Should Durham Affect the Interpretation of “Assignee” Under Florida’s Version of Article 9 of the Uniform Commercial Code?
The 11th Circuit’s decision in Durham v. Ocwen, Case No. 17-15572, 777 Fed. App’x 952 (11th Cir. May 29, 2019), serves as a cautionary tale for secured parties and account debtors alike when a secured party seeks to enforce their rights against account debtors under Article 9. Though a majority of courts in the U.S. have held that an “assignee” under §9-406(a) of the Uniform Commercial Code (U.C.C.), and former U.C.C. §9-318, encompasses a secured party enforcing the obligations of an assignor against an account debtor, the 11th Circuit took the contrary position in Durham. This interpretation, if applied to Florida’s art. 9, may affect the rights of secured parties and account debtors, who would need to be equipped with relevant analysis and consideration on the evolving law.
The facts of Durham are simple. Ocwen entered into an agreement with a law firm for the provision of foreclosure-related services. As it conducted its services, the law firm generated invoices for Ocwen to pay. The law firm also had a factoring agreement with Durham whereby Durham purchased certain accounts of the law firm and obtained a security interest in all of the law firm’s accounts, including the accounts owned by Ocwen. Durham sent Ocwen a notice that the law firm’s accounts “had been assigned to Durham” and that all payments for invoices should be made to Durham. Despite the notice, Ocwen paid the law firm and not Durham. The law firm filed for bankruptcy, and thereafter, Durham sued Ocwen to recover the funds Ocwen paid to the law firm after receiving Durham’s notice of assignment.
Durham’s complaint only alleged one cause of action under New York’s version of U.C.C. §9-406(a), which is identical to Florida’s version. Under §9-406(a), an account debtor may discharge its obligation on an account by paying the assignor until it receives effective notification of the assignment of the account by the assignor to an assignee, and from that point, the account debtor may only discharge its obligation by paying the assignee of the account. Ocwen lost at the trial court level and appealed to the 11th Circuit, arguing that §9-406(a) extends only to assignees and not secured parties like Durham — in other words, that a secured party was not an “assignee” under §9-406(a).
Durham disagreed, contending that §9-406(a), together with §1-305(b), affords the right to bring an action to both assignees and secured parties. New York U.C.C. §1-305(b) expressly creates a private right of action for “[a]ny right or obligation declared by [New York U.C.C.]…unless the provision declaring it specified a different and limited effect.” The 11th Circuit sided with Ocwen, holding that, under applicable New York law, §9-406(a) does not afford secured parties like Durham a private right of action either expressly or by implication.
Interpreting New York law, the court held that §9-406(a) did not create an express right because the statute makes no mention of secured parties. Next, the court considered whether §9-406(a) creates an implied right of action for a secured party pursuant to a three factor test with the most weight given to the third factor, “whether the creation of such a right would be consistent with the legislative scheme.”
First, and beginning with the third factor, the court reasoned that affording a “parallel” right of action to secured parties under §9-406(a) would be inconsistent with art. 9’s legislative scheme because U.C.C. §9-607(a)(3), already provides a secured party with a right of action against account debtors. Section 9-607(a)(3) provides that 1) upon agreement and 2) after default regardless of agreement, a secured party may enforce the obligations of an account debtor and exercise the rights of its debtor with respect to the obligation of the account debtor to make payment to the debtor. The court held that offering a secured party a parallel remedy under §9-406(a) would be inconsistent with art. 9’s overall legislative scheme. Second, the court determined that §9-406(a) was not enacted for the benefit of secured creditors, but to benefit account debtors and prescribe actions of an account debtor before or upon receiving notice of assignment of an account. Finally, in considering the second factor, the court held that recognizing a private right of action for a secured creditor under §9-406(a) is unrelated to the legislative purpose of §9-406(a), which delineates the rights of an account debtor against an assignee before and after notification of assignment of an account to which it is obligated.
The court also rejected Durham’s contention that an assigned account also includes an account in which the assignee holds a security interest under §9-406(a). In so doing, the court relied on a New York appellate decision that rejected an argument that a secured party with a security interest is an assignee for purposes of §9-406(a). In that case, the New York court held that though there were cases that treated assignees and holders of security interests similarly for purposes of applying defenses available to account debtors, there was no authority to treat a general grant of a security interest under a contract as an assignment for purposes of collection against an account debtor under §9-406(a).
Durham Sparks Commentary and Criticism
It didn’t take long for commentators, particularly in the factoring industry, to take note of the Durham decision. Though the decision may be dismissed as the product of a one-cause of action complaint, the decision presents an interpretation of the term “assignee” that excludes holders of security interests who seek to rely on §9-406(a) instead of §9-607(a)(3) to enforce collection rights of their debtor against an account debtor.
Likely in response to the Durham decision, the Permanent Editorial Board of the Uniform Commercial Code (PEB) published PEB Commentary No. 21 (commentary) to “explain what constitutes an ‘assignment’ and the scope of the terms “assignor” and “assignee” in relation to the statutory scheme in [art.] 9.” The PEB recognized that Durham, relying on IIG Capital LLC v. Archipelago, LLC, 36 A.D.3d 401 (N.Y. App. Div. 2007), interpreted the term “assignment” narrowly. The commentary clarifies the PEB’s position that the use of the terms “assignment,” “assignor,” and “assignee,” is historical and should follow its usage under general contract law. Accordingly, the term “assignment” is understood to refer to either an outright transfer of ownership of a specified payment right or a security interest to secure an obligation. Therefore, the commentary concludes that “unless there is good reason for any of these terms to apply more narrowly, each applies, as appropriate, both to an outright assignment of ownership and to a [security interest to secure an obligation].”
The commentary favors a broad interpretation of the term “assignment” throughout art. 9 to refer to both outright transfer of ownership and security interests to secure an obligation, and deems the 11th Circuit’s interpretation of the term “assignment” to be “incorrect.” The commentary disputes that a “policy reason [exists] to limit the term “assignment” in §9-406, or elsewhere in art. 9, to an outright transfer of ownership.” Further, the commentary criticized the Durham court for failing to consider §9-607(e), which expressly states that §9-607 “does not determine whether an account debtor, bank, or other person obligated on collateral owes a duty to a secured party.” The PEB noted that restricting the use of the term “assignment” under §9-406(a) would leave a gap in art. 9 with respect to the rights, duties and defenses of an account debtor to an assignment of a security interest to secure an obligation. Such a result, according to the commentary, would be avoided by affording secured parties rights under §9-406(a).
Another decision to consider that addresses IIG Capital but not Durham is First State Bank Neb. v. MP Nexlevel, LLC, 948 N.W.2d 708 (Neb. 2020). In this decision, the Nebraska Supreme Court determined how §9-406(a) and §9-607(a) work together and require a secured creditor to have a “presently exercisable security interest” under §9-607(a) in order to enforce the obligations of an account debtor to its debtor under §9-406(a). This argument does not appear to have been made in Durham and goes a step further in explaining what a secured creditor must allege and prove in order to assert the right to collect from an account debtor whether pursuant to §§9-406(a) or 9-607(a).
Interpreting “Assignment” Under Florida’s Art. 9
Given the 11th Circuit’s interpretation of the term, “assignment,” under §9-406 in Durham, Florida practitioners that represent secured creditors should advise their clients about the implications of the decision in relation to Florida’s version of art. 9, and particularly its version of §9-406(a), F.S. §679.4061. While Durham is an unpublished opinion that does not constitute binding precedent, it may be cited as persuasive authority. Further, the 11th Circuit applied New York common law as to the factors for a private cause of action, not Florida law, in interpreting that a secured creditor is not an “assignee” and did not have a private right of action under §9-406(a). In so doing, the court noted that as a federal court applying state law, they were bound by the decision of the New York intermediate appellate court in IIG Capital LLC. This may be enough to distinguish the Durham decision, but further analysis should be considered.
Though Florida courts have considered decisions in which secured parties holding written assignment contracts sought relief against account debtors, they have yet to tackle the issue of whether the term “assignee” under §9-406 includes the holder of a general grant of a security interest to secure an obligation. Yet, a review of the official comments to art. 9, as well as the historical use of the term “assignment” in Florida contract law, support the view that the term “assignment” and the correlative terms “assignor” and “assignee” includes secured creditors.
As art. 9 does not define the term “assignment,” and the Florida Legislature did not craft its own definition when adopting art. 9 or any amendments thereto, courts may look to the U.C.C.’s official comments for guidance. The comments support the general view expressed in the commentary that secured parties should be considered “assignees” under §9-406(a). For instance, comment 26 to §9-102 provides that though the term “assignment” and its correlatives are not defined, the statute “generally follows common usage by using the terms ‘assignment’ and ‘assign’ to refer to transfers of rights to payment, claims, and liens and other security interests.” It further envisions that “[d]epending on the context, each term may refer to the assignment or transfer of an outright ownership interest or to the assignment or transfer of a limited interest, such as a security interest.” The drafters’ intent may also be inferred from comment 5 to §9-406 that lists certain types of assignment, including “assignment of an account (whether outright or to secure an obligation)” and “assignments of rights to payment as security and other assignments of rights to payment.” However, the comments are not enacted by the Florida Legislature and only provide guidance. Thus, courts are left to interpret §9-406 like any other statute in accordance with every word, phrase, and sentence, in order to give effect to every word.
Under U.C.C. §1-103, courts may look to the common use of the term “assignment” both under the common law and under other statutes. For example, in the context of mortgages, and F.S. §697.01, the Florida Supreme Court held that an “assignment” is not limited to an absolute transfer of ownership and can constitute a mortgage “whatever its form” if the facts show that it was given to secure the payment of money. Likewise, pre-U.C.C., Florida had adopted the Florida Accounts Receivable Act, which defined an “assignment” as “any transfer of an account, other than by operation of law, including a transfer as security, and the creation by agreement of a lien on an account.” As there is no indication that art. 9 has displaced this historical interpretation of the term “assignment” under §9-406 (or Florida’s version §679.4061), interpreting the term “assignment” under §679.4061 as including security interests to secure a payment obligation is not only consistent with the statute but also follows the common interpretation of the term under Florida law. The PEB would likely concur that these historical practices support their policy position that §9-406 should apply to both outright transfers of ownership and a security interest that secures an obligation. The PEB asserts that determining the term assignment to mean both a transfer of outright ownership and a security interest that secures an obligation is necessary to not impose a burden on an account debtor to determine the nature of the assignment noticed and whether the requirements of §9-406 apply.
Even if a court followed Durham in Florida, and §9-406(a) was unavailable to determine an account debtor’s duty to a secured party, especially in light of §9-607(e), the Florida Supreme Court has explained that a duty of payment by an account debtor arises upon notice to the account debtor. What constitutes “notification” and when notification is effective is addressed in the U.C.C., including in §1-209, and is an issue often disputed regardless of the application of §9-406(a).
Roadmap to Avoid the Pitfalls of Durham
Critics of the Durham decision point to the one-count complaint as a factor in the 11th Circuit’s decision. Perhaps seeking relief solely under §9-406 without more analysis or additional statutory basis led to an undesirable result for Durham. Armed with the authorities discussed above, a practitioner representing a secured party would be wise to craft a complaint that cites all relevant sections of art. 9, including its client’s present right of collection under §9-607(a), its relevant comments, and seeking relief under additional common law claims.
A secured creditor’s complaint should present the facts showing how the secured creditor is an “assignee” and could cite to the comments to §9-102, which explains the usage of the terms “assignment” in art. 9 as including both the transfer of outright ownership interest or the transfer or assignment of a security interest. In addition, the secured creditor could point to comment 5 of §9-406, which includes examples of assignments of an account, including “outright or to secure an obligation.” Providing these references introduces to the court the idea that the drafters of art. 9 intended to treat secured creditors as “assignees” under art. 9.
Finally, a secured party practitioner should not forget to plead common law claims, such as breach of contract — after all, the account debtor failed to pay the amount owed to the assignor. A claim for account stated may also be warranted if there is doubt as to what payment was made after notice was provided.
For a practitioner defending an account debtor, the reverse analysis is relevant and requires an analysis of whether the secured party has shown a presently exercisable right of collection against the account debtor. An account debtor may also dispute whether the notice or notification it received is effective under both Florida common law and §9-406. With Ocwen losing at the trial level, risk to an account debtor is evident by not following a notice received from a secured party or seeking court intervention to determine who has the right to payment to avoid being caught in the middle between a secured party and their debtor and failing to comply with § 9-406(a) if such provision is found to bind the account debtor.
 Durham, 777 Fed. App’x at 953.
 See Fla. Stat. §679.4061(1).
 U.C.C. §9-406(a) (“[A]n 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.”).
 Durham, 777 Fed. App’x at 954.
 Id. at 955. Florida has adopted the same U.C.C. provision in Fla. Stat. §671.106(b) (“Any right or obligation declared by this code is enforceable by action unless the provision declaring it specifies a different and limited effect.”).
 The court applied the three-factor test set forth in Cruz v. TD Bank, N.A., 22 N.Y.3d 61 (2013), which considers 1) whether the plaintiff is one of the class for whose particular benefit the statute was enacted; 2) whether recognition of a private right of action for secured creditors would promote the legislative purpose; and 3) whether creation of such a right would be consistent with the legislative scheme. Id. at 956.
 Durham, 777 Fed. App’x at 956.
 U.C.C. §9-607(a)(3).
 Id. (citing IIG Capital LLC v. Archipelago, L.L.C., 36 A.D.3d 401, 404 (N.Y. App. Div. 2007)).
 IIG Capital, 36 A.D.3d at 404-05.
 See, e.g., Steven N. Kurtz, Account Debtor Litigation — Please Get It Right!, Legal Factor (Aug. 2019).
 After all, Durham filed a one count complaint seeking relief under §9-406. See Durham, 777 Fed. App’x at 953-54.
 Permanent Editorial Board for the Uniform Commercial Code, PEB Commentary No. 21 Use of the Term “Assignment” in Article 9 of the Uniform Commercial Code (Mar. 11, 2020). Acting under the authority of the American Law Institute and the Uniform Law Commission, the Permanent Editorial Board publishes supplementary commentary from time to time, known as the PEB Commentaries, to further the policies of the Uniform Commercial Code and resolve issues raised by the Uniform Commercial Code and/or the official comments.
 Id. at n. 14 & 20.
 Id. Ironically, the commentary explains that the 1999 revisions to art. 9 retained the terminology to avoid confusion as to the use of the term. Id.
 Id. at 3.
 Id. (citing to U.C.C. §9-607(e)).
 Id.; cf. U.C.C. §1-103 (as adopted in Florida, Fla. Stat. §671.103 provides: “Unless displaced by the particular provisions of this code, the principles of law and equity, including the law merchant and the law relative to capacity to contract, principal and agent, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause shall supplement its provisions.”).
 First State Bank Neb., 948 N.W.2d at 723.
 U.S. Court of Appeals for the 11th Circuit Rules, Rule 36-2, Unpublished Opinions.
 Durham, 777 Fed. App’x at 957 (citing to IIG Capital v. Archipelago LLC).
 See, e.g., Building Materials Corp. of America v. Presidential Financial Corp., 972 So. 2d 1090 (Fla. 2d DCA 2008) (secured party sued account debtor for failure to make payment on account despite receiving notice from secured party that it was an assignee of the debtor’s accounts); City of North Miami v. Am. Fidelity Ins. Co., 505 So. 2d 511 (Fla. 3d DCA 1987) (secured party holding security interest over assignor’s account sued to obtain payment from account debtor that failed to pay upon notice). Though the plaintiffs in these cases were secured parties, their ability to seek relief under their security interests was not disputed.
 Salam Jeans Ltd. v. Regions Bank, 2008 WL 11333420, *2 n.4 (S.D. Fla. Dec. 15, 2008) (“The official comments to the UCC are not binding authority, but courts have often relied upon them for guidance in interpreting the UCC.” (citing Allen v. Coates, 661 So. 2d 879, 882 (Fla. 1st DCA 1995)). See also 6 Fla. Jur. 2d Bills and Notes §7, which provides: “Although the Official Comments to the Uniform Commercial Code are not controlling, they are a good aid in interpreting the Code, persuasive, but not controlling, authority that provides guidance in its interpretation. The Official Comments were not adopted as part of the Code itself as set forth in the Florida Statutes, but they are persuasive authority in the construction of particular Code provisions.” (citations omitted).
 U.C.C. §9-102, cmt. 26.
 U.C.C. §9-406, cmt. 5.
 Hechtman v. Nations Title Ins. of New York, 840 So. 2d 993, 996 (Fla. 2003) (“It is an elementary principle of statutory construction that significance and effect must be given to every word, phrase, sentence, and part of the statute if possible, and words in a statute should not be construed as mere surplusage.”) (citing Hawkins v. Ford Motor Co., 748 So. 2d 993 (Fla. 1999)).
 See Torreyson v. Dutton, 145 Fla. 169, 175-76 (1940).
 Ribaudo v. Citizens Nat. Bank of Orlando, 261 F.2d 929, n.14 (5th Cir. 1958).
 Kitchen v. K-Mart Corp., 697 So. 2d 1200, 1207 (Fla. 1997) (“Under our rules of statutory construction, a statute will not displace the common law unless the legislature expressly indicates an intention to do so.”) (citing Carlile v. Game & Fresh Water First Commission, 354 So. 2d 362 (Fla. 1977)).
 Commentary at 3.
 Boulevard Nat. Bank of Miami v. Air Metal Indus., Inc., 176 So. 2d 94, 98 (Fla. 1965) (adopting the English rule); see also Aldana v. Colonial Palms Plaza, Ltd., 591 So. 2d 953, 955 (Fla. 3d DCA 1991).
 See, e.g., Bldg. Materials Corp. of Am. v. Presidential Fin. Corp., 972 So. 2d 1090, 1092 (Fla. 2d DCA 2008).
This column is submitted on behalf of the Business Law Section, Douglas A. Bates, chair, and Andrew Layden, editor.