The debtor provided medical services in different cities in Maine. The debtor reached out to the creditor to buy medical equipment on a line of credit. When the debtor originally bought the equipment, it granted the creditor a security interest in all its personal property, including its accounts and proceeds. The parties entered into another contract a few years later, and the debtor offered the creditor another security interest in all its property. After agreeing to the new contract, the debtor bought more medical equipment from the creditor but failed to pay the debt. The creditor sued the debtor, and the debtor filed for Chapter 11 bankruptcy while the suit was pending. While doing business with the creditor, the debtor maintained a joint bank account with a related entity. The entity would deposit funds for services performed by the debtor into the joint account; therefore, the funds of the debtor and the entity became commingled. The debtor filed a two-count complaint, but the second count was dismissed with prejudice. The debtor then filed an adversary complaint seeking a declaration that the creditor did not hold a valid or perfected security interest in the funds in the joint account. The creditor moved to dismiss for failure to state a claim.
In Vision Care of Me. LLC v. ASD Specialty Healthcare, LLC (In re Vision Care of Me. LLC), Nos. 24-10166, 24-01009, 2025 WL 816725, 2025 Bankr. LEXIS 614 (Bankr. D. Me. Mar. 13, 2025) (opinion not yet released for publication), the court dismissed count one of the debtor’s complaint. The court relied on Article 9-a of the Uniform Commercial Code (UCC) in Maine as well as the plausibility standard of complaints. Article 9-a of the UCC reads “[a] security interest [in original collateral] attaches to any identifiable proceeds of [that] collateral” and upon attachment to identifiable proceeds, a security interest is perfected if the original collateral was perfected. Me. Rev. Stat. Ann. Tit. 11, § 9-1315(1)(b). After twenty-one days, the security interest became unperfected with some exceptions. The relevant exception to the court’s analysis is that perfection remained on the identifiable cash proceeds. The debtor admitted the creditor had a perfected security interest in its accounts receivable. The proceeds from the original collateral were cash proceeds, and those cash proceeds were commingled in the joint account. So, if the creditor could identify any cash proceeds of the original collateral among the funds in the joint account, then the security deposit would be attached to those proceeds, perfected upon those proceeds, and not become unperfected. The debtor’s complaint did not state a probable claim because the complaint did not allege that the cash proceeds were unidentifiable or incapable of being traced by the creditor. Thus, the court dismissed the complaint.
By Teddy Groce [email protected]
Edited By Olivia Lewis [email protected]
Edited By Callighan Ard [email protected]
Edited By Hayden Mariott [email protected]