## Facts

- In 2002, a predecessor of E53 Federal Credit Union (E53) made a loan to Suzanne Perez, a credit-union member.
- Perez pledged as collateral a certificate of deposit (CD) she maintained at the credit union; the CD bore a standard notation that it was “nonnegotiable” and “nontransferable.”
- Over time, the lending relationship changed, and the dispute that later arose centered on whether E53’s interest in Perez’s CD was protected against the bankruptcy estate.
- In 2009, Perez filed a Chapter 7 bankruptcy case in the U.S. Bankruptcy Court for the District of New Jersey.
- E53 pursued relief to apply the CD to the outstanding loan balance, and a settlement was presented to the bankruptcy court that would allow E53 to do so.
- The Chapter 7 trustee initially proceeded on the assumption that E53 held a perfected interest in the CD and the settlement was approved.
- The trustee later concluded that assumption might be wrong and moved to reconsider the order approving the settlement (and related stay relief).
- The trustee argued that the CD should be treated as a UCC “instrument,” and that E53 had not taken the steps required to perfect a security interest in an instrument; therefore, the trustee asserted, the lien was avoidable.
- E53 responded that the CD functioned as a “deposit account” for Article 9 purposes, that E53 had perfection by “control” as the depository institution, and that federal law also gave E53 an automatically effective statutory lien in a member’s shares and deposits.

## Issues

1. Whether E53 had a perfected security interest in Perez’s CD under the Uniform Commercial Code.
2. Whether the Federal Credit Union Act provides a statutory lien in a member’s deposits that defeats the trustee’s state-law perfection arguments.
3. Whether, if necessary, E53 also had a contractual and/or common-law right of setoff against the CD.

## Decision

- The court denied the trustee’s motion for reconsideration and left the settlement order in place.
- The court held E53 had a properly perfected lien on Perez’s CD under the UCC because the CD, labeled nonnegotiable and nontransferable, was treated as a “deposit account,” and E53, as the institution where the account was maintained, had “control” sufficient to perfect.
- The court also held that, independent of the UCC analysis, the Federal Credit Union Act granted E53 a statutory lien on a member’s funds on deposit securing amounts owed to the credit union, and that this federal lien provided a separate, valid basis that displaced inconsistent state-law theories.
- Because E53’s lien was perfected before the Chapter 7 filing, the trustee could not avoid it as a hypothetical lien creditor.
- The court declined to decide the setoff issue because perfection was established on the UCC and federal statutory-lien grounds.

## Legal Principles

- Under UCC Article 9, a security interest in a “deposit account” as original collateral is generally perfected only by “control,” not by filing.
- A bank or credit union has “control” of a deposit account maintained with it, which perfects its security interest without additional steps required for other collateral types.
- A nonnegotiable, nontransferable CD held at the issuing depository institution may be treated as a deposit account rather than as an “instrument” for Article 9 perfection purposes.
- The Federal Credit Union Act authorizes a federal credit union to obtain a statutory lien on a member’s shares and deposits to secure obligations owed to the credit union; that federal lien can supply an independent basis for enforceability and priority.
- When a lien is perfected before the bankruptcy petition date, the Chapter 7 trustee cannot avoid it under the trustee’s strong-arm powers.

## Conclusion

The bankruptcy court refused to disturb the settlement because E53’s interest in Perez’s nonnegotiable, nontransferable CD was perfected before bankruptcy under Article 9 by control (as a deposit account maintained at the credit union) and, separately, under the Federal Credit Union Act’s statutory lien, leaving the trustee with no basis to avoid the lien or reclaim the CD for the estate.


E53 Federal Credit Union v. Perez (In re Perez), 440 B.R. 634 (2010)