Lien on Me

SidebarJoy Karnes of O'Cieran & Middlebrook Inc. provides peace of mind to businesses through Uniform Commercial Code liens

by Molly Farrell

Photos: Jeff Clarke

A decade ago, Joy Karnes was a Vermont Law School student working as a law clerk and questioning her career path. "I was somewhat disillusioned with law and was looking for something else to do," she says. The catalyst to founding her business came when "Rossignol's vice president called and said his company needed some Uniform Commercial Code work done," says Karnes. "Ski companies were concerned about putting their skis in retail stores and were getting UCC liens to protect their property interests." The call wasn't entirely out of the blue: Karnes was engaged to Tom Karnes, the corporate credit manager at Rossignol Ski Co.

She opened her UCC filing company after graduating in 1990 and named it O'Cieran & Middlebrook Inc. "My maiden name was Middlebrook and I was about to marry Tom so if I had called the business Karnes and Middlebrook, the public, and particularly the ski industry where I was working, would have assumed that he was a part of the company, making it a conflict of interest," says Karnes. "O'Cieran is Gaelic for Karnes, and using two names made the company look like it had more people than just me."

Karnes faced serious competition from huge UCC filing companies like Information America (formerly Data File Services) of California and NCS of Ohio. "When I started marketing my services, I felt like a little guppy among some big fish," she remembers. To attract more clients, Karnes flew to a ski show in Las Vegas, Nev., and met representatives from other ski companies. She also gave lectures around the country on UCC law, which attracted one of her first big clients, Riteway, the distributing arm for Schwinn GT bicycles.

Joy Karnes

O'Cieran & Middlebrook Inc. in Williston prepares liens to protect suppliers. Principal Joy Karnes explains the firm has 150 clients, including most of the major ski and bicycle manufacturers as well as Mobil, Exxon, Johnson and Johnson, Boston Acoustic and Panasonic.

In 1990, Karnes spoke to a group of credit managers that included Cleland Homsi of Riteway. "At the time, dealers in the bicycle industry didn't use UCCs as a way to secure their products," says Homsi.

Jeanette Lucas, the corporate credit manager for Cannondale, a high-end manufacturer of road, mountain and touring bicycles and bicycle products, also attended one of Karnes' lectures. "We belong to a credit managers association and Joy was brought in six or seven years ago to speak about UCC filings," says Lucas. "We were just starting to secure our products with UCC liens but not on a large level. When we started doing more, Joy was the first person I thought of because she was very knowledgeable."

Karnes' business doubled the second and third years and at one point she put a hold on accepting new clients. "When I started, my biggest concern was personal service, including answering phone calls the same day," she says. O'Cieran & Middlebrook has 150 clients, including most of the major ski and bicycle manufacturers as well as Mobil, Exxon, Johnson and Johnson, Boston Acoustic and Panasonic. "I think that a large part of our success was that we focused on a narrow expertise," she notes.

Some of her clients file fewer than 10 liens a year and some file hundreds. "I like to think that we provide the same level of service to all of them," she adds. Jerry Deutch, corporate credit manager for Boston Acoustics in Peabody, Mass., a manufacturer of home, auto and computer speakers, hired Karnes six years ago. "Joy was heavily involved in the ski industry, which I used to work for, and she came highly recommended," he says. "We file UCC liens on a weekly basis and Joy gets it accomplished in a timely manner. I tried other companies but she was faster, more comprehensive and more oriented to detail."

The two most common kinds of UCC liens handled by O'Cieran & Middlebrook are purchase money liens on specific products and blanket liens on everything a company owns. "Banks use blanket liens when they provide floor financing on a line of credit and don't know what the line of credit will be used for," she explains. Karnes prepares the lien paperwork and sends it to the debtor to sign, along with an explanation of how the UCC process works.

The documents include the security agreement, the private portion of the lien provided only to the creditor and the debtor; and a financing statement, which is filed with the appropriate Secretary of State, county or town office. "There is nothing uniform about the Uniform Commercial Code," notes Karnes. "We use a UCC guide service that is updated monthly so we can keep abreast of changes.

"When we send in the financing statement we ask the Secretary of State's Office to do a search of any prior UCC lienholders," says Karnes. "If other companies or banks have blanket liens on the bike shop that our client just filed a lien on, I send the prior lienholders notice letters to let them know that my client's bikes are exempted from any interest they might claim."

Once the process is completed, the paperwork is sent to the client with the bill. "We don't bill the client until all the work is done," notes Karnes. "We send them the paperwork in a bound package because it's easier for the client to find all of the pieces if they need to proceed with collection or bankruptcy claims."

Linda Henry & Celine Ingalls

O'Cieran & Middlebrook monitors its clients' liens at no extra cost, using a customized database created by David Middlebrook of Adamant Development in Colchester. Pictured: office manager Linda Henry (left) and bookkeeper Celine Ingalls.

UCC liens are generally valid for five years but can be renewed indefinitely. O'Cieran & Middlebrook monitors the clients' liens at no extra cost. "We send an update every four years of liens that are about to expire in the next six months," explains Karnes. "Most lawyers don't have the means to do this. We have a customized database that was created by my brother, David Middlebrook, and his company, Adamant Development of Colchester, just to monitor these UCCs."

"UCCs are a great way to protect yourself," says Karnes. "Personal guarantees aren't worth as much as they used to be and with the rate of bankruptcies so high, UCCs are one way to minimize damage." She knows of one computer company that shipped several million dollars' worth of equipment to a retailer. When the retailer filed for bankruptcy the computer company lost everything. "For $125 they could have gotten a UCC lien and been completely secured," notes Karnes.

Some credit managers try to file UCC liens themselves. "It's not hard but it's very onerous," says Karnes. "You need to know what you're doing so the filing doesn't end up being worthless." She says UCC filings most commonly fail because the incorrect debtor name is used. "If the lien is filed under the company's dba (trade name) instead of the correct legal name it won't hold up even if it's the correct dba name," she explains.

"It took a big burden off of my shoulders to hire Joy because UCC liens have to be filed perfectly or they're null and void," adds Homsi.

Karnes' offices in the Blair Park complex in Williston are decorated with the artwork of her two children, 6-year-old Eoin (pronounced like "Owen") and 3-year-old Brendan. There, she works with bookkeeper Celine Ingalls and office manager Linda Henry. "It's not like they work for me," notes Karnes. "We all work together and check each other's work." Ingalls has been the bookkeeper since 1994. "Celine and I used to be in a knitting group together and I mentioned that I needed part-time help," remembers Karnes. "I'm not a financial person and Celine came in and set up a system. I credit her with a lot of the success of the company because of her financial management." Karnes refers to Henry, who has been with the company since it started, as "the glue that holds the business together."

Karnes is planning to hire two paralegals for two businesses she started this summer. One is a title update service that operates under the O'Cieran & Middlebrook name, and the second is a part-time legal practice under her name, Joy Middlebrook Karnes Esq., which specializes in real estate.

Karnes' business kept her so busy that she didn't apply for admission to the Vermont Bar until 1995. At that time, she began doing legal work for her UCC clients. "She did such a good job with the UCCs that I started using her for collections as well as to draft promissory notes and deeds of trust," notes Homsi. "Now, I send a lot of legal work to her instead of using Riteway's in-house attorneys."

Lucas also relies on Karnes for legal advice. "Because she's an attorney, I pick her brain a lot. She's willing to research things and get back to me with the answers, even if it's outside of the scope of the UCC."

In March, Karnes began working mornings for a local law firm doing title searches and collections. Three months later she started her private real estate practice. "I had 14 closings the last week of July," she notes.

Scott Funk, a mortgage originator for Norwest Mortgage, was referred to her by attorney David Olenick. "She's got so much energy and is a perfectionist in how she goes about the job," notes Funk. "She has a sensitivity to the stress everyone is going through. It's hard to believe that she's a lawyer."

"As good and as hard as she works, she could soon have more business than she needs," adds Olenick.

Molly Farrell is a freelance writer living in Burlington who specializes in business, law and environmental issues. This is her first article for Business People.