EDWARD ELLINGTON, Bankruptcy Judge.
O & G Leasing, LLC (O & G) and Performance Drilling Company, LLC (PDC) were created in 2006 for the purpose of owning and operating oil and gas drilling rigs. O & G owns the drilling rigs and leases them to PDC, its operating subsidiary. PDC seeks to obtain contracts with exploration companies, and PDC then provides the drilling rigs to drill for oil and gas.
Beginning in 2006, and continuing over a three-year period, O & G
To perfect FSB's security interest in each rig and its revenue, four separate Uniform Commercial Code financing statements (Prior UCC-1 Financing Statements) covering the particular rigs were filed with the Mississippi Secretary of State. These Prior UCC-1 Financing Statements have not been terminated.
The oil and gas drilling market collapsed in 2008. According to O & G, "[o]il and natural gas prices dropped 40-60% and the number of rigs in use in the marketplace decreased by half based on reported utilization rates. Due to lack of demand and utilization, and corresponding drop in drilling rates, [O & G's] revenues decreased substantially."
The Exchange Offer was an offer by O & G to exchange the Prior Debentures for one consolidated debenture (2009 Debenture). "The stated purpose of the consolidation plan was to simplify [O & G's] capital and debt structure and to balance the cash flows from all of O & G's rigs securing the prior Debentures in order to make the pledged revenue easier for [O & G] and [FSB] to manage."
Pursuant to the Exchange Offer:
---------------------------------------------------------------------------------------------------- SUMMARY OF TERMS OF THE PRIOR DEBENTURES ----------------------------------------------------------------------------------------------------RIG #3 (Series RIG #28/22 (Series RIG #14/48 (Series 2007A and B) 2008A and B) 2008C and D) ----------------------------------------------------------------------------------------------------Collateral Rig #3 Drilling Equipment Rig #28 Drilling Equipment Rig #14 Drilling Equipment and Rig #22 Drilling and a subordinate Equipment interest in Rig #48 Drilling Equipment . . . . ----------------------------------------------------------------------------------------------------
First Security Bank as Trustee's Motion for Summary Judgment, Docket No #34, Exhibit F to Affidavit of Frank Faust (Exchange Offer), pp. 1-3.
In addition to the Exchange Offer, O & G executed an Amended and Restated Trust Indenture which consolidated the Prior Debentures into one debenture. O & G also executed a Closing Statement. The Closing Statement is O & G's certification that the information and/or representations in the Exchange Offer were true and correct, and a certification that O & G had signed the Amended and Restated Trust Indenture. The Closing Statement and the Amended and Restated Trust Indenture are both dated September 15, 2009.
Finally, O & G executed an Assignment of Drilling Contracts, Lease, Rents, Revenues and Pledge and Security Agreement (2009 Security Agreement). The 2009 Security Agreement is also dated September 15, 2009. The 2009 Security Agreement was signed by O & G and PDC. The 2009 Security Agreement states in pertinent part:
First Security Bank as Trustee's Motion for Summary Judgment, Docket No #34, Exhibit I to Affidavit of Frank Faust (Assignment of Drilling Contracts, Lease, Rents, Revenues and Pledge and Security
O & G and PDC admit that they signed the 2009 Security Agreement.
Under the terms of the 2009 Debentures, the O & G and PDC were required to begin interest-only payments on March 15, 2010. O & G and PDC failed to make the first interest payment as required by the 2009 Debenture.
On March 9, 2010, FSB filed a UCC-1 Financing Statement (2010 UCC-1 Financing Statement) with the Mississippi Secretary of State's office. The 2009 Security Agreement is described in the 2010 UCC-1. In addition, the 2010 UCC-1 Financing Statement lists as collateral: Rig #3 Drilling Equipment; Rig #14 Drilling Equipment; Rig #22 Drilling Equipment; Rig #28 Drilling Equipment; and Rig #48 Drilling Equipment.
On May 21, 2010, O & G and PDC filed separate petitions for relief under Chapter 11 of the United States Bankruptcy Code. On May 27, 2011, the Court entered an Order Directing Joint Administration of Affiliated Cases Pursuant to Rule 1015(b), which consolidated the cases into the main bankruptcy of O & G (Case No. 10-01851EE). For purposes of this opinion, the Court will refer to O & G and PDC collectively as the Debtor.
On June 6, 2011, the Debtor commenced the above-styled adversary proceeding with the filing of its Complaint for (I) Declaratory Judgment to Determine Validity, Priority and Extent of Liens, and (II) Avoidance of Preferential Transfers Under § 547 (Complaint). The Debtor seeks an adjudication that FSB's liens and security interests in the Debtor's drilling rigs are invalid because: (1) the 2009 Security Agreement lacks an adequate description of the collateral, (2) the 2010 UCC-1 Financing Statement constitutes a preferential transfer pursuant to 11 U.S.C. § 547(b),
On July 16, 2010, the Honorable Daniel P. Jordan, III, signed the Agreed Order Referring Case to Bankruptcy Court, which referred to this Court the Complaint filed by FSB against O & G, PDC, and three other defendants in the United States District Court for the Southern District of Mississippi. The referred Complaint was assigned Adversary Case Number 10-00070EE. Along with several other grounds for relief, FSB's Complaint sought a judgment against the Debtor for the total amount of the unpaid 2009 Debenture.
On April 20, 2011, First Security Bank as Trustee's Motion for Summary Judgment and corresponding brief were filed. In its motion, FSB requests the Court to enter a judgment as a matter of law that it possesses a valid, properly perfected security interest in the Debtor's five drilling rigs.
This Court has jurisdiction of the subject matter and of the parties to this proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core proceeding as defined in 28 U.S.C. § 157(b)(1) and (2)(K).
Rule 56 of the Federal Rules of Civil Procedure,
"The moving party bears the burden of showing the . . . court that there is an absence of evidence to support the non-moving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)." Hart v. Hairston, 343 F.3d 762, 764 (5th Cir.2003).
Once a motion for summary judgment is pled and properly supported, the burden shifts to the non-moving party to prove that there are genuine disputes as to material facts by "citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations, . . . admissions, interrogatory answers, or other materials."
When considering a motion for summary judgment, the court must view the pleadings and evidentiary material, and the reasonable inferences to be drawn therefrom, in the light most favorable to the nonmoving party, and the motion should be granted only where there is no genuine issue of material fact. Thatcher v. Brennan, 657 F.Supp. 6, 7 (S.D.Miss.1986), aff'd, 816 F.2d 675 (5th Cir.1987) (citing Walker v. U-Haul Co. of Miss., 734 F.2d 1068, 1070-71 (5th Cir.1984)); see also Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-88, 106 S.Ct. 1348, 1356-57, 89 L.Ed.2d 538, 553 (1986). The court must decide whether "the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986).
In a Chapter 11 case, the Debtor, as a debtor in possession, is granted the rights and duties of a trustee pursuant to § 1107. Under the strong-arm clause found in § 544, a debtor has the status of a bona fide purchaser who has a perfected lien on the assets of the debtor as of the time the case was commenced. The security interest of an unperfected creditor is defeated by the debtor's § 544 powers and is relegated to the status of an unsecured creditor. Therefore, if at the time of filing, FSB did not have a valid, properly perfected security interest in the five drilling rigs, then the lien established by § 544 would prime FSB, and FSB would be relegated to the status of an unsecured creditor.
Section 75-9-102(73) of the Mississippi Code defines a security agreement as "an agreement that creates or provides for a security interest." Miss.Code § 75-9-102(73) (1972).
Miss.Code § 75-9-203(a) & (b) (1972).
Upon a review of the pleadings which have been filed in the adversary, the Court finds that there is no dispute that value has been given and that the Debtor has rights in the collateral. The only element in dispute is the third element: whether the 2009 Security Agreement provides a description of the collateral sufficient for FSB's security interest to attach to the drilling rigs.
The sufficiency of a description is addressed in § 75-9-108. Section 75-9-108 states in pertinent part:
Miss.Code § 75-9-108(a) & (b) (1972).
"Any description of collateral is sufficient, even if it is not specific, so long as it reasonably identifies what is described. In other words, the collateral may be described in general terms. It should put a reasonably diligent person on notice that there may be a security interest in the collateral." 68A Am. Jur. 2d Secured Transactions § 176 (2003) (footnotes omitted). The Uniform Commercial Code rejects a "mandatory exact and detailed description requirement" and a description is sufficient "if it reasonably identifies what is described, whether or not the description is specific." 7A Encyclopedia of Miss. Law Secured Transactions § 66:52 (2003)
In another treatise, Corpus Juris Secundum, the commentators detail what constitutes a sufficient description in a security agreement:
79 C.J.S. Secured Transactions § 45 (June 2011) (footnotes omitted).
A security agreement is essentially a contract between the parties in which consensual liens are granted by one of the parties to secure its obligations. As with all contracts, a meeting of the minds is required.
Upon a review of the documents submitted to the Court, it is clear that there was a meeting of the minds between the Debtor and FSB as to the specific collateral the Debtor pledged to FSB in order to secure the 2009 Debenture. As stated previously, the 2009 Exchange Offer was the offer presented by the Debtor to exchange the Prior Debentures for the 2009 Debenture. On page two of the 2009 Exchange Offer, the Debtor specifically lists and identifies the five drilling rigs which secured the Prior Debentures. On page three, the Debtor then states that
In the Amended and Restated Trust Indenture, page two lists "Drilling Equipment" in the granting clause. On page 6, "Drilling Equipment" is defined as "the Rig # 3 Drilling Equipment, the Rig # 14 Drilling Equipment, the Rig # 22 Drilling Equipment, The Rig # 28 Drilling Equipment and the Rig #48 Drilling Equipment."
As stated above, the description requirement in a security agreement serves to enable the parties to identify the collateral pledged. "[I]f the parties to the agreement understand what collateral was pledged, the security interest cannot be challenged on the basis that the agreement insufficiently describes the collateral."
However, the case at bar raises an unusual situation. While the Debtor cannot challenge the description, the Debtor, as the debtor in possession, is a "third party" who is contesting the sufficiency of the description in the 2009 Security Agreement. Therefore, if the Court finds that the description is sufficient to raise a red flag to third parties that more investigation may be necessary, the description is sufficient for the attachment of the security interest.
In the case of In re Moody, the debtor asserted that the description of collateral in the security agreement he signed with Sears was legally insufficient. The description of the collateral in the security agreement stated that Sears maintained a security agreement in "all merchandise charged to the account." In reviewing Mississippi law, United States Bankruptcy Judge David W. Houston, III, held that in determining whether a description is legally sufficient, "the test is one of `reasonable identification.'" In re Moody, 62 B.R. 282, 285 (Bankr.N.D.Miss.1986). In finding that the Sears description met the test of giving reasonable identification of the collateral, Judge Houston quoted with favor from the case Costner's Furniture, Inc. v. Cawthorn (In re Cawthorn), 1 B.R. 267 (Bankr.W.D.Va.1979):
In re Moody, 62 B.R. at 285.
In a case of like posture as the case at bar, in Greenville Riverboat, LLC v. Less, Getz & Lipman, PLLC, Greenville Marine Corporation (GMC) entered into an escrow and assignment agreement with Rainbow. Rainbow also entered into a promissory note and security agreement with GMC. Subsequently, several creditors obtained judgments against Rainbow. The judgment creditors argued that the description of collateral in GMC's security agreement was insufficient to create an enforceable security interest which would prime their judgments. The description in question granted GMC a security interest in:
Greenville Riverboat, LLC v. Less, Getz & Lipman, PLLC, 131 F.Supp.2d 842, 848 (S.D.Miss.2000).
In rejecting the judgment creditors' arguments, United States District Court Judge Tom S. Lee found that the description was sufficient to identify the collateral securing the promissory note. Judge Lee further found that if a creditor reviewed the escrow agreement specifically referenced in the security agreement description, a creditor would clearly see that the promissory note was secured by an unconditional assignment by Rainbow to GMC of certain funds.
Applying the test of reasonable identification to the case at bar, the Court finds that even with Exhibit A not being attached to the 2009 Security Agreement,
The Debtor cites the case of Helms v. Certified Packaging Corp., 551 F.3d 675 (7th Cir.2008) in support of its position that the description in the 2009 Security Agreement was not sufficient to grant FSB a security interest in the drilling rigs. However, Helms is clearly distinguishable from the case at bar. In Helms, the collateral in dispute was a commercial tort claim. In holding that the description was not sufficient, the Court of Appeals for the Seventh Circuit found "[f]or many types of collateral, the description in the security agreement need only name the type of collateral ... such as accounts, equipment, and negotiable instruments." Helms, 551 F.3d at 681 (citations omitted). However, the Seventh Circuit held that the same is not true of commercial tort claims. Similar to Miss.Code § 75-9-108(e), the law in the state of Illinois provides that a description only by type of collateral is not a sufficient description of a commercial tort claim. Since the security agreement in Helms never specified the commercial tort claim, the Seventh Circuit found the description to be insufficient. Unlike Helms, the collateral in question in the case at bar is not a commercial tort claim. The 2009 Security Agreement meets the standard established by the Seventh Circuit in Helms: not only is the type of equipment listed, drilling rigs, but it goes further and states the specific numbers assigned by the Debtor to the five different rigs.
As stated previously, the Debtor asserts that when he signed the 2009 Security Agreement, the Description of Collateral Exhibit was not attached. In In re Allen, 395 F.Supp. 150 (E.D.Ill.1975), the court addressed the same fact pattern as in the case at bar: the debtor signed the security agreement before the description of collateral was attached. The Allen court held that "a careful reading of § 9-203 and the following comments indicate that a security interest is created when the requirements listed in § 9-203(1)(a), (b)
In the treatise, White & Summers UCC, the Allen case is cited with approval: "We agree that the events for attachment can happen seriatim and need occur in no particular order." 4 White & Summers, Uniform Commercial Code § 31-3, Creation and Perfection of Enforceable Article 9 Interests (6th ed. 2009) (2009 WL 3645561, 11).
Likewise, the court in In re Levine's Delicatessen & Restaurant, Inc., 53 B.R. 430, 433 (Bankr.S.D.N.Y.1985) held that a valid security agreement existed even though the schedule of collateral was attached after the security agreement had been signed by both parties. The court found that the parties intended to create a security agreement, that a writing signed by both parties existed and that there was no evidence that the description of the collateral was incorrect.
"[A] debtor's signature in blank... implicitly authorizes the creditor to complete the security agreement, according to the terms agreed to by the parties. We do not condone such a practice but we find no reason to invalidate security agreements so completed which conform to the agreement of the parties." Rempa v. LaPorte Production Credit Assoc., 444 N.E.2d 308, 313 (Ind.App.1983) (footnote omitted). "If a security agreement is signed in blank by the debtor and is completed so that it accurately reflects the parties' intent, a valid and binding security interest results." 68A Am. Jur. 2d Secured Transactions § 157 (2003).
The treatise Lawrence's Anderson on the Uniform Commercial Code addresses the situation of the description of collateral being attached after a security agreement is signed:
8A Anderson U.C.C. § 9-203:79 (3d. ed.) (2011) (footnotes omitted) (emphasis added).
The Fifth Circuit addressed a similar issue in conjunction with a deed of trust which was signed in blank in Glasscock v. Farmers Royalty Holding Co., 152 F.2d 537 (5th Cir.1945). The Fifth Circuit found that when the grantor signed the deed in blank and gave authority for the description to be added later, "such a deed, after the description has been properly filled in, would be operative to pass title." Id. at 539 (citations omitted). See In re Schick Oil & Gas, Inc., 35 B.R. 282, 286 (Bankr.W.D.Okla.1983) (valid mortgage may exist as long as bounds of authority are not breached).
The Debtor has not alleged that the Description of Collateral Exhibit which was attached to the 2009 Security Agreement sometime after the Debtor signed it does not accurately reflect the collateral it intended to give FSB a security interest in. To the contrary, in the Affidavit of Ben O. Turnage attached to Plaintiffs' Response in Opposition to First Security Bank's Motion for Summary Judgment, Mr. Turnage states
Mr. Turnage clearly acknowledges that the Debtor intended to give a security interest in the same collateral that secured the Prior Debentures, namely the five drilling rigs.
The Debtor does not allege any fraud, mistake or undue influence on the part of FSB—at no point does the Debtor state that the Description of Collateral Exhibit does not accurately reflect what the Debtor intended to give FSB as security for the 2009 Security Agreement. Since "the Uniform Commercial Code does not prescribe any sequence in which the conditions for creation of a security agreement must be met,"
In summary, the Court finds that the description of collateral found on page one of the 2009 Security Agreement is sufficient in that it reasonably describes the collateral and "gives `notice' to [the debtor in possession] who upon reasonable inquiry can determine what is, in fact, included as collateral secured thereby." In re Moody, 62 B.R. at 285. In addition, since the UCC does not prescribe any sequence to be used when creating a security interest, "the events for attachment can happen seriatim and need occur in no particular order."
As noted above, with the issuance of each series of debentures, FSB filed a UCC-1 financing statement with the Mississippi Secretary of State's office. The specific date each UCC-1 financing statement was filed and the specific security for each UCC-1 financing statement are as follows:
--------------------------------------------------------------
DATE FILED SECURITY
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September 14, 2006 Rig No. 22
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April 10, 2007 Rig No. 3
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June 19, 2008 Rig Nos. 28 & 22
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October 30, 2008 Rig Nos. 14 & 48
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March 9, 2010 Rig Nos. 3, 14, 22, 28 & 48
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The Debtor asserts that if the Court finds that the description in the 2009 Security Interest is sufficient to give FSB a valid security interest, then the 2009 Security Interest was not perfected because the 2010 UCC-1 Financing Statement should be avoided as a preference under 11 U.S.C. § 547.
Under Miss.Code § 75-9-310(a), the filing of a financing statement is required to perfect a security interest in equipment. "The creation of a security interest in property is considered a transfer for purposes of § 547(b) of the Bankruptcy Code. See 11 U.S.C. § 101(54); Superior Bank, FSB v. Boyd (In re Lewis), 398 F.3d 735, 746 (6th Cir.2005)." Moser v. JP Morgan Chase Bank, N.A. (In re Brown), 375 B.R. 348, 351 (Bankr.E.D.Tex. 2007). However, the Court must determine whether it is an avoidable transfer under § 547(b).
A concise overview of § 547 is found in the Brown opinion:
Id.
Since the 2010 UCC-1 Financing Statement was filed more than 30 days after the 2009 Security Agreement was entered into by the parties, under § 547(e)(2)(B), the transfer occurred at the time of perfection of the 2009 Security Agreement: on March 9, 2010, when the 2010 UCC-1 Financing Statement was filed. The Debtor filed bankruptcy on May 21, 2010. Therefore, there is no dispute that the transfer occurred within 90 days of the date the Debtor filed its petition.
In Cage v. Wyo-Ben, Inc. (In re Ramba), 437 F.3d 457 (5th Cir.2006), the Court of Appeals for the Fifth Circuit held that in order to be a voidable preference, the transfer must have depleted the bankruptcy estate. In Ramba, a creditor's security interest fully encumbered the debtor's assets; that is, the fair market value of the debtor's collateral was less than the amount owed, therefore the debtor had no equity in the collateral. The Fifth Circuit found that since there was no equity in the collateral, "[the debtor] had no interest in the transferred property other than bare legal title." Id. at 461. Further, in order for a transfer to be avoidable, "a voidable preference must have depleted the estate." Id. at 460. Consequently, the Fifth Circuit found that the transfer did not deplete the estate and was not voidable. See 5 Collier on Bankruptcy ¶ 547.03[2] (15th ed.
After discussing the Fifth Circuit's holding in Ramba, the bankruptcy court in Brown found that the debtor's refinancing of the original loan amount of his mortgage and the subsequent perfection of the original loan amount of the mortgage did not result in a diminution of the debtor's estate, and therefore, the refinancing of the mortgage was not a preference under § 547.
In George v. Guaranty Mortgage Company, Inc. (In re Ljubic), 362 B.R. 914 (Bankr.E.D.Wisc.2007), Shelter Mortgage Company (Shelter) (predecessor in interest to Guaranty Mortgage Company) held two mortgages on the debtor's property. The debtor refinanced his two Shelter mortgages into one mortgage. Within 90 days of the deed being recorded, the debtor filed bankruptcy. The trustee attempted to set aside the Shelter refinanced mortgage. In finding that the Shelter refinanced mortgage was not a preference, the court held:
In re Ljubic, 362 B.R. at 921.
Likewise, Judge Keith M. Lundin of the United States Bankruptcy Court for the Middle District of Tennessee found that the refinancing of a vehicle did not diminish the debtor's estate, and therefore, was not a voidable preference. "At no time during the preference period could any creditor have prevailed over the interest held by [the creditor]. The pickup was fully encumbered with no value available for the benefit of the estate. The refinancing lien lacked preferential effect for § 547 purposes." Gregory v. Community Credit Co., (In re Biggers), 249 B.R. 873, 878-79 (Bankr.M.D.Tenn.2000).
Applying the holdings of Ramba, Brown, Ljubic and Biggers to the case at bar, the Court finds that the filing of the 2010 UCC-1 Financing Statement in order to perfect the 2009 Security Agreement is not a voidable transfer because it did not result in a diminution or depletion of the Debtor's estate. In its Complaint, the Debtor admits that "[e]ach series of Prior Debentures was issued under a particular trust indenture, ... was secured by independent collateral (the particular rig financed) and contained varying revenue pledges and payment terms."
As further evidence that the Debtor's estate was not diminished or depleted as a result of the 2009 Security Agreement, the combined amount owed on the Prior Debentures totaled $37,485,000.00. The 2009 Debenture was issued in the total amount of $33,565,000.00. Since the amount of the 2009 Debenture was less than what the Debtor owed for all of the Prior Debentures combined, the 2009 Debenture and 2009 Security Agreement did not improve FSB's position and did not diminish the expectations of the Debtor's other creditors.
Since the Debtor's estate has not been diminished or depleted, the filing of the 2010 UCC-1 Financing Statement is not a voidable preference. The Debtor cannot meet the requirement of § 547(b)(5) to show that FSB would receive a larger share of the Debtor's estate as a result of the transfer than it would receive had the transfer not been made.
Additionally, the filing of the 2010 UCC-1 Financing Statement is not a voidable preference because it does not meet the standards for a new transfer under § 547(e)(1)(B). Section 547(e)(1)(B) states that for the purposes of § 547, "a transfer of ... property other than real property is perfected when a creditor on a simple contract cannot acquire a judicial lien that is superior to the interest of the transferee." 11 U.S.C. § 547(e)(1)(B). Therefore, if a transfer does not take value away from or diminish a debtor's estate, it cannot be a transfer within reach of § 547. As listed above, FSB duly filed Prior UCC-1 Financing Statements after each Prior Debenture was issued. These four Prior UCC-1 Financing Statements perfected FSB's interest in the Debtor's five drilling rigs. Pursuant to Miss.Code § 75-9-515(a) a financing statement is effective for a period of five (5) years after the date of filing. Since the four Prior UCC-1 Financing Statements had not been terminated, they were valid and of record at the time the Debtor filed its petition and there was no break in the perfection of FSB's security interest in the five drilling rigs.
The Court will note that no evidence has been presented to show that the Debtor demanded that FSB file UCC-3 termination statements. Some courts have held that the failure of a debtor to demand that the creditor file termination statements may be evidence of the debtor's intention that the creditor's security interest in the collateral was to continue. See 68A Am. Jur. 2d Secured Transactions § 399 (2003); Safe Deposit Bank and Trust Co. v. Berman (In re Fernandes Welding & Equipment Service, Inc.), 393 F.2d 401, 403 (1st Cir.1968).
"The renewal of a lien or security interest is not a new transfer within the meaning of section 547 if it merely continues an existing interest; it does not diminish the collection of assets to be distributed among the general creditors." In re Wind Power Systems, 841 F.2d at 292.
The Supreme Court of Mississippi recently addressed the issue of what constitutes a novation. In Harris v. Griffith Water Well, 26 So.3d 338 (Miss.2010), the court held: The Restatement of Contracts defines novation as a contract that
Harris, 26 So.3d at 341.
"[A] novation may occur where the debt remains the same, but a new debtor is substituted. In such event, the original debtor is acquitted, his obligation is extinguished, and the creditor contends himself with the obligation of the second debtor. The parties must intend novation for novation to be accomplished." Mississippi Insurance Guaranty Assoc. v. MS Casualty Insurance Co., 947 So.2d 865, 871 (Miss.2006) (citations omitted). In addition, in order for a novation to occur, the creditor must assent, either directly or implied, to the novation. Id.
Applying these factors to the case at bar, it is clear that a novation did not occur because the Debtor was never discharged from the previous contractual duty. FSB never filed UCC-3 terminating statements to terminate its perfected interest in the Debtor's drilling rigs. See United Display & Box, Inc. v. Midlantic Bank (In re United Display & Box, Inc.), 198 B.R. 829, 831 (Bankr.M.D.Fla.1996). In the Exchange Offer, the Debtor states that the five drilling rigs were pledged under the Prior Debentures. The Exchange Offer then expressly states that "[O & G] is proposing a unified structure pursuant to which all five (5) of the rigs shown above (Rigs 3, 14, 22, 28 and 48) and all of the Gross Pledgable Revenues from all of the rigs will be used as collateral and the payment source for the Series 2009 Debentures...."
In addition, a novation did not occur because the parties to the Prior Debentures and the 2009 Security Agreement never changed. According to the Debtor, FSB desired to obtain additional parties as guarantors on the 2009 Debenture, but FSB failed to obtain their signatures. Indeed, in its Complaint, the Debtor acknowledges that no other entity was a party: "The terms of the 2009 Indenture only apply to O & G, as issuer, and the Defendant Trustee [FSB], not SAJAC or PDC."
In its Complaint, the Debtor alleges that FSB does not have a valid security interest in the Debtor's five drilling rigs, (1) because the description of the drilling rigs in the 2009 Security Agreement is insufficient under Mississippi Law to allow the security interest to attach to them and (2) because the Description of Collateral Exhibit was not attached to the 2009 Security Agreement until after the Debtor signed it. Even without the Description of Collateral Exhibit being attached, the Court finds that the 2009 Security Agreement, because it specifically lists the five drilling rigs on page one, reasonably identifies the collateral in order to give notice to third parties.
Further, the fact that the Description of Collateral Exhibit was attached to the 2009 Security Agreement after it was signed by the Debtor does not invalidate FSB's security interest. Regardless of the order they are completed, as long as the security agreement satisfies all of the elements under Miss.Code § 75-9-203, the security interest attaches to the collateral. Since there is no dispute that value was given and that the Debtor had rights in the collateral, either the description on page one is a sufficient description to reasonably identify the collateral or the attachment of the Description of Collateral Exhibit after the Debtor signed the 2009 Security Agreement is a sufficient description to reasonably identify the collateral—either way, the three elements of Miss.Code § 75-9-203 were met and the security interest attached to the five drilling rigs.
Since the Debtor's estate has not been diminished or depleted, the filing of the 2010 UCC-1 Financing Statement cannot be set aside as a preference. Finally, the 2009 Debenture was not a novation under Mississippi law since the Debtor was never released of its obligations to FSB and since no new parties were added.
The Debtor has not shown the existence of any "disputes over facts that might affect the outcome of the suit under the governing law [in order to] properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). A dispute about a material fact is genuine if a reasonable jury could return a verdict for the non-moving party based on the applicable law in relation to the evidence presented. Id. at 249, 106 S.Ct. 2505. Applying these standards as established by the Supreme Court, the Court finds that there is no dispute as to any material fact and that judgment should be granted in favor of FSB as a matter of law that FSB possesses a valid, properly perfected security interest in the Debtor's five drilling rigs. In the Complaint FSB originally filed in the United States District Court, FSB sought a judgment against the Debtor for the total amount owed on the 2009 Debenture. In addition, FSB sought the appointment of a special commissioner to conduct a foreclosure sale on the assets of the Debtor, the appointment of a receiver and a judgment for costs and attorney fees. The Court notes that these issues may not be appropriate for adjudication in the above-styled adversary proceeding. It would appear that they are issues which would be more appropriately determined in the main case as contested matters rather than in this
A separate judgment consistent with this opinion will be entered in accordance with Rules 7054 and 9021 of the Federal Rules of Bankruptcy Procedure.
