Court Opinion

ID: 8210390
Source: CourtListenerOpinion
Date Created: 2022-09-29 20:00:26.766304+00
Date Added: 2024-06-11T16:41:50.515202
License: Public Domain

USCA11 Case: 21-11742    Date Filed: 09/29/2022   Page: 1 of 12

                                                   [PUBLISH]
                          In the
         United States Court of Appeals
                For the Eleventh Circuit

                 ____________________

                        No. 21-11742
                 Non-Argument Calendar
                 ____________________

In Re: NRP LEASE HOLDINGS, LLC, et al.,
                                                      Debtors.
___________________________________________________

1944 BEACH BOULEVARD, LLC,
                                            Plaintiff-Appellant,
versus
LIVE OAK BANKING COMPANY,

                                          Defendant-Appellee.
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2                       Opinion of the Court                  21-11742

                     ____________________

           Appeal from the United States District Court
                for the Middle District of Florida
              D.C. Docket No. 3:20-cv-01344-TJC
                    ____________________

Before NEWSOM, LAGOA, and ANDERSON, Circuit Judges.
LAGOA, Circuit Judge:
       This case returns to us for disposition from the Florida Su-
preme Court, to which we certified three questions of Florida law.
1944 Beach Boulevard, LLC v. Live Oak Banking Co. (In re NRP
Lease Holdings, LLC) (“1944 Beach I”), 20 F.4th 746, 758 (11th Cir.
2021). In considering our certified questions, the Florida Supreme
Court found dispositive a threshold issue that we did not expressly
address: “Is the filing office’s use of a ‘standard search logic’ neces-
sary to trigger the safe harbor protection of section 679.5061(3)?”
1944 Beach Boulevard, LLC v. Live Oak Banking Co. (“1944 Beach
II”), No. SC21-1717, 2022 WL 3650803, at *1 (Fla. Aug. 25, 2022).
      The Florida Supreme Court answered that question in the
affirmative. And the court further determined that Florida does
not employ a “standard search logic.” Id. The Florida Supreme
Court thus concluded that the statutory safe harbor for financing
statements that fail to correctly name the debtor cannot apply,
“which means that a financing statement that fails to correctly
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21-11742                  Opinion of the Court                               3

name the debtor as required by Florida law is ‘seriously misleading’
under Florida Statute § 679.5061(2) and therefore ineffective.” Id.
       We therefore hold that Live Oak did not perfect its security
interest in 1944 Beach Boulevard, LLC’s, assets because the two
UCC-1 Financing Statements filed with the Florida Secured Trans-
action Registry (the “Registry”) were “seriously misleading” under
Florida Statute § 679.5061(2), as the Registry does not implement a
“standard search logic” necessary to trigger the safe harbor excep-
tion set forth in Florida Statute § 679.5061(3). Accordingly, we re-
verse the district court’s order affirming the bankruptcy court’s
grant of Live Oak Banking Company’s cross-motion for summary
judgment and remand for further proceedings.
                I.      RELEVANT BACKGROUND 1
         Beach Boulevard, and its affiliated businesses, filed volun-
tary petitions for relief under Chapter 11 of the United States Bank-
ruptcy Code. Id. at 750. Beach Boulevard and its affiliates were
jointly and severally liable to Live Oak on two loans guaranteed by
the U.S. Small Business Administration; these loans purported to
be secured by a blanket lien on all of Beach Boulevard’s assets. Id.
Live Oak, in an attempt to perfect its security interest in these as-
sets, filed two UCC-1 Financing Statements with the Registry. Id.
“These filing statements identify the debtor as ‘1944 Beach Blvd.,
LLC,’ instead of its legal name, ‘1944 Beach Boulevard, LLC,’ as

1The relevant facts of this appeal are set forth in our previous decision, 1944
Beach I. See 20 F.4th at 750–52.
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4                       Opinion of the Court                 21-11742

listed in the articles of organization filed with the Florida Secretary
of State.” Id.
       Beach Boulevard filed a complaint asserting that Live Oak’s
UCC-1 financing statements were “seriously misleading” under
Florida Statute § 679.5061(2) and therefore ineffective to perfect
Live Oak’s security interest. Id. at 750–51. The parties eventually
cross-moved for summary judgment, and the bankruptcy judge
granted summary judgment for Live Oak, concluding that Live
Oak’s financing statements fell under the “safe harbor” of Florida
Statute § 679.5061(3) “because the Registry’s standard search logic
discloses the Financing Statements on the page immediately pre-
ceding the initial page on the Registry’s website.” Id. at 751. Thus,
the bankruptcy court found the Live Oak’s financing statements
were “not seriously misleading and [were] effective to perfect [Live
Oak’s] security interest in all of [Beach Boulevard’s] assets.” Id.
(some alterations in original). The district court, sitting in an ap-
pellate capacity, affirmed the bankruptcy court’s order. Id. at 751–
52. Beach Boulevard then appealed to this Court.
                 II.    STANDARD OF REVIEW
       District courts sit in an appellate capacity when reviewing
bankruptcy court judgments; they accept the bankruptcy court’s
factual findings unless they are clearly erroneous and review legal
conclusions de novo. Rush v. JLJ Inc. (In re JLJ Inc.), 988 F.2d 1112,
1116 (11th Cir. 1993). As the second court of review, this Court
“independently examines the bankruptcy court’s factual findings
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21-11742                Opinion of the Court                          5

for clear error and reviews de novo the legal determinations of
both the bankruptcy and district courts.” Id.
       The standard of review for a motion for summary judgment
under Rule 7056 of the Federal Rules of Bankruptcy Procedure is
the same as Rule 56 of the Federal Rules of Civil Procedure. See
Gray v. Manklow (In re Optical Techs., Inc.), 246 F.3d 1332, 1334
(11th Cir. 2001). Summary judgment is appropriate “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); accord In re Optical Techs., 246 F.3d at 1334.
                          III.      ANALYSIS
        As we explained in 1944 Beach I, 11 U.S.C. § 544(a) provides
that “the trustee in a bankruptcy case is granted the status of a hy-
pothetical lien creditor and may avoid any lien that is not properly
perfected under state law as of the petition date.” 20 F.4th at 752.
Thus, we must look to Florida law to determine whether Live Oak
perfected its security interest in Beach Boulevard’s assets. To per-
fect a security interest under Florida law, “a creditor must file a ‘fi-
nancing statement’ with the Registry,” id. (quoting Fla. Stat.
§ 679.5011), and “[a] financing statement must provide three pieces
of information to be considered sufficient for perfection: (1) the
name of the debtor; (2) the name of the secured party; and (3) a
description of the collateral covered by the financing statement,”
id. (quoting Fla. Stat. § 679.5021(1)).
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6                      Opinion of the Court                 21-11742

      Florida Statute § 679.5061 concerns the “[e]ffect of errors or
omissions” in financing statements. The statute provides, in rele-
vant part:
      (1) A financing statement substantially complying
      with the requirements of this part is effective, even if
      it has minor errors or omissions, unless the errors or
      omissions make the financing statement seriously
      misleading.
      (2) Except as otherwise provided in subsection (3), a
      financing statement that fails sufficiently to provide
      the name of the debtor in accordance with s.
      679.5031(1) is seriously misleading.
      (3) If a search of the records of the filing office under
      the debtor's correct name, using the filing office's
      standard search logic, if any, would disclose a financ-
      ing statement that fails sufficiently to provide the
      name of the debtor in accordance with s. 679.5031(1),
      the name provided does not make the financing state-
      ment seriously misleading.
       As explained by the Florida Supreme Court, the “first sub-
section states that a financing statement may contain minor errors
or omissions and remain effective to perfect a security interest, un-
less the error or omission renders the financing statement ‘seri-
ously misleading.’” 1944 Beach II, 2022 WL 3650803, at *3 (quoting
§ 679.5061(1)). The second and third subsections of the statute, in
turn, define “seriously misleading” as it relates to errors or admis-
sions in naming the debtor. Id. Section 679.5061(2) “creates a zero-
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21-11742                  Opinion of the Court                               7

tolerance rule, under which a financing statement that fails to name
the debtor as directed in [Florida Statute § 679.5031(1)] is ‘seriously
misleading.’” 2 Id. And section 679.5061(3) creates a “safe harbor
exception” to subsection (2)’s zero-tolerance rule providing that a
financing statement with errors or omissions in naming a debtor
“will still be effective to perfect a security interest so long as ‘a
search of the records of the filing office under the debtor's correct
name, using the filing office's standard search logic, if any, would
disclose’ the financing statement.” Id. at *4 (quoting § 679.5061(3)).
       Turning to this case, Beach Boulevard and Live Oak disagree
as to whether Live Oak’s financing statements fell under the safe
harbor exception in section 679.5061(3). As we explained before,
“Live Oak’s financing statements do not appear on the initial page
of twenty names generated by a Registry search using Beach Boule-
vard’s correct legal name,” but “they do appear on an immediately
preceding page.” 1944 Beach I, 20 F.4th at 754. Beach Boulevard

2 Section 679.5031(1) specifies how to correctly name a debtor that is a regis-
tered organization:
       [a] financing statement sufficiently provides the name of the
       debtor . . . only if the financing statement provides the name
       that is stated to be the registered organization's name on the
       public organic record most recently filed with or enacted by
       the registered organization's jurisdiction of organization that
       purports to state, amend, or restate the registered organiza-
       tion's name
1944 Beach II, 2022 WL 3650803, at *3 (quoting § 679.5031(1)(a)).
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8                       Opinion of the Court                  21-11742

contends that “the initial page of twenty names is both the begin-
ning and the end of the ‘seriously misleading’ inquiry,” while Live
Oak asserts that “it is just the beginning and that its financing state-
ment appearing on the preceding page falls into the statutory safe
harbor.” Id.
       Because this case presented a novel issue of Florida law that
divided bankruptcy courts within our Circuit, and because we
faced substantial doubt as to how the Florida Supreme Court
would resolve the split, we certified these three questions to that
court:
       (1) Is the “search of the records of the filing office un-
       der the debtor’s correct name, using the filing office's
       standard search logic,” as provided for by Florida Stat-
       ute § 679.5061(3), limited to or otherwise satisfied by
       the initial page of twenty names displayed to the user
       of the Registry's search function?
       (2) If not, does that search consist of all names in the
       filing office's database, which the user can browse to
       using the command tabs displayed on the initial page?
       (3) If the search consists of all names in the filing of-
       fice's database, are there any limitations on a user's
       obligation to review the names and, if so, what factors
       should courts consider when determining whether a
       user has satisfied those obligations?
1944 Beach I, 20 F.4th at 758.
      The Florida Supreme Court, however, found “dispositive a
threshold question” that was not expressly certified by this Court:
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“Is the filing office's use of a ‘standard search logic’ necessary to
trigger the safe harbor protection of section 679.5061(3)?” 3 1944
Beach II, 2022 WL 3650803, at *1. And reading the language of
section 679.5061(3), the court concluded “yes.” Id.
        After analyzing the relevant statutory text, the Florida Su-
preme Court also explained that section 679.5061(3) “does not de-
fine the scope of the search of the filing office’s records that is nec-
essary to determine whether the safe harbor applies,” i.e., did not
explain what “standard search logic” means in the context of the
statute. Id. at * 4. But, the court noted, “the meaning of ‘standard
search logic’ as used in Article 9 of the Uniform Commercial Code,
which governs secured transactions and which Florida has adopted
is well understood within the industry. . . . and is reasonably ac-
cepted to mean a procedure that ‘identif[ies] the set (which might
be empty) of financing statements on file that constitute hits for the
search,’ or stated differently, that produces an ‘[u]nambiguous
identification of hits.’” Id. (quoting Kenneth C. Kettering, Standard
Search Logic Under Article 9 and the Florida Debacle, 66 U. Mia.
L. Rev. 907, 913 (2012) (citations omitted)). The court then con-
cluded that Florida’s Registry, while offering an option for search-
ing its records, did not have an option that was a “standard search
logic.” Id. Indeed, when conducting a search, “the Registry returns
a list of twenty names starting with the name that most closely

3 Because the Florida Supreme Court found this question dispositive, it found
it unnecessary to reach the questions we certified to it. 1944 Beach II, 2022
WL 3650803, at *5.
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10                      Opinion of the Court                 21-11742

matches the name entered,” which “ is but a point from which the
user can navigate forward and backward through all of the names
indexed in the Registry.” Id. And, as the Florida Supreme Court
explained, a “‘search procedure that returns as hits, for any search
string, all financing statements in the filing office’s database cannot
rationally be treated as a ‘standard search logic.’” Id. (quoting Ket-
tering, supra, at 913).
       The Florida Supreme Court therefore adopted “the defini-
tion of ‘standard search logic’ accepted in the secured transactions
industry, which requires the search to identify specific hits, if any,”
and held that “the search option offered by the Registry, which re-
turns the entire index, is not a ‘standard search logic.’” Id. at *5.
The court held that “section 679.5061(3) provides one way and one
way only to search the filing office’s records for purposes of deter-
mining whether the safe harbor applies to a financing statement
that incorrectly names a debtor—i.e., ‘using the filing office’s stand-
ard search logic, if any.’” Id. As a result, the court explained that
“[b]ecause the Registry lacks a ‘standard search logic,’ the search
contemplated by section 679.5061(3) is impossible, which means
that filers are left with the zero-tolerance rule of section
679.5061(2).” Id. Because the zero-tolerance rule applies “until the
Registry employs a standard search logic, . . . any financing state-
ment that fails to correctly name the debtor as required by section
679.5031(1) is ‘seriously misleading’ and therefore ineffective.” Id.
        The Florida Supreme Court’s answer to the threshold ques-
tion it identified resolves this appeal. As explained by the Florida
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21-11742               Opinion of the Court                        11

Supreme Court, since the Registry currently does not implement a
“standard search logic,” it is impossible to conduct a search neces-
sary to qualify for the safe harbor exception contained in section
679.5061(3). Id. Thus, section 679.5061(2)’s zero-tolerance rule ap-
plies. As previously noted, Live Oak’s filing statements identify
Beach Boulevard as “1944 Beach Blvd., LLC,” instead of its legal
name, “1944 Beach Boulevard, LLC,” listed in its articles of organ-
ization filed with the Florida Secretary of State. 1944 Beach I, 20
F.4th at 750. Under section 679.5061(2), Live Oak’s financing state-
ments are “seriously misleading” because they “fail[] sufficiently to
provide the name of the debtor in accordance with [section]
679.5031(1),” and are therefore ineffective to perfect a security in-
terest in Beach Boulevard’s assets under Florida law. See 1944
Beach I, 20 F.4th at 752; § 679.5011.
        Because Live Oak did not properly perfect its security inter-
est in all of Beach Boulevard’s assets under Florida law, and because
§ 544(a) grants the bankruptcy trustee the status of a hypothetical
lien creditor who may avoid any lien that is not properly perfected
under state law as of the petition date, the bankruptcy court erred
in concluding that Live Oak perfected its security interest. We
therefore conclude that the district court erred in affirming the dis-
trict court’s grant of summary judgment for Live Oak.
                       IV.    CONCLUSION
       Because Live Oak’s financing statements are seriously mis-
leading under Florida law, they were not effective to perfect its se-
curity interest in all of Beach Boulevard’s assets. The district court
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12                    Opinion of the Court                21-11742

therefore erred in affirming the bankruptcy court’s order granting
Live Oak’s cross motion for summary judgment. Accordingly, we
reverse the district court’s order affirming the bankruptcy court’s
grant of summary judgment for Live Oak, and remand for further
proceedings consistent with this opinion.
      REVERSED AND REMANDED.