17 Hoosier Banker March 2015 the UCC-3 termination statement was effective and rendered the Lender an unsecured creditor on par with all other unsecured creditors of the Borrower. The Lender countered that the UCC-3 termination statement was unauthorized and therefore ineffective, because neither the Lender, the Borrower, nor their law firms had intended that the UCC-1 for Loan 2 be terminated. The bankruptcy court agreed with the Lender and concluded that the UCC-3 termination statement was unauthorized and therefore not effective to terminate the security interest granted for Loan 2. Appeal to the Second Circuit On appeal to the Second Circuit, the parties offered competing interpretations of the meaning of the term “authorized” under 9-509(d) (1) of the UCC. While the Lender focused on the parties’ subjective intent, the Committee focused on the Lender’s act of authorizing the filing of the UCC-3 – even if by mistake. The Second Circuit identified the two issues before it as: (1) what precisely must a secured lender of record “authorize” for a UCC-3 termination statement to be effective; and (2) whether the Lender had granted such authority. Regarding the first question, the Second Circuit certified the question to the Delaware Supreme Court. The Delaware Supreme Court held that, for a termination statement to become effective, it is enough that the secured party authorizes the filing to be made – the UCC does not require that a secured party that authorizes a filing subjectively intends or otherwise understands the effect of the plain terms of its own filing. The Delaware Supreme Court reasoned that, if parties could be relieved from the legal consequences of their mistaken filings, they would have little incentive to ensure the accuracy of the information contained in their UCC filings. As to the second question, the Second Circuit found that, although *The case discussed in this article is Official Committee of Unsecured Creditors of Motors Liquidation Company v. JPMorgan Chase Bank, N.A., 2015 U.S.App. LEXIS 859 (2nd Cir. Jan. 21, 2015). the Lender had never intended to terminate the UCC-1 securing Loan 2, it indeed authorized the filing of a UCC-3 termination statement that had that effect. The Second Circuit reversed the bankruptcy court’s entry of judgment in favor of the Lender and remanded with instructions to enter judgment in favor of the Committee as to the termination of the UCC-1 securing Loan 2. Practice Pointers The lesson of this case for secured lenders is that great care must be taken in the preparation and filing of UCC forms. Secured parties will be held accountable for authorized filings, even if made by mistake. The best practice for secured lenders is to take sole responsibility for completing and filing all UCC forms to avoid these harsh results. t Martin Padgett, president and chief executive officer of Clark Memorial Hospital, has been appointed to the board of directors of First Savings Bank, Clarksville. He has 23 years of health care administration. Padgett is a fellow in the American College of Health Care Executives, board chairman of the Indiana Hospital Association and YMCA Southern Indiana, and board vice president of Healthcare Financial Management Association. He also serves on the boards of the American Red Cross, Family Health Clinic of Southern Indiana and the American Heart Association. He is a member of the American Institute of CPAs, the American College of Healthcare Executives and Rotary Club of Jeffersonville. Padgett earned a bachelor’s degree from the University of Kentucky and an MBA from Morehead State University. Phillip J. Keller has been appointed to the board of directors of Community Bank Shares of Indiana Inc., holding company for Your Community Bank, New Albany, and The Scott County State Bank, Scottsburg. He has 26 years of finance and accounting experience and previously served as board member for First Financial Service Corp., Elizabethtown, Kentucky. A graduate of Loyola University of Chicago, Keller is senior vice president of finance and chief financial officer of RehabCare, and serves on the board for WellSpring. Daniel H. Ford has been appointed chairman of the board for Crossroads Bank, Wabash, and FFW Corporation. He replaces former chairman J. Stanley Myers, who continues to serve on the board through September. Ford joined the bank board in 2005; he also is a director of Ford Meter Box Company and chairman of the Ford Meter Box Foundation. He is president of the Charley Creek Foundation, a board member of the Wabash County YMCA and past president of the Wabash Rotary Club. Ford is a graduate of Purdue University. t FroM the boArd rooM
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