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Department of Transportation v. United Capital Funding Corp.

Florida Court of Appeals, Second District

April 28, 2017

DEPARTMENT OF TRANSPORTATION, Appellant,
v.
UNITED CAPITAL FUNDING CORP., Appellee.

          NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION AND, IF FILED, DETERMINED

         Appeal from the Circuit Court for Pinellas County; Jack Day, Judge.

          Theodore A. Avellone and Marc Peoples, Assistant General Counsels, Department of Transportation, Tallahassee, for Appellant.

          Michael Ullman of Ullman & Ullman, P.A., Boca Raton, for Appellee.

          Lisa Paige Glass of Glass Law Office, P.A., Boca Raton, for Amicus Curiae, International Factoring Association.

          SALARIO, Judge.

         The Florida Department of Transportation appeals from a final summary judgment declaring it legally obligated to United Capital Funding Corp. for the payment of certain accounts receivable that had been assigned to United Capital by one of the Department's vendors, Arbor One, Inc. The appeal centers on a provision of Article 9 of the Uniform Commercial Code-codified at section 679.4061, Florida Statutes (2012)- stating that, after receiving notice of an assignment, the debtor on an account receivable can discharge its contractual obligation to pay the account only by making payment to the assignee and not the assignor. The Department was originally under a contractual obligation to pay Arbor One for services Arbor One provided. Arbor One sold its right to be paid for those services to United Capital, but the Department continued to pay Arbor One despite having received notice of that sale. The issues in this case are (1) whether the statute governs when a government agency is the account debtor and, if so, (2) whether sovereign immunity bars a suit against the government agency by an assignee when the agency improperly pays the assignor instead of the assignee.[1]

         We answer the first question in the affirmative and the second question in the negative. As a result, we conclude that once Arbor One's accounts receivable were sold, the Department could discharge its contractual obligation to pay for those services only by paying United Capital as required by section 679.4061 and that sovereign immunity does not bar United Capital's suit against the Department to enforce its contractual obligation to pay. We therefore affirm the summary judgment in favor of United Capital.

          I. A.

         The case involves the business of factoring. Factoring is a financial arrangement through which a business can obtain immediate funding from a third party by using its accounts receivable-sums owed to the business by its customers, usually on invoices for goods sold or services provided-as consideration. In a factoring arrangement, the business sells its accounts receivable to a third party, called a factor, at a discount from their face value. The factor takes ownership of the accounts receivable and, as a consequence, takes the sole right to receive the entirety of payments previously owed to the business. Ordinarily, the factor notifies the debtor on the sold accounts of the change in ownership and thereafter receives payments directly from the account debtor.

         Factoring relationships implicate Article 9 of the UCC because Article 9 applies to the sale of accounts, including accounts receivable. § 679.1091(1)(c). In that connection, section 679.4061 defines the rights and obligations of the business that originates and sells the accounts receivable, the debtors on the accounts, and the third parties to whom the accounts are sold. As applied to a factoring arrangement, the statute provides that an account debtor makes payments to the business originating the account until such time as it is notified by either the business or the factor that the account has been assigned to the factor. § 679.4061(1). Once that notification is given, an account debtor must make all further payments to the factor, subject to a right of the account debtor to demand proof from the business or the factor that the account has in fact been assigned. § 679.4061(1), (3). The statute also provides that any term in an agreement between the business originating the accounts and its debtors that prohibits or restricts the assignment of the accounts is ineffective. § 679.4061(4)(a).

         One effect of the statute is to place an account debtor at risk if, after it receives notice of the assignment, it continues to pay the business that originated the account instead of the factor who bought the right to be paid under it. The statute provides that a payment made to the business after notice has been given does "not discharge the obligation" owed by the account debtor on the account. § 679.4061(1). An account debtor who continues to pay the business that originated the account after receiving notice that the account has been assigned can be held liable to the factor for the full amount of the account notwithstanding its payment of that same amount to the business. See Bldg. Materials Corp. of Am. v. Presidential Fin. Corp., 972 So.2d 1090, 1092 (Fla. 2d DCA 2008) ("[A] debtor who receives actual notice of the assignment of an account receivable . . . may be held liable to the assignee if the debtor later pays the assigned debt to the assignor rather than the assignee."). This is sometimes referred to as a risk of double payment.

         B.

         The Department entered into several contracts with Arbor One, pursuant to which Arbor One provided it with roadside maintenance services and the Department agreed to pay Arbor One for services rendered. The Department became, in UCC terms, an account debtor with an obligation to pay Arbor One. Arbor One later entered into a factoring arrangement with United Capital. Under that arrangement, Arbor One assigned the accounts receivable generated under its contract with the Department to United Capital, making Arbor One the assignor of those accounts and United Capital the assignee.

         United Capital notified the Department of the assignments in writing. The written notifications described the arrangement between Arbor One and United Capital, explained that Arbor One had assigned its accounts receivable to United Capital, stated that all future payments should be made to United Capital, and stated that payment to any other party would not discharge the Department's obligations on the accounts. Although it received the notices, the Department nonetheless continued to pay Arbor One and refused to pay United Capital.

         In response, United Capital filed this declaratory judgment action against the Department seeking to enforce its rights to payment of the accounts receivable that Arbor One assigned to it, which in its view was required by section 679.4061(1). It later filed a motion for summary judgment that, as relevant here, the Department opposed on two principal grounds. First, the Department argued that section 679.4061(1) does not apply where, as here, a government agency is the account debtor on assigned accounts receivable. Second, the Department argued that it was entitled to sovereign immunity because the Department had not originally contracted with United Capital and had not otherwise agreed to make contract payments to it.

         The trial court rejected the Department's arguments, granted United Capital's motion for summary judgment, and entered a final judgment in United ...


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