## Facts

- Outboard Marine Corporation entered Chapter 7 liquidation.
- Outboard had established a “rabbi trust” to fund executives’ deferred compensation; its assets were valued at roughly $14 million.
- The trust was structured so that, upon insolvency, the trust corpus remained available to Outboard’s general creditors.
- Bank of America, as agent for Outboard’s secured lenders, claimed the trust assets were covered by its security interest in Outboard’s “general intangibles,” defined broadly in the security agreement.
- The trust documentation restricted Outboard from assigning or encumbering the trust corpus for the benefit of any particular creditor, preserving the assets for general creditors as a group.
- The dispute centered on whether the secured lenders’ broad collateral description could reach assets previously committed by trust terms to general creditors.

## Issues

1. Whether the bankruptcy court’s order determining the rabbi trust assets were not subject to the Bank’s lien was final and appealable in an ongoing bankruptcy case.
2. Whether a security interest in a debtor’s “general intangibles” attaches to assets held in a rabbi trust when the trust instrument reserves the corpus for general creditors and bars encumbrances favoring particular creditors.
3. Whether Article 9 or Illinois law renders the trust’s anti-assignment/anti-encumbrance clause ineffective, including through an “account debtor” theory.

## Decision

- The Seventh Circuit held it had appellate jurisdiction because the order conclusively resolved a discrete controversy between the secured creditor and the trustee, notwithstanding the continuing bankruptcy.
- The court affirmed the district court and bankruptcy court.
- The court held the Bank’s security interest did not extend to the rabbi trust assets because the trust terms reserved the corpus for general creditors and contractually prevented Outboard from pledging it to a particular creditor.
- The court rejected arguments that the anti-encumbrance restriction was invalid under Illinois law or could be overridden by recharacterizing the rabbi trust trustee as an Article 9 “account debtor.”

## Legal Principles

- In bankruptcy, an order is final and appealable if it finally disposes of a discrete dispute that could exist as a stand-alone action outside the bankruptcy case.
- A secured party’s Article 9 lien attaches only to the rights the debtor has in the collateral; the debtor cannot grant a security interest greater than its own interest.
- Where a preexisting rabbi trust reserves assets for general creditors and restricts encumbrances favoring particular creditors, the debtor lacks power to grant a conflicting security interest in the trust corpus.
- Under Illinois law, anti-assignment/anti-encumbrance restrictions may be enforceable without using talismanic “void” language.
- A trustee holding trust assets under a trust instrument is not necessarily an Article 9 “account debtor” owing a monetary obligation, and that label cannot be used to bypass valid trust restrictions.

## Conclusion

The Seventh Circuit treated the rabbi trust’s terms as limiting the debtor’s transferable rights in the trust corpus, making the assets unavailable as collateral for secured lenders despite broad “general intangibles” language, and it confirmed the resulting bankruptcy ruling was final and immediately appealable.


Bank of Am., N.A. v. Moglia (In re Outboard Marine Corp.), 330 F.3d 942 (7th Cir. 2003)