Opinion ID: 2422628
Heading Depth: 2
Heading Rank: 2

Heading: Enforcement and Priority

Text: [¶ 16] We now turn to the legal import of Prospect's purchase of Worcester's collateral at the March 11, 2009, auction, and the subsequent conveyance of that collateral to DownEast. DownEast maintains that Prospect properly disposed of the deposit account pursuant to 11 M.R.S. § 9-1610, essentially divesting Worcester of its ownership before Davis's interest as a lien creditor could attach. Davis contends that 11 M.R.S. § 9-1607, which governs the collection and enforcement rights for deposit accounts, is the relevant provision, and that control is a prerequisite to exercising self-help remedies under the U.C.C. On this point, we agree with Davis. [¶ 17] In purchasing Worcester's collateral at auction, Prospect purported to act in accordance with 11 M.R.S. § 9-1610, which states, in pertinent part: (1) After default, a secured party may sell, lease, license or otherwise dispose of any or all of the collateral in its present condition or following any commercially reasonable preparation or processing. (2) Every aspect of a disposition of collateral, including the method, manner, time, place and other terms, must be commercially reasonable. If it is commercially reasonable, a secured party may dispose of collateral by public or private proceedings, by one or more contracts, as a unit or in parcels and at any time and place and on any terms. (3) A secured party may purchase collateral: (a) At a public disposition; or (b) At a private disposition only if the collateral is of a kind that is customarily sold on a recognized market or the subject of widely distributed standard price quotations. [¶ 18] We acknowledge, as DownEast argues, that neither the text nor the official comments speak to control or exclude deposit accounts from section 9-1610's reach. Indeed, the comments broadly state that any secured party as to whom there has been a default enjoys the right to dispose of collateral under this subsection. 11 M.R.S.A. § 9-1610 cmt. 5 (Supp.2010); U.C.C. § 9-610 cmt. 5 (2010). Read in context, however, other provisions in Article 9-A suggest that unique rules apply to secured creditors seeking self-help remedies with regard to deposit accounts. See Joseph Stephens & Co. v. Cikanek, 588 F.Supp.2d 870, 874 (N.D.Ill. 2008) (Special rules apply to deposit accounts as original collateral under Revised Article 9.); City of Bangor, 2005 ME 35, ¶ 9, 868 A.2d at 180 ([W]e consider the whole statutory scheme for which the section at issue forms a part so that a harmonious result, presumably the intent of the Legislature, may be achieved. (quotation marks omitted)). [¶ 19] First, we observe that 11 M.R.S. § 9-1607(1) sets forth specific collection and enforcement rights for deposit accounts: (1) If so agreed, and in any event after default, a secured party: . . . . (d) If it holds a security interest in a deposit account perfected by control under section 9-1104, subsection (1), paragraph (a), may apply the balance of the deposit account to the obligation secured by the deposit account; and (e) If it holds a security interest in a deposit account perfected by control under section 9-1104, subsection (1), paragraph (c) or (d), may instruct the bank to pay the balance of the deposit account to or for the benefit of the secured party. [10] [¶ 20] The rights enumerated in these subsections are available only to a secured party with control. Although section 9-1607(1) refers to action that a secured party may take, suggesting that these remedies may not be exclusive, see Gaeth v. Deacon, 2009 ME 9, ¶ 17, 964 A.2d 621, 625 (The statutory use of the word `may' is permissive, not restrictive.), the official comments reveal that other self-help alternatives are ineffective: Deposit Account Collateral. Subsections (a)(4) and (5) [Maine cite subsection (1), paragraphs (d) and (e)] set forth the self-help remedy for a secured party whose collateral is a deposit account.. . . If a security interest of a third party is perfected by control (Section 9-104(a)(2) or (a)(3) [Maine cite section 9-1104, subsection (1), paragraph (b) or (c)]), then after default, and otherwise if so agreed, the secured party may instruct the bank to pay out the funds in the account. . . . If a security interest in a deposit account is unperfected, or is perfected by filing by virtue of the proceeds rules of Section 9-315 [Maine cite section 9-1315], the depositary institution ordinarily owes no obligation to obey the secured party's instructions. See Section 9-341 [Maine cite section 9-1341]. To reach the funds without the debtor's cooperation, the secured party must use an available judicial procedure. 11 M.R.S.A. § 9-1607 cmt. 7 (Supp.2010); U.C.C. § 9-607 cmt. 7 (2010). DownEast has offered no persuasive reason why a secured creditor without control should be allowed to circumvent section 9-1607 by exercising the disposition rights listed in section 9-1610. [¶ 21] Second, as the comment to section 9-1607 suggests, Article 9-A's treatment of deposit accounts must be understood with reference to the rights and obligations accorded to depositary institutions. 11 M.R.S.A. § 9-1607 cmt. 7; U.C.C. § 9-1607 cmt. 7. Title 11 M.R.S. § 9-1341 provides: Except as otherwise provided in section 9-1340, subsection (3), and unless the bank otherwise agrees in an authenticated record, a bank's rights and duties with respect to a deposit account maintained with the bank are not terminated, suspended or modified by: (1) The creation, attachment or perfection of a security interest in the deposit account; (2) The bank's knowledge of the security interest; or (3) The bank's receipt of instructions from the secured party. [¶ 22] According to the official comments, this section was designed to prevent security interests in deposit accounts from impeding the free flow of funds through the payment system. 11 M.R.S.A. § 9-1341 cmt. 2 (Supp.2010); U.C.C. § 9-341 cmt. 2 (2010). To effectuate this purpose, section 9-1341 allows a bank to follow the debtor's (customer's) instructions (e.g., by honoring checks, permitting withdrawals, etc.) until such time as the depository institution is served with judicial process or receives instructions with respect to the funds on deposit from a secured party who has control over the deposit account. 11 M.R.S.A. § 9-1341 cmt. 3; U.C.C. § 9-341 cmt. 3. Again, the interpretation of section 9-1610 urged by DownEast cannot be reconciled with the concept of control embodied in section 9-1341. [¶ 23] Based on these provisions, at least two commentators have concluded that a secured creditor without control has no self-help remedies under the U.C.C. See Ben Carpenter, Security Interests in Deposit Accounts and Certificates of Deposit Under Revised UCC Article 9, 55 Consumer Fin. L.Q. Rep. 133, 143 (2001) (If the secured party does not have control, revised Article 9 does not provide self-help remedies for the nondepositary secured party.); Bruce A. Markell, From Property to Contract and Back: An Examination of Deposit Accounts and Revised Article 9, 74 Chi.-Kent L.Rev. 963, 1005 (1999) (If a secured party . . . does not have control . . . Revised Article 9 maintains the current procedural status of the secured party and does not offer any self-help remedies.). We agree and conclude that the remedies provided in section 9-1610 are not available to a secured party without control. Accordingly, Prospect's purchase of Worcester's collateral failed to divest Worcester of its ownership interest in the deposit account, enabling Davis to attach as a lien creditor of Worcester. [¶ 24] We are left, then, with only a question of priority between Davis, a lien creditor, and DownEast, the holder of Prospect's unperfected security interest. Relying on 11 M.R.S. § 9-1317(1), [11] the District Court concluded that DownEast's interest was subordinate because neither Prospect nor DownEast had perfected an interest in the deposit account. DownEast does not challenge this aspect of the court's analysis on appeal, and we do not disturb it. See Holland v. Sebunya, 2000 ME 160, ¶ 9 n. 6, 759 A.2d 205, 209 (The failure to mention an issue in the brief or at argument is construed as either an abandonment or a failure to preserve that issue.). Because DownEast's unperfected security interest in the deposit account is subordinate to Davis's interest as a lien creditor, the court properly ordered The First to distribute the $101,036 held in the deposit account to Davis. The entry is: Judgment affirmed.