Court Opinion

ID: 7803500
Source: CourtListenerOpinion
Date Created: 2022-08-25 15:02:09.044512+00
Date Added: 2024-06-11T16:29:40.056489
License: Public Domain

Supreme Court of Florida
                             ____________

                           No. SC21-1717
                            ____________

                 1944 BEACH BOULEVARD, LLC,
                          Appellant,

                                  vs.

                  LIVE OAK BANKING COMPANY,
                            Appellee.

                          August 25, 2022

LAWSON, J.

     This case is before the Court for review of three questions of

Florida law certified by the United States Court of Appeals for the

Eleventh Circuit that are determinative of a cause pending in that

court and for which there appears to be no controlling precedent.

We have jurisdiction. See art. V, § 3(b)(6), Fla. Const.

     The certified questions concern the interpretation of section

679.5061(3), Florida Statutes (2021), which creates a safe harbor

for financing statements that are otherwise ineffective to perfect a

security interest because they fail to correctly name the debtor as
required by Florida law. The safe harbor applies when a financing

statement that fails to correctly name the debtor is disclosed by “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.”

§ 679.5061(3). Collectively, the Eleventh Circuit’s questions ask us

to delineate the proper scope of the “search” of the filing office’s

records as that term is used in the safe harbor provision. See In re

NRP Lease Holdings, LLC, 20 F.4th 746, 758 (11th Cir. 2021).

     However, as explained below, we find dispositive a threshold

question that was not expressly addressed or certified by the

Eleventh Circuit, namely: “Is the filing office’s use of a ‘standard

search logic’ necessary to trigger the safe harbor protection of

section 679.5061(3)?” Reading section 679.5061 in its entirety, our

answer is yes. Because Florida’s filing office, the Florida Secured

Transaction Registry, does not employ a “standard search logic,” we

hold that the safe harbor cannot apply, which means that a

financing statement that fails to correctly name the debtor as

required by Florida law is “seriously misleading” and therefore

ineffective. § 679.5061(2). Accordingly, it is unnecessary to reach

                                  -2-
the Eleventh Circuit’s three certified questions concerning the

proper scope of the “search” under the safe harbor provision.

                           BACKGROUND

     1944 Beach Boulevard, LLC (Beach Boulevard), is a limited

liability company organized and existing under the laws of Florida.

Beach Boulevard and its affiliates were jointly and severally

indebted to Live Oak Banking Company (Live Oak) in the

approximate amount of $3,000,000 on account of two loans, each

in the original principal amount of $2,500,000. The two loans

purport to be secured by a blanket lien on all of Beach Boulevard’s

assets. To perfect its claimed security interests, Live Oak filed two

UCC-1 Financing Statements with the Florida Secured Transaction

Registry (Registry). However, the financing statements filed by Live

Oak improperly name the debtor as “1944 Beach Blvd., LLC”

instead of “1944 Beach Boulevard, LLC.” (Emphasis added.)

     On December 5, 2019, Beach Boulevard and its affiliates filed

voluntary petitions for reorganization under Chapter 11 of the

United States Bankruptcy Code. When Beach Boulevard’s manager

conducted a search of the Registry, Live Oak’s financing statements

did not appear on the page of twenty results generated by the

                                 -3-
Registry. Live Oak’s financing statements did, however, appear on

the immediately preceding page.

     Beach Boulevard filed a complaint in the bankruptcy court,

which asserted that Live Oak’s financing statements failed to

correctly name the debtor as required by Florida law, making the

statements “seriously misleading” within the meaning of section

679.5061(2) and therefore ineffective to perfect Live Oak’s security

interest. See In re NRP Lease Holdings, 20 F.4th at 750. Seeking

the statutory safe harbor protection provided by section

679.5061(3) for financing statements that would otherwise be

ineffective for failing to correctly name the debtor, see §

679.5061(2), Live Oak asserted in its answer to Beach Boulevard’s

complaint the affirmative defense that “its financing statements

substantially complied with Florida law and that abbreviating

‘Boulevard’ to ‘Blvd.’ was a minor error or omission that does not

render the financing statements defective or seriously misleading.”

In re NRP Lease Holdings, 20 F.4th at 751. Live Oak also “claimed

that the filing statements were not ‘seriously misleading’ because

they can be found within one page of the initial search results.” Id.

In support, Live Oak explained that “while its liens do not appear on

                                  -4-
the first page of results for a search in the Registry under ‘1944

Beach Boulevard, LLC,’ the search results are displayed in

alphabetical order and ‘merely clicking the blue “<2021 WL

2143912, at *1 (M.D. Fla. May 21, 2021). Applying these

standards, the district court affirmed the bankruptcy court’s

                                  -5-
decision, writing only that “the bankruptcy court committed no

errors of law and made no clearly erroneous factual findings.” Id.

Beach Boulevard appealed the district court’s decision to the

Eleventh Circuit. In re NRP Lease Holdings, 20 F.4th at 752.

     On appeal, the Eleventh Circuit identified “two competing

interpretations” in the case law regarding the scope of the search

that is necessary to determine whether the safe harbor of section

679.5061(3) applies. Id. at 757. It cogently explained the split as

follows:

     The In re John’s Bean Farm [of Homestead, Inc., 378 B.R.
     385 (Bankr. S.D. Fla. 2007),] court concluded that the
     statutorily-established “standard search logic” generates
     “a single page on which [twenty] names appear” and that
     page constitutes the entirety of the “search” for purposes
     of the safe harbor. Id. Under that court’s logic, if a
     financing statement with the debtor’s incorrect name
     does not appear on that page, it is ineffective. In
     contrast, the In re Summit Staffing [Polk County, Inc., 305
     B.R. 347 (Bankr. M.D. Fla. 2003),] court concluded that
     the initial page of twenty names does not constitute the
     entirety of the “search”; instead, the “search” consists of
     the entirety of the Registry, which can be scrolled to from
     the initial page of twenty names. See 305 B.R. at 354-
     55. And that court determined the searcher “must
     reasonably examine the results of the search” to
     determine whether it discloses a financing statement with
     the debtor’s incorrect legal name. Id. at 355.

In re NRP Lease Holdings, 20 F.4th at 756.

                                -6-
     Faced with substantial doubt as to how this Court would

resolve the split, which it found to be a matter of state law

dispositive of the case before it, the Eleventh Circuit certified to this

Court the following questions:

     (1) Is the “search of the records of the filing office under
     the debtor’s correct name, using the filing office’s
     standard search logic,” as provided for by Florida Statute
     § 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 office’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?

Id. at 758.
                               ANALYSIS

     The certified questions present issues of statutory

interpretation concerning the scope of the search necessary to

determine whether a financing statement that would otherwise be

ineffective because it fails to correctly name the debtor falls within

the safe harbor established by section 679.5061(3). As we recently

explained, when interpreting a statute, “the goal of interpretation is

                                  -7-
to arrive at a ‘fair reading’ of the text by ‘determining the application

of [the] text to given facts on the basis of how a reasonable reader,

fully competent in the language, would have understood the text at

the time it was issued.’ ” Ham v. Portfolio Recovery Assocs., LLC,

308 So. 3d 942, 947 (Fla. 2020) (quoting Antonin Scalia & Bryan A.

Garner, Reading Law: The Interpretation of Legal Texts 33 (2012)).

     Thus, we begin with the statute’s text. The three subsections

of section 679.5061 relevant to the certified questions read as

follows:

          (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 financing
     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 statement seriously
     misleading.

                                  -8-
§ 679.5061(1)-(3).1

     The first subsection states that a financing statement may

contain minor errors or omissions and remain effective to perfect a

security interest, unless the error or omission renders the financing

statement “seriously misleading.” § 679.5061(1). However, the

Florida Legislature goes on to define “seriously misleading” as it

relates to errors or omissions in naming the debtor in the second

and third subsections. Thus, while subsection (1) generally applies

to errors or omissions in financing statements, subsections (2) and

(3) govern financing statements like those at issue in this case that

contain errors or omissions in naming the debtor. See Fla. Virtual

Sch. v. K12, Inc., 148 So. 3d 97, 102 (Fla. 2014) (explaining that “a

specific statute will control over a general statute”).

     For financing statements that fail to correctly name the debtor,

section 679.5061(2), does two things. First, the subsection creates

a zero-tolerance rule, under which a financing statement that fails

to name the debtor as directed in section 679.5031(1), Florida

      1. The only other provision of section 679.5061 is subsection
(4), which addresses a situation not at issue here.

                                  -9-
Statutes (2021), is “seriously misleading” and therefore ineffective.

§ 679.5061(2). Section 679.5031(1)(a), Florida Statutes (2021),

specifies how to correctly name a debtor where, as in this case, “the

debtor is a registered organization” as follows: “[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 organization’s name.” Second, subsection (2) also

carves out an exception to its zero-tolerance rule—the safe harbor

of subsection (3).

     The safe harbor exception codified in section 679.5061(3)

provides that a financing statement with errors or omissions in

naming the 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. § 679.5061(3).

     As evinced by the Eleventh Circuit’s certified questions,

section 679.5061(3) does not define the scope of the search of the

                                 - 10 -
filing office’s records that is necessary to determine whether the

safe harbor applies. Its only direction is to conduct the search

“using the filing office’s standard search logic, if any,” with no

explanation of what “standard search logic” means. Id.

     However, 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, see In re NRP Lease

Holdings, 20 F.4th at 752 (citing ch. 679, Fla. Stat; In re Summit

Staffing, 305 B.R. at 350), is well understood within the industry.

See Hancock Advertising, Inc. v. Dep’t of Transp., 549 So. 2d 1086,

1089 (Fla. 3d DCA 1989) (concluding that the court was “entitled to

consider” the “practical construction which has in fact been

adopted by the industry” to resolve “the statutory interpretation

problem before [it]”). Within the industry, “standard search logic” is

reasonably accepted 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.” Kenneth C. Kettering,

Standard Search Logic under Article 9 and the Florida Debacle, 66 U.

Miami L. Rev. 907, 913 (2012). This is because “[t]he whole point of

                                 - 11 -
the ‘standard search logic rule’ is to establish an objective

procedure for determining whether a given financing statement is

sufficient. A procedure that does not identify which financing

statements are hits and which are not is alien to the purpose of the

rule.” Id.

     The problem in Florida—as cogently explained by the amicus—

is that although the Registry offers an option for searching its

records, that option is not a “standard search logic.” Instead of

returning a finite list of hits when a search is conducted, the

Registry returns a list of twenty names starting with the name that

most closely matches the name entered. That list of names is but a

point from which the user can navigate forward and backward

through all of the names indexed in the Registry. In other words, “a

search” of the Registry returns an index of all of the financing

statements in the Registry. The Registry’s current search option

also produces inconsistent results depending upon the date a

search is conducted. This is true because as financing statements

are filed, amended, and removed, the position of a financing

statement on the Registry’s index changes, which means that a

                                 - 12 -
financing statement included in a list of twenty today might not be

on the same list tomorrow.

      We agree with Professor Kettering that 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.; see also Steven L. Harris & Charles

W. Mooney, Jr., Teacher’s Manual for Security Interests in Personal

Property: Cases, Problems and Materials 51 (6th ed. 2016) (opining

that the search option offered by Florida’s Registry “should not be

considered a ‘standard search logic’ ” because “the system does not

yield particular ‘hits’ ”).

      In certifying its questions concerning the proper scope of the

search required to determine whether the safe harbor of section

679.5061(3) applies, the Eleventh Circuit recognized these problems

with the Registry’s current search option, see In re NRP Lease

Holdings, 20 F.4th at 756-57, but it nevertheless determined that

the Registry employs a “standard search logic,” see, e.g., id. at 753,

756. In addressing the certified questions, we cannot accept the

Registry’s search option as the “standard search logic”

contemplated by the statute; rather, the Florida Constitution

                                 - 13 -
requires us to decide de novo what “standard search logic” means.

See art. V, § 21, Fla. Const.

     We adopt the definition of “standard search logic” accepted in

the secured transactions industry, which requires the search to

identify specific hits, if any, and hold that under this definition the

search option offered by the Registry, which returns the entire

index, is not a “standard search logic.” Moreover, because we read

section 679.5061(2)-(3) as conditioning the safe harbor’s application

on the ability to search the Registry’s records using a “standard

search logic,” it is unnecessary for us to address the Eleventh

Circuit’s certified questions. Instead, we hold that section

679.5061(3) provides one way and one way only to search the filing

office’s records for purposes of determining whether the safe harbor

applies to a financing statement that incorrectly names a debtor—

i.e., “using the filing office’s standard search logic, if any.” Because

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).

                                 - 14 -
     This interpretation is further bolstered by reading section

679.5061(2)-(3) together with section 679.5031(1), which plainly

places the burden to correctly name the debtor on the filer of a

financing statement. See Fla. Dep’t of State v. Martin, 916 So. 2d

763, 768 (Fla. 2005) (“The doctrine of in pari materia is a principle

of statutory construction that requires that statutes relating to the

same subject or object be construed together to harmonize the

statutes and to give effect to the Legislature’s intent.”). By

interpreting section 679.5061(2)-(3) as being intolerant of any errors

or omissions in naming the debtor—no matter how minor—unless

and until the Registry implements a “standard search logic”

necessary to determine whether the safe harbor applies, we

faithfully adhere to the text of section 679.5061(2)-(3), keep the

burden on the filer consistent with section 679.5031(1), and avoid

imposing requirements on the searcher that are not specified in the

statute.

                            CONCLUSION

     The Eleventh Circuit’s certified questions ask us to define the

scope of the search required to determine whether a financing

statement that fails to correctly name the debtor is nevertheless

                                 - 15 -
deemed effective under the safe harbor of section 679.5061(3).

However, because we hold that the Florida Secured Transaction

Registry’s failure to employ a “standard search logic” precludes the

safe harbor from applying in the first instance, we find it

unnecessary to reach the certified questions. Unless and until the

Registry employs a standard search logic, under the zero-tolerance

rule of section 679.5061(2), any financing statement that fails to

correctly name the debtor as required by section 679.5031(1) is

“seriously misleading” and therefore ineffective. Having explained

why our interpretation of section 679.5061 makes it unnecessary to

reach the certified questions, we return this case to the United

States Court of Appeals for the Eleventh Circuit.

     It is so ordered.

MUÑIZ, C.J., and CANADY, POLSTON, LABARGA, COURIEL, and
GROSSHANS, JJ., concur.

NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION
AND, IF FILED, DETERMINED.

Certified Question of Law from the United States Court of Appeals
for the Eleventh Circuit – Case No. 21-11742

Richard R. Thames of Thames Markey, Jacksonville, Florida,

     for Appellant

                                - 16 -
Ezra Z. Scrivanich of McMichael Taylor Gray, LLC, Deerfield Beach,
Florida,

     for Appellee

Scott G. Hawkins of Jones Foster P.A., West Palm Beach, Florida,

     for Amicus Curiae Commercial Law Amicus Initiative

                              - 17 -