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In Signature Credit Partners, LLC v. Casaic Offset & Silkscreen, Inc. (2012 WL 1999494 (W.D.La.)), Signature Credit Partners, LLC (Signature) lost their security interest when their UCC filing lapsed in 2010 because they failed to file a continuation. But, did Signature fail itself or did the Clerk of Courts fail Signature?
The Facts of the Case
Signature filed a UCC in November 2000, which granted a security interest in a printing press that was in the debtor's (Casaic's) possession. The PMSI filing from 2000 was continued by Signature in 2005, and when it came up for continuation in 2010, Signature hired a third party to file the continuation which would then grant them a security interest until 2015.
In 2010, the third party submitted the Signature's continuation to Caddo Parish Clerk of Courts (in Louisiana) but Caddo Parish rejected the continuation because "CONTINUATION ALREADY FILED ON 07/07/10 # 091136583". This rejection indicated to Signature that their continuation was already filed & they were granted security interest for another five years.
start quote this case, once the Clerk of Courts rejected the continuation, Signature or the third party should have requested a copy of the continuation - but neither party did.end quote
The Fly in the Ointment
In 2011, the debtor, Casaic, filed for bankruptcy protection and it was discovered that Signature's UCC filing was not continued in 2010. It turns out that the Clerk of Courts made an error in data entry when it entered the continuation filing number into the system. So, when the Clerk of Courts saw that a continuation had already been filed, they were actually looking at a different continuation altogether.
The signature argued that it should be granted the security interest because it was the Clerk of Courts that made the error and led Signature to believe they were secured. Of course, the courts were quite frank in their denial:
First, there is no dispute that Louisiana law regarding the ranking of liens governs this dispute. Under Louisiana Revised Statute 10:9--515(d), a continuation statement must be filed in the same filing office where the financing statement was originally filed within six (6) months of the expiration of the five (5) year period specified in La. R.S. 10:9--515(a)... Although Signature contends that it attempted to file a continuation statement, the facts are clear that no continuation statement was filed. Therefore, as a matter of law, Signature's financing statement lapsed on November 21, 2010. La. R.S. 10:9--515(c) provides that if a continuation statement is not timely filed, a security interest is deemed to have lapsed and "upon lapse, a financing statement ceases to be effective and any security interest or agricultural lien that was perfected by the financing statement becomes unperfected, unless a security interest is perfected otherwise.
What Should Have Happened
I asked my colleague in our UCC Services Group what we would do if a continuation was rejected because the filing was "already continued" and she advised, "If the county rejected the filing because it had already been continued we would have talked to the creditor, and we would have spoken with the Parish and obtained a copy of the filing."
In this case, once the Clerk of Courts rejected the continuation, Signature or the third party should have requested a copy of the continuation - but neither party did. Had they requested a copy of the continuation, it would have been apparent that the filing was not the Signature's filing.
Another Best Practice
We've previously recommended that creditors do a reflective search after every UCC filing. A reflective search will assist creditors in ensuring their filing was actually recorded and indexed accurately. You can learn more about reflective searches here.
Moral of the story: Ask for proof!
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