## Facts

- WL Homes LLC obtained a $20 million revolving line of credit from Wachovia Bank, N.A.
- WL Homes had a wholly owned captive insurance subsidiary, JLH Insurance Company (JLH), which maintained its primary deposit account at Wachovia (the JLH Account).
- The credit agreement required WL Homes to maintain the JLH Account at Wachovia and keep specified minimum balances, treating the account as credit support for the loan.
- Wayne Stelmar served as WL Homes’ CFO and JLH’s president; he negotiated the loan terms with Wachovia and implemented the banking arrangement involving the JLH Account.
- After WL Homes filed for Chapter 11 bankruptcy (later converted to Chapter 7), the Chapter 7 trustee challenged Wachovia’s asserted lien, arguing WL Homes lacked sufficient rights in an account titled to JLH and that JLH had not validly authorized any pledge.
- Wachovia filed an adversary action seeking a declaratory judgment that it held a valid, enforceable security interest in the JLH Account.
- The bankruptcy court granted summary judgment to Wachovia; the district court affirmed.

## Issues

1. Whether WL Homes had sufficient “rights in” the JLH Account to grant Wachovia a security interest under UCC Article 9, despite the account being titled to JLH.
2. Whether JLH, through officer authority and course of conduct, consented to the use of the JLH Account as collateral such that the security interest was enforceable against the bankruptcy estates.
3. Whether any genuine dispute of material fact precluded summary judgment on attachment/enforceability of the security interest.

## Decision

- The Third Circuit affirmed the district court’s judgment sustaining summary judgment for Wachovia.
- The court held the record supported two independent bases for attachment under UCC § 9-203: WL Homes’ “use and control” of the JLH Account and JLH’s consent to the account serving as collateral.
- The court rejected the trustee’s argument that title ownership by a separate corporate entity categorically prevents a debtor from having “rights in the collateral.”
- The court concluded there was no material factual dispute defeating summary judgment on WL Homes’ rights in the account and JLH’s authorization/consent.

## Legal Principles

- Under UCC § 9-203, a security interest attaches and is enforceable when value is given, the debtor has rights in the collateral (or power to transfer rights), and the parties satisfy the security-agreement/control requirements applicable to the collateral type.
- “Rights in the collateral” under Article 9 do not require that the debtor hold legal title; rights may be shown by the debtor’s ability to use and control the collateral with the owner’s consent.
- Corporate consent to encumber property may be established through an officer’s actual or apparent authority and corroborated by the corporation’s course of dealing, knowledge, implementation of the arrangement, and failure to object.
- Summary judgment is proper where undisputed evidence establishes the elements of attachment and enforceability as a matter of law.

## Conclusion

The Third Circuit held that Wachovia’s security interest in a deposit account titled to a subsidiary was enforceable because WL Homes had sufficient rights in the account through practical control and the subsidiary’s consent, satisfying UCC Article 9 requirements and leaving no genuine fact dispute for trial.


In re WL Homes, LLC, 534 F. App’x 165 (3d Cir. 2013)