I am at the ABA Business Law Section's first stand-alone meetings in Chicago, Illinois and attended the filing office task force this morning. Among other news about states encouraging electronic filings of financing statements, the case of Fjellin v. Penning was on the agenda. In this case, a trust was a perfected secured party relative to assets of several Dairy Queen stores that were later sold to a buyer. After the closing, the debtors' attorney, Kaplan, filed a termination statement relative to the assets sold to the buyer (who had bought the assets free and clear of the liens). Penning, a secured creditor of the Trust himself, as well as a director and shareholder of the debtor, allegedly retained most of the closing funds and only paid part of them over to the Trust. In the action against Kaplan, the court concluded that there was no claim under section 9-625, which only creates a cause of against secured parties. Kaplan, being the attorney of the debtor, was not a secured party. Moreover, the court declined to find in favor of the Trust on a claim of negligence against Kaplan, finding: (i) causation lacking where Penning's action in taking the funds caused the problem, (ii) that the termination statement did not extinguish the security interest in the assets under 9-315; and the Trust had an interest in proceeds under section 9-203.
Hmmm, next time make sure the funds are paid on the loan at closing.