## Facts

- K.W.M. Electronics Corporation (K.W.M.) manufactured and assembled electronics products at a facility it leased from Coastline Financial, Inc. (Coastline).
- In 2001, K.W.M. entered into a financing agreement with a bank that obtained security interests in K.W.M.’s collateral.
- In 2002, the bank assigned those security interests to Coastline.
- After Coastline acquired the bank’s interests, K.W.M. granted another security interest in collateral to Burton Sack.
- In 2003, Sack filed a UCC financing statement identifying the debtor as “KWM Electronics Corporation,” omitting the periods in the initials used in K.W.M.’s legal name (“K.W.M. Electronics Corporation”).
- In 2004, K.W.M. defaulted on rent owed to Coastline; Coastline brought an unlawful-detainer action and obtained a default judgment that gave Coastline a lien attaching to the same collateral.
- In 2005, Sack assigned his security interest to Host America Corporation (Host America).
- On December 22, 2005, Host America filed its own financing statement using the debtor name with periods (“K.W.M. Electronics Corporation”).
- In early 2006, Host America filed a declaratory-judgment action seeking a ruling that its security interest had priority over Coastline’s lien; Host America moved for summary judgment, and Coastline sought partial summary judgment arguing Sack’s 2003 filing was ineffective because the debtor name was incorrect.

## Issues

1. Whether Sack’s 2003 financing statement, which omitted periods in the debtor’s registered name, failed to provide the debtor’s name as required by UCC § 9-503.
2. Whether the omission of periods made the financing statement “seriously misleading” under UCC § 9-506, or instead was saved because a search under the debtor’s correct name using the filing office’s standard search logic would disclose the filing.
3. If Sack’s 2003 filing was effective, whether Host America (as assignee) had priority over Coastline’s later judgment-based lien on the same collateral.

## Decision

- The court held that Sack’s 2003 financing statement was effective despite omitting periods in “K.W.M.” because the filing was not “seriously misleading” under UCC § 9-506.
- The court determined that the UCC § 9-506(c) safe harbor applied: a search under the debtor’s correct legal name, using the Utah filing office’s standard search logic, would reveal the financing statement filed under “KWM Electronics Corporation.”
- Because Sack’s security interest was perfected upon the 2003 filing, Host America, as assignee, took the benefit of that perfected status and priority.
- Coastline’s lien arose later (in 2004) through the unlawful-detainer default judgment, so it was subordinate to the earlier-perfected security interest.
- The court granted Host America’s motion for summary judgment on priority and denied Coastline’s motion for partial summary judgment premised on lack of perfection.

## Legal Principles

- A financing statement must provide the debtor’s name as required by UCC § 9-503, but the effect of a naming error is determined by UCC § 9-506.
- Under UCC § 9-506(b), a financing statement that fails sufficiently to provide the debtor’s name is generally “seriously misleading” and ineffective.
- Under UCC § 9-506(c), a financing statement is not “seriously misleading” if a search of the filing office’s records under the debtor’s correct name, using the filing office’s standard search logic, would disclose the financing statement.
- In applying § 9-506(c), the practical output of the filing office’s standard search logic controls; minor punctuation differences may not matter if the filing is still returned in a search under the correct name.
- Priority between a secured party and a lien creditor turns on whether the security interest was perfected before the lien attached; an assignee of a perfected security interest generally succeeds to the assignor’s perfected status and priority.

## Conclusion

The court concluded that omitting periods from “K.W.M.” in the debtor name did not make Sack’s 2003 UCC filing seriously misleading because the Utah filing office’s standard search logic would still disclose the filing when searching the correct legal name; Sack’s security interest was therefore perfected before Coastline obtained its 2004 lien, and Host America, as assignee, had priority in the collateral.


Host America Corp. v. Coastline Financial, Inc., 2006 U.S. Dist. LEXIS 35727 (2006)