Competing Security Interests
Court finds that a searcher has to go to great lengths and not rely on the filing office’s own system.
Northside Elevator v. Ossmann, 2019 Wisc. App. LEXIS 302
On April 30, 2014, Ossmann, a farmer, obtained two loans from Bremer Bank. As collateral for the loans, Ossmann granted Bremer Bank a security interest in various collateral, including equipment and future crops. On April 30, 2014, Bremer Bank filed a Uniform Commercial Code (U.C.C.) financing statement describing all the collateral in which Bremer Bank has a security interest. The name of the individual debtor specified on Bremer Bank’s financing statement is “Jeffrey A. Ossmann,” which was the name on Ossmann’s unexpired operator’s license on April 30, 2014.
After Bremer Bank filed its financing statement, Ossmann’s operator’s license expired. On May 2, 2016, Ossmann was issued a new operator’s license under the name “Jeffrey Alan Ossmann.”
Northside sold Ossmann seed and fertilizer on credit. Ossmann was unable to pay the balance owed and, on December 21, 2016, Ossmann executed a note in favor of Northside, and Ossmann granted Northside a security interest in, among other things, future farm products, including crops. On January 9, 2017, Northside filed a financing statement describing the collateral. The name of the debtor specified on Northside’s financing statement is “Jeffrey Alan Ossmann,” which was the name on Ossmann’s unexpired operator’s license on January 9, 2017.
In March 2018, Northside sued Bremer Bank. Northside alleged that Bremer Bank’s April 2014 financing statement did not specify, as the individual debtor, the name on Ossmann’s most recently issued operator’s license and that the name specified on Bremer Bank’s April 2014 financing statement made the statement “seriously misleading.” Northside further alleged that because Bremer Bank’s April 2014 financing statement was “seriously misleading,” it became ineffective four months after May 2, 2016, when Ossmann’s most recently issued operator’s license was issued. 9-507(c) Northside alleged that as a result, Northside’s January 2017 security interest has priority over Bremer Bank’s security interest as to any collateral acquired by Ossmann after January 9, 2017, including any proceeds from crops harvested after January 9, 2017.
Northside moved the circuit court for summary judgment against Bremer Bank. The court denied Northside’s motion and, thereafter, entered a final order dismissing the priority of security interest claims of Northside against Bremer Bank. Northside appealed.
The Court noted, “to perfect a security interest, a creditor must file a financing statement. Among the items that must be set forth in the financing statement is the name of the debtor. See WIS. STAT. § 409.502(1)(a). WISCONSIN STAT. § 409.503(1) explains what is sufficient to constitute the debtor’s name.” As to individual debtors, a financing statement sufficiently provides the name of the debtor as it appears on a state-issued, unexpired operator’s license.
The Court found that there is no dispute that, at the time Bremer Bank filed its April 2014 financing statement, the statement specified the name on Ossmann’s then unexpired operator’s license as “Jeffrey A. Ossmann.” However, after Bremer Bank filed its financing statement, but before Northside filed its financing statement, Ossmann’s previously issued operator’s license expired and Ossmann was issued a new operator’s license, under the name “Jeffrey Alan Ossmann.”
Where there has been a change in the debtor’s name after a financing statement is filed, WIS. STAT. § 409.507(3) provides that, “[i]f the name that a filed financing statement provides for a debtor becomes insufficient as the name of the debtor under [WIS. STAT. §] 409.503(1) so that the financing statement becomes seriously misleading,” the creditor has a four-month grace period in which to refile its financing statement after the name change. If the financing statement is not refiled, the creditor’s financing statement “is not effective to perfect a security interest in collateral acquired … more than 4 months after the filed financing statement becomes seriously misleading.” Sec. 409.507(3)(b). Bremer Bank did not refile its financing statement. Thus, if the name specified on its April 2014 financing statement was insufficient such that “the statement became seriously misleading,” that statement was not effective to perfect Bremer Bank’s security interest four months after Ossmann was issued his new operator’s license.
The Court then turned to WISCONSIN STAT. § 409.506, which addresses the effect of errors or omissions and provides guidance on when a financing statement is seriously misleading and includes a “safe harbor” provision. That section provides in relevant part:
- (1) MINOR ERRORS AND OMISSIONS. A financing statement substantially satisfying the requirements of this subchapter is effective, even if it has minor errors or omissions unless the errors or omissions make the financing statement seriously misleading.
- (2) FINANCING STATEMENT SERIOUSLY MISLEADING. Except as otherwise provided in sub. (3), a financing statement that fails sufficiently to provide the name of the debtor in accordance with s. 409.503(1) is seriously misleading.
- (3) FINANCING STATEMENT NOT SERIOUSLY MISLEADING. If a search of the records of the filing office under the debtor’s correct name, using the filing office’s standard search logic, if any, would disclose a financing statement that fails sufficiently to provide the name of the debtor in accordance with s. 409.503(1), the name provided does not make the financing statement seriously misleading. [emphasis added]
In effect, [§] 409.506(3) creates a ‘safe harbor’ that will save a financing statement containing an incorrect name if a searcher can nonetheless find it in the ordinary course of a search.
Northside asserts that the name “Jeffrey A. Ossmann” on Bremer Bank’s financing statement renders the statement seriously misleading, under WIS. STAT. § 409.506(3), because a search of the filing office records using the name “Jeffrey Alan Ossmann” did not reveal Bremer Bank’s financing statement.
The Court should have ended its inquiry at this point. Instead, the Court turned its attention to Wisconsin’s search logic as spelled out in its Administrative Code.
§ DFI-CCS 5.01-5.05 provides: (1) NAME SEARCHED. A search request shall set forth the full correct name of a debtor or the name variant desired to be searched and specify whether the debtor is an individual or an organization. The full name of an individual shall consist of a first name, a middle name or initial, and the last name, although a search request may be submitted with no middle name or initial and, if only a single name is presented, it shall be treated as a last name … A search request shall be processed using the name in the exact form it is submitted.
Section DFI-CCS 5.04(1)(e) provides: “For first and middle names of individuals, initials shall be treated as the logical equivalent of all names that begin with the initials, and no middle name or initial shall be equated with all middle names and initials.” The note accompanying that paragraph provides:
Example: A search request for a “Dolly R. Parton” would cause the search to retrieve all filings against all individual debtors with “Dolly” as the first name, “Parton” as the last name, and with the initial “R” or any name beginning with “R” in the middle name field. If the search request was for “Dolly Parton”, (first and last names with no designation in the middle name field), the search would retrieve all filings against individual debtors with “Dolly” as the first name, “Parton” as the last name and with any name or initial or no name or initial in the middle name field.
There is no dispute that using the filing office’s search logic, a search of the name “Jeffrey Alan Ossmann” would not disclose Bremer Bank’s financing statement. However, as pointed out by Bremer Bank, under the search logic, a search utilizing “the logical equivalent” of the middle name Alan, the initial “A,” or a search using no middle name, would disclose Bremer Bank’s security interest. See WIS. ADMIN. CODE § DFI-CCS 5.04(1)(e). Northside has not filed a reply brief, and thus we take Bremer Bank’s assertion as true.
Further, the Court added, review of the pertinent statutory and administrative code language supports Northside’s implied concession. Northside does not identify any reason why the name “Jeffrey A. Ossmann” makes Bremer Bank’s financing statement “seriously misleading” when the variations permitted by the search logic of the name “Jeffrey Alan Ossmann” would disclose that name and Bremer Bank’s security interest. And, we can perceive no logical reason why it should. A searcher who fails to take advantage of the search logic cannot later complain that a financing statement is seriously misleading if that statement would have been disclosed if the searcher had availed himself or herself of the search logic.
The Court concluded that, because a search of the name “Jeffrey Alan Ossmann,” using the filing office’s search logic, and any permissible name variations permitted by that logic, would have disclosed Bremer Bank’s financing statement, that statement is not seriously misleading. Accordingly, we conclude that the circuit court did not err in denying Northside’s motion for summary judgment and affirm the court’s order dismissing Northside’s claims against Bremer Bank.
This decision flies in the face of Article 9’s intention. The searcher complied with the statute, searching the correct name as presented on the driver’s license. The UCC filing system designed to protect third parties who search the records. Here, Northside availed itself properly of Wisconsin’s system and thus should have prevailed.