Fjellin et al v. Penning et al

Filing 20

MEMORANDUM AND ORDER - The Rule 12(b)(6) motion (Filing 10 ) filed by defendants Myron Kaplan and McGill, Gotsdiner, Workman & Lepp. P.C., L.L.O., is granted, and Plaintiffs' cause of action against such defendants based on Neb. Rev. Stat. U. C.C. § 9-625 and negligence are dismissed. Plaintiffs are granted leave to file a motion to amend the complaint to assert claims against defendants Myron Kaplan and McGill, Gotsdiner, Workman & Lepp. P.C., L.L.O., related to the allegation t hat defendant Kaplan caused sale proceeds to be kept from the Trust. Any motion for leave to file an amended complaint shall be filed in strict compliance with NECivR 15.1 on or before September 19, 2014, in the absence of which defendants Myron Kaplan and McGill, Gotsdiner, Workman & Lepp. P.C., L.L.O., shall be dismissed from this matter without further notice. Ordered by Senior Judge Richard G. Kopf. (GJG)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
JACQUELINE C. FJELLIN, for and
as Trustee of the Leonard Van Liew
Living Trust, and JAMES J. VAN
LIEW, for and as Trustee of the
Leonard Van Liew Living Trust,
Plaintiffs,
v.
MARVIN PENNING, individually,
MARY PENNING, individually,
MYRON KAPLAN, individually,
and MCGILL GOTSDINER
WORKMAN & LEPP, P.C., L.L.O.,
Defendants.

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8:14CV77

MEMORANDUM
AND ORDER

This is a diversity action brought by the trustees of the Leonard Van Lew
Living Trust—which is alleged to be a perfected secured creditor—to recover for the
wrongful termination of the Trust’s financing statement and for the fraudulent
misappropriation of the proceeds of the sale of its collateral. (Filing 1, Complaint ¶
1.) Defendant and lawyer Myron Kaplan and his law firm, McGill, Gotsdiner,
Workman & Lepp. P.C., L.L.O., move to dismiss Plaintiffs’ cause of action against
them pursuant to Fed. R. Civ. P. 12(b)(6). (Filing 10.)
Standard of Review
To survive a motion to dismiss based on Fed. R. Civ. P. 12(b)(6), “a complaint
must contain sufficient factual matter, accepted as true, to state a claim to relief that
is plausible on its face. A claim has facial plausibility when the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the

defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (internal citations and quotations omitted). This “plausibility standard” is not
one of probability, “but it asks for more than a sheer possibility that a defendant has
acted unlawfully. Where a complaint pleads facts that are merely consistent with a
defendant’s liability, it stops short of the line between possibility and plausibility of
entitlement to relief.” Id. (internal citations and quotations omitted).
Factual Allegations
In analyzing a motion to dismiss under Fed. R. Civ. P. 12(b)(6), I must “accept
the allegations contained in the complaint as true and make all reasonable inferences
in favor of the nonmoving party.” Martin v. Iowa, 752 F.3d 725, 727 (8th Cir. 2014).
The plaintiffs’ factual allegations are as follows:
Plaintiffs Jacqueline Fjellin and James Van Liew are co-trustees of the Leonard
Van Liew Living Trust, a revocable trust under South Dakota law. (Filing 1,
Complaint ¶ 2.) Leonard Van Liew, Jacqueline’s and James’s father, was also a
trustee, but he passed away after the events at issue. (Id. ¶ 3.)
From 2009 to 2011, the Trust made three loans to Four M Corporation, a
Nebraska corporation formerly engaged in the business of operating three Dairy
Queen stores in Nebraska. (Id. ¶ 14.) To secure Four M’s repayment obligations,
Four M granted the Trust a security interest in certain of its property, including the
Dairy Queen stores. The Trust’s security interest was perfected by the filing of a
financing statement with the Nebraska Secretary of State that named the Trust as a
secured creditor of Four M and listed the collateral in which the Trust held a security
interest. (Id. ¶¶ 17-18 & Ex. C.)
Defendants Myron Kaplan and his law firm, McGill, Gotsdiner, Workman &
Lepp, P.C., L.L.O., acted as corporate counsel for Four M Corporation prior to and
through the events at issue. Kaplan prepared all the relevant notes, security
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agreements, and financing statements, and he personally dealt with Leonard Van Liew
(then in his 90s) to obtain his signature and the loaned funds. (Id. ¶ 15, 19.) Kaplan
and his law firm did not represent the Trust.
Besides being a secured creditor, the Trust was also a Four M shareholder, and
Leonard Van Liew was a Four M director. (Id. ¶14.) Co-defendant Marvin Penning
was a shareholder, director, and secured creditor of Four M Corporation. (Id. ¶ 14.)
It appears from the complaint that co-defendant Mary Penning was a secured creditor
of the Trust. (Id. ¶ 21.)
In February 2012, Four M contracted with Frauenshuh Hospitality Group of
KY/IN, LLC, for the sale of the assets of three of its Dairy Queen stores. The sale
included the collateral in which the Trust had a perfected security interest. (Id. ¶ 20.)
Defendant attorney Kaplan prepared and obtained from Leonard Van Liew his consent
as a Four M director to the Frauenshuh transaction. (Id. ¶ 23.) However, none of the
plaintiff trustees gave their prior express written consent to the sale, as was required
by the security agreements executed by Four M in favor of the Trust. (Id. ¶ 25.) On
April 11, 2012, the sale closed with a purchase price of $1,035,000 in exchange for
instruments of transfer of the sold assets, including the Trust’s collateral. (Id. ¶ 26.)
Five days later, on April 16, 2012, attorney Kaplan, on behalf of Four M, filed
an amendment to the Trust’s financing statement, “unbeknownst to any of the
trustees.” (Id. ¶ 28 & Ex. D.) The amendment indicated the “Termination” of the
previously filed financing statement, stating that “Effectiveness of the Financing
Statement identified above is terminated with respect to security interest(s) of the
Secured Party authorizing this Termination Statement.” (Ex. D.) The amendment
listed the Van Liew Living Trust as the “NAME of SECURED PARTY OF RECORD
AUTHORIZING THIS AMENDMENT.” (Id.)
Plaintiffs allege that instead of verifying that the Trust was paid the entire
amount of the secured obligation as part of the closing of the Frauenshuh sale,
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Penning and attorney Kaplan caused the proceeds to be kept from the Trust, and
Penning misappropriated the funds to himself. (Filing 1 ¶¶ 27, 29.) While the Trust
has received partial payment from Penning, the plaintiffs allege that the Trust is still
owed $129,550.60 on the secured notes as of February 24, 2014, after which interest
has accrued at the rate of $37.01 per day. (Id. ¶ 30.)
As to defendants Kaplan and his law firm, the plaintiffs “bring this action on
behalf of the . . . Trust as a perfected secured creditor to recover for wrongful
termination of the Trust’s financing statement.” The plaintiffs allege that Kaplan
terminated the Trust’s financing statement without authority and without the Trust’s
knowledge or prior approval; Kaplan owed a duty to the Trust to see that its secured
debt was paid in full before terminating the financing statement; Kaplan’s law firm
is vicariously liable for Kaplan’s wrongful acts and omissions; under Neb. Rev. Stat.
U.C.C. § 9-509(d), Kaplan was allowed to terminate the Trust’s financing statement
only if “the secured party of record authorizes the filing,” which it did not; and under
Neb. Rev. Stat. U.C.C. § 9-625, Kaplan and his law firm are liable for the amount of
loss caused by Kaplan’s failure to comply with Neb. Rev. Stat. U.C.C. § 9-509.
(Filing 1 ¶¶ 1, 32.) The plaintiffs assert that “because of Kaplan’s termination, the
Trust has been relegated to the status of one among many unsecured creditors
clamoring to be paid with whatever remains in the wake of Penning’s plundering.”
(Filing 17, Pls.’ Br. Opp’n Defs.’ Mot. Dismiss at CM/ECF p. 23.)
Analysis
Plaintiffs’ complaint asserts one cause of action against defendants Kaplan and
his law firm alleging that (1) Kaplan’s failure to comply with Neb. Rev. Stat. U.C.C.
§ 9-509 triggered the remedies set out in Neb. Rev. Stat. U.C.C. § 9-625; and (2)
Kaplan was negligent in failing to ensure secured debt was paid in full before
terminating the financing statement. Kaplan and his law firm move to dismiss this
cause of action for failure to state a claim upon which relief can be granted. Fed. R.
Civ. P. 12(b)(6). (Filing 10.)
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In support of their motion to dismiss, Kaplan and his law firm argue that Neb.
Rev. Stat. U.C.C. § 9-625 only applies to actions of a secured party, not corporate
counsel for the debtor; Kaplan and his firm did not owe a duty of care to the Trust
because it was not their client; and there is no causal relationship between the
termination of the financing statement and Plaintiffs’ alleged damages. (Filing 11, Br.
Supp. Defs.’ Mot. Dism. at CM/ECF p. 2.)
1. Neb. Rev. Stat. U.C.C. § 9-625
Neb. Rev. Stat. U.C.C. § 9-509(d)(1)—the statute Kaplan is accused of
violating—provides that, with regard to an amendment of a financing statement (other
than one that adds collateral or adds a debtor), a person may file an amendment only
if the secured party of record authorizes the filing.1 Section 9-510(a) in turn provides
that a filing “is effective only to the extent that it was filed by a person that may file
it under section 9-509.”
Available remedies for violation of these sections are specified in Neb. Rev.
Stat. U.C.C. § 9-625, which provides in relevant part:
9-625. Remedies for secured party’s failure to comply with article
(a) If it is established that a secured party is not proceeding in
accordance with this article, a court may order or restrain collection,
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Neb. Rev. Stat. U.C.C. § 9-509(d)(2) does not appear applicable here because
the complaint does not allege that Kaplan invoked this statute to compel the Trust to
terminate the financing statement once the debt had been paid. Section 9-509(d)(2)
allows a person to file an amendment to a financing statement if: (1) the debtor (Four
M) makes an “authenticated demand” on a secured party (the Trust) to send the debtor
a termination statement pursuant to Neb. Rev. Stat. U.C.C. § 9-513(a); (2) the secured
party fails to file the termination statement; (3) the debtor authorizes the filing of a
termination statement; and (4) the termination statement indicates that the debtor
authorized the statement to be filed.
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enforcement, or disposition of collateral on appropriate terms and
conditions.
(b) Subject to subsections (c), (d), and (f), a person is liable for
damages in the amount of any loss caused by a failure to comply with
this article. Loss caused by a failure to comply may include loss
resulting from the debtor’s inability to obtain, or increased costs of,
alternative financing.
(c) Except as otherwise provided in section 9-628 [concerning
limitation of liability of secured parties and secondary obligors]:
(1) a person that, at the time of the failure, was a debtor, was an
obligor, or held a security interest in or other lien on the collateral
may recover damages under subsection (b) for its loss; . . . .
(Emphasis added.)
Defendants Kaplan and his law firm argue that use of the words “secured party”
in the title of Neb. Rev. Stat. U.C.C. § 9-625 and subsection (a) demonstrates that the
statute only applies to a secured party’s failure to comply with Article 9. Plaintiffs
contend that use of the words “a person” in subsection (b) means that people other
than secured parties—like Kaplan and his law firm—may be liable for violations of
Article 9.
The parties have not provided, nor has the court located, relevant Nebraska
cases applying the current version of section 9-625 or finding that section 9-625
creates a cause of action against a third party who files an unauthorized termination
statement. However, Defendants correctly point out that the Uniform Commercial
Code comments to section 9-625 confirm the statute’s limited applicability to secured
parties:
Subsections (a) and (b) provide the basic remedies afforded to those
aggrieved by a secured party’s failure to comply with this article. . . .
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Subsection (c) identifies who may recover under subsection (b). It
affords a remedy to any aggrieved person who is a debtor or obligor. . .
. Subsection (c) also affords a remedy to an aggrieved person who holds
a competing security interest or other lien . . . .
Neb. Rev. Stat. U.C.C. § 9-625 cmts. 2 & 3 (Westlaw 2014) (emphasis added). While
official comments to the Uniform Commercial Code, as adopted by Nebraska, are “not
binding, they are persuasive in matters of interpretation.” Blue Valley Co-op v. Nat’l
Farmers Org., 600 N.W.2d 786, 792 (1999).
Another comment to section 9-625 explains that subsections (a) and (b) set
forth two different types of available remedies—(a) allows equitable relief, and (b)
permits recovery of monetary damages. See Neb. Rev. Stat. U.C.C. § 9-625 cmt. 2
(“under subsection (a) an aggrieved person may seek injunctive relief, and under
subsection (b) the person may recover damages for losses caused by noncompliance”)
(emphasis added)). This comment does not suggest that section 9-625(a) applies to
a secured party’s wrongdoing, whereas section 9-625(b) embraces wrongdoing by any
person—secured party or not.
Further, secondary sources suggest that section 9-625 applies only to secured
parties who violate Article 9. See, e.g., 11 Anderson U.C.C. § 9-625:3 [Rev] (3d ed.)
(Westlaw 2014) (“UCC § 9-625 covers the remedies available for a secured party’s
failure to comply with its duties under Revised Article 9. UCC § 9-625 must be read
in conjunction with UCC § 9-628 which provides exemptions from, and limitations
on, a secured party’s liability.” (emphasis added)); 9 Hawkland UCC Series § 9-507:1
(Westlaw 2014) (“Subsection 9-507(1) [the prior version of § 9-625] sets out the
remedies for the debtor and certain other secured creditors when the secured party
fails to comply with the default provisions of the Code. If the secured party has not
yet acted in noncompliance but is about to do so, or if the secured party is presently
acting in noncompliance, this section provides for injunctive relief. If the secured
party has already acted in noncompliance, this section provides for damages . . . .”
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(emphasis added and footnotes omitted)); 43 No. 1 UCC L. J. ART 4 (Oct. 2010)
(Westlaw 2014) (“Section 9-625 provides that a secured party is generally liable to the
debtor, other obligors, and other security interest holders for losses incurred as a result
of secured party’s failure to comply with Article 9.” (emphasis added)).
Finally, as Defendants point out, the title of Neb. Rev. Stat. U.C.C. § 9-625 only
mentions secured parties as the wrongdoers against which remedies may be available:
“9-625. Remedies for secured party’s failure to comply with article.” (Emphasis
added.) While it is true that “[t]itle heads, chapter heads, section and subsection heads
or titles, and explanatory notes and cross references, in the statutes of Nebraska,
supplied in compilation, do not constitute any part of the law,” Neb. Rev. Stat. § 49802(8) (Westlaw 2014), it is also true that statutory titles, headings, and captions “can
be a useful aid in resolving a statutory text’s ambiguity.” United States v. Quality
Stores, Inc., 134 S. Ct. 1395, 1402 (2014); see also Argus Leader Media v. United
States Dep’t of Agriculture, 740 F.3d 1172, 1176 (8th Cir. 2014) (court’s plain reading
of statute was “confirmed by the subsection heading”; noting that while statute’s
heading “cannot substitute for the operative text of the statute[,] . . . statutory titles and
section headings are tools available for the resolution of a doubt about the meaning
of a statute.” (internal quotations and citations omitted)); State v. Rubek, 653 N.W.2d
861, 866 (Neb. App. 2002) (“the title of a statute and the heading of a section are tools
available for the resolution of a doubt about the meaning of a statute” (internal
quotations and citations omitted)).
Considering the language of section 9-625 and its comments, secondary
sources, and the lack of helpful case law, I conclude that subsections (a) and (b) of
section 9-625 both refer to a secured party’s failure to comply with Article 9, but
subsection (a) addresses the availability of equitable relief, while subsection (b)
addresses money damages. In other words, the distinction between subsection (a) and
(b) is not the identity of the wrongdoer (secured party vs. third party), but the nature
of the available remedy (equitable vs. monetary damages). Because Kaplan and his

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law firm are not secured parties, Neb. Rev. Stat. U.C.C. § 9-625 does not provide a
remedy for their alleged violation of Article 9.
Therefore, insofar as Plaintiffs assert a claim against defendants Kaplan and his
law firm based on Neb. Rev. Stat. U.C.C. § 9-625, the defendants’ Rule 12(b)(6)
motion shall be granted.
2. Negligence
Besides basing their claim against Kaplan and his law firm on sections 9-509(d)
and 9-625 of Nebraska’s Uniform Commercial Code, the plaintiffs also appear to
assert common-law negligence. Plaintiffs allege that “Kaplan owed a duty to the
Trust to see that its secured debt was paid in full before terminating the financing
statement” and “[t]he McGill Firm is vicariously liable for Kaplan’s wrongful acts and
omissions.” (Filing 1 ¶¶ 33, 34.)
To prevail on a tort claim, a plaintiff must show that the defendant’s
tortious actions caused the plaintiff’s losses. W. Page Keeton et al.,
Prosser and Keeton on Torts § 41 (5th ed. 1984). When ruling on a
motion to dismiss, we look to whether the plaintiffs’ allegations suffice
to show the required causal connection between the defendant’s
wrongful conduct and the plaintiffs’ losses. Dura [Pharmaceuticals, Inc.
v. Broudo], 544 U.S. [336] at 347, 125 S. Ct. 1627 [2005].
Schaaf v. Residential Funding Corp., 517 F.3d 544, 549 (8th Cir. 2008).
Here, the plaintiffs have failed to plead “factual content that allows the court to
draw the reasonable inference” that defendants Kaplan and his law firm are liable on
a common-law negligence theory for filing the termination of the financing statement
without the Trust’s knowledge or approval. Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). Specifically, the plaintiffs have failed to plead causation or damage.

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The purpose of a financing statement is “merely to give notice to subsequent
purchasers or creditors of a possible security interest.” Iowa State Bank v. Trail, 449
N.W.2d 520, 522 (Neb. 1989); Genoa Nat’l Bank v. Sorensen, 304 N.W.2d 659, 662
(Neb. 1981) (stating the purpose of filing a financing statement “is to give
constructive notice [of the security interest] to the world and actual notice to those
who would take the trouble to look”); Allstate Financial Corp. v. U.S., 109 F.3d 1331
(8th Cir. 1997). The presence or absence of a financing statement does not affect the
validity of Plaintiffs’ security interest, only its priority. As the Nebraska Supreme
Court explained in Iowa State Bank:
Assuming lapse of the financing statements and subsequent
“imperfection” of the bank’s security interest, it does not follow that the
security interest itself lapsed. The purpose of filing the financing
statements was merely to give notice to subsequent purchasers or
creditors of a possible security interest. As between the parties, the
security agreement and the interests created thereby remain effective,
even though they may be subject to the rights of other creditors.
Iowa State Bank, 449 N.W.2d at 522 (internal citations omitted).
Thus, Kaplan’s termination of the financing statement did not invalidate the
Trust’s security interest in the collateral, even after the collateral’s sale. At the time
of the sale (April 11, 2012), there existed security agreements between the Trust and
Four M (as well as a financing statement) that gave the Trust a security interest in “all
of the Property” described in the agreement “and all proceeds . . . of the Property.”
The “property” included all of Four M’s accounts and other rights to payment,
inventory, equipment, instruments and chattel paper, and general intangibles.
“Proceeds” included “anything acquired upon the sale . . . of the Property.” (Filing
1-2; Filing 1-3 (emphasis added).) At closing, the Trust could have exercised its
rights to the proceeds of the sale of the collateral pursuant to the terms of the security
agreements. Further, Kaplan’s termination of the financing statement would not have
prevented the Trust from foreclosing upon the collateral.
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As a result, there is simply no causation between the termination of the Trust’s
financing statement and Plaintiffs’ alleged damages. Plaintiffs do not, and cannot,
allege that they lost their security interest in the proceeds of the collateral sale because
Kaplan filed a termination of the financing statement. As the above case law
demonstrates, the security interest remained intact. At bottom, Plaintiffs claim that
co-defendant Marvin Penning failed to pay Four M’s debt to the Trust out of the sale
proceeds. This has no causal relationship to the termination of the filing statement.
As such, Plaintiffs’ negligence claim against defendants Kaplan and his law firm must
fail.
3. Plaintiffs’ Request to File Amended Complaint
Because I have found that the plaintiffs have failed to state a claim upon which
relief can be granted based on the Nebraska Uniform Commercial Code and commonlaw negligence, Plaintiffs have requested leave to file an amended complaint to assert
other claims against Kaplan and his law firm. (Filing 17 at CM/ECF pp. 24-27
(seeking leave to amend to assert claims of aiding and abetting Penning’s conversion,
negligent and intentional misrepresentation, detrimental reliance, and civil
conspiracy).)
In light of the factual allegation that “Kaplan . . . caused the [sale] proceeds to
be kept from the Trust” (Filing 1, Complaint ¶ 27), which I must accept as true at this
stage, I shall grant the plaintiffs leave to file a motion to amend the complaint to assert
claims related to that allegation. Fed. R. Civ. P. 15(a)(2) (“The court should freely
give leave when justice so requires.”). Counsel should note that any motion for leave
to amend must be made in compliance with NECivR 15.1.
Accordingly,

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IT IS ORDERED:
1.
The Rule 12(b)(6) motion (Filing 10) filed by defendants Myron Kaplan
and McGill, Gotsdiner, Workman & Lepp. P.C., L.L.O., is granted, and Plaintiffs’
cause of action against such defendants based on Neb. Rev. Stat. U.C.C. § 9-625 and
negligence are dismissed;
2.
Plaintiffs are granted leave to file a motion to amend the complaint to
assert claims against defendants Myron Kaplan and McGill, Gotsdiner, Workman &
Lepp. P.C., L.L.O., related to the allegation that defendant Kaplan caused sale
proceeds to be kept from the Trust; and
3.
Any motion for leave to file an amended complaint shall be filed in strict
compliance with NECivR 15.1 on or before September 19, 2014, in the absence of
which defendants Myron Kaplan and McGill, Gotsdiner, Workman & Lepp. P.C.,
L.L.O., shall be dismissed from this matter without further notice.
DATED this 2nd day of September, 2014.
BY THE COURT:
Richard G. Kopf
Senior United States District Judge

*This opinion may contain hyperlinks to other documents or Web sites. The
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