Pounds v. Portfolio Recovery Assocs.

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA19-925
Filed: 3 November 2020
Durham County, No. 16 CVS 5190
IRIS POUNDS, CARLTON MILLER, VILAYUAN SAYAPHET-TYLER, and
RHONDA HALL, on behalf of themselves and all others similarly situated, Plaintiffs
v.
PORTFOLIO RECOVERY ASSOCIATES, LLC, Defendant
Appeal by Defendant from Order entered 21 March 2019 by Judge Michael
O’Foghludha in Durham County Superior Court. Heard in the Court of Appeals 14
April 2020.
North Carolina Justice Center, by Jason A. Pikler, Carlene McNulty, and Emily
P. Turner, J. Jerome Hartzell, Collum & Perry, PLCC, by Travis E. Collum,
Lapas Law Offices, PLLC, by Adrian M. Lapas, for plaintiffs-appellees.
Ellis & Winters LLP, by Jonathan A. Berkelhammer, Joseph D. Hammond,
Michelle A. Liguori, and Carson Lane, for defendant-appellant.
HAMPSON, Judge.
Factual and Procedural Background
Portfolio Recovery Associates, LLC, (PRA) appeals from an Order denying
PRA’s Motion to Compel Arbitration (Order) entered on 21 March 2019. The Record
reflects the following relevant facts:
PRA is in the business of purchasing delinquent consumer debt, and since 1
October 2009, PRA has filed over 1,000 lawsuits seeking enforcements of those debts
POUNDS V. PORTFOLIO RECOVERY ASSOCS., LLC
Opinion of the Court
in North Carolina courts.1 Specific to this case, PRA purchased the debts of Iris
Pounds, Carlton Miller, Vilayuan Sayaphet-Tyler, and Rhonda Hall (collectively,
Plaintiffs) pursuant to a credit sale. PRA then filed individual lawsuits in various
North Carolina courts against each Plaintiff and obtained default judgments in each
of those actions against each Plaintiff on the debts.
On 21 November 2016, Plaintiffs2 initiated this case by filing a “Class Action
Complaint” (Complaint) against PRA alleging the default judgments obtained by PRA
in North Carolina courts against both the named Plaintiffs and the proposed plaintiff
class violated North Carolina’s Consumer Economic Protection Act. Plaintiffs sought
class action certification for the proposed class of “all persons against whom PRA
obtained a default judgment entered by a North Carolina court in a case filed on or
after October 1, 2009.” Plaintiffs alleged the default judgments PRA obtained
violated the Consumer Economic Protection Act, in part located at N.C. Gen. Stat. §
58-70-155, because PRA did not comply with certain statutorily enumerated
prerequisites to obtain default judgments. Plaintiffs sought vacatur of the default
judgments, statutory penalties pursuant to N.C. Gen. Stat. § 58-70-130(b), and
recovery of amounts paid to PRA after entry of the default judgments. Plaintiffs
contemporaneously filed a Motion for Preliminary Injunction seeking to bar PRA from
1Facts alleged by Plaintiffs and admitted by PRA.
2Pia Townes was originally a named party in this action; however, the judgment against
Townes was since vacated by the Mecklenburg County District Court on 8 June 2016.
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Opinion of the Court
“enforcing or collecting on the default judgments . . . pending a final judgment by [the
court] as to whether PRA’s default judgments are void.”
On 9 December 2016, PRA removed the case to the United States District
Court for the Middle District of North Carolina on the basis of diversity jurisdiction
under the Class Action Fairness Act of 2005. Plaintiffs moved for remand, arguing
the federal district court lacked jurisdiction under the Rooker-Feldman doctrine,
which limits the jurisdiction of federal courts to review valid state court judgments.
On 28 March 2018, the federal district court entered a written Order concluding it
lacked jurisdiction over Plaintiffs Pounds, Miller, Sayaphet-Tyler, and Hall, and
thereby granted, in part, Plaintiffs’ Motion to Remand. The federal district court
remanded the case to Durham County Superior Court.3
On 31 May 2018, PRA responded to Plaintiffs’ Complaint with its “Notice of
Election to Arbitrate, Answer, and Counterclaims.” On 29 June 2018, PRA filed an
amended pleading captioned “Notice of Election to Arbitrate, Amended Answer, and
Counterclaims.” On or about 28 September 2018, the case was designated as an
“exceptional case” pursuant to Rule 2.1 of North Carolina’s General Rules of Practice
and assigned to Superior Court Judge Michael O’Foghludha.
On 22 October 2018, Plaintiffs filed a Motion for Judgment on the Pleadings.
On 11 January 2019, PRA moved to compel arbitration pursuant to the Federal
3Because Plaintiff Townes’s default judgment had been vacated, the federal district court
determined it had jurisdiction over her claim.
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Opinion of the Court
Arbitration Act (FAA). In its supporting brief, PRA argued each of the arbitration
agreements at issue was enforceable against the respective Plaintiff, and therefore
the trial court should dismiss Plaintiffs’ claims and, instead, compel arbitration. In
opposition, Plaintiffs asserted PRA failed to meet its burden of demonstrating the
existence of a valid, binding arbitration agreement as between Plaintiffs and PRA.
On 21 March 2019, the trial court entered its Order denying PRA’s Motion to
Compel Arbitration. In relevant part, the Order provided:
49. [T]he Court therefore finds that each Plaintiff entered into a
credit card agreement with Synchrony that requires arbitration
of disputes with Synchrony/GE, and that [Plaintiff] Sayaphet-
Tyler also entered into a credit card agreement with Citibank that
requires arbitration of disputes with Citibank.
....
54. . . . The Court concludes based on the findings of the Court
and the evidence presented that a valid contract or option to
arbitrate was entered into between [P]laintiffs and the original
creditors, at least as such relates to disputes between the
[P]laintiffs and the original creditors.
55. Likewise, in this case, a second “necessarily antecedent
statutory inquiry” is whether PRA has been assigned the rights
created in the purported arbitration agreements and any
delegation clauses contained therein. New Prime Inc. v. Oliveira,
139 S. Ct. 532, 538 (2019) (noting that the Court must always
complete a “necessarily antecedent statutory inquiry”).
....
59. The Court further concludes that PRA, as a nonsignatory to
the credit card agreement, has not proven it was assigned the
right to arbitrate the current dispute in this case.
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Opinion of the Court
60. The question of whether PRA was assigned the right to
enforce these agreements is governed by the choice of law
provisions in each agreement. Accordingly, in assessing whether
PRA can enforce the arbitration agreements, the Court applies
Utah law to all the GE Bank agreements and South Dakota law
to the Citibank agreement.
....
65. This Court will interpret the Bills of Sale—as the available
portion of the agreements between the original creditors and
PRA—to determine if the parties manifested an intent to transfer
the right to compel arbitration to PRA.
66. . . . The Bills of Sale state an intent to transfer to PRA either
“the Receivables as set forth in the Notification Files (as defined
in the [purchase] Agreement)” (for the GE Bank bills of sale) or
“the Accounts described in Exhibit 1 and the final electronic file”
for the Citibank bill of sale. Neither term is defined in the
agreements.
....
69. In the case of these [P]laintiffs, only the Hall credit agreement
with GE and the Sayaphet-Tyler credit agreement with Citibank
specifically grant assignees of the agreement the right to enforce
the arbitration clause of the agreement. The Court concludes as
a matter of law that the Pounds, Miller, and Sayaphet-Tyler GE
agreements do not grant assignees of those agreements the right
to enforce arbitration, as the mere sale and transfer of the
receivable (the debt) to PRA did not transfer the right to arbitrate.
70. As to the Hall GE agreement, that agreement did specifically
give the right to enforce the arbitration clause to assignees of the
account. However, the Bill of Sale to PRA only sold and
transferred the debt (the receivable) to PRA, not all of the rights
and obligations of the original agreement. The Court concludes
as a matter of law that the mere sale and transfer of the Hall
receivable (the debt) did not transfer the right to arbitrate.
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Opinion of the Court
71. Although the language of the Sayaphet-Tyler Citibank Bill of
Sale is broader than the Bills of Sale of the GE accounts, (the
account is transferred, not merely the receivable), the Bill of Sale
does not clearly indicate an intent to transfer the right to
arbitrate any dispute, or indeed all of the rights and obligations
of the original agreement. The Court concludes that the transfer
of the account does not necessarily transfer the right to arbitrate.
If Citibank and PRA had intended to transfer all of the rights and
obligations of the original agreement, those parties could have
taken care to so indicate in the agreement. The fact that they did
not means th[at] PRA has not met its burden of showing that the
plaintiffs in this case must arbitrate the current dispute(s).
....
74. Given its conclusions in the foregoing paragraphs, and in
consideration of the applicable state and federal law, the Court
concludes that PRA is not a party entitled to enforce any
arbitration agreement regarding any current Plaintiff in this
case.
PRA timely filed Notice of Appeal from the trial court’s Order on 2 April 2019.
Issue
The issue before this Court on appeal is whether the trial court erred in
denying PRA’s Motion to Compel Arbitration. This issue turns on the question of
whether there was a valid arbitration agreement between Plaintiffs and PRA, which,
in turn, hinges on whether PRA was assigned the right to arbitrate pursuant to the
Bills of Sale.
Analysis
I. Appellate Jurisdiction and Standard of Review
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Although “an appeal from the trial court’s denial of a motion to compel
arbitration is an interlocutory order[,]” U.S. Trust Co., N.A. v. Stanford Grp. Co., 199
N.C. App. 287, 289, 681 S.E.2d 512, 513 (2009) (citation omitted), it is “well
established that an order denying a motion to compel arbitration is immediately
appealable.” Cornelius v. Lipscomb, 224 N.C. App. 14, 16, 734 S.E.2d 870, 871 (2012).
(a) On motion of a person showing an agreement to arbitrate and
alleging another person’s refusal to arbitrate pursuant to the
agreement:
....
(2) If the refusing party opposes the motion, the court shall
proceed summarily to decide the issue and order the
parties to arbitrate unless it finds that there is no
enforceable agreement to arbitrate.
N.C. Gen. Stat. § 1-569.7(a)(2) (2019).
This Court has elaborated “the trial court must perform a two-step analysis
requiring the trial court to ascertain both (1) whether the parties had a valid
agreement to arbitrate, and also (2) whether the specific dispute falls within the
substantive scope of that agreement.” U.S. Trust Co., N.A., 199 N.C. App. at 290, 681
S.E.2d at 514 (citations and quotation marks omitted). “[T]he trial court’s findings
regarding the existence of an arbitration agreement are conclusive on appeal where
supported by competent evidence, even where the evidence might have supported
findings to the contrary.” Ellis-Don Constr., Inc. v. HNTB Corp., 169 N.C. App. 630,
633-34, 610 S.E.2d 293, 296 (2005) (citations and quotation marks omitted). We
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Opinion of the Court
review the trial court’s conclusions of law de novo. Hager v. Smithfield E. Health
Holdings, LLC, 264 N.C. App. 350, 354-55, 826 S.E.2d 567, 571 (2019) (citing Creed
v. Smith, 222 N.C. App. 330, 333, 732 S.E.2d 162, 164 (2012)).
II. Arbitration Agreement Between the Parties
Here, the parties do not dispute the trial court’s determination there was a
valid arbitration agreement between Plaintiffs and the original creditors as
established in each Plaintiff’s credit card agreement. At issue is the trial court’s
conclusion there was not a valid arbitration agreement between Plaintiffs and PRA
on the basis PRA was not assigned arbitration rights when it purchased Plaintiffs’
debts through the Bills of Sale. PRA contends the trial court’s conclusion erred as a
matter of law for several reasons. In broad strokes, PRA argues the trial court
“misapplied basic contract law,” “singled out arbitration rights for special,
discriminatory treatment and resolved its doubts against the transfer of arbitration
rights—both in violation of the FAA.” PRA specifically contends it was entitled to
arbitration under the express language in Plaintiff Hall’s GE Bank Credit Card
Agreement and Plaintiff Sayaphet-Tyler’s Citibank Credit Card Agreement, and,
further, the assignment of Plaintiffs’ Accounts and Receivables, as effectuated by the
Bills of Sale, necessarily or implicitly included the assignment of the right to
arbitrate.
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Opinion of the Court
The United States Supreme Court has instructed “before referring a dispute to
an arbitrator, the court determines whether a valid arbitration agreement exists.”
Henry Schein, Inc. v. Archer & White Sales, Inc., 139 S. Ct. 524, 530, 202 L. Ed. 2d
480, 487 (2019) (citation omitted). “[A] litigant who was not a party to the relevant
arbitration agreement may invoke [Section] 3 [of the FAA] if the relevant state
contract law allows him to enforce the agreement.” Arthur Andersen LLP v. Carlisle,
556 U.S. 624, 632, 173 L. Ed. 2d 832, 841 (2009) (emphasis added). Therefore, as an
initial matter and contrary to PRA’s assertion, the trial court did not “misapply basic
contract law” when it examined the relevant state contract law to instruct its analysis
as to whether Plaintiffs and PRA had binding arbitration agreements. Thus, we must
examine, as did the trial court, the “relevant state contract law” to determine if PRA
is entitled to enforce the arbitration agreements contained in Plaintiffs’ original
credit card agreements against Plaintiffs. See id.
The parties agree with the trial court the relevant state contract law is the law
of Utah for the GE Bank Agreements and South Dakota for the Citibank Agreement.
Both Utah and South Dakota require proof of a valid arbitration agreement between
parties before compelling arbitration. Bybee v. Abdulla, 2008 UT 35, ¶ 26, 189 P.3d
40, 47 (2008); Mastellar v. Champion Home Builders Co., 2006 SD 90, ¶ 11, 723
N.W.2d 561, 564 (2006). Moreover, the party seeking to compel arbitration bears the
burden of proving there is a valid arbitration agreement between the parties. E.g.,
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Opinion of the Court
McCoy v. Blue Cross and Blue Shield of Utah, 2001 UT 31, ¶ 11, 20 P.3d 901, 904
(2001).
As such, whether a valid arbitration agreement exists under the applicable
state law turns on whether PRA was assigned the right to arbitrate.
Generally, the elements of an effective assignment include a
sufficient description of the subject matter to render it capable of
identification, and delivery of the subject matter, with the intent
to make an immediate and complete transfer of all right, title, and
interest in and to the subject matter to the assignee.
Gables v. Castlewood-Sterling, 2018 UT 04, ¶ 38, 417 P.3d 95, 107 (2018) (citations
and quotation marks omitted). Likewise:
It is the substance of the assignment rather than the form that is
evaluated. Regardless of how it is made, an assignment must
contain clear evidence of the intent to transfer rights, must
describe the subject matter of the assignment, and must be
noticed to the obligor.
Northstream Investments, Inc. v. 1804 Country Store Co., 2005 SD 61, ¶ 15, 697
N.W.2d 762, 766 (2005).
For purposes of this appeal, PRA became an assignee when it purchased
Plaintiffs’ debts; thus, here, the Bills of Sale are the operative assignment
agreements. The GE Bills of Sale, which cover four of five the assignments at issue
in the present case, provide:
Seller hereby transfers, sells, conveys, grants, and delivers to
Buyer, its successors and assigns, without recourse except as set
forth in the Agreement, to the extent of its ownership, the
Receivables as set forth in the Notification Files (as defined in the
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Opinion of the Court
Agreement), delivered by Seller to Buyer . . . and as a further
described in the Agreement.
(emphasis added). The Citibank Bill of Sale states: “Bank does hereby transfer, sell,
assign, convey, grant, bargain, set over and deliver to Buyer, and to Buyer’s
successors and assigns, the Accounts described in Exhibit 1 and the final electronic
file.” (emphasis added). Although the language of the GE Bills of Sale indicates the
Receivables are “as set forth in the Notification Files (as defined in the Agreement)”
and the Citibank Bill of Sale reflects the Accounts are “described in Exhibit 1 and the
final electronic file” no such documents or files describing Plaintiffs’ Accounts and
Receivables are included in the Record.
Therefore, the pivotal question for this Court is what rights were assigned to
PRA when it purchased Plaintiffs’ Accounts and Receivables pursuant to the Bills of
Sale. The trial court concluded, examining the relevant laws of Utah and South
Dakota, the language of the Bills of Sale, and both parties’ supporting arguments and
briefs, the right to arbitrate Plaintiffs’ claims was not included in the assignment of
Plaintiffs’ Receivables and Accounts. PRA contends the trial court’s conclusion was
error, arguing “numerous courts have held that an assign may enforce an arbitration
agreement that is expressly enforceable by assigns, without requiring evidence that
the assignors’ arbitration rights transferred.” In particular, PRA argues it was
expressly assigned the right to arbitrate by Plaintiff Hall’s GE Bank Agreement and
Plaintiff Sayaphet-Tyler’s Citibank Agreement and, further, that PRA was assigned
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Opinion of the Court
the right to arbitrate all Plaintiffs’ claims because the Bills of Sale assigned PRA all
of the rights granted to the original creditors.
PRA first singles out Plaintiff Hall’s GE Bank Agreement and Plaintiff
Sayaphet-Tyler’s Citibank Agreement and contends they were enforceable by PRA
because the language of the two agreements themselves stated they were expressly
enforceable by assigns. This is consistent with the trial court’s Order, which found
“only the Hall credit agreement with GE and the Sayaphet-Tyler credit agreement
with Citibank specifically grant assignees of the agreement the right to enforce the
arbitration clause of the agreement.” However, PRA’s argument the trial court’s
analysis should have concluded there is misplaced. Just because the original credit
card agreements expressly contemplated that a future assignee may be assigned the
right to compel arbitration does not relieve the future assignee from having to prove
there was, in fact, an assignment of that right. Accordingly, as the trial court also
recognized, the analysis for Plaintiff Sayaphet-Tyler’s GE Bank Agreement and
Plaintiff Hall’s Citibank Agreement is the same as for the additional Plaintiffs; we
turn to the language of the Bills of Sale themselves to determine what rights the
original creditors assigned to PRA. PRA contends even if the Bills of Sale did not
expressly assign the right to arbitration, the original creditors’ right to arbitration
was implicitly or necessarily assigned as part of the assignment of Plaintiffs’ Accounts
and Receivables.
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Opinion of the Court
Utah and South Dakota law both require express intent to assign identified
rights or subject matter. Indeed, the Supreme Court of Utah explained, “the elements
of an effective assignment include[,]” inter alia, “a sufficient description of the subject
matter to render it capable of identification” and “the intent to make an immediate
and complete transfer of all right, title, and interest in and to the subject matter to
the assignee.” Gables, 2018 UT 04 at ¶ 38, 417 P.3d at 107 (citation and quotation
marks omitted). Similarly, the South Dakota Supreme Court reiterated “an
assignment must contain clear evidence of the intent to transfer rights [and] must
describe the subject matter of the assignment[.]” Northstream Investments, Inc., 2005
SD 61 at ¶ 15, 697 N.W.2d at 766.
A number of courts around the country—including some applying Utah and
South Dakota law—have considered whether an assignment of debt necessarily or
implicitly carries with it an assignment of the right to compel arbitration. Instructive
is the United States District Court for the Northern District of Alabama’s decision in
Lester v. Portfolio Recovery Assocs., LLC, No. 1:18-CV-0267-VEH, 2018 WL 3374107
(N.D. Ala. 2018). The plaintiff in Lester defaulted on credit card debt originally owned
by GE Bank (later Synchrony), who subsequently sold the debt to PRA. Id. at *2.
The plaintiff’s cardholder agreement included an arbitration provision and identified
the FAA and Utah law as the relevant state law. Id. The Lester court considered an
almost-identical question to the case at hand. In determining if PRA could compel
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Opinion of the Court
arbitration on the plaintiff’s claims, the Lester court examined the bill of sale,4 which
stated:
Seller hereby transfers, sells, conveys, grants, and delivers to
Buyer, its successors and assigns, without recourse except as set
forth in the Agreement, to the extent of its ownership, the
Receivables as set forth in the Notification Files (as defined in the
Agreement), delivered by Seller to Buyer on [date], and as further
described in the Agreement.
Id. The Lester court determined, applying the relevant Utah law, the defendant had
not demonstrated the right to compel arbitration was included in the purchase of the
plaintiff’s debt as effectuated through the bill of sale and thus the original creditor
“only transferred to PRA the right to collect Lester’s receivable.” Id. at *7.
PRA cites, inter alia, Brooks v. N.A.R., Inc., No. 3:18-cv-362, 2019 WL 2210766
(N.D. Ohio 2019), for the proposition “numerous courts have held that an assign may
enforce an arbitration agreement that is expressly enforceable by assigns without
requiring evidence that the assignors’ arbitration rights transferred.” Notably in
Brooks, however, the federal district court determined “[a]long with the account itself,
Crest also assigned N.A.R. all of its rights.” Id. at *1. (emphasis added). The Brooks
court, therefore, consistent with the trial court in the case sub judice, looked at the
document effectuating the assignment to see what rights were assigned to the
defendant. Although the assignment in Brooks did not expressly identify assignment
4 This language is identical to the language of the GE Bills of Sale at issue in the case sub
judice, save for the language relating to the date of the specific transaction.
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Opinion of the Court
of the specific right to arbitration, the assignment included the plaintiff’s account and
“all of [the original creditors] rights.” Id. Thus, the assignment at issue in Brooks
was more inclusive than the assignments in the present case that do not include such
similar, additional catch-all language.
We are persuaded by the federal district court’s reasoning in Lester. As
detailed, Utah and South Dakota look for both the identification of and the intent to
transfer rights to an assignee. See Gables, 2018 UT 04 at ¶ 38, 417 P.3d at 107;
Northstream Investments, Inc., 2005 SD 61 at ¶ 15, 697 N.W.2d at 766. Here, PRA
purchased Plaintiffs’ debts pursuant to the Bills of Sale, which specifically and solely
identify the assignment of Plaintiffs’ Accounts and Receivables. The Bills of Sale in
this case contrast with the language of other bills of sale or purchase agreements
where the documents effectuating the assignments expressly assign all of the rights
of the original creditors to the assignee. See Brooks, No. 3:18-cv-362, 2019 WL
2210766, at *1 (“Along with the account itself, [original creditor] also assigned [the
defendant] all of its rights.” (emphasis added)); James v. Portfolio Recovery Assocs.,
LLC, No. 14-cv-03889-RMW, 2015 WL 720195, at *5 (N.D. Cal. 2015) (“[U]nder the
express terms of the agreement, the assignment of the agreement to PRA affords PRA
‘the same rights’ as [original creditor] had under the agreement.”); Mark v. Portfolio
Recovery Assocs., LLC, No. 14-cv-5844, 2015 WL 1910527, at *3 (N.D. Ill. 2015)
(where the “Bill of Sale and Assignment of Assets unambiguously assigns ‘all of [its]
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right, title and interest in and to’ the accounts purchased by PRA[,]” the federal
district court concluded “[t]he plain and ordinary meaning of ‘all of [its] right, title,
and interest in and to’ provides for an assignment of all of [original creditor’s] rights
under the Cardmember Agreement, including the arbitration provision”). Thus, we
conclude the language contained in Plaintiffs’ Bills of Sale does not identify the
assignment of the right to arbitration nor does it demonstrate an intent of the parties
to assign PRA “all of the rights” of the original creditors. Without more, the right to
arbitrate against Plaintiffs was not implicitly assigned along with Plaintiffs’ Accounts
or Receivables.
PRA also argues Section 9-404(a) of the Uniform Commercial Code, which has
been adopted in both Utah and South Dakota, applies and compels the conclusion
PRA was entitled to arbitration. Section 9-404, in part, provides:
(a) Unless an account debtor has made an enforceable agreement not
to assert defenses or claims, and subject to subsections (b)
through (e), the rights of an assignee are subject to:
(1) All terms of the agreement between the account debtor and
assignor and any defense or claim in recoupment arising from
the transaction that gave rise to the contract; and
(2) Any other defense or claim of the account debtor against the
assignor which accrues before the account debtor receives a
notification of the assignment authenticated by the assignor
or the assignee.
S.D. Codified Laws § 57A-9-404(a) (2019); Utah Code Ann. § 70A-9a-404(1) (2019).
PRA contends it was transferred the right to compel arbitration under this statutory
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provision because its own rights under the assignment from the original creditors,
under the UCC, are made subject to the same terms of the Plaintiffs’ original credit
card agreements.
Although the applicability of Section 9-404 under either Utah or South Dakota
law to the present case is not extensively briefed before us, as an initial matter, the
applicability of Section 9-404 to the present case is at least questionable. Indeed,
Subsection (c) of Section 9-404 as adopted by both states provides: “This section is
subject to law other than this article which establishes a different rule for an account
debtor who is an individual and who incurred the obligation primarily for personal,
family, or household purposes.” S.D. Codified Laws § 57A-9-404(c); Utah Code Ann.
§ 70A-9a-404(3).
Moreover, it appears PRA’s argument on this point is contrary to the purpose
of Section 9-404. The purpose of Section 9-404(a) is to define and limit the defenses
and claims that may be asserted against an assignee by an account debtor, including
by preserving any claims or defenses an account debtor may assert under the terms
of the original agreement against an assignee. See, e.g., S.D. Codified Laws § 57A-9-
404 cmt. 3. Nowhere in this Section does it mandate the terms of every assignment—
no matter the express terms of the actual assignment—from the original debtor to an
assignee.
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Indeed, even assuming PRA’s reading of this Section is correct and Section 9-
404(a) is designed to be a broad grant of rights under an assignment to the assignee
and is applicable to agreements like the one in this case, the UCC also recognizes
parties have the right to vary its terms by agreement. See Utah Code § 70A-1a-302(1)
(“Except as otherwise provided . . . the effect of provisions of this title may be varied
by agreement”); S.D. Codified Laws § 57A-1-302(a) (same); see also Pine Top
Receivables of Ill., LLC v. Banco de Seguros del Estado, 771 F.3d 980, 992 (7th Cir.
2014) (“The provisions of the UCC on which [the plaintiff] relies cover contractual
language assigning ‘the contract’ or ‘all my rights under the contract.’ If an
assignment includes such language, the UCC tells us that the transfer is subject to
‘all terms of the agreement.’ ” (citing 810 ILCS 5/9-404(a))).
However, as Plaintiffs argue and we have discussed supra, the very terms of
the Bills of Sale at issue in the present case contractually limit the scope of the
assignments—they assign PRA only Plaintiffs’ Accounts and Receivables. As such,
application of Section 9-404 does not alter our analysis. Therefore, consistent with
both Utah and South Dakota law, the key inquiry remains unchanged: Whether the
right to arbitrate was included in the assignment of Plaintiffs’ Accounts and
Receivables as effectuated by the Bills of Sale. The trial court properly concluded
under the laws of South Dakota and Utah and based on the terms of the Bills of Sale
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Opinion of the Court
themselves, the right to arbitrate was not transferred by implication or by necessity
along with the Accounts and Receivables.
Consequently, we conclude, as did the trial court, without any showing of the
additional intent by the original creditors to assign to PRA, at the very least, “all of
the rights and obligations” of the original agreements, the right to arbitrate was not
assigned in the sale and assignment of the Plaintiffs’ Accounts and Receivables as set
forth in the Bills of Sale. The trial court correctly concluded PRA has not met its
burden of showing a valid arbitration agreement between each Plaintiff and PRA and
did not err when it denied PRA’s Motion to Compel Arbitration.
Conclusion
Accordingly, for the foregoing reasons, the trial court’s Order is affirmed.
AFFIRMED.
Judges STROUD and ARROWOOD concur.
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