Don’t Panic! Even Though Oregon Changed from Alternative B to Alternative A on January 1, 2016


On January 1, 2016, the Oregon legislature amended ORS 79.0503 to adopt Alternative A in the 2010 Amendments to Article 9 of the UCC.  What does that mean and should you be worried?

The 2010 Amendments to Article 9 gave states a choice between two approaches regarding how to handle individual names in UCC financing statements.  These alternatives are referred to as Alternative A and Alternative B.  Oregon adopted the 2010 Amendments, including Alternative B, effective July 1, 2013.  Under Alternative A, a financing statement naming a debtor who is an individual is effective “only if” the name exactly matches the name on a particular document (ordinarily a driver’s license).  Alternative A is also known as the “only if” alternative.  Under Alternative B, a financing statement naming a debtor who is an individual is effective if it matches the name on that document, but also if it gives “the individual name of the debtor” or “provides the surname and first personal name of the debtor.”  Alternative B is also known as the “safe harbor” alternative.

The ramifications of this change will likely be minor for a number of reasons.

First, financing statements rarely are filed against individuals because most consumer finance transactions involving individuals pledging collateral do not require a financing statement. The types of lending transactions that require financing statements against individuals is mostly agricultural loans, loans to high net worth individuals, equipment lending to sole proprietorships, loans involving purchases of closely held businesses, and loans to family members.

Second, the practical effect of the change from Alternative B to Alternative A may not be that great. This analysis depends on a lot of rather picayune factors involving driver’s licenses.  The first question should be: did Oregon issue the individual a driver’s license (or alternate ID card) that is still valid?  If the individual does not have a valid Oregon driver’s license, then the proper name for a financing statement filed against an Oregon resident is simply the individual’s surname and first personal name, just as is required under Alternative B.  So if the person is “located” in Oregon for Article 9 purposes and does not have a valid license or ID issued by Oregon, the practical effect of the change in the law is nil.

The second and perhaps most important question is whether or not there is a difference between the name of the individual and the name on that individual’s driver’s license or ID. In the vast majority of cases, the answer  will be no.  The largest exception, of course, is for individuals who change their surnames as a result of a change in marital status, whether upon marriage or upon divorce, and who have not bothered to change their names on their driver’s licenses or IDs. There are other examples, such as where there is a discrepancy between the name on the license and the name actually used because of a typo on the license, truncation of a field on the license, or the failure of the license to use diacritical marks used typically by the individual.

Ultimately, this legislative change—from Alternative B to Alternative A—will likely only affect those transactions involving individuals that require the filing of financing statements in whichthe individual debtor has a discrepancy between his or her name and his or her name listed on an Oregon license or ID.

The one palliative to bear in mind as Oregon changes from Alternative B to Alternative A is that it is imperative in the security agreement to require the debtor to provide his or her driver’s license and to give the secured party notice of any changes in the name on the license or ID. When Alternative A was drafted, its proponents claimed it made the rules for individual names on financing statements similar to those for registered organizations.  However,  while the names of registered organizations are readily searchable in the public records, the names on driver’s licenses cannot be searched in most instances at all.  So providing a contractual right to access the individual’s driver’s license is critical in connection with a secured financing

Issues relating to the adoption of the 2010 Amendments are addressed in broader detail here.

Petters Strikes Again: Amended Minnesota Fraudulent Transfer Act Does Not Shelter Certain Charitable Contributions

The latest turn in the ongoing Petters bankruptcy saga came on June 11, when U.S. Bankruptcy Judge Gregory Kishel issued a 46-page order examining 2012 amendments to the Minnesota Uniform Fraudulent Transfer Act (MUFTA). Specifically, Judge Kishel reviewed whether the MUFTA amendments created a complete defense and barred the Petters trustee’s avoidance claims against several charitable organizations. In the end, Judge Kishel denied motions to dismiss filed by the charities and permitted the trustee’s suits to move forward.

These cases arose from an unraveling of one of the largest Ponzi schemes in U.S. history, which was primarily perpetrated by Minnesota businessman Tom Petters. In the course of the Petters Chapter 11 bankruptcy cases, a trustee was appointed to remediate damages caused by the scheme. With that charge, the trustee has proceeded to engage in numerous lawsuits; among those, the trustee filed suit against several charitable organizations seeking to avoid specific transfers made to them by Petters or his affiliated entities under MUFTA (invoked through 11 U.S.C. 544).

While those suits were pending, the Minnesota Legislature amended MUFTA in 2012 to add a retroactively-effective provision limiting the scope and nature of transfers to qualifying charitable organizations that may be subjected to avoidance claims. Following that, those charities sued by the Petters trustee moved to dismiss the complaints on grounds that the amendments sheltered the transfers at issue and barred the trustee’s claims.

Recognizing the “snarl of conflicting public policy considerations” on both sides, Judge Kishel proceeded with a close review of the pleadings and a careful interpretation of the amended legislation in the context of a Rule 12 standard of review. Under his reading, a key common thread emerged among the trustee’s allegations against the charities; each received assignments and held rights to payments collected by Petters affiliates under promissory notes the affiliates had first issued in favor of independent third parties.

The charities argued that the receipt of funds through the Petters affiliates by virtue of these assigned interests are “contributions” under the 2012 MUFTA amendments, and, as a result, the trustee had no right of avoidance. In addition to the statutory language, the charities relied more broadly the Minnesota Legislature’s intent to shield donations made to charitable organizations from these types of actions.

Judge Kishel, however, found that the MUFTA amendments cannot be construed so broadly, particularly in the context of the larger statute. In particular, Judge Kishel pointed out that “the exception under the 2012 amendment is limited to direct “contributions” from a debtor, of that debtor’s property, to the qualifying charitable organization that is then to be statutorily-protected.” Accordingly, under Judge Kishel’s interpretation “the exception only applies to contributions actually made by the referent debtor, of its own assets and to a qualifying charity-recipient.” With that reading, the trustee would not have the legal power to avoid the original assignments of the promissory notes. The trustee does have power to avoid transfers made under the promissory notes, as the Petters affiliates were not making “contributions” of their property when they acted as makers of the notes, but rather contributions of others’ property.

Because the trustee’s fact-pleading in the complaints alleged this distinction, among other reasons, Judge Kishel denied the charities’ motions to dismiss and permitted the suits to move forward.

The practical effect of this ruling, of course, is limited. Judge Kishel’s analysis is applied to very specific facts involving very specific kinds of charitable “transfers.” But when combined with the Minnesota Supreme Court’s recent elimination of the so-called Ponzi scheme presumption in Finn v. Alliance Bank (which we reported on earlier), there seems to an increased willingness to carve up MUFTA in ways that remain friendly to bankruptcy trustees.

Have You Hugged Your Bankruptcy Attorney Today? We’re Feeling a Little Unloved

The U.S. Supreme Court has issued its opinion in Baker Botts v. Asarco, holding that professionals retained in bankruptcy cases cannot receive compensation for the costs of defending their fee applications. Even if you aren’t a bankruptcy professional, there are two things to keep in mind about this opinion. First, it won’t stop us restructuring professionals from doing our jobs. Second, the reality of commercial bankruptcy practice is often at odds with the pure textual analysis favored by the Supreme Court.

The holding itself is straightforward. Section 330 of the Bankruptcy Code authorizes retained professionals to receive reasonable compensation for “actual, necessary services rendered”. The Court, reviewing the statue, held that the language did not authorize a deviation from the ubiquitous “American Rule” which mandates that unless a statute or a contract provides otherwise, each party bears the costs of his own attorneys’ fees. Services rendered, it held, are those rendered to the client, not in defense of one’s own fee application. To be sure, this case did not have the kind of facts that engender sympathy for poor bankruptcy professionals. The primary firms in question received a combined award of $120 million in fees and a $4.1 million enhancement for exceptional performance (truly exceptional in the sense that all creditors in the case were paid in full). On top of this, however, the Bankruptcy Court also awarded $5 million for the costs of defense of the original fee applications. It was that additional attorneys’ fee award that the Supreme Court overturned. Continue Reading

Dewsnup Lives On: Debtors May Not Strip Underwater Junior Liens

On Monday, June 1, 2015, the Supreme Court of the United States issued its opinion in Bank of America v. Caulkett, a closely watched matter concerning whether Section 506(d) of the Bankruptcy Code permits junior lien stripping in the context of Chapter 7 bankruptcy.  Addressing two consolidated cases, Justice Clarence Thomas—writing for a virtually unanimous Supreme Court—held that Section 506(d) forbids debtors from voiding junior liens, even when such liens are wholly underwater.

In Caulkett, the individual debtors owned homes worth less than the amount each owed on a senior mortgage. The debtors had junior mortgage liens, for which the junior mortgagor—Bank of America—would receive nothing if the homes were sold today as a result of (1) subordination to a senior mortgage, and (2) a decline in each home’s market value. To strip those junior liens in bankruptcy, the debtors relied on Section 506(d) of the Bankruptcy Code, which provides: “To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void.”

The debtors prevailed in the lower courts on their argument that wholly underwater junior mortgage liens were no longer “secured” because the collateral had no value relative to the claim. The Supreme Court reversed those decisions.

In doing so, the Supreme Court credited the debtors’ argument that a straightforward reading of Section 506(a)(1)—which provides that “an allowable claim . . . is a secured claim to the extent of the value of such creditor’s interest in . . . such property”—would void an underwater junior mortgage lien.

But the Supreme Court also found that it had already adopted a construction of “secured claim” in its Dewsnup v. Timm opinion. In that case, the Supreme Court rejected an argument that a claim was “secured only to the extent of the judicially determined worth of the real property,” and instead defined the term “secured claim” to mean “a claim supported by a security interest in property, regardless of whether the value of that property would be sufficient to cover the claim.”

The debtors’ in Caulkett sought to distinguish Dewsnup because those secured liens in question were only partially underwater, as opposed to wholly underwater. The Supreme Court declined to draw that distinction because of the odd framework it would enact. In essence, had the Supreme Court accepted the Caulkett debtors’ distinction, a debtor could not strip down a junior lien if the collateral was valued at one dollar more than a senior lien, but a debtor could strip a junior lien if the collateral was valued at one dollar less. Such a framework would lead to arbitrary results, particularly given constant fluctuations in property values.

It is unclear from the Supreme Court’s decision why the debtors chose not to attack Dewsnup head on.  After all, they had a spirited dissent in Dewsnup from Justice Scalia behind them.  And the Supreme Court appears to go out of its way, repeatedly, to highlight that the debtors have not asked the Court to overrule Dewsnup.  Future litigants should take note.

By Andrew Pieper ( and Jamila Toussaint.  Ms. Toussaint is a Summer Associate with Stoel Rives LLP and is not currently licensed to practice law.

“The world will end not in fire, or ice, but in a bankruptcy court.”

Those words are from Justice Sotomayor’s opinion in the recent decision by the Supreme Court in Wellness International Network, Ltd. v. Sharif, which decision has generated significant press coverage (and blog postings) among bankruptcy practitioners across the country. This author certainly doesn’t intend to add to the noise out there by reciting the facts and procedural history of the case yet again. Rather, I’d like to make certain observations of the 6-3 decision that may provide some insight into how this decision will affect the adjudication of “Stern claims” going forward.

First, the Supreme Court’s decision is a big win for bankruptcy courts and those who champion the power of the 349 judges who currently sit on our bankruptcy courts. The majority opinion appears to have resolved the debate over whether individual parties to a litigation of a “Stern-claim” could waive their rights to adjudicate such claims before an Article III judge.  The Supreme Court concluded that “allowing bankruptcy litigants to waive the right to Article III adjudication of Stern claims does not usurp the constitutional prerogatives of Article III courts.”

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RadioShack Bankruptcy More Proof that Timing is EVERYTHING

Any business executive worth her salt will admit that timing is everything in business. Launch a product before consumers are ready to try something new or enter a market after the niche is saturated and even the best business plan is unlikely to see you through. The ongoing RadioShack bankruptcy is a good illustration of this concept from a Chapter 11 perspective.

Bankruptcy is business, and frequently it is the business of “just getting it done.” Show up too late in the process or fail to juggle every one of the multitudes of balls in the air in a complex Chapter 11 and you may lose the few options available. The juggling is going fast and furious in the case of RadioShack’s Chapter 11 in Delaware. As you may recall, the Shack filed on February 5 seeking a quick sale of most of its assets, with an affiliate of existing lenders acting as the “stalking horse bidder” subject to higher and better bids.

What sounds simple in the blogosphere is actually a lot more complicated and is as much about timing as anything. When RadioShack filed, it also asked the Bankruptcy Court for authority to borrow up to $20 million in “Debtor in Possession Financing” from its prior lenders, on what many bankruptcy practitioners would consider favorable “roll up” terms. As part of that motion, RadioShack sought to insert a provision in the financing order that would prohibit any party from challenging the security interests of the lenders. The motion was granted over the objection of the Official Committee of Unsecured Creditors and others, but as is common in such orders, the Court gave the Committee (or other parties with standing) just about 60 days to file a challenge to the lenders’ position (i.e. about April 14). Continue Reading

Ponzi Scheme Clawbacks Dealt a Blow by MN Supreme Court Ruling

The Minnesota Supreme Court recently issued an opinion overturning a legal presumption that permitted victims of financial fraud to forego evidentiary requirements under the Minnesota Uniform Fraudulent Transfer Act (MUFTA) in cases involving Ponzi schemes. As a result, the ruling calls into question the potential recovery of more than $1 billion in alleged false profits from those with relationships to Tom Petters, the mastermind of one of the largest financial frauds in U.S. history, second only to Bernie Madoff.

In 2010, Petters—a prominent Minnesota businessman and CEO of Petters Group Worldwide, a holding company with diverse assets that included Sun Country Airlines and Polaroid—was convicted on counts of fraud, conspiracy, and money laundering in connection with a $3.65 billion Ponzi scheme. Prior to Petters’s conviction, the U.S. Bankruptcy Court for the District of Minnesota appointed a bankruptcy trustee who proceeded to file more than 200 clawback suits against lenders and others in order recoup assets under MUFTA and other available claims.

Prior to the recent ruling, Minnesota courts applied a “Ponzi scheme presumption” to financial transfers between the perpetrator of the Ponzi scheme and beneficiaries of the fraud. As such, those transfers were deemed fraudulent on their face, without a trustee or receiver bearing the evidentiary burden of proving involvement by each individual beneficiary of a fraudulent transfer. Continue Reading

RadioShack, a Retail Legend Permanently Stuck in a Different Era, Files Chapter 11

This blogger fondly remembers the RadioShack cassette player/recorder her great-grandmother gave her in the late 1970s.  Cutting-edge technology at the time, the gadget allowed traveling musical entertainment and roving recording, a level of freedom that I have maintained through the years right down to my smartphone and Bluetooth headset.  So like many others, I greeted yesterday’s news of RadioShack’s widely anticipated Chapter 11 bankruptcy filing with no small amount of nostalgia.

As RadioShack’s own bankruptcy filing suggests, RadioShack arguably hasn’t achieved a memorable product launch since the mid-1980s. Simply put, it just isn’t the place to buy the newest thing anymore.  These troubles came to a head when the company made its after-hours filing in Delaware yesterday.

From a creditor/debtor lawyer’s perspective, the filing reminds us to keep a watchful eye on two pressing issues: the continued struggle by manufacturers and retailers to stay relevant in the new age of digital commerce, and the need to carefully negotiate and manage lending covenants.

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Caesars Begins $10B Fight In Earnest

A cross-jurisdictional fight has broken out between Caesars Entertainment Operating Company (“Caesars”) and three of its second lien noteholders. Following weeks of public disclosure regarding its intent to file a consensual chapter 11 case with the support of its senior secured creditors, Caesars was surprised on January 12 when Appaloosa Management LP, Tennenbaum Capital Partners, LLC, and Oaktree Capital Management, LP, through their respective investment vehicle special purpose entities holding second lien Caesars notes (the “Petitioning Creditors”), filed an involuntary chapter 11 petition against Caesars in Delaware bankruptcy court.

The Petitioning Creditors also filed emergency motions seeking the immediate appointment of an examiner, staying “any later-filed, parallel chapter 11 cases  that may be commenced by [Caesars]” and a determination of venue for which any such Caesars case should proceed. On January 14, Delaware bankruptcy Judge Kevin Gross denied the Petitioning Creditors requests regarding stay and venue determinations for any later-filed parallel proceedings, noting that both requests were premature unless and until Caesars filed a voluntary case.

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Wells Fargo Caught in the Crosshairs of the Automatic Stay

The Weidenbenners (aka the “Debtors”) had four accounts with Wells Fargo that held $6,923.54 when they filed for chapter 7 protection on March 7, 2014.  At the time they filed their petition, they claimed as exempt all of these funds.  Upon learning of the bankruptcy filing on March 12, 2014, Wells Fargo placed an administrative freeze on the funds in the accounts as of the filing date, which caused certain checks issued by the Debtors to bounce and the Debtors to incur a $25.00 penalty during the post-petition period.

On March 12, the same day as it placed the administrative freeze on the Debtors’ accounts, Wells Fargo sent a notice to the chapter 7 trustee in which Wells Fargo advised the trustee of the freeze and requested directions as to what should be done with the funds.  On March 17, the trustee directed Wells Fargo to release the entire amount of the funds to the Debtors.  On that same day, Wells Fargo released the funds to the Debtors.

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