In My Legal Opinion….By Leonard M. Weiner, Esq., PhD.

(This is the fourth in a series of columns that deals with contemporary legal and commercial issues that are currently facing the diamond and jewelry industry and I invite reader email responses and dialogue regarding the issues raised. Please see the previous article).

These articles for information and discussion purposes only and should not be construed as legal advice, which advice shall be provided only after entering into a written retainer agreement.)

Once you have decided to file a UCC-1 on a customer and received the proper authorization, how do you determine where to file it?Prior to the revisions to Article 9 of the UCC in 2001, one had to file not only in the jurisdiction where a company was formed, but in every jurisdiction where the consignment goods would be located. Thus, for instance, on filing on Zales, one had to file in Delaware, Texas (where Zales’s two legal entities were formed) and every state in which Zales had a store and outlet. The process was very tedious, time consuming and extremely costly. Under the new Revised Article 9, the process was streamlined, and now one has to file only in the jurisdiction where the debtor is formed. If it operates under more than one entity, like Zales, one must file under each such entity in the jurisdiction that that entity was formed. Thus, under today’s UCC, for goods consigned within the US, one would file on Zales in Delaware and Texas, but not where its stores or outlets are located.That is the easy one. The “vanilla” filing situation.

I cannot overemphasize the importance of knowing the right jurisdiction to file in. Filing in the wrong jurisdiction will invalidate the filing and you will never know that you filed incorrectly until the debtor files for bankruptcy, you make your claim as a “secured creditor” and to your utter shock and dismay discover that you or your attorney filed in the wrong jurisdiction and you must take your place among the myriad of unsecured creditors hoping for a miracle to get your goods back.

Selecting the proper jurisdiction can become tricky, even for the experienced attorney. Where would one file on a corporation that has its main office located in New York City, and yet is a Delaware corporation? Where does one file on an individual? Where does one file on a partnership?Where does one file on an “unregistered” company such as a sole proprietorship operating under a fictitious business name (d/b/a)? Where does one file on a foreign corporation that is doing business in United States?

Without getting into the detailed and complex rules to determine the proper jurisdiction to file in each of these cases, suffice it to say that it takes an experienced attorney who specializes his practice and has expertise in the area of secured transactions to make the proper choice. Most general practice attorneys have no idea where to file in these complex cases and certainly one should never rely on a filing service to advise you where to file!