2021 Commercial Law Developments

• Publication year: 2022
• Author: Steven O. Weise, Teresa Wilton Harmon, John F. Hilson, Stephen L. Sepinuck, Edwin E. Smith, and Lynn A. Soukup

2021 Commercial Law Developments

Steven O. Weise, Teresa Wilton Harmon, John F. Hilson, Stephen L. Sepinuck, Edwin E. Smith, and Lynn A. Soukup

Steve Weise is co-chair of the American Law Institute - European Law Institute Principles for a Data Economy Project, member of the the American Law Institute - Uniform Law Commission Permanent Editorial Board for the Uniform Commercial Code (UCC), the Council of the American Law Institute, and the American Law Institute - Uniform Law Commission Joint Study Committee on UCC and Emerging Technologies. He was a member of the Drafting Committee for Article 9 of the UCC. He is the ABA's Representative to the UNCITRAL Working Group on Security Interests. He was the Chair of the Business Law Section of the American Bar Association (ABA). Education: Yale University (B.A., 1971); University of California, Berkeley, Boalt Hall School of Law (J.D., 1974).

Teresa Wilton Harmon is the managing partner of Sidley's Chicago office and a partner in the firm's Global Finance practice area, focusing on financial transactions and commercial law. Her financial transactions experience includes secured and unsecured loans, workouts and restructurings, structured finance, securitization and fintech.

Stephen L. Sepinuck is a Professor at Gonzaga University School of Law, where he teaches courses on contracts, commercial law, and transactional practice. He is also the Executive Director of the Commercial Law Amicus Initiative, which serves as amicus curiae in commercial law cases, and the Associate Reporter for the Drafting Committee on the UCC and Emerging Technologies.

Edwin E. Smith is a partner in the New York City and Boston offices of Morgan, Lewis & Bockius LLP. He concentrates his practice in general commercial and insolvency law. As a Massachusetts Uniform Law Commissioner, has been active formulating amendments and revisions to the Uniform Commercial Code. He is the chair of the drafting committee proposing 2022 amendments to the UCC addressing, among other things, digital assets.

A. Scope of Article 9 and Existence of a Secured Transaction/Security Agreement and Attachment of Security Interest

1. Rights in the Collateral

• In re Kramer, No. 19-12014-R, 2021, Bankr. LEXIS 358 (N.D. Okla. Feb. 16, 2021) - Contractual limits on "transfer" of "membership interest" cover the sale of an economic interest and apply to the proposed sale by a bankruptcy trustee.

2. Perfection/Financing Statements: Debtor and Secured Party Name; Other Contents

• Boshernitsan v. Bach, 276 Cal. Rptr. 3d 109 (Ct. App. 2021) - A trust is not a natural person. Only trustees and not trusts can hold title to property.

3. Filing of Financing Statement/Manner and Location

• Deutsche Bank Tr. Co. Ams. v. U.S. Energy Dev. Corp. (In re First River Energy, L.L.C.), 986 F.3d 914 (5th Cir. 2021) - The perfection of a security interest is governed by the "location" of the debtor as determined under U.C.C. sections 9-301, et seq., a choice-of-law agreement between the parties to the contract does not bind third parties. The fact that the "security interest" was created under the law of another state does not change the result. A debtor does not obtain an "equitable interest" in property that another has agreed to sell to the debtor before the other person delivers the property to the debtor. A secured party's agreement that there may be "permitted liens" does not waive the secured party's priority. Title warranties are not waivers of rights held by the person making the waiver.

4. Priority/Proceeds

• Cortland Cap. Mkt. Servs. v. ICBC Stand. Bank PLC. (In re PES Holdings, LLC), 625 B.R. 822 (D. Del. 2021) - Pursuant to the terms of the parties' intercreditor agreement, the perfected security interest of a bank in the proceeds of the debtor's business interruption insurance had priority over a term loan

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• agent's potentially perfected security interest in the same insurance proceeds. The intercreditor agreement gave the bank priority in "general intangibles" relating to accounts and inventory and their proceeds, and expressly defined general intangibles to include insurance policies. The business interruption insurance substituted for accounts and inventory, and thus was a general intangible related to accounts and inventory, and the proceeds of the insurance were therefore proceeds of covered general intangibles. Moreover, the intercreditor agreement gave the bank priority in "money," as that term is defined in the U.C.C., and the proceeds would take the form of cash payments, and hence were money. Finally, the intercreditor agreement also gave the bank priority in proceeds of "accounts," and the business interruption insurance proceeds were payable by reason of a loss of accounts, and hence were proceeds of accounts. No mention of the fact that policies of insurance were excluded from Article 9 as original collateral.

B. Fraudulent Transfers and Voidable Transactions

• Phila. Entm't & Dev. Partners, LP v. Pa. Dep't of Revenue (In re Phila. Entm't & Dev. Partners, LP), 623 B.R. 114 (E.D. Pa. 2020), aff'd on other grounds, 2021 WL 2666690 (3d Cir. 2021) - A gaming license is not property under Pennsylvania law, and therefore the Gaming Control Board's revocation of the debtor's license could not be an avoidable fraudulent transfer.
• Nagel v. Westen, 59 Cal. App. 5th 740 (Ct. App. 2021) - Court held that under the Uniform Voidable Transactions Act (UVTA), physically relocating personal property and transmitting or transporting sale proceeds out of state, then transmuting them into a different legal form, may constitute a direct or indirect mode of parting with assets or one's interest in those assets. As such, plaintiffs adequately alleged a "transfer" under the UVTA after defendants had sent the bulk of their assets out of state, even though plaintiffs could not identify a "third-party transferee" who received defendants' assets. Court declined to decide the issue as to whether plaintiffs' allegations gave rise to a common law cause of action for fraudulent transfer because appellant did not address this part of the trial court's ruling dismissing the case.

C. Creditor and Borrower Liability

1. Regulatory and Tort Claims—Good Faith, Fiduciary Duties, Interference With Prospective Economic Advantage, Libel, Invasion of Privacy

• Ko v. Maxim Healthcare Servs., Inc., 272 Cal. Rptr. 3d 906 (Ct. App. 2021) - Viewing an event in real time on a camera is sufficient for a bystander to a tort to bring a claim for intentional infliction of emotional distress.
• Surf's UP Legacy Partners, LLC v. Virgin Fest, LLC, No. N19C-11-092 PRW CCLD, 2021 WL 117036 (Del. Super. Ct. Dec. 16, 2021) - A controlling affiliate of a party that breaches a contract is not liable for interference with contract unless the affiliate acts in bad faith. "Affiliates" include parent entities, those...