## Facts

- A Brooklyn residential cooperative owned a building that included a garden apartment allocated to specific co-op shares and a proprietary lease.
- After the cooperative refused to approve renovations planned by the garden unit holder, litigation ensued and later settled for $550,000, which McDaniel funded.
- The settlement resulted in the garden-unit shares and proprietary lease being returned to and held by the cooperative.
- McDaniel also advanced additional funds tied to the litigation defense and other expenses, and later asserted that her advances were made in exchange for receiving the garden unit’s shares and proprietary lease.
- A cooperative director allegedly sought additional money to finalize McDaniel’s asserted interest; McDaniel refused and demanded repayment.
- The garden unit was listed and sold to a third party for $850,000; the cooperative paid McDaniel $650,000 from the proceeds.
- McDaniel filed a UCC financing statement naming the cooperative as debtor and claiming a secured interest in the garden unit and proceeds, and she refused to terminate it after demand.

## Issues

1. Whether McDaniel had an enforceable Article 9 security interest in the garden unit or its proceeds without an authenticated security agreement authorizing the filing.
2. Whether a financing statement may be maintained as “notice” of an alleged common-law lien or equitable claim absent a valid security interest.
3. Whether the cooperative was entitled to an order compelling termination of the financing statement and statutory damages under UCC § 9-625 for failure to terminate an unauthorized record.

## Decision

- The court held McDaniel did not have a valid Article 9 security interest because there was no authenticated security agreement granting her a security interest in the garden unit or proceeds.
- The court rejected using a financing statement as a public notice device for disputed non-Article 9 claims.
- The court ordered McDaniel to terminate (or authorize termination of) the financing statement.
- The court awarded statutory damages of $500 under UCC § 9-625 for the failure to terminate the unauthorized filing.

## Legal Principles

- A UCC financing statement does not create a security interest; Article 9 attachment generally requires an authenticated security agreement describing the collateral.
- Article 9’s filing system is limited to notice of actual security interests and cannot be used to cloud title or signal disputed equitable or common-law claims.
- When a financing statement is unauthorized or ineffective and a termination is properly demanded, refusal to terminate may warrant compelled termination and statutory damages under UCC § 9-625.

## Conclusion

The court required termination of McDaniel’s financing statement and imposed statutory damages, holding that Article 9 filing procedures cannot substitute for a security agreement or be used to publicize disputed equitable claims to a cooperative unit or its sale proceeds.


McDaniel v. 162 Columbia Heights Hous. Corp., 863 N.Y.S.2d 346 (Sup. Ct. Kings Cnty. 2008)