Semark, Associates, LLC v. RCL, LLC ( 2019 )

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NON-PRECEDENTIAL DECISION - SEE SUPERIOR COURT I.O.P. 65.37
SEMARK ASSOCIATES, LLC : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
Appellant :
:
:
v. :
:
:
RCL, LLC : No. 2576 EDA 2018
Appeal from the Order Entered July 26, 2018
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): 3432 April Term 2017
BEFORE: BENDER, P.J.E., OTT, J., and FORD ELLIOTT, P.J.E.
MEMORANDUM BY OTT, J.: FILED MARCH 20, 2019
Semark Associates, LLC (“Semark”) appeals from the order entered July
26, 2018, granting summary judgment in favor of RCL, LLC (“RCL”), in this
declaratory judgment action concerning the priority of interests as to a liquor
license. On appeal, Semark argues the trial court erred as a matter of law
when it determined that RCL’s security interest in the liquor license had
priority over Semark’s security interest. For the reasons below, we reverse
the order granting summary judgment and remand for further proceedings.
The facts underlying Semark’s claim are well-known to the parties and
set forth in detail in the trial court’s July 26, 2018, opinion, accompanying its
order granting RCL’s motion for summary judgment. See Trial Court Opinion,
7/26/2018, at 1-5. In summary, Semark is the owner of a property on North
3rd Street in Philadelphia, which a prior tenant operated as a bar restaurant.
When that tenant defaulted, it agreed to sell its liquor license to Semark in
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exchange for $20,000.00. On October 23, 2015, Semark entered into a
written lease agreement for the property with Razz, LLC (“Razz”). On October
29, 2015, Semark also assigned its rights and interest in the liquor license
(which was under contract with the prior tenant) to Razz for the amount of
$150,000.00, pending approval by the Pennsylvania Liquor Control Board
(“PLCB”). The assignment was secured by a promissory note. Both the lease
and the assignment provided Semark with a security interest in the liquor
license, as well as the right to repurchase the liquor license upon Razz’s default
for the amount of $1.00. Both documents also specifically stated that Semark
“may perfect its lien by filing a financing statement (form UCC-1)[.]” Lease
Agreement, 10/23/2015, at ¶ 8/2(d); Assignment-Liquor License,
10/29/2015, at ¶ 12.
The PLCB conditionally approved the transfer of the liquor license on
December 8, 2015. The Certificate of Approval and Letter of Authority
provided, in relevant part: (1) the Board had “conditionally approve[d] the
license application for transfer[;]” (2) an attached “Certification of
Completion” had to be executed and returned to the Board “affirming the
financial arrangements were completed as reported[;]” (3) the letter
authorized the transferee (Razz) to sell liquor for 30 days; and (4) “failure to
conclude settlement within 30 days of the date of [the] letter may result in
the approval being rescinded.” Certificate of Approval & Letter of Authority
12/8/2015. Attached to the Certificate of Approval was a Certification of
Completion that stated it must be completed and submitted to the PLCB within
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15 days of settlement. See Certification of Completion. The record does not
reveal when, or if, the certification of completion was executed.
The following day, however, December 9, 2015, before Semark filed a
UCC-1 statement, Razz entered into an installment judgment note with RCL,
whereby RCL agreed to loan Razz $50,000.00, with the liquor license serving
as partial collateral. Razz and RCL also entered into a Security Agreement, in
which Razz granted RCL a security interest in the liquor license, and
represented that it was clear and free from other encumbrances. That same
day, RCL filed a UCC-1 financing statement to perfect its security interest in
the liquor license. Semark filed its UCC-1 statement on December 18, 2015.
When Razz subsequently defaulted on its rent, Semark confessed judgment
for possession and money damages on December 29, 2016. During the
eviction process, Semark first discovered the financing agreement Razz
entered into with RCL. Thereafter, on April 24, 2017, Semark filed this
declaratory judgment action seeking a determination of the parties’ competing
security interests in the liquor license. Both parties later filed cross-motions
for summary judgment. On July 26, 2018, the trial court entered an order
and accompanying opinion, denying Semark’s motion for summary judgment,
and granting RCL’s motion for summary judgment. This timely appeal
followed.1
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1 The trial court did not order Semark to file a concise statement of errors
complained of on appeal pursuant to Pa.R.A.P. 1925(b).
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When considering the propriety of an order granting summary
judgment, we are guided by the following:
Summary judgment is appropriate where the record clearly
demonstrates there is no genuine issue of material fact and the
moving party is entitled to judgment as a matter of law. Atcovitz
v. Gulph Mills Tennis Club, Inc., 571 Pa. 580, 812 A.2d 1218,
1221 (2002); Pa. R.C.P. No. 1035.2(1). When considering a
motion for summary judgment, the trial court must take all facts
of record and reasonable inferences therefrom in a light most
favorable to the non-moving party. Toy[ v. Metropolitan Life
Ins. Co.], 928 A.2d [186,] 195 [(Pa. 2007)]. Whether there are
no genuine issues as to any material fact presents a question of
law, and therefore, our standard of review is de novo and our
scope of review plenary. Weaver v. Lancaster Newspapers,
Inc., 592 Pa. 458, 926 A.2d 899, 902–03 (2007).
Estate of Agnew v. Ross, 152 A.3d 247, 259 (Pa. 2017).
The only issue in this appeal is which party’s security interest in the
liquor license takes priority. Pursuant to Section 9203 of the Uniform
Commercial Code, the following three elements must be met for the
attachment of a valid security interest:
(1) the debtor must have signed a security agreement with a
description of the collateral or the secured party must have
possession of the collateral; (2) the secured party must have
given the debtor value for the collateral secured; and (3) the
debtor must have rights in the collateral.
Commercial Nat. Bank, of Pennsylvania v. Seubert & Assocs., Inc., 807
A.2d 297, 304–305 (Pa. Super. 2002), appeal denied, 822 A.2d 704 (Pa.
2003). See 13 Pa.C.S. § 9203. After attachment, Section 9322 sets forth the
basis for determining priority among conflicting security interests: “Priority
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dates from the earlier of the time a filing covering the collateral is first made
or the security interest … is first perfected[.]” 13 Pa.C.S. § 9322(a)(1).
Semark concedes RCL gave value to Razz in the form of a $50,000, loan,
and Razz “executed a security agreement in [RCL’s] favor” with regard to the
liquor license. Semark’s Brief at 13. Accordingly, Semark states the issue in
this appeal is “the debtor’s rights in the collateral.” Id. Although Semark
acknowledges RCL filed its UCC-1 financing statement before Semark, it
insists the security interest Razz granted to RCL was subject to Semark’s right
to repurchase the license. See id. at 14. Indeed, Semark maintains “[t]he
issue is not one of priority but rather a question of what rights [RCL] has in
the License by virtue of the security interest given by Razz.” Id. at 16.
Because Razz’s rights were subject to Semark’s right to repurchase, Semark
argues RCL’s rights in the liquor license were encumbered as well.
The trial court found both Semark and RCL have “valid security interests
in the liquor license.” Trial Court Opinion, 7/26/2018, at 6. However, the
court concluded RCL perfected its security interest first by filing a UCC-1
financing statement before Semark filed its UCC-1 financing statement. See
id. at 8. Consequently, the trial court determined “RCL’s security interest in
the liquor license has priority over Semark’s security interest in the liquor
license.” Id.
However, the court’s ruling is dependent upon a determination that Razz
had valid rights in the liquor license on December 9, 2015, the day RCL filed
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its financing statement. Our review of the record reveals a factual question
as to when Razz’s rights in the liquor license were perfected.
As the trial court explained in its opinion, the PLCB approved a
conditional transfer of the liquor license from the prior tenant to Razz on
December 8, 2015. See Trial Court Opinion, 7/26/2018, at 3. The court noted
the transfer was subject to certain conditions, specifically, “the execution and
return to the PLCB of a Certification of Completion affirming financial
arrangements[,]” which was to be submitted within 15 days of settlement.
Id. However, the trial court observed a completed Certification of Completion
was not included in the certified record. See id. at 3 n. 11. Furthermore,
although Semark averred in its motion for summary judgment that the
transfer of the liquor license was not approved until December 18, 2015,2 the
trial court found Semark did “not cite any evidence to support this statement.”
Id. Rather, the trial court determined the “record evidence shows that the
PLCB approved the transfer of the liquor license to Razz on December 8,
201[5].” Id. at 6 n. 25. The court further found:
While certain items were required by the PLCB to be submitted
before the transfer became permanent, Razz did have rights in
the liquor license at the time the Installment Judgment Note and
security agreement was entered into with RCL which could be
attached. A debtor’s limited rights in collateral, short of full
ownership, are sufficient for a security interest to attach. See, 13
Pa.C.S.A. § 9203 comment 6.
Id.
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2 See Semark’s Motion for Summary Judgment, 3/16/2018, at ¶ 13.
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Here, the record reveals a material factual dispute, that is, the date
when Razz acquired rights in the liquor license sufficient to pledge the license
as collateral for its loan from RCL. Although Razz received conditional
approval of the license transfer on December 8, 2015, that approval was
contingent upon proof of settlement and a completed Certification of
Approval. See Certificate of Approval & Letter of Authority, 12/8/2015. The
regulations adopted pursuant to the Liquor Code3 provide that if an application
to the PLCB concerns the transfer of a liquor license, “the letter of authority
shall be effective upon completion of the underlying financial transaction.” 40
Pa.Code § 3.8(a). See Certificate of Approval & Letter of Authority, 12/8/2015
(“Failure to conclude settlement within 30 days of the date of this
letter may result in the approval being rescinded.”) (emphasis supplied).
The Code further explains the certification of completion must “be signed by
the transferor and the transferee[,]” and that the “[f]ailure to submit a
properly executed certificate of completion may void the approval.”
Id. (emphasis supplied). See also Certification of Completion (stating, “A
copy of this completed form must be attached to the ‘Certificate of Approval’
issued by the PLCB’s Bureau of Licensing to initiate temporary operating
authority.”).
We conclude the record contains a genuine issue of material fact as to
when Razz obtained non-voidable rights in the liquor license, pursuant to
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3 40 Pa. Code §§ 1.1-17.41.
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Section 3.8 of the Liquor Code regulations, such that a security interest would
attach under the Section 9203 of the UCC. Accordingly, we reverse the order
granting summary judgment and remand for further proceedings.
Order reversed. Case remanded for further proceedings. Jurisdiction
relinquished.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 3/20/19
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