Opinion ID: 4524974
Heading Depth: 2
Heading Rank: 1

Heading: Events Predating the Present Litigation

Text: Having established a home-equity line-of-credit account, the Menchions borrowed $200,000. The original lender assigned the account to defendant Prime Asset. The Menchions later defaulted. On August 17, 2011, Prime Asset entered into a “Collection Agreement” with defendant Best Service. The Collection Agreement defined the terms between Best Service and Prime Asset for “any and all accounts” assigned to Best Service for collection, including how the proceeds of any collection efforts would 3 Case: 16-10380 Date Filed: 04/14/2020 Page: 4 of 24 be divided. Under this agreement, Best Service would receive 40% of collected proceeds for accounts requiring legal action and 30% for accounts not requiring legal action. Paragraph 7 of the Collection Agreement states that Prime Asset “agrees to leave all assigned loans and/or accounts in the hands of Best [Service] for a period of at least [120 days] from the date of assignment. After which time and upon [Prime Asset’s] request, said loans and/or accounts will be returned without cost, and free from litigation on Best’s part . . . . [except] (b) If legal action has been initiated on an account, it shall remain with Best until said legal action and/or judgment is barred for further enforcement by the applicable statute of limitations or is otherwise resolved.” On November 29, 2012, in preparation for Best Service’s litigation against the Menchions, Prime Asset’s Operations Manager Karen Cooksey executed an affidavit stating that “on or about November 15, 2011, [Prime Asset] the owner of [the Menchion Account], assigned all of its interests and all its rights thereunder, including the right to file suit and collect on this account, to The Best Service Co., Inc.” That same day, Cooksey executed an “Assignment for Collection” stating that “the [Menchion] account, including principal and accruing interest, is owned by [Prime Asset] and was assigned to [Best Service] for collection, on the agreed rate of commission, with full authority to collect and/or sue upon same on November 15, 2011.” 4 Case: 16-10380 Date Filed: 04/14/2020 Page: 5 of 24 A few weeks later, on December 21, 2012, Defendant Prime Asset and Plaintiff Cadle Company entered into an “Unsecured Loan Sale Agreement” pursuant to which Prime Asset sold a portfolio of accounts to Plaintiff. The total unpaid principal balance of the loans included in the portfolio was $26,485,346. Plaintiff paid $100,999.22 for the portfolio, which represented .0038134 of the over $26-million principal balance on the underlying loans. Despite Prime Asset’s prior assignment of the Menchion account to Best Service for collection, the Menchion account was listed in the 14-page Exhibit to the Loan Sale Agreement as one of the numerous accounts sold to Plaintiff. Section 6 of the Loan Sale Agreement includes a number of representations and warranties concerning Prime Asset’s ability to convey unencumbered to Plaintiff this portfolio of accounts. As it relates to this case, Prime Asset represented in Section 6.2 that it had “full right and authority to sell, assign and transfer” all accounts, including the Menchion account, to Plaintiff. Prime Asset also represented that “[n]o person or entity holds any competing claim of an interest” in the Menchion account. Prime Asset further represented that it was “sole owner” of the Menchion account, that it was “free and clear of any lien, encumbrance or security interest whatsoever,” and that it was not the “subject of a pending or threatened Claim, including but not limited to a Claim by a servicing 5 Case: 16-10380 Date Filed: 04/14/2020 Page: 6 of 24 agent or attorney for [Prime Asset] under a collection or contingency arrangement.” (emphasis added) As to the remedy available to Plaintiff for Prime Asset’s sale of an account to which it did not have unencumbered rights, Section 6.3 of the Loan Sale Agreement states that a repurchase of that loan by Prime Asset is the “Sole Remedy for Breach of Representations and Warranties”: It is expressly understood that the Seller’s representations and warranties are made as of the Closing Date. If on any date between the Closing Date and April 30, 2013, the Buyer discovers that Seller breached an representation or warranty set forth in this Agreement, the Buyer shall give written notice to Seller within ten (10) calendar days of the discovery of such breach, and the Seller shall have the right to cure such breach during a period of sixty (60) calendar days after receipt of such notice. If such breach or failure is not duly cured with such sixty (60) day period, or not otherwise waived or consented to in writing by Buyer, then Seller shall repurchase the subject Unsecured Loans at the Repurchase Price. The remedies set forth in this Section 6.3 shall be the exclusive remedies of the Buyer for any breach by Seller of a representation or warranty, and the Buyer shall not be entitled to any other rights, remedies or other relief, at law or in equity. (emphasis added) In short, per the terms of this provision, Plaintiff’s only remedy for a breach of Prime Asset’s warranty that it had an unencumbered right to sell the Menchion account was to have Prime Asset repurchase that account. As prescribed by the agreement, the repurchase price for the Menchion account would be $762.68 (i.e. the loan amount of $200,000 times the Purchase Price basis points of .0038134 as defined on page 2 of the Loan Sale Agreement). 6 Case: 16-10380 Date Filed: 04/14/2020 Page: 7 of 24 Plaintiff contacted Best Service on or about January 23, 2013 and advised the company that Plaintiff had purchased a pool of loans from Prime Asset that included the Menchion account. Upon inquiry by Best Service, Prime Asset explained to Best Service that it had inadvertently included the Menchion account in the Loan Sale Agreement with Plaintiff, that the account was not properly assigned to Plaintiff, and that it was subject to the Section 6.3 repurchase provision. Relying on its Collection Agreement with Prime Asset and on the latter’s representations, Best Service filed its planned state court legal action to collect on the Menchion account on February 7, 2013. Shortly thereafter, on March 22, Plaintiff also filed a lawsuit against the Menchions to collect on this same account, but Plaintiff dismissed the action on May 6, 2013 after learning that Best Service had already filed its own lawsuit. Plaintiff never attempted to intervene in Best Service’s lawsuit nor did it try to stop Best Service’s collection efforts. On April 11, 2013, the state court entered a default judgment against the Menchions in the lawsuit filed by Best Service in the amount of $273,748.75, which included the principal, accrued interest, fees, and costs. On June 26, the Menchions settled with Best Service, paying $150,000 in full satisfaction of the default judgment. With legal action having been taken, Best Service retained 40% 7 Case: 16-10380 Date Filed: 04/14/2020 Page: 8 of 24 of the proceeds ($60,000) pursuant to the terms of the Collection Agreement, and it remitted to Prime Asset the remainder ($90,000).