In re United Energy Coal, Inc.

Rockwood Casualty Insurance Company (Rockwood) (creditor) issued bonds to the Maryland Department of Environment to secure any obligations United Energy Coal, Inc. (United) (debtor) might incur to the state because of United’s mining operations. Rockwood in turn had an agreement with United that required United to indemnify, or reimburse, Rockwood for any amounts Rockwood was required to pay to the state. That agreement included a security provision stating that certain types of property were offered as collateral for United’s obligation to Rockwood, including certificates of deposit (CDs) that “shall be deposited with Rockwood.” The provision stated that the collateral would be more specifically described in exhibit A. However, there was no exhibit A when the agreement was executed in 2004. In 2005, two CDs, or instruments noting a bank’s promise to repay deposited funds at a specified time, were issued by Huntington Bank to United. The CDs were in United’s name, but each had an attached assignment to Rockwood, meaning that the CDs were effectively in Rockwood’s possession. In 2006, United filed for Chapter 7 bankruptcy, triggering both an automatic stay that halted United’s creditors from collecting on United’s debts and the appointment of a trustee to oversee United’s bankruptcy estate. In 2007, Rockwood was required to pay $83,100 to the state under the bonds issued on United’s behalf. Rockwood petitioned the bankruptcy court to lift the automatic stay to allow Huntington Bank to distribute the funds in the CDs to Rockwood. The bankruptcy trustee objected, claiming that Rockwood did not have a properly perfected security interest in the CDs because (1) the security agreement did not expressly cover property acquired after the agreement was executed and (2) Rockwood never filed a financing statement covering the CDs. The bankruptcy court considered the parties’ arguments.