The debtor was a Delaware corporation. The creditor was granted a security interest in the substantially all the debtor’s assets. To perfect its security interest, the creditor filed its financing statement with the Delaware secretary of state and correctly extended the filing with a continuation statement. The debtor later sold the collateral as parts of the business to two different third parties. Meanwhile, the debtor had failed to pay its employees. The employees brought this action to recover their unpaid wages they had earned before the sale. The Secured creditor intervened, claiming priority to the collateral.
In Ulmer v. Streetteam Software LLC, No. 2:23-cv-2226-HDV (AGRx), 2025 U.S. Dist. LEXIS 125446 (C.D. Cal. June 30, 2025), the court held that the security interest had been properly perfected—with very limited exceptions, security interests are perfected by filing the financing statement in the venue in which the debtor is located. If the debtor is a corporation, the state in which the corporate debtor is incorporated is the place to file to financing statement, as was done here. However, under the California Code of Civil Procedure, § 1205, unpaid employees have priority for wages earned within 90 days before the sale of a business. Section 9-109(c)(3) of the Delaware Code recognizes limitations on enforcement of a security interest of other state’s laws. Accordingly, the court applied the California law and concluded that the first sale was free of the employee’s claims because it had occurred outside the 90-day window. The court therefore granted partial summary judgment to the secured creditor as to that collateral. There were, however, unsettled issues as to the timing issues regarding the second sale, so the court could not rule on that matter without further fact finding.
By: The Editors