One of the greatest challenges for secured parties after the filing of a financing statement is a change in the governing law. The law governing perfection and priority may change when a debtor relocates across state lines or transfers collateral to a third party that is located in a different state than the debtor. Either way, the secured party has a very limited time to refile in the new jurisdiction to maintain perfection of its security interest.

There are some situations, however, where the secured party may still be able to enforce its security interest despite failing to refile in a new jurisdiction. A court recently determined that the transferee of collateral could not use the secured party’s failure to file as a defense to claims of conversion and unjust enrichment after it acquired collateral from a debtor located in a different state. The case is DZ Bank AG Deutsche v. Connect Insurance Agency, Inc., 2016 WL 631574 (W.D. Wash. Feb. 2, 2016).

This case involved a complex set of facts and number of different issues. One of those issues involved the transfer of collateral to a third party located across state lines.

DZ Bank AG Deutsche Zentral-Genossenschaftsbank (the “Bank”) held a security interest in certain loans made by Brooke Credit Company (“BCC”) and Brook Credit Finance, LLC (“BCF”). The collateral included loans that BCC made to two insurance agencies, Advantage Pacific Insurance, Inc. (“Advantage”) and API Vancouver Insurance, Inc. (“API”). Both Advantage and API were Washington corporations owned by the same individual.

Advantage and API each granted BCC a security interest in all of its personal property. BCC had properly perfected its security interests in the assets of Advantage and API by filing UCC financing statements with the Washington Department of Licensing.

BCF defaulted on its obligations in October 2008. The Bank foreclosed on its security interest. As a result, BCC and BCF agreed to surrender the loans that served as collateral to the Bank. The Bank then amended the Advantage and API financing statements to add the Bank’s name as secured party.

In 2010, Connect Insurance Agency, Inc. (“Connect”), a Texas corporation, entered into an agreement with the owner of Advantage and API to buy the assets of the two insurance agencies. Those assets served as collateral for the Bank’s security interest. However, Connect did not conduct any due diligence and the Bank did not consent to the transfer. Nevertheless, Connect received hundreds of thousands of dollars in commissions from the assets it acquired from Advantage and API. Connect did not pay the Bank for any of the collateral it acquired.

In 2014, Advantage and API defaulted on the loans held by the Bank. The Bank then sued Connect for conversion and unjust enrichment for allegedly taking the Advantage and API collateral without consent or compensation. The Bank and Connect made cross-motions for summary judgment on their claims and defenses.

One of the defenses offered by Connect was that the location of the collateral changed from Washington to Texas when it acquired the assets of Advantage and API. The Bank did not refile its financing statement in Texas. Therefore, Connect argued, the Bank lost its security interest when it failed to refile in Texas.

Connect’s argument was based on UCC § 9-316, which addresses the effect of a change in the governing law. Under UCC § 9-316(a)(3), the secured party has up to one year to refile its financing statement in the new jurisdiction following the transfer of collateral to a person located in another jurisdiction.

After reviewing the applicable case law, the court observed that the statute, properly interpreted, applies to the purchase or other transfer that occurs in the destination state after the collateral has been moved there. It does not apply to purchasers, like Connect, that purchase the collateral in the original state. The court went on to conclude that because Connect purchased the collateral from the original debtor in Washington, where the Bank had filed its financing statements, that the Bank had not lost its security interest.

There are a couple of takeaways from this case. One is that secured parties need to be diligent in monitoring their collateral. The deadlines for filing the records necessary to remain perfected after events like a debtor name change, or a transfer of collateral that changes the governing law are short and the secured party is held strictly accountable for compliance. Although the Bank prevailed in this case, different circumstances could easily have changed the outcome. For example, the court might have ruled against the Bank if Connect had been a third-party transferee of the collateral instead of the direct purchaser from Advantage and API.

One other important takeaway is that matters transfers of collateral that also result in a change to the governing law often involve complex issues of fact and law. Even courts sometimes struggle with these issues. Therefore, secured parties are well-advised to promptly consult with legal counsel to determine the best course of action after discovering that a debtor has transferred collateral without consent.


Paul Hodnefield is associate general counsel for Corporation Service Company® and a frequent speaker/writer on UCC due diligence issues. Please feel free to contact him with questions or comments at or 800-927-9801, ext. 61730.

UCC Expert’s Corner: Court Finds Secured Party’s Failure to Refile UCC not a Defense for Buyer of Collateral