Opinion ID: 2828797
Heading Depth: 2
Heading Rank: 2

Heading: Treatment Under Common Law.

Text: Having correctly found not only that Article 9 was inapposite but also that no other Maine statute governs the taking of security interests in insurance rights, the bankruptcy court - 19 - proceeded to conclude that Wheeling had failed to perfect a security interest under Maine common law. See MMA I, 2014 WL 1491301, at . The BAP agreed. See MMA II, 521 B.R. at 714. Battling on, Wheeling challenges this conclusion. Because Maine's highest court has not addressed the common-law requirements for perfecting a security interest in insurance rights, our duty is to make an informed prophecy as to how that court would rule if faced with the issue. See Bos. Reg'l Med. Ctr., Inc. v. Reynolds (In re Bos. Reg'l Med. Ctr., Inc.), 410 F.3d 100, 108 (1st Cir. 2005). In vaticinating the course that a state court likely would follow, we begin with settled principles of state law and then consider persuasive authority from other jurisdictions and the teachings of learned treatises. See id.; Blinzler v. Marriott Int'l, Inc., 81 F.3d 1148, 1151 (1st Cir. 1996). While conducting this inquiry, we pay particular heed to prior public policy pronouncements emanating from the state's highest court, see Andrew Robinson Int'l, Inc. v. Hartford Fire Ins. Co., 547 F.3d 48, 52 (1st Cir. 2008), and assume that the state tribunal would select a rule that best implements those policies, see Bos. Reg'l Med. Ctr., 410 F.3d at 108. At common law, a creditor claiming a security interest through a chattel mortgage was required to perfect its interest by taking possession of the collateral. See Prod. Credit Ass'n v. Kent, 56 A.2d 631, 632 (Me. 1948); Peaks v. Smith, 71 A. 884, 886 - 20 - (Me. 1908). The Maine legislature later provided that perfection could also be accomplished by recording the chattel mortgage with the appropriate municipal official. See Prod. Credit Ass'n, 56 A.2d at 632; Peaks, 71 A. at 886. In instances in which one method of perfection proved either impossible or impracticable, a creditor had to comply with the other in order to achieve priority status. See Prod. Credit Ass'n, 56 A.2d at 633. The purpose of requiring possession or recordation was to prevent the creation of secret liens and ensure that bona fide purchasers as well as creditors were given fair notice of the encumbrance. See id. at 632; Peaks, 71 A. at 886. This purpose is shared by the Article 9 regime, see Maplewood Poultry, 2 B.R. at 555, which now governs most secured transactions in Maine. Where intangible collateral (such as a payment right under an insurance policy) is involved, possession is not a practical method of perfection. Nor does any party suggest that Maine has a filing system that allows the recordation of interests in insurance policies. Yet the bankruptcy court has concluded that, in a situation similar to the situation here, a creditor could still comply with Maine common law even without recording its interest or taking possession of the insurance policy. See A- 1 Credit Corp. v. Big Squaw Mt. Corp. (In re Big Squaw Mt. Corp.), 122 B.R. 831, 838-39 (Bankr. D. Me. 1990). This is a sensible view of the law — and we believe that Maine's highest court would - 21 - not invariably require either possession or recordation as a sine qua non to the perfection of a security interest in an insurance policy. In all events, the trustee does not argue to the contrary. But this conclusion gets us only part-way home: it leaves open the question of what Maine law actually requires for the perfection of such an interest. This case does not demand a definitive answer to that question; principles of federalism and comity argue convincingly for cabining a federal court's predictions about how a state's highest court will answer novel legal questions as narrowly as possible. See Nolan v. CN8, 656 F.3d 71, 76 (1st Cir. 2011) (citing Moores v. Greenberg, 834 F.2d 1105, 1112 (1st Cir. 1987)). Following that wise precept, it suffices to say here that the Maine Supreme Judicial Court would, in our view, adopt a perfection rule requiring something more than what Wheeling did. Refined to bare essence, Wheeling argues here for a rule of perfection upon creation (that is, for a rule that the very creation of a security interest perfects that interest). Although automatic perfection paradigms are not unknown, such paradigms are not the norm. See James J. White & Robert S. Summers, Uniform Commercial Code § 23-5 (6th ed. 2010). Nor is there any sound reason to think that Maine's highest court would embrace such a paradigm. After all, a primary goal of both Article 9 and Maine's pre-UCC perfection rules is to ensure that other creditors have - 22 - notice of the security interest. An automatic perfection rule would frustrate that goal by making irrelevant the existence vel non of publicly available evidence of asserted security interests. Cf. Big Squaw Mt., 122 B.R. at 837 (suggesting that mere retention of security agreement was insufficient under Maine law to perfect security interest in insurance policy). Given Maine's wellestablished public policy disfavoring secret liens, see, e.g., Prod. Credit Ass'n, 56 A.2d at 632-33; Shaw v. Wilshire, 65 Me. 485, 490-92 (1876), we are confident that Maine's highest court will require some additional step, designed to furnish fair notice to other creditors, beyond the mere execution of a security agreement creating an interest in the right to payment under an insurance policy. This gets the grease from the goose. In this instance, Wheeling did nothing to perfect its claimed security interest other than filing a UCC-1 financing statement in Delaware. That financing statement described the collateral as [a]ll of [MMA's] inventory, accounts and payment intangibles (as those terms are defined in the Uniform Commercial Code). Those forms of collateral, as defined in the UCC, do not include rights under an insurance policy. See supra Part II.A. And though the financing statement mentions insurance as a form of proceeds, it does not identify insurance rights as a form of original collateral. It follows, we think, that the financing statement was wholly - 23 - inadequate to give fair notice (or, indeed, any notice at all) to others of Wheeling's purported interest in the Policy.6 We therefore conclude that Wheeling never perfected its security interest under Maine common law.