In re Jojo’s 10 Restaurant, LLC

JoJo’s 10 Restaurant, LLC (JoJo) (debtor) was a limited-liability company doing business as a restaurant in Massachusetts. JoJo executed several agreements with Devin Properties, LLC (Devin) (creditor) regarding a lease of Devin’s real property and a purchase of assets for the restaurant. In the agreement regarding the purchase of assets, Devin agreed to sell restaurant equipment, inventory, furniture, and fixtures to JoJo for $285,000. The agreement identified the sale items as physical assets. In addition, the agreement stated that Devin would transfer Devin’s liquor license to JoJo. As part of the sale transaction, JoJo executed a $225,000 promissory note to Devin. The promissory note referenced collateral but did not specifically identify the collateral and did not expressly grant a security interest to Devin. However, the agreement for the purchase of assets stated that the promissory note would be secured by a security agreement under the Uniform Commercial Code (UCC) and perfected by a financing statement under the UCC. Separately, JoJo and Devin executed an agreement in which JoJo pledged the liquor license as security for the promissory note. Devin recorded a financing statement that described the physical assets and the liquor license as collateral. The financing statement did not have a signature from JoJo. The year after the parties executed these agreements, JoJo filed a Chapter 11 bankruptcy petition. In the bankruptcy proceeding, JoJo and Devin filed cross-motions for declaratory judgment on the issue of whether Devin had enforceable security interests in the physical assets and the liquor license. As part of the declaratory-judgment action, the parties stipulated that neither of them had obtained approval from Massachusetts government authorities to pledge the liquor license. Subsequently, the bankruptcy case was converted to a Chapter 7 bankruptcy, and the bankruptcy trustee pursued JoJo’s declaratory-judgment motion to establish that Devin had no enforceable security interests.