Creditors Adjustment Bureau, Inc. v. IBT Media Inc.
3:19-cv-02305
N.D. Cal.Jul 15, 2019Background
- In 2017 non-party Instart Logic, Inc. and defendant IBT Media Inc. entered a Master Services Agreement governed by California law under which IBT allegedly owes $658,974.33.
- The Agreement contained a clause: “Neither party may transfer and assign its rights and obligations under this Agreement without the prior written consent of the other party,” but allowed Instart to assign in connection with a change in control or sale of assets.
- Instart allegedly assigned its claim for the unpaid sum to plaintiff Creditors Adjustment Bureau, Inc. (CAB), a collection agency.
- CAB sued IBT in state court to collect; IBT removed to federal court based on diversity jurisdiction.
- IBT moved to dismiss, arguing the anti-assignment clause forbids Instart’s assignment and thus CAB lacks standing; CAB argued such clauses do not bar assignment of claims for money damages and that pleading-stage proof of assignment is not required.
- The court evaluated whether CAB, as alleged assignee, is the real party in interest under Fed. R. Civ. P. 17 and whether the contract’s anti-assignment language bars an assignment of the breach/damages claim.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CAB (assignee) is the real party in interest with standing to sue under Rule 17 | CAB contends Instart assigned its claim to CAB and Rule 17 permits an assignee to prosecute a claim | IBT contends the Agreement’s broad prohibition on assignment of “rights” prevents Instart from assigning the claim, so CAB lacks standing | Denied dismissal: CAB may be the real party in interest; complaint survives pleading-stage challenge |
| Whether the Agreement’s anti-assignment clause bars assignment of a cause of action for money damages | CAB argues California law allows assignment of money due or damages despite anti-assignment clauses unless parties clearly intended otherwise | IBT argues the clause forbids assignment of all “rights” under the contract, including the right to sue | Court held anti-assignment language does not, by itself, bar assignment of a claim for money damages under California law |
| Whether CAB needed to attach proof of assignment at pleading stage | CAB argues no such showing is required at pleading stage | IBT argues CAB failed to provide sufficient evidence of assignment | Court held plaintiff need not prove assignment at pleading stage; factual proof reserved for later phases |
| Whether any authority cited precludes CAB’s claim | CAB relied on California precedents distinguishing assignment of contract from assignment of proceeds/damages | IBT relied on Henkel and the contract language | Court found IBT’s reliance misplaced; controlling authority permits assignment of money-damages claims despite general anti-assignment clauses |
Key Cases Cited
- U-Haul Int’l, Inc. v. Jartran, Inc., 793 F.2d 1034 (9th Cir.) (Rule 17 permits suit by any party to whom substantive law grants cause of action; real-party-in-interest doctrine)
- Fluor Corp. v. Superior Court, 61 Cal.4th 1175 (Cal. 2015) (California law on enforceability and construction of anti-assignment clauses)
- Trubowitch v. Riverbank Canning Co., 30 Cal.2d 335 (Cal. 1947) (anti-assignment clause does not preclude assignment of money due or damages for breach)
- Benton v. Hofmann Plastering Co., 207 Cal. App. 2d 61 (Cal. Ct. App.) (distinguishing assignment of contract rights from assignment of contract proceeds/damages)
- Rosencrans v. William S. Lozier, Inc., 142 F.2d 118 (9th Cir.) (permitting assignment of causes of action for money damages despite general non-assignment provisions)
- Henkel Corp. v. Hartford Accident & Indem. Co., 29 Cal.4th 934 (Cal. 2003) (distinguishes rights such as defense/indemnity under insurance contracts from assignment of money-due claims)