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earbinov

Assignment of Claims and Power of Attorney

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I work at a financial institution that lends to small business government contractors. 

We've had a borrower go radio silent on us and they are in default on their debt with my company. The loan agreement provides us with the irrevocable right to act as power of attorney/agent-in-fact for the borrower. As such, we've prepared a number of assignment of claims documents to ensure that we are perfecting our security interest and that the payments associated with the contracts under which the borrower is performing will be routed to our control account to pay down all outstanding balances. 

We are getting pushback from certain COs stating that the borrower has intervened and since they have privity of contract, they would need to approve of any assignment. I have provided the loan agreement and other loan documents (including a cooperation agreement and a deposit account control agreement), all of which essentially require the borrower to not interfere with any efforts by us to perfect our security interest in the collateral (namely, the A/R related to all government contracts). 

Is there anything I can say or do here short of seeking an injunction to compel the COs to effectuate the aforementioned assignments. My understanding is that effectuating an assignment of claims is a ministerial act. Unless the contract contains a clause prohibiting the assignment (and assuming the contract contains the clause permitting it), then there is no discretion afforded to the CO assuming a valid assignment is submitted. In this case, I'm assuming that the bank signing using POA does provide for a valid assignment, but perhaps that is not a correct assumption. 

 

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Have you complied with FAR 32.802(e)?

Are you registered in SAM amenable to FAR 32.805(d)(4)?

FAR 32.805(a)(1), (2), and (3) list who make assignments -- a contractor's attorney-in-fact is not listed there.  Could that be part of the problem?

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5 hours ago, ji20874 said:

Have you complied with FAR 32.802(e)? 

Are you registered in SAM amenable to FAR 32.805(d)(4)?

FAR 32.805(a)(1), (2), and (3) list who make assignments -- a contractor's attorney-in-fact is not listed there.  Could that be part of the problem?

 

 

 

Yes, I have compiled and always do comply with FAR 32.802(e). For what it's worth, I'm a former Contract Specialist so I know my way around the FAR and how to communicate with COs. 

Yes - we are registered in SAM. 

With respect to FAR 32.805(a)(1), (2), and (3) - while it is true that a contractor's attorney-in-fact is not listed there, that same list only specifies requirements for corporations, partnerships, and individuals. Many of our borrowers are LLCs and so the FAR is silent on how to treat those types of entities. Furthermore, unless something is explicitly and specifically prohibited in the FAR, the CO/specialist can generally exercise their best judgment (See FAR 1.102(d)). Lastly, the underlying common denominator between these sections is that whoever is signing the assignment is authorized to do so. I believe I've provided sufficient evidence and context which supports the bank signing using power of attorney privileges.  

 

 

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I would suggest requesting a face to face meeting with the KO and request that government counsel also be present. Then lay out your legal arguments. Time is of the essence here. 

Perhaps you’ve done that already. 

If the KO and the government’s attorney don’t provide satisfaction, then- as the Swamp People would cry out v“Chute ‘em,   Lizbeth!!!”

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I should add that our borrower has explicitly intervened and advised the government to not process any assignment and that they do not approve. I am arguing to the contracting officer that the assignment package we've submitted is valid, and therefore should be effectuated immediately. Notwithstanding protests from the borrower, once a valid notice of assignment is received, the Government is compelled to process the assignment as it is a ministerial act. However strange it may be for a contractor to plainly oppose an assignment, I feel that the contractor (our borrower) has essentially revoked their authority to weigh in on the matter once they signed the loan agreement and appointed us as power of attorney. Also, I'm arguing that the FAR lays out the procedure for the release of claims, and emails/calls stating they don't want an assignment are not included in those procedures. 

Lastly, the following case law supports my argument that the assignment should be effective, so long as it is valid, upon receipt and acknowledgment, which the Government has now indicated/signaled:

US Court of Appeals CENTRAL NAT. BANK OF RICHMOND, VA. v.  UNITED STATES.

Excerpt: "Generally, notice of an assignment is effective as of the time of its receipt, and according to official Government records, the plaintiff's notices were all received prior to the disbursement made"

"Plaintiff's assignment was made pursuant to the Act of 1940 and notice thereof was given in the manner and to the officials as required. Having so complied with the act, plaintiff [bank] is entitled to that degree of protection ordinarily given to an innocent assignee who acts in good faith."

The Comptroller General has "Recogniz[ed] that, in legal effect, acknowledgment of receipt was nothing more than a recognition that the documents had been received..."   [in other words, merely a ministerial act, without discretion to decide if the assignment will be "accepted"]

" We can perceive of no good reason why the various offices to whom notices of assignment are to be given under the act should not be held to the same degree of responsibility and liability as any others to whom such notices are given in everyday commercial transactions."

"The Government having received timely notice of plaintiff's assignment paid [contractor/assignor] at its peril."

 

Comptroller General Warren to the Board of Governors, Federal Reserve System (see attached)

Excerpt: " ASSIGNMENTS MADE UNDER THE ASSIGNMENT OF CLAIMS ACT OF 1940 WILL BE ACKNOWLEDGED BY THIS OFFICE IMMEDIATELY UPON THEIR RECEIPT, WITHOUT PRIOR EXAMINATION, SUCH ACKNOWLEDGMENT IMPLYING NOTHING MORE THAN A RECOGNITION THAT THE NOTICES OF ASSIGNMENT AND ASSIGNMENT INSTRUMENTS HAVE BEEN RECEIVED, LEAVING ANY QUESTION AS TO THE VALIDITY OR REGULARITY OF THE ASSIGNMENT FOR CONSIDERATION IN CONNECTION WITH THE AUDIT OF PAYMENTS MADE UNDER THE CONTRACTS INVOLVED."

" SINCE, IN LEGAL EFFECT, THE ACKNOWLEDGMENT OF RECEIPT BY THIS OFFICE IS NOTHING MORE THAN THE WORD IMPLIES—- A RECOGNITION THAT THE DOCUMENTS REFERRED TO HAVE BEEN RECEIVED IN THIS OFFICE—- AND IN VIEW OF THE DIFFICULTIES ILLUMINATED BY YOUR LETTER AND ENCLOSURES, THIS OFFICE SHALL HENCEFORTH ACKNOWLEDGE RECEIPT OF THE NOTICES OF ASSIGNMENT AND ASSIGNMENT INSTRUMENTS IMMEDIATELY UPON RECEIPT THEREOF WITHOUT PRIOR EXAMINATION—- LEAVING ANY QUESTION AS TO THE VALIDITY OR REGULARITY OF THE ASSIGNMENT FOR CONSIDERATION IN CONNECTION WITH THE AUDIT OF PAYMENTS MADE UNDER THE CONTRACT INVOLVED."

" IT SHOULD BE CLEARLY UNDERSTOOD THAT HENCEFORTH THE PROCESS OF ACKNOWLEDGING SUCH NOTICE OF ASSIGNMENT WILL BE PURELY MINISTERIAL IN NATURE AND IN NO SENSE AN INDICATION THAT THE ASSIGNMENT HAS BEEN EXAMINED IN THIS OFFICE AND FOUND TO BE REGULAR AND VALID."

GAO Decision B-270801:

https://www.gao.gov/products/470539#mt=e-report

Excerpt: “It is well-settled that once an obligor (the United States in this case) has notice of a valid assignment, as in the present case, it pays the assignor at its peril and is, therefore, liable to the assignee for the amount of the erroneous payment."  [Citing Central Bank of Richmond, Virginia v. United States, 117 Ct. Cl. 389 (1950)).

COMPTROLLER GENERAL WARREN TO THE BOARD OF GOVERNORS FEDERAL RESERVE SYSTEM.doc

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Great, so problem solved ! Good luck. 

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You may be barking up the wrong tree.  Is there case law where the assignment was made by power of attorney (assignor (the bank) and assignee (the bank) are the same), over the objection of the contractor (who is supposed to be the assignor)?  I think that is your problem area.  

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36 minutes ago, ji20874 said:

You may be barking up the wrong tree.  Is there case law where the assignment was made by power of attorney (assignor (the bank) and assignee (the bank) are the same), over the objection of the contractor (who is supposed to be the assignor)?  I think that is your problem area.  

Yeah - that's the grey area here. The FAR is silent on how to treat LLCs with respect to 32.8, and I couldn't find any case law on this particular question - that is, executing an assignment as agent-in-fact. To be clear, the assignor is still the borrower (with whom the government has privity), despite the fact that the bank is signing as their agent-in-fact. The question is whether signing as agent-in-fact comports with 32.8. 

 

Ultimately, I think it's a judgement call of each KO. If we game this out...the bank would sue the borrower and, absent them filing for bankruptcy, we would likely get summary judgement resulting in an injunction that compels the borrower to sign any document we need them to. If they don't sign (as they are choosing to do now), then I would be very surprised if, after we sent all of the legal supporting documentation (summary judgement/injunction) with each assignment, any KO would still refuse to process/effectuate the assignment. 

At that point, we may then arguably go after the Government for all amounts paid to the contractor after receipt of the notice, depending on if a court finds the notice signed using POA is valid. If it's valid, the government would have to pay. 

 

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On ‎12‎/‎6‎/‎2018 at 10:43 PM, earbinov said:

I am arguing to the contracting officer that the assignment package we've submitted is valid, and therefore should be effectuated immediately.

In addition to what ji wrote, we only have your opinion that there is a valid assignment.  We have no way of knowing whether that is true and whether you have been able to demonstrate the validity of the assignment to the various COs.

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29 minutes ago, Retreadfed said:

In addition to what ji wrote, we only have your opinion that there is a valid assignment.  We have no way of knowing whether that is true and whether you have been able to demonstrate the validity of the assignment to the various COs.

Agreed. Are you a CO? I'm curious what your opinion is here given the fact pattern presented above on if the submitted package is valid. 

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I am  retired from the Federal government and now work in the private sector.  However, some issues I see are what is the precise language of the power of attorney? What is the law of the state that governs your transaction with the contractor in regard to powers of attorney?  What language is in the contracts regarding assignment?  What specific objections to the COs have to recognizing the assignment?  What have you done to alleviate their concerns?

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