assignment claims

31 U.S. Code § 3727 - Assignments of claims

In subsection (a)(1), the words “or share thereof” and “whether absolute or conditional, and whatever may be the consideration therefor” are omitted as surplus. In clause (2), the word “authorization” is substituted for “powers of attorney, orders, or other authorities” to eliminate unnecessary words.

In subsections (b) and (c), the word “official” is substituted for “officer” for consistency in the revised title and with other titles of the United States Code.

In subsection (b), the words “Except as hereinafter provided” are omitted as unnecessary. The words “read and” are omitted as surplus. The words “to the person acknowledging the same” are omitted as unnecessary. The text of 31:203(1st par. last sentence) is omitted as superseded by 39:410. The words “Notwithstanding any law to the contrary governing the validity of assignments ” and the text of 31:203(last par.) are omitted as unnecessary.

In subsection (c), before clause (1), the words “bank, trust company, or other . . . including any Federal lending agency” are omitted as surplus. The words “of money due or to become due under a contract providing for payments totaling at least $1,000” are substituted for “in any case in which the moneys due or to become due from the United States or from any agency or department thereof, under a contract providing for payments aggregating $1,000 or more” to eliminate unnecessary words. The text of 31:203(2d par. proviso cl. 1) is omitted as executed. In clause (1), the words “in the case of any contract entered into after October 9, 1940 ” are omitted as executed. In clause (2)(A), the words “payable under such contract” are omitted as surplus. In clause (3), the words “true” and “instrument of” are omitted as surplus. The words “department or” are omitted because of the restatement. The words “if any” and “to make payment” are omitted as surplus.

In subsection (d), before clause (1), the words “During a war or national emergency proclaimed by the President or declared by law and ended by proclamation or law” are substituted for “in time of war or national emergency proclaimed by the President (including the national emergency proclaimed December 16, 1950 ) or by Act or joint resolution of the Congress and until such war or national emergency has been terminated in such manner” to eliminate unnecessary words. The words “ Department of Energy (when carrying out duties and powers formerly carried out by the Atomic Energy Commission)” are substituted for “Atomic Energy Commission” (which was reconstituted as the Energy Research and Development Administration by 42:5813 and 5814) because of 42:7151(a) and 7293. The words “other department or . . . of the United States . . . except any such contract under which full payment has been made” and “of any moneys due or to become due under such contract” before “shall not be subject” are omitted as surplus. The words “A payment subsequently due under the contract (even after the war or emergency is ended) shall be paid to the assignee without” are substituted for “and if such provision or one to the same general effect has been at any time heretofore or is hereafter included or inserted in any such contract, payments to be made thereafter to an assignee of any moneys due or to become due under such contract, whether during or after such war or emergency . . . hereafter” to eliminate unnecessary words. The words “of any nature” are omitted as surplus. In clause (1), the words “or any department or agency thereof” are omitted as unnecessary. In clause (2), the words “under any renegotiation statute or under any statutory renegotiation article in the contract” are omitted as surplus.

Subsection (e)(1) is substituted for 31:203(4th par.) to eliminate unnecessary words.

In subsection (e)(2), the words “person receiving an amount under an assignment or allotment” are substituted for “assignees, transferees, or allottees” for clarity and consistency. The words “or to others for them” and “with respect to such assignments , transfers, or allotments or the use of such moneys” are omitted as surplus. The words “person making the assignment or allotment” are substituted for “assignors, transferors, or allotters” for clarity and consistency.

Assignment of Claims

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• İlhan Helvacı 2  

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A claim arising from a contract or some other source of obligation, such as a tort or unjust enrichment, may be transferred to third parties. A claim may be transferred by an agreement, by a court order or by law. In this section, assignment of claims effected by agreement and those effected by a court decision or operation of law are analysed respectively.

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For further explanations, see Kocaman ( 1989 ), Dayınlarlı ( 2008 ), Günergök ( 2014 ).

Cession des créances , Abtretung von Forderungen .

Becker ( 1941 ), art. 164, N. 4.

Tercier ( 2004 ), p. 304; Thévenoz and Werro ( 2012 ), art. 164, N. 32–35; Eren ( 2015 ), p. 1236; Tercier et al. ( 2016 ), p. 521; Engel ( 1997 ), p. 872.

Eren ( 2015 ), p. 1237; Tercier et al. ( 2016 ), p. 522; Engel ( 1997 ), p. 872; Tercier ( 2004 ), p. 305; Thévenoz and Werro ( 2012 ), art. 164, N. 36.

Tekinay et al. ( 1993 ), p. 247; Eren ( 2015 ), p. 1237; Oğuzman and Öz ( 2016 ), pp. 571–574; Tercier et al. ( 2016 ), p. 522.

Becker ( 1941 ), art. 164, N. 5; Tercier ( 2004 ), p. 305; Tekinay et al. ( 1993 ), p. 240; Tercier et al. ( 2016 ), p. 522.

Déclaration de volonté , Willenserklärung .

Thévenoz and Werro ( 2012 ), art. 164, N. 20; Oğuzman and Öz ( 2016 ), p. 566.

Oğuzman and Öz ( 2016 ), pp. 562–563; Reisoğlu ( 2014 ), p. 466; Nomer ( 2015 ), p. 449.

Acte de disposition , Verfügungsgeschäft . See Chap. 14 fn. 5–6.

Conversely, such a contract is an acquisitive transaction with regard to the assignee.

Pouvoir de disposer, Verfügungsmacht .

Tercier ( 2004 ), p. 306.

Oğuzman and Öz ( 2016 ), p. 560.

Eren ( 2015 ), p. 1231; Tekinay et al. ( 1993 ), pp. 241–242.

von Tuhr and Escher ( 1974 ), § 93, II, p. 333; Oğuzman and Öz ( 2016 ), p. 560; Reisoğlu ( 2014 ), p. 465; Becker ( 1941 ), art. 164, N. 1. For further explanations see Honsell et al. ( 2003 ), art. 164, N. 23–25.

Nomer ( 2015 ), p. 449; Oğuzman and Öz ( 2016 ), p. 569.

Oğuzman and Öz ( 2016 ), p. 563.

See Sect. 8.2.2 .

Nomer ( 2015 ), p. 449; Oğuzman and Öz ( 2016 ), pp. 566–567; Eren ( 2015 ), pp. 1234–1235.

See Sect. 29.2 .

Thévenoz and Werro ( 2012 ), art. 164, N. 19.

See Sect. 29.3 .

Tekinay et al. ( 1993 ), p. 250; Thévenoz and Werro ( 2012 ), art. 164, N. 61; Tercier ( 2004 ), p. 307.

Tercier et al. ( 2016 ), p. 524; Oğuzman and Öz ( 2016 ), pp. 574–575; Eren ( 2015 ), p. 1238.

Oğuzman and Öz ( 2016 ), p. 577.

Feyzioğlu ( 1977 ), p. 641; Tekinay et al. ( 1993 ), p. 241; Oğuzman and Öz ( 2016 ), p. 575.

See Sect. 26.4 .

Tekinay et al. ( 1993 ), p. 251; Oğuzman and Öz ( 2016 ), pp. 577–578.

For further explanations, see Helvacı ( 2008 ).

Thévenoz and Werro ( 2012 ), art. 170 fn. 30, cf. Feyzioğlu ( 1977 ), p. 651; Tekinay et al. ( 1993 ), p. 260.

For further explanations see Çetiner ( 2010 ).

Eren ( 2015 ), p. 1240; Oğuzman and Öz ( 2016 ), p. 576; Oğuzman et al. ( 2016 ), p. 1049, compare to Thévenoz and Werro ( 2012 ), art. 170, N. 9.

Oğuzman and Öz ( 2016 ), p. 576; Nomer ( 2015 ), p. 450.

Feyzioğlu ( 1977 ), p. 651; Tekinay et al. ( 1993 ), p. 259; Oğuzman and Öz ( 2016 ), p. 578.

Thévenoz and Werro ( 2012 ), art. 170, N. 11; Oğuzman and Öz ( 2016 ), p. 578; Feyzioğlu ( 1977 ), p. 651; Tekinay et al. ( 1993 ), p. 260.

For further explanations see Günergök ( 2014 ).

Tercier ( 2004 ), p. 308.

Thévenoz and Werro ( 2012 ), art. 167, N. 21; Oğuzman and Öz ( 2016 ), pp. 582–583; Nomer ( 2015 ), p. 452; Reisoğlu ( 2014 ), p. 470.

Becker ( 1941 ), art. 168, N. 7; Engel ( 1997 ), p. 884; Thévenoz and Werro ( 2012 ), art. 168, N. 4; Feyzioğlu ( 1977 ), p. 656; Oğuzman and Öz ( 2016 ), pp. 583–584.

Öz ( 1990 ), pp. 57–58.

Tekinay et al. ( 1993 ), p. 252 ff ; Oğuzman and Öz ( 2016 ), p. 586; Eren ( 2015 ), p. 1241

See Sect. 18.4.2.2 .

Thévenoz and Werro ( 2012 ), art. 169, N. 11; Feyzioğlu ( 1977 ), p. 658; Oğuzman and Öz ( 2016 ), p. 587; Eren ( 2015 ), p. 1241.

For further explanations see Engin ( 2002 ).

Oğuzman and Öz ( 2016 ), p. 591.

Oğuzman and Öz ( 2016 ), p. 593.

See Sect. 24.2 .

Tekinay et al. ( 1993 ), p. 266; Eren ( 2015 ), p. 1227; Oğuzman and Öz ( 2016 ), p. 596.

See Sect. 25.4.2 , fn. 43.

The transfer of possession is of a factual nature. The material transfer of possession must be complemented by the parties’ agreement (referred to as a real agreement) concerning the transfer of ownership or the constitution of rights in rem . The real agreement is a bilateral legal act and does not require any specific form. It may be formed by the parties’ express or implied declarations of will (intention).

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Helvacı, İ. (2017). Assignment of Claims. In: Turkish Contract Law. Springer, Cham. https://doi.org/10.1007/978-3-319-60061-1_32

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Assignment of insurance policies and claims | Practical Law

Assignment of insurance policies and claims

Practical law uk practice note w-031-6021  (approx. 19 pages).

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June 18, 2019 > > Litigation & Dispute Resolution

IR Global | View firm profile

The following article discusses session three in the IR Global Virtual Series on 'Litigation Funding: Handling commercial and financial disputes

Germany – FW The assignment of claims to a third party for the purpose of their recovery is allowed without further ado, if the assignee bears the full financial risk of recovering the claims and acts for his own account (e.g. factoring).

If an assignee collects debts for the account of the assignor and if the debt collection is conducted as a stand-alone business, this is considered a collection service (Inkassodienstleistung) under the Legal Services Act (Rechtsdienstleistungsgesetz).

Pursuant to the latter, persons who provide such collection services (collection service providers) have to seek the permission of competent authorities and have to be registered with the Legal Services Register (Rechtsdienstleistungsregister). The assignment of claims to a collection service provider which is not registered is null and void; the unauthorised collection service provider lacks the capacity to sue.

With regard to certain types of litigation, e.g. consumer actions, the assignment of claims (to registered collection service providers) is common. In general, such assignments appear reasonable to pool small claims in order to benefit from synergy effects and to create a certain ‘balance of power’ vis-à-vis more financially powerful counter-parties. With regard to bigger claims, however, litigation funding will usually be the better, or even only, option to get financial support from third parties.

Spain – DJ The situation is similar in Spain, because the Spanish civil courts were inspired by the Napoleonic French Code. A lot of opportunistic funds arrived in Spain following the economic crisis, to buy bad credits and assets from banks. This has led to a lot of assignments of claims and the courts have established that they are valid and enforceable.

France – MCC Contractual assignment of claims is valid under French law with a condition and a limit. As a condition, the claim has to be fundamentally legitimate and conform to the public order. The debtor’s consent is not required unless the right was provided to be non-assignable.

Unless the debtor has already agreed to it, the assignment may be set up against him only if it was previously served to him by a Bailiff, or he has acknowledged it. The debtor may set up against the assignee defences inherent to the debt itself, such as nullity, the defence of non-performance, termination or the right to set off related debts.

He may also set up defences which arose from the relations with the assignor before the assignment became enforceable against him, such as the grant of a deferral, the release of a debt, or the set-off of debts which are not related. The assignor and the assignee are jointly and severally liable for any additional costs arising from the assignment which the debtor did not have to advance. Subject to any contractual term to the contrary, the burden of these costs lies on the assignee.

As a limit, if the claim subject to assignment is litigious, the debtor may obtain a release from the assignee by reimbursing him the actual price paid for the assignment, plus costs and reasonable expenses, plus interest calculated from the date on which the assignee paid the price of the assignment made to him. The claim then disappears.

Because of this rule called ‘retrait litigieux’, assignees have to be very careful and research what happened before the assignment.

US – ES There is no prohibition in the US against assigning a claim, or part of a claim, to a third party, but, of course, any third party taking an assignment of all or part of the claim is subject to all potential offsets and defences that exist against the primary holder of the claim.

Assigning claims is done fairly often, mostly in the intellectual property patent world. Patent trolls are big in the US, buying up patent claims and aggressively litigating and pursuing those claims.

Sweden – DE Almost any claim can be assigned in Sweden, the main rule is that the original claimant must have initiated a lawful claim, then it can be assigned. Claims based on unlawful contracts (Pactum Turpe) can neither be enforced by the first holder of the claim, nor its successor. Apart from that, there are no restrictions of any kind, or any constraints to assigned claims.

As far as cost guarantees are concerned, we have the same situation as any other European country in that EU citizens or companies founded in another country within the EU cannot be forced to provide a guarantee for legal costs in litigation proceedings in Sweden.

The same applies for claimants in a country that has entered into an international agreement with Sweden, such as The Hague Convention.

Austria – KO If you are representing a client from outside the EU, the opponent may ask the court to order a cost deposit covering all the procedural costs of the defendant.

US – ES Is there a limit on that?

Austria – KO No, if you have a multi million-dollar dispute, your client pays the court fees of 1.2 per cent, plus also the estimated court-related fees including legal fees for the defendant. The policy is clear – if someone is suing us from somewhere in the world and we, as a defendant in Austria, end up winning the case, we might not be able to enforce our cost award against this claimant. As a result, there is an interest of security deposit which has to be paid upon request by a claimant outside the EU.

US – ES Do you find that a successful application by a defendant to require a large security deposit will often end a case?

Austria – KO Yes, it’s one of the best strategies to fend off a claimant or to make them reduce the claim, and a common strategy for the defendant’s lawyer to ask for a huge security deposit. It’s at the discretion of the judge, but overall you will have to deposit a huge amount of money to get the case going. There is discussion going on about legislation to reduce that, but there are two interests to be weighed against each other.

It’s another argument for why third-party funding can be crucial to get cases going.

As to assignments, one single action containing several claims is permitted if the claims get assigned to another legal entity; such legal entity acts as the sole claimant if the claims rely on the same or similar legal and factual basis. The concept has been approved by the Supreme Court.

Hong Kong – NG An order for security for costs in litigation offers protection to a party from the risk of their opponent not being able to pay the party’s litigation costs if ordered to do so.

Applications for security for costs are a common feature of civil litigation before the first-instance courts in Hong Kong. Sometimes liability for security for costs and the amount can be agreed between the parties. As for the form of the security for costs, the most common method to give security is to make a payment into court. Other methods included an undertaking to pay, a bond, a bank guarantee or a charge.

Despite their abolition in some other common law jurisdictions, the crimes and torts of maintenance and champerty are still part of Hong Kong law. Third party funding is considered to infringe the doctrines of champerty and maintenance, so it is not generally permitted for litigation in the Hong Kong courts (except for specific cases).

Litigation funding is allowed in some insolvency cases, because debtors often siphon away assets when insolvent, yet liquidators or trustees in bankruptcy often find themselves without sufficient funds to recover assets or pursue other legitimate claims in the name of the debtor.

In light of this, the Hong Kong law has accepted litigation funding arrangements as a legitimate practice in liquidation proceedings. Such arrangements may include the sale and assignment by a liquidator or trustee in bankruptcy, of an action commenced in the bankruptcy, to a purchaser for value.

As far as arbitration is concerned, the Arbitration Ordinance or AO (Cap. 609) has recently been amended, such that the common law tort and offence of champerty and maintenance no longer apply to third party funding of arbitration and mediation.

Under the AO, a Code of Practice sets out the standards with which third party funders are ordinarily expected to comply in connection with arbitration funding. It states the requirements for funding agreements, the minimum amount of capital a third-party funder is required to have, the procedure for addressing conflicts of interest and whether third party funders will be liable to funded parties for adverse costs.

Contributors

Klaus Oblin (KO) Oblin Melichar – Austria www.irglobal.com/advisor/dr-klaus-oblin

Marie-Christine Cimadevilla (MCC) Cimadevilla Avocats – France www.irglobal.com/advisor/marie-christine-cimadevilla

Daniel Jimenez (DJ) SLJ Abogados – Spain www.irglobal.com/advisor/daniel-jimenez

Erwin Shustak (ES) Shustak Reynolds & Partners – US – California www.irglobal.com/advisor/erwin-shustak

Nick Gall (NG) Gall Solicitors – Hong Kong www.irglobal.com/advisor/nick-gall

Dan Engström (DE) Advokatfirman Nova AB – Sweden www.irglobal.com/advisor/dan-engstrom

Florian Wettner (FW) METIS Rechtsanwälte – Germany www.irglobal.com/advisor/florian-wettner

More from IR Global

Change Number: DFARS Change 04/25/2024 Effective Date: 04/25/2024

Subpart 232.8 - ASSIGNMENT OF CLAIMS

232.803 policies..

(b) Only contracts for personal services may prohibit the assignment of claims.

(d) Pursuant to 41 U.S.C. 6305, and in accordance with Presidential delegation dated October 3, 1995, Secretary of Defense delegation dated February 5, 1996, and Under Secretary of Defense (Acquisition and Sustainment) delegation dated February 23, 1996, the Director of Defense Procurement determined on May 10, 1996, that a need exists for DoD to agree not to reduce or set off any money due or to become due under the contract when the proceeds under the contract have been assigned in accordance with the Assignment of Claims provision of the contract. This determination was published in the Federal Register on June 11, 1996, as required by law. Nevertheless, if departments/agencies decide it is in the Government's interest, or if the contracting officer makes a determination in accordance with FAR 32.803(d) concerning a significantly indebted offeror, they may exclude the no-setoff commitment.

232.805 Procedure.

(b) The assignee shall forward—

(i) To the administrative contracting officer (ACO), a true copy of the instrument of assignment and an original and three copies of the notice of assignment. The ACO shall acknowledge receipt by signing and dating all copies of the notice of assignment and shall—

(A) File the true copy of the instrument of assignment and the original of the notice in the contract file;

(B) Forward two copies of the notice to the disbursing officer of the payment office cited in the contract;

(C) Return a copy of the notice to the assignee; and

(D) Advise the contracting officer of the assignment.

(ii) To the surety or sureties, if any, a true copy of the instrument of assignment and an original and three copies of the notice of assignment. The surety shall return three acknowledged copies of the notice to the assignee, who shall forward two copies to the disbursing officer designated in the contract.

(iii) To the disbursing officer of the payment office cited in the contract, a true copy of the instrument of assignment and an original and one copy of the notice of assignment. The disbursing officer shall acknowledge and return to the assignee the copy of the notice and shall file the true copy of the instrument and original notice.

232.806 Contract clauses.

(a)(1) Use the clause at 252.232-7008 , Assignment of Claims (Overseas), instead of the clause at FAR 52.232-23, Assignment of Claims, in solicitations and contracts when contract performance will be in a foreign country.

(2) Use Alternate I with the clause at FAR 52.232-23, Assignment of Claims, unless otherwise authorized under 232.803 (d).

Assignment of claims

The European Commission proposes to harmonise conflict of laws rules on the third-party effects of assignment of claims

When claims are assigned across borders, it's not always easy for investors, credit providers and other market participants to know which national law applies to determine who owns the assigned claims. Different national rules about the third-party (or ownership) effects of assignments of claims complicate the use of claims as collateral and make it difficult for investors to price the risk of debt investments.

Removing legal uncertainties about the ownership of claims after they have been assigned on a cross-border basis is important for the assignor and the assignee of the claims. However, it is also essential for market participants who are not party to the assignment but who interact with any of the parties and need certainty about who has legal title over the assigned claims.

Commission initiatives

The  Action plan on building a capital markets union , adopted by the Commission in September 2015, envisaged targeted action on securities ownership rules and third-party effects of assignments of claims.

In order to consult all interested parties, in February 2017 the Commission published an  inception impact assessment  providing an overview of the problems to be addressed and the possible solutions.

In April 2017, the Commission launched a public consultation ( consultation on conflict of laws rules for third party effects of transactions in securities and claims ) and established an Expert group on conflict of laws regarding securities and claims. The members of the Expert group assisted the Commission by providing specialist advice on private international law and financial markets as a sound basis for policymaking.

On 12 March 2018, the Commission proposed the adoption of common conflict of laws rules on the third-party effects of assignments of claims . The proposal provides that, as a rule, the law of the country where the assignor has its habitual residence will govern the third-party effects of the assignment of claims. As an exception, the law of the assigned claim will govern the third-party effects of the assignment of specific claims. By introducing legal certainty, the new rules will promote cross-border investment, enhance access to credit and contribute to market integration. The proposal, which deals with the law applicable to the ownership questions of assignments of claims, complements the rules in the Rome I Regulation , which deal with the law applicable to the contractual questions of assignments of claims.

Previous work in relation to claims

The question of the third-party effects of assignments of claims was raised when the  Rome Convention  was being transformed into the Rome I Regulation ( Regulation (EC) No 593/2008 ). The Rome I Regulation did not address the issue, but required the Commission to prepare a report on the matter. To that effect, the Commission asked the British Institute of International and Comparative Law (BIICL) to carry out a study and the Commission presented its report in September 2016

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Assignment of claims

An untraditional approach to combining the claims of plaintiffs; how it differs from class actions, joinder, consolidation, relation and coordination

A large class of plaintiffs engages you to bring a common action against a defendant or set of defendants. As counsel, you resolve to combine the plaintiffs’ various claims into a single lawsuit. In this article, we touch on some of the traditional approaches, such as a class action, joinder, consolidation, relation, and coordination. To that list, we add as an approach the assignment of claims, a procedural vehicle validated by the United States Supreme Court, but not typically employed to combine the claims of numerous plaintiffs.

Class actions

In Hansberry v. Lee (1940) 311 U.S. 32, the United States Supreme Court explained that “[t]he class suit was an invention of equity to enable it to proceed to a decree in suits where the number of those interested in the subject of the litigation is so great that their joinder as parties in conformity to the usual rules of procedure is impracticable. Courts are not infrequently called upon to proceed with causes in which the number of those interested in the litigation is so great as to make difficult or impossible the joinder of all because some are not within the jurisdiction or because their whereabouts is unknown or where if all were made parties to the suit its continued abatement by the death of some would prevent or unduly delay a decree. In such cases where the interests of those not joined are of the same class as the interests of those who are, and where it is considered that the latter fairly represent the former in the prosecution of the litigation of the issues in which all have a common interest, the court will proceed to a decree.” ( Id. at pp. 41-42.)

In California’s state courts, class actions are authorized by Code of Civil Procedure section 382, which applies when the issue is “‘one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court.’” ( Noel v. Thrifty Payless, Inc. (2019) 7 Cal.5th 955, 968; see also, e.g., Cal. Rules of Court, rules 3.760-3.771.) “The party advocating class treatment must demonstrate the existence of an ascertainable and sufficiently numerous class, a well-defined community of interest, and substantial benefits from certification that render proceeding as a class superior to the alternatives.” ( Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal.4th 1004, 1021.) “The community of interest requirement involves three factors: ‘(1) predominant common questions of law or fact; (2) class representatives with claims or defenses typical of the class; and (3) class representatives who can adequately represent the class.’” ( Linder v. Thrifty Oil Co. (2000) 23 Cal.4th 429, 435; see Civ. Code, § 1750 et seq. [Consumers Legal Remedies Act]; cf. Fed. Rules Civ.Proc., rule 23(a) [prerequisites for federal class action].)

Parties, acting as co-plaintiffs, can also obtain economies of scale by joining their claims in a single lawsuit. Under California’s permissive joinder statute, Code of Civil Procedure section 378 (section 378), individuals may join in one action as plaintiffs if the following conditions are met:

(a)(1) They assert any right to relief jointly, severally, or in the alternative, in respect of or arising out of the same transaction, occurrence, or series of transactions or occurrences and if any question of law or fact common to all these persons will arise in the action; or

(2) They have a claim, right, or interest adverse to the defendant in the property or controversy which is the subject of the action.

(b) It is not necessary that each plaintiff be interested as to every cause of action or as to all relief prayed for. Judgment may be given for one or more of the plaintiffs according to their respective right to relief.

This strategy of joining multiple persons in one action has been referred to as a “mass action” in some decisions involving numerous plaintiffs. (See Aghaji v. Bank of America, N.A. (2016) 247 Cal.App.4th 1110, 1113; Petersen v. Bank of America Corp . (2014) 232 Cal.App.4th 238, 240 ( Petersen ); cf. 28 U.S.C. § 1332(d)(11)(B) [federal definition of “mass action”].)

In Petersen , for example, 965 plaintiffs who borrowed money from Countrywide Financial Corporation in the mid-2000’s banded together and filed a single lawsuit against Countrywide and related entities. ( Petersen , supra , 232 Cal.App.4th at pp.  242-243.) The plaintiffs alleged Countrywide had developed a strategy to increase its profits by misrepresenting the loan terms and using captive real estate appraisers to provide dishonest appraisals that inflated home prices and induced borrowers to take loans Countrywide knew they could not afford. ( Id. at p. 241.) The plaintiffs alleged Countrywide had no intent to keep these loans, but to bundle and sell them on the secondary market to unsuspecting investors who would bear the risk the borrowers could not repay. ( Id. at pp. 241, 245.) Countrywide and the related defendants demurred on the ground of misjoinder of the plaintiffs in violation of section 378. The trial court sustained the demurrer without leave to amend and dismissed all plaintiffs except the one whose name appeared first in the caption. ( Id . at p. 247.) The Court of Appeal reversed and remanded for further proceedings. ( Id . at p. 256.)

Petersen resolved two questions. First, it concluded the operative pleading alleged wrongs arising out of “‘the same . . . series of transactions’” that would entail litigation of at least one common question of law or fact. ( Petersen, supra, 232 Cal.App.4th at p. 241.) The appellate court noted the individual damages among the 965 plaintiffs would vary widely, but the question of liability provided a basis for joining the claims in a single action. ( Id. at p. 253.) Second, the appellate court concluded “California’s procedures governing permissive joinder are up to the task of managing mass actions like this one.” ( Id. at p. 242.)

Consolidation

Code of Civil Procedure section 1048, subdivision (a) provides that, “[w]hen actions involving a common question of law or fact are pending before the court, it may order a joint hearing or trial of any or all the matters in issue in the actions; it may order all the actions consolidated and it may make such orders concerning proceedings therein as may tend to avoid unnecessary costs or delay.” (See also Fed. Rules Civ.Proc., rule 42.)

There are two types of consolidation. The first is a consolidation for purposes of trial only, when the actions remain otherwise separate. The second is a complete consolidation or consolidation for all purposes, when the actions are merged into a single proceeding under one case number and result in only one verdict or set of findings and one judgment. ( Hamilton v. Asbestos Corp., Ltd. (2000) 22 Cal.4th 1127, 1147 ( Hamilton ).)

Consolidation is designed to promote trial convenience and economy by avoiding duplication of procedure, particularly in the proof of issues common to the various actions. (4 Witkin, Cal. Procedure (5th ed. 2008) Pleadings, § 341, p. 470.) Unless all parties in the involved cases stipulate, consolidation requires a written, noticed motion (Cal. Rules of Court, rule 3.350(a); Sutter Health Uninsured Pricing Cases (2009) 171 Cal.App.4th 495, 514), and is subject to the trial court’s discretion. ( Hamilton, supra, 22 Cal.4th at p. 1147.)

In a procedure somewhat similar to consolidation, under California Rules of Court, rule 3.300(a), a pending civil action may be related to other civil actions (whether still pending or already resolved by dismissal or judgment) if the matters “[a]rise from the same or substantially identical transactions, incidents, or events requiring the determination of the same or substantially identical questions of law or fact” or “[a]re likely for other reasons to require substantial duplication of judicial resources if heard by different judges.” ( Id. , rule 3.300(a)(2), (4).) An order to relate cases may be made only after service of a notice on all parties that identifies the potentially related cases. No written motion is required. ( Id ., rule 3.300(h)(1).) The Judicial Council provides a standard form for this purpose. When a trial court agrees the cases listed in the notice are related, all are typically assigned to the trial judge in whose department the first case was filed. ( Id ., rule 3.300(h)(1)(A).)

Related cases are not consolidated cases. Related cases maintain their separate identities but are heard by the same trial judge. Consolidated cases, in contrast, essentially merge and proceed under a single case number.

Coordination

Under Code of Civil Procedure section 404, the Chairperson of the Judicial Council is authorized to coordinate actions filed in different courts that share common questions of fact or law. (See Cal. Rules of Court, rule 3.500 et seq.) The principles underlying coordination are similar to those that govern consolidation of actions filed in a single court. (See Pesses v. Superior Court (1980) 107 Cal.App.3d 117, 123; see also 28 U.S.C. § 1407 [complex and multidistrict litigation].)

Thus, for example, in McGhan Med. Corp. v. Superior Court (1992) 11 Cal.App.4th 804 ( McGhan ), the plaintiffs petitioned for coordination of 300 to 600 breast implant cases pending in 20 different counties. Coordination was denied because the motion judge found that common questions did not predominate “in that the cases involve[d] different implants, different designs, different warnings, different defendants, different theories of defect, different modes of failure, and different injuries.” ( Id. at p. 808.) Among other factors, the trial court concluded that it was impractical to send hundreds of cases to a single county and that the benefits of coordination could be best achieved by voluntary cooperation among the judges in the counties where the cases were pending. ( Id. at p. 808, fn. 2.)

The Court of Appeal reversed in an interlocutory proceeding, ruling the trial court had misconceived the requirements of a coordinated proceeding. ( McGhan, supra, 11 Cal.App.4th at p. 811.) As the appellate court explained, Code of Civil Procedure section 404.7 gives the Judicial Council great flexibility and broad discretion over the procedure in coordinated actions. ( Id. at p. 812.) Thus, on balance, the coordinating judge would be better off confronting the coordination drawbacks (including difficulties arising from unique cases, discovery difficulties, multiple trials, the necessity of travel, and occasional delay) because the likely benefits (efficient discovery and motion practice) were so much greater. ( Id. at pp. 812-814.)

Civil Code section 954 states “[a] thing in action, arising out of the violation of a right of property, or out of an obligation, may be transferred by the owner.” The term “thing in action” means “a right to recover money or other personal property by a judicial proceeding.” (Civ. Code, § 953.) California’s Supreme Court has summarized these provisions by stating: “A cause of action is transferable, that is, assignable, by its owner if it arises out of a legal obligation or a violation of a property right. . . .” ( Amalgamated Transit Union, Local 1756, AFL-CIO v. Superior Court (2009) 46 Cal.4th 993, 1003.) The enactment of Civil Code sections 953 and 954 lifted many restrictions on assignability of causes of action. ( Wikstrom v. Yolo Fliers Club (1929) 206 Cal. 461, 464; AMCO Ins. Co. v. All Solutions Ins. Agency, LLC (2016) 244 Cal.App.4th 883, 891 ( AMCO ).)

Thus, California’s statutes establish the general rule that causes of action are assignable. ( AMCO, supra , 244 Cal.App.4th at pp. 891-892.) This general rule of assignability applies to causes of action arising out of a wrong involving injury to personal or real property. ( Time Out, LLC v. Youabian, Inc. (2014) 229 Cal.App.4th 1001, 1009; see also, e.g., Bush v. Superior Court (1992) 10 Cal.App.4th 1374, 1381 [“‘assignability of things [in action] is now the rule; nonassignability, the exception. . .’”].)

Although the assignment of claims on behalf of others to an assignee, or group of assignees, is not unique, it has not typically been used as a procedural vehicle for combining the claims of numerous plaintiffs. But, that’s not to say it can’t be done.

In fact, the United States Supreme Court has sanctioned such an approach. In Sprint Communications Co., L.P. v. APCC Services, Inc. (2008) 554 U.S. 269 ( Sprint ), approximately 1,400 payphone operators assigned legal title to their claims for amounts due from Sprint, AT&T, and other long-distance carriers to a group of collection firms described as “aggregators.” ( Id. at p. 272.) The legal issue presented to the United States Supreme Court was whether the assignees had standing to pursue the claims in federal court even though they had promised to remit the proceeds of the litigation to the assignor. ( Id . at p. 271.) The Court concluded the assignees had standing.

In support of its conclusion, the Court recognized the long-standing right to assign lawsuits:

. . . [C]ourts have long found ways to allow assignees to bring suit; that where assignment is at issue, courts — both before and after the founding — have always permitted the party with legal title alone to bring suit; and that there is a strong tradition specifically of suits by assignees for collection. We find this history and precedent ‘well nigh conclusive’ in respect to the issue before us: Lawsuits by assignees, including assignees for collection only, are ‘cases and controversies of the sort traditionally amenable to, and resolved by, the judicial process.’

( Sprint , supra , 554 U.S . at p. 285.)

On this basis, the Court concluded:

Petitioners have not offered any convincing reason why we should depart from the historical tradition of suits by assignees, including assignees for collection. In any event, we find that the assignees before us satisfy the Article III standing requirements articulated in more modern decisions of this Court.

( Sprint , supra , 554 U.S at pp. 285-286.)

The Court also considered the argument that the aggregators were attempting to circumvent the class-action requirements of Federal Rule of Civil Procedure 23. ( Sprint, supra, 554 U.S. at pp. 290-291.) The Court rejected this argument as a barrier to aggregation by assignment on the grounds that (1) class actions were permissive, not mandatory, and (2) “class actions constitute but one of several methods for bringing about aggregation of claims, i.e., they are but one of several methods by which multiple similarly situated parties get similar claims resolved at one time and in one federal forum. [Citations.]” ( Id. at p. 291.)

Granted, Sprint arose in the context of Article III, a “prudential standing” analysis. However, in reaching its decision that assignees had standing, the Court relied significantly on three California state decisions addressing assignment of rights under California law. (See Sprint, supra, 554 U.S. at pp. 294-296.)

Under California law, assignment of claims is not a panacea. Not all claims can be assigned. In California, assignment is not allowed for tort causes of action based on “wrongs done to the person, the reputation or the feelings of an injured party,” including “causes of action for slander, assault and battery, negligent personal injuries, seduction, breach of marriage promise, and malicious prosecution.” ( AMCO, supra , 244 Cal.App.4th at p. 892 [exceptions to assignment also include “legal malpractice claims and certain types of fraud claims”].) Other assignments are statutorily prohibited. (See, e.g., Civ. Code, § 2985.1 [regulating assignment of real property sales contracts]; Gov. Code, § 8880.325 [state lottery prizes not assignable].)

Likewise, because a right of action cannot be split, a partial assignment will require the joinder of the partial assignor as an indispensable party. (See, e.g., Bank of the Orient v. Superior Court (1977) 67 Cal.App.3d 588, 595 [“[W]here . . . there has been a partial assignment all parties claiming an interest in the assignment must be joined as plaintiffs . . . ”]; 4 Witkin, Cal. Procedure, supra, Pleadings, § 131(2), p. 198 [“If the assignor has made only a partial assignment, the assignor remains beneficially interested in the claim and the assignee cannot sue alone”].)

That said, California’s rules of law regarding standing and assignments do not prohibit an assignee’s aggregation of a large number of claims against a single defendant or multiple defendants into a single lawsuit. To the contrary, no limitations or conditions on this type of aggregation of assigned claims is imposed from other rules of law, such as California’s compulsory joinder statute. (See Sprint , supra , 554 U.S. at p. 292 [to address practical problems that might arise because aggregators, not payphone operators, were suing, district “court might grant a motion to join the payphone operators to the case as ‘required’ parties” under Fed. Rules Civ.Proc., rule 19].)

There are many procedural approaches to evaluate when seeking to combine the claims of multiple plaintiffs. Class actions and joinders are more traditional methods that trial counsel rely on to bring claims together. Although a largely unexplored procedural approach, assignment appears to be an expedient way of combining the claims of numerous plaintiffs. It avoids the legal requirements imposed for class actions and joinders, and it sidesteps a trial judge’s discretion regarding whether to consolidate, relate, or coordinate actions. Indeed, under the right circumstances, an assignment of claims might provide a means of bypassing class action waivers in arbitration agreements. Perhaps an assignment of claims should be added to the mix of considerations when deciding how to bring a case involving numerous plaintiffs with similar claims against a common defendant or set of defendants.

Judith Posner

Judith Posner is an attorney at Benedon & Serlin, LLP , a boutique appellate law firm.

Gerald Serlin

Gerald Serlin is an attorney at Benedon & Serlin, LLP , a boutique appellate law firm.

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• assignments basic law

Assignments: The Basic Law

The assignment of a right or obligation is a common contractual event under the law and the right to assign (or prohibition against assignments) is found in the majority of agreements, leases and business structural documents created in the United States.

As with many terms commonly used, people are familiar with the term but often are not aware or fully aware of what the terms entail. The concept of assignment of rights and obligations is one of those simple concepts with wide ranging ramifications in the contractual and business context and the law imposes severe restrictions on the validity and effect of assignment in many instances. Clear contractual provisions concerning assignments and rights should be in every document and structure created and this article will outline why such drafting is essential for the creation of appropriate and effective contracts and structures.

The reader should first read the article on Limited Liability Entities in the United States and Contracts since the information in those articles will be assumed in this article.

Basic Definitions and Concepts:

An assignment is the transfer of rights held by one party called the “assignor” to another party called the “assignee.” The legal nature of the assignment and the contractual terms of the agreement between the parties determines some additional rights and liabilities that accompany the assignment. The assignment of rights under a contract usually completely transfers the rights to the assignee to receive the benefits accruing under the contract. Ordinarily, the term assignment is limited to the transfer of rights that are intangible, like contractual rights and rights connected with property. Merchants Service Co. v. Small Claims Court , 35 Cal. 2d 109, 113-114 (Cal. 1950).

An assignment will generally be permitted under the law unless there is an express prohibition against assignment in the underlying contract or lease. Where assignments are permitted, the assignor need not consult the other party to the contract but may merely assign the rights at that time. However, an assignment cannot have any adverse effect on the duties of the other party to the contract, nor can it diminish the chance of the other party receiving complete performance. The assignor normally remains liable unless there is an agreement to the contrary by the other party to the contract.

The effect of a valid assignment is to remove privity between the assignor and the obligor and create privity between the obligor and the assignee. Privity is usually defined as a direct and immediate contractual relationship. See Merchants case above.

Further, for the assignment to be effective in most jurisdictions, it must occur in the present. One does not normally assign a future right; the assignment vests immediate rights and obligations.

No specific language is required to create an assignment so long as the assignor makes clear his/her intent to assign identified contractual rights to the assignee. Since expensive litigation can erupt from ambiguous or vague language, obtaining the correct verbiage is vital. An agreement must manifest the intent to transfer rights and can either be oral or in writing and the rights assigned must be certain.

Note that an assignment of an interest is the transfer of some identifiable property, claim, or right from the assignor to the assignee. The assignment operates to transfer to the assignee all of the rights, title, or interest of the assignor in the thing assigned. A transfer of all rights, title, and interests conveys everything that the assignor owned in the thing assigned and the assignee stands in the shoes of the assignor. Knott v. McDonald’s Corp ., 985 F. Supp. 1222 (N.D. Cal. 1997)

The parties must intend to effectuate an assignment at the time of the transfer, although no particular language or procedure is necessary. As long ago as the case of National Reserve Co. v. Metropolitan Trust Co ., 17 Cal. 2d 827 (Cal. 1941), the court held that in determining what rights or interests pass under an assignment, the intention of the parties as manifested in the instrument is controlling.

The intent of the parties to an assignment is a question of fact to be derived not only from the instrument executed by the parties but also from the surrounding circumstances. When there is no writing to evidence the intention to transfer some identifiable property, claim, or right, it is necessary to scrutinize the surrounding circumstances and parties’ acts to ascertain their intentions. Strosberg v. Brauvin Realty Servs., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998)

The general rule applicable to assignments of choses in action is that an assignment, unless there is a contract to the contrary, carries with it all securities held by the assignor as collateral to the claim and all rights incidental thereto and vests in the assignee the equitable title to such collateral securities and incidental rights. An unqualified assignment of a contract or chose in action, however, with no indication of the intent of the parties, vests in the assignee the assigned contract or chose and all rights and remedies incidental thereto.

More examples: In Strosberg v. Brauvin Realty Servs ., 295 Ill. App. 3d 17 (Ill. App. Ct. 1st Dist. 1998), the court held that the assignee of a party to a subordination agreement is entitled to the benefits and is subject to the burdens of the agreement. In Florida E. C. R. Co. v. Eno , 99 Fla. 887 (Fla. 1930), the court held that the mere assignment of all sums due in and of itself creates no different or other liability of the owner to the assignee than that which existed from the owner to the assignor.

And note that even though an assignment vests in the assignee all rights, remedies, and contingent benefits which are incidental to the thing assigned, those which are personal to the assignor and for his sole benefit are not assigned. Rasp v. Hidden Valley Lake, Inc ., 519 N.E.2d 153, 158 (Ind. Ct. App. 1988). Thus, if the underlying agreement provides that a service can only be provided to X, X cannot assign that right to Y.

Novation Compared to Assignment:

Although the difference between a novation and an assignment may appear narrow, it is an essential one. “Novation is a act whereby one party transfers all its obligations and benefits under a contract to a third party.” In a novation, a third party successfully substitutes the original party as a party to the contract. “When a contract is novated, the other contracting party must be left in the same position he was in prior to the novation being made.”

A sublease is the transfer when a tenant retains some right of reentry onto the leased premises. However, if the tenant transfers the entire leasehold estate, retaining no right of reentry or other reversionary interest, then the transfer is an assignment. The assignor is normally also removed from liability to the landlord only if the landlord consents or allowed that right in the lease. In a sublease, the original tenant is not released from the obligations of the original lease.

Equitable Assignments:

An equitable assignment is one in which one has a future interest and is not valid at law but valid in a court of equity. In National Bank of Republic v. United Sec. Life Ins. & Trust Co. , 17 App. D.C. 112 (D.C. Cir. 1900), the court held that to constitute an equitable assignment of a chose in action, the following has to occur generally: anything said written or done, in pursuance of an agreement and for valuable consideration, or in consideration of an antecedent debt, to place a chose in action or fund out of the control of the owner, and appropriate it to or in favor of another person, amounts to an equitable assignment. Thus, an agreement, between a debtor and a creditor, that the debt shall be paid out of a specific fund going to the debtor may operate as an equitable assignment.

In Egyptian Navigation Co. v. Baker Invs. Corp. , 2008 U.S. Dist. LEXIS 30804 (S.D.N.Y. Apr. 14, 2008), the court stated that an equitable assignment occurs under English law when an assignor, with an intent to transfer his/her right to a chose in action, informs the assignee about the right so transferred.

An executory agreement or a declaration of trust are also equitable assignments if unenforceable as assignments by a court of law but enforceable by a court of equity exercising sound discretion according to the circumstances of the case. Since California combines courts of equity and courts of law, the same court would hear arguments as to whether an equitable assignment had occurred. Quite often, such relief is granted to avoid fraud or unjust enrichment.

Note that obtaining an assignment through fraudulent means invalidates the assignment. Fraud destroys the validity of everything into which it enters. It vitiates the most solemn contracts, documents, and even judgments. Walker v. Rich , 79 Cal. App. 139 (Cal. App. 1926). If an assignment is made with the fraudulent intent to delay, hinder, and defraud creditors, then it is void as fraudulent in fact. See our article on Transfers to Defraud Creditors .

But note that the motives that prompted an assignor to make the transfer will be considered as immaterial and will constitute no defense to an action by the assignee, if an assignment is considered as valid in all other respects.

Enforceability of Assignments:

Whether a right under a contract is capable of being transferred is determined by the law of the place where the contract was entered into. The validity and effect of an assignment is determined by the law of the place of assignment. The validity of an assignment of a contractual right is governed by the law of the state with the most significant relationship to the assignment and the parties.

In some jurisdictions, the traditional conflict of laws rules governing assignments has been rejected and the law of the place having the most significant contacts with the assignment applies. In Downs v. American Mut. Liability Ins. Co ., 14 N.Y.2d 266 (N.Y. 1964), a wife and her husband separated and the wife obtained a judgment of separation from the husband in New York. The judgment required the husband to pay a certain yearly sum to the wife. The husband assigned 50 percent of his future salary, wages, and earnings to the wife. The agreement authorized the employer to make such payments to the wife.

After the husband moved from New York, the wife learned that he was employed by an employer in Massachusetts. She sent the proper notice and demanded payment under the agreement. The employer refused and the wife brought an action for enforcement. The court observed that Massachusetts did not prohibit assignment of the husband’s wages. Moreover, Massachusetts law was not controlling because New York had the most significant relationship with the assignment. Therefore, the court ruled in favor of the wife.

Therefore, the validity of an assignment is determined by looking to the law of the forum with the most significant relationship to the assignment itself. To determine the applicable law of assignments, the court must look to the law of the state which is most significantly related to the principal issue before it.

Assignment of Contractual Rights:

Generally, the law allows the assignment of a contractual right unless the substitution of rights would materially change the duty of the obligor, materially increase the burden or risk imposed on the obligor by the contract, materially impair the chance of obtaining return performance, or materially reduce the value of the performance to the obligor. Restat 2d of Contracts, § 317(2)(a). This presumes that the underlying agreement is silent on the right to assign.

If the contract specifically precludes assignment, the contractual right is not assignable. Whether a contract is assignable is a matter of contractual intent and one must look to the language used by the parties to discern that intent.

In the absence of an express provision to the contrary, the rights and duties under a bilateral executory contract that does not involve personal skill, trust, or confidence may be assigned without the consent of the other party. But note that an assignment is invalid if it would materially alter the other party’s duties and responsibilities. Once an assignment is effective, the assignee stands in the shoes of the assignor and assumes all of assignor’s rights. Hence, after a valid assignment, the assignor’s right to performance is extinguished, transferred to assignee, and the assignee possesses the same rights, benefits, and remedies assignor once possessed. Robert Lamb Hart Planners & Architects v. Evergreen, Ltd. , 787 F. Supp. 753 (S.D. Ohio 1992).

On the other hand, an assignee’s right against the obligor is subject to “all of the limitations of the assignor’s right, all defenses thereto, and all set-offs and counterclaims which would have been available against the assignor had there been no assignment, provided that these defenses and set-offs are based on facts existing at the time of the assignment.” See Robert Lamb , case, above.

The power of the contract to restrict assignment is broad. Usually, contractual provisions that restrict assignment of the contract without the consent of the obligor are valid and enforceable, even when there is statutory authorization for the assignment. The restriction of the power to assign is often ineffective unless the restriction is expressly and precisely stated. Anti-assignment clauses are effective only if they contain clear, unambiguous language of prohibition. Anti-assignment clauses protect only the obligor and do not affect the transaction between the assignee and assignor.

Usually, a prohibition against the assignment of a contract does not prevent an assignment of the right to receive payments due, unless circumstances indicate the contrary. Moreover, the contracting parties cannot, by a mere non-assignment provision, prevent the effectual alienation of the right to money which becomes due under the contract.

A contract provision prohibiting or restricting an assignment may be waived, or a party may so act as to be estopped from objecting to the assignment, such as by effectively ratifying the assignment. The power to void an assignment made in violation of an anti-assignment clause may be waived either before or after the assignment. See our article on Contracts.

Noncompete Clauses and Assignments:

Of critical import to most buyers of businesses is the ability to ensure that key employees of the business being purchased cannot start a competing company. Some states strictly limit such clauses, some do allow them. California does restrict noncompete clauses, only allowing them under certain circumstances. A common question in those states that do allow them is whether such rights can be assigned to a new party, such as the buyer of the buyer.

A covenant not to compete, also called a non-competitive clause, is a formal agreement prohibiting one party from performing similar work or business within a designated area for a specified amount of time. This type of clause is generally included in contracts between employer and employee and contracts between buyer and seller of a business.

Many workers sign a covenant not to compete as part of the paperwork required for employment. It may be a separate document similar to a non-disclosure agreement, or buried within a number of other clauses in a contract. A covenant not to compete is generally legal and enforceable, although there are some exceptions and restrictions.

Whenever a company recruits skilled employees, it invests a significant amount of time and training. For example, it often takes years before a research chemist or a design engineer develops a workable knowledge of a company’s product line, including trade secrets and highly sensitive information. Once an employee gains this knowledge and experience, however, all sorts of things can happen. The employee could work for the company until retirement, accept a better offer from a competing company or start up his or her own business.

A covenant not to compete may cover a number of potential issues between employers and former employees. Many companies spend years developing a local base of customers or clients. It is important that this customer base not fall into the hands of local competitors. When an employee signs a covenant not to compete, he or she usually agrees not to use insider knowledge of the company’s customer base to disadvantage the company. The covenant not to compete often defines a broad geographical area considered off-limits to former employees, possibly tens or hundreds of miles.

Another area of concern covered by a covenant not to compete is a potential ‘brain drain’. Some high-level former employees may seek to recruit others from the same company to create new competition. Retention of employees, especially those with unique skills or proprietary knowledge, is vital for most companies, so a covenant not to compete may spell out definite restrictions on the hiring or recruiting of employees.

A covenant not to compete may also define a specific amount of time before a former employee can seek employment in a similar field. Many companies offer a substantial severance package to make sure former employees are financially solvent until the terms of the covenant not to compete have been met.

Because the use of a covenant not to compete can be controversial, a handful of states, including California, have largely banned this type of contractual language. The legal enforcement of these agreements falls on individual states, and many have sided with the employee during arbitration or litigation. A covenant not to compete must be reasonable and specific, with defined time periods and coverage areas. If the agreement gives the company too much power over former employees or is ambiguous, state courts may declare it to be overbroad and therefore unenforceable. In such case, the employee would be free to pursue any employment opportunity, including working for a direct competitor or starting up a new company of his or her own.

It has been held that an employee’s covenant not to compete is assignable where one business is transferred to another, that a merger does not constitute an assignment of a covenant not to compete, and that a covenant not to compete is enforceable by a successor to the employer where the assignment does not create an added burden of employment or other disadvantage to the employee. However, in some states such as Hawaii, it has also been held that a covenant not to compete is not assignable and under various statutes for various reasons that such covenants are not enforceable against an employee by a successor to the employer. Hawaii v. Gannett Pac. Corp. , 99 F. Supp. 2d 1241 (D. Haw. 1999)

It is vital to obtain the relevant law of the applicable state before drafting or attempting to enforce assignment rights in this particular area.

Conclusion:

In the current business world of fast changing structures, agreements, employees and projects, the ability to assign rights and obligations is essential to allow flexibility and adjustment to new situations. Conversely, the ability to hold a contracting party into the deal may be essential for the future of a party. Thus, the law of assignments and the restriction on same is a critical aspect of every agreement and every structure. This basic provision is often glanced at by the contracting parties, or scribbled into the deal at the last minute but can easily become the most vital part of the transaction.

As an example, one client of ours came into the office outraged that his co venturer on a sizable exporting agreement, who had excellent connections in Brazil, had elected to pursue another venture instead and assigned the agreement to a party unknown to our client and without the business contacts our client considered vital. When we examined the handwritten agreement our client had drafted in a restaurant in Sao Paolo, we discovered there was no restriction on assignment whatsoever…our client had not even considered that right when drafting the agreement after a full day of work.

One choses who one does business with carefully…to ensure that one’s choice remains the party on the other side of the contract, one must master the ability to negotiate proper assignment provisions.

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An assignment of claims is a legal and financial process that allows one party to transfer or “assign” a claim to someone else, provided that the other party is in full knowledge of the assignment and agrees to it. In this process, the party that transfers the claim is called the assignor, and the party to whom the claim is transferred is called the assignee. Essentially, this situation entitles the assignee to the rights previously held by the assignor, according to the claim or contract. The assignment of claims, however, may also involve transference of some liabilities and legal responsibilities to the assignee.

There are many situations wherein assignment of claims can be applicable, such as in insurance claims, bankruptcies, and damages to compensate for an accident or injury. In the US, companies abide by the “Assignment of Claims Act of 1940” to carry out an assignment of claim when a contract between the said company and a client expires or is about to expire. One condition under the act is that there is a sum of $1,000 US Dollars or higher involved in the contract; if the sum is lower than that, then an assignment may not be able to push through.

The company may only assign the claim to an assignee of a “financing institution,” like banks, government-funded lending agencies, or trust companies or corporations. This condition ensures that the assignee is able to take on the responsibilities involving the claim, especially for financial aspects. The existing contract between the assignor and another party should also not state any problem with assigning the claim to a new assignee; otherwise, the party with whom the assignor has a contract can sue the assignor for contract violation. Another condition would be that the assignor can only assign the claim to only one assignee, and that the latter cannot transfer the claim to another party.

Many cases require that the assignment be formally filed, especially when it involves property of high value, such as a huge sum or money, land, or forms of collateral . Generally, the courts do not have to investigate why an assignment was filed, but require the filing primarily for documentation purposes. In this process, another contract should be drawn up, stating that the claim will be transferred from the assignor to the assignee. Once the contract is agreed to and the two parties have willingly signed the contract, the assignment of claims is complete and a novation takes place, making the assignee the new claim holder.

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Assignment of a claim or cause of action

Practical law uk practice note 1-522-7861  (approx. 32 pages), get full access to this document with practical law.

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This document is from Thomson Reuters Practical Law, the legal know-how that goes beyond primary law and traditional legal research to give lawyers a better starting point. We provide standard documents, checklists, legal updates, how-to guides, and more.

• Increase efficiency
• Enhance productivity
• Improve response time
• Substantive Law
• 1 Scope of this note
• Effect of contractual prohibition on assignment
• 3 At what stage may a claim be assigned?
• 4 To whom can a cause of action be assigned?
• Legal assignment or equitable assignment?
• Requirements for a legal assignment
• Requirements for an equitable assignment
• Effect of consideration
• No loss occurring to assignee before assignment of claim
• General principles
• Exceptions to the rules on maintenance and champerty
• Security for costs
• Costs incurred by the assignor before the assignment
• Who is liable for costs awarded in favour of the defendant?
• Assignment of benefit and burden of solicitors' retainer
• When might an office-holder assign a claim?
• Who may assign a claim in insolvency?
• Claims capable of assignment by an office-holder
• Claims not capable of assignment by an office-holder
• Assignment of claims to an office-holder
• Potential liability of office-holder
• 10 Drafting an assignment of a cause of action
• Legal assignment
• Equitable assignment
• Assigning proceedings that have been commenced
• Counterclaims where a claim has been assigned

Chris Lehnes Factoring Specialist

203-664-1535 | [email protected].

What is an Assignment of Claims?

The Assignment of Claims Act (ACA) was passed in 1940 and is codified in 31 U.S.C. § 3727 and 41 U.S.C. § 6305. The ACA allows contractors to assign their rights to receive payment from a federal contract to a third party, called an assignee, who then collects the funds from the government. The ACA’s main purpose is to help contractors and subcontractors access capital by allowing them to monetize their accounts receivable from the government.  What is an Assignment of Claims?

A contractor can assign a contract’s payments to a financing institution if the following conditions are met:

• The contract is for $1,000 or more
• The assignment is made to a bank, trust company, or other financing institution, including a federal lending agency
• The contract doesn’t prohibit the assignment
• The assignment covers all unpaid amounts unless the contract permits otherwise 

The ACA also defines how lenders and factoring companies can arrange for payments when federal contracts are part of a contractor’s loans or accounts receivable. When a FACA assignment is in effect, the government is required to make contract payments directly to the designated bank or financial institution. 

Read more about Assignment of Claims

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Maryland Does Not Allow Assignment of Property Insurance Proceeds

Restoration contractors should be aware that Maryland does not allow an assignment of insurance claim benefits if the policy has an anti-assignment clause. In March, a Maryland appellate court upheld the insurance commissioner’s finding that the roofing contractor did not have a valid assignment and therefore lacked standing to bring any suit or complaint of bad faith against the insurer: 1

Although Maryland’s early precedent seems to distinguish the effect of such clauses depending upon whether the assignment is pre- or post-loss, it is clear that our modern precedent does not make such a distinction. Both Michaelson and Clay considered a post-loss assignment of insurance claims, and in both cases, the Supreme Court found those assignments invalid because of an anti-assignment clause. Michaelson and Clay are the most recent cases to consider the issue of post-loss assignments of insurance benefits and as such are the precedent we apply in this case. We find no error in the Commissioner’s reliance on these cases to reach her conclusion that the Policy’s anti-assignment clause prohibited the attempted Assignment of Claim. … we are unpersuaded by Featherfall’s arguments that a purported majority of the states follow the Restatement approach to post-loss assignments. The out-of-state cases Featherfall directs us to offer interesting discussions of the common law in other jurisdictions. They are, however, not the law in Maryland; Michaelson and Clay are. As such, there was no legal error in the Commissioner’s decision that the assignment was invalid under those cases. … We conclude that the Commissioner did not err in concluding that the attempted Assignment of Claim between the Insured and Featherfall was void pursuant to the Policy’s anti-assignment clause. In doing so, we clarify that Maryland enforces anti-assignment clauses and that such clauses prohibit assignments regardless of whether they were made before or after a loss under an insurance policy. We further conclude that the Commissioner did not err in finding that, because the purported assignment was void, Featherfall lacked standing to request a hearing before the Commissioner and to make a claim against Travelers for alleged unfair business practices.

Restoration contractors should beware that some assignment of benefits attorneys (AOB attorneys) are sending out wrong and incomplete information on a state-by-state basis about whether a particular assignment contract is valid or enforceable. We strongly suggest that if restoration contractors wish to proceed with an assignment of benefits contract, they seek an opinion from a licensed construction attorney in that particular state to ensure that courts will find the construction agreement and the assignment of insurance benefits contract valid in that state. Pay the attorney to provide an opinion and the contracts to be used. If they are not upheld, you will know where to seek relief.

Thought For The Day

A lawyer with his briefcase can steal more than a hundred men with guns. —Mario Puzo (from The Godfather)

1 In re Petition of Featherfall Restoration LLC , 261 Md.App. 105, 311 A.3d 437 (Md. App. 2024) .

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• Claims Notes: May 2024

Construction Defect: “Increased Potential” for Resultant Damages are Economic Damages Not Covered by CGL Policy

The steel contractor named the general contractor an additional insured on its CGL policy. The steel contractor's welds were defective. The general contractor retrofitted the named insured's defective columns before they could damage other parts of the system (i.e. before any resultant damages occurred). The subcontractor's CGL insurers refused to defend or indemnify the general contractor, and it sued for coverage. The Seventh Circuit Court of Appeals ruled that the steel contractor’s CGL insurers had no duty to defend or indemnify the general contractor. Preventive measures such as removing, replacing, or retrofitting the named insured's work are economic losses not recoverable under a CGL policy.  Decision .

CGL Policy’s Motorized Vehicle Exclusion Precluded Coverage for Drag Race Crash 

The insured purchased CGL coverage for an amateur drag race. The policy included an “Absolute Exclusion – Motorized Vehicles” (MV Endorsement) that excluded coverage for bodily injury arising out of the operation or use of motorized vehicles. A racer careened off the raceway, causing bodily injury to spectators. The trial court concluded the policy was ambiguous and found a duty to defend because several endorsements stated: “All other terms and conditions of the policy remain unchanged.” On appeal, the Fifth Circuit Court of Appeals ruled that the insurer had no duty to defend based on the MV Endorsement. It reasoned that by reading the policy as a whole and giving effect to all its terms, the CGL policy did not cover bodily injury from motor vehicles. Cozen O'Connor obtained this favorable decision for its client. Decision .

First-Party Property: Insurer Beats Bad Faith Claim Where Photos Clearly Support Insurer’s Denial

The building's roof sank after heavy snow. The property insurer retained an engineer who concluded that the damage resulted from inadequate design or construction. If any part of the building remained standing, it was not a collapse as defined by the policy. The insurer disclaimed coverage based on an exclusion for damage caused by hidden or latent defects or “any quality in property that causes it to damage or destroy itself.” After the insurer denied coverage, the insured sued for breach of contract and bad faith. While the insured contended that the building collapsed, photos showed the building still standing. Because the insurer correctly relied on its expert’s opinions to deny coverage, it did not act in bad faith. Decision .

Operators of Low-Speed Electric Scooters Not Entitled to PIP Benefits

New Jersey Supreme Court affirms that PIP does not cover operators of low-speed electric scooters (LSES). The court determined that an LSES rider does not fall within the definition of pedestrian for purposes of New Jersey's No-Fault Act. It further noted that the legislature could amend the law if intended otherwise and cautioned against increasing auto insurance premiums in New Jersey. Decision .

Assignee of Life Insurance Policy Had No Standing to Sue Insurer Where Assignment Invalid

The life insurance policy stated, "assignment will be effective upon Notice" in writing to the insurer. The assignor and assignee never notified the insurer of the assignment. The assignee sued the life insurer. The Second Circuit Court of Appeals certified the following question to the New York Court of Appeals: “Where a life insurance policy provides that 'assignment will be effective upon Notice' in writing to the insurer, does the failure to provide such written notice deprive the purported assignee of contractual standing to bring a claim under the policy against the insurer.” The New York Court of Appeals answered, "Yes." As such, the assignment was invalid, and the purported assignee had no standing to sue. Decision .

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Adrian Diaz out as Seattle's top cop, Sue Rahr named interim chief

by Danny Schmidt, KOMO News

SEATTLE — Seattle Mayor Bruce Harrell has removed police Chief Adrian Diaz from his post and replaced him with former King County Sheriff Sue Rahr, noting allegations against Diaz played a role in the move.

A month ago, Harrell said he was evaluating everyone within the SPD, including the chief, amid a string of claims alleging sexual harassment and sexual and racial discrimination from department leaders. Diaz was accused by multiple employees in lawsuits and tort claims. He denied the allegations.

On Wednesday, Harrell said Diaz would step aside and work on “special projects" after the two came to the "mutual decision." Rahr will serve as interim chief beginning Thursday morning, Harrell said.

"His integrity, in my mind, is beyond reproach," Harrell said of Diaz during a press conference Wednesday . "He's a friend, and I want to thank him for his service. He's a human being, and a good human being at that.

ALSO SEE | Elected officials, city leaders and organizations react to Diaz's departure as SPD chief

"I believe in Chief Diaz," Harrell continued. "I believe he's extremely talented as well. He inherited a culture where a lot of the allegations predate him. We believe this is the right thing to do."

Diaz was emotional speaking to the media Wednesday.

I'm proud of the work we've done together, but recognize now is the right time to step away for the best interests of the city and its people,” said Diaz, who added that he's had medical issues he will now address. “I look forward to continuing to serve our communities and neighbors and supporting the department as we move forward.

Rahr told Harrell she does not want the job permanently.

"She is a proven national expert in this space," Harrell said of Rahr, who ran the Washington police academy for most of the 2010s. "We are confident that she will look at the personnel issues and the allegations and make decisions there."

Rahr said she has "big shoes to fill" Wednesday, speaking after Diaz during the press conference.

"I want lots of people," Rahr Wednesday about recruiting, adding that she hopes to improve the SPD's flexible employee schedules. "We need lots of diversity. We need diversity of experience. The Seattle Police Department — if I can do it — is going to be the top recruiter for female recruits. This is going to be the place people want to come to work. I’m confident of that."

Former Seattle police Chief Kathleen O’Toole, who stepped down at the end of 2017, will help conduct a national search alongside Rahr, Harrell said. The search will begin next week, Harrell added.

"There was not one straw that broke the camel’s back," Harrell said of the decision to shake up the police department. "Culture change is very hard. I'm intentionally looking outside of the department. I'm very proud of our Seattle Police Department. They make me proud as a mayor.

"This is how you get better. I'm very confident. I feel pretty excited about the future for us."

Rahr said recruiting and "listening" are her top immediate priorities.

The SPD continues to struggle with staffing, down more than 345 officers at last count, according to Seattle City Council President Sara Nelson, despite the city offering major signing bonuses and a massive back-timed pay increase. Last week, the City Council approved legislation to streamline hiring.

"Recruiting is a critical need, and that’s something I think I can do relatively quickly and can have a quick impact," Rahr said. " The contract has been resolved, so I want to ride that wave of momentum. I need to listen and learn because I don’t have all the information I need to make decisions yet. I need to talk to the people who live and work in the community.

"The Seattle Police Department cannot drive the crime rate down. We need to work with the community."

A "30 By 30 Report" for the SPD in September detailed female employees' allegations of sexual harassment and descriptions of a "masculine police culture" filled with double standards and a lack promotion opportunities for women, especially mothers, in the department.

The SPD said its goal is to increase the number of women in law enforcement to 30% by 2030.

Rahr was asked Wednesday if she has concerns about the culture within the SPD.

I’ll be honest with you, I have concerns about the culture of all police departments," she said. "I think we are all trying to do better. I think it’s a natural thing that happens when you have a profession that is dominated by one gender for half a century, three quarters of a century. And making those transitions are really hard. I don’t think Seattle Police Department is worse or better than others, I think that we have work to do in every department.

One of the reasons I was very anxious to jump in is I think the Seattle Police Department is open to doing something meaningful and implementing a systemic change. Because we can keep playing whack-a-mole every time there’s an allegation here or there, but until we change the system, we’re not going to have meaningful change. And that was one of the things that drew me to this opportunity, to actually do something that’s going to matter.

Turmoil within the SPD

Last month, four female employees stepped forward to accuse Diaz and his top lieutenant, John O’Neill, of a pattern of harassment, discrimination and a hostile work environment. They filed a $5 million claim against the city.

In late April, Harrell said he hired an independent investigator to review the claims made against Diaz and O’Neill, who leads the media relations unit.

Assistant Chief Tyrone Davis was put on administrative leave on May 23, adding to the internal chaos at the SPD. In a message to staff, Diaz said the move was a precautionary step “due to (Office of Police Accountability) allegations.” It’s unclear the nature of the OPA complaint that led to the immediate suspension.

WATCH | Supporters of Seattle police chief back Diaz, argue accusers are 'serial complainers'

Davis — one of five assistant chiefs, according to the SPD’s website — has overseen special operations and joined the SPD in 1999. His department includes SWAT, hostage negotiations, the arson/bomb squad, the harbor unit and the canine unit. He is the highest-ranking African American officer in the department.

Davis was promoted by Diaz and replaced Eric Greening, who recently filed suit against the city of Seattle and Diaz alleging he was retaliated against for reporting on discrimination within the department and the appearance of segregation. Greening also claimed that community outreach was being done solely by female and BIPOC officers.

Last week, supporters of Diaz said accusations of sexual harassment and discrimination were from “disgruntled” employees who are “serial complainers.” Victoria Beach, Rev. Harriet Walden and Carmen Martinez made the claims in a 45-minute news conference in Beacon Hill since, they said, Diaz could not defend himself.

Diaz was hired as interim chief in September 2020 after Carmen Best resigned amid backlash over her handling of that summer's protests and her opposition to the City Council's plan to cut her budget . Two years later, Harrell said he intended to appoint Diaz to the permanent position, and Diaz was sworn in on Jan. 12, 2023.

The Southern California native graduated from Central Washington University before earning his master's in public administration from the University of Washington. Diaz joined the SPD in 1997 and began his career in patrol before joining the investigations bureau. He was promoted to assistant chief in 2017 and deputy chief in 2020, a month before taking over as the SPD's top cop.

Loudermill hearing for officer

With Wednesday's change at the top, Harrell was asked about the Loudermill hearing of Daniel Auderer, the Seattle police union vice president heard on video allegedly mocking the death of Jaahnavi Kandula in January 2023. Kandula was a 23-year-old grad student from India killed when officer Kevin Dave hit her in a South Lake Union crosswalk while speeding nearly three times the legal limit as he responded to an overdose call.

The incident made national — and international — headlines after body-worn camera audio from another officer was released . Auderer responded to the Jan. 23 crash scene and afterward called guild President Mike Solan to report what happened. In the recording released by the SPD, Auderer laughs and suggests that Kandula’s life had “limited value” and the city should “just write a check.”

“Eleven thousand dollars. She was 26 anyway,” Auderer said, inaccurately stating Kandula's age. “She had limited value.”

No criminal charges were filed against Dave.

The hearing, which will determine any disciplinary action for Auderer, began on May 16.

"She will make that decision as the process allows," Harrell said of Rahr. "Likely in a few weeks."

Mets' López clarifies 'worst team' comment

The New York Mets designated reliever Jorge López for assignment, the team announced Thursday.

López threw his glove into the stands in frustration following an ejection in the eighth inning of Wednesday's game against the Los Angeles Dodgers.

Jorge López has been ejected by third base umpire Ramon De Jesus. López threw his glove into the crowd on his way off the field. pic.twitter.com/5BlF6badFQ — SNY (@SNYtv) May 29, 2024

"I don't regret it. … Whatever happens, happens," López said postgame. "Whatever they want to do, I'll be here tomorrow."

"I don't regret it." - Jorge López on his glove toss pic.twitter.com/NB0cDJ5w0i — SNY (@SNYtv) May 30, 2024

López was quoted as calling the Mets "the worst team in the whole f-----g MLB," but clarified on Instagram on Thursday that he said "teammate" and not "team."

López conducted the postgame interview in English despite it not being his first language.

Jorge López, on Instagram, clarified last night’s comments. English is not his first language. pic.twitter.com/nUZnu93Tq5 — Andy Kostka (@afkostka) May 30, 2024

Mets manager Carlos Mendoza said postgame that he planned to talk to the team about López's glove-throwing incident.

"That's not acceptable," Mendoza said, per The Athletic's Anthony DiComo .

López was unhappy after giving up a two-run home run to Shohei Ohtani and was ejected by third base umpire Ramon De Jesus after the two exchanged words.

López and Adam Ottavino combined to allow six runs in the eighth inning, turning a 3-3 tie into a 9-3 deficit. The Dodgers went on to win 10-3, completing the three-game sweep.

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California legislator removed from committee after forcing sanctuary state vote

(The Center Square) - A California assemblyman was removed from his Judiciary Committee assignment after forcing a floor vote on his bill that would remove sanctuary state protections from individuals convicted of sex crimes against minors.

Assemblyman Bill Essayli, R-Corona, introduced a bill earlier this year that would have required law enforcement officials to cooperate with immigration authorities by sharing information on individuals convicted of sexual crimes against minors requiring sex offender registration. The bill was not heard in committee, which led Essayli to conduct a failed attempt to suspend the rules to force an Assembly-wide floor vote on the bill, thereby bypassing the committee process.

Typically, a bill makes its way through several committees before reaching the Assembly floor. In rare cases, the Assembly can suspend its rules to allow an urgent bill to be voted upon without going through the committee process. These bills are usually for emergencies or have broad support with the backing of the Assembly speaker, who chairs the Rules Committee that has power over what bills are assigned to which committees. The Speaker also has broad discretion over individuals’ assignments to various committees.

After Essayli’s attempt to suspend the rules for a floor vote on AB 2641, during which his microphone was cut off as he tried to read the bill, Assembly Speaker Robert Rivas, D-Hollister, reassigned Essayli from the Assembly Judiciary Committee to the less influential Assembly Aging and Long-Term Care Committee. Assignments are generally made at the beginning of the legislative cycle, which makes a mid-cycle reassignment unusual.

Essayli claims this sudden reassignment was due to his floor vote attempt for AB 2641.

“Last week Democrats silenced me for forcing a vote on the Floor to end sanctuary state protections for pedophiles,” said Essayli on X, formerly known as Twitter. “Today they are punishing me by stripping me of my seat on the Judiciary Committee. I will not be deterred by their threats and intimidation."

Rivas' office did not respond to a request for comment by time of publication.