In HBKY, LLC v. Elk River Export, LLC, 150 F.4th 480 (6th Cir. 2025), the Sixth Circuit reaffirmed fundamental principles of the Uniform Commercial Code (“UCC”) governing secured transactions, holding that a lender’s perfected security interest in timber survived the debtor’s unauthorized sale to a third party. The decision underscores the narrow circumstances in which a purchaser may acquire collateral free of an existing lien.
Kingdom Energy Resources, LLC obtained a $22 million loan from HBKY, LLC, as agent, secured by a mortgage on timberlands. Kingdom later contracted with Elk River Export, LLC to cut and remove timber from those properties. When Kingdom defaulted on the loan, HBKY foreclosed on the collateral, including the timber, prompting Elk River to claim superior rights as a “buyer in the ordinary course of business.” The district court granted summary judgment to HBKY, and the Sixth Circuit affirmed.
The court rejected Elk River’s contention that the loan documents authorized a sale of timber free of HBKY’s lien. Although the transaction documents referenced the sale of timber, the mortgage explicitly stated that “any sale” would not impair HBKY’s security interest. Under the UCC, a security interest continues in collateral unless the secured party authorizes its disposition free of the lien. No such authorization existed.
The Sixth Circuit also rejected Elk River’s “buyer in the ordinary course” defense, finding no evidence that Kingdom was “in the business of selling timber.” The court emphasized that a single sale does not establish a regular course of business sufficient to satisfy UCC protections.
This decision reinforces that secured creditors retain their perfected interests absent an express release and serves as a caution to purchasers: before acquiring goods subject to a lien, confirm that the seller is regularly engaged in selling those goods and that any secured party has consented to the transaction.
