Court Rejects Plaintiffs’ Reliance On A Security Agreement’s Contractual Venue Provision Allowing Actions In The Jurisdiction Of The Loan’s Collateral

On July 10, 2024, Justice Joel M. Cohen dismissed a lawsuit that two borrowers had filed in New York in an attempt to restrain a UCC sale of collateral located in the state, writing that only the secured party could avail itself of the relevant venue provision. In Zoey Paint Corp., et al. v. Commercial Credit Group, Inc., et al., Index No. 651989/2024, the loan and security agreements executed by the parties contained a provision designating North Carolina as the exclusive venue for any actions relating to the agreements. However, the venue provision contained an exception clause allowing “an action to recover possession of all or part of the collateral” in the state having jurisdiction over such collateral “in the sole discretion of the holder/secured party.” The Court interpreted this language to mean that only the secured party could bring a lawsuit outside North Carolina. It explained:

Plaintiffs’ attempt to avail itself of the venue provision’s exception permitting an action to recover the collateral to be brought in any jurisdiction that has jurisdiction over the collateral or in which the collateral is located is unavailing. That exception – assuming it applies on its terms – may be invoked “in the sole discretion” of CCG, not Plaintiffs. The exception does not permit Plaintiffs to bring suit in New York.

The attorneys at Schlam Stone & Dolan frequently counsel clients concerning enforcement of security agreements and UCC sales. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.