Appeals Court Revives Case for Debt Buyer Suing Creditor for Breach of Contract

The Court of Appeals for the Fifth Circuit has reversed a lower court’s dismissal of a lawsuit filed by a debt buyer against a creditor that sold portfolios of delinquent and defaulted debt, ruling that the disputed portion of the contract between the two parties was enforceable.

A copy of the ruling in the case of Capio Funding v. Rural/Metro Operating Company, American Medical Response can be accessed by clicking here.

The plaintiff and defendant had been working together, with the defendant selling portfolios of delinquent accounts to the plaintiff. The two sides then entered into a “forward flow” agreement, where the defendant agreed to continue sending accounts to the plaintiff during a set timeline. Under the agreement, the defendant agreed to deliver “additional Accounts” that would be of the same quality as other accounts that had been sold.

But the two sides could not come to an agreement on the pricing for accounts that were submitted under the forward flow agreement, and the defendant sued the plaintiff for breach of contract. A District Court judge granted the defendant’s motion to dismiss, which the plaintiff appealed.

The Appeals Court ruled that the District Court judge erred when deciding that the term “additional Accounts” was indefinite and therefore unenforceable. “Taken together, the plain meaning of the word ‘additional,’ the contract’s clear architecture, and various settled principles of interpretation reveal that ‘additional Accounts’ refers to all qualifying accounts that accrue quarterly,” the Appeals Court wrote in its ruling.

The Appeals Court also took the plaintiff to task for not mentioning earlier — to the District Court — that the defendant provided no consideration for the Forward Flow Amendment to their agreement. “…we cannot ignore that this argument was not presented to the district court,” the Court wrote. “We will not speculate on why no one from Rural/Metro–AMR reached for this low-hanging factual fruit.”

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