April 20, 2019

Colorado Supreme Court: Statute of Limitations for Recovery of Debt Repayable in Installments Is Triggered at Date the Debt Was Due, Not Date Debt Became Liquidated or Determinable

The Colorado Supreme Court issued its opinion in Hassler v. Account Brokers of Larimer County, Inc. on April 16, 2012.

Secured Transactions—Statute of Limitations—Optional Acceleration Clause.

The Supreme Court held that the claim in this action was barred by the six-year statute of limitations. The Court found that, to determine when the statute of limitations is triggered for the recovery of a debt repayable in installments, the determining factor is not the date the debt became liquidated or determinable, but rather the date the debt was due. Here, the debt became due when plaintiff’s predecessor-in-interest unequivocally manifested its intent to invoke its optional acceleration provision by repossessing the collateral and demanding full payment from the debtor before the collateral could be redeemed. Because this acceleration occurred more than six years before the initiation of this action, the claim was barred by the statute of limitations. The district court’s judgment was reversed.

Summary and full case available here.

Colorado Court of Appeals: Cattle Who Were “Produced In” Oklahoma and Shipped to Colorado From Missouri Were Considered Securities

The Colorado Court of Appeals issued its opinion in Great Plains National Bank, N.A. v. Mount on April 12, 2012.

Summary Judgment—Food Security Act—Security Interests in Cattle—Uniform Commercial Code.

In this consolidated appeal, defendants Jamie Mount and Cattle Consultants, LLC appealed the district court’s summary judgment in favor of plaintiff Great Plains National Bank, N.A. (Great Plains) on their separate motions for summary judgment. The judgment was affirmed.

This consolidated case involved two disputes. Mount claimed under the Food Security Act of 1985 (FSA) that he purchased 206 head of cattle free of a security interest claimed by Great Plains. Cattle Consultants and Great Plains each claimed a superior security interest in the 206 head of cattle.

In October 2009, Fred Smith obtained a loan from Great Plains and granted a security interest covering “[a]ll cattle” that he owned at the time or would acquire in the future. On November 19, 2009, Great Plains filed a Uniform Commercial Code (UCC) financing statement with the Oklahoma Secretary of State’s office reflecting this interest. Great Plains also filed an effective financing statement (EFS) in Oklahoma, as required by the FSA, on December 17, 2009.

On February 15, 2010, Mount agreed to purchase 206 head of cattle from Smith. That same day, Cattle Consultants financed Mount’s purchase, and Mount granted Cattle Consultants a security interest in the 206 head of cattle. Cattle Consultants filed a UCC financing statement with the Colorado Secretary of State on March 8, 2010.

Mount believed he was buying 206 head of cattle located in Oklahoma, but Smith actually fulfilled the purchase with cattle he had just bought on February 14, 2010 from a broker in Missouri. On February 18, 2010, Smith received a shipment of 231 head of cattle from the Missouri cattle broker. The next day, he loaded 206 of them onto trucks bound for Colorado. Mount paid for the shipping.

Smith paid the Missouri cattle broker with a check with insufficient funds, but Great Plains covered it. Great Plains couldn’t recoup the money from Smith. In April 2010, Great Plains sought to enforce its security interest in the 206 head of cattle purchased by Mount and filed a UCC financing statement against Smith in Colorado.

All parties moved for summary judgment, and the district court ruled in favor of Great Plains. The court concluded that the cattle were “produced in” Oklahoma, such that under the FSA, Mount’s purchase was subject to Great Plains’ financing statement filed in that state. The court further found that Cattle Consultants’ security interest in the cattle was junior to Great Plains’ security interest. Mount and Cattle Consultants appealed.

Mount argued the trial court misinterpreted the phrase “produced in” under the FSA. The Court had to determine whether Mount’s cattle were “produced in” Oklahoma. If so, they were subject to Great Plains’ security interest. If not, they were free and clear of that security interest. Under the FSA, buyers of farm products generally take free of a security interest created by the seller; however, there is an exception under 7 U.S.C. § 1631(e) that applies where (1) the farm product was produced in a state that has a central filing system; (2) the buyer has failed to register with that state’s secretary of state; and (3) the secured party has filed an effective financing statement covering the farm products being sold.

Mount challenged the district court finding that the cattle were produced in Oklahoma, arguing they were produced in Missouri, which has no central filing system. The phrase “produced in” is undefined in the FSA and no case law was found in this regard. The Court of Appeals therefore looked to the plain and ordinary meaning of the phrase, which it found ambiguous and, as a consequence, turned to legislative history. It noted that Mount’s argument could result in buyers purchasing farm products subject to security interests they had no practical method of discovering (Mount himself believed he was buying cattle from Oklahoma). Based on the purposes of the FSA as stated in its legislative history, the Court held that “produced in” means the location where farm products are furnished or made available for commerce. Therefore, it affirmed the district court’s decision that Mount purchased the cattle subject to the perfected security interest claimed by Great Plains.

Cattle Consultants argued it had a senior security interest in Great Plains because Mount, not Smith, owned the cattle when they entered Oklahoma; therefore, Great Plains did not have a security interest in them and its purchase money security interest (PMSI) had priority over any competing security interest. The Court disagreed. Under the UCC, a security interest is enforceable against a debtor and third parties with respect to the collateral when (1) value is given; (2) the debtor has rights in the collateral; and (3) the debtor has signed a security agreement that provides a description of the collateral. Here, it was undisputed that Great Plains gave value to Smith; Smith had an ownership interest in the cattle; and Smith gave Great Plains a security agreement with an interest in all cattle owned or later acquired.

The Court also disagreed that the PMSI had priority. Great Plains filed its financing statement on November 19, 2009. This filing was done before Smith acquired rights in the cattle and thus was perfected at the moment of attachment. Cattle Consultants did not file their financing statement until March 2010. Great Plains was the first to file, and therefore had priority.

Summary and full case available here.

HB 12-1262: Enacting Amendments to Article 9 of the Uniform Commercial Code, Regarding Secured Transactions, that Were Adopted in 2010 by NCCUSL

On February 7, 2012, Rep. Bob Gardner and Sen. Ellen Roberts introduced HB 12-1262 – Concerning Enactment of Amendments to the Secured Transactions Provisions of the “Uniform Commercial Code.” This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The CBA LPC has voted to support this bill.

Colorado Commission on Uniform State Laws

The bill enacts amendments to article 9, regarding secured transactions, of the “Uniform Commercial Code,” that were adopted in 2010 by the national conference of commissioners on uniform state laws. Article 9 provides the rules governing any transaction that couples a debt with a creditor’s interest in a debtor’s personal property. If the debtor defaults, the creditor may repossess and sell the property to satisfy the debt.

The creditor’s interest is called a “security interest.” The 2010 amendments to article 9 modify the existing statutes to respond to filing issues and other matters.

The bill provides greater guidance as to the name of a debtor to be provided on a financing statement. For business entities and other registered organizations, the amendments clarify that the proper name for perfection purposes is the name filed with the state and provided on the organization’s charter or other constitutive documents, to the extent there is a conflict with the name on an entity database. In particular, the bill adopts a “safe harbor” rule by leaving intact the requirement that the financing statement use the debtor’s “individual name”, but specifying that the name on the driver’s license will also be sufficient as well as the debtor’s surname and first personal name.

A number of related changes were also made. For example, the 2010 amendments clarify that a change in the name used on a debtor’s driver’s license or the expiration of the driver’s license may qualify as a name change. With respect to trusts, if collateral is held by a statutory trust or in a Massachusetts-type business trust, the trust is a registered organization and the trust’s name is the debtor name. For common law trusts that are not Massachusetts-type business trusts, the financing statement must provide the name of the trust as identified in the trust’s organic records if it has name indicated there, or otherwise the name of the settlor or testator and sufficient additional information to distinguish a particular trust from others held by that same settlor or testator.

The amendments also deal with perfection issues arising on after-acquired property when a debtor moves to a new jurisdiction. Article 9 currently provides that perfection by filing continues for 4 months after the jurisdiction in which the debtor is located changes. However, this temporary period of perfection applies only with respect to collateral owned by the debtor at the time of the change. Even if the security interest attaches to after-acquired collateral, there is currently no perfection with respect to such new collateral unless and until the secured party perfects pursuant to the law of the new jurisdiction. The amendments change this by giving the filer perfection for 4 months in collateral acquired post-move. A similar change is made with respect to a new debtor that is a successor by merger. The new rule provides for temporary perfection in collateral owned by the successor before the merger or collateral acquired by the successor within 4 months after the merger.

Existing law authorizes the debtor to file a correction statement: A claim that a financing statement filed against it was in fact unauthorized. While this filing has no legal effect on the underlying claim, it does put in the public record the debtor’s claim that the financing statement was wrongfully filed. The amendments change this in 2 ways. First, the filing is no longer called a “correction statement,” but is instead referred to as an “information statement”. Second, the amendments authorize the secured party of record to also file an information statement if the secured party believes that an amendment to its financing statement was not authorized. The change addresses concerns of secured parties that an amendment to a different financing statement may be inadvertently filed on the secured party’s financing statement because the amendment contains an error when referring to the file number of the financing statement to be amended.

A number of additional technical amendments are also included in the bill. For example, some extraneous information currently provided on financing statements will no longer be required. A safe harbor for the transfer of chattel paper in conformance with the “Uniform Electronic Transactions Act” is included, and the bill clarifies that the broader override of contractual restrictions found in existing law applies with respect to enforcement of a security interest through the sale or strict foreclosure of payment intangibles and promissory notes. Certificates of title for goods are clarified where the certificates of title are, in whole or in part, in electronic form, and greater guidance is given with respect to the notice requirements applicable to electronic dispositions of collateral (specifically, time and “electronic location” of online auctions) when a security interest is enforced by sale or other disposition of the collateral.

The bill has a uniform effective date of July 1, 2013, so as to allow states to adopt the amendments uniformly and have them become operative simultaneously, thereby avoiding unnecessary conflicts and confusion with respect to interstate transactions. The House adopted the bill on March 5; the Senate Judiciary Committee will hear the bill on Tuesday, March 20 Upon Adjournment.

Since this summary, the bill was referred unamended from the Senate Judiciary Committee to the Senate Committee of the Whole.

Summaries of other featured bills can be found here.

e-Legislative Report: Week Seven, February 27, 2012

The latest Legislative Video Update with Michael Valdez summarizes the Colorado Bar Association’s position on several bills, including Civil Unions, a bill concerning the Dissolution of Marraige, and Electronic Death Certificates.

 

CBA Legislative Policy Committee

The LPC did not meet on Friday, February 24. However, positions taken by the committee met on February 17 were omitted from last week’s newsletter due to this writer being out on sick-leave so this is an opportune time to catch you up on LPC positions taken. One position was taken on Wednesday, February 15.

SB 12-002 – Civil Unions
The LPC voted by conference call on Wednesday, February 15 to support SB 2 – Concerning Civil Unions. The Wednesday meeting was called because the bill suddenly appeared on the Judiciary Committee calendar late on Monday afternoon. The Civil Rights Committee had asked the LPC to take a formal “no position” on the bill; several sections countered with requests to the LPC to support the bill – with some needed technical corrections amendments. The sections supporting the bill were: Family, Juvenile, Elder, and Business (the Trust and Estate Section has since voted to support the bill). The LPC voted to support the bill but asked the sections to suggest and develop amendments to improve the bill. In a by-the-way note, this position is consistent with the position taken by the CBA Board of Governors in 2006 when the Board voted to support Referendum I – Domestic Partnerships. The bill passed the Judiciary and Finance Committees on February 15 and 16 respectively; the bill sits in the Appropriations Committee waiting to be calendared.

HB 12-1262 – Concerning Updates to UCC Article 9 “Secured Transactions”
At the request of the Business Law Section, the LPC voted to support HB 1262 – Updates to UCC Article 9. The bill contains needed updates to the 2001 statute that was adopted in Colorado. The ad hoc committee of the Business Law Section spent the last 24-months working through the amendments suggested by the National Conference of Commissioners on Uniform State Legislation (NCCUSL). The CBA testified in support of the bill on Thursday, February 23 and the bill passed out of the Judiciary Committee, unamended, on a 10-0 vote, with one excused. The next stop for the bill is the floor of the House on 2nd Reading.

HB 12-1256 – Formula for Maintenance in a Dissolution of Marriage Action
The Family Law Section was granted permission to oppose the legislation at the Capitol but the LPC also allowed the section to approach the sponsor to request the bill be pulled from consideration in this session and that a Task Force work over the summer to try to find a bill that all can agree upon. The sponsor, Rep. Beth McCann, agreed to table for 2012 and to the establishment of a Task Force on the issue that will be spearheaded by the CBA Family Law Section.

HB 12-1041 – Electronic Death Certificates
The Trust and Estate Section asked for permission to support HB 1041 – Concerning Electronic Death Certificates. The bill creates an electronic death registration system to allow persons who report death information to the Office of the State Registrar of Vital Statistics to do so electronically. The bill contemplates an alternative to the current paper based system that relies on the hand delivery of death certificates to required locations. We do not see a direct positive to practitioners but it should help their clients who sometimes have to wait for the paper filings to make their way through the hand delivery process. The bill is headed to the House floor after surviving the Appropriations Committee on Friday, February 24.

Tenth Circuit: Investor Forced to Sell Shares as the Result of a Merger Does Not Have Standing to Sue as a Purchaser of Securities under 1933 Act

The Tenth Circuit Court of Appeals issued its opinion in Katz v. Gerardi on Thursday, August 25, 2011.

The Tenth Circuit affirmed the district court’s decision. Petitioners were minority shareholders in a real estate investment trust owned by a public company. The company entered into a merger agreement in which two investors acquired all of their outstanding public shares. As part of the merger, Petitoiners were squeezed out of the investment trust and had the option of receiving either cash or stock in the newly formed entity in exchange for their shares. Petitioner separately sued and claimed the offering documents associated with the merger contained false and misleading statements or omissions. The district court dismissed their complaint when Petitioners tried to join them together, finding that one of the petitioners was improperly splitting claims that should have been alleged in its earlier action. The court also found the other petitioner lacked standing to bring his securities law claims since he was not a purchaser when he opted to sell his shares.

The Court agreed with the district court’s analysis of the issues. As a result of the joinder, one of the petitioners had filed two cases in the same district court, involving the same subject matter, seeking the same claims for relief against the same defendants; the district court did not abuse its discretion by dismissing that petitioner from the case for claim splitting.

The district court also properly dismissed the other petitioner’s 1933 Act securities claims. The court concluded that he was not a purchaser of securities and therefore lacked standing to bring those claims. Petitioner contested this conclusion, “arguing he, in fact, was a purchaser under the securities laws for a single reason: the merger caused a fundamental change of his A-1 units that so altered the nature of his investment as to transform them into “new” A-1 Units. In his view, the A-1 Units lost their valuable liquidity, dividend, and tax indemnification features upon the announcement of the merger. The merger effectively forced him to purchase the “new” A-1 Units, which lacked the advantageous characteristics of the “old” units, for purposes of the 1933 Act.” The Court rejected this argument and determined that the merger did not force him to purchase new securities, but only to sell his A-1 Units for cash or new units. Since 1933 Act claims only give standing to purchasers of securities, his claims were properly dismissed.

Colorado Court of Appeals: Statutory Lien May Be Given Priority Over Previously Perfected Security Interest if Statute Indicates Such Legislative Intent

The Colorado Court of Appeals issued its opinion in North Valley Bank v. McGloin, Davenport, Severson and Snow, P.C. on December 9, 2010.

Attorney’s Charging Lien Priority.

Plaintiff North Valley Bank (bank) appealed the trial court’s judgment in favor of defendants (collectively, attorneys). The judgment was affirmed.

The bank loaned $100,000 to BLR Construction Company, LLC (contractor). The contractor signed notes granting the bank a security interest in the contractor’s accounts receivable and in all proceeds of these accounts. The bank perfected the security interest by filing by filing its Uniform Commercial Code (UCC) financing statement, UCC-1, with the Colorado Secretary of State.

Thereafter, the contractor was hired by Custom Landscapes of Colorado, Inc. (landscaper) to work on a project financed by the State of Colorado (State). The contractor billed the landscaper $53,145. The landscaper did not pay, and the contractor retained the attorneys to assist in collection of the debt.

The attorneys sued the landscaper, alleging breach of contract, open account, and unjust enrichment. The attorneys also filed notice of an attorney’s lien under CRS § 12-5-119 against any award the contractor might receive as a result of the lawsuit. The bank contacted the attorneys and informed them it had a perfected security interest in any money the contractor might be awarded in the lawsuit. The landscaper joined the State as a defendant. The trial court entered judgment in favor of the contractor and against the State in the amount of $51,402.

The State sent a check for $51,402 to the attorneys, who kept $41,381 as reimbursement for legal services and $3,000 as a retainer against any future services they might render. They forwarded $7,021 to the contractor.

The bank then filed this case against the attorneys, raising claims for replevin, conversion, and declaratory relief. Following a Bench trial, the trial court held that the attorney’s lien was superior to the bank’s perfected security interest and entered judgment in the attorneys’ favor. The bank appealed.

In Colorado, the right to an attorney’s lien is created by statute. CRS § 12-5-119 creates an attorney’s “charging lien.” The language therein specifically grants the attorney “a first lien on such demand in suit or on such judgment for the amount of his fees.” The charging lien attaches “immediately” when a judgment is obtained, and the attorney does not need to take any further steps to enforce the lien against his client. To enforce the lien against third parties, proper notice must be given. The language is plain and clear that the charging lien comes first in priority.

The bank argued that the UCC gives its previously perfected security interest priority over the attorney’s lien. The Court disagreed for two reasons. First, a statutory lien may be given priority over a previously perfected security interest if the statute, as here, indicates a “specific legislative intent to give such a priority.” Second, the statute that the bank relied on, CRS § 4-9-333, does not apply to the facts of this case. An attorney’s charging lien is a statutory lien for services; thus, it is not covered by the UCC.

Finally, because the bank did not argue that it was entitled to a part of the judgment (only the whole judgment), the Court concluded that the distribution of the judgment to the attorneys and the contractor was appropriate. Accordingly, the judgment was affirmed.

This summary is published here courtesy of The Colorado Lawyer. Other summaries by the Colorado Court of Appeals on December 9, 2010, can be found here.

Tenth Circuit: Opinions, 7/20/10

The Tenth Circuit on Tuesday issued one published opinion and eight unpublished opinions.

Published

In Sovereign Bank v. Hepner, the Court reversed the district court’s decision by finding that the CCTA does not supersede the Colorado UCC with respect to perfection of motor-vehicle liens. Petitioner Bank, which granted a secured loan to purchase a vehicle, perfected by filing within the statutory  time of twenty days, but Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Colorado before such perfection took place. However, as a purchase money security interest, Petitioner’s lien takes priority over the trustee in bankruptcy’s interest.

Unpublished

United States v. Grayson

Lester v. Kmart Corp.

United States v. Lahr

Hawks v. Mattox

United States v. Montgomery

United States v. Mumford

United States v. Nolan

Kinkaid v. Wal-Mart Stores East