Opinion
No. CV-09-5029911
April 30, 2010
MEMORANDUM OF DECISION
The plaintiff, Platinum Funding Services, has filed a four-count complaint against the defendant for monies it claims are due under a factoring agreement executed between the plaintiff and Incor Group, LLC, a company who had accounts receivable from the defendant. The plaintiff alleges breach of contract, unjust enrichment and a violation of the Uniform Commercial Code pursuant to General Statutes § 9-406. By way of a special defense, the defendant alleges that the sums of money sought were properly paid to Incor. The parties presented evidence on February 3, 2010 and filed briefs on March 10, 2010.
"Factoring is a process by which a business sells to another business, at a small discount, its right to collect money before the money is paid. Factoring is a financing tool that reduces the amount of working capital a business needs by reducing the delay between the time of sale and the receipt of payment." Houston Lighting Power Co. v. Wharton, 101 S.W.3d 633, 636 (Tex.App. 2003).
At trial, the plaintiff abandoned the fourth count, alleging account stated.
The court finds the following facts to have been proven by a preponderance of the evidence. Platinum Funding Services is a company located in New York that purchases assets receivable from clients and then provides those clients with funding to run their operations, while collecting the funds due to the clients. Magellan Midstream Partners is a petroleum pipeline storage and transportation company that operates terminals in New Haven, Connecticut. Magellan became a debtor of Incor for work Incor performed, which included the insulation of Magellan's pipes and tanks.
On February 21, 2006, Platinum Funding entered into a factoring agreement with Incor Group. The contract provided that Incor requested Platinum to purchase, from time to time, all of their right, title and interest in and to certain accounts receivable due from its customers. After performing due diligence on the invoices and the account debtors (i.e., the customers whose invoices would be sold to plaintiff), Platinum was to notify Incor which of the accounts it elects to purchase. At the time of the execution of both factoring agreements, Platinum and Incor executed security agreements, which purported to secure the performance of the parties' representations. At some point subsequent to the execution of the factoring agreement, Platinum filed a UCC financing statement with the Secretary of the State, which identifies Incor as the debtor and Platinum as the secured party.
In addition to Incor Group, the factoring agreement bound PETCO Insulation Co., Inc., Petco Realty, LLC and WOMCO Insulation, Inc. Testimony from chief operating officer James Bertie showed that these companies and Incor were related companies by way of similar owners.
Paragraph five of the agreement concerns the collection of accounts receivable. That section obligates Incor to instruct all of the account debtors obligated on the accounts receivable assigned to Platinum to mail or deliver payments directly to Platinum. The contract also provided that in the event Incor receives any collections or other proceeds, Incor is obligated to immediately deliver such payments to Platinum in the exact form received. Additionally, Platinum's chief operating officer, James Bertie, testified at trial as to the usual procedures and practices of his company pursuant to a signed factoring agreement, including the steps taken by Platinum as it related to the purchase of accounts receivable from Incor.
This agreement did not include Petco Realty, LLC although the September 16, 2008 amendment refers to Petco Realty.
UCC § 9-406, formerly § 9-318, applies when the secured party, the assignee, sues a debtor subsequent to an improper payment to the assignor. See In re Apex Oil Co., 975 F.2d 1365, 1368 (8th Cir. 1992); see also Rockland Credit Finance, LLC v. Fenestration Architectural Products, LLC, Rhode Island Superior Court, Docket No. 06-3065 (March 12, 2008). In the present case, Platinum is suing Magellan for its wrongful payments to Incor. The principal issue is whether Platinum complied with General Statutes § 42a-9-406(a), which provides, in relevant part: "[A]n account debtor on an account, chattel paper or a payment intangible may discharge its obligation by paying the assignor until, but not after, the account debtor receives a notification, authenticated by the assignor or the assignee, that the amount due or to become due has been assigned and that payment is to be made to the assignee. After receipt of the notification, the account debtor may discharge its obligation by paying the assignee and may not discharge the obligation by paying the assignor. An assignor who receives payment after notification is given must return the payment to the account debtor or forward the payment to the assignee."
General Statutes § 42a-9-102(a)(3) defines "[a]ccount debtor" as "a person obligated on an account, chattel paper or general intangible. The term does not include persons obligated to pay a negotiable instrument, even if the instrument constitutes part of chattel paper." Section 42a-9-102(a)(2) defines "[a]ccount," in relevant part, as "a right to payment of a monetary obligation, whether or not earned by performance . . . for services rendered or to be rendered."
Bertie testified that Platinum provided with defendant with an irrevocable notice of assignment. The plaintiff's exhibit five is a copy of the May 11, 2006 letter that the plaintiff argues it sent to Magellan. The letter states that "Platinum Funding Services, Inc., as factor, is the irrevocable assignee of Incor Group, Inc. (the `Company') for all invoices which are now due and which in the future will become due to the Company. Enclosed is a letter from the Company authorizing and instructing your firm to make all payments directly to Platinum Funding Services, LLC." Attached to the May 11, 2006 was a letter from the president of Incor Group informing Magellan that they entered into a financing agreement with Platinum and instructing them to all invoices to Platinum. The plaintiff's exhibit five also contained a United States postal service certified mail receipt and the "green card" that is returned to the sender when mail is sent with a return receipt requested. The "green card" is illegibly signed and dated May 15, 2006. Bertie further testified that exhibit five was maintained in Platinum's business records. He testified that customarily, the original letters are mailed out by certified mail return receipt requested and that Platinum maintains a copy of the items that are mailed, which is later matched up with the green card once it is returned. These "files" are maintained in the ordinary course of Platinum's business.
In IIG Capital, LLC v. Archipelago, L.L.C., 36 App.Div.3d 401, 402-03, 829 N.Y.S.2d 10 (2007), the court, in addressing a pre-trial motion to dismiss, was presented with similar facts. The plaintiff assignee alleged that it notified the defendants' account debtors by letter that all of the assignor's accounts, which included the defendants' accounts, had been assigned to plaintiff and that subsequent payments on the account should be made to the plaintiff at a specified address. Accompanying the plaintiff's letter were invoices that referenced these accounts and were prominently stamped with a similar notice of assignment and direction that payment be made to the plaintiff in the future. The defendants denied receipt of the letter and invoices, and alternatively argued that such notice, even if received, was insufficient under the Uniform Commercial Code.
The letter, signed by plaintiff's managing director, specifically instructed: "To the extent that you are now indebted or may in the future become indebted to [the assignor on an account or general intangible, payment thereof is to be made payable to us and not the client or any other entity. Payment in any other way will not discharge this obligation." Id., 402 n. 1.
The court disagreed with the defendants' arguments in light of the plaintiff's evidence, which consisted of the affidavit of the plaintiff's comptroller stating that his office mailed these specific documents to the defendants' correct address, with Federal Express receipts offered as proof of mailing. The court reasoned: "The Federal Express receipts submitted in opposition to the motion, while not conclusively demonstrating delivery, suffice to support plaintiff's allegation that notice of the assignment was provided to defendants on the specified dates. [The defendants] also [deny] receiving notice on the ground that it had already been merged into another company on the date of the mailing. However, the Federal Express receipt shows that the mailing was signed for by a representative of [the defendants], which strongly indicates that notice was received. Moreover, if defendants or their employees had any doubt as to the import of the assignment notices and invoices they signed for, the UCC provides a mechanism whereby the account debtor may require that the assignee `furnish reasonable proof that the assignment has been made' (UCC 9-406 [c]). Defendants made no such request." (Emphasis added.) Id., 403.
The court is satisfied as to the applicability and the plaintiff's compliance with § 42a-9-406(a). The plaintiff met its burden of demonstrating that it entered into factoring and security agreements with Incor and perfected its security interest in the accounts receivable of Magellan. More importantly, the plaintiff demonstrated that Magellan received notice of the assignment. The plaintiff's exhibit five showed copies of two letters that were sent to Magellan on May 11, 2006. This exhibit was authenticated by the testimony of Bertie, which confirmed that Platinum maintains a copy of letters sent to account debtors and matches these letters with a returned green card. The green card sent to Magellan was returned to Platinum and significantly, was signed and dated May 15, 2006.
The court notes that the notice of assignment was sent via certified mail, although that is not required under the statute. Finally, the court notes that § 42a-9-406(c) puts the burden on the account debtor to inquire as to the assignee upon receipt of a notice of assignment that the account debtor questions. That section states, in part: "[I]f requested by the account debtor, an assignee shall seasonably furnish reasonable proof that the assignment has been made. Unless the assignee complies, the account debtor may discharge its obligation by paying the assignor, even if the account debtor has received a notification under subsection (a)."
Furthermore, the defendant's special defense, payment to Incor, does not discharge the defendant of its indebtedness to Platinum. Comment 2 to § 42a-9-406(a) states: "Subsection (a) provides the general rule concerning an account debtor's right to pay the assignor until the account debtor receives appropriate notification. The revision makes clear that once the account debtor receives the notification, the account debtor cannot discharge its obligation by paying the assignor." See General Motors Acceptance Corp. v. Clifton-Fine Cent. Sch. Dist., 85 N.Y.2d 232, 236, 647 N.E.2d 1329, 623 N.Y.S.2d 821 (1995) ("Generally, after the account debtor receives notification that the right has been assigned and the assignee is to be paid, and it continues to pay the assignor, the account debtor is liable to the assignee and the fact that payment was made to the assignor is not a defense in an action brought by the assignee"); see also Rockland Credit Finance, LLC v. Fenestration Architectural Products, LLC, supra, Rhode Island Superior Court, Docket No. 06-3065. Therefore, Magellan's misdirected payments to Incor do not discharge its debt to Platinum.
The court concedes that ordering the defendant to pay its debt twice is a harsh remedy. The defendant argues that under a mitigation of damages theory, the plaintiff's claimed damages should be reduced or set-off. The defendant bases this argument on the fact that on several occasions, Incor endorsed to Platinum checks that it received from Magellan after the assignment. The defendant contends that these endorsements placed Platinum on notice that Magellan was improperly continuing to make payments to Incor. Further, the defendant argues that Platinum had a duty to investigate these improper payments.
The court rejects this argument. Mitigation of damages or entitlement to a set-off for payments made to Incor is simply not applicable when liability is proven under § 42a-9-406(a). Section 42a-9-406(a), in part, states: "An assignor who receives payment after notification is given must return the payment to the account debtor or forward the payment to the assignee." Further, § 42a-9-406(c) places the burden on the account debtor to request proof of assignment. The statute places no burden on the assignee to do anything besides provide notice to the account debtor, which the court is satisfied that Platinum did in this case.
For all of the foregoing reasons, the court enters judgment in favor of the plaintiff in the amount of $125,405.19.