1944 Beach Boulevard, LLC v. Live Oak Banking Company ( 2022 )

Supreme Court of Florida
____________
No. SC21-1717
____________
1944 BEACH BOULEVARD, LLC,
Appellant,
vs.
LIVE OAK BANKING COMPANY,
Appellee.
August 25, 2022
LAWSON, J.
This case is before the Court for review of three questions of
Florida law certified by the United States Court of Appeals for the
Eleventh Circuit that are determinative of a cause pending in that
court and for which there appears to be no controlling precedent.
We have jurisdiction. See art. V, § 3(b)(6), Fla. Const.
The certified questions concern the interpretation of section
679.5061(3), Florida Statutes (2021), which creates a safe harbor
for financing statements that are otherwise ineffective to perfect a
security interest because they fail to correctly name the debtor as
required by Florida law. The safe harbor applies when a financing
statement that fails to correctly name the debtor is disclosed by “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.”
§ 679.5061(3). Collectively, the Eleventh Circuit’s questions ask us
to delineate the proper scope of the “search” of the filing office’s
records as that term is used in the safe harbor provision. See In re
NRP Lease Holdings, LLC, 20 F.4th 746, 758 (11th Cir. 2021).
However, as explained below, we find dispositive a threshold
question that was not expressly addressed or certified by the
Eleventh Circuit, namely: “Is the filing office’s use of a ‘standard
search logic’ necessary to trigger the safe harbor protection of
section 679.5061(3)?” Reading section 679.5061 in its entirety, our
answer is yes. Because Florida’s filing office, the Florida Secured
Transaction Registry, does not employ a “standard search logic,” we
hold that the safe harbor cannot apply, which means that a
financing statement that fails to correctly name the debtor as
required by Florida law is “seriously misleading” and therefore
ineffective. § 679.5061(2). Accordingly, it is unnecessary to reach
-2-
the Eleventh Circuit’s three certified questions concerning the
proper scope of the “search” under the safe harbor provision.
BACKGROUND
1944 Beach Boulevard, LLC (Beach Boulevard), is a limited
liability company organized and existing under the laws of Florida.
Beach Boulevard and its affiliates were jointly and severally
indebted to Live Oak Banking Company (Live Oak) in the
approximate amount of $3,000,000 on account of two loans, each
in the original principal amount of $2,500,000. The two loans
purport to be secured by a blanket lien on all of Beach Boulevard’s
assets. To perfect its claimed security interests, Live Oak filed two
UCC-1 Financing Statements with the Florida Secured Transaction
Registry (Registry). However, the financing statements filed by Live
Oak improperly name the debtor as “1944 Beach Blvd., LLC”
instead of “1944 Beach Boulevard, LLC.” (Emphasis added.)
On December 5, 2019, Beach Boulevard and its affiliates filed
voluntary petitions for reorganization under Chapter 11 of the
United States Bankruptcy Code. When Beach Boulevard’s manager
conducted a search of the Registry, Live Oak’s financing statements
did not appear on the page of twenty results generated by the
-3-
Registry. Live Oak’s financing statements did, however, appear on
the immediately preceding page.
Beach Boulevard filed a complaint in the bankruptcy court,
which asserted that Live Oak’s financing statements failed to
correctly name the debtor as required by Florida law, making the
statements “seriously misleading” within the meaning of section
679.5061(2) and therefore ineffective to perfect Live Oak’s security
interest. See In re NRP Lease Holdings, 20 F.4th at 750. Seeking
the statutory safe harbor protection provided by section
679.5061(3) for financing statements that would otherwise be
ineffective for failing to correctly name the debtor, see §
679.5061(2), Live Oak asserted in its answer to Beach Boulevard’s
complaint the affirmative defense that “its financing statements
substantially complied with Florida law and that abbreviating
‘Boulevard’ to ‘Blvd.’ was a minor error or omission that does not
render the financing statements defective or seriously misleading.”
In re NRP Lease Holdings, 20 F.4th at 751. Live Oak also “claimed
that the filing statements were not ‘seriously misleading’ because
they can be found within one page of the initial search results.” Id.
In support, Live Oak explained that “while its liens do not appear on
-4-
the first page of results for a search in the Registry under ‘1944
Beach Boulevard, LLC,’ the search results are displayed in
alphabetical order and ‘merely clicking the blue “<2021 WL
2143912, at *1 (M.D. Fla. May 21, 2021). Applying these
standards, the district court affirmed the bankruptcy court’s
-5-
decision, writing only that “the bankruptcy court committed no
errors of law and made no clearly erroneous factual findings.” Id.Beach Boulevard appealed the district court’s decision to the
Eleventh Circuit. In re NRP Lease Holdings, 20 F.4th at 752.
On appeal, the Eleventh Circuit identified “two competing
interpretations” in the case law regarding the scope of the search
that is necessary to determine whether the safe harbor of section
679.5061(3) applies. Id. at 757. It cogently explained the split as
follows:
The In re John’s Bean Farm [of Homestead, Inc., 378 B.R.
385 (Bankr. S.D. Fla. 2007),] court concluded that the
statutorily-established “standard search logic” generates
“a single page on which [twenty] names appear” and that
page constitutes the entirety of the “search” for purposes
of the safe harbor. Id. Under that court’s logic, if a
financing statement with the debtor’s incorrect name
does not appear on that page, it is ineffective. In
contrast, the In re Summit Staffing [Polk County, Inc., 305
B.R. 347 (Bankr. M.D. Fla. 2003),] court concluded that
the initial page of twenty names does not constitute the
entirety of the “search”; instead, the “search” consists of
the entirety of the Registry, which can be scrolled to from
the initial page of twenty names. See 305 B.R. at 354-
55. And that court determined the searcher “must
reasonably examine the results of the search” to
determine whether it discloses a financing statement with
the debtor’s incorrect legal name. Id. at 355.
In re NRP Lease Holdings, 20 F.4th at 756.
-6-
Faced with substantial doubt as to how this Court would
resolve the split, which it found to be a matter of state law
dispositive of the case before it, the Eleventh Circuit certified to this
Court the following questions:
(1) Is the “search of the records of the filing office under
the debtor’s correct name, using the filing office’s
standard search logic,” as provided for by Florida Statute
§ 679.5061(3), limited to or otherwise satisfied by the
initial page of twenty names displayed to the user of the
Registry’s search function?
(2) If not, does that search consist of all names in the
filing office’s database, which the user can browse to
using the command tabs displayed on the initial page?
(3) If the search consists of all names in the filing office’s
database, are there any limitations on a user’s obligation
to review the names and, if so, what factors should
courts consider when determining whether a user has
satisfied those obligations?
Id. at 758.
ANALYSIS
The certified questions present issues of statutory
interpretation concerning the scope of the search necessary to
determine whether a financing statement that would otherwise be
ineffective because it fails to correctly name the debtor falls within
the safe harbor established by section 679.5061(3). As we recently
explained, when interpreting a statute, “the goal of interpretation is
-7-
to arrive at a ‘fair reading’ of the text by ‘determining the application
of [the] text to given facts on the basis of how a reasonable reader,
fully competent in the language, would have understood the text at
the time it was issued.’ ” Ham v. Portfolio Recovery Assocs., LLC,
308 So. 3d 942, 947 (Fla. 2020) (quoting Antonin Scalia & Bryan A.
Garner, Reading Law: The Interpretation of Legal Texts 33 (2012)).
Thus, we begin with the statute’s text. The three subsections
of section 679.5061 relevant to the certified questions read as
follows:
(1) A financing statement substantially complying
with the requirements of this part is effective, even if it
has minor errors or omissions, unless the errors or
omissions make the financing statement seriously
misleading.
(2) Except as otherwise provided in subsection (3), a
financing statement that fails sufficiently to provide the
name of the debtor in accordance with s. 679.5031(1) is
seriously misleading.
(3) 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. 679.5031(1), the name
provided does not make the financing statement seriously
misleading.
-8-
§ 679.5061(1)-(3).1
The first subsection states that a financing statement may
contain minor errors or omissions and remain effective to perfect a
security interest, unless the error or omission renders the financing
statement “seriously misleading.” § 679.5061(1). However, the
Florida Legislature goes on to define “seriously misleading” as it
relates to errors or omissions in naming the debtor in the second
and third subsections. Thus, while subsection (1) generally applies
to errors or omissions in financing statements, subsections (2) and
(3) govern financing statements like those at issue in this case that
contain errors or omissions in naming the debtor. See Fla. Virtual
Sch. v. K12, Inc., 148 So. 3d 97, 102 (Fla. 2014) (explaining that “a
specific statute will control over a general statute”).
For financing statements that fail to correctly name the debtor,
section 679.5061(2), does two things. First, the subsection creates
a zero-tolerance rule, under which a financing statement that fails
to name the debtor as directed in section 679.5031(1), Florida
1. The only other provision of section 679.5061 is subsection
(4), which addresses a situation not at issue here.
-9-
Statutes (2021), is “seriously misleading” and therefore ineffective.
§ 679.5061(2). Section 679.5031(1)(a), Florida Statutes (2021),
specifies how to correctly name a debtor where, as in this case, “the
debtor is a registered organization” as follows: “[a] financing
statement sufficiently provides the name of the debtor . . . only if
the financing statement provides the name that is stated to be the
registered organization’s name on the public organic record most
recently filed with or enacted by the registered organization’s
jurisdiction of organization that purports to state, amend, or restate
the registered organization’s name.” Second, subsection (2) also
carves out an exception to its zero-tolerance rule—the safe harbor
of subsection (3).
The safe harbor exception codified in section 679.5061(3)
provides that a financing statement with errors or omissions in
naming the debtor will still be effective to perfect a security interest
so long as “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” the financing statement. § 679.5061(3).
As evinced by the Eleventh Circuit’s certified questions,
section 679.5061(3) does not define the scope of the search of the
- 10 -
filing office’s records that is necessary to determine whether the
safe harbor applies. Its only direction is to conduct the search
“using the filing office’s standard search logic, if any,” with no
explanation of what “standard search logic” means. Id.
However, the meaning of “standard search logic” as used in
Article 9 of the Uniform Commercial Code, which governs secured
transactions and which Florida has adopted, see In re NRP Lease
Holdings, 20 F.4th at 752 (citing ch. 679, Fla. Stat; In re Summit
Staffing, 305 B.R. at 350), is well understood within the industry.
See Hancock Advertising, Inc. v. Dep’t of Transp., 549 So. 2d 1086,
1089 (Fla. 3d DCA 1989) (concluding that the court was “entitled to
consider” the “practical construction which has in fact been
adopted by the industry” to resolve “the statutory interpretation
problem before [it]”). Within the industry, “standard search logic” is
reasonably accepted to mean a procedure that “identif[ies] the set
(which might be empty) of financing statements on file that
constitute hits for the search,” or stated differently, that produces
an “[u]nambiguous identification of hits.” Kenneth C. Kettering,
Standard Search Logic under Article 9 and the Florida Debacle, 66 U.
Miami L. Rev. 907, 913 (2012). This is because “[t]he whole point of
- 11 -
the ‘standard search logic rule’ is to establish an objective
procedure for determining whether a given financing statement is
sufficient. A procedure that does not identify which financing
statements are hits and which are not is alien to the purpose of the
rule.” Id.The problem in Florida—as cogently explained by the amicus—
is that although the Registry offers an option for searching its
records, that option is not a “standard search logic.” Instead of
returning a finite list of hits when a search is conducted, the
Registry returns a list of twenty names starting with the name that
most closely matches the name entered. That list of names is but a
point from which the user can navigate forward and backward
through all of the names indexed in the Registry. In other words, “a
search” of the Registry returns an index of all of the financing
statements in the Registry. The Registry’s current search option
also produces inconsistent results depending upon the date a
search is conducted. This is true because as financing statements
are filed, amended, and removed, the position of a financing
statement on the Registry’s index changes, which means that a
- 12 -
financing statement included in a list of twenty today might not be
on the same list tomorrow.
We agree with Professor Kettering that a “search procedure
that returns as hits, for any search string, all financing statements
in the filing office’s database cannot rationally be treated as a
‘standard search logic.’ ” Id.; see also Steven L. Harris & Charles
W. Mooney, Jr., Teacher’s Manual for Security Interests in Personal
Property: Cases, Problems and Materials 51 (6th ed. 2016) (opining
that the search option offered by Florida’s Registry “should not be
considered a ‘standard search logic’ ” because “the system does not
yield particular ‘hits’ ”).
In certifying its questions concerning the proper scope of the
search required to determine whether the safe harbor of section
679.5061(3) applies, the Eleventh Circuit recognized these problems
with the Registry’s current search option, see In re NRP Lease
Holdings, 20 F.4th at 756-57, but it nevertheless determined that
the Registry employs a “standard search logic,” see, e.g., id. at 753,
756. In addressing the certified questions, we cannot accept the
Registry’s search option as the “standard search logic”
contemplated by the statute; rather, the Florida Constitution
- 13 -
requires us to decide de novo what “standard search logic” means.
See art. V, § 21, Fla. Const.
We adopt the definition of “standard search logic” accepted in
the secured transactions industry, which requires the search to
identify specific hits, if any, and hold that under this definition the
search option offered by the Registry, which returns the entire
index, is not a “standard search logic.” Moreover, because we read
section 679.5061(2)-(3) as conditioning the safe harbor’s application
on the ability to search the Registry’s records using a “standard
search logic,” it is unnecessary for us to address the Eleventh
Circuit’s certified questions. Instead, we hold that section
679.5061(3) provides one way and one way only to search the filing
office’s records for purposes of determining whether the safe harbor
applies to a financing statement that incorrectly names a debtor—
i.e., “using the filing office’s standard search logic, if any.” Because
the Registry lacks a “standard search logic,” the search
contemplated by section 679.5061(3) is impossible, which means
that filers are left with the zero-tolerance rule of section
679.5061(2).
- 14 -
This interpretation is further bolstered by reading section
679.5061(2)-(3) together with section 679.5031(1), which plainly
places the burden to correctly name the debtor on the filer of a
financing statement. See Fla. Dep’t of State v. Martin, 916 So. 2d
763, 768 (Fla. 2005) (“The doctrine of in pari materia is a principle
of statutory construction that requires that statutes relating to the
same subject or object be construed together to harmonize the
statutes and to give effect to the Legislature’s intent.”). By
interpreting section 679.5061(2)-(3) as being intolerant of any errors
or omissions in naming the debtor—no matter how minor—unless
and until the Registry implements a “standard search logic”
necessary to determine whether the safe harbor applies, we
faithfully adhere to the text of section 679.5061(2)-(3), keep the
burden on the filer consistent with section 679.5031(1), and avoid
imposing requirements on the searcher that are not specified in the
statute.
CONCLUSION
The Eleventh Circuit’s certified questions ask us to define the
scope of the search required to determine whether a financing
statement that fails to correctly name the debtor is nevertheless
- 15 -
deemed effective under the safe harbor of section 679.5061(3).
However, because we hold that the Florida Secured Transaction
Registry’s failure to employ a “standard search logic” precludes the
safe harbor from applying in the first instance, we find it
unnecessary to reach the certified questions. Unless and until the
Registry employs a standard search logic, under the zero-tolerance
rule of section 679.5061(2), any financing statement that fails to
correctly name the debtor as required by section 679.5031(1) is
“seriously misleading” and therefore ineffective. Having explained
why our interpretation of section 679.5061 makes it unnecessary to
reach the certified questions, we return this case to the United
States Court of Appeals for the Eleventh Circuit.
It is so ordered.
MUÑIZ, C.J., and CANADY, POLSTON, LABARGA, COURIEL, and
GROSSHANS, JJ., concur.
NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION
AND, IF FILED, DETERMINED.
Certified Question of Law from the United States Court of Appeals
for the Eleventh Circuit – Case No. 21-11742
Richard R. Thames of Thames Markey, Jacksonville, Florida,
for Appellant
- 16 -
Ezra Z. Scrivanich of McMichael Taylor Gray, LLC, Deerfield Beach,
Florida,
for Appellee
Scott G. Hawkins of Jones Foster P.A., West Palm Beach, Florida,
for Amicus Curiae Commercial Law Amicus Initiative
- 17 -