Iig Capital LLC v. Archipelago, L.L.C.

• Decision Date: 04 January 2007
• Docket Number: 7949.
• Citation: 36 A.D.3d 401,2007 NY Slip Op 00040,829 N.Y.S.2d 10
• Parties: IIG CAPITAL LLC, Appellant-Respondent, v. ARCHIPELAGO, L.L.C., et al., Respondents-Appellants.
• Court: New York Supreme Court — Appellate Division

36 A.D.3d 401

829 N.Y.S.2d 10

2007 NY Slip Op 00040

IIG CAPITAL LLC, Appellant-Respondent, v. ARCHIPELAGO, L.L.C., et al., Respondents-Appellants.

7949.

Appellate Division of the Supreme Court of the State of New York, First Department.

Decided January 4, 2007.

Order, Supreme Court, New York County (Charles Edward Ramos, J.), entered January 3, 2005, which granted defendants' CPLR 3211 (a) (7) motion to the extent of dismissing plaintiff's causes of action based on quantum meruit and unjust enrichment, and denied dismissal of the breach of contract and account stated causes of action, modified, on the law, the motion denied with respect to the causes of action based on quantum meruit and unjust enrichment and those causes of action reinstated, and otherwise affirmed, without costs.

In this action by a factor to collect on accounts receivable, the account debtors' motion to dismiss the causes of action for breach of contract and account stated was properly denied. Where the parties submit extrinsic evidence in connection with a CPLR 3211 (a) (7) motion to dismiss the complaint and the court declines to treat the motion as one for summary judgment under CPLR 3211 (c), the appropriate standard of review "`is whether the proponent of the pleading has a cause of action, not whether he has stated one'" (Leon v Martinez, 84 NY2d 83, 88 [1994], quoting Guggenheimer v Ginzburg, 43 NY2d 268, 275 [1977]).

Under New York's Uniform Commercial Code § 9-406 (a), an account debtor may discharge an 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" (see generally General Motors Acceptance Corp. v Clifton-Fine Cent. School Dist., 85 NY2d 232 [1995] [interpreting former UCC 9-318 (3), predecessor to UCC 9-406 (a)]). Here, plaintiff's complaint alleges that in August 2002, it notified defendants by letter that all of assignor MarketXT's accounts, which included defendants' accounts, had been assigned to plaintiff and that subsequent payments on the account should be made to plaintiff at a specified address.¹ Accompanying 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 plaintiff in the future. Defendants deny receipt of the letter and invoices, and alternatively argue that such notice, even if received, was insufficient under the Uniform Commercial Code. We disagree.

Defendants' denial of receipt does not afford a basis for dismissal, given the clear factual dispute raised by the affidavit of plaintiff's comptroller stating that his office mailed these specific documents to plaintiff's correct address, with Federal Express receipts offered as proof of mailing. We also reject defendants' argument that the notice of assignment provided by plaintiff was inadequate under UCC 9-406 (a). Collectively, the letter and the invoices reasonably identified the accounts assigned and clearly instructed that payment on the invoices be redirected to plaintiff (see Capital Factors v Caldor, Inc., 182 AD2d 532 [1992]; Hamilton Group [Delaware] v Ballard Spahr Andrews & Ingersoll, 1 AD3d 969 [2003]). Nor was the notice rendered inadequate as a matter of law because the August 2002 letter was not dated and was addressed to "Ladies and Gentlemen." 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. Defendant Redibook also denies 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 Redibook, 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.

Defendants' assertions that plaintiff's complaint failed to allege an outright purchase or assignment of defendants' accounts, or that plaintiff's allegation of such purchase is flatly contradicted by the subject factoring agreement, are without merit. Plaintiff's complaint included the express allegation that "[i]n accordance with the Factoring Agreement, MarketXT assigned all of its rights, title and interest in and to its accounts with defendants to IIG." In addition, plaintiff's comptroller expressly alleged a purchase of defendants' accounts in an affidavit submitted in opposition to the motion. Such allegations were more than sufficient to allege a purchase.

Although defendants correctly note that the factoring agreement does not require the purchase of all of MarketXT's accounts, but only those listed on a schedule of accounts, no such schedule has been provided by either party.² In light of this circumstance, we find that defendants have failed to meet their burden of producing evidence that clearly refutes plaintiff's allegation that defendants' accounts were purchased by plaintiff pursuant to the factoring agreement (see Leon, 84 NY2d at 87-88; see also Guggenheimer, 43 NY2d at 275 ["unless it has been shown that a material fact as claimed by the pleader to be one is not a fact at all and unless it can be said that no significant dispute exists regarding it, ... dismissal should not eventuate"]; cf. Griffin v Anslow, 17 AD3d 889, 892-893 [2005] [conclusory allegation of attorney-client relationship in malpractice action did not defeat attorney's conclusive documentary evidence showing absence of privity]).

That defendants reached a $3.1 million settlement in 2003 with MarketXT regarding these same accounts does not warrant a different result. If, as alleged, defendants' accounts with MarketXT were assigned to plaintiff pursuant to the factoring agreement, and proper notice was given, defendants' payment in settlement to MarketXT would not be a defense to an action by plaintiff to collect on the accounts (cf. General Motors Acceptance Corp., 85 NY2d at 236 ["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"]).

We reject, however, plaintiff's alternative claim that it is authorized to collect on defendants' accounts by virtue of the security interest granted to it under the factoring agreement. Paragraph 8.1 (b) of the agreement provides that plaintiff's right to collect on the collateral is expressly conditioned on an event of default, and no such default is alleged in the complaint.

Plaintiff also argues that a secured party with a security interest is the equivalent of an assignee for purposes of UCC 9-406. However, the cases plaintiff cites for this proposition do not support it. The cited cases deal with a distinct section of the UCC (former UCC 9-318 [1]), which provided that unless otherwise agreed, the rights of an assignee are subject to the terms of the original contract between the account debtor and assignor, including any defenses authorized therein (see e.g. Bank of Waunakee v Rochester Cheese Sales, Inc., 906 F2d 1185, 1189-1190 [7th Cir 1990]; Fleet Capital Corp. v Yamaha Motor Corp, U.S.A., 2002 WL 31174470, *27-28, 2002 US Dist LEXIS 18115, *94-96 [SD NY 2002]; PHD, Inc. v Coast Bus. Credit, 147 F Supp 2d 809, 814, 818 [ND Ohio 2001]). While these cases treat assignees and holders of security interests similarly for purposes of holding them subject to defenses available to the original account debtors, they provide no authority to treat plaintiff's security interest as an assignment for collection purposes under UCC 9-406.

With respect to plaintiff's appeal from the same order, we modify to reinstate plaintiff's causes of action for quantum meruit and unjust enrichment. "While the existence of a valid and enforceable contract governing a particular subject matter ordinarily precludes recovery in quasi-contract for events arising out of the same subject matter (Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382, 388 [1987]), where there is a bona fide dispute as to the existence of a contract or where the contract does not cover the dispute in issue, plaintiff may proceed upon a theory of quantum meruit and will not be required to elect his or her remedies (Joseph Sternberg, Inc. v Walber 36th St. Assoc., 187 AD2d 225, 228 [1993])" (American Tel. & Util. Consultants v Beth Israel Med. Ctr., 307 AD2d 834, 835 [2003]).

Given the existing, unresolved dispute regarding whether defendants' accounts were among those assigned to plaintiff pursuant to the factoring agreement, and thus, whether the express factoring agreement covers the dispute in issue, dismissal of the quasi contract causes of action at this juncture was premature (see id.).

We reject the motion court's implicit finding that, with regard to the viability of the quasi contract claims, the only relevant express contract is that between MarketXT and defendants. Because plaintiff's right to recover in this action depends not only on that contract but also the factoring agreement between plaintiff and MarketXT, the ambiguity regarding whether the factoring agreement covers the dispute in issue is a sufficient basis to deny dismissal of the quasi contract claims.

The dissent's argument that plaintiff has abandoned its allegation that it purchased defendants' accounts is incorrect. Plaintiff...