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In re E.S.M. Government Securities, Inc.
Citations: 56 B.R. 789; 1986 U.S. Dist. LEXIS 30104Docket: Civ. No. 85-6254
Court: District Court, S.D. Florida; January 22, 1986; Federal District Court
The court has ruled on the Trustee’s Objection to the Allowance of Claim by Resource Management. The Trustee's objection is sustained, resulting in the denial of Resource's customer and secured claims. The court found that the relevant facts, as detailed in the parties’ Joint Stipulations, are undisputed. Resource Management engaged in transactions with E.S.M., which involved the sale of GNMA securities for $420,000 less than the stated repurchase price. The Trustee objected to any claims regarding this shortfall, arguing that Resource did not meet the "customer" classification because E.S.M. neither received nor held GNMA securities or cash from Resource. The court agreed, stating that Resource's interest constituted unperfected security interests which are voidable. Under U.S.C. Section 741(2)(A), a "customer" is defined as an entity that has entrusted securities to a debtor, which triggers enhanced protections. Resource admitted it did not entrust GNMAs to E.S.M. but argued that its claim should still be recognized under Section 741(2)(A)(v) as collateral. The court clarified that mere retention of payments by E.S.M. does not equate to the entrustment of securities necessary for customer status. Furthermore, Resource's claim to the accrued principal and interest does not elevate its status to that of a secured creditor because it failed to file a U.C.C. financing statement to protect its security interest in general intangibles, defined under U.C.C. 9-106. Therefore, the claim is classified as an unperfected security interest and is voidable by the Trustee. The order concludes with the court sustaining the Trustee’s objection and denying Resource Management’s claim as a secured creditor, classifying it instead as an unsecured security interest subject to the Trustee's discretion. New York law applies to this case, and the relevant U.C.C. sections are consistent with New York's Uniform Commercial Code.