Ara Inc. v. City of Glendale
360 F. Supp. 3d 957 (2019)
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Rule of Law:
When a contract ambiguously names a non-existent entity, courts will consider parol evidence to ascertain the parties' intent at the time of contracting, precluding summary judgment if a genuine factual dispute exists; under UCC § 9-406, notice of a security interest can be sufficient notice of an assignment if it reasonably identifies the assignee's rights and demands payment, without requiring 'magic words' like 'assign,' but a claim for 'account stated' requires evidence of a mutual agreement to settle a balance.
Facts:
- JG Staffing, Inc. (a Texas corporation formed in 2005) and JG Staffing Arizona, LLC (an Arizona LLC formed in 2012) are two staffing companies operated by Michelle and Jeffery Griffin.
- In 2011, ARA Incorporated (ARA) entered into a factoring agreement with JG Staffing, Inc. (the Texas corporation), granting ARA a security interest in JG Staffing, Inc.'s business assets, including account and contract rights.
- In December 2014, 'JG Staffing Inc.' (signed by Jeffery Griffin as CEO) submitted a proposal for the City of Glendale's (City) Request for Proposal (RFP) for temporary workers, using JG Staffing, Inc.'s taxpayer identification number.
- In April 2015, the City sent a 'Notice of Intent to Award' the contract to 'JG Staffing, Inc.'
- In June 2015, Michelle Griffin emailed the City requesting to change the Employer Identification Number (EIN), stating she preferred 'everything be under JG AZ since this is an Arizona account.'
- In August 2015, the City entered into a contract with 'JG Staffing Inc., a Arizona Corporation,' which Michelle Griffin signed as Vice President; this named entity is fictional.
- In September 2015, Michelle Griffin submitted a form to the City identifying JG Staffing Arizona, LLC's EIN and bank account for payments under the contract.
- In July 2016, ARA sent a letter to the City notifying it of ARA's security interest in JG Staffing, Inc.'s assets and instructing the City to make all future payments to AGR Funding Inc. on ARA's behalf; however, the City continued to send payments to a bank account associated with JG Staffing Arizona, LLC.
Procedural Posture:
- In March 2015, ARA learned that JG Staffing, Inc. breached their Factoring Agreement, leading to a lawsuit in Minnesota state court, where a jury found JG Staffing, Inc. liable on multiple claims and found ARA not liable on any of JG Staffing, Inc.'s claims.
- In July 2017, ARA initiated the current lawsuit against the City of Glendale in the United States District Court for the District of Arizona, asserting four causes of action: Uniform Commercial Code (UCC) § 9-607, UCC § 9-406, breach of contract, and 'account stated.'
- Both ARA and the City filed cross-motions for summary judgment on the various claims, which included disputes over the identity of the contracting party, the sufficiency of ARA's notice of assignment, the validity of the 'account stated' claim, statute of limitations, and the scope of the factoring agreement.
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Issue:
Does a genuine dispute of material fact exist regarding the identity of a contracting party when the contract names a non-existent entity, thus precluding summary judgment? Is a notice of a security interest, without using the word 'assign,' sufficient to obligate an account debtor to redirect payments under UCC § 9-406? Does a claim for 'account stated' require evidence of a mutual agreement to settle and strike a balance between the parties?
Opinions:
Majority - Dominic W. Lanza
No, a genuine dispute of material fact exists regarding the identity of the City's counterparty, precluding summary judgment for either party on the breach of contract claim. The contract's designation of 'JG Staffing Inc., a Arizona Corporation' is a fictional entity and 'reasonably susceptible' to interpretation as either JG Staffing, Inc. (Texas) or JG Staffing Arizona, LLC (Arizona). Therefore, the court must consider parol evidence to ascertain the parties' intent at the time the contract was made. While ARA presented evidence (original bid, City's notice of intent, later amendment efforts) supporting JG Staffing, Inc., the City offered evidence (payments to JG Staffing Arizona, LLC, insurance certificates) suggesting JG Staffing Arizona, LLC. This conflicting evidence, combined with some of the City's evidence being post-contract or non-exclusive, creates a factual dispute that a jury, not the court at summary judgment, must resolve. Yes, ARA provided sufficient notice and proof of assignment under A.R.S. § 47-9406, and the City is not entitled to summary judgment on this ground. The July 2016 letter, which specified ARA's pre-existing security interest in JG Staffing, Inc.'s business assets (including payment rights) and directed the City to make all payments to AGR Funding Inc., effectively served as a notice of assignment. The court clarified that 'magic words' like 'assign' are not required for a notice to be effective, and for a sophisticated party like the City, notification of a security interest with a demand for payment is functionally equivalent to an assignment notification. Furthermore, the City's request for a tax liability form was ambiguous as a demand for 'proof of assignment,' and ARA's response with JG Staffing, Inc.'s TIN was a reasonable attempt at compliance. The City failed to clearly inform ARA if it considered the proof defective. No, ARA failed to present any evidence of a mutual agreement to settle and strike a balance between the parties, which is an essential element for an 'account stated' claim under Arizona law. Therefore, summary judgment is granted to the City on this claim. The court also denied the City's motion for summary judgment on the statute of limitations defense because the City failed to prove when ARA realized it had been damaged, and reiterated its earlier ruling that the factoring agreement's security interest covered after-acquired accounts. Finally, the court declined to rule on whether A.R.S. §§ 47-9406 and 47-9607 create independent causes of action, citing that the issue was academic due to the surviving breach of contract claim with identical remedies and federalism considerations, and denied both parties' requests for attorneys' fees as neither was the prevailing party overall.
Analysis:
This case underscores the critical importance of precise contractual drafting, particularly when identifying parties, as ambiguities can lead to extensive litigation requiring extrinsic evidence to discern intent. It clarifies that, under the UCC, the substance of a notice regarding a security interest and payment redirection, rather than specific terminology, governs its effectiveness for sophisticated parties. The ruling also meticulously distinguishes the elements required for different contract-related claims, particularly 'account stated,' highlighting the need for actual agreement on a settled balance. The court's refusal to rule on the independent cause of action issue demonstrates judicial restraint and deference to state law when remedies are already available through other claims, influencing future federal courts dealing with similar UCC interpretations in diversity cases.
