GMAC COMMERCIAL CREDIT v. PENNEY COMPANY INC (2001)

The central issue on this motion by defendant to dismiss the complaint pursuant to CPLR 3211(a) is whether the plaintiff, an assignee of a receivable allegedly owing by defendant, is bound by the forum selection provision of the contract between the assignor and the defendant or, to put it another way, does the defendant lose the benefit of such provision when the other party to the contract assigns its right to collect the receivable.

In April 1995, plaintiff GMAC Commercial Credit LLC (“GMACCC”) (formerly known as BNY Factoring LLC) entered into a factoring agreement with Classified Lingerie (“Classified”) pursuant to which Classified assigned to GMACCC future receivables.   That agreement contained a New York forum selection clause.

Classified is a manufacturer of ladies garments.   Defendant J.C. Penney Company, Inc. (“Penney”) is a retailer whose principal place of business is in Plano, Texas.   Paragraph 27 of Penney's Electronic Data Interchange Trading Partner Agreement with Classified states:

“This contract shall be governed and construed in accordance with the laws of the State of Texas without giving effect to principles of conflicts of law thereof.   The parties hereby submit to the exclusive jurisdiction and venue in the United States District Court for the Northern District of Texas, Dallas Division, or the District Courts of Collin County, Texas.”

Invoices were sent by Classified to Penney calling for the payment thereof to be made directly to GMACCC.   Penney refused to pay for certain goods claiming that they were defective.   This action ensued.

Discussion

 “Forum selection clauses are prima facie valid and will not be set aside except for fraud or overreaching or if enforcement would be so unreasonable and unjust as to make a trial in the selected forum ‘so gravely difficult and inconvenient that the challenging party would, for all practical purposes, be deprived of his or her day in court.’ ”  [Fidelity & Deposit Company of Maryland v. Altman, 209 A.D.2d 195, 618 N.Y.S.2d 286 (1st Dept.1994) ].

 Regarding assignments, “[i]t is elementary ancient law that an assignee never stands in any better position than his assignor․(and) is subject to all the equities and burdens which attach to the property assigned because he receives no more and can do no more than his assignor.”  [Matter of International Ribbon Mills, Inc. (Arjan Ribbons, Inc.), 36 N.Y.2d 121, 126, 365 N.Y.S.2d 808, 325 N.E.2d 137 (1975).   See also, Sillman v. Twentieth Century-Fox Film Corporation, 3 N.Y.2d 395, 165 N.Y.S.2d 498, 144 N.E.2d 387 (1957);  Matter of Vann v. Kreindler, Relkin & Goldberg, 78 A.D.2d 255, 259-260, 434 N.Y.S.2d 365 (1st Dept.1980), aff'd., 54 N.Y.2d 936, 445 N.Y.S.2d 139, 429 N.E.2d 817 (1981) ].

In Matter of Kaufman (William Iselin & Co., Inc.), 272 A.D. 578, 74 N.Y.S.2d 23 (1st Dept.1947), the buyer of goods sought recovery from a factor whom it had paid prior to discovering defects in the merchandise.   It sought arbitration pursuant to its contract with the seller.   In denying such application, the court quoted from Langel v. Betz, 250 N.Y. 159, 164, 164 N.E. 890 (1928), where it was stated that:  “the law remains that no promise of the assignee to assume the assignor's duties is to be inferred from the acceptance of an assignment of a bilateral contract, in the absence of circumstances surrounding the assignment itself which indicate a contrary intention”.   The court, therefore, concluded that “the mere assignment of an invoice and of the merchandise covered thereby for the purpose of securing a loan․is not a situation in which it may be said that it was the intention of the parties that the factor should assume performance of the basic contract” (272 A.D. at p. 581, 74 N.Y.S.2d 23).   Consequently, it was ruled that the factor had not “assumed the duty to arbitrate”.   See also, Matter of King Broadcasting Co. [Programs for Television, Inc.], 38 Misc.2d 536, 237 N.Y.S.2d 41 (1963).

In Blum's, Inc. v. Ferro Union Corporation, 36 A.D.2d 584, 318 N.Y.S.2d 414 (1st Dept.1971), aff'd. 29 N.Y.2d 689, 325 N.Y.S.2d 418, 274 N.E.2d 751 (1971), an assignee of a contract for the sale of goods which contained an arbitration clause was compelled to arbitrate the dispute, the court stating that an “assignee who has taken over the rights of an assignor is bound to an arbitration clause in the assigned contract” (36 A.D.2d at p. 585, 318 N.Y.S.2d 414).   However, in that case, it appears that the assignee assumed the obligations of the assigned contract.   In Matter of Lipman, 289 N.Y. 76, 43 N.E.2d 817 (1942), it was held that an assignee could compel arbitration pursuant to a provision therefor in the assigned contract.   See also, Comprehensive Foot Care Group v. Lincoln National Life, 135 Misc.2d 862, 517 N.Y.S.2d 652 (1987).

In the most recent Appellate Division case on this issue, Rosenthal & Rosenthal, Inc. v. John Kunstadt, Inc., 106 A.D.2d 277, 482 N.Y.S.2d 287 (1st Dept.1984), the contract for the sale of goods contained an arbitration clause which the buyer sought to assert as a defense to an action by the seller's factor.   The court, relying on Matter of Kaufman (William Iselin & Co., Inc.), supra, 272 A.D. 578, 74 N.Y.S.2d 23 (1947) rejected the defense.   Also relying on said case, the Second Circuit in Lachmar v. Truckline LNG Company, 753 F.2d 8 (1985), ruled that an assignee was not bound by the assignor's duty to arbitrate.

 Defendant maintains that the validity of the decision in Rosenthal & Rosenthal “is open to question”, but asserts that there is a difference between enforcing a forum selection clause as opposed to an arbitration requirement based on “the historic hostility of the courts of this State to requiring parties to arbitrate because arbitration deprives a party of its day in court” (defendant's reply memorandum of law, p. 6).   This last contention lacks merit as the public policy of this State clearly favors the resolution of controversies through arbitration.   See, Matter of Maye [Bluestein], 40 N.Y.2d 113, 118, 386 N.Y.S.2d 69, 351 N.E.2d 717 (1976);  Nationwide General Insurance Company v. Investors Insurance Company of America, 37 N.Y.2d 91, 95, 371 N.Y.S.2d 463, 332 N.E.2d 333 (1975).

The effect of the decisions in Kaufman and Rosenthal & Rosenthal is that a buyer is deprived of a bargained for right to arbitrate a dispute when the seller factors the account.   While normally a party is not required to arbitrate unless it has agreed to do so, I believe that requiring an assignee to arbitrate a dispute with the buyer pursuant to the provisions of a contract between the buyer and the assignor should not be equated with requiring an assignee to assume performance of a contract, but rather should be considered as a limitation on the assignee's remedies.   Failing to require arbitration is contrary to the general principle cited above that an assignee “never stands in any better position than his assignor”.

However, since I see no significant difference between enforcing a forum selection clause against an assignee as compared to enforcing an arbitration clause, I am constrained to deny defendant's motion based on the conclusion that the factor is not bound by the forum selection clause.

This action is transferred to the Civil Court pursuant to CPLR 325(d).

EDWARD H. LEHNER, J.