revealed the Financing Statement at issue. In Rebel Auction, however, neither party presented

evidence on that point, and the court thus held that there remained a genuine issue of material fact.

See Rebel Auction, supra, 805 S.E.2d at 919; compare All Business Corp. v. Choi, 634 S.E.2d 400,

404-05 (Ga.App. 2006)(recognizing evidence of search result offered by affidavit). Thus, Rebel

Auction is not relevant to this case.

The result in this case is also supported by the Official Comments to the UCC and by

relevant case law. UCC Official Comment to Section 9-506 suggests that “it is the secured party’s

responsibility to provide the name of the debtor sufficiently in a filed financing statement.” U.C.C.

§ 9-506 cmt. 2 (West 2018).9 This Comment is well supported by case law. See e.g. Receivables

Purchasing Co. v. R & R Directional Drilling, LLC, 588 S.E.2d 831, 833 (Ga.App. 2003)(holding

9 Although the official comments to the Uniform Commercial Code are not binding, they are persuasive in matters of

interpretation, and many courts give deference to them. See e.g., In re U.S. Ins. Group, LLC, 429 B.R. 903, 915 (E.D.

Tenn. 2010)(“‘Tennessee courts generally give “substantial deference” to the Official Comments. “While not binding,

[they] are very persuasive in interpreting the statute to which they apply. The comments give some insight into the

intent of the overall scheme of the statute as contemplated by the General Assembly in adopting the language of the

Statute.”’”)(internal quotations and citations omitted). See also In re EDM Corp., 431 B.R. 459, 465 (B.A.P. 8th Cir.

2010); In re Menasche, 301 B.R. 757, 761 (Bankr. S.D. Fla. 2003).

“a party filing a financing statement . . . acts at his peril if he files the statement under an incorrect

name”); In re John’s Bean Farm of Homestead, Inc., 378 B.R. 385, 390 (Bankr. S.D. Fla.

2007)(holding “the burden is squarely on the creditor to correctly identify the name of the debtor”).

The Official Comment further suggests that absent exception, if the name of the debtor provided on

a financing statement is insufficient, “[s]uch a financing statement is ineffective even if the debtor

is known in some contexts by the name provided on the financing statement and even if searchers

know or have reason to know that the name provided on the financing statement refers to the

debtor.” U.C.C. § 9-506 cmt. 2. Consistent with this Comment, O.C.G.A. § 11-9-503(c) states that

a “financing statement that provides only the debtor’s trade name does not sufficiently provide the

name of the debtor.” See also O.C.G.A. § 11-9-506 (Effect of errors or omissions).10

Here, the Defendant contends that it did not knowingly or intentionally list the incorrect

entity name of the Debtor on the Financing Statement. The Defendant further contends that it was

not aware of the Debtor’s intention to change its name, as their relationship began prior to the name

change and it knew the Debtor as NTC Waste Group. The Defendant alleges that the Debtor

continued to operate its business under its former name after the name change, and that its conduct

created the misleading impression that the Defendant could file under NTC Waste Group. None of

this is, however, relevant. The requirement is simple, and liability for failing to comply is strict.

The secured party must file the UCC-1 in the name of entity as set forth in the public records and,

failing that, its filing is not effective. Whether it was confused as a result of (or even misled by) its

ongoing relationship with the Debtor is of no moment in this analysis.

10 See e.g. In re FV Steel and Wire, Co., 310 B.R. 390 (Bankr. E.D.Wis. 2004)(applying Illinois UCC, which is similar

to Georgia law, court held that a financing statement listing a debtor’s trade name instead of its true corporate name,

was ineffective even though creditor knew of correct name).

The Defendant also maintains that the caption of the instant bankruptcy action “clearly is

indicative of a strong relationship between the Debtor’s former and current name, which contradicts

[Trustee]’s contentions to the contrary.” Defendant’s Brief in Opposition, p. 7. Furthermore, the

Defendant asserts that “a search of Wastetech in the Georgia business search yields information on

NTC Waste Group as well.” However, the name change itself is not in dispute here. Neither the

Trustee nor the Defendant denies that the Debtor changed its name before the filing of the Financing

Statement. Nor does any party deny the debt the Debtor owed to the Defendant. Instead, the issue

here is whether the Defendant’s security interest in the Debtor’s Accounts Receivable was perfected

by the filing of the Financing Statement. Pursuant to the statutory requirements for perfecting a

security interest, the issue here is adequately reduced to two questions regarding the Debtor’s name

in the Financing Statement: a) whether the Defendant has sufficiently provided the Debtor’s name

at the filing of the Financing Statement; and b) whether the Financing Statement would be disclosed

by a later search under the Debtor’s correct name. Pursuant to the applicable law, the Financing

Statement remains ineffective even if searchers such as the Trustee, the Defendant, or any other

third party knew or had reason to know that NTC Waste Group refers to the Debtor.

Finally, the Defendant contends its security interest was nevertheless perfected because the

filing date of the Financing Statement falls within four (4) months after the name change, citing to

O.C.G.A. § 11-9-507(c)(1). This contention has no merit. Under Section 11-9-507(c)(1), if the

name that a filed financing statement provides for a debtor becomes insufficient because the debtor

changes its name, so that the financing statement becomes seriously misleading, the financing

statement is nevertheless effective to perfect a security interest in collateral acquired by the debtor

before, or within four months after, the date that the filed financing statement becomes seriously

misleading. O.C.G.A. § 11-9-507(c)(1).

An examination of the language of the statute reveals that Section 11-9-507(c)(1) applies

only to the situation where a debtor changes its name after a valid financing statement is filed,11

rendering an otherwise properly recorded financing statement seriously misleading. Here, however,

the Debtor’s name change happened before the filing of the Financing Statement, rendering the

Financing Statement ineffective ab initio. Therefore, Section 11-9-507(c)(1) does not apply in this

case.12

Accordingly, the perfection of the security interest of the Defendant in Accounts Receivable

of the Debtor is ineffective under Georgia law because (i) the Debtor’s name listed on the Financing

Statement (NTC Waste Group, LLC) is inconsistent with its name on the public record (Wastetech,

LLC) due to a name change prior to the filing of the Financing Statement, and (ii) a search of the

Georgia Superior Court Clerks’ Cooperative Authority’s Lien records for the entity “Wastetech” or

“Wastetech LLC” would not have disclosed the existence of the Financing Statement.

Inadequate Collateral Description

Having answered the first question regarding the effectiveness of the Financing Statement,

this Court now turns to the second question — whether the perfection is also ineffective under

Georgia law because the description of the collateral in the Financing Statement is inadequate.

11 Section 11-9-507(c) deals with a “filed financing statement” where the name “becomes insufficient”, which suggests

that the financing statement was at some point filed with a sufficient name. Here, the name on the Financing Statement

was never sufficient under Section 11-9-503.

12 Section 507(c)(1) is intended to solve a different problem. The UCC recording system is based on the ability to

search the name of the debtor and find a record of the interests it has granted in its property. That system is challenged

by the fact that entities change their names for a variety of reasons. The UCC could make a UCC-1 ineffective

immediately upon a name change, but that would require secured creditors to monitor the record names of all of their

borrowers every day, and would subject them to potentially intentional mischief by dishonest borrowers. Conversely,

the UCC could provide that a post-filing name change has no effect on a UCC-1 that was correct when filed, but that

would impair the usefulness of the UCC filing system in providing notice of interests. The four-month period strikes

a balance between these concerns, as it allows secured creditors time to learn of name changes and make adjustments

to their filings while substantially preserving the UCC records as an accurate source of information on the interests of

creditors in the property of debtors.

Under Georgia law, another element of the sufficiency of a financing statement is that it

must adequately describe the collateral covered by the financing statement. O.C.G.A. § 11-9-

502(a)(3). A financing statement sufficiently indicates the collateral that it covers only if the

financing statement provides either a description of the collateral pursuant to O.C.G.A. § 11-9-108

or an indication that the financing statement covers all assets or all personal property. O.C.G.A.

§ 11-9-504. Section 11-9-108 provides that a description of collateral “is sufficient, whether or not

it is specific, if it reasonably identifies what is described.” O.C.G.A. § 11-9-108(a). Examples of

reasonable description include specific listing, category, and any other method that makes the

identity of the collateral is objectively determinable. O.C.G.A. § 11-9-108(b).

For the purpose of a reasonable identification, the description merely needs to raise a red

flag to a third party indicating that more investigation may be necessary to determine whether or

not an item is subject to a security agreement. See In re Pickle Logging, Inc., 286 B.R. 181, 184

(Bankr. M.D. Ga. 2002)(holding that an error in the description of a piece of equipment in which

creditor claimed security interest that was identified, in both security agreement and financing

statement, by the wrong serial and model numbers, would not have raised a red flag for a person of

ordinary business prudence). A party does not lose its secured status just because the description

includes inaccurate information. See id., citing Yancey Bros. Co. v. Dehco, Inc., 134 S.E.2d 828,

830 (Ga.App. 1964). However, there must be information that provides a “key” to the collateral’s

identity other than the inaccurate information. Id.

Here, the description of the collateral contained in the Financing Statement is insufficient

because it does not indicate that the collateral covers all assets or all personal property of the Debtor,

nor does it meet the requirements under O.C.G.A. § 11-9-108 for a reasonable identification.

Instead, the Financing Statement describes the collateral as “[c]ertain future receivables sold by

said business seller and purchased by Crown Funding Group, Inc., as buyer, pursuant to that certain

purchase and sale of future receivables agreement between seller and purchaser dated 8/7/2017 (the

‘agreement’).”

Had the description been “all future receivables of the Debtor,” it would have met the

requirements under Section 11-9-108 by describing the collateral through category. It does not so

provide, but instead endeavors to identify a more limited set of receivables. More specifically, the

description points to “certain future receivables,” which is more specific than a general category.

Accordingly, a reasonable identification of the collateral calls for the identification of the

receivables purchase agreement that defined the relevant accounts receivable. To identify that

agreement, certain information may be relevant, including the date the agreement was entered into

and the parties to that agreement.

Regarding the agreement date, according to the description in the Financing Statement, the

agreement was dated August 7, 2017. However, none of the six Receivables Agreements on which

the Defendant relies is dated on August 7, 2017. Consequently, that information in the Financing

Statement would not help to identify the particular receivables in which the Financing Statement

was intended to perfect an interest.

The description of the collateral did not reveal any specific information about the “seller”

of the receivables, but in referring to a debtor and to a seller of receivables it is reasonable to

presume that the debtor is the seller here because that is one way a debtor can finance receivables.

More critically, however, adequate information to identify the other party to the receivables

purchasing agreement described in the Financing Statement is lacking. The counterparty to the

receivables purchase agreement that should be consulted to describe the relevant receivables is

identified in the Financing Statement as “Crown Funding Group, Inc.,” which is not the name of

the Defendant or the name on any of the Receivables Agreements. See Exhibit “A,” attached to

Notice of Filing of Plaintiff’s First Request for Admissions to Defendant, Docket No. 28. Even if

Crown Funding Group, Inc. could eventually be found and the discovery made that it shares an

address with the Defendant as the purported secured party, which the Defendant insists is possible

through a search of the records of the New York State Department of State Division of

Corporations, those facts would not necessarily lead a third party to an agreement that was actually

in the name of the Defendant and not Crown Funding Group, Inc., which is not the Defendant and

apparently exists as a separate entity.

Given this collective ambiguity, the information in the Financing Statement fails to provide

a “key” to the relevant agreement and thus the collateral’s identity. Accordingly, this Court holds

that the perfection of the security interest of the Defendant in Accounts Receivable of the Debtor is

ineffective under Georgia law because the Financing Statement fails to provide a description of the

collateral that reasonably identifies the collateral, i.e., the Debtor’s Accounts Receivable subject to

the Defendant’s security interest.

CONCLUSION

The perfection of the Defendant’s security interest in Debtor’s Accounts Receivable granted

under the Receivables Agreements is not properly perfected because neither of two elements

required for perfection by Georgia law is met. First, the Debtor’s name as listed in the Financing

Statement is inconsistent with its legal name on the public record. Moreover, a search of the

Georgia Superior Court Clerks’ Cooperative Authority’s Lien records for the Debtor’s correct name

would not have disclosed the existence of the Financing Statement. Second, the Financing

Statement does not indicate that it covers all assets or all personal property of the Debtor, and it

fails to provide a description of, or reasonably identify, the Debtor’s Accounts Receivable that are

subject to the Defendant’s security interest. Accordingly, the Financing Statement is seriously

misleading, and perfection of the Defendant’s security interest in Debtor’s Accounts Receivable is

legally ineffective. Based on the foregoing, it is

ORDERED that the Trustee’s Motion for Summary Judgment be, and the same hereby is,

GRANTED; and, it is further

ORDERED that any security interest asserted by the Defendant against property of the

Estate under the Receivables Agreements is subordinate to the interest of the Trustee under 11

U.S.C. § 544; and, it is further

ORDERED that the Transfers by the Debtor to Defendant of a security interest in Debtor’s

Accounts Receivable are avoided pursuant to 11 U.S.C. § 544; and, it is further

ORDERED that the Trustee recover the avoided Transfers pursuant to 11 U.S.C. § 550,

which are preserved for the benefit of the Estate under 11 U.S.C. § 551.

Judgment will be entered accordingly.

The Clerk’s office is directed to serve a copy of this Order upon counsel for the Debtor,

counsel for the Chapter 7 Trustee, counsel for the Defendant, and the Office of the United States

Trustee.

[END OF DOCUMENT]