## Facts

- WL Homes, LLC, a homebuilder, formed JLH Insurance Corporation as a wholly owned captive insurer to pay claims arising from WL Homes’ business.
- WL Homes capitalized JLH by depositing $10 million into a deposit account maintained at Wachovia (the “JLH Account”).
- In 2007, Wachovia extended a line of credit to WL Homes; the loan documents required WL Homes to maintain specified Wachovia accounts, including the JLH Account, as collateral.
- JLH had authorized signers on the depository documentation; most were WL Homes officers, and at least two were officers of both entities, including an individual who served as JLH’s president and WL Homes’ CFO.
- In 2008, overlapping management executed documentation reaffirming the credit relationship.
- WL Homes filed bankruptcy in 2009 (initially Chapter 11, later converted to Chapter 7); a Chapter 7 trustee was appointed.
- JLH did not file bankruptcy and remained a non-debtor subsidiary under the trustee’s control as equity owner.
- Wachovia filed an adversary proceeding seeking a declaration that it had an enforceable, perfected security interest in the $10 million JLH Account.
- The parties filed cross-motions for summary judgment.

## Issues

1. Whether a security interest in a subsidiary’s deposit account can be enforceable to secure the parent’s obligations when granted through officers acting for both entities.
2. Whether the subsidiary, through authorized agents, assented to or authorized the pledge of its deposit account as collateral.
3. Whether the bank’s status as the depositary bank gave it “control” sufficient to perfect a security interest in the deposit account under UCC Article 9.
4. Whether any alleged documentary or authority defects barred enforcement against the Chapter 7 trustee and the non-debtor subsidiary.

## Decision

- The court granted Wachovia’s motion for summary judgment and denied the trustee’s cross-motion.
- The court held Wachovia had an enforceable security interest in the JLH Account securing WL Homes’ obligations.
- The court held the security interest was perfected under Article 9 by Wachovia’s control of the deposit account as the depositary bank.
- The court concluded there was no genuine dispute of material fact regarding authority/assent sufficient to prevent summary judgment.

## Legal Principles

- An agent may represent more than one principal; dual-role status does not negate the agent’s ability, when authorized, to bind each principal.
- A security interest in a subsidiary’s asset may secure a parent’s debt if Article 9 requirements for attachment and enforceability are satisfied and the subsidiary, acting through authorized agents, grants or authorizes the interest.
- For deposit accounts, perfection generally requires “control”; a secured party that is the bank where the account is maintained has control for Article 9 purposes.
- On summary judgment, where the record shows authority/assent and Article 9 attachment and perfection as a matter of law, the security interest is enforceable against a bankruptcy trustee and the non-debtor affiliate.

## Conclusion

The bankruptcy court held that Wachovia could enforce a perfected Article 9 security interest in a non-debtor subsidiary’s $10 million deposit account because authorized dual-role officers could bind the subsidiary to the pledge, and Wachovia’s control as the depositary bank perfected the interest.


In re WL Homes, LLC, 452 B.R. 138 (Bankr. D. Del. 2011)