MEZZANINE LOANS THE VAGARIES OF MEMBERSHIP INTEREST COLLATERAL

Transcription

1 COMMERCIAL FINANCE COMMITTEE AND UNIFORM COMMERCIAL CODE COMMITTEE FALL MEETING MEZZANINE LOANS THE VAGARIES OF MEMBERSHIP INTEREST COLLATERAL Presented by: Teresa Wilton Harmon, Partner, Sidley Austin LLP, Chicago, Illinois Evangelos (Andy) Kostoulas, Associate, Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware Norman M. Powell, Partner, Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware James D. Prendergast, General Counsel, Uniform Commercial Code Division, First American Title Insurance Company and Adjunct Professor at both Pepperdine University School of Law and Loyola of Los Angeles Law School, Santa Ana, California Mohammed S. Shaheen, Associate, Sidley Austin LLP, Chicago, Illinois

2 Mezzanine Loans : The Vagaries of Membership Interest Collateral Presented to the Commercial Finance and Uniform Code Committees of the American Bar Association s Business Law Section Wednesday, October 20, 2010 Norman M. Powell Young Conaway Stargatt & Taylor, LLP James D. Prendergast First American Title Insurance Company Teresa W. Harmon Sidley Austin LLP Evangelos Kostoulas Young Conaway Stargatt & Taylor, LLP Mohammed S. Shaheen Sidley Austin LLP Introduction Traditional Mortgage Loan Borrower owns real estate Secured by (first-priority) mortgage Mezzanine Loan Borrower is parent of the real estate owner entity Secured by Article 9 security interest in the parent s interest in its direct subsidiary Often a single-member Delaware LLC 1

3 Today s focus Introduction Creation and enforcement of security interests in membership interests in LLCs including: Dissociation Dissolution Cancellation These concepts also applicable to multi-member LLCs, though some may be of lesser concern Discussion Question #1 $30,000,000 mezz loan to DE LLC Lender & lender s counsel California Documentation standard California loan docs Collateral description simple & clear: 100% of my membership interest in XYZ, LLC, a Delaware limited liability company. Any problems? 2

4 Membership Interest Collateral Membership Interest in the LLC Colloquialism describing intended collateral Assumed by many to consist of both economic rights and control rights Can appear in Granting clauses of security agreements Collateral descriptions in related UCC1 financing statements Control agreements Membership Interest Collateral But in Delaware? Membership Interest is fraught with ambiguity Term does not appear in the Delaware LLC Act Instead the Delaware LLC Act discusses Economic Rights Control Rights Member Status So why use the term Membership Interest? 3

5 States Laws Differ (!) California s LLC Act uses the term a member s right in the LLC, collectively, including the member s economic interest, any right to vote or participate in management, and any right to information concerning the business and affairs of the LLC (California Limited Liability Company Act 17001(z)) States Laws Differ (!) New York s LLC Act uses the term a member s aggregate rights in an LLC, including, without limitation, (i) the member s right to a share of the profits and losses of the LLC, (ii) the right to receive distributions from the LLC, and (iii) the member s right to vote and participate in the management of the LLC (New York Limited Liability Company Law 102(r)) 4

6 States Laws Differ (!) Florida s LLC Act uses the term a member s share of the profits and losses of the LLC, the right to receive distributions of the LLC s assets, voting rights, management rights, or any other rights under this chapter or the articles or organization or operating agreement (Florida LLC Act (23)) States Laws Differ (!) Membership Interest is defined fairly consistently in various states But a great many mezzanine loans are intended to be secured by interests in a Delaware LLC 5

7 Discussion Question #2 Membership interest. Limited liability company interest. Isn t it obvious that we mean everything? Delaware Distinguishes Economic Rights, Control Rights, and Member Status A limited liability company interest is a member s share of the profits and losses of an LLC and a member s right to receive distributions of the LLC s assets (Delaware LLC Act (8)) LLC interest is merely economic Herein, for clarity, Economic Rights 6

8 Delaware Distinguishes Economic Rights, Control Rights, and Member Status In Delaware an LLC interest is merely an Economic Right, and does NOT include Right to manage or control Right to information and review of LLC books and records Right to compel dissolution Delaware Distinguishes Economic Rights, Control Rights, and Member Status In Delaware management of a single-member LLC is ordinarily the exclusive province of the sole member Herein, for clarity, Control Rights Unless otherwise provided, members hold Control Rights in proportion to their Economic Rights 7

9 Delaware Distinguishes Economic Rights, Control Rights, and Member Status In Delaware, Control Rights can be vested in managers who need not be members Managers can be further designated as officers, directors, or otherwise The Delaware LLC Act provides few operational requirements and procedures for exercising Control Rights Such matters should be addressed in the LLC Agreement Delaware Distinguishes Economic Rights, Control Rights, and Member Status In Delaware, a Member is simply a person who is admitted to an LLC as a member (Delaware LLC Act ) Herein, for clarity, Member Status Member Status bears little fixed correlation to Economic Rights or Control Rights A Member need not have any Economic Rights or Control Rights at all 8

10 Delaware Distinguishes Economic Rights, Control Rights, and Member Status Consider the Springing Member Generally, an LLC dissolves when it no longer has any members To reduce the likelihood of dissolution many LLC agreements create a springing member The springing member is not a member The springing member has agreed to become a special member automatically and concurrently with the termination of membership (dissociation) of the sole (or last) member Delaware Distinguishes Economic Rights, Control Rights, and Member Status Consider the Special Member (cont d) After springing, the springing member becomes a special member, but Has neither Economic Rights nor Control Rights The special member merely has Member Status The special member generally has no Economic Rights or Control Rights whatsoever except limited right to facilitate the admission of a replacement member 9

11 Discussion Question #3 Revised collateral description: 100% of my membership interest in XYZ, LLC, a Delaware limited liability company, including without limitation all of the economic interest and the right to vote or otherwise control the LLC. Any problems? Economic Rights and the Anti Assignment Override Delaware s LLC Act explicitly incorporates the public policy to give maximum effect to the principle of freedom of contract and to the enforceability of LLC agreements Delaware LLC Act (b)) Delaware permits and enforces restrictions on the alienability of rights and statuses relating to LLCs - Economic Rights, Control Rights, and Member Status 10

12 Economic Rights and the Anti Assignment Override Economic Rights are assignable unless the LLC agreement provides otherwise Delaware LLC Act (a) UCC Article 9 generally overrides restrictions on assignment of certain rights to receive payments ( 406 and 408) Are anti-assignment provisions effective with respect to Economic Rights? Economic Rights and the Anti Assignment Override The Delaware LLC Act provides that UCC and 408 do not apply to any interest in an LLC including all rights, powers and interests arising under an LLC agreement or this chapter. This provision prevails over and of [UCC Article 9]. For Delaware LLCs, there s no override for Economic Rights, Control Rights, or Member Status. 11

13 Economic Rights and the Anti Assignment Override UCC Article 9 as enacted in Delaware contains similar non-uniform text UCC Article 9 as enacted elsewhere (e.g., as elected to govern a given security agreement) presumably does not Which is controlling? Discussion Question #4 Debtor & SP agreed the Security Agreement is governed by California law. Don t California s UCC and California s definition of membership interest control? 12

14 Economic Rights and the Anti Assignment Override "whether a debtor's rights in collateral may be voluntarily or involuntarily transferred is governed by law other than this article. UCC Article 9 Section 401(a) Subsection (a) addresses the question whether property necessarily is transferable by virtue of its inclusion... within the scope of Article 9. It gives a negative answer.... Official Comment 4 to Section 401 Economic Rights and the Anti Assignment Override This result is harmonious with the internal affairs doctrine a state should not regulate the internal operations of a foreign corporation but leave such governance to the state of incorporation. 18 Am. Jur. 2d Corporations 15 (2d ed. 2008). 13

15 Discussion Question #5 Further revised collateral description: 100% of my membership interest in XYZ, LLC, a Delaware limited liability company, including without limitation all of the economic interest and the right to vote or otherwise control the LLC and all my rights as a member. Any problems? The Further Challenge of Control Rights & Member Status Unless the LLC agreement provides otherwise, "[a]n assignment of a limited liability company interest does not entitle the assignee to become or to exercise any rights or powers of a member." Section (b)(1) The assignee of a member's Economic Rights shall have no right to participate in the management of the business and affairs of a limited liability company except as provided in a limited liability company agreement. Delaware LLC Act (a). 14

16 The Further Challenge of Control Rights & Member Status Summary observations on Economic Rights Delaware law is clear and controlling Default rule - a secured party can freely enjoy Economic Rights Exception - subject to compliance with any restrictions in the LLC Agreement Assignment doesn t affect Control Rights Assignment for security doesn t affect Member Status The Further Challenge of Control Rights & Member Status Summary observations on Control Rights Delaware law is clear and controlling Default rule - a secured party has no Control Rights Exception a secured party has whatever rights it s given in the LLC Agreement Note: Control Rights are positively correlated with Member Status unless otherwise provided e.g. vesting of Control Rights in a Manager 15

17 The Further Challenge of Control Rights & Member Status Summary observations on Member Status Delaware law is clear and controlling Default rule - a secured party has no right to Member Status Exception as provided in the LLC agreement and upon Approval of all members, or Compliance with procedure in LLC Agreement Foreclosure Gets You What, Exactly? Under the Delaware default rules Secured party succeeds to all Economic Rights, but to neither Control Rights nor Member Status Debtor Member (or Manager) retains Control Rights Debtor Member retains Member Status The party with incentive to run the LLC has no power to do so The party with power to run the LLC has no incentive to do so 16

18 Discussion Question #6 That makes no sense. Even if that s what the Delaware LLC Act says, it can t really mean that. How can you enforce a statute that brings about an absurd result? Foreclosure Gets You What, Exactly? This outcome is a vestige of partnership law s pick-your-partner doctrine, and federal income tax treatment of LLCs prior to 1997 s check-the box regulations Both placed great importance on defeating free transferability of interests Neither is relevant to single-member LLCs 17

19 Foreclosure Gets You What, Exactly? Some consider this outcome absurd It is not an outcome mandated by the Delaware LLC Act It follows from default rules where the parties have not contracted otherwise The proximate cause is the LLC agreement, not the statute Foreclosure Gets You What, Exactly? A Court may disregard statutory language where it brings about an absurd result [t]he plain meaning of legislation should be conclusive, except in the rare cases in which the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters. United States v. Ron Pair Enters., 489 U.S. 235, 242 (1989) But arguing for disregard of statutory language the parties could have, but did not, override by contract is fundamentally different 18

20 Discussion Question #7 That can t be the outcome. Doesn t the debtor cease to be a member after the foreclosure sale? Doesn t the buyer at the foreclosure sale become the new member? Foreclosure Gets You What, Exactly? We consider arguments to two different consequences of foreclosure : upon foreclosure the debtor member is dissociated from Member Status under (b)(3), leaving the LLC with no member and in dissolution under Section (a)(4); or the foreclosing creditor/winning bidder succeeds to the Economic Rights, Control Rights, and Member Status, and the debtor member ceases to possess any of them. 19

21 Foreclosure Gets You What, Exactly? Problems with the arguments As noted, the Delaware LLC Act permits admission of a member who has no limited liability company interest (Economic Rights) But the Delaware LLC Act also provides that a member loses its Member Status upon assignment of all of its Economic Rights. Section (d); Section (11) Foreclosure Gets You What, Exactly? Though granting a security interest in Economic Rights is an assignment, a limited exception provides that the granting of a security interest does not of necessity result in loss of Member Status Delaware LLC Act (b)(3). These statutory default rules may reflect the legislature s presumptions about the likely intentions of relevant parties. 20

22 Foreclosure Gets You What, Exactly? Often where a member makes an outright assignment of all of its Economic Rights there is no desire or intention that it nevertheless retain its Member Status. The statutory default rule facilitates this presumptive outcome Other outcomes can be had as stipulated by contract Foreclosure Gets You What, Exactly? An exception seems warranted for the mere granting of a security interest An assignment merely for security is generally anticipated to be released after performance of the secured obligation the debtor will again be possessed of the full quantum of rights it possessed before granting the security interest. 21

23 Foreclosure Gets You What, Exactly? What if there s a foreclosure? Under Article 9 the purchaser will succeed to all of the rights the debtor has pledged as collateral. Under the Delaware LLC Act a different result follows (unless the parties contract otherwise) no one can possess Control Rights or achieve Member Status absent approval of any remaining members or as provided in the LLC agreement. Even the outright assignee of Economic Rights does not automatically or necessarily succeed to the Member Status lost by his assignor. Foreclosure Gets You What, Exactly? Granting of a security interest is a type of assignment An assignee does not achieve Member Status or possess Control Rights absent facilitative language in the LLC agreement or consent by the other members 22

24 Foreclosure Gets You What, Exactly? If the debtor member loses and the secured party does not achieve Member Status, the LLC has no members It must commence dissolution and winding up This seems a result to be disfavored. Foreclosure Gets You What, Exactly? Alternatively, perhaps the foreclosing secured party is admitted to Member Status without regard to the presence or absence of facilitative language in the LLC agreement But that requires disregard of clear statutory language that could have been overridden by provisions in the LLC agreement 23

25 Foreclosure Gets You What, Exactly? The check-the-box rationale for constraining achievement of Member Status is anachronistic in all LLCs The pick-your-partner rationale remains relevant in multi-member LLCs But in single-member LLCs it exposes lenders to serious frustration unless documentation is particularly well drawn Is there commensurate benefit? Conclusions Always describe the collateral by use of words and phrases with antecedents in the Delaware LLC Act or the relevant LLC Agreement The term membership interest appears nowhere in the Delaware LLC Act 24

26 Conclusions The Delaware LLC Act is controlling with respect to prohibitions on and preconditions to the granting of a security interest, even those merely in Economic Rights Economic Rights can be pledged unless restricted Control Rights and Member Status cannot be pledged absent facilitative language or action Conclusions The Delaware LLC Act affords the contractual flexibility necessary to facilitate a secured party s succeeding to Economic Rights, Control Rights, and Member Status LLC Agreements and Security Agreements need to be drafted with great care to facilitate that outcome Audit or review of existing security interests, and corrective measures, may be warranted 25

27 Suggested concepts to be addressed in special section of LLC agreement Supercedes all other provisions of LLC agreement LLC agreement provides rights to and can be enforced by secured party (18-201(7)) Member may transfer or assign his LLC interest to secured party Suggested concepts to be addressed in special section of LLC agreement (cont d) all of the Member s right, title, and interest in the LLC, whether derived under the Certificate of Formation, the LLC Agreement, the LLC Act, or otherwise, including without limitation its limited liability company interest (as such term is defined in Section (8) of the Statute), the Member s status as a member (as such term is defined in Section (11) of the Statute), and the Member s right to participate in the management of the business and affairs of the LLC 26

28 Suggested concepts to be addressed in special section of LLC agreement (cont d) the Lender or other successful bidder at a foreclosure sale or other disposition automatically succeeds to the debtor s limited liability company interest (as such term is defined in Section (8) of the Statute), status as a member (as such term is defined in Section (11) of the Statute), and right to participate in the management of the business and affairs of the LLC Suggested concepts to be addressed in special section of LLC agreement (cont d) the Lender or other successful bidder at a foreclosure sale or other disposition is deemed admitted as a member of the Company immediately before the Member ceases to be a member, has power and authority to remove managers, and has power and authority to amend & restate LLC Agreement. 27

29 Suggested concepts to be addressed in special section of LLC agreement (cont d) if at any time the LLC would otherwise dissolve, such dissolution shall not occur if the Lender designates a successor member for admission to the LLC (Section (a)(4)(b)), Such admission shall be consummated and memorialized in any manner designated by the Lender in its discretion. Discussion Question #8 We have now addressed the concepts you have raised in a special section of the LLC agreement. Upon default, can we now proceed with foreclosure as with any other type of collateral? 28

30 Remedies Upon Default Private or Public Sale of Collateral ( 9-610) Acceptance of Collateral in Full or Partial Satisfaction of Obligation ( Strict Foreclosure ) ( 9-620) Private or Public Sale Commercially Reasonable ( 9-610(b)) Notice of disposition ( 9-611) Secured party cannot typically purchase in private sale ( 9-610(c)) Securities laws may apply 29

31 Commercially Reasonable Every aspect of a disposition of collateral, including the method, manner, time, place, and other terms, must be commercially reasonable. ( 9-610(b)) A disposition of collateral is made in a commercially reasonable manner if the disposition is made... in conformity with reasonable commercial practices among dealers in the type of property that was the subject of the disposition. ( 9-627(b)(3)) Commercially Reasonable (cont d) For public sales, public must have a meaningful opportunity for competitive bidding (Comment 7 to 9-610) Advertising for public sale: [T]he purpose of requiring adequate advertising of a foreclosure sale is to force the secured party to ensure the auction is well attended by legitimate bidders, so that the highest commercially reasonable price for the collateral will be obtained. Ford & Vlahos v. ITT Commercial Finance Corp., 885 P.2d 877 (Cal. 1994) Secured party should hire (or at least consider hiring) an outside third party to conduct the sale and provide guidance with respect to commercial reasonableness of disposition. 30

32 Commercially Reasonable (cont d) Due diligence information provided to prospective buyers of LLC interests will need to be significant perhaps even greater than to prospective buyers of real estate. Securities laws will likely affect conduct of public sale. Securities Laws Is an LLC interest a security? Definition of security under UCC and federal securities laws differ UCC 8-103(c): An interest in a partnership or limited liability company is not a security unless it is dealt in or traded on securities exchanges or in securities markets, its terms expressly provide that it is a security governed by this Article, or it is an investment company security. 31

33 Securities Laws (cont d) Section 2(a) of the Securities Act of 1933: The term security means any note, stock.... investment contract... or, in general, any interest or instrument commonly known as a security... Securities Laws (cont d) Howey Test for investment contracts most appropriate for LLC interests: the presence of an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others (United Housing Foundation, Inc. v. Forman, 421 U.S. 837 (1975)) LLC interests will likely be considered securities 32

34 Tension between Commercial Reasonableness and Securities Laws If LLC interests are securities, would foreclosure pursuant to a public sale be subject to the registration requirements of the Securities Act of 1933? Dispositions of investment property may be regulated by the federal securities laws. Although a public disposition of securities... may implicate the registration requirements of the Securities Act of 1933, it need not do so. A disposition that qualifies for a private placement exemption under the Securities Act of 1933 nevertheless may constitute a public disposition (Comment 8 to 9-610) Tension between Commercial Reasonableness and Securities Laws (cont d) But how can we meet the requirements of commercial reasonableness under 9-610(b) while keeping a public sale sufficiently private for purposes of the Securities Act? [C]ommercially reasonable requirements of [ 9-610(b)] need not prevent a secured party from conducting a foreclosure sale without the issuer s compliance with federal registration requirements. (Comment 8 to 9-610) Although the term is not defined, as used in this Article, a public disposition is one at which the price is determined after the public has a meaningful opportunity for competitive bidding. Meaningful opportunity is meant to imply that some form of advertisement or public notice must precede the sale (or other disposition) and that the public must have access to the sale (disposition). (Comment 7 to 9-610) 33

35 Tension between Commercial Reasonableness and Securities Laws (cont d) Exemptions from registration requirements of the Securities Act should be carefully examined. SEC No-Action Letters (and facts in requesting letters) provide guidance in determining whether a public sale under is sufficiently private for purposes of the Securities Act. Tension between Commercial Reasonableness and Securities Laws (cont d) Key factors in SEC No-Action Letters include: Purchased with investment intent (not with a view toward sale or distribution) Availability of information concerning the LLC Transfer restrictions (with appropriate legends) Public sale in accordance with UCC 34

36 Tension between Commercial Reasonableness and Securities Laws (cont d) Key factors in SEC No-Action Letters include (cont d): Public notice of disposition should advise prospective bidders of restrictions Secured party believed loan would be repaid at time loan was made Sold as a block to a single purchaser Strict Foreclosure Full or partial satisfaction of underlying debt ( 9-620) Debtor consent required ( 9-620(c)) Partial satisfaction requires debtor s affirmative consent Consent may be presumed for full satisfaction Notice of strict foreclosure ( 9-621) 35

37 Advantages of Strict Foreclosure Streamlined process: Low transaction costs Faster Consistent with non-recourse nature of most mezzanine loan transactions Nonadversarial But debtor may not be cooperative Conclusions If public sale is pursued, careful consideration should be given to balancing the requirements of applicable securities laws and UCC requirements of commercial reasonableness Review of applicable case law and no-action letters is necessary Secured party should hire (or at least consider hiring) an outside third party to conduct the sale and provide guidance with respect to commercial reasonableness of disposition. 36

38 Conclusions (cont d) If public sale is pursued, due diligence information provided to prospective buyers of LLC interests will need to be significant perhaps even greater than to prospective buyers of real estate Strict foreclosure (if available) will likely be preferable to a public sale This presentation is for informational purposes only and does not constitute legal advice. This information is not intended to create, and receipt of it does not give rise to, a lawyer-client relationship. Readers should not act upon this without seeking advice from professional advisers. Follow-up questions about this presentation can be directed to: Norman M. Powell, Esquire Young Conaway Stargatt & Taylor, LLP The Brandywine Building 1000 West Street, P.O. Box 391 Wilmington, DE Phone: (302) Fax: (302) npowell@ycst.com Evangelos Kostoulas, Esquire Young Conaway Stargatt & Taylor, LLP The Brandywine Building 1000 West Street, P.O. Box 391 Wilmington, DE Phone: (302) Fax: (302) ekostoulas@ycst.com James D. Prendergast, Esquire General Counsel, UCC Division First American Title Insurance Company 5 First American Way Santa Ana, CA Phone: (800) Fax:(714) jprendergast@firstam.com Mohammed S. Shaheen, Esquire Sidley Austin LLP One South Dearborn Street Chicago, IL Phone: (312) Fax: (312) mshaheen@sidley.com Teresa W. Harmon, Esquire Sidley Austin LLP One South Dearborn Street Chicago, IL Phone: (312) Fax: (312) tharmon@sidley.com 37

39 Mezzanine Loans: The Vagaries of Membership Interest Collateral Presented to the Commercial Finance and Uniform Code Committees of the America Bar Association s Business Law Section Wednesday, October 20, 2010 Chicago Speaker Biographies Teresa Wilton Harmon is a partner at Sidley Austin LLP. Ms. Harmon's practice focuses on financial transactions and commercial law. Her transactional experience includes secured and unsecured loans, workouts, structured finance and securitization. Her commercial law experience includes all articles of the Uniform Commercial Code, with special emphasis on Article 9 secured transactions. Ms. Harmon has also assisted clients in litigation and bankruptcy matters involving commercial law issues. Ms. Harmon is a nationally recognized speaker on commercial law and finance issues and is active in several professional organizations. She is a Regent of the American College of Commercial Finance Lawyers and a member of the American Law Institute. She is active in the Section of Business Law of the American Bar Association and currently serves as its liaison to the Permanent Editorial Board for the Uniform Commercial Code. Ms. Harmon is past chair of the ABA's Securitization Subcommittee and the Chicago Bar Association's Commercial Finance and Transactions Committee. She has spoken at several American Bar Association, ALI-ABA and Practising Law Institute seminars and conducts frequent training presentations for clients. Ms. Harmon co-chairs the firm's Training and Development Committee. She has taught Secured Transactions as an adjunct professor at The University of Illinois College of Law and has served as an adjunct professor in the Brennan School of Business at Dominican University, where she taught business law, ethics and legal issues involving not-for-profit organizations. Ms. Harmon graduated with honors from The Law School at The University of Chicago, where she was a member of The Law Review. She clerked for the Honorable Phyllis Kravitch of The United States Court of Appeals for the Eleventh Circuit. Evangelos ( Andy ) Kostoulas is an associate at the Delaware law firm of Young Conaway Stargatt & Taylor, LLP. He focuses his practice on commercial transactions and providing third party legal opinions with respect to business entities, security interests, and other applicable Delaware law. His transactional experience includes assisting clients with tax planning, asset sales, debt restructuring, financing, and general contractual matters, both inside and outside of bankruptcy. Mr. Kostoulas has written articles for the Commercial Law Newsletter produced by the ABA Business Law Section and is a regular contributor to his firm s Delaware Transactional and Corporate Law Update newsletter. He earned his B.S. from the Massachusetts Institute of Technology, and his J.D. from the University of Pennsylvania Law School. Mr. Kostoulas also earned a Certificate in Business and Public Policy from the Wharton School and was a Production Editor for the University of Pennsylvania Journal of Constitutional Law. Norman M. Powell is a partner in the Delaware law firm of Young Conaway Stargatt & Taylor, LLP. He concentrates his practice on the structure and use of Delaware entities, and frequently provides third party legal opinions concerning business entities, security interests, and other applicable Delaware law. Mr. Powell regularly counsels clients with respect to security interest and entity governance issues in connection with transactional closings, enforcement actions, and bankruptcy and non-bankruptcy reorganizations. He is a past Chairman of the Delaware State Bar Association s Real and Personal Property Section, serves on Delaware s subcommittee on the Uniform Commercial Code, is a Vice Chairman of the Uniform Commercial Code Committee of the American Bar Association s Business Law Section, and is a YCST01:

40 Fellow of the American College of Commercial Finance Lawyers. Messrs. Powell and Prendergast are the co-authors of Mezzanine Loans: The Vagaries of Membership Interest Collateral, published by ALI-ABA in the September 2010 issue of The Practical Real Estate Lawyer and by the American Bar Association s Real Property, Trust and Estate Law Section in the September/October 2010 issue of Probate & Property, on which today s presentation is based. James D. Prendergast is a Senior Vice President and the General Counsel of the Uniform Commercial Code Division of First American Title Insurance Company. Prior to joining First American in 2001, Mr. Prendergast was in private practice in the Los Angeles area for over 25 years, concentrating his practice in commercial and corporate finance. Mr. Prendergast is the Co-Chair of the American Bar Association Business Law Section s Joint Task Force on Filing Office Operations and Search Logic, an Official Observer to the ALI/ULC Review Committee on Article 9, a Member of the UCC Committee of the Business Law Section of the State Bar of California, a past Chair of the Commercial Law and Bankruptcy Section of the Los Angeles Country Bar Association, a past President of the Financial Lawyers Conference, a past Chair of the Programs Committee of the Commercial Financial Services Section of the Business Law Section of the American Bar Association; and a Fellow of the American College of Commercial Finance Lawyers. Mr. Prendergast is an Adjunct Professor of Secured Transactions and Bankruptcy Law at Pepperdine University School of Law and of Secured Transactions Law at Loyola of Los Angeles School of Law. Messrs. Powell and Prendergast are the co-authors of Mezzanine Loans: The Vagaries of Membership Interest Collateral, published by ALI-ABA in the September 2010 issue of The Practical Real Estate Lawyer and by the American Bar Association s Real Property, Trust and Estate Law Section in the September/October 2010 issue of Probate & Property, on which today s presentation is based. Mohammed S. Shaheen is an associate at Sidley Austin LLP. Mr. Shaheen s practice focuses on structured finance and commercial lending. His structured finance experience includes the securitization of a wide array of assets, including auto loans, life settlements, credit card receivables, structured settlements, floorplan loans, and mortgage loans. He has also been involved in the formation and structuring of commercial paper conduits. Mr. Shaheen s commercial lending experience includes the representation of lenders, agents and letter of credit issuers in secured, unsecured, single currency, multicurrency and crossborder transactions. Mr. Shaheen earned his B.A. from the University of Chicago, with honors, Phi Beta Kappa, and his J.D. from Harvard Law School, cum laude. Mr. Shaheen was an editor for the Harvard International Law Journal and was a research assistant at the Harvard Islamic Finance Project. YCST01: