Northwest Business Finance, LLC v. Able Contractor, Inc. , 196 Wash. App. 569 ( 2016 )

FILED
NOVEMBER 1, 2016
In the Office of the Clerk of Court
WA State Court of Appeals, Division Ill
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION THREE
NORTHWEST BUSINESS FINANCE, )
LLC, a Washington limited liability ) No. 33897-5-111
company, )
)
Appellants, )
)
v. ) PUBLISHED OPINION
)
ABLE CONTRACTOR, INC., also known )
as ABLE CONTRACTORS, INC., a )
Washington corporation; LINDA K. )
HOBSON individually and the marital )
community of LINDA K. HOBSON and )
JIM HOBSON, wife and husband; )
BANNER BANK; WESTERN )
CONSTRUCTION SERVICES, INC., a )
Washington corporation; SD DEACON )
OF OREGON, INC., a Washington )
corporation, )
)
Respondents. )
KORSMO, J. - Northwest Business Finance (Northwest) appeals, after an adverse
jury trial result, the trial judge's denial of its pretrial motion for summary judgment on
what it contends was a question of law for the bench. This appeal presents both a
procedural question concerning the scope of review as well as a question concerning the
reach of the secured transactions assignment statute, RCW 62A.9A-406(a). While we
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agree with Northwest that we can review the summary judgment ruling, we otherwise
disagree with its contentions. Concluding that the trial court properly ruled that there
were factual questions precluding summary judgment and that the statute did not obligate
that every payment be made to Northwest, we affirm.
FACTS
Northwest is in the factoring business, providing short-term financing to business
entities in need of alternative funding. One of its customers was Able Contractors, Inc.,
(Able) a sub-contractor specializing in commercial demolition and remodeling. In turn,
Able often worked for Western Construction Services, the respondent in this action.
Able executed an assignment of proceeds notification agreement in August 2007,
naming Northwest as the assignee of all account payments due to Able. The notification
indicated that Able had "sold and assigned the proceeds of accounts" to Northwest and
directed its customers "to remit any and all future payments due Able" directly to
Northwest. Clerk's Papers (CP) at 19. Able then provided notice of this assignment to
its customers on invoices factored by Northwest. A "UCC Financing Statement" was
filed September 27, 2007. It provided that all accounts and accounts receivable, as well
as all other assets, were collateral for Northwest's loans to Able. CP at 235.
Northwest and Able entered into a contract and security agreement in February
2008. The security agreement enabled Able to "obtain short-term financing by factoring,
selling, and assigning to [Northwest] acceptable accounts receivable at a discount below
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face value." CP at 32. The term "acceptable account" was in turn defined to mean
Abie's right to payment of an undisputed sum due from a customer following a bona fide
performance by Able. CP at 32-33. The agreement granted Northwest a security interest
in accounts receivable "presently existing or hereafter arising, now owned or hereafter
acquired by debtor." CP at 33. Able retained the right to transfer or assign accounts to
Northwest; those accounts would "be identified by separate and subsequent written
assignments on a form to be provided" by Northwest. CP at 34.
Able began factoring some of its accounts with Western in 2010. Western would
pay Able or Northwest depending on whether the invoice from Able carried a sticker
requiring that it be paid to Northwest. The assignment sticker stated that "this account"
had been assigned to Northwest and the invoice number should accompany payment in
order to ensure correct credit. CP at 152-56. In 2012, Able agreed to perform work in
Tumwater for Western. The contract anticipated payment would be made by "draws"
with Able submitting invoices for completed work as the project progressed.
Even before landing the subcontract, Able factored an invoice with Northwest, the
first of five such invoices it factored during the Tumwater project. Northwest paid Able a
total of $160,000 and sent each invoice to Western with the Notice of Assignment
attached. Independent of these invoices, Able also simultaneously submitted four other
invoices to Western for payment on the Tumwater project. One of them contained the
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assignment notice and was paid to Northwest. The other three invoices, totaling $81,000,
lacked the assignment notice and Western paid them directly to Able.
Able stopped work on the Tumwater project in June 2012 and Western terminated
the contract. Able also defaulted on its obligations to Northwest. Northwest
subsequently brought suit against Able, Western, and several others. Except for Able and
Western, the cases against the other defendants all were resolved. Both Western and
Northwest eventually filed cross motions for summary judgment. Northwest argued that
the assignment agreement and its financing statement entitled it to all money Western
owed to Able. Western argued that it was only required to pay Northwest those accounts
that were identified as having been assigned to Northwest.
The trial court denied both motions, determining that there were material questions
of fact concerning the past practices of the parties, and the notice given Western that
precluded summary judgment. The case then proceeded to jury trial. Able did not appear
and defend; an order of default was entered against it. The jury subsequently returned a
verdict in favor of Western.
Northwest then appealed to this court, solely challenging the trial court's denial of
its motion for summary judgment. 1 A panel considered the case without oral argument.
1
As a result of this posture, the trial record is not part of the appellate record in
this case.
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ANALYSIS
Northwest argues that the earlier invoice assignment notices and its financing
statement were notice to Western and the world that no sums could be paid directly to
Able, thereby entitling it to the $81,000 that Western paid Able for the Tumwater project.
Western initially argues that the trial superseded the ruling on the summary judgment
motion, precluding our review of that issue. On the merits, Western contends that the
security agreement only extended to certain valid accounts and that its course of dealings
with Able and Northwest only required it to pay Northwest those invoices bearing the
assignment notice. We consider the procedural question presented by Northwest before
turning to the issue presented by the appeal. 2
Consideration of Summary Judgment Ruling after Trial
The initial question is whether this court can or should consider the summary
judgment ruling after the case proceeded to trial and judgment. Because the issue
presented is legal rather than factual in nature, we conclude that we can consider the
contention.
2
Western also seeks attorney fees for responding to a frivolous appeal, arguing that
the challenged order is not reviewable. Since we agree that the issue may be considered,
we decline to find the appeal frivolous and therefore deny the request for attorney fees.
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Summary judgment is proper when there are no material facts in dispute and the
trial court can resolve the issue presented as a matter of law. CR 56(c); Lybbert v. Grant
County, 141 Wash. 2d 29, 34, 1 P.3d 1124 (2000). When summary judgment is denied due
to the existence of material facts in dispute, appellate review is appropriately focused on
the sufficiency of the evidence presented at trial rather than the trial court's summary
judgment ruling. Adcox v. Children's Orthopedic Hosp. & Med. Ctr., 123 Wash. 2d 15, 35
n.9, 864 P.2d 921 (1993). The reason for this approach is that it allows appellate courts
the opportunity to review evidentiary sufficiency on the basis of the most complete
factual record. State v. Jackson, 82 Wash. App. 594, 607-09, 918 P.2d 945 (1996).
An exception to this general approach exists for the situation where denial of
summary judgment turned on a substantive legal issue rather than a factual dispute.
Kaplan v. Nw. Mut. Life Ins. Co., 115 Wash. App. 791, 799, 65 P.3d 16 (2003). In that
instance, the appellate court may review the ruling despite subsequent entry of a final
judgment if the issue is solely one of substantive law. Columbia Park Golf Course, Inc.
v. City of Kennewick, 160 Wash. App. 66, 79,248 P.3d 1067 (2011). Review oflegal
rulings is de novo. Kaplan, 115 Wash. App. at 800.
Northwest contends that it established at summary judgment its entitlement to the
payments, thus creating a legal issue that we can review despite the trial verdict. Because
it does not challenge the sufficiency of the evidence to support the jury's verdict,
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Northwest can only prevail in this appeal if its substantive legal argument is correct. We
therefore tum to that question.
Notice ofAssignment and Financing Statement
The UCC Financing Statement on file provided that it covered "all" accounts and
accounts receivable "now owned or hereafter acquired by debtor." CP at 235. Similarly,
the 2007 assignment notice, apparently 3 attached to most of the invoices provided to
Western, claimed that all of Abie's accounts had been assigned. CP at 19. Northwest
argues that by statute these documents sufficiently told Western the payments owed Able
for the three invoices that lacked assignment statements should go to Northwest and that
it was wrong for the court and Western to concern themselves with the terms of the
security agreement. We do not believe the statute supports Northwest's claims.
The purpose of statutory construction is to give effect to the intent of the
legislature. Roberts v. Johnson, 13 7 Wash. 2d 84, 91, 969 P .2d 446 ( 1999). Construction is
only necessary when a statute is unclear or ambiguous. A statute that is clear need not be
construed. State v. JP., 149 Wn.2d 444,450, 69 P.3d 318 (2003). "Statutes must be
interpreted and constru~d so that all the language used is given effect, with no portion
3
The affidavit supporting the motion for summary judgment includes a copy of the
assignment and suggests (CP at 148, 110) that the notice was sent along with the invoices
containing the sticker assigning "this account" to Northwest. The invoices are also
included in the affidavit and none of them have the 2007 assignment attached. Assuming
the notice was included with the invoices, this at most created an ambiguity to be resolved
at trial whether "all" included more than just the invoices bearing the assignment sticker.
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rendered meaningless or superfluous." Whatcom County v. City of Bellingham, 128
Wn.2d 537,546,909 P.2d 1303 (1996). Issues of statutory construction are reviewed de
novo. Cosmo. Eng'g Grp., Inc. v. Ondeo Degremont, Inc., 159 Wn.2d 292,298, 149 P.3d
666 (2006).
In executing the sale of an account, the assignee steps into the shoes of the
assignor and takes the assignor's right to payment. Kendrick v. Davis, 75 Wash. 2d 456,
463,452 P.2d 222 (1969). The assignee acquires no greater rights than the assignor had
at the time the account debtor received the notice of assignment. Id.
Primarily at issue here is RCW 62A.9A-406(a), which in part reads:
(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.
(Emphasis added. )4
The next subsections of the statute also inform on this issue. RCW 62A.9A-
406(b) lists the circumstances in which notification is ineffective. It includes the
circumstance where the notification "does not reasonably identify the rights assigned."
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The parties agree that here Western is the account debtor, Able is the assignor
and Northwest is the assignee. I
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RCW 62A.9A-406(b)(l). The account debtor also is permitted to require the assignee to
prove the assignment has been made. RCW 62A.9A-406(c).
Read together, these provisions establish that a debtor need only make payment
when notified that the particular "amount due" has been assigned and needs to be paid to
the assignee. A general notification that the assignee claims a security interest in "all"
accounts receivable or that they are payable to the assignee does not "reasonably identify
the rights assigned." 5 A general notification is insufficiently specific to satisfy the
requirements of the statute. 6 Although there is a dearth of relevant Washington authority,
other jurisdictions confirm this reading of the plain language of the statute. Once notified
of the assignment, account debtors may not discharge their obligations by paying the
assignor; they must pay the assignee. Old Kent Bank-Se. v. City of Detroit, 178 Mich.
App. 416, 421-22, 444 N.W.2d 162 (1989). The notification, however, must reasonably
identify the assigned rights or amount due. Warrington v. Dawson, 798 F.2d 1533, 1539
5
The financing statement, which merely lists all of the assignor's property which
the assignee is claiming as collateral, does not itself operate as an assignment of any of
the listed property accounts. It provides notice to others that the property is collateral,
but does not assign any of that property to the assignee. CP at 235. The debtor's
obligation under subsection 406(a) is to pay only accounts that have been assigned, not
every account that has been secured.
6
We are not saying there can never be a blanket claim for all amounts owed by a
particular debtor to the assignor, but the assignment will need a more specific statement
than claiming all accounts owed by anyone to the debtor.
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(5th Cir. 1986). A statement that "all" accounts have been assigned does not reasonably
identify an account for the debtor. 7
Accordingly, we conclude that RCW 62A.9A-406(a) requires notice that each
identified account receivable had been assigned before the debtor had the obligation to
pay the amount owed to the assignee. Northwest failed to establish at summary judgment
that it had notified Western to pay it all amounts owed Able.
Instead, the trial court here correctly concluded that material factual disputes
required trial on this claim. In particular, the stickers attached to the factored account
invoices expressly told Western that "this account" had been assigned and that payment
should reference the invoice number in order to receive proper credit. It thus suggested
that only the specific invoice had been assigned. Western was never told that all of the
payments owed Able on the Tumwater project needed to be paid to Northwestern.
Rather, the documents and course of dealing reasonably could lead Western to
understand the notices given to it as requiring payment to either Northwest or Able on a
case-by-case basis depending on the directions given it. Whether Northwest had
7 The 2008 security agreement established that only "acceptable accounts" were
assigned by Able to Northwest and that Northwest retained the right to decide which
accounts to purchase. CP at 32, 34. Northwest argues that Western was not aware of the
security agreement and did not know that only some accounts had been purchased by
Northwest. This argument fails to explain why Western was bound to pay "all" accounts
even if Northwestern was not entitled to all of them under the terms of its agreement with
Able. In effect, Northwestern reads the assignment notice as giving it greater rights than
the security agreement did.
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reasonably identified the accounts assigned to it presented a question for the trier of fact
to resolve at trial.
The judgment is affirmed.
WE CONCUR:
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Siddoway, J.
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