By Paul Hodnefield, Esq.

The filing of false or fraudulent Uniform Commercial Code (UCC) financing statements has long been a problem. Although the number of such records filed is relatively small, they can have a serious impact on the victim named as debtor. These false financing statements are used to intimidate, harass, or defraud another party. The victims are often government officials or those involved in legal proceedings against the filer, such as prosecutors, judges, and foreclosing creditors.

When a false financing statement has been filed, the victim may demand that the filing office provide a remedy, such as removing the record in dispute. As a general rule, however, filing offices have limited ability to help and the victim must bring an action against the filer. A victim of false UCC records ran into this issue in the recent case of State ex rel. Gormley v. Jordan, 2020 Ohio App. LEXIS 3571 (Ohio Ct. App. Sept. 30, 2020).

In this case, Gormley (the “Judge”) was an elected judge in the Delaware County, Ohio Court of Common Pleas. In 2017, the Judge presided over a foreclosure action and awarded judgment in favor of the lender. This apparently did not sit well with the defendant, St. Jacques. Shortly before the foreclosure sale ordered by the Judge, St. Jacques filed a false financing statement with the county recorder (the “Recorder”) of Delaware County that named the Judge as debtor.

The financing statement claimed a lien against the Judge in the same amount of the judgment in the foreclosure action. St. Jacques’ claim was based on alleged delivery of agricultural products under contract with the lender in the foreclosure action. Later, St. Jacques filed a second false financing statement with the Recorder alleging a lien against the Judge for the feeding and keeping of livestock.

The Judge brought a complaint for a writ of mandamus, asking the court to order the Recorder to expunge and cancel the UCC records filed by St. Jacques from the official records of Delaware County. The Recorder objected and moved to dismiss the Judge’s complaint.

The court noted that a writ of mandamus is an extraordinary action that requires the complainant to provide by clear and convincing evidence that (1) there is a clear legal right to the requested relief, (2) a clear legal duty on the part of the respondent to provide it, and (3) the lack of an adequate remedy in the ordinary course of law.

In this case, the court determined that the Judge had no clear legal right to the requested relief and the Recorder had no duty to provide it. Those factors alone meant that the Judge had not made the showing necessary for the court to issue a writ of mandamus.

Nevertheless, the court went on to look at whether the Judge had an adequate remedy at law. After reviewing the applicable case law and statutes, the court concluded that there were adequate civil remedies available for the filing of false financing statements.

In similar cases, the courts found the filers of false financing statements liable for slander of title, damages under Part 6 of UCC Article 9, and defamation of title. Courts had awarded damages, attorney fees, costs, and even punitive damages. More significantly, the courts in those cases had declared the false financing statements void and of no force and effect, while also directing the government officers involved to remove any and all liens. The court concluded that the Judge could obtain all of the relief sought in the mandamus action by pursuing common law civil remedies against St. Jacques.

In summary, the court determined that the Judge could not establish a clear legal right to the relief, that the Recorder had a duty to provide it, or that there was no adequate remedy at law. The court, therefore, granted the Recorder’s motion to dismiss the mandamus action.

The important takeaway from this case is that while it is tempting to demand that the filing office take action in response to false UCC records, the victim must generally bring an action against the filer. The victim may seek damages for violation of the secured party’s duties under Article 9, slander of title, and other common law actions. In addition, the courts may order false records expunged from the filing office index. Moreover, many states also have fraudulent UCC filing statutes that provide additional remedies and expedited hearings.

The problem of false or fraudulent UCC records will not go away anytime soon. While the problem is small in numbers, it creates hardship for the victims. While no remedy will be able to address every case, victims do have options without the need to resort to an extraordinary remedy such as a writ of mandamus.

CSC has compiled a list of fraudulent UCC filing civil and criminal remedies by state. The reference is available at blog.cscglobal.com/uccarticle9/ under the UCC and Other Reference Materials heading.

Paul Hodnefield is associate general counsel for CSC and is a frequent speaker and writer on UCC due diligence issues. Please feel free to contact him with questions or comments at paul.hodnefield@cscglobal.com or 800-927-9801, ext. 61730.

UCC Experts Corner: Court Refuses to Order Expungement of False Financing Statement