Mooney v. University System

JAMES R. EYLER, Judge. Chesapeake Cable, LLC (“Chesapeake”) borrowed money from Kevin Mooney and Teresa Mooney, appellants. To secure the repayment of the loan, Chesapeake granted a security interest in all of its personal property, including ⁶³⁹ receivables, to appellants. The University System of Maryland, appellee, had a contractual relationship with Chesapeake, pursuant to which Chesapeake provided cable services in exchange for payment.

Chesapeake defaulted on the loan and, according to appellants, notified appellee of the default and appellants’ security interest in accounts receivable. Appellee paid the balance owed on the account to Chesapeake and not to appellants. Appellants sued appellee in the Circuit Court for Prince George’s County, alleging a violation of Maryland Code (2002 Repl.Vol., 2007 Supp.), § 9-406(a) of the Commercial Law Article (“C.L.”). 1 Appellants appeal from a summary judgment entered in favor of appellee on the ground of governmental immunity. We shall vacate the judgment.

Factual Background In October, 2002, appellants and Chesapeake entered into a credit line agreement and Chesapeake executed two promissory notes in the amount of $200,000 and $50,000. Under the notes, Chesapeake agreed to perform certain obligations and to make various payments to appellants. Chesapeake entered into a security agreement with appellants to secure the notes, granting appellants a security interest in, among other things, Chesapeake’s accounts receivable. To perfect their interest, appellants filed a financing statement with the Maryland State Department of Assessments and Taxation.

Chesapeake defaulted on its obligations under the terms of the notes when it failed to make timely payments to appellants. In a letter dated April 9, 2003, appellants notified Chesapeake of its default and of their intention to exercise their rights under the notes to “take possession of certain Collateral, in particular the accounts receivable.” Appellants stated their intent to “notify all account debtors ... to make payment directly to [them].” ⁶⁴⁰ Appellee had a contract with Chesapeake wherein appellee agreed to make payments to Chesapeake for services rendered. According to appellants, on April 13, 2003, five days after notifying Chesapeake of its default, appellants sent a letter to appellee, addressed to its accounts payable department, notifying appellee of Chesapeake’s default and “instructing] [appellee] to make payment on the above-referenced account directly to the Mooneys.” Appellee does not agree that it received notice, but that issue is not before us. On April 22, 2003, appellee issued a check to Chesapeake in the amount of $43,005.00.

According to appellants, appellee terminated its contract with Chesapeake on June 19, 2003. On June 4, 2004, appellants filed a complaint in circuit court, seeking $43,005.00, attorney’s fees, interest, and costs, based on an alleged violation of C.L. § 9-406. The parties filed cross motions for summary judgment. On September 7, 2005, the circuit court granted appellee’s motion on the ground that, because there was no contract between appellants and appellee, appellants’ claim was based in tort.

As a result, the court reasoned that they were obligated to provide notice under the Maryland Tort Claims Act, but failed to do so. Appellants noted an appeal to this Court. In an unreported opinion, Mooney v. University System of Maryland, No. 1843, Sept. Term, 2005, 169 Md.App. 750 , filed August 7, 2006, we vacated the judgment on the ground that appellants’ claim was for enforcement of a security interest under the Uniform Commercial Code and was not a tort action. We did not address any other issues.

On remand, the parties again filed motions for summary judgment. Appellee again asserted that it was immune from liability, arguing that it had not waived sovereign immunity for liability under Title 9 of the Uniform Commercial Code and that it had not received notice of Chesapeake’s assignment of accounts receivable to appellants. By order dated March 27, 2007, the circuit court granted appellee’s motion on the ground that appellee had not expressly waived sovereign ⁶⁴¹ immunity under Title 9 of the Uniform Commercial Code. This appeal followed.

Contentions Appellants contend they have a right to enforce their security interest, which is not barred by sovereign immunity. Appellee argues appellants’ claim is barred by sovereign immunity because: (1) there is no express waiver of immunity in Title 9 of the Uniform Commercial Code and the legislature has not appropriated funds for the satisfaction of a judgment under § 9-406(a); (2) there is no written contract between appellants and appellee and § 9-406(a) does not create a cause of action in contract; and, (3)alternatively, suit was not filed in a timely manner. Standard of Review “When reviewing a trial court’s grant of summary judgment, an appellate court reviews the decision de novo.” Mayor & City Council of Baltimore v. Whalen, 395 Md. 154, 161 , 909 A.2d 683 (2006) (citing Rockwood Cas. Ins.

Co. v. Uninsured Employers’ Fund, 385 Md. 99, 106 , 867 A.2d 1026 (2005) ). “Summary judgment should only be granted when there is no genuine dispute of material fact and the moving party is entitled to judgment as a matter of law.” Hart v. Subsequent Injury Fund, 172 Md.App. 159, 165 , 913 A.2d 666 (2006) (citing Md. Rule 2-501(e)). “If there is no genuine dispute of material fact, we determine whether the circuit court’s ruling was proper as a matter of law.” Id. (citations omitted). Discussion A. Sovereign Immunity The sole question on appeal turns on whether appellants’ suit is barred because appellee has not waived sovereign immunity under Title 9 of the Uniform Commercial Code. As explained below, appellee’s arguments miss the point that appellants, as a secured party whose debtor is in default, are enforcing the debtor’s contractual rights against appellee.

As ⁶⁴² explained below, appellee has waived sovereign immunity with respect to the debtor’s contractual rights. The relevant terms, as used in Title 9, “account,” “collateral,” “secured party,” “debtor,” and “account debtor,” are defined in C.L. §§ 9-102(a)(2), (a)(12), (a)(73), (a)(28), and (a)(3), respectively. In the case before us, appellants are secured parties, Chesapeake is the debtor, and appellee is the account debtor. The monetary obligation by appellee to Chesapeake is an account, and the account receivable is collateral.

Section 9-406, to the extent pertinent, provides: (a) Subject to subsections (b) through (j), an account debtor on an account, chattel paper, or a payment intangible may discharge its obligation by paying the assignor until, but not after, the account debtor receives a notification, authenticated by the assignor or the assignee, that the amount due or to become due has been assigned and that payment is to be made to the assignee. After receipt of the notification, the account debtor may discharge its obligation by paying the assignee and may not discharge the obligation by paying the assignor. # * ❖ (f) Except as otherwise provided in §§ 2A-303 of this article and 9-407, and subject to subsections (h) and (i) of this section, a rule of law, statute, or regulation that prohibits, restricts, or requires the consent of a government, governmental body or official, or account debtor to the assignment or transfer of, or creation of a security interest in, an account or chattel paper is ineffective to the extent that the rule of law, statute, or regulation: (1) prohibits, restricts, or requires the consent of the government, governmental body or official, or account debtor to the assignment or transfer of, or the creation of a security interest in, the account or chattel paper; or (2) provides that the assignment or transfer or the creation, attachment, perfection, or enforcement of a security interest may give rise to a default, breach, right of ⁶⁴³ recoupment, claim, defense, termination, right of termination, or remedy under the account or chattel paper. When a debtor defaults, the security interest in an account receivable operates as an assignment by the debtor to the secured party of the right to receive payment from the account debtor. See generally C.L. § 9-607(a)(l).

Moreover, § 9—406(f) provides that a law which prohibits or requires consent for the assignment of an account for the purpose of creating a security interest in the account receivable is ineffective. C.L. § 9-406(f). Consistent with that provision, CO-MAR 21.05.02.24 provides that “[a] State contract is not