Business Law

Fishback Nursery, Inc., vs. PNC Bank, N.A. (5th Cir.) – Purchase Money Security Interests Are Unperfected Because Financing Statements List Both Debtor’s Correct Name and DBA; Contractual Choice of Law Clause Does Not Govern Perfection

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The following is a case update prepared by Dan Schechter, Professor Emeritus, Loyola Law School, Los Angeles, analyzing a recent decision of interest:


The Fifth Circuit has held that two agricultural purchase money security interests were unperfected because the secured creditors’ financing statements listed both the debtor’s correct name and its DBA, thus making it impossible for the Secretary of State’s standard search logic to pick up the filings.  Further, the contractual choice of law clauses contained in the parties’ invoices did not control the issue of lien perfection.  [Fishback Nursery, Inc., vs. PNC Bank, N.A., 2019 Westlaw 1548823 (5th Cir.).]

Facts: Two agricultural wholesale nurseries sold plants to a retail nursery.  Two of the buyer’s locations were in Michigan and Tennessee; another was in Oregon.  The wholesalers took purchase money security interests in the plants.  Both of the wholesalers filed financing statements listing the debtor’s name as “BFN Operations, LLC abn Zelenka Farms,” despite the fact that the debtor’s founding documents listed its name as “BFN Operations LLC.”

Following the retailer’s Chapter 11 filing, a bank provided debtor-in-possession financing, subject to all properly perfected pre-petition liens.  The parties became embroiled in a priority dispute, and the wholesale nurseries brought suit in federal court seeking declaratory relief.  The parties filed cross-motions for summary judgment.  The trial court ruled in favor of the DIP lender, and the Fifth Circuit affirmed.

Reasoning: The nurseries argued that the invoices contained Oregon choice of law clauses; the appellate court noted, however, that the priority dispute was not controlled by a contractual choice of law clause:

[H]ere we do not have a contractual dispute between [a wholesale nursery and a retailer], to which the choice-of-law clause might apply . . . . Instead we have a dispute between the Nurseries and a third party [the DIP lender] over lien priorities in [the debtor’s] assets. The Nurseries identify no authority for applying a choice-of-law provision in a contract to a lien dispute with a third party. Doing so, as the district court pointed out, would be unfair to parties who are strangers to the contract containing the choice-of-law provision, “including third-party creditors in lien disputes like this one.”

The court then affirmed the trial court’s ruling that the Michigan and Tennessee financing statements were inadequate because “under the strict search logics in these states, searching with [the debtor’s] correct name would not uncover the incorrectly named liens.”

One of the nurseries argued that its financing statement constituted “substantial compliance” with the Oregon rules governing the extension of agricultural liens.  But the court quoted the trial court’s reasons for rejecting that argument:

[A]llowing the UCC statement to “pull double duty” as a notice of lien would cause prejudice by failing to notify others that a lien has been extended: “Searchers of Oregon’s lien index cannot determine the duration of a lien just by looking at a financing statement.” Instead, that is the notice of lien’s purpose, which is why Oregon law specifically requires it to warn others that a lien has been extended beyond the usual 45-day expiration date.

Author’s Comment: The most interesting part of this opinion is the failure of the financing statements.  Note that the debtor was described as “BFN Operations, LLC abn Zelenka Farms.”  The debtor’s correct name was “BFN Operations LLC.”  Although the court did not say so, I am fairly sure that “abn” means “alternate business name,” i.e., “dba,” or “doing business as.”

Why did the PMSI creditors file financing statements containing both (1) the debtor’s true name and (2) the debtor’s tradename?  This was, almost certainly, a classic example of “an excess of caution.”  No good deed goes unpunished.  The extra information paradoxically poisoned the index; thus, the Secretary of State’s standard search logic failed to pull up the financing statements.  In turn, that glitch meant that the purchase money security interests were unperfected, costing the wholesalers more than $1.3 million.

How can a trade creditor avoid this understandable but fatal mistake?  First, of course, the credit management staff has to be properly trained in the art of filling out a UCC-1.  Second, however, the company can adopt “failsafe” procedures for checking filings by doing a “post-closing” search of the index.  If the filing does not come up, that is a bright red flag.

For discussions of cases involving closely-related issues, see:

  • 2010 Comm. Fin. News. 41, Financing Statement Is Misleading Because It Includes Both Debtor’s Legal Name and Its DBA.
  • 2008 Comm. Fin. News. 06, Financing Statement Filed Under Corporate Debtor’s Proper Name Is Invalid When Debtor’s DBA Is Also Included.

These materials were written by Dan Schechter, Professor Emeritus, Loyola Law School, Los Angeles, for his Commercial Finance Newsletter, published weekly on Westlaw.  Westlaw holds the copyright on these materials and has permitted the Insolvency Law Committee to reprint them.

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