Opinion
NOT TO BE PUBLISHED
APPEAL from an order of the Superior Court of Los Angeles County No. BC402990, Alan S. Rosenfield, Judge.
Egerman & Brown and Philip Brown for Plaintiff and Appellant.
Winthrop Couchot and Richard H. Golubow for Third Party Claimant and Respondent.
ROTHSCHILD, Acting P. J.
Fulcrum Financial Inquiry, LLP (Fulcrum) obtained a default judgment against NXTV, Inc. and levied a writ of execution on a deposit account in the name of NXTV. A third party, NxSystems, LLC (Nx), filed a claim to the deposit account and Fulcrum moved for an order determining whether it was entitled to execute on the money in the account. The trial court ruled in favor of Nx and Fulcrum appeals. We affirm.
FACTS AND PROCEEDINGS BELOW
The facts are not in dispute.
In April 2009, Fulcrum obtained a default judgment against NXTV in the amount of $41,036.00. Later that month Fulcrum levied on deposit account number 3300185001 (the “account”) held in the name of NXTV at Silicon Valley Bank. Nx filed a third party claim contending it owned substantially all the former assets of NXTV including all of the money held in the account. Fulcrum brought a motion to determine its right to levy execution on the account. (See Code Civ. Proc., § 720.010, et seq.)
In support of its claim to the account, Nx submitted the declaration of its president who stated the following. In February 2008, NXTV borrowed approximately $4.4 million from Orix Venture Finance, LLC. The loan was secured by the present and future assets of NXTV including the account at Silicon Valley Bank. At the same time, NXTV, the bank and Orix entered into a Deposit Account Control Agreement. In December 2008, Orix sent NXTV notices of default on the loan and its intent to conduct a foreclosure sale under section 9610 of the Uniform Commercial Code. In January 2009, Orix sold all of its rights under the loan to Pivotal Capital Corporation which in turn assigned them to Nx. Later that month, Nx foreclosed on NXTV assets securing the Orix loan. According to its president, at a foreclosure sale, Nx obtained all rights, title and interest in these assets, including NXTV’s accounts receivable and the deposit account for a credit bid of $2.5 million, which was approximately $1.9 million less than the balance NXTV owed under the terms of the loan from Orix. Nx did not close the account or change the name of the owner. Instead it deposited into the account the proceeds from NXTV’s accounts receivable, now owned by Nx, and contributions by Nx’s equity interest holders. The original NXTV ceased doing business after Nx foreclosed on substantially all of its assets. The new NXTV is operated by Nx “doing business as NXTV.”
All statutory references are to the Uniform Commercial Code of California which, the parties agree, contains the same provisions as the Uniform Commercial Code of New York referred to in the Orix-NXTV loan documents.
Fulcrum admitted that, three months before it levied execution on the account, Nx had foreclosed on the assets of NXTV, including the account. In support of its claim to money in the account, Fulcrum submitted the declaration of the bank’s operations manager who stated that the bank had on file a Deposit Account Control Agreement executed by its customer, NXTV, in favor of Orix, the creditor whose rights Nx had obtained, but that Orix never executed and returned a “Notice of Exclusive Control.” The manager further stated that at the time Fulcrum levied on the deposit account the bank did not have on file a Deposit Account Control Agreement between NXTV, the bank and Nx. Finally, the manager stated that at the time of the levy the bank’s “customer” was NXTV, not Nx. Fulcrum also presented evidence that as of June 2009 the State of California recognized NXTV as a Delaware corporation active and in good standing in California.
Nx argued that it became the owner of the assets of NXTV, including the deposit account, through its purchase of those assets at a foreclosure sale three months before Fulcrum attempted to levy execution on the account. Thus, at the time of the levy, NXTV no longer owned or had any interest in the account and the money in the account was not subject to levy by NXTV’s creditors.
The court ruled that Nx “is the owner and therefore has superior rights to possession over Fulcrum to the funds [in the account]” and ordered the funds released to Nx “forthwith.”
DISCUSSION
Fulcrum does not deny that Nx’s credit bid purchase of NXTV’s assets, including the deposit account, predated both Fulcrum’s default judgment against NXTV and its levy of execution. Fulcrum maintains that notwithstanding Nx’s purchase of NXTV’s assets the deposit account remained available to satisfy Fulcrum’s judgment because Nx failed to gain “control” over the account by taking either of the steps specified in section 9104, subdivision (a).
Section 9104 states in relevant part: “(a) A secured party has control of a deposit account if any of the following conditions is satisfied:... (2) The debtor, secured party, and bank have agreed in an authenticated record that the bank will comply with instructions originated by the secured party directing disposition of the funds in the deposit account without further consent by the debtor. (3) The secured party becomes the bank’s customer with respect to the deposit account. (b) A secured party that has satisfied subdivision (a) has control, even if the debtor retains the right to direct the disposition of funds from the deposit account.” (Subdivision (b) overrules Benedict v. Ratner (1925) 268 U.S. 353, 360 which held a transfer of property that reserves in the transferor the right to dispose of the collateral or its proceeds for his own uses “is fraudulent in law and void.”)
Nx correctly points out, however, that the “control” provisions of section 9104 apply to a “secured party” seeking to perfect a security interest in a deposit account. As the purchaser of the deposit account through the foreclosure sale, Nx became the owner of the account free of NXTV’s rights in the collateral, any security interest held by Orix and any “subordinate security interest or other subordinate lien.” (4 Witkin, Summary of Cal. Law (10th ed. 2005) Secured Transactions In Personal Property, § 188, p. 759.) Thus, being the owner of the account, its rights did not depend on its taking “control” of the account as a “secured party” under section 9104.
Section 9203, subdivision (b) states in relevant part: “Except as otherwise provided..., a security interest is enforceable against the debtor and third parties with respect to the collateral only if each of the following conditions is satisfied:... (3)... (D) The collateral is deposit accounts... and the party has control under section 9104....”
Section 9617, subdivision (a) states: “A secured party’s disposition of collateral after default does all of the following: (1) Transfers to a transferee for value all of the debtor’s rights in the collateral. (2) Discharges the security interest under which the disposition is made. (3) Discharges any subordinate security interest or other subordinate lien.
Section 9617, subdivision (a) states: “A secured party’s disposition of collateral after default does all of the following: (1) Transfers to a transferee for value all of the debtor’s rights in the collateral. (2) Discharges the security interest under which the disposition is made. (3) Discharges any subordinate security interest or other subordinate lien.
Fulcrum argues that even if Nx became the owner of the deposit account after foreclosure it never notified the bank that it was the owner and, according to the bank’s records, NXTV still owned the account at the time Fulcrum levied execution. Fulcrum reasons that because the deposit account remained in the name of NXTV and NXTV remained the bank’s customer, “the money in the account remained a viable target for creditors of NXTV.” In support of this argument it cites sections 9332 and 9341. Neither, however, supports its position. Both deal with the rights of secured creditors. But as conceded by Fulcrum, Nx is the owner of the account, not a secured creditor.
DISPOSITION
The order is affirmed. Nx is awarded its costs on appeal.
We concur: CHANEY, J.JOHNSON, J.