In re Gamma Center, Inc.

In 2004 Gamma Center, Inc. (Gamma) (debtor) borrowed $300,000 from Commercial Savings Bank (the bank) (creditor) to purchase an expensive camera and related accessories used in nuclear heart-stress testing. The bank perfected its interest by filing a financing statement, which listed the collateral as the camera along with the terms “proceeds of the collateral” and “products of the collateral.” In 2010 Gamma filed for bankruptcy and listed its accounts receivables among its assets. The bankruptcy trustee (plaintiff) sought to avoid the bank’s interest. The trustee asked the bankruptcy court for a determination that Gamma’s accounts receivables and any money received from those accounts were not covered by the bank’s security interest. However, the bank argued that the accounts receivables were reasonably identified in the security agreement and in the financing statement by the terms referencing proceeds or products of the collateral. Under the Uniform Commercial Code (UCC), the definition of proceeds included anything collected on collateral or anything distributed on account of collateral. The bank reasoned that because Gamma’s business was performing nuclear stress tests for the heart, the camera used in the performance of those tests was the main source creating Gamma’s accounts receivables. Therefore, the accounts receivables were proceeds of the camera itself because payment was collected because of the camera. Yet the record was silent regarding whether the use of the camera was the main generator of accounts receivables or the impact of other contributors, such as the expertise of Gamma’s physicians. The bank also argued that the actual use of the camera was the source of the accounts receivable. The bank supported this theory by suggesting that the terms “on account of, collateral” in the UCC definition of proceeds—which included anything “collected on, or distributed on account of, collateral”—included payments received by virtue of using the collateral. Both parties moved for summary judgment.