On March 8, 2013, the US District Court for the District of Utah held in C. W. Mining Co. v. Standard Industries, Inc. (In re C. W. Min. Co.) that under Utah's version of the Uniform Commercial Code (UCC), creditors must file a UCC-1 financing statement (UCC-1) that includes the debtor's correct name in order to perfect their security interest in certain collateral. If there is an error in the debtor's name on the UCC-1 and the creditors cannot rely on the UCC's "escape hatch provision," then the UCC-1 is seriously misleading and the creditors have an unperfected security interest.

C. W. Mining Company (Debtor) is a Utah corporation. Standard Industries, Inc. (Standard) was the Debtor's coal broker, and, with various other creditors, provided financing to the Debtor. In connection with the financing, and in order to perfect their security interest in certain of the Debtor's assets, the Creditors filed UCC-1s with the Utah Division of Corporations and Commercial Code (UDCC). Each UCC-1 identified the Debtor as "C W Mining Company" or "CW Mining Company." The Debtor's name is actually "C. W. Mining Company" according to the Utah public records.

In 2008, a Chapter 11 bankruptcy petition was filed against the Debtor in the US Bankruptcy Court for the District of Utah. This proceeding was later converted into a Chapter 7 liquidation proceeding. In 2009, the trustee for the Debtor's estate filed a motion for partial summary judgment seeking a determination of the various parties' rights in the proceeds of an account of the Debtor's holding about $2.8 million. In an amended memorandum decision, the bankruptcy court reached certain legal conclusions, including that the Creditors were unperfected because of the errors in the UCC-1s. The Creditors have appealed this decision claiming that they are perfected. The Creditors also made other arguments that are not discussed further here.

Under the UCC, perfecting a security interest in certain collateral requires that the creditor file a UCC-1 that provides the name of the debtor, the name of the secured party and an indication of the collateral covered. For a debtor that is a registered organization, the UCC-1 sufficiently provides the name of the debtor if it provides the name indicated on the public record of the debtor's jurisdiction of organization which shows the debtor to have been organized (UCC § 70A-9a-503(1)). Financing statements that do not adhere to this requirement are "seriously misleading" (UCC § 70A-9a-503(1) and § 70A-9a-506(2)) and will not perfect the secured party's security interest.

The Creditors did not use the Debtor's correct name on the UCC-1s because they omitted the periods and spaces. The Court must now consider whether the Creditors can take advantage of "an escape hatch provision" in the UCC. That provision would render a UCC-1 not seriously misleading because of the incorrect name if a search of the records of the UDCC under the Debtor's correct name, using the filing office's standard search logic, if any, would disclose the UCC-1 with the incorrect name (UCC § 70A-9a-506(3)).

The Court engaged in straightforward statutory analysis, finding that none of the names listed in the UCC-1s was the Debtor's registered organizational name and therefore, the Creditors' security interests were not perfected. The Court followed the reasoning in Host America Corp. v. Coastline Financial, Inc., finding that the UCC "escape hatch provision" was only available to Creditors to the extent that a UDCC search using the UDCC's standard search logic and the Debtor's correct name would disclose the UCC-1s.

In a sworn declaration of Kathy Berg, director of the UDCC, she attested that "the Utah database search engine will only retrieve certified search queries having the exact same spacing and punctuation as the database entry." Therefore the filed UCC-1s did not appear as a result of a search of the UDCC's records using the Debtor's correct name. Despite acknowledging that the error was relatively minor, the Court therefore held that the UCC-1s did not perfect the Creditor's security interest in the collateral in question.

The Creditors argued, among other things, that their UCC-1s were not misleading because a "reasonably diligent searcher" would have found the Creditors' interests by following several clear links to all filings under the Debtor's organization number. They argued that the decision of Host America is not controlling. The Court rejected this argument. The Court noted that while some courts have continued to use the "reasonably diligent searcher" standard, the better approach is the one used by the majority of courts which have decided this issue and found that UCC Article 9 is unforgiving of even minimal errors.

The Court affirmed the decision of the bankruptcy court concerning this specific UCC issue. The UCC-1s failed to properly list the Debtor's name. Therefore the bankruptcy court properly found that the UCC-1s were seriously misleading and did not perfect any security interest in the collateral in question.

Counsel should consider the following implications of this case: