In re Downey Creations, LLC
United States Bankruptcy Court for the Southern District of Indiana
414 B.R. 463 (2009)
Downey Creations (Downey) (defendant) sold retail jewelers' diamonds and jewelry at trunk shows, and secured financing from Regions Bank (Regions) (defendant) using all its inventory as collateral, with Regions properly filing a financing statement. Seven jewelers (plaintiffs) delivered goods to Downey on consignment without filing financing statements (or filing late), and when Downey failed to return or pay for the jewelry and went bankrupt, the jewelers sued to recover their goods, arguing the delivery was a common-law bailment. Downey moved for summary judgment, arguing the arrangements were UCC consignments; the jewelers offered proof that 50 of Downey's 91 creditors knew Downey sold others' goods.
Whether a consignor may forgo filing a financing statement to perfect its security interest in consigned goods by showing merely that a majority of the merchant's creditors knew the merchant sold some goods belonging to others, without showing those creditors knew the merchant was substantially engaged in that business.