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Durham Commercial Capital Corp. v. Select Portfolio Servicing, Inc.

United States District Court, M.D. Florida, Jacksonville Division

May 1, 2018




         THIS CAUSE is before the Court on Defendant Select Portfolio Servicing, Inc.'s Motion to Dismiss and/or Strike Plaintiff's First Amended Complaint (Doc. 217; Motion), filed on January 12, 2018. In the Motion, Defendant Select Portfolio Servicing, Inc. (SPS) raises seven arguments in support of dismissal. See Motion at 2. On January 17, 2018, the Court held a Status Conference with the parties to discuss the procedural posture of the case, the record of which is incorporated herein by reference. See Minute Entry (Doc. 218; Status Conference); see also Transcript of January 17, 2018 Status Conference (Doc. 219; Tr.), filed January 26, 2018. For the reasons discussed at the Status Conference, the Court relieved Plaintiff Durham Commercial Capital Corp. (Durham) of its obligation to respond to SPS's first argument for dismissal, and directed Durham to respond to the remaining arguments no later than February 2, 2018. See Minute Entry (Doc. 218); see also Tr. at 22-23. In accordance with the Court's instructions, Durham filed a response in opposition to the Motion on February 2, 2018. See Plaintiff Durham Commercial Capital Corp.'s Response in Opposition to Defendant Select Portfolio Servicing, Inc.'s Motion to Dismiss and/or Strike Plaintiff's First Amended Complaint [D.E. 217] (Doc. 221; Response). In addition, on March 13, 2018, SPS filed a notice of supplemental authority. See Defendant's Notice of Additional Authority (Doc. 228). Accordingly, this matter is ripe for review.

         I. Standard of Review

         In ruling on a motion to dismiss, the Court must accept the factual allegations set forth in the complaint as true. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009); Swierkiewicz v. Sorema N.A., 534 U.S. 506, 508 n.1 (2002); see also Lotierzo v. Woman's World Med. Ctr., Inc., 278 F.3d 1180, 1182 (11th Cir. 2002). In addition, all reasonable inferences should be drawn in favor of the plaintiff. See Randall v. Scott, 610 F.3d 701, 705 (11th Cir. 2010). Nonetheless, the plaintiff must still meet some minimal pleading requirements. Jackson v. Bellsouth Telecomm., 372 F.3d 1250, 1262-63 (11th Cir. 2004) (citations omitted). Indeed, while “[s]pecific facts are not necessary[, ]” the complaint should “‘give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.'” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per curiam) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Further, the plaintiff must allege “enough facts to state a claim that is plausible on its face.” Twombly, 550 U.S. at 570. “A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556). A “plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do[.]” Twombly, 550 U.S. at 555 (internal quotations omitted); see also Jackson, 372 F.3d at 1262 (explaining that “conclusory allegations, unwarranted deductions of facts or legal conclusions masquerading as facts will not prevent dismissal”) (internal citation and quotations omitted). Indeed, “the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions[, ]” which simply “are not entitled to [an] assumption of truth.” See Iqbal, 556 U.S. at 678, 680. Thus, in ruling on a motion to dismiss, the Court must determine whether the complaint contains “sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face[.]'” Id. at 678 (quoting Twombly, 550 U.S. at 570).

         II. Procedural History[1]

         Durham initiated this action on July 25, 2014, by filing a two-count Complaint naming Connolly, Geaney, Ablitt and Willard, P.C. (CGAW) and SPS as Defendants. See Complaint (Doc. 1; Initial Complaint). In the Initial Complaint, Durham alleged a breach of contract claim against CGAW and a claim for “breach of statutory duty to pay accounts” under § 9-406 of the Uniform Commercial Code (UCC) against SPS. See generally Complaint.[2] Stated succinctly, Durham claimed that, as the assignee of CGAW's accounts receivable, it is entitled to recover from SPS, the account debtor, payments SPS made to CGAW on those accounts after SPS received Durham's Notice of Assignment. On October 27, 2014, SPS filed an answer to the Complaint raising numerous affirmative defenses. See Defendant Select Portfolio Servicing, Inc.'s Answer and Affirmative Defenses (Doc. 14; Answer). Following extensive discovery both parties filed motions for summary judgment. See Defendant Select Portfolio Servicing, Inc.'s Motion for Final Summary Judgment (Doc. 58; SPS Summary Judgment Motion), filed October 28, 2015; Plaintiff, Durham Commercial Capital Corp.'s Motion (Renewed) for Final Summary Judgment Against Defendant, Select Portfolio Servicing, Inc. and Incorporated Memorandum of Law (Doc. 64; Durham Summary Judgment Motion), filed November 2, 2015.[3] Over seven months after filing their Summary Judgment Motions, the parties jointly requested leave to file additional briefing regarding choice-of-law issues that they had previously failed to identify. The Court granted this request, and the parties filed their supplemental briefs on July 29, 2016. See Defendant Select Portfolio Servicing, Inc.'s Memorandum on Choice of Law Issues (Doc. 109); Plaintiff Durham Commercial Capital Corp.'s Brief Concerning Choice-of-Law Issues (Doc. 110). One month later, SPS filed a notice of supplemental authority citing a recently-decided case from the Fourth Circuit Court of Appeals: Forest Capital, LLC v. BlackRock, Inc., 658 Fed.Appx. 675 (4th Cir. Aug. 10, 2016). See Defendant's Notice of Supplemental Authority (Doc. 111), filed September 1, 2016. In Forest Capital, the Fourth Circuit held that UCC § 9-406, the provision on which Durham based its claim against SPS, does not provide a private right of action against an account debtor. See Forest Capital, 658 Fed.Appx. at 676, 680-81.

         On October 17, 2016, the Court entered an Order (Doc. 119; Summary Judgment Order) granting, in part, and denying, in part, the Summary Judgment Motions. Although the Court addressed numerous arguments in resolving the Summary Judgment Motions, for purposes of the instant Motion, two findings in particular are relevant. In the Summary Judgment Order, the Court struck SPS's Notice of Supplemental Authority because SPS had not argued in its Summary Judgment Motion that § 9-406 did not create a private right of action, and thus, the case was not “supplemental authority” on any argument before the Court at that time. See Summary Judgment Order at 17 n.8.

         In addition, the Court denied Durham's request for summary judgment on its prima facie case, finding that a “genuine dispute exists as to whether Durham factored the accounts for which it now seeks payment.” Id. at 39. Specifically, the Court found that:

To establish its prima facie case, Durham must show that SPS paid CGAW on invoices that had been assigned to Durham. It is not enough to show simply that SPS had general notice of an assignment of accounts and that SPS thereafter paid CGAW instead of Durham. If Durham did not purchase a particular account, it would not be entitled to payment from SPS notwithstanding SPS's receipt of the Notice of Assignment. In other words, although the Notice of Assignment states that ‘the accounts receivable of [CGAW] have been assigned to Durham, see Notice of Assignment, that notice is effective against SPS only to the extent that CGAW actually did assign particular accounts to Durham. Cf. N.Y.U.C.C. § 9-406, Official Cmt. 4.

See Summary Judgment Order at 38. At that time, it was unclear to the Court whether Durham viewed proof of a valid assignment as a necessary element of its claim.[4] Thus, to the extent Durham sought recovery premised on the Notice of Assignment alone, the Court rejected this contention and held that “[t]he effectiveness of a general notice of assignment simply cannot exist independent of an actual assignment of a particular account.” See id. at 32. As such, absent any evidence in the record before the Court at that time demonstrating that “the amounts SPS paid were actually on accounts purchased by and assigned to Durham, ” the Court denied Durham's request for summary judgment on its prima facie case. Id. at 38.[5] In light of this factual issue, among others, the case could not be resolved on summary judgment and the Court set the matter for a bench trial on the February 2017 Trial Term. See Order (Doc. 120).

         Following the Court's Summary Judgment Order, Durham filed the Motion to Clarify (Doc. 121) in which it argued that it had established its right to collect the accounts at issue by virtue of its security interest in all of CGAW's accounts. See Motion to Clarify (Doc. 121). The Court rejected this theory of recovery, however, because it was inconsistent with the claim Durham actually pled in the Initial Complaint. See Clarification Order (Doc. 143) at 3-4. The Court explained that, in the Initial Complaint, “Durham contended SPS was liable because (1) Durham purchased some of CGAW's accounts receivable, resulting in assignment of those accounts to it; (2) SPS received notice of that assignment; and (3) SPS wrongfully paid CGAW instead of Durham on some of those purchased accounts.” See id. at 4. As neither the Initial Complaint, nor Durham's Summary Judgment Motion “indicated that Durham sought payment based on a security interest in all accounts receivable, ” the Court rejected Durham's attempt to change its theory of recovery and reiterated that to prevail, Durham must establish that it actually purchased the accounts receivable on which it seeks to recover. Id. at 4-5.

         At this point, rather than proceed to trial, both parties attempted to rewind the case. Durham, unwilling to accept the limitations in its own pleadings, sought to expand its claim to cover non-purchased accounts. SPS, newly inspired by the Forest Capital decision and the Court's summary judgment findings, sought another round of dispositive motion practice in which to argue that Durham has no valid claim for relief under § 9-406, and alternatively, that SPS is entitled to judgment because Durham had not presented any evidence identifying the accounts which it had purchased. Notably, up to that point, SPS had never questioned the validity of Durham's cause of action and, until the Court identified the deficiency, had never challenged Durham's failure to identify the accounts it claimed to have purchased.[6] After much procedural jockeying and three status conferences before the undersigned, Durham eventually sought leave to amend the Initial Complaint. See Plaintiff Durham Commercial Capital Corp.'s Renewed Motion for Leave to Supplement and Amend the Complaint (Doc. 194; Renewed Motion to Amend) on June 22, 2017. On December 15, 2017, the Court entered an Order (Doc. 213) granting, in part, and denying, in part, Durham's Renewed Motion to Amend. Specifically, to the extent Durham sought leave to amend its claim to encompass non-purchased accounts, the Court denied this request. See Order (Doc. 213) at 17. However, the Court granted Durham leave to amend to add New York common law as an additional legal basis for its claim given that until the Fourth Circuit's decision in Forest Capital, Durham reasonably believed its reliance on UCC § 9-406, which SPS had never challenged, was sufficient. See id. at 18-19.

         Accordingly, on December 27, 2017, Durham filed the First Amended Complaint (Doc. 214) in which it asserts a claim against SPS for “breach of statutory duty to pay accounts and/or [SPS's] duty under New York common law.” See First Amended Complaint (Doc. 214; Amended Complaint) at 6. In the instant Motion, SPS moves to dismiss the Amended Complaint and argues that “[i]t fails to state a cause of action under New York common law, ” and “[t]here is no private right of action under UCC §9-406.” See Motion at 2, 7-8, 9-11.[7] Durham responds that the Amended Complaint includes sufficient allegations to plausibly state a claim for relief under New York statutory and common law. See Response at 5-16.

         III. ...

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