Smith v. Mallick

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued December 7, 2007 Decided February 1, 2008

No. 06-7179

RICHARD F. SMITH AND

MARINE CARRIERS (USA), INC.,

APPELLEES

v.

RAJ K. MALLICK,

APPELLANT

Appeal from the United States District Court

for the District of Columbia

(No. 96cv02211)

Kenneth J. Loewinger argued the cause for appellant. With

him on the briefs was Patricia B. Millerioux.

Joseph G. Cosby argued the cause for appellees. With him

on the brief was Thomas E. Patton.

Before: GINSBURG, Chief Judge, and ROGERS and BROWN,

Circuit Judges.

Opinion for the Court filed by Circuit Judge BROWN.

2

BROWN, Circuit Judge: Raj Mallick appeals the district

court’s denial of his motion for relief from judgment under Rule

60(b)(5) of the Federal Rules of Civil Procedure. He claims his

agreement with eDebt Management, Inc., to which Richard

Smith had assigned the judgment, discharged the judgment

against him. We agree and reverse the district court’s denial.1

I

After Mallick failed to make payments under a settlement

agreement with Smith and Marine Carriers (USA), Inc. (we refer

to both as “Smith”), Smith obtained a judgment against Mallick.

In 2002, Smith assigned all of his rights in that judgment to

eDebt for $5; eDebt agreed to collect from Mallick, returning

60% of any future recovery and keeping the rest. eDebt and its

lawyer, Lori Frank, notified Mallick of this assignment.

Roughly a year later, when Smith heard eDebt was no longer

trying to collect, Smith asked eDebt to reassign the judgment to

him—which it did on October 15, 2003. No one notified

Mallick or Frank.

Although eDebt’s president, T. Gordon Cranston or Gordon

C. Cranston,2 personally acknowledged the reassignment, Frank

continued to negotiate a settlement with Mallick. Before the

reassignment, Mallick had offered eDebt $20,000 and real

property he and his wife owned for a discharge of the judgment

against him. In November 2003, eDebt agreed to this, provided

Mallick acted with alacrity. Mallick immediately sent two

certified checks and a deed to Frank by overnight delivery; she

sent the money and a copy of the deed to eDebt, and forwarded

1

We dismiss as moot Smith’s motion to strike two pages of the

Appendix because we have not relied on them in deciding this appeal.

2

These names may have been aliases. See Appendix (App.) 20.

3

to Mallick a praecipe instructing the clerk of the district court to

“note [the] judgment as paid, satisfied and released.” App. 14.

On the line reserved for Smith’s signature was Cranston’s

signature and the notation “poa.” The scheme unraveled when

Smith heard about and objected to the arrangement. As the

lawyers for Mallick, Smith and eDebt tried to resolve the

miscommunication, eDebt and its president vanished.

Smith believes he is not bound by Mallick’s agreement with

eDebt because eDebt had no interest in the judgment at the time

it accepted Mallick’s offer. Mallick, naturally, disagrees; he

filed a motion for relief from the judgment—a motion the

district court denied.

II

We review the district court’s denial of a Rule 60(b) motion

for abuse of discretion unless its decision was based on a legal

error for which our review is de novo. Horowitz v. Peace Corps,

428 F.3d 271, 282 (D.C. Cir. 2005). We adopt District of

Columbia law in determining who prevails.3 See Makins v.

District of Columbia, 277 F.3d 544, 548 (D.C. Cir. 2002)

(“Aside from cases in which a settlement agreement is sought to

be enforced against the United States, or in which there is a

3

While the parties assume the District’s substantive law applies,

other states appear to have an interest in having their substantive law

applied. eDebt was a Colorado corporation, Smith appears to be a

New Jersey resident, and Marine Carriers is either a New York or New

Jersey corporation. However, neither party has argued that the

substantive law of another state should apply under Klaxon Co. v.

Stentor Electric Manufacturing Co., 313 U.S. 487 (1941), or under a

different federal conflicts-of-law rule. See UAW v. Hoosier Cardinal

Corp., 383 U.S. 696, 705 n.8 (1966). We thus assume the District’s

substantive law applies.

4

statute conferring lawmaking power on federal courts, we adopt

local law in determining whether a settlement agreement should

be enforced.” (internal citations omitted)).

“[T]hat [Mallick] may not have been aware that a reassign-

ment occurred,” the district court wrote, “cannot possibly mean

that an agreement with someone who no longer owned the debt

could possibly be effective.” Smith v. Mallick, No. 96-2211,

2006 WL 2193807, at *8 (D.D.C. Aug. 3, 2006). This may

seem intuitive, but the rule is exactly the opposite. Although a

valid assignment of a chose in action requires no notice to the

obligor, Hutchinson v. Brown, 8 App. D.C. 157 (D.C. Cir.

1896), the assignee takes it subject to all claims and defenses

that accrued before the obligor had notice of the assignment, see

Gen. Elec. Credit Corp. v. Sec. Bank of Wash., D.C., 244 A.2d

920, 923 (D.C. 1968); RESTATEMENT (SECOND) OF CONTRACTS

§§ 336, 338 (1981). The assignee could have protected his

rights by giving the obligor notice of the assignment; he was

after all in the best position to do so. See 9 ARTHUR LINTON

CORBIN, CORBIN ON CONTRACTS § 890, at 510 (interim ed.

2002). Accordingly, we reject Smith’s contention that eDebt

and Mallick’s agreement cannot bind him absent an agency

relationship between him and eDebt.

The district court’s failure to focus on the operative rule is

understandable. Mallick relied primarily on an agency theory,

which the record plainly refutes.4 And he relied on a provision

4

Mallick contends that eDebt had lingering authority to settle the

judgment on Smith’s behalf because he had no notice of the

reassignment. The lingering authority doctrine protects third parties

who reasonably assume that an agent’s actual authority is ongoing

until they have notice of circumstances that make it unreasonable to

so assume. RESTATEMENT (THIRD) OF AGENCY § 3.11 cmt. c (2006).

But correspondence between Mallick’s lawyer and eDebt’s lawyer

5

of Article 9 of the Uniform Commercial Code as enacted in the

District,5 which permits a debtor to pay the assignor until the

debtor receives notice of the assignment, see D.C. CODE § 28:9-

406(a) (2001). Under this provision the district court concluded

that Mallick may be entitled to a credit for his performance to

eDebt, but he took “an improper leap” by stretching this

provision to cover the “full and final release of his judgment.”

Smith, 2006 WL 2193807, at *8. Only in his opening brief in

this court does Mallick cite section 28:9-404(a)(2), which

reflects the rule on which this case turns.

Although Mallick did not alert the district court to the rule,

“it is best to excuse the forfeiture” here. See Mwani v. bin

Laden, 417 F.3d 1, 11 n.10 (D.C. Cir. 2005). “Federal courts are

entitled to apply the right body of law, whether the parties name

it or not.” Id. Moreover, Mallick identified the correct principle

by asserting that Smith is bound by Mallick’s agreement with

eDebt because Mallick concluded it before having notice of the

reassignment and citing section 28:9-406(a)—simply a different

expression of the operative rule. In any event, Mallick cited

section 28:9-404(a)(2) in his opening brief and correctly asserted

that it reflects the common law; meanwhile, Smith “failed to

indicates clearly that Mallick never assumed eDebt to be acting on

Smith’s behalf. See Letter from Kenneth J. Loewinger to Victoria J.

Targosz (Apr. 22, 2003), App. 5 (“As I understand it, this judgment

has been assigned and sold. Please advise who is the legal holder of

the judgment.”); Letter from Victoria L. Targosz to Kenneth J.

Loewinger (May 6, 2003), App. 6 (“Edebt Management, Inc. is now

the legal holder of the judgment. This ownership interest was taken

on August 23, 2002. Mr. Richard F. Smith transferred this judgment

by assignment.”).

5

Article 9 does not apply to the assignment of judgments. D.C

CODE § 28:9-109(d)(9). However, the provisions at issue here reflect

the common law.

6

object” and “thereby waived [his] right to complain.” See Nat’l

Fed’n of Fed. Employees v. Greenberg, 983 F.2d 286, 288 (D.C.

Cir. 1993).

III

Smith does not deny Mallick lacked notice of the reassign-

ment when eDebt accepted Mallick’s offer and agreed to

discharge the judgment against him. Nor does Smith claim

Mallick’s agreement is otherwise invalid. Under the agreement,

eDebt accepted real property neither eDebt nor Smith could

have obtained through foreclosure because Mallick held the

property jointly with his wife. For this reason, Mallick argues

the agreement is valid and discharges the judgment against him.

The district court properly rejected his characterization of

this transaction as an “accord and satisfaction” because the

judgment is liquidated. See Pierola v. Moschonas, 687 A.2d

942, 948 (D.C. 1997). Although Mallick’s label is wrong, his

argument is correct. “If an obligee accepts in satisfaction of the

obligor’s duty a performance offered by the obligor that differs

from what is due, the duty is discharged.” RESTATEMENT

(SECOND) OF CONTRACTS § 278(1); see also Interdonato v.

Interdonato, 521 A.2d 1124, 1134 (D.C. 1987) (“[A] release,

like any other contract, must be supported by sufficient consid-

eration, and the consideration is not sufficient unless the releasor

receives something of value to which he or she had no previous

right.”). Because neither eDebt nor Smith could have obtained

this property through foreclosure, Mallick gave performance

different from what was due, and eDebt’s acceptance discharged

the judgment against him.

We therefore reverse the order of the district court and

remand for further proceedings consistent with this opinion.

So ordered.