COMMITTEE SUBSTITUTE

FOR

Senate Bill No. 426

(By Senator Snyder)

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[Originating in the Committee on Interstate Cooperation;

reported March 14, 2013.]

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A BILL to amend and reenact §46-9-510, §46-9-516 and §46-9-521 of the Code of West Virginia, 1931, as amended; and to amend said code by adding thereto a new section, designated §46-9-516a, all relating to amending the Uniform Commercial Code as to secured transactions; providing for the effectiveness of filed records; creating additional authority to refuse to accept a record for filing; creating circumstances under which a record filing is false; providing criminal penalties for filing or attempting to file a false record; providing civil penalties for filing or attempting to file a false record; setting forth an administrative procedure initiated by the Secretary of State or a person identified as a debtor on a record; requiring party to an adverse administrative decision by the Secretary of State to file action in Kanawha County Circuit Court if the party wishes to have the Secretary of State’s decision reversed; exempting the filing office and its employees from liability; exempting filings by a regulated financial institution or its representatives from certain provisions; and clarifying the applicability of provisions to records filed prior to the effective date of this article.

Be it enacted by the Legislature of West Virginia:

    That §46-9-510, §46-9-516 and §46-9-521 of the Code of West Virginia, 1931, as amended, be amended and reenacted; and that said code be amended by adding thereto a new section, designated §46-9-516a, all to read as follows:

ARTICLE 9. SECURED TRANSACTIONS; SALES OF ACCOUNTS AND CHATTEL PAPER.

§46-9-510. Effectiveness of filed record.

    (a) Filed record effective if authorized.-- A filed record is effective only to the extent that it was filed by a person that may file it under section 9-509. section five hundred nine of this article.

    (b) Authorization by one secured party of record.-- A record authorized by one secured party of record does not affect the financing statement with respect to another secured party of record.

    (c) Continuation statement not timely filed.-- A continuation statement that is not filed within the six-month period prescribed by section 9-515(d) subsection (d), section five hundred fifteen of this article is ineffective.

    (d) A filed record ceases to be effective if the filing office terminates the record pursuant to section five hundred sixteen-a of this article.

§46-9-516. What constitutes filing; effectiveness of filing.

    (a) What constitutes filing. -- Except as otherwise provided in subsection (b) of this section, communication of a record to a filing office and tender of the filing fee or acceptance of the record by the filing office constitutes filing.

    (b) Refusal to accept record; filing does not occur. -- Filing does not occur with respect to a record that a filing office refuses to accept because:

    (1) The record is not communicated by a method or medium of communication authorized by the filing office;

    (2) An amount equal to or greater than the applicable filing fee is not tendered;

    (3) The filing office is unable to index the record because:

    (A) In the case of an initial financing statement, the record does not provide a name for the debtor;

    (B) In the case of an amendment or information statement, the record:

    (i) Does not identify the initial financing statement as required by 9-512 or 9-518, section five hundred twelve or section five hundred eighteen of this article, as applicable; or

    (ii) Identifies an initial financing statement whose effectiveness has lapsed under section 9-515; five hundred fifteen of this article; or

    (iii) Identifies an initial financing statement which was terminated pursuant to section five hundred sixteen-a of this article;

    (C) In the case of an initial financing statement that provides the name of a debtor identified as an individual or an amendment that provides a name of a debtor identified as an individual which was not previously provided in the financing statement to which the record relates, the record does not identify the debtor’s surname; or

    (D) In the case of a record filed or recorded in the filing office described in section 9-501(a)(1), subdivision (1), subsection (a), section five hundred one of this article, the record does not provide a sufficient description of the real property to which it relates; or

    (E) In the case of a record submitted to the filing office described in subdivision (1), subsection (a), section five hundred one of this article, the filing office has reason to believe, from information contained in the record or from the person that communicated the record to the office, that:

    (i) If the record indicates that the debtor is a transmitting utility, the debtor does not meet the definition of a transmitting utility as described in subdivision (81), subsection (a), section one hundred two of this article;

    (ii) If the record indicates that the transaction relating to the record is a manufactured home transaction, the transaction does not meet the definition of a manufactured home transaction as described in subdivision (54), subsection (a), section one hundred two of this article; or

    (iii) If the record indicates that the transaction relating to the record is a public finance transaction, the transaction does not meet the definition of a public finance transaction as described in subdivision (70), subsection (a), section one hundred two of this article;

    (4) In the case of an initial financing statement or an amendment, if the filing office believes in good faith that the record was communicated to the filing office in violation of section five hundred sixteen-a of this article;

    (4) (5) In the case of an initial financing statement or an amendment that adds a secured party of record, the record does not provide a name and mailing address for the secured party of record;

    (5) (6) In the case of an initial financing statement or an amendment that provides a name of a debtor which was not previously provided in the financing statement to which the amendment relates, the record does not:

    (A) Provide a mailing address for the debtor;

    (B) Indicate whether the name provided as the name of the debtor is the name of an individual or an organization;

    (6) (7) In the case of an assignment reflected in an initial financing statement under section 9-514(a) subsection (a), section five hundred fourteen of this article or an amendment filed under section 9-514(b), subsection (b), section five hundred fourteen of this article, the record does not provide a name and mailing address for the assignee; or

    (7) (8) In the case of a continuation statement, the record is not filed within the six-month period prescribed by section 9-515(d). subsection (d), section five hundred fifteen of this article.

    (c) Rules applicable to subsection (b). -- For purposes of subsection (b):

    (1) A record does not provide information if the filing office is unable to read or decipher the information; and

    (2) A record that does not indicate that it is an amendment or identify an initial financing statement to which it relates, as required by section 9-512, 9-514 or 9-518, sections five hundred twelve, five hundred fourteen or five hundred eighteen of this article, is an initial financing statement.

    (d) Refusal to accept record; record effective as filed record. -- A record that is communicated to the filing office with tender of the filing fee, but which the filing office refuses to accept for a reason other than one set forth in subsection (b) of this section, is effective as a filed record except as against a purchaser of the collateral which gives value in reasonable reliance upon the absence of the record from the files.

    (e) Administrative review. --If the Secretary of State determines that a financing statement which identities a public official or employee as a debtor is fraudulent or that an individual debtor and an individual secured party would appear to be the same individual on the financing statement or that the individual debtor claims to be a transmitting utility, without supporting documents, the Secretary may commence administrative proceedings to remove the statement from its records in accordance with the provisions of article five, chapter twenty-nine-a of this code.

    (1) Upon the commencement of proceedings pursuant to this subsection, the Secretary of State shall identify the financing statement in its records as subject to administrative review and publish a notice in the West Virginia Register regarding the proceedings.

    (2) A financing statement may be found to be fraudulent only if, based upon clear and convincing evidence, no good faith basis exists upon which to conclude that the secured party was authorized to file the statement and the statement was submitted for the purpose of harassment or intimidation or fraudulent intent of the alleged debtor.

    (3) If upon the completion of administrative review, it is determined that the filing of a financing statement was fraudulent, the filing party shall be assessed all costs incurred by the Secretary in reaching a final determination, including reimbursement for all costs of the hearing. The filing party may also be subject to a civil penalty not exceeding $500 per fraudulent filing. If upon completion of administrative review or any subsequent appeal of a decision of the Secretary of State, it is determined that a filing subject to appeal is not fraudulent, the secretary or court may award the prevailing party reasonable costs and expenses, including attorney fees.

    (4) The Secretary of State shall annually submit a report to the Legislature regarding actions taken against fraudulent filings pursuant to this section which identifies the number and characteristics of such proceedings, identifies any creditors found to have made fraudulent filings, describes proceedings initiated by the secretary in which it is ultimately determined that fraudulent filings did not occur, describes the number and type of complaints received by the secretary in which it is alleged that fraudulent filings have occurred, and describes the actions taken by the secretary to investigate complaints concerning allegedly fraudulent filings and the results of the investigations.

    (5) A decision by the secretary to remove a financing statement determined to have been fraudulently filed subject to appeal de novo to the circuit court of Kanawha County. Pending the outcome of an appeal, the financing statement may not be removed from the records of the Secretary, but shall be identified in the records as having been adjudicated to be fraudulent, subject to a pending appeal by the putative creditor.

    (6) A financing statement filed by a regulated financial institution is not subject to the provisions of this section. For the purposes of this section, a regulated financial institution is a bank, bank and trust company, trust company, savings bank, savings association, building and loan association, credit union, consumer finance company, insurance company, investment company, mortgage lender or broker, securities broker, dealer or underwriter, or other institution chartered, licensed, registered or otherwise authorized under federal law, the law of this state or any other state, to engage in secured lending.

§46-9-516a. Filing fraudulent records; civil and criminal penalties; administrative proceedings; immunity from liability.

    (a) No person may cause to be communicated to the filing office for filing a false record the person knows or reasonably should know:

    (1) Is not authorized or permitted under sections five hundred nine, seven hundred eight or eight hundred eight of this article;    (2) Is not related to a valid existing or potential commercial or financial transaction, an existing agricultural or other lien or a judgment of a court of competent jurisdiction; and

    (3) Is filed with the intent to harass or defraud the person identified as debtor in the record or any other person.

    (b) Any person who violates subsection (a) of this section shall, for a first offense, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not less than $100 nor more than $1000 or, in the discretion of the court, be confined in jail not more than twelve months, or both fined and confined. Any person who violates subsection (a) of this section shall, for a second or subsequent offense, be guilty of a felony and, upon conviction thereof, shall be imprisoned in a state correctional facility not less than one nor more than five years.

    (c) Any person who violates subsection (a) of this section is liable in a civil action to each injured person for:

    (1) The greater of the actual damages caused by the violation or up to $10,000 in lieu of actual damages;

    (2) Reasonable attorney fees;

    (3) Court costs and other related expenses of bringing an action including reasonable investigative expenses; and

    (4) In the discretion of the court, punitive damages in an amount determined by the court or jury.

    (d) A person identified as a debtor in a filed record the person believes was caused to be communicated to the filing office in violation of subsection (a) of this section may, under penalty of perjury, file with the Secretary of State an affidavit to that effect. The Secretary of State shall adopt and make available a form affidavit for use under this section.

    (e) Upon receipt of an affidavit filed under this section, or upon administrative action by the Secretary of State, the Secretary of State shall communicate to the secured party of record on the record to which the affidavit or administrative action relates and to the person who communicated the record to the filing office, if different and known to the office, a request for additional documentation supporting the effectiveness of the record. The Secretary of State shall review all such documentation received within thirty days after the first request for additional documentation is sent if the Secretary of State has a reasonable basis for concluding that the record was communicated to the filing office in violation of subsection (a) of this section.

    The Secretary of State may initiate an administrative action under this subsection with regard to a filed record if the Secretary of State has reason to believe, from information contained in the record or obtained from the person who communicated the record to the filing office, that the record was communicated to the filing office in violation of subsection (a) of this section. The Secretary of State may give heightened scrutiny to a record that indicates the debtor is a transmitting utility or that indicates the transaction to which the record relates is a manufactured home transaction or a public finance transaction.

    (f) The Secretary of State may not charge a fee to file an affidavit under this section and may not return a fee paid for filing a record terminated under this section.

    (g) The Secretary of State shall promptly communicate to the secured party of record a notice of the termination of a record under subsection (e) of this section. A secured party of record who believes in good faith that the record was not communicated to the filing office in violation of subsection (a) of this section may file an action to require that the record be reinstated by the filing office. A person who communicated a record to the filing office that the filing office rejected in reliance on subdivision (4), subsection (b), section five hundred sixteen of this article, who believes in good faith that the record was not communicated to the filing office in violation of subdivision (4), subsection (b), section five hundred sixteen of this article, may file an action to require that the record be accepted by the filing office. The jurisdiction for the action is the circuit court of Kanawha County.

    (h) If the court determines that a record terminated under this section or rejected in reliance on subdivision (4), subsection (b), section five hundred sixteen of this article should be reinstated or accepted, the court shall provide a copy of an order to that effect to the Secretary of State. On receipt of an order reinstating a terminated record, the Secretary of State shall refile the record along with a notice indicating that the record was refiled pursuant to this section and its initial filing date. On receipt of an order requiring that a rejected record be accepted, the Secretary of State shall promptly file the record along with a notice indicating that the record was filed pursuant to this section and the date on which it was communicated for filing. A rejected record that is filed pursuant to an order of a court shall have the effect described in subsection (d), section five hundred sixteen of this article for a record the filing office refuses to accept for a reason other than one set forth in subsection (b), section five hundred sixteen of this article.

    (i) A terminated record that is refiled under subsection (h) of this section is effective as a filed record from the initial filing date. If the period of effectiveness of a refiled record would have lapsed during the period of termination, the secured party may file a continuation statement within thirty days after the record is refiled and the continuation statement has the same effect as if it had been filed during the six-month period described in subsection (d), section five hundred fifteen of this article. A refiled record is considered never to have been ineffective against all persons and for all purposes except that it is not effective as against a purchaser of the collateral that gave value in reasonable reliance on the absence of the record from the files.

    (j) Neither the filing office nor any of its employees incur liability for the termination or failure to accept a record for filing in the lawful performance of the duties of the office or employee.

    (k) This section does not apply to a record communicated to the filing office by a regulated financial institution or by a representative of a regulated financial institution, except that the Secretary of State may request from the secured party of record on the record or from the person that communicated the record to the filing office, if different and known to the office, additional documentation supporting that the record was communicated to the filing office by a regulated financial institution or by a representative of a regulated financial institution. For the purposes of this section the term “regulated financial institution” means a financial institution subject to regulatory oversight or examination by a state or federal agency and includes banks, savings banks, savings associations, building and loan associations, credit unions, consumer finance companies, industrial banks, industrial loan companies, investment funds, installment sellers, mortgage servicers, sales finance companies and leasing companies.

    (l) If a record was communicated to the filing office for filing before the effective date of this section, and its communication would have constituted a violation of subsection (a) of this section if it had occurred on or after the effective date of this section:

    (i) Subsections (b) and (c) are not applicable; and

    (ii) The remaining subsections of this section are applicable.

§46-9-521. Written financing statement and amendment thereto.

    (a) Initial financing statement. -- A filing office that accepts written records may not refuse to accept a written initial financing statement in the following form and format except for a reason set forth in section 9-516(b): subsection (b), section five hundred sixteen of this article: Provided, That the written record must be on the most recent revision of the appropriate form as approved by the International Association of Commercial Administrators.

    (b) Amended financing statement. -- A filing office that accepts written records may not refuse to accept an amended written record in the following form and format except for a reason set forth in section 9-516(b): subsection (b), section five hundred sixteen of this article: Provided, That the written record must be on the most recent revision of the appropriate form as approved by the International Association of Commercial Administrators.

    NOTE: The purpose of this bill relates to filings under the Uniform Commercial Code as to secured transactions. The bill clarifies false or fraudulent filings, provides civil and criminal penalties for such filings and provides administrative and legal recourse for such filings.

    §46-9-516a is new; therefore, strike-throughs and underscoring have been omitted.

    Strike-throughs indicate language that would be stricken from the present law and underscoring indicates new language that would be added.