Bank denied piece of Uber settlement in taxi co.’s bankruptcy

A bank could not enforce its security interest in a taxi medallion against the proceeds of a settlement that a defunct Boston taxi cab company obtained against Uber Technologies, a U.S. Bankruptcy Court judge in Massachusetts has ruled.

Berkshire Bank is a secured creditor in the Chapter 7 case of JMF Cab, Inc. The bank sought relief from the automatic stay to enforce its security interest in the taxi medallion issued to the debtor by the city of Boston. A taxi medallion is a transferable permit allowing taxicab drivers to operate.

The bank obtained the security interest in the medallion under an agreement for a $375,000 promissory note. In JMF’s bankruptcy case the bank claimed it was still owed $350,000 on the loan. 

The bank contended that its security interest in the medallion was enforceable against a $71,000 settlement obtained by the bankruptcy trustee in a Chapter 93A unfair competition suit brought by JMF Cab and other taxi companies against Uber in U.S. District Court.

But in an April 14 ruling, Judge Melvin S. Hoffman denied the bank’s motion for relief from the stay, reasoning that the claims against Uber were in the nature of “commercial tort claims” that did not fall within the express terms of the bank’s security agreement as required by Article 9 of Massachusetts’ Uniform Commercial Code.

Pursuant to G.L.c. 106, §9-108(e)(1), commercial tort claims must be identified with specificity in a security agreement in order to be considered subject to the agreement.

“[T]here are no allegations that JMF or any of the other plaintiffs in the Uber litigation contracted with Uber; rather, the claims are based on Uber’s alleged violation of statutory, regulatory, and common law,” Hoffman wrote. “Accordingly, the claims asserted in the Uber litigation are commercial tort claims.”

Because the bank’s security agreement did not include commercial tort claims as collateral, the judge explained that the Uber settlement funds otherwise could only be subject to the bank’s security interest if they constituted proceeds of the bank’s “actual” collateral.

Hoffman found the bank could make no such showing.

“It is true that the complaint in the Uber litigation claims damages for lost revenue, reduction in value of each of the plaintiff’s businesses, and loss of value of the plaintiffs’ taxi medallions,” he wrote. “But nothing in the complaint apportions the alleged damages among the asserted theories of harm or causes of action. Likewise, the settlement agreement between Uber and [the trustee] is devoid of any apportionment of the settlement amount among the theories of harm or causes of action asserted in the complaint, nor does it offer any methodology for me to make such an apportionment.”

To the contrary, the judge noted that the settlement did not even mention the medallion or damage to it.

“For the bank to establish that the settlement funds constitute proceeds of its collateral paid in compensation for harm to the medallion, where the complaint and settlement agreement provide no means for doing so, the bank needed to provide a convincing basis upon which a fact finder could determine what portion, if any, of the settlement funds were on account of harm to the medallion,” Hoffman wrote. “The bank has failed to provide any such basis.”

The eight-page decision is In Re: JMF Cab, Inc.