The Receivables Exchange, LLC v. Suncoast Technology, Inc. et al

Filing 40

ORDER AND REASONS denying 28 Motion for Partial Summary Judgment. Signed by Judge Eldon E. Fallon on 6/23/11. (ala, )

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA

RECEIVABLES EXCHANGE, LLC

CIVIL ACTION

VERSUS

NO. 10-4152

SUNCOAST TECHNOLOGY, INC., ET AL.

SECTION “L” (5)

ORDER AND REASONS
Currently pending before the Court is Plaintiff The Receivables Exchange, LLC’s motion
for partial summary judgment (Rec. Doc. 28). The Court has reviewed the briefs and the
applicable law and now issues this Order and Reasons.
I.

BACKGROUND
This case arises out of the sale of receivables over an electronic exchange. Plaintiff The

Receivables Exchange, LLC (“TRE”) operates an electronic marketplace for receivables, or the
rights to be paid a sum of money by a third party. A seller that is owed a sum of money by a
third party can place that receivable for auction through TRE’s system. The seller receives an
immediate payment, and the buyer obtains the right to be paid the debt at a discount to the face
value. Participants in TRE’s exchange sign a Master Program Agreement, and sellers also sign a
Seller Agreement and a Seller Security Agreement with TRE. Pursuant to these agreements,
sellers are required to certify that the receivables they offer for sale are “qualifying receivables,”
which includes the certification that the receivables are not subject to dispute in any fashion.
That certification applies to each sale through the exchange.
Pursuant to the terms of the Seller Agreement, a seller on TRE’s exchange is obligated to
repurchase receivables sold to a buyer on the exchange if certain conditions occur:
Section 21. Repurchase Obligations.

A.

(i)

(ii)

Seller absolutely, unconditionally, and irrevocably agrees to repurchase
one or more Traded Receivables from the Buyer or Buyers thereof for a
Repurchase Amount to be determined by TRE:
if for any reason the Account Debtor fails to pay the Face Value of the
Traded Receivable, in full and in Good Funds, by no later than the 90th
day following the Invoice Due Date; or
when and if the Account Debtor raises any defense to payment or
otherwise demonstrates that it is unable or unwilling to pay the Face Value
of the Traded Receivable in full when due; or

...
(iv)
at the time of the occurrence of any Seller Event of Default.
SELLER’S REPURCHASE OBLIGATIONS UNDER THIS SELLER
AGREEMENT ARE ABSOLUTE, UNCONDITIONAL AND IRREVOCABLE
AND ARE NOT SUBJECT TO ANY CLAIM THAT SELLER MAY HAVE
AGAINST THE BUYER OR TRE OR ANY DEFENSES TO PAYMENT
(INCLUDING SURETYSHIP DEFENSES), ALL OF WHICH ARE
KNOWINGLY WAIVED BY SELLER.
(Plaintiff’s Exhibit 2 at 5, Rec. Doc. 28-6 at 7). Under the terms of the Master Program
Agreement, a seller’s failure to repurchase when required is an event of default, which allows
TRE or the buyers to enforce the repurchase obligation. (Plaintiff’s Exhibit 1 at 15-16, Rec.
Doc. 28-5 at 20-21).
Defendant Suncoast Technology, Inc. is a former seller on TRE’s exchange. Defendant
Joseph Gordon is the president of Suncoast. In 2010, Suncoast allegedly sold approximately
$1.7 million of receivables owed to it by Millenium Tele Card, Inc., (the “Millenium
receivables”) on TRE’s exchange.1 TRE alleges that Suncoast sold the Millenium receivables on
the exchange despite knowing that Millenium Tele Card claimed an offset to those receivables of
approximately $1.2 million. TRE also alleges that Gordon, in his capacity as President and in
his individual capacity, certified that Suncoast was in compliance with the terms of its agreement
with TRE.

1

Neither Millenium Tele Card nor the buyers of the Millenium receivables are parties to
this action.
2

TRE filed suit against Suncoast for breach of contract, conversion, and fraud in Civil
District Court for the Parish of Orleans, pursuant to a forum selection clause in the Master
Program Agreement between TRE and Suncoast. TRE brings suit in its own capacity, and on
behalf of the buyers of the Millenium receivables.2 TRE alleges that Suncoast misrepresented
the status of the Millenium receivables, has refused to refund the amount Millenium Tele Card
claims as an offset, and has refused to repurchase the Millenium receivables, all in violation of
the various contracts between Suncoast and TRE. TRE also asserts a claim for conversion and
breach of contract because after the sales, Suncoast allegedly instructed Millenium to pay
amounts owed on the Millenium receivables to Suncoast, when those sums should have been
deposited by Millenium into a TRE account. Finally, TRE also named Gordon as a defendant in
his individual capacity, alleging that both he and Suncoast committed fraud by deliberately
misrepresenting the status of the Millenium receivables. Defendants timely removed to this
Court.
II.

PRESENT MOTION
Plaintiff TRE now moves for partial summary judgment on the question of Suncoast’s

repurchase obligations under the applicable contracts. TRE submits an affidavit authenticating
the contracts involved as well as stating that the Millenium receivables were not paid in full
within 90 days of their due date and that Suncoast has not repurchased the obligations from the
buyers. TRE seeks judgment as a matter of law that Suncoast is obligated to repurchase the
Millenium receivables from the buyers and pay associated fees and expenses.
Suncoast opposes the motion. It argues first that discovery is in its early stages and that

2

Pursuant to the Master Agreements, TRE has a contractual right to proceed against
breaching sellers on behalf of the purchasers.
3

any summary judgment motion is inappropriate at this time. Second, Suncoast argues that the
repurchase obligation is unenforceable as a matter of law because the repurchase price is not
stated in the contract and is left entirely to TRE’s unfettered discretion.
III.

LAW AND ANALYSIS

A.

Motion for Summary Judgment
A district court can grant a motion for summary judgment only when the “the movant

shows that there is no genuine dispute as to any material fact and the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a). When considering a motion for summary
judgment, the district court “will review the facts drawing all inferences most favorable to the
party opposing the motion.” Reid v. State Farm Mut. Auto. Ins. Co., 784 F.2d 577, 578 (5th Cir.
1986). The court must find “[a] factual dispute . . . [to be] ‘genuine’ if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party . . . [and a] fact . . . [to be]
‘material’ if it might affect the outcome of the suit under the governing substantive law.” Beck v.
Somerset Techs., Inc., 882 F.2d 993, 996 (5th Cir. 1989) (citing Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 (1986)).
“If the moving party meets the initial burden of showing that there is no genuine issue of
material fact, the burden shifts to the non-moving party to produce evidence or designate specific
facts showing the existence of a genuine issue for trial.” Engstrom v. First Nat'l Bank of Eagle
Lake, 47 F.3d 1459, 1462 (5th Cir. 1995). The mere argued existence of a factual dispute will not
defeat an otherwise properly supported motion. See Anderson, 477 U.S. at 248. “If the evidence
is merely colorable, or is not significantly probative,” summary judgment is appropriate. Id. at
249-50 (citations omitted).
B.

Analysis
4

Neither party disputes that Louisiana law governs the interpretation of the contracts in
question.3 “Interpretation of a contract is the determination of the common intent of the parties.”
La. Civ. Code art. 2045. “A contract is formed by the consent of the parties established through
offer and acceptance.” La. Civ. Code art. 1927. “Sale is a contract whereby a person transfers
ownership of a thing to another for a price in money. The thing, the price, and the consent of the
parties are requirements for the perfection of a sale.” La. Civ. Code art. 2439. “A price must be
fixed by the parties in a sum either certain or determinable through a method agreed by them.”
La. Civ. Code. art. 2464. “The price may be left to the determination of a third person. If the
parties fail to agree on or to appoint such a person, or if the one appointed is unable or unwilling
to make a determination, the price may be determined by the court.” Id. art. 2465.4 “An
agreement whereby one party promises to sell and the other promises to buy a thing at a later
time, or upon the happening of a condition, or upon the performance of some obligation by either
party, is a bilateral promise of sale or contract to sell. Such an agreement gives either party the
3

The Master Program Agreement states that “the relationship between the parties and any
claim or dispute ... shall be exclusively governed by and construed in accordance with the laws
of the state of Louisiana, but excluding any conflict of law rules that would lead to the
application of the laws of another jurisdiction.”
4

Neither party has cited Louisiana Civil Code article 2466, “No price fixed by the
parties”:
When the thing sold is a movable of the kind that the seller habitually sells and
the parties said nothing about the price, or left it to be agreed later and they fail to
agree, the price is a reasonable price at the time and place of delivery. If there is
an exchange or market for such things, the quotations or price lists of the place of
delivery or, in their absence, those of the nearest market, are a basis for the
determination of a reasonable price.
Nevertheless, if the parties intend not to be bound unless a price be agreed on,
there is no contract without such an agreement.
Given that the Millenium Receivables were in fact sold on “an exchange or market for such
things,” that price may arguably be “a basis for the determination of a reasonable price” for
repurchase.
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right to demand specific performance. A contract to sell must set forth the thing and the price,
and meet the formal requirements of the sale it contemplates.” La. Civ. Code art. 2623.
TRE argues that the terms of the agreements are clear and unequivocal: if the account
debtor fails to pay the face value of the receivables the seller must repurchase those receivables
from the buyer, and if the seller fails to repurchase those receivables, TRE may sue to enforce
the repurchase obligation. TRE has provided competent summary judgment evidence that
Millenium did not pay the face value of the receivables and that Suncoast has not repurchased
the Millenium Receivables from the buyers. Therefore, TRE argues, as a matter of law Suncoast
is obligated to repurchase the receivables from the buyers, at a price to be determined by TRE.
In response, Suncoast argues that the repurchase obligation is unenforceable because the
repurchase price is not expressly set forth in the contract. Citing Louisiana Civil Code articles
2439 and 2623, Suncoast contends that at the time it contracted with TRE, the price of any future
repurchase was undefined and thus Suncoast could not have consented to any price. In the
absence of consent to a price, an element of contract formation is missing and the repurchase
obligation cannot be enforced against it. However, Suncoast does not provide any summary
judgment evidence that the receivables were not timely paid or that the repurchase obligation has
not been triggered; it simply agues that the repurchase obligation cannot be enforced against it.
In reply, TRE argues that although the agreement does not set the price at which
Suncoast must repurchase the obligations from the buyers, the agreement does designate a third
party to determine the price: TRE. Under Louisiana law, parties to a contract can designate a
third party to determine a price. And because the terms of the Master Program Agreement are
incorporated into every sale on TRE’s exchange, the repurchase obligation was a term of the
contract of sale between Suncoast and its buyers, and properly designated TRE as the third party
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to determine the repurchase price. See La. Civ. Code. art. 2465. TRE also argues that Suncoast
should be estopped from objecting to the repurchase obligation when it has accepted the benefits
of selling receivables on the exchange.
The first question is whether the repurchase obligation has been triggered at all.
Suncoast has not come forward with evidence that might generate a factual dispute as to whether
the receivables were timely paid, nor has it indicated that TRE has not demanded repurchase of
the receivables. Thus, at present there appears to be no factual dispute that the conditions
triggering the repurchase obligation appears are met. If the repurchase obligation is not
unenforceable due to the ambiguity of the price, then it seems likely there is no factual
impediment to enforcement.
The next question is, at what price is Suncoast obligated to repurchase the receivables?
The contract is silent as to that question, and the Court is hesitant to order that Suncoast
repurchase the receivables when the Court does not know specifically what the outcome of that
order will be. The use of the term “repurchase” would seem to imply simply undoing the sale,
with Suncoast purchasing the Millenium Receivables back from the buyer for the same price that
the buyer paid. That repurchase price would return the parties to the status quo, subject to late
charges and fees allowed for under the contract. However, in its affidavit in support of summary
judgment, TRE states that it has demanded repurchase at the face value of the receivables. (Rec.
Doc. 28-4 at 3). That amount is presumably more than the buyers actually paid for the
receivables, and would represent the benefit of the bargain the buyer would have received had
the receivables been timely paid. That may also be a fair and reasonable repurchase price;
however, it is not a price expressly set out in the contract.
Neither party has cited a case on all fours with this situation: a contract between two
7

parties, designating one of the parties to determine the repurchase price in the event that the
other subsequently breaches a sale contract with a third party unknown at the time of the initial
contract. It may well be that TRE’s demand for repurchase at the face value of the receivables is
reasonable and consistent with its course of dealing with Suncoast or with other participants on
its exchange or with internal procedures or guidelines for calculating the repurchase price.
However, the Seller Agreement and the record as yet do not speak to that question. Discovery
may provide some context to the appropriate measure of the repurchase price. Therefore, TRE’s
motion is denied as premature with respect to the repurchase price.
IV.

CONCLUSION
Accordingly, for the foregoing reasons,
IT IS ORDERED that TRE’s motion for partial summary judgment is DENIED at this

time as premature. TRE may file a motion again at a later date after Suncoast has had a
reasonable opportunity for discovery related to how TRE calculates repurchase prices.
New Orleans, Louisiana, this 23rd day of June , 2011.

UNITED STATES DISTRICT JUDGE

8