Published on:

How a Florida Borrower in Default Sought to Avoid Liability to the Note Holder’s Purported Assignee

In many of the courtroom drama shows one sees on TV, each episode contains at least one “a-ha!” moment where some previously undiscovered small detail suddenly changes the course of the entire trial. Sometimes real life is not like that but, other times, it is a seemingly small thing that proves to be of large importance.

That’s true in commercial litigation, as well. When you’ve been sued, one of the first things you’ll need to know is whether or not the plaintiff actually has a legal right to recover from your business. Sometimes, the answer to this question lies in some seemingly intricate details. To protect your business interests, be sure you have an experienced South Florida commercial litigation attorney who knows how to spot these details and also knows when to “sweat the small stuff.”

As an example of this concept, a recent case from Orlando is a helpful illustration. An operator of schools and daycare centers took out a commercial loan from a bank. The borrower signed a promissory note, loan security agreement and guaranties.

Some time later, the borrower defaulted and was sued by a “recovery” entity. The plaintiff was a subsidiary of the same parent as the bank and shared a very similar name as the bank, but was not the bank itself. After that filing, the note changed hands several times through a series of assignments. At one point, the note was held by the FDIC. Eventually, the final assignee filed an amended complaint. The assignee asserted that “it was authorized to enforce the note pursuant to statutory requirements.”

The borrower’s legal team, however, spotted an issue with the assignee’s case and used that flaw to assert an affirmative defense. The defense argued that the borrower couldn’t be liable to the assignee because the assignee lacked legal standing to enforce the note.

How could the assignee not have standing? The problem lay in the chain of assignments; specifically, a small detail in one of the transactions. When the note was assigned to the FDIC, it was owned by the bank. However, the assignment listed the recovery entity as the assignor, not the bank.

If the borrower was correct, then the recovery entity never owned the note, which meant that it never had the right to file the original enforcement complaint and it never had the right to assign the note to the FDIC. If the latter were true, then all the subsequent assignments would be invalid and the current assignee, who was the current plaintiff, would have no legal rights to demand anything from the borrower. In other words, the significance of this one discreet detail was massive and potentially could alter the result of the case.

Whether yours is a commercial breach of contract case, a lawsuit over a commercial note (or guaranty) or a business tort case, you need commercial litigation counsel that can – and will – go the extra mile to discover all the evidence, great and small, that your case needs for success. The knowledgeable South Florida commercial litigation attorneys at Stok Kon + Braverman are here to help. Our commercial litigation attorneys have been providing our clients with useful advice and effective advocacy for many years. Contact us online or by calling (954) 237-1777 to schedule your consultation and find out how this firm can help you.

Contact Information