Beal Bank, S.S.B. v. Fewell (In re Fewell)

In 1999, Pro Transportation, Inc. (Pro Transportation) executed a promissory note for $962,783.33 in Mercantile Bank of Arkansas’s (Mercantile Bank) favor. Pro Transportation gave Mercantile Bank a mortgage on certain property as security. In several agreements (the guaranties), Bobby Eugene Fewell (debtor) personally guaranteed payment of all money owed by Pro Transportation to Mercantile Bank and its successors. Mercantile Bank changed its name to Firstar Bank, N.A. (Firstar Bank). In 2000, Fewell executed a Collateral Pledge Agreement (the pledge agreement), which gave Firstar Bank a security interest in a certificate of deposit in the principal amount of $200,000 as security for Fewell’s promises to repay Firstar Bank. Firstar Bank took possession of the certificate of deposit, which remained in Fewell’s name. Firstar Bank merged with another bank and became U.S. Bank, N.A. (U.S. Bank). In 2004, U.S. Bank assigned to Beal Bank, SSB (creditor) (Beal Bank) its rights to the promissory note and the security interests securing repayment of the note, including the guaranties and the pledge agreement. The parties agreed that, at that time, U.S. Bank held a perfected security interest in the certificate of deposit. After the assignment, U.S. Bank maintained continuous custody and control of the certificate of deposit. Pro Transportation defaulted under the promissory note. Beal Bank sued, obtained a judgment against Pro Transportation, and foreclosed on the mortgage. After the sale of the mortgaged property, Pro Transportation remained indebted to Beal Bank. Fewell filed for bankruptcy. Beal Bank filed a motion seeking relief from the automatic stay. Beal Bank argued that its security interest in the certificate of deposit remained perfected as U.S. Bank’s assignee. Fewell responded to Beal Bank’s motion, and the Unsecured Creditors Committee (Committee) filed an objection to Beal Bank’s motion. Fewell and the Committee argued that Beal Bank did not obtain control of the certificate of deposit and, therefore, did not perfect its security interest. The parties agreed that the certificate of deposit met Uniform Commercial Code Article 9’s definition of a “deposit account.”