unPeeling the Impact of Assignments on MMPA Rights

Can a seller, in a transaction covered by the MMPA, by assigning rights and delegating duties pretermit the other’s rights under the MMPA?  There appears to be some question.  Peel v. Credit Acceptance Corp., 2013 WL 2301095 (Mo. App. W.D. May 28, 2013), and prior authority, raise some interesting questions.  We below provide a somewhat complicated discussion of certain issues raised.  As an introduction, let us not provide some basic observations under the common law of contracts (understanding that FTC rules also may apply):

  • An obligor cannot assign rights without the consent of the obligee if the assignment operates to materially affect the rights of the obligee.
  • An assignment of the right to payment under a contract, where the payee’s performance is subject to the MMPA, would materially affect the rights of the obligee if the assignment operated to eliminate protections in the debt collection process that would be otherwise available absent the assignment.
  • It would appear that a party cannot consent to elimination of protection of the MMPA.  There would not seem to be a useful reason not to apply that to consenting to an assignment in circumstances that operated to eliminate MMPA protections.
  • Were a court to determine an assignee of a debt representing deferred payments from a payor benefitting from the MMPA was not subject to the MMPA, effectiveness of the assignment would therefore require the assignor remained liable for any practice engaged-in by the assignee that would be actionable had there not been an assignment and it had been performed by the assignor.

More after the break …

Peel v. Credit Acceptance Corp., 2013 WL 2301095 (Mo. App. W.D. May 28, 2013), examines whether a firm financing a consumer purchase of a vehicle is subject to the MMPA.  The court holds it is, distinguishing other authority:

We find the analysis of Portfolio Recovery less than persuasive. We also find the current case factually distinguishable from Portfolio Recovery. Here, unlike Portfolio Recovery, where the debt was sold long after the underlying transaction, CAC had a relationship with the buyer from the onset of the transaction. The original loan documents prepared by CAC and executed contemporaneously with this sale, specifically state that “The Seller [Car Time] has assigned this Contract to” CAC.

2013 WL 2301095, at *13.

In reaching this conclusion, the Peel court notes the following:

Contrary to the narrow analysis in [State ex rel. Koster v. Portfolio Recovery Associates, LLC, 351 S.W.3d 661 (Mo. Ct. App. E.D.,2011)], our Supreme Court has addressed the legislature’s use of the phrase “in connection with” in the MPA and construed it liberally. Gibbons v. J. Nuckolls, Inc., 216 S.W.3d 667, 668 (Mo. banc 2007). The court held that a wholesaler who sold a car to a dealer who then sold it to the plaintiff was liable to the plaintiff/buyer under the MPA when the wholesaler failed to inform the dealer that the car had previously been in an accident. Id. at 668. The wholesaler argued that since it lacked privity to the buyer, its actions were not in connection with the sale of the car. Id. at 668. It asserted that “private plaintiffs can only sue a direct seller.” Id. at 670. It further argued that an action against it under the MPA could only be brought by the Attorney General. Id. at 670. Our Supreme Court, however, “decline[d] to impose such a significant limitation on Missouri consumers.” Id. at 670. The court emphasized that the statutory framework of sections 407.020, 407.025 and 407.010 “does not contemplate a direct contractual relationship between plaintiff and defendant, and Missouri courts have not imposed such a requirement through statutory construction.” Id. at 669. Thus, our Supreme Court has held that the phrase “in connection with” encompasses a third-party wholesaler whose failure to disclose defects affected the sale, which was the transaction at issue.  Id.

2013 WL 2301095, at *12.

Assignments, Delegations, Assumptions and Third-Party Beneficiaries

We have some basic issues concerning the law of contracts.  An assignment of a contract right is a conveyance of a contractual right to a non-party.  A delegation is a party’s authorizing a non-party to perform duties that party has under the contract.  A delegation does not release the delegating party (the original obligor) from liability for any subsequent inadequacy of the performance by the delegate.  Neither a delegation nor an assignment can be made without the other party’s assent if it would have a material adverse affect on the other party.  See R2d 317 (assignment), 318(3) (delegation).

A delegation may be accompanied by, but it need not include, an assumption by the delegate of the duty (meaning the delegate promises to perform the assumed duty).  If there is an assumption, an issue may arise whether the the assumption gives rise to third party beneficiary status in the other party to the contract.  It need not–and it would be within the control of the delegator and the delegate/assuming party to provide not.

It is possible, with the consent of both parties to a contract, to substitute a third party for one of the parties (resulting in a novation).

Let us confine our discussion to the common law of contracts (not because FTC rules are irrelevant but, rather, simply our focus here is on state law matters).  Let us also consider assignments not limited to those that are essentially contemporaneous with the initial sale.

The MMPA gives a buyer under a covered contract rights that extend to performance of the contract. Mo. Rev. Stat. 407.020.1 provides:

Any act, use or employment declared unlawful by this subsection violates this subsection whether committed before, during or after the sale, advertisement or solicitation.”\

Attorney General rules make a unilateral breach a violation.  15 CSR 60-8.070 (“(1) It is an unfair practice … to unilaterally breach unambiguous provisions of consumer contracts….”),  There is an interpretative question whether a person whose relationship with the sale arises only after contract formation (some subsequent assignee) is or is not covered by the MMPA.  There is also an interpretative question whether a seller becomes liable for practices by an assignee that would be violations were they committed by the assignor.  However, it would seem clear that a prohibited outcome of a unilateral assignment (without the consumer’s consent) is:

  • An assignment and delegation and assumption terminates duties of an original seller under the MMPA and
  • The assignee’s subsequent acts are not subject to the MMPA.

A party to a contract cannot, without the assent of the other, assign a contractual right where the assignment has a materially adverse impact on the other party.  Termination of the right to benefit from post-formation protection under the MMPA would surely qualify. And an agreement by a protected party releasing itself from the benefits of the MMPA would be contrary to public policy.  See generally Huch v. Charter Communications, Inc., 290 S.W.3d 721, 725-26 (Mo. banc 2009) (inter alia, quoting other authority to the following effect, “Having enacted paternalistic legislation designed to protect those that could not otherwise protect themselves, the Missouri legislature would not want the protections of Chapter 407 to be waived by those deemed in need of protection.”).

Missouri courts may ultimately conclude an assignee is not subject to MMPA in connection with the assigned rights on the same terms as would bind the assignor had an assignment had not been made.  This author suspects reaching that conclusion will present Missouri courts with more difficult questions–ones they may wish would have been avoided by an alternative resolution to the initial question.  Those questions will involve whether an assignment may terminate MMPA protection, even with the consent of the beneficiary of the act’s protection.  Let us get into the details.

The MMPA was amended to contemplate its express application to post-formation contracting:

Any act, use or employment declared unlawful by this subsection violates this subsection whether committed before, during or after the sale, advertisement or solicitation.

Mo. Rev. Stat. 407.020.1, sen. 3.  The annotation to the statute identifies the 1985 amendments, cited as “L.1985, H.B. Nos. 96, 346 & 470, sec. 1, eff. May 31, 1985”, as including this addition.  One expects the statutory history–that the statute was subsequently amended–accounts for some inelegance in parsing the application of other provisions (i.e., applying the “in connection with” element of the first sentence of the section to post-contracting acts), and that the resulting inelegant phrasing should be construed in a manner that gives evident effect intended to be achieved by the statutory revision.

And, were one to give effect to a consent to an assignment and delegation that eliminated rights under the MMPA, surely the law would need to assess, in innumerable future cases, whether that assent had been obtained unconscionably where it was not prominent and did not expressly indicate the contemplated assignment would eliminate rights under the MMPA.

Extrinsic Duties not Terminating Following Delegation

It is supposed that one could argue the post-contract-formation protection expressly contemplated by this 1985 amendment was intended to provide only ephemeral protection–something an otherwise obligated party could eliminate simply by effecting an assignment and delegation.  A court would not be required to adhere to that primitive conceptualization of the statute.  One can see supporting authority in other contexts.

The cited cases clearly illustrate that a person or entity entrusted with important duties in certain circumstances may not assign those duties to someone else and then expect to walk away unscathed when things go wrong. A principle that applies in cases of poorly repaired brick floors and sloppily loaded cargo certainly applies to situations in which people must entrust that most personal of things, their physical well-being, to physicians at an emergency room intimately connected with and closely controlled by a hospital. However, as explained further below, we do not believe it is necessary, as the Court of Appeals did, to impose an absolute nondelegable duty on hospitals.

Simmons v. Tuomey Regional Medical Center, 533 S.E.2d 312, 318 (S.C. 2000).

Or, let us consider some 8th Circuit authority addressing whether an assignment of a receivable results in statutory regulation of the underlying agreement no longer applying:

Moreover, the store’s purchase of the bank’s receivables does not diminish the fact that it is now the bank, and not the store, that issues credit, processes and services customer accounts, and sets such terms as interest and late fees. Thus, although we recognize that the NBA governs only national banks, cf., e.g., Green v. H & R Block, Inc., 981 F.Supp. 951, 955 (D.Md.1997), in these circumstances we agree with the district court that it makes sense to look to the originating entity (the bank), and not the ongoing assignee (the store), in determining whether the NBA applies. Cf. FDIC v. Lattimore Land Corp., 656 F.2d 139, 147–49 (5th Cir. Unit B Sept.1981) (stating, in context of determining whether NBA governs loan assigned by originating entity to entity in another state, that “[t]he non-usurious character of a note should not change when the note changes hands”). Accordingly, for purposes of deciding the legality of the late fees charged to appellants’ credit accounts, we find that the real party in interest is the bank, not the store.

Krispin v. May Dept. Stores Co., 218 F.3d 919, 924 (8th Cir. 2000).

Of course, in the case under consideration, there is a more compelling need not to allow the beneficiary of the statutory regulation to be harmed by the assignment. In Krispin, the beneficiary who sought not to be adversely affected by the assignment was a voluntary participant in the assignment.  In the case at hand, the question is whether a party can unilaterally pretermit the other’s statutory rights.