2004 Annual Meeting Council Report: Committee on Uniform Commercial Code
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1 2004 Annual Meeting Council Report: Committee on Uniform Commercial Code Last Modified: Tue Jul 20 11:22: Report prepared by: Stephanie A Heller Mission Statement The UCC Committee focuses on commercial transactions and practices covered directly by the UCC (e.g., sales and leases of goods, payments, letters of credit, documents of title, investment securities, and secured transactions) as well as those covered tangentially (e.g., software contracting, suretyship, international commercial transactions, and electronic money). In doing so, the Committee monitors commercial law developments affecting such transactions, pays close attention to how other law interacts with the UCC, generates commentary and model agreements in those areas, and actively participates in statutory reform efforts. Chair Stephanie A Heller Federal Reserve Bank of NY 33 Liberty St New York, NY Phone: (212) Fax: (212) stephanie.heller@ny.frb.org Vice-Chair Christina L Kunz William Mitchell College of Law 875 Summit Ave Saint Paul, MN Phone: (651) Fax: (651) ckunz@wmitchell.edu Vice-Chair Stephen L Sepinuck Gonzaga Univ Sch Of Law PO Box 3528 Spokane, WA Phone: (509) Fax: (509) ssepinuck@lawschool.gonzaga.edu 1. Membership Uniform Commercial Code Subcommittees 1360 Members
2 Annual Survey 17 Members Article 1 Review Article 7 Commercial Law Newsletter International Commercial Law Internet Coordinator Investment Securities Leasing Letters of Credit Meetings and Programs Membership Payments Publications Sale of Goods Scope of the UCC Secured Transactions UCC Litigation Task Forces Consumer Involvement Deposit Account Control Agreements Forms Under Revised Article 9 Simplification State Certificate of Title Laws Working Groups Electronic Contracting Practices Transferability of Electronic Financial Assets 67 Members 10 Members 31 Members 61 Members 3 Members 88 Members 96 Members 132 Members 14 Members 11 Members 126 Members 4 Members 144 Members 72 Members 389 Members 108 Members 9 Members 67 Members 82 Members 13 Members 31 Members 162 Members 98 Members During the fiscal year, the UCC Committee conducted its own membership survey. The UCC Committee leadership has reviewed the results and, as indicated in the upcoming chairs column in the Commercial Law Newsletter, much attention will be given over this next fiscal year to trying to address the needs of the membership as expressed in the survey results. These include: -- making the non-cle programs more substantive (beginning with the 2004 Annual Meeting we will no longer hold a subcommittee, task force, or working group meeting unless the majority of the meeting involves substantive presentations or discussions. Moreover, these meetings must be planned significantly in advance of the actual meeting date so that a detailed description of the meeting can be sent out to the full membership ahead of time) -- increasing the usefulness of the UCC website both in terms of content and in terms of navigation -- finding ways to advance projects and discussions between meetings using online mechanisms. The UCC Committee chair sends a letter to each new member. We have revised the letter as of July 2004 to include a copy of the UCC Committee brochure, a copy of the UCC meeting schedule for the upcoming Annual Meeting (after Annual we will include the schedule as an example of the types of programing we do). The COmmittee brochure was developed in 2003 and updated for Spring Meeting We distribute the brochure at our meetings as well as the first-timers reception. The chair of the committee has asked each of its subcommittee, task force and working group chairs to send their own welcome letters. We are currently looking for a new membership chair but expect to have one in place by Spring I wish to bring to the councils attention certain organizational changes. I have tried to have these changes
3 reflected by the Section on the website and in the databases but so far I have had only modest success. First, Annual Survey and Commercial Law Newsletters are not subcommittees Second, we no longer have a subcommittee on Article 1 or a Scope subcommittee. Instead, we have a single subcommittee called "General Provisions and Relations to Other Laws" Finally, the Task Force on Simplification has been renamed a working group. And we have a new joint UCC- Cyberspace Working Group on the Model Trading Partners Agreement. 2. Diversity Race: Asian/Pacific Islander 1.32% Black/African American 0.81% Hispanic 0.74% Native American 0.00% White/Caucasian 51.99% Other 0.37% Unknown 44.78% Gender: Male 75.74% Female 20.15% Unknown 4.12% Diversity in Leadership: The chair and vice chairs of the UCC Committee encourage anyone to volunteer for open leadership positions (we announce any openings at Spring and Annual), encourage current leadership to consider diversity when proposing candidates, and always consider diversity before approving leadership appointments. Since Spring Meeting we have filled three out of four open positions with women and have two other slots where we have made offers to women (one of whom is a minority) but have yet to finalize the arrangement. Section Diversity Committee: The UCC Committee has a liason to the Committee on Diversity. Each chair of a program is encouraged to reach out to our liason for help in finding qualified minority speakers. 3. Programs and Meetings Programs: Business Law Spring Meeting Harmony & Discord: Consumer Protection in Commercial Transactions; Attendance 71 Woulda, Coulda, Shoulda--How to Draft Loan Documents Under Revised Article 9 to Survive Challenges in Bankruptcy; Attendance 100 Committee Forums: Business Law Spring Meeting Bypass Surgery: Strategies for Contracting Out of UCC Rules; Attendance 67 The UCC Committee continues to co-sponsor programs. We also participated in the Institute for the New Business Lawyer at the Spring Meeting. I was surprised to learn that one of our Spring Meeting programs was being run as a CLE program by the Section after the Spring Meeting (a satalite program?). I think that when this occurs it is an acknowledgment from the Section that the program was a success and it would be nice if that could be conveyed directly to the leadership. As noted above, beginning with the 2004 Annual Meeting the UCC Committee will no longer schedule a subcommittee, task force, or working group meeting unless the majority of the meeting involves substantive presentations or discussions. Moreover, these meetings must be planned significantly in advance of the actual meeting date so that a detailed description of the meeting can be sent out to the full membership ahead of time. What follows is a sample of the "mini-programs" that we will offer at Annual Meeting:
4 Presentation: Recent Developments in Efforts to Make UCC Article 8 Go Global This combined subcommittee meeting will discuss the recently released draft of UNIDROIT's proposed convention on "Substantive Rules Regarding Securities Held with Intermediaries" and the National Law Center for Inter- American Free Trade's "Proposed Inter-American Treaty to Modernize Securities Ownership, Transfer and Pledging Legal Framework". Presentation: Drafting Contracts for Mixed Transactions (Goods, Services and Information): How Best to Serve Your Client and Stay Out of Court While Article 2 and Revised Article 2 provide us with statutory guidance for goods transactions, there is no immediate prospect of statutes that deal with mixed transactions. Thus the burden is on the drafter to incorporate performance standards and other terms addressing service and information components of the deal. The presenters will discuss appropriate models for buyers and sellers, after which questions from the audience will be welcomed. Presentations: True Lease vs. Security Interest A Distinction With a Real Difference to You and Your Clients Malcolm Lindquist of the Tacoma, Washington office of McGavick Graves PS and Robert (Bo) Strauss of the Atlanta, Georgia office of Troutman Sanders LLP will discuss the legal tests for distinguishing between a lease and a secured transaction and the legal and practical implications of the characterization of a transaction. Delaware LLCs: Doing it Serially Norm Powell of the Wilmington, Delaware office of Morris, James, Hitchens & Williams LLP will discuss Delaware s provisions applicable to series LLCs (which provide a mechanism for creditors to have rights only to the assets of the LLC designated for a specified series) and the potential pitfalls and benefits of using these entities. OBS: True Sale, Setoff and Legal Isolation Edgar Snow of the Atlanta, Georgia office of Burr & Forman LLP and Lynn Soukup of the Washington, D.C. office of Alston & Bird LLP will discuss FASB s recent statements (and request for information) about the impact of obligor and transferor setoff rights on legal isolation for purposes of FAS 140 and off balance sheet treatment of loan participations and securitization transactions and the impact of such setoff rights on true sale analysis. Presentation: When the UCC and Federal Law Collide OCC Premption and Check 21 The Subcommittee will hear briefly from Bill Henning, Executive Director of NCCUSL about developments since Spring Meeting relating to the OCC preemption regulation. After the OCC discussion there will be a presentation by Sarah Jane Hughes, Professor of Law at Indiana University - Bloomington, and Linda Rusch, Professor of Law at Hamline University discussing the impact of the Check Clearing for the Twenty First Century Act on UCC Articles 3 and 4. While much concern has been raised about the operation of Check 21 and the amendment to Regulation CC implementing it, this conversation will focus on the direct impacts the federal law and regulation will have on the UCC. Panel: "Playing 'Gotcha' with UCC 3, 4 and 4A" The panelists will discuss those sections that, in their individual opinions, contain the most problematic, dangerous or otherwise deplorable provisions of UCC 3, 4 and 4A. 4. Books and Newsletters
5 Newsletters Commercial Law, March 2004 In an effort to increase membership involvement the chair of the UCC Committee has begun to solict articles for the Commercial Law Newsletter from the entire membership. This has already generated interest and participation from members who historically have not participated. The UCC Committee also produced its annual UCC survey for the business lawyer. Several publications are in the pipeline: The ABCs of the UCC Article 4A is being updated (due to the Section end of October 04) The Model Trading Partner Agreement is being updated and is at a final draft stage A second edition of Forms Under Revised Article 9 is moving forward. The joint working group on electronic contracting practices is working on its third article in this area. 5. Special Projects The UCC Committee has established a joint task force on deposit account control agreements. The task force is joint with the Banking Law Committee, the Commercial Financial Services Committee and the Consumer Financial Services Committee. The first meeting of the joint task force was held at the Spring Meeting The task force has created several subgroups in order to advance the project between meetings. Interest in the task force is incredibly strong with more than 66 members having joined since it was established shortly prior to Spring Meeting and, if successful, the work of the task force will have far reaching impact. The Committee has been considering whether to establish a task force to explore the need for a uniform law of deposits. The chair anticipates establishing this task force at Annual Meeting We are waiting until 2005 because the parties who are likely to be interested in this project are the same parties who are likely working on the deposit control agreement. The chair will ask the Banking Law Committee, CFS and COnsumer FInancial Services to participate and make this a joint task force. The Subcommittee on Litigation has been working on model jury instructions for disputes under UCC Articles 3, 4 and 4A. Thus far the project has crept along but during 2005 we will bring in new leadership whose sole focus will be on advancing this project. T 6. Accomplishments/Objectives The UCC Committee has two primary objectives: (i) to bring its membership up-to-date information and discussion of matters concerning the UCC; and (ii) to preserve and improve commercial law as embodied or as might be embodied in, or as might impact upon, the UCC. The UCC Committee has attempted to meet these objectives over the past year in the following ways: (a) Education. The Committee accomplishes this objective through its meeting and the meetings of its subcommittees and task forces; its studies and projects which may produce written reports and model agreements; publications; programs at the Section and Annual meetings, as well as mini-programs at the meeting of its subcommittees; the Committee's publication, The Commercial Law Newsletter, cosponsored with the Commercial Financial Services Committee; and an extensive annual survey published each year in the August issue of The Business Lawyer which covers the substantive law developments under and concerning the UCC. (b) Law Reform. The Committee accomplishes its objective to preserve and improve upon commercial law both domestically and abroad through on-going monitoring of commercial developments, and production of written reports and studies documenting need (or lack of need) for law reform; participation in or monitoring of ongoing law reform efforts by subcommittees or task forces; individual participation in drafting committees established by the National Conference of Commissioners on Uniform State Laws or the American Law Institute; conduct of research or preparation of reports to assist other groups such as the Permanent Editorial Board in its various functions; and assistance in
6 monitoring the enactments of completed revisions. The Committee actively works to export the UCC abroad by producing educational materials that explain our laws as well as by contributing to the development of US positions for international commercial law projects sponsored by UNCITRAL, Unidroit or the Hague. 7. Long Term Planning and Goals The Committee's long-term goals have not changed since my last report. We will continue to work toward the objectives described above. However, as I indicated in my last report, with the end of the UCC revision projects, the Committee leadership is shifting its focus away from drafting projects and enactment and toward current issues of concern to practitioners. Whereas in the past many of our education efforts and projects have been driven by changes in the Code, I expect to see more programs that explore the fluid boundaries of the Code and the interplay between the UCC and other areas of commercial practice. I anticipate that the Committee will also look to increase the ways in which we can serve as a resource to law students, young lawyers, professors, consumer representatives and solo practitioners through publications (both traditional print and electronic), listserves and websites. Clearly if the UCC Committee is to remain vital, it needs to go through this type of metamorphosis. I think we have already made some positive changes in this direction and I plan to spend the remainder of my term as chair ensuring that this trend continues. During 2004, I plan on working with the Committee vice chairs as well as the rest of the UCC leadership to re-articulate the long term goals of the Committee. 8. Pro Bono Since its inception, the activities of the Committee have supported the twin goals of the Outreach Committee: to provide assistance to the public and to promote positive public perception of business lawyers. Committee members donate thousands of hours of time every year to reviewing and commenting on proposals to revise the UCC and UCC related legislation both domestically and abroad. This effort requires not only legal analysis and research, but also time with the business people, consumers and others affected by the changes to understand their needs and limitations. In the case of the UCC and other uniform laws, once the Official Text is revised, a similar effort is required to obtain passage of uniform legislation in all fifty states. In addition, the Task Force on Consumer Involvement, under the leadership of Bill Woodward and Mike Ferry, is considering ways of involving more persons representing consumers in the Committee's activities. The Task Force is considering several consumer projects including a publication for consumer advocates and the consumer lending website described above. The Section has appointed three Consumer Fellows whom the Section supports in attending the Spring and Annual Meetings: David MacMahon and Yvonne Rosmarin. The third Consumer Fellow, Mike Ferry, recently accepted the position of co-chair of the Task Force so one Consumer Fellow slot is currently vacant We would like to fill this slot with a state AG representative and are pursuing this for Spring Meeting The UCC Committee has actively involved the consumer representatives in the various legislative efforts to help provide other perspectives on issues of ommercial law that affect those who are in need of pro bono services. At the Spring Meeting in Seattle, the Committee put on a program aimed at educating lawyers and law firms on issues of consumer protection in commercial transactions. The program was a success with over 70 people in attendance (and the majority staying for its entirity). We will continue to do this type of programming. Jill Gelineau is the Committee s liaison to the Section Pro Bono Committee.
7 9. Legislative Developments (Optional) The legislative developments in which the Committee is involved are of two types: (a) revision of current uniform statutes or drafting of new commercial statutes; and (b) enactment of officially promulgated revisions to the Uniform Commercial Code. (a) Drafting Projects. Below I list only those UCC revision projects that were on-going in I also include other drafting projects in which the Committee is currently involved. (i) Certificate of Title Laws. NCCUSL has appointed a drafting committee for this project. Alvin Harrell, chair of the Committee s Task Force on Certificate of Title Laws, is the reporter. Earl F. Leitess is the ABA Advisor to the project. The Committee s Task Force on Certificate of Title Laws continues to provide significant input to this drafting project. In addition, after the 2004 Spring Meeting, the reporter to the Drafting Committee agreed to work with the Committee s Working Group on Simplification as the drafting continues. (ii) UNIDROIT -- The Subcommittee on International Commercial Law is actively involved in providing input to the US delegation to the UNIDROIT project to harmonize substantive international law for securities holdings. (iii) UNCITRAL -- Ben Beard, co-chair of the Subcommittee on General Provisions and Relations to other Laws, is serving as an ABA observer to the UNCITRAL Working Group on E-Commerce, which is currently considering, among other things, changes to the Convention on International Sales of Goods. (b) Legislative Enactments (i) Revised Article 1 has now been adopted in eight states. In addition to Texas, Virginia and the U.S. Virgin Islands, in 2004 Alabama, Delaware, Hawaii, Idaho and Minnesota passed Revised Article 1. It has been introduced in Massachusetts and West Virginia. (ii) Article 2 (Sales) (2003). At the 2004 Winter Meeting the Committee recommended that our ABA House of delegates support the 2003 amendments to Article 2. The House of Delegates passed a resolution supporting the Amendments earlier this year. UCC Article 2 (2003) has not been adopted in any state. (iii) Article 2A (Leases)(1987)(1990). Article 2A has currently been enacted by the District of Columbia and all states, other than Louisiana and has not been adopted by Puerto Rico. (iv) Article 2A (Leasing) (2003). At the 2004 Winter Meeting the Committee recommended that our ABA House of Delegates support the 2003 amendments to Article 2A. The House of Delegates passed a resolution supporting the Amendments earlier this year. UCC Article 2A (2003) has not been adopted in any state. (v) Articles 3, 4, 4A (Negotiable Instruments, Bank Deposits and Collections and Funds Transfers). Revised Article 3 and amended Article 4 (1990) have been adopted by the District of Columbia and Puerto Rico and all states, other than New York and South Carolina. In 2004, the New York Senate Judiciary committee introduced the 1990 versions of Articles 3 and 4. Article 4A has been adopted by all of the states, the District of Columbia and Puerto Rico, and the Federal Reserve has adopted it by regulation. (vi) Articles 3 and 4 (2002 Amendments). The 2002 amendments to Articles 3 and 4 have been adopted by Minnesota. They were introduced in Massachusetts in 2004 by the House Banking committee. (vii) Article 5 (Letters of Credit). Revised Article 5 has been adopted in all states, except Wisconsin, and has not been adopted in Puerto Rico. (viii) Article 6 (Bulk Sales). Revised Article 6 (Repealer) has been adopted by 45 states and Puerto Rico and Revised Article 6 (Alternative Article 6 Amendments) has been adopted by California, Indiana, Virginia and the District of Columbia. It has not been repealed or revised in Georgia, Maryland, and Wisconsin. In 2004, Arizona, Missouri and North Carolina joined the states that had previously repealed Article 6. (ix) Article 7. In 2000, a new NCCUSL-ALI drafting committee was formed to revise Article 7 of the UCC on Documents of Title. This committee was authorized in light of the ABA Task Force on Article 7's report to the Permanent Editorial Board for the UCC recommending revision. Drew Kershen, former chair of the Task Force on Article 7, and Linda Rusch were appointed co-reporters. William Towle, the chair of the Subcommittee on Article 7 served as the ABA Advisor. Henry Gabriel, a former chair of the Subcommittee on Sales, was the chair of the drafting committee. Linda Rusch was one of the ALI members of the drafting committee. This act was approved by the ALI at its 2003 Annual Meeting and by NCCUSL at its August 2003 meeting. In 2004, Revised Article 7 was adopted in eight states Alabama, Connecticut, Delaware, Hawaii, Idaho, Maryland, Minnesota, and Virginia. (x) Article 8 (Investment Securities). Article 8 has been adopted in all 50 states plus the District of Columbia, Puerto Rico and the U.S. Virgin Islands. It has also been incorporated into Federal regulations governing U.S. Government and agency securities. At the ABA 2003 Annual Meeting, the Committee was successful in working with the Council and the International Law Section to get full ABA endorsement of The Hague Convention on the Law Applicable to Securities Held with an Intermediary, which generally adopts the Revised Article 8 approach to
8 choice of law issues. (xi) Article 9 (Secured Transactions). Revised Article 9 was completed in 1998 and has been adopted in all states, the District of Columbia and the U.S. Virgin Islands. It has not been adopted in Puerto Rico. In 2004, Oklahoma adopted amendments to Article 9 and amendments were introduced in Massachusetts and Missouri. 10. Judicial and Administrative Developments (Optional) (a) Judicial. Each year the UCC Committee prepares and publishes an annual survey focusing upon judicial and other developments under or relating to the UCC in the August issue of The Business Lawyer. (b) Administrative. The Board of Governors of the Federal Reserve System has issued proposed regulations to implement C21. The comment period ended March A final rule is expected in late July A second proposal on rules for Reserve Banks to address C21 was issued for comment in May Both of these rule makings must be final prior to the effective date of C21 -- October 28, 2004 The Office of the Comptrollor of the Currency issued a a pre-emption opinion that arguably provided for the UCC to be pre-empted with respect to the acts of national banks. WOrking with NCCUSL, the ALI and the PEB, a clarification of the OCC opinion was obtained which indicates that this is not the intent. The OCC clarification has been posted on the UCC website. 11. Section Staff and Leadership Support
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