Opinion
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
Alameda County Super. Ct. No. RG05213503
SIMONS, J.
The secured transactions provisions of the California Uniform Commercial Code and the Nevada Revised Statutes Annotated (NRS) provide a “comprehensive scheme for the regulation of security interests in personal property and fixtures.” (U. Com. Code com. 1, 23B pt. 2 West’s Ann. Com. Code (2009 supp.) foll. § 9101, p. 2; Official com. 1, NRS (2008) foll. § 104.9101.) Plaintiff Stephen J. Kennedy (Kennedy) lent three Nevada limited liability companies, American Staffing, LLC, American Indo Staffing, LLC, and American Asian Staffing, LLC (collectively, American Staffing), $150,000 during 2003. In return, American Staffing assigned to Kennedy its right to payments from defendant HealthOne Staffing (HealthOne). The trial court determined that the assignment was covered by the secured transactions provisions of the California Uniform Commercial Code, and Kennedy was required to file a financing statement to perfect his interest in the assignment. Because Kennedy had failed to do so, the court entered a judgment in favor of HealthOne at the conclusion of Kennedy’s case-in-chief. We conclude the court erred, reverse the judgment, and remand for further proceedings.
The parties dispute whether Nevada or California law controls whether Kennedy was required to perfect his interest by filing a Uniform Commercial Code (UCC) financing statement, but they agree the law in both states is identical on the issue.
Because the trial court’s judgment followed HealthOne’s Code of Civil Procedure section 631.8 (hereafter section 631.8) motion for judgment, the factual summary is necessarily based on the evidence received during Kennedy’s case-in-chief.
American Staffing was established to meet an anticipated shortage of nurses in California by recruiting skilled nurses from India and China. By early 2003, American Staffing had contracts to furnish nurses to the County of San Joaquin and Sutter Health, and one of American Staffing’s principals, Bipin Patel (Patel), approached Kennedy to borrow money. Kennedy loaned American Staffing $50,000 in January 2003 and another $50,000 in May 2003. The loans were evidenced by promissory notes and secured by agreements providing Kennedy a “Security Interest” on American Staffing’s right to receive payments from the County of San Joaquin and any other entities. Kennedy drafted a UCC financing statement in January 2003, but did not file it.
HealthOne is a nurse staffing agency with contracts to furnish nurses to various California hospitals. In May 2003, American Staffing and HealthOne entered into a “Nurse Agency Agreement,” whereby American Staffing would supply nurses to HealthOne. American Staffing would receive $7 for each hour worked by each nurse.
Subsequently, Patel approached Kennedy seeking another $50,000 loan; American Staffing urgently needed funds to pay its immigration attorney so that nurses could come to California and start working. Kennedy told Patel that if he were to loan American Staffing additional funds he would have to file the UCC financing statement. Patel did not want the statement filed because he was seeking additional financing to bring 200 nurses into the country. It was proposed that Kennedy release his security and take an assignment of the HealthOne contract.
At the time, American Staffing expected to receive about $210,000 under the HealthOne contract. Exhibit I to the contract identified by name 13 nurses American Staffing would provide to HealthOne, but Patel informed Kennedy American Staffing would actually be providing only seven nurses. American Staffing expected to receive about $30,000 per nurse under the contract, yielding the $210,000 total. In June 2003, Kennedy loaned American Staffing the final $50,000 and took the proposed assignment. He agreed he would not enforce the prior security agreements and would not file a financing statement.
Of the $210,000 expected from the HealthOne contract, $20,400 had already been advanced by HealthOne to American Staffing.
Despite notice of the assignment, HealthOne made payments to American Staffing instead of Kennedy. In the meantime, American Staffing obtained a loan totaling $1.0 million from RGC, Inc. (RGC). In February 2004, American Staffing gave RGC a security interest on all its assets. In January 2005, RGC filed a UCC financing statement regarding its security interest.
In May 2005, Kennedy filed a complaint against American Staffing and HealthOne. The complaint contained six causes of action; only the fifth cause of action sought relief from HealthOne. American Staffing defaulted and the matter proceeded to a court trial on the cause of action against HealthOne, seeking monies due under the June 2003 assignment.
In January 2007, RGC foreclosed on its security interest in American Staffing’s assets.
At trial in June 2007, Kennedy sought to enforce the June 2003 assignment. At the close of Kennedy’s case-in-chief, HealthOne moved for judgment under section 631.8. HealthOne contended Kennedy lacked a valid claim because he never perfected his interest by filing a UCC financing statement before RGC foreclosed on its security interest. The trial court granted the motion and issued a statement of decision and judgment in HealthOne’s favor.
DISCUSSION
I. Standard of Review
The court granted HealthOne’s motion for judgment pursuant to section 631.8, subdivision (a), which states in relevant part: “After a party has completed his presentation of evidence in a trial by the court, the other party, without waiving his right to offer evidence in support of his defense or in rebuttal in the event the motion is not granted, may move for a judgment. The court as trier of the facts shall weigh the evidence and may render a judgment in favor of the moving party, in which case the court shall make a statement of decision . . ., or may decline to render any judgment until the close of all the evidence.” “Under the statute, a court acting as trier of fact may enter judgment in favor of the defendant if the court concludes that the plaintiff failed to sustain its burden of proof. [Citation.] In making the ruling, the trial court assesses witness credibility and resolves conflicts in the evidence. [Citations.]” (People ex rel. Dept. of Motor Vehicles v. Cars 4 Causes (2006) 139 Cal.App.4th 1006, 1012.) In reviewing the trial court’s decision, we view the evidence in the light most favorable to HealthOne and uphold the judgment if there is any substantial evidence to support it. (Pettus v. Cole (1996) 49 Cal.App.4th 402, 424-425.) Substantial evidence “is ‘evidence . . . “of ponderable legal significance, . . . reasonable in nature, credible, and of solid value.” ’ [Citation.]” (Estate of Young (2008) 160 Cal.App.4th 62, 76.)
II. The Statutory Context
Under both California and Nevada law, a party having an interest in the assets of an entity is required to file a UCC financing statement in order to perfect its interest under various circumstances, including when the interest results from “[a] sale of accounts, chattel paper, payment intangibles, or promissory notes.” (Cal. U. Com. Code, §§ 9109, subd. (a)(3), 9310, subd. (a); see also NRS §§ 104.9109, subd. (1)(c), 104.9310, subd. (a).) However, these provisions do not apply to numerous specified transactions, including the “assignment of a single account, payment intangible, or promissory note to an assignee in full or partial satisfaction of a preexisting indebtedness.” (Cal. U. Com. Code, § 9109, subd. (d)(7); NRS § 104.9109, subd. (4)(g); see also Board of Trustees v. Durable Developers, Inc. (Nev. 1986) 102 Nev. 401, 414 [discussing same language in former NRS § 104.9104, subd. (6)] (Durable Developers).) Moreover, certain transactions governed by these provisions are perfected when they attach and do not require the filing of a financing statement, including “[a]n assignment of accounts or payment intangibles which does not by itself or in conjunction with other assignments to the same assignee transfer a significant part of the assignor’s outstanding accounts or payment intangibles.” (Cal. U. Com. Code, § 9309, subd. (2); NRS § 104.9309, subd. (2).) Kennedy relies on each of these exceptions to the filing requirement and argues that no substantial evidence supports the trial court’s rejection of them.
In both states there is also an exception for assignments “for the purpose of collection only” (Cal. U. Com. Code, § 9109, subd. (d)(5); NRS § 104.9109, subd. (4)(e)), but the parties have not briefed that exception.
III. Analysis
In its statement of decision, the trial court found Kennedy obtained an assignment of multiple accounts, stating “[t]he purpose and intent of the assignment of accounts was to acquire an interest in substantially all of the ‘accounts’ and ‘rights to payment’ of [American Staffing], both as to those presently existing under the ‘Nurse Agency Agreement’ (Exhibit #1) and any ‘accounts’ or ‘rights to payment’ to be created by whatever means in the future.” HealthOne argues this finding defeats each of the two exceptions relied upon by Kennedy. But the statement of decision does not refer to any evidence supporting the finding. In the January and May 2003 security agreements, Kennedy obtained a security interest in American Staffing’s “right to receive any money due . . . under any present or future contract” between American Staffing and the County of San Joaquin “and any other person or entity and the proceeds of those payments.” However, the operative agreement was the June 2003 assignment of the HealthOne contract, which assigned to Kennedy only a single account: “any and all rights to receive all payments due, or to become due . . . pursuant to the ‘Nurse Agency Agreement’ dated May 12, 2003 (and also any other agreements between HealthOne Staffing, LLC and assignors and any affiliates of assignors).” In consideration for the June 2003 assignment, Kennedy specifically agreed “not to enforce any rights he may have under the security interests and prior assignments.”
Kennedy testified extensively regarding the June 2003 assignment, explaining that it was drafted when American Staffing sought to borrow funds in addition to the $100,000 it had already borrowed. At that time, Kennedy told American Staffing he would have to file a UCC financing statement regarding the security interest obtained at the time of the previous loans. Instead, it was agreed that Kennedy would give up his security interest and accept an “outright assignment” of the HealthOne account.
Accordingly, Kennedy’s testimony and the language of the June 2003 assignment offer no support for the trial court’s finding that the assignment involved multiple accounts. The only evidence cited by HealthOne to support this finding is a portion of the cross-examination of Kennedy during which he was asked about the scope of the assignment. HealthOne’s counsel asked, “Of all of the nurses who are employed under the nurses agreement . . ., how many of them are to be included within the ambit of the assignment . . . ?” Kennedy answered, “Well, all of them.” HealthOne’s counsel then elicited testimony from Kennedy that, if there were multiple contracts between HealthOne and American Staffing, the assignment “would embrace any contracts they have, including modifications and the like.” Contrary to HealthOne’s suggestion on appeal, Kennedy did not testify the assignment covered any other accounts.
There is no evidence of any contracts between American Staffing and HealthOne other than the May 2003 contract. HealthOne’s managing director testified there were no other contracts. Moreover, even where there are multiple contracts between two entities, the contracts may still constitute a single account. (Durable Developers, supra, 102 Nev. at pp. 414-415.)
There also is no substantial evidence Kennedy and American Staffing treated the assignment as a security interest. In Gold Coast Leasing Co. v. California Carrots, Inc. (1979) 93 Cal.App.3d 274 (Gold Coast), the court characterized an assignment as a security interest in part because there was testimony that when the assignee received payment from the assignor’s account it would write a check to the assignor for the difference between the amount the assignor owed and the amount the assignee received. The court concluded “it is apparent that [the assignor and assignee] intended the assignment agreement as security for [the assignor’s] obligation to pay [the assignee] under its truck leases, and that the assignment was unquestionably not for the purpose of collection only.” (Id. at p. 279; see also People ex rel. Franchise Tax Bd. v. Credit Managers Assn. (1977) 76 Cal.App.3d 344, 349 (Credit Managers Assn.) [assignment was a security interest where it constituted consideration for the creditors’ agreement to “a limited moratorium upon the enforcement of their claims against the corporations”].)
Both Gold Coast and Credit Managers Assn. were decided in the context of the “collection only” exception, currently located at section 9109, subdivision (d)(5) of the California Uniform Commercial Code.
There is no comparable testimony in this case. Kennedy testified he accepted the June 2003 assignment as a substitute for the security interest he already held, and the parties agreed he would keep the entire proceeds anticipated from HealthOne, $210,000. (See Ketcham v. U.S. (D.Nev. 1991) 783 F.Supp. 511, 516 [assignment does not create a security interest where it is made, not to secure payment, but as payment of the assignor’s debt].) Kennedy already had a security interest in all of American Staffing’s accounts, so it would have made little sense to surrender that for a security interest in the HealthOne account alone.
Also, in Gold Coast, supra, 93 Cal.App.3d at page 279, the court stated the filing of a financing statement was further indication the intent was to create a security interest; a financing statement was also filed in Credit Managers Assn., supra, 76 Cal.App.3d at page 349. In this case, Kennedy testified he was given the assignment so that he would not file a UCC financing statement.
It is worth noting that the proceeds from the HealthOne contract ultimately expanded significantly because American Staffing agreed to provide many more nurses to HealthOne. If at the time of the June 2003 assignment Kennedy and American Staffing expected such an expansion to occur, it would arguably support a conclusion that Kennedy obtained a security interest rather than an assignment, because the proceeds from the HealthOne contract ultimately far exceeded the amount Kennedy was owed. However, there is no evidence Kennedy and American Staffing anticipated in June 2003 an expansion beyond the original seven nurses. Kennedy testified Patel did not tell him American Staffing expected to recruit additional nurses under the HealthOne contract; he understood additional nurses were going to be recruited to satisfy other contracts. HealthOne does not argue that the subsequent independent decision of HealthOne and American Staffing to expand the contract is evidence of an intent in June 2003 that Kennedy would obtain only a security interest, and we are aware of no authority supporting such a proposition.
Kennedy seeks in this lawsuit not only the $210,000 in anticipated proceeds from the assignment but also the additional hundreds of thousands of dollars earned by American Staffing after expansion of the contract. We express no opinion regarding the appropriate scope of any recovery in this case.
Finally, HealthOne points to the trial court’s finding that “[t]he loans made by Plaintiff to [American Staffing] (exhibit 2, exhibit 6, exhibit 9, and exhibit 11) and assignments were part of a commercial financing transaction between the Plaintiff and [American Staffing].” HealthOne argues this finding is significant because the commentary to the statutes at issue states the exceptions from the filing requirement “exclude from the [Division/article] certain sales and assignments of receivables that, by their nature, do not concern commercial financing transactions.” (Assem. Com. com. 12, 23B pt. 2 West’s Ann. Com. Code (2002 ed.) foll. § 9109, p. 122; Official com. 12, NRS (2008) foll. § 104.9109.) HealthOne places too much significance on the commentary and the undefined phrase “commercial financing transactions.” The commentary does not state that an assignment within the express language of the exception should be excluded from the exception if a court makes a separate finding that the assignment “concern[s]” a “commercial financing transaction[].” Moreover, if that were the legislative intent, such a proviso would likely have been included in the statute itself.
Because Kennedy made a prima facie showing he received the “assignment of a single account,” the trial court erred in concluding his right to collect is governed by the California Uniform Commercial Code. Kennedy also contends that if the assignment were governed by the California Uniform Commercial Code, the interest perfected on attachment, even without the filing of a UCC financing statement, because the assignment of the HealthOne contract did not transfer a significant part of American Staffing’s “outstanding accounts or payment intangibles.” (Cal. U. Com. Code, § 9309, subd. (2); NRS § 104.9309, subd. (2).) Kennedy requested that the trial court make a finding on this issue, and objected to the absence of a finding in the proposed statement of decision. Because the court failed to make the requested finding, we are unable to presume the trial court found in favor of HealthOne on the issue. (Code Civ. Proc., § 634 [“When a statement of decision does not resolve a controverted issue . . . and the record shows that the omission or ambiguity was brought to the attention of the trial court . . . prior to entry of judgment . . ., it shall not be inferred on appeal . . . that the trial court decided in favor of the prevailing party as to those facts or on that issue”].) Accordingly, we reverse on this basis as well. (See Wegner et al., Cal. Practice Guide: Civil Trials and Evidence (The Rutter Group 2008) ¶ 16:202, p. 16-47, citing Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1134 [“A judgment may also be reversed where the trial court furnished a statement of decision that is ambiguous or omits critical findings; and, despite appropriate objection, the court refused to adequately explain the factual and legal basis for its decision” (italics omitted)].)
Kennedy testified below that, around the time of the assignment, Patel expected to bring “a very large number” of other nurses into the country. Also, the president of RGC testified that he investigated American Staffing between June and December 2003 (when RGC made the loan), and that American Staffing was “working on approximately 200” nurse contracts.
The trial court found that Kennedy acquired an interest in “substantially all of” American Staffing’s “ ‘accounts’ and ‘rights to payment,’ ” but that finding is not supported by substantial evidence. The statement of decision does not address whether at the time of the assignment the HealthOne account alone was a “significant part” of American Staffing’s “outstanding accounts.” (See In re B. Hollis Knight Co. (8th Cir. 1979) 605 F.2d 397, 400.)
It may be that on remand HealthOne can rebut Kennedy’s showing that the interest arising from the June 2003 assignment was exempt from the financing statement filing requirement. However, the present record contains no substantial evidence to support the trial court’s finding that Kennedy obtained an assignment of multiple accounts, which was a finding necessary to the court’s decision. Kennedy’s testimony and the language of the June 2003 assignment are to the contrary, and no other evidence supports the court’s finding. Moreover, the trial court’s decision contains no finding that Kennedy obtained the assignment of a significant part of American Staffing’s outstanding accounts. The court erred in granting the section 631.8 motion.
DISPOSITION
The trial court’s judgment is reversed and the matter is remanded for further proceedings consistent with this opinion. Costs on appeal are awarded to appellant.
We concur. JONES, P.J., NEEDHAM, J.