SE Property Holdings, LLC v. Welch

UNITED STATES BANKRUPTCY COURT
WESTERN DISTRICT OF OKLAHOMA
In re:
RUSTON CHARLES WELCH,
Debtor.
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Case No. 21-12416-SAH
Chapter 7
SE PROPERTY HOLDINGS, LLC,
Plaintiff,
v.
RUSTON CHARLES WELCH,
Defendant.
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Adv. Pro. 21-01075-SAH
ORDER PARTIALLY GRANTING AND PARTIALLY DENYING
RUSTON C. WELCH’S MOTION FOR PARTIAL SUMMARY JUDGMENT,
BRIEF IN SUPPORT, AND NOTICE AND OPPORTUNITY FOR HEARING [DOC. 63]
On February 26, 2026, defendant Ruston C. Welch (“Welch”) filed Ruston C. Welch’s
Motion for Partial Summary Judgment, Brief in Support, and Notice and Opportunity for
Hearing [Doc. 63] (the “Motion”). In response, on March 12, 2026, plaintiff SE Property
The following is ORDERED:
Dated: July 17, 2026
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Holdings, LLC (“SEPH”) filed Plaintiff’s Response to Motion for Partial Summary Judgment
and Brief in Opposition, with Certificate of Service [Doc. 64] (the “Response”). Then, on
March 26, 2026, Welch filed Ruston C. Welch’s Reply in Support of Motion for Partial Summary
Judgment and Brief in Support [Doc. 65] (the “Reply”).
In the Motion, Welch seeks partial summary judgment on the issue of whether SEPH has
a security interest in certain settlement proceeds arising from the clean up of the Deepwater
Horizon oil spill in the Gulf of Mexico (the “Deepwater Spill”). Welch argues he is entitled to
summary judgment in his favor on SEPH’s claim under 11 U.S.C. § 523(a)(6)1 if SEPH does not
hold such security interest.
JURISDICTION
The Court has jurisdiction to hear this action pursuant to 28 U.S.C. § 1334(b), and venue
is proper pursuant to 28 U.S.C. § 1409. Reference to the Court of this matter is proper pursuant
to 28 U.S.C. § 157(a), and this is a core proceeding as contemplated by 28 U.S.C. § 157(b)(2)(I).
Furthermore, Plaintiff and Defendant consent to entry of final orders and judgment by the Court
in this adversary proceeding pursuant to Federal Rules of Bankruptcy Procedure 7008 and 7012
[Docs. 53, 59].
SUMMARY JUDGMENT STANDARD
Summary judgment is proper if the movant proves there is no genuine issue of material
fact, and movant is entitled to summary judgment as a matter of law. Thom v. Bristol-Myers
Squibb Co., 353 F.3d 848, 851 (10th Cir. 2003) (citing Fed. R. Civ. P. 56(c)). The movant bears
the burden of demonstrating the absence of disputed material facts warranting summary
1 Unless otherwise indicated, hereafter all references to sections are to the Bankruptcy Code,
Title 11 of the United States Code.
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judgment. Gough v. Lincoln Cnty. Bd. of Cnty. Comm’rs, No. CIV-14-1093-D, 2016 WL
164632, at *1 (W.D. Okla. Jan. 13, 2016) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 322-23
(1986)). “A fact is ‘material’ if under the substantive law it could have an effect on the outcome
of the lawsuit.” Adams v. Am. Guarantee and Liab. Ins. Co., 233 F.3d 1242, 1246 (10 th Cir.
2000) (citing Equal Employment Opportunity Comm’n v. Horizon/CMS Healthcare Corp., 220
F.3d 1184, 1190 (10th Cir. 2000)). A genuine dispute is present if a fact finder could find in favor
of the nonmoving party based on the evidence in the record. Horizon/CMS Healthcare Corp.,
220 F.3d at 1190 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).
The movant must establish each element of its claim or defense by sufficient, competent
evidence to set forth a prima facie case. Reynolds v. Haskins (In re Git-N-Go, Inc.),
No. 04-10509-R, 2007 WL 2816215, at *2 (Bankr. N.D. Okla. Sept. 25, 2007) (citing In re
Ribozyme Pharm., Inc., Sec. Litig., 209 F. Supp. 2d 1106, 1111 (D. Colo. 2002)). Once the
movant satisfies its initial burden, the burden shifts to the nonmovant to set forth specific facts
demonstrating a genuine issue for trial. Tesone v. Empire Mktg. Strategies, 942 F.3d 979, 994
(10th Cir. 2019) (citing Anderson, 477 U.S. at 250); Savant Homes, Inc. v. Collins (In re Savant
Homes, Inc.), 809 F.3d 1133, 1137 (10 th Cir. 2016). The nonmovant must identify facts with
reference to affidavits, deposition transcripts, or specific exhibits to establish a genuine issue for
trial. Libertarian Party of NM v. Herrera, 506 F.3d 1303, 1309 (10th Cir. 2007) (citing Adler v.
Wal-Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir. 1998)).
On summary judgment, the record must be considered in the light most favorable to the
party opposing summary judgment. Bank of Cushing v. Vaughan (In re Vaughan), 342 B.R.
385, 2006 WL 751388, at *2 (10th Cir. BAP Mar. 22, 2006), aff’d, 233 F. App’x 783 (10th Cir.
2007) (citing Bee v. Greaves, 744 F.2d 1387, 1396 (10th Cir. 1984)). Similarly, the Court must
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review “the facts and all reasonable inferences those facts support[ ] in the light most favorable
to the nonmoving party.” Doe v. Univ. of Denver, 952 F.3d 1182, 1189 (10th Cir. 2020) (citing
Evans v. Sandy City, 944 F.3d 847, 852 (10 th Cir. 2019)).
UNCONTROVERTED STATEMENTS OF MATERIAL FACT
SEPH attempts to dispute uncontroverted facts by inserting additional facts which do not
change the simple and straightforward facts asserted by Welch. However, SEPH’s disputes do
almost nothing to render the underlying facts stated by Welch subject to dispute. Moreover,
SEPH’s “disputes” with most of the facts, more often than not, take the form of legal argument
which in no way controverts Welch’s facts.2
1. 	SEPH asserts a security interest in the claim of Neverve LLC (“Neverve”) arising from
the Deepwater Spill and proceeds thereof (the “Neverve Proceeds”) based on the Second
Supplement to Loan Documents, dated June 23, 2011 (the “Second Supplement”).
Motion, p. 3, ¶ 1 and Ex. 1; Response, p. 3, ¶ 1.
2. 	The Second Supplement was not signed by Neverve. Motion, Ex. 1; Motion, Ex. 2, p.
84:18-21; Response, pp. 3-4, ¶ 2.
3. 	SEPH has admitted under oath that “Neverve is not a named signatory to the Second
Supplement.” Motion, Ex. 3, p. 2, Response to Request for Admission No. 1; Response,
p. 5, ¶ 3.
2 Local Rule 7056-1.C provides: “The response brief shall begin with a section stating, by
paragraph number, each of the movant’s facts to which the non-movant contends a genuine issue
exists and shall refer with particularity to those portions of affidavits, discovery materials,
Documents, and other relevant parts of the record before the Court upon which the
non-movant relies to dispute the movant’s fact.”
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4. 	The Second Supplement expressly provides it “shall be governed by and construed in
accordance with the laws of the State of Alabama.” Second Supplement, p. 7, ¶ 14;
Response, p. 6, ¶ 4.
5. 	The Second Supplement defines the following capitalized terms : (a) “Borrowers” as
ZLM Acquisitions, LLC (“ZLM”), and Zeke’s Landing Marina, LLC (“Marina”); and
(b) “Affiliates” as Zeke’s Charter Fleet, LLC (“Charter”), Zeke’s Lady, LLC (“Lady”),
P&P Acquisitions, LLC, d/b/a Bayou Waters Sports (“Bayou”), and S&S, LLC, d/b/a
Geno’s Fresh Catch Grill (“Geno”). Second Supplement p. 1; Motion, p. 4, ¶ 6;
Response, p. 6, ¶ 6.
6. 	SEPH made separate loans to (a) ZLM/Marina, and (b) Neverve. Motion, p. 3, ¶ 5;
Response, p. 6, ¶ 5; Second Amended Complaint [Doc. 53], p. 3, ¶¶ 12-13 and p. 4, ¶ 19;
Amended Answer to Second Amended Complaint [Doc. 59], p. 2, ¶¶ 12-13 and p. 3, ¶ 19.
7. 	SEPH’s corporate representative admitted under oath no Borrower or Affiliate had any
rights in the Neverve Proceeds prior to the Second Supplement. Motion, Ex. 2, p.
59:18-60:25; Motion, p. 4, ¶ 7; Response, p. 7, ¶ 7.
8. 	The Second Supplement defines and describes the collateral it covers as the “BP
Claims,” which are expressly limited to the claims, lawsuits, and damages of Borrowers
and Affiliates.3 Motion, p. 4, ¶ 8; Response, p. 7, ¶ 8; Second Supplement, p. 2, ¶ 3.
3 The heading of paragraph 3 of the Second Supplement is titled BP Claims: All Affiliates
Included. Paragraph 3 is the paragraph granting a security interest in the BP Claims, stating
specifically: “As additional collateral and security for the Restated Note, Borrowers have
heretofore granted and Borrowers and Affiliates hereby pledge, assign and grant [SEPH] a
security interest under the UCC in and to all such BP Claims . . . and all proceeds thereof
(collectively, the “BP Collateral”), as follows:” then identifies only ZLM, Marina, Charter, Lady
and Bayou at 100% of the BP Collateral pledged and Geno at 50% of the BP Collateral pledged.
Motion, Ex. 1, pp. 2-3, ¶ 3(b). Absolutely no mention is made of either Neverve or its
percentage of the BP Collateral in this granting paragraph.
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9. 	The Second Supplement does not describe, reference, or purport to include any property
of Neverve, including the Neverve Proceeds, as collateral. Motion, p. 4, ¶ 9; Response,
p. 7, ¶ 9; Second Supplement.
10. All Borrowers and Affiliates executing the Second Supplement were Alabama limited
liability companies. The real property mortgaged to secure the ZLM loan was located in
Alabama, and all of Borrowers’ and Affiliates’ operations were conducted in Alabama.
Second Supplement, p. 1; Motion Ex. 2, pp. 20:18-24 and 107:23-108:09; Motion p. 4, ¶
10; Response p. 8, ¶ 10.
11. Neverve was organized under Florida law and was a stand-alone business, operating
independently from Borrowers and/or Affiliates. Second Amended Complaint [Doc. 53],
¶¶ 12-13; Second Supplement p. 1; Motion Ex. 2, 20:12-21:06; Motion p. 4, ¶ 11;
Response p. 8, ¶ 11.
12. Other than David Stewart (“Stewart”), ZLM, Marina, and Neverve had different owners,
guarantors, and loan participants. Motion Ex. 2, 19:18-20:10, 21:15- 24:23, 102:11-14,
103:21-104:19; Motion p. 4, ¶ 12; Response p. 8, ¶ 12.
SEPH’S STATEMENT OF ADDITIONAL FACTS
SEPH’s statement of additional facts does nothing to establish it has a security interest
under the Alabama Uniform Commercial Code, Ala. Code § 7-1-101 to § 7-12A-306 (the
“UCC”) in the Neverve Proceeds. However, they are somewhat relevant to the extent they
demonstrate Welch is not entitled to summary judgment on SEPH’s Section 523(a)(6) claim.
1. 	On October 2, 2015, Welch notified the Trustee in Stewart’s bankruptcy case “[t]he BP
claim that the estate has an interest in that is not subject to [SEPH] is the claim of
shimmering sands development company.” Response, Ex. 2. This communication was
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sent before Neverve received the Neverve Proceeds and paid them to Welch Law Firm,
P.C. (“WLF”) and/or Welch. Response, Ex. 2.
2. 	On June 6, 2016, Stewart emailed Rob Shaff and Welch regarding the taxability of the
settlement funds Neverve would soon receive from BP, and Stewart stated, “I’m pretty
certain we kept [Neverve] current in Florida due to outstanding opt out BP claims which
SEPH will get.” Response, Ex. 3.
3. 	As noted by SEPH in its Second Amended Complaint and admitted by Welch, WLF was
paid almost $350,000 from the Neverve Proceeds, and a substantial majority of such
funds were used to pay for Stewart’s personal bankruptcy fees. Response, Ex. 4; Second
Amended Complaint, pp. 5-6, ¶¶ 31, 33; Amended Answer to Second Amended
Complaint p. 5, ¶¶ 31, 33.
4. 	There is no evidence in the record Neverve has or had any other creditors. Stewart
testified he did not believe Neverve had any other creditors except SEPH or its
predecessor. Response, Ex. 5, pp. 111:23-112:8.
5. 	In May 2016, before the receipt of the Neverve Proceeds by WLF, SEPH took the
deposition of the in-house counsel for Stewart and related entities, Ms. Linda McGuire
(“McGuire”), and Welch attended said deposition as counsel for Stewart. Response,
Ex. 6. SEPH’s counsel specifically asked whether there was an intent to include all BP
claims of any affiliates of the Stewarts in the Second Supplement, and Welch raised an
objection to the question. Response, Ex. 6, p. 146:7-10. McGuire herself acknowledged
the Second Supplement refers to affiliates and, in her opinion, claims of a different
Stewart affiliate that was not specifically named would be included given the reference to
affiliates. Response, Ex. 6, p. 145:19-25. Additionally, in communications with McGuire
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after the Neverve Proceeds had been paid to WLF, Stewart stated “[k]eep in mind the opt
out claims have been paid and what’s left after Atty [sic] fees is in [Welch’s] trust
[account]. I assume when seph finds out they’ve been paid they’ll be screaming.”
Response, Ex. 7.
APPLICABLE STATUTORY PROVISIONS
Ala. Code § 7-9A-2034 provides in pertinent part:
(b) Enforceability. Except as otherwise provided in subsections (c) through (i), a
security interest is enforceable against the debtor and third parties with respect to
the collateral only if:
(1) value has been given;
(2) the debtor has rights in the collateral or the power to transfer rights in the
collateral to a secured party; and
(3) one of the following conditions is met:
(A) the debtor has authenticated a security agreement that provides a
description of the collateral and, if the security interest covers timber to be
cut, a description of the land concerned;
(B) the collateral is not a certificated security and is in the possession of
the secured party under Section 7-9A-313 pursuant to the debtor's security
agreement;
(C) the collateral is a certificated security in registered form and the
security certificate has been delivered to the secured party under Section
7-8-301 pursuant to the debtor's security agreement; or
(D) the collateral is deposit accounts, electronic chattel paper, investment
property, or letter-of-credit rights, and the secured party has control under
Section 7-7-106, 7-9A-104, 7-9A-105, 7-9A-106, or 7-9A-107 pursuant to
the debtor's security agreement.
CONCLUSIONS OF LAW
In the Motion, Welch asserts SEPH does not have a security interest in the Neverve
Proceeds and seeks summary judgment in his favor on SEPH’s Section 523(a)(6) claim. Welch
argues, “[w]ithout such an enforceable security interest, SEPH cannot establish injury to
4 The Second Supplement provides it “shall be governed by and construed in accordance with the
laws of the State of Alabama.” Motion, Ex. 1, p. 7, ¶ 14. The version of Ala. Code § 7-9A-203
set forth is the version in effect at the time the Second Supplement was executed.
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‘property of another,’ and its § 523(a)(6) claim for injury to property fails as a matter of law.”
Motion, p. 2. Although the Court agrees SEPH has no security interest under the UCC in the
Neverve Proceeds, the Court disagrees the lack of such interest precludes a claim under
Section 523(a)(6).
I. 	SEPH DOES NOT HAVE A SECURITY INTEREST UNDER THE UCC IN THE
NEVERVE PROCEEDS.
SEPH argues the parties to the Second Supplement intended to include Neverve as a
party thereto and the Neverve Proceeds as collateral thereunder and, as a result, whether Neverve
was a party to the Second Supplement is a disputed fact. The intent to include Neverve,
according to SEPH, can be found in paragraph 3(d) of the Second Supplement, which states:
Borrowers and each Affiliate hereby represent and warrant unto
Bank that there are no subsidiary or parent companies of any
Borrower or any Affiliate, or any affiliate company of any
Borrower (meaning any company owned directed or indirectly or
in whole or in part by any Borrower or by any owner or principal
of any Borrower), that has filed or possesses any BP Claims that
are not a party to [the Second Supplement].
SEPH further argues Stewart pledged the Neverve Proceeds as collateral in the Second
Supplement as he had sufficient rights to do so. The Court disagrees on both counts.
Alabama’s policy goals in adopting the UCC are expressly set out in Ala. Code
§ 7-1-102(2): “(a) To simplify, clarify and modernize the law governing commercial
transactions; (b) To permit the continued expansion of commercial practices through custom,
usage and agreement of the parties; (c) To make uniform the law among the various
jurisdictions.” Rent-A-Center v. Shelby (In re Shelby), 127 B.R. 682, 689-90 (Bankr. N.D. Ala.
1991). Furthermore, the UCC has a “presumption in favor of predictability and the finality of
commercial transactions.” MidWestOne Bank v. Heartland Co-op, 941 N.W. 2d 876, 884 (Iowa
2020), as amended (June 11, 2020) (citing Husker News Co. v. Mahaska State Bank, 460 N.W.2d
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476, 477 n.2 (Iowa 1990). Secured transactions are governed by Article 9A of the UCC, the aim
of which is to reduce the risk and cost of extending credit and thereby facilitate secured
transactions. Budsberg v. Premier Credit Co. (In re Kincaid), 218 B.R. 965, 968 (Bankr. W.D.
Wash. 1998); Matter of Reda, Inc., 54 B.R. 871, 878 (Bankr. N.D. Ill. 1985) (“Article 9 was
adopted in part to provide notice to parties about the debtor’s property and offer certainty and
protection to a party with a secured interest in that property.”). The Official Comment to
Article 9 specifically provides: “One evidentiary purpose of the formal requisites stated in
[§ 7-9A-203(b)] is to minimize the possibility of future disputes as to the terms of a security
agreement (e.g., as to the property that stands as collateral for the obligation secured).” Official
Comment 5 to § 7-9A-203. The Court conducts its analysis with these aims in mind.
The UCC defines a “security agreement” as “an agreement that creates or provides for a
security interest.” Ala. Code § 7-9A-102(73). Furthermore, a “security interest” is defined as
“an interest in personal property or fixtures which secures payment or performance of an
obligation.” Ala. Code § 7-1-201(35). A security interest is only enforceable where: (i) value
has been given; (ii) the debtor has rights in the collateral; and (iii) the debtor has authenticated a
security agreement that provides a description of the collateral.5 Ala. Code § 7-9A-203(b); In re
Jones, 544 B.R. 692, 697 (Bankr. M.D. Ala. 2016). No magic words are required to create a
security interest; however, the parties must express an intent to create a security interest, and the
language must “lead to the logical conclusion that it was the intention of the parties that a
security interest be created.” In re Womack, 616 B.R. 420, 426 (Bankr. M.D. Ala. 2020), aff’d
5 The UCC provides additional circumstances under which a security interest can be enforceable
such as where the collateral is in the possession of the secured party, or the secured party has
control. Ala. Code § 7-9A-203(b)(3). However, these circumstances are not relevant in the
present proceeding.
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sub nom. TitleMax of Alabama, Inc. v. Womack, No. 2:20-CV-416-WKW, 2021 WL 1343051
(M.D. Ala. Apr. 9, 2021), aff’d sub nom. In re Womack, No. 21-11476, 2021 WL 3856036
(11 th Cir. Aug. 30, 2021) (citing In re Burnsed, 224 B.R. 496, 498 (Bankr. M.D. Fla. 1998)
(quoting Gibson v. Resolution Trust Corp., 51 F.3d 1016, 1022 (11th Cir. 1995))).
A. 	The Second Supplement unambiguously sets forth the parties and collateral,
and neither Neverve nor the Neverve Proceeds are included.
The words of a contract, including a security agreement, must be given their ordinary
meaning. Austin Apparel, Inc. v. Bank of Prattville, 872 So.2d 158, 165 (Ala. Civ. App. 2003)
(citing Food Serv. Distribs., Inc. v. Barber, 429 So.2d 1025, 1028 (Ala.1983) (citing Sisco v.
Empiregas, Inc., 286 Ala. 72, 237 So. 2d 463 (1970))); Semco Div., Delwood Furniture Co., Inc.
v. Williams (In re Metzler), 405 F.Supp. 622, 625 (M.D.Ala.1975). Where the language of a
contract is unambiguous, it must be enforced as written. Austin Apparel, 872 So.2d at 165 (first
citing Ex parte Conference America, Inc., 713 So.2d 953, 956 (Ala.1998); and then citing Ex
parte South Carolina Ins. Co., 683 So.2d 987, 989 (Ala.1996)).
A contract is ambiguous when its terms “are susceptible of more than one reasonable
meaning.” Davis Constr. Supply, LLC v. Merchants Transfer Co., 676 F. Supp. 3d 1192 (S.D.
Ala. 2023) (citing Homes of Legend, Inc. v. McCollough, 776 So. 2d 741, 746 (Ala. 2000)).
To determine whether a contract contains ambiguity, the Court must apply the common
interpretation of the allegedly ambiguous language. Porter Cap. Corp. v. Haralson, No. 2:11-
CV-1620-JHH, 2012 WL 4813769, at *7 (N.D. Ala. Oct. 10, 2012) (quoting Porterfield v.
Audubon Indem. Co., 856 So.2d 789, 799 (Ala.2002)). The plain meaning of a contract’s terms
may not be twisted “to create an ambiguity under the guise of interpretation.” Porter Cap. Corp.,
2012 WL 4813769, at *7 (citing Booth v. Newport Television, LLC, 111 So. 3d 719, 724 (Ala.
Civ. App. 2011)).
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The Second Supplement is not ambiguous. The parties are clearly defined in the first
paragraph as follows: (i) “Borrowers” are ZLM and Marina; (ii) “Guarantors” are Thomas P.
Steber, Jr., Maurice J. Fitzsimons, and Stewart; (iii) “Affiliates” are Charter, Lady, Bayou, and
Geno; and (iv) “Lender” or “Bank” is Vision Bank.6 Additionally, the collateral is clearly
defined in Paragraph three as follows:
(a) Borrowers and Affiliates acknowledge and represent to Bank that Borrowers
and Affiliates have heretofore filed claims and lawsuits against the entity
commonly known as BP and British Petroleum and/or its subsidiary, parent, or
affiliate companies and/or claims funds, trust funds or similar funds or entities
established and/or funded by one or more of the foregoing including the Gulf
Coast Claims Facility (collectively, the “BP Companies”), and hereafter may file
additional claims and lawsuits against the BP Companies (collectively, the “BP
Claims”), for (i) lost revenue and other damages suffered or incurred by
Borrowers and Affiliates due to the 2010 Deepwater Horizon oil spill in the Gulf
of Mexico (the “Spill”), and (ii) moneys owed each Borrower and each Affiliate
for any work done and fuel and other supplies provided by Borrowers and
Affiliates and/or their agents, contractors or employees and for vessels provided
by Borrowers and Affiliates in connection with the cleanup of the Spill. As
additional collateral and security for the Restated Note, Borrowers have
heretofore granted and Borrowers and Affiliates hereby pledge, assign and grant
Bank a security interest under the UCC in and to all such BP Claims and all
judgments and awards obtained against any and all BP Companies and all
receivables owed by the BP Companies and all payments made by any and all of
the BP Companies pursuant to the BP Claims (the “BP Payments”) and all
proceeds thereof (collectively, the “BP Collateral”), as follows:
Pledgor 	Percentage BP Collateral Pledged
1. ZLM 	100%
2. Marina 	100%
3. Charter 	100%
4. Lady 	100%
5. Bayou 	100%
6. Geno 	50%
Second Supplement, p. 2 ¶ 3. The collateral in the Second Supplement is clearly limited to the
BP Claims of ZLM, Marina, Charter, Lady, Bayou, and Geno. The Neverve Proceeds are not
6 SEPH is successor in interest to Vision Bank. Second Amended Complaint [Doc. 53], filed on
July 30, 2025, p. 3, ¶ 12.
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included in the above comprehensive list describing the BP Collateral. Also, Neverve is plainly
not a party to the Second Supplement, neither being named in or executing the Second
Supplement.
As a general rule, a contract binds the parties thereto, and a person who is not a party to
the contract cannot be bound by it. E.E.O.C. v. Waffle House, Inc., 534 U.S. 279, 294, 122 S. Ct.
754, 764, 151 L. Ed. 2d 755 (2002) (“It goes without saying that a contract cannot bind a
nonparty.”); Norfolk S. Ry. Co. v. Groves, 586 F.3d 1273, 1281-82 (11th Cir. 2009) (citing Miles
v. Naval Aviation Museum Found., Inc., 289 F.3d 715, 720 (11th Cir. 2002)) (“[I]t is a tenant of
contract law that ‘a third-party cannot be bound by a contract to which it was not a party.’”);
RESCO, Inc. v. GLAC Holdings, L.L.C., No. 275467, 2008 WL 400679, at *1 (Mich. Ct. App.
Feb. 14, 2008). Here, Neverve is not a named party to the Second Supplement, did not sign the
Second Supplement in any capacity, and its name and its property are not described in any form
or fashion in the Second Supplement. Nothing in the Second Supplement can be interpreted as
an affirmative action by Neverve manifesting its intent to grant a security interest in the Neverve
Proceeds to SEPH – it is not ambiguous but startling clear. Neverve is simply not a party to the
Second Supplement, and therefore, cannot be bound by it. E.E.O.C., 534 U.S. at 294.
The Court does not find, and SEPH does not argue, the language in paragraph 3(d)
creates an ambiguity in the Second Supplement. Instead, SEPH argues it evidences the parties’
intent to include Neverve. However, paragraph 3(d)’s language neither purports to add any party
to the definitions of Borrowers, Guarantors, or Affiliates, nor does it add any property to the
scope of the BP Collateral. As Welch’s Motion points out, while the representation in paragraph
3(d) may have been breached by the Borrowers and Affiliates, it does not make Neverve a party
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to the Second Supplement. The Court, therefore, cannot logically conclude Neverve pledged the
Neverve Proceeds.
As detailed above, one of the primary purposes of the UCC is to promote clarity in
commercial transactions. As specifically explained in the UCC Official Comment, the
requirements for enforceability set forth in Ala. Code § 7-9A-203(b) exist to minimize disputes
as to a security agreement’s terms such as what property is pledged as collateral. In the Second
Supplement, the BP Collateral pledged is specifically described and does not include the
Neverve Proceeds. To disrupt the plain description of the parties and the collateral set forth in
the Second Supplement would be contrary to the UCC and its purposes.
B. 	Stewart did not grant a security interest in his rights to the Neverve Proceeds
in the Second Supplement.
Although Neverve is not bound by the Second Supplement, Stewart is a party and could
pledge whatever rights he had in the Neverve Proceeds; however, the Neverve Proceeds are not
described as collateral in the Second Supplement. In some circumstances, courts have found a
valid security interest where a party with rights to the collateral, but who was not the owner of
the collateral, authenticated the security agreement. “Rights in the collateral” is not defined by
the UCC, but it does not mean the same thing as “ownership.” First Nat’l Bank of Alexander
City v. Avondale Mills Bevelle Emps. Fed. Credit Union, 967 F.2d 556, 559 (11th Cir. 1992)
(citing Merchants Bank v. Atchison (In re Atchison), 832 F.2d 1236, 1239 (11th Cir. 1987)).
Since the UCC does not explain what “quantum of rights” a debtor must have in collateral to
grant a security interest, “less than full ‘legal title’ will do and the secured party will get
whatever rights the debtor had.” Atchison, 832 F.2d at 1239 (citing 1 G. Gilmore, Security
Interests in Personal Property § 11.5, at 353 (1965)); Kirtley v. Mabrey Bank (In re Rudick),
639 B.R. 249, 253 (Bankr. N.D. Okla. 2022).
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Courts have generally ruled a debtor has sufficient rights in property to create an
enforceable security interest where the owner has given a debtor permission to use the property
as collateral. Atchison, 832 F.2d at 1239 (first citing In re Pubs, Inc. of Champaign, 618 F.2d
432, 436 (7th Cir.1980) (individual debtor; corporate owner); then citing K.N.C. Wholesale, Inc.
v. AWMCO, Inc., 56 Cal.App.3d 315, 128 Cal. Rptr. 345, 348 (1976) (parent corporation debtor;
subsidiary owner); then citing Murray v. Conrad, 346 N.W.2d 814, 820 (Iowa 1984) (individual
debtor; corporate owner); and then citing GMAC v. Washington Trust Co. of Westerly, 120 R.I.
197, 386 A.2d 1096, 1098 (1978) (husband debtor; wife owner)). Courts have also found
sufficient rights in the collateral where a debtor’s rights go beyond “mere possession, such as the
right to use and control the collateral.” Atchison, 832 F.2d at 1239 (first citing Douglas-
Guardian Warehouse Corp. v. Esslair Endsley Co., 10 U.C.C. 176, 184 (W.D. Mich. 1971); then
citing Bellrose v. Denver Florists’ Federal Credit Union, 682 P.2d 1224, 1226 (Colo. Ct. App.
1983); then citing Morton Booth Co. v. Tiara Furniture, Inc., 564 P.2d 210, 214 (Okla. 1977);
then citing Uniroyal, Inc. v. Michigan Bank, 12 U.C.C. 745, 750 (Mich. Cir. Ct. 1972)).
It is unclear whether Stewart had rights in the Neverve Proceeds sufficient to grant a
security interest.7 While Stewart had some right to “use and control” the Neverve Proceeds as
evidenced by his later use of a portion to pay his personal legal fees, Stewart was not the sole
owner of Neverve.
More importantly, in every case reviewed by the Atchison court finding a non-owner
party had rights to grant a security interest, the collateral was clearly described in the security
agreement as required by UCC § 7-9A-203(b). Atchison, 832 F.2d at 1239 (11th Cir. 1987)
7 The burden of proving property is subject to a security interest is on the party asserting the
interest. Kirtley v. Mabrey Bank (In re Rudick), 639 B.R. 249, (Bankr. N.D. Okla. 2022) (citing
In re Gamma Ctr., Inc., 489 B.R. 688, 693 (Banrk. N.D. Ohio 2013)).
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(gathering cases).8 Here, the Neverve Proceeds are not identified in the Second Supplement as
collateral or anywhere else and, therefore, were not pledged as collateral by a debtor (Stewart) or
owner (Neverve). It is simply not possible for Stewart to have pledged the Neverve Proceeds
pursuant to the Second Supplement based on his “rights in the collateral” because the Neverve
Proceeds were never pledged at all.
SEPH relies heavily on 4-R Management to argue Stewart, as an owner of Neverve,
could pledge the Neverve Proceeds despite Neverve not being a named party in the Second
Supplement. Matter of 4-R Mgmt., Inc., 208 B.R. 232 (Bankr. N.D. Ala. 1997). SEPH’s reliance
is misplaced. In 4-R Management, the owners (who were also officers) of 4-R Management
signed a security agreement granting a security interest in a coin collection owned by 4-R
Management to a bank. The owners/officers, however, signed the security agreement in their
individual capacities, not on behalf of 4-R Management. The court determined the bank had a
valid security interest despite not being signed by 4-R Management because of the following:
(i) 4-R Management executed the underlying promissory note which incorporated the security
agreement; (ii) 4-R management executed two renewal notes which expressly granted a security
interest in the coin collection and referenced the security agreement; (iii) the 4-R Management
owners/officers delivered the coin collection to the bank which maintained possession of the coin
collection (thus satisfying 7-9A-203(1)(a)); and (iv) the 4-R Management owners/officers had
8 Pubs, Inc. of Champaign, 618 F.2d at 435 (certain scheduled equipment, fixtures, furnishings,
and supplies); K.N.C. Wholesale, Inc., 128 Cal.Rptr. at 347 (certain equipment); Murray, 346
N.W.2d at 817 (clearly described beer inventory); GMAC, 386 A.2d at 1097-98 (1972 Cadillac
Sedan DeVille); Douglas-Guardian Warehouse Corp., 10 U.C.C. at 180 (all business inventory
now in stock and later acquired); Bellrose, 682 P.2d at 1226 (certain stock certificates); Morton
Booth Co. v. Tiara Furniture, Inc., 564 P.2d at 211 (all present and after-acquired inventory);
Uniroyal, Inc., 12 U.C.C. at 750 (certain vehicles and equipment).
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sufficient rights in collateral to infer corporate consent as they were the sole owners of
4-R Management and they had use and control over the coin collection. 4-R Management,
208 B.R. at 235-38. Such circumstances are not present here. SEPH does not provide evidence
of a promissory note executed by Neverve incorporating the Second Supplement, SEPH never
had possession of the Neverve Proceeds, and Stewart was not the sole owner of Neverve. And,
most significantly, the specifically-described collateral in the Second Supplement did not include
the Neverve Proceeds. The situation in this adversary proceeding does not resemble 4-R
Management.
SEPH also cites to Ala. Code § 7-9A-203(d)(1) and (e)(1) to show the UCC provides a
person or entity can become bound by a security agreement entered into by a third party.
However, the function of these subsections is to make a security agreement of a predecessor
entity effective against the successor entity. 4 James J. White, Robert S. Summers & Robert A.
Hillman, Uniform Commercial Code, § 31:43 (6th ed.); Official Comment 7 to Ala. Code
§ 7-9A-203. It is, therefore, not applicable to the facts before the Court, nor does it provide
support for the assertion a party to an agreement can bind a non-party who is a non-successor
entity.
Welch has demonstrated there is no genuine issue of material fact as to whether SEPH
has a security interest in the Neverve Proceeds under the UCC. Welch is, therefore, entitled to
judgment as a matter of law that SEPH does not have a security interest under the UCC in the
Neverve Proceeds.
II. 	THE LACK OF A SECURITY INTEREST UNDER THE UCC DOES NOT
FORECLOSE SEPH’S SECTION 523(a)(6) CLAIM.
SEPH argues summary judgment cannot be entered on the Section 523(a)(6) claim
because Section 523(a)(6) does not require a security interest, and SEPH asserts it has an
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equitable lien or, alternatively, a claim for Welch’s violation of Florida law. The Court agrees a
Section 523(a)(6) does not require a security interest.
Welch states, with no authority, summary judgment is proper on the Section 523(a)(6) as
a matter of law because “[w]ithout a security interest, there is no ‘property’ upon which an
‘injury’ could be inflicted.” Motion, p. 9. However, Section 523(a)(6) excludes from discharge
debts “for willful and malicious injury by the debtor to another entity or to the property of
another entity.” SEPH may establish a willful injury with direct evidence Welch “acted with
the specific intent to harm [SEPH] or [SEPH’s] property, or by indirect evidence that [Welch]
desired to cause the injury or believed the injury was substantially certain to occur.” Perry v.
Judge (In re Judge), 630 B.R. 338, 345 (10th Cir. BAP 2021) (citing First Am. Title Ins. Co. v.
Smith (In re Smith), 618 B.R. 901, 912 (10 th Cir. BAP 2020)). SEPH may prove a malicious
injury by showing Welch acted wrongfully and without justification or excuse. Smith, 618 B.R.
at 919-20 (holding Section 523(a)(6) encompasses intentional torts such as tortious interference
with a contract). Welch provides no explanation how the lack of a security interest precludes
SEPH (or its property) from being willfully and maliciously injured, and the Court finds no such
requirement in Section 523(a)(6).
Accordingly, it is not necessary for the Court to determine whether SEPH has an
equitable lien, or whether Welch violated Florida law. Welch has not established he is entitled to
judgment on SEPH’s Section 523(a)(6) claim simply because SEPH lacks a security interest
under the UCC.
CONCLUSION
For the reasons set forth above, the Court partially grants Welch’s Motion and holds
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SEPH does not have a security interest under the UCC in the Neverve Proceeds. However, the
Court denies Welch’s request for summary judgment on SEPH’s 523(a)(6) claim. A trial will be
conducted on September 28, 2026, at 9:30 a.m. in the Ninth Floor Courtroom.
IT IS SO ORDERED.
# 	# 	#
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