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UPDATE: New York Court of Appeals Grants SFNet Opportunity to Weigh In on Important Article 9 Case
January 12, 2022
By Bobbi Acord Noland, William J. Holley, Bryan E. Bates and John C. Wright
On August 30, 2021, SFNet reported that it had filed papers with New York’s highest state appellate court seeking to appear as amicus curiae and to file a brief supporting a secured lender’s request for review of a problematic set of rulings that threaten to impose unique and unfounded burdens with respect to loans secured by a borrower’s accounts.
On January 11, 2022, the Court granted SFNet’s motion to appear as amicus curiae and accepted SFNet’s brief into the record in the case in connection with granting the lender’s motion for leave to appeal. Such appeals by permission typically present novel and difficult questions of law with statewide importance, or involve issues for which the holdings of the lower courts of the state are in conflict, and are only permitted in a small number of cases each year. For 2020, of the 870 motions for leave to appeal filed with the New York Court of Appeals, only 32 (3.7%) were granted.
The case is Worthy Lending, LLC v. New Style Contractors, Inc., wherein an account debtor challenged the secured lender’s attempt to enforce an assignment of the right to directly collect accounts on the ground that the assignment did not meet formalities required for assignments under New York law. The secured lender contended that it had the right to collect the accounts from the account debtor and that Sections 9-406 and 9-607 of the New York Uniform Commercial Code make no distinction between a borrower assigning its accounts as opposed to granting its lender a security interest in accounts.
After the trial court and intermediate appellate court ruled to the detriment of the lender that a meaningful legal distinction exists between an assignment and security interest in accounts, the lender sought review by New York’s Court of Appeals. Recognizing that the lower court orders are contrary to longstanding commercial lending practices and prior interpretations of the Uniform Commercial Code, SFNet determined that it needed to give voice to the important and widely-shared industry perspectives on the issues.
SFNet’s amicus curiae brief illustrates for the Court why the lower court orders represent a dangerous departure from established precedent and practice. SFNet’s brief also explains why the lower court orders damage all participants in secured lending – the lender, the borrower and the account debtor. A copy of SFNet’s filed papers can be found at the following link: https://www.sfnet.com/docs/default-source/tsl-tslexpress/sfnet---worthy-amicus-brief---as-filed-companion.pdf?sfvrsn=af2e53b3_2