In the Matter of Sports Publishing Inc.

Midland States Bank (the bank) (plaintiff) had several security interests in collateral of Sports Publishing LLC. Innerworkings LLC (defendant) had security interests in the same collateral. Innerworkings’ interests in the collateral were secondary to the bank’s, meaning that the bank would have the right to collect its money first if Sports Publishing declared bankruptcy. Innerworkings also later claimed to have a purchase-money security interest in some of Sports Publishing’s inventory. Sports Publishing eventually filed for bankruptcy. In the proceedings, Innerworkings claimed that because it had a purchase-money security interest in some of the inventory, that interest had priority over the bank’s interests. The bank claimed that Innerworkings had failed to provide the bank with notice regarding the alleged purchase-money security interest and that the interest was therefore not perfected. In the bankruptcy proceedings, a former president of the bank testified that although he had had conversations with Innerworkings officials, he had never received specific authenticated notice of the alleged purchase-money security interest. There was, however, some evidence that an agreement between Sports Publishing and Innerworkings contained a reference to a purchase-money security interest. The bankruptcy court agreed with the bank. Innerworkings appealed.