Banking and Finance Law Daily Purchaser of customer contracts could not avoid lender’s security interest
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Wednesday, May 27, 2020

Purchaser of customer contracts could not avoid lender’s security interest

By Lisa M. Goolik, J.D.

Holding in favor of the secured lender, the court called the purchaser’s claims that the debtor’s most valuable asset, its customer contracts and proceeds, were excluded from pledged collateral "disingenuous."

Ending a longstanding dispute over customer contracts pledged as collateral, the West Virginia Supreme Court of Appeals has affirmed, for a second time, a circuit court’s award of summary judgment in favor of secured lender, United Bank, Inc. The court held that the record clearly supported United’s first priority security interest in the contracts, as assets held by Secure US that were pledged for two loans from United to the debtor, MB Security LLC, and their owner Betty Parmer, that were later purchased by Kourt Security Partners, LLC, at a private sale. The court rejected Kourt’s arguments that the contracts were not included by incorporation in loan documents and were not subject to United’s lien (Kourt Security Partners, LLC v. United Bank, Inc., May 26, 2020, Armstead, T.).

Protracted litigation. After MB Security’s default, United demanded that Kourt turn over encumbered assets of Secure US that Kourt purchased at a private sale or pay the remaining indebtedness. Kourt turned over vehicles owned by Secure US, which were a part of the assets to which United’s first priority lien interest attached, and United reduced the outstanding principal due on the loans to $737,000. However, Kourt refused to pay the balance or to produce the remaining collateral to United, claiming that United had no legal right to the balance or the collateral. Based upon the evidence contained in the record, since the private sale, Kourt had received over $4.2 million in revenue from the contracts at a rate of approximately $140,000 per month.

United filed the underlying action in 2015, and later filed a motion for summary judgment before the circuit court. In November 2016, the circuit court granted United’s motion, finding that United had a perfected first priority security interest in the contracts and proceeds, which survived the private sale by Parmer to Kourt of all the assets of Secure US. Kourt appealed that order, which was later affirmed.

After repeated and failed attempts to secure the contracts, United filed a motion to secure the collateral in 2018. On Jan. 2, 2019, Kourt filed a motion to clarify or supplement, more than two years after the entry of the summary judgment order. The circuit court again ruled in favor of United, finding that United was entitled to the collateral under the express language of the loan documents. Kourt again appealed.

Second appeal. The appellate court was not persuaded by Kourt’s renewed arguments that the contracts were not included in the pledged collateral. Noting that it had previously considered the underlying loan documents in the prior appeal, the court reiterated that the collateral to secure United’s loan were the "former Secure US assets" Parmer owned. "It is disingenuous for [Kourt] to now attempt to argue what is clearly the most valuable assets it possesses, the customer contracts, were not included in the collateral for that loan."

Moreover, contrary to Kourt’s argument, the court found that the circuit court’s 11-page order was well supported by the evidence, The order "relied upon numerous documents; those documents included exhibits to the deposition of Kourt’s corporate representative, the loan documents, an exhibit to a motion, and the breadth of materials considered by the circuit court in reaching its earlier findings, including its summary judgment order." Further, the circuit court’s order addressed multiple cases, statutes, and rules, including a discussion of the court’s earlier findings.

Accordingly, the court concluded that that there was no merit to Kourt’s arguments and affirmed the circuit court’s holding.

The case is No. 19-0395.

Attorneys: Charles J. Kaiser Jr. (Phillips Gardill Kaiser & Altmeyer PLLC) and Jeffrey D. Kaiser (Spector Gadon Rosen Vinci P.C.) for Kourt Security Partners, LLC. Shawn P. George (George & Lorensen, PLLC) and Jennie Ovrom Ferretti (George & Lorensen, PLLC) for United Bank, Inc.

Companies: Kourt Security Partners, LLC; United Bank, Inc.

MainStory: TopStory Loans SecuredTransactions WestVirginiaNews

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