Enforcement Negotiable Notes.

Byline: Derek Hawkins

7th Circuit Court of Appeals

Case Name: Tissue Technology, LLC, et al. Tak Investments, LLC

Case No.: 18-1835

Officials: FLAUM, EASTERBROOK, and SCUDDER, Circuit Judges.

Focus: Enforcement Negotiable Notes

In 2007 Tissue Technology and some affiliated entities, which the parties call the OFTI Group, sold a tissue mill in Oconto Falls, Wisconsin, to ST Paper, LLC, which is controlled by Tak Investments. Goldman Sachs agreed to finance the transaction, but during the financial crunch of 2007 it cut $19 million from the amount of money it was willing to invest. That presented OFTI with a problem: it had promised to give ST Paper clean title to the mill, but with the reduced financing it would be unable to pay off everyone who held a security interest. To help solve this problem, Tak Investments agreed to issue four negotiable notes, face values aggregating about $16 million, to OFTI, which would offer the notes to the creditors as substitute security. The creditors accepted the notes, and the transaction closed. (Factual statements in this paragraph, and elsewhere in this opinion, come from findings the district court made after a bench trial. 320 F. Supp. 3d 993 (E.D. Wis. 2018).)

OFTI asserts that the secured parties themselves can't enforce the notes because OFTI failed to endorse them before giving them in pledge as collateral. See Wis. Stat. 403.203, 409.313. That may well...