Blue Ridge Bank, Inc. v. City of Fairmont
807 S.E.2d 794
| W. Va. | 2017Background
- The City of Fairmont entered a finance lease-purchase with Comvest in Sept. 2009 to acquire water‑treatment equipment; Comvest was to pay vendors and the City to make 180 monthly payments totaling about $1.48M.
- Two days after the lease was executed, Comvest assigned its rights and duties under the lease to Blue Ridge Bank; the Bank paid Comvest $1,070,600 to fund equipment purchases and directed the City to pay the Bank monthly.
- Comvest paid vendors for $573,054.42 of equipment but converted $506,823.06 of the funds from the Bank and later declared bankruptcy; the City paid the remaining vendors out of pocket.
- The City sought a declaratory judgment reducing its monthly payments to the Bank to recoup the $506,823.06; the Bank sued for full payments and repossession rights.
- The circuit court granted summary judgment for the City; the Bank appealed.
Issues
| Issue | Plaintiff's Argument (City) | Defendant's Argument (Bank) | Held |
|---|---|---|---|
| Whether an account‑debtor (City) may assert defenses/recoupment against an assignee (Bank) based on assignor’s (Comvest) misconduct | City: Under UCC §46‑9‑404(a)(1), defenses/recoupment arising from the underlying transaction bind the assignee; City can reduce payments to recoup funds it paid out of pocket | Bank: Assignment transferred Comvest’s rights only (and its $1,070,600 payment); Bank had no duties after paying Comvest and is entitled to full lease payments; a finance‑lease "hell or high water" clause makes City’s payment obligations unconditional | The court held the Bank takes subject to the City’s defenses and recoupment claims under W.Va. Code §46‑9‑404(a)(1); City may reduce payments to recoup converted funds. The hell‑or‑high‑water clause does not bar recoupment as to equipment the City did not accept/purchase under the lease. |
Key Cases Cited
- Lightner v. Lightner, 146 W.Va. 1024, 124 S.E.2d 355 (W. Va. 1962) (general rule that an assignee acquires no greater right than assignor)
- First Nat’l Bank of Louisville v. Master Auto Serv. Corp., 693 F.2d 308 (4th Cir. 1982) (debtor may assert defenses arising from assignor’s breach as setoff against assignee)
- Pioneer Commercial Funding Corp. v. United Airlines, Inc., 122 B.R. 871 (S.D.N.Y. 1991) (UCC provision requires assignee to take subject to setoff/recoupment rights arising from assigned contract)