## Facts

- Rockwood Casualty Insurance Company (Rockwood) issued surety bonds to the Maryland Department of Environment to secure United Energy Coal, Inc.’s (United) obligations arising from United’s mining operations.
- United and Rockwood executed an indemnity agreement requiring United to reimburse Rockwood for any bond payments Rockwood made to the state.
- The agreement contained a security provision stating that specified property was collateral for United’s reimbursement obligation, including certificates of deposit (CDs) that “shall be deposited with Rockwood,” and it referenced a more specific description in an “Exhibit A.”
- No Exhibit A was attached when the parties executed the agreement in 2004.
- In 2005, Huntington Bank issued two CDs in United’s name.
- Each CD included an attached assignment to Rockwood, placing Rockwood in the position of assignee and giving it effective possession/control of the CD instruments.
- United filed a Chapter 7 bankruptcy petition in 2006, triggering the automatic stay and the appointment of a Chapter 7 trustee.
- In 2007, Rockwood paid $83,100 to Maryland under the bonds issued on United’s behalf.
- Rockwood moved for relief from the automatic stay so Huntington Bank could distribute the CD funds to Rockwood.
- The trustee objected, arguing Rockwood lacked a properly perfected security interest in the CDs because (1) the security agreement did not clearly cover after-acquired property and (2) Rockwood did not file a financing statement.

## Issues

1. Whether the indemnity/security agreement granted Rockwood a security interest in the CDs even though the CDs were obtained after the agreement was executed and the agreement referenced a missing Exhibit A.
2. Whether Rockwood’s security interest in the CDs was perfected without a filed financing statement, based on Rockwood’s possession/control of the CD instruments via assignment.
3. Whether Rockwood was entitled to relief from the automatic stay to receive the CD proceeds.

## Decision

- The court determined the security agreement’s collateral description (including CDs that “shall be deposited with Rockwood”) was sufficient to create a security interest in the later-issued CDs that were in fact assigned/deposited with Rockwood, despite the absence of Exhibit A.
- The court concluded Rockwood’s security interest was perfected by possession/control of the CD instruments, so a financing statement was not required to perfect the interest in this collateral.
- The court rejected the trustee’s objection and granted Rockwood relief from the automatic stay to permit Huntington Bank to pay the CD proceeds to Rockwood.

## Legal Principles

- A security interest attaches when (i) value is given, (ii) the debtor has rights in the collateral, and (iii) the debtor authenticates a security agreement that reasonably identifies the collateral.
- Under UCC Article 9, a collateral description is adequate if it reasonably identifies the collateral; identification by type or category may be sufficient.
- A security agreement may cover collateral acquired after execution when the agreement’s language contemplates that identified collateral will be delivered or posted in the future, and the collateral later comes within the described category.
- Under UCC Article 9, a security interest in certain collateral, including instruments, may be perfected by possession (and, for some collateral types, by control), and perfection by possession/control can eliminate the need for a filed financing statement.
- In bankruptcy, a Chapter 7 trustee’s avoidance powers as a hypothetical lien creditor under 11 U.S.C. § 544 do not defeat a properly perfected security interest.
- Relief from the automatic stay may be granted under 11 U.S.C. § 362(d) when the movant establishes a valid, perfected interest in the collateral and cause exists to permit enforcement against that collateral.

## Conclusion

The court granted Rockwood relief from the automatic stay because Rockwood held a valid and perfected security interest in United’s later-issued CDs: the indemnity agreement’s description of CDs to be deposited with Rockwood was sufficient to cover the CDs that were later assigned, and Rockwood’s possession/control of the assigned CD instruments perfected its interest without a financing statement, defeating the trustee’s objection.


In re United Energy Coal, Inc., 49 Bankr. Ct. Dec. 183, 2008 WL 496142 (2008)