In Re Doctors Hospital Of Hyde Park, Inc.

337 F.3d 951 (2003)

Purchase the Printed Copy at bsmsphd.com

Nature of the Case

To access this section all you need to do is click here and register.

Facts

Under the UCC, the rights of an assignee of an account debtor 'are subject to (a) all the terms of the contract between the account debtor and the assignor . . . and (b) any other defense or claim of the account debtor against the assignor which accrues before the account debtor receives notification of the assignment.' UCC § 9-318(1). Under Illinois state law, whenever the state owes money to someone who owes the state money, 'the Comptroller may deduct the entire amount due and payable to the State.' 15 ILCS 405/10.05. The state has a right of setoff. Also, 'no sale, transfer or assignment of any claim or demand against the state, or right to a warrant on the treasurer, shall prevent or affect the right of the comptroller to make the deduction and offset provided in the foregoing section.' 15 ILCS 405/10.06. Doctors Hospital assigned its accounts receivables to Daiwa, and the receivables included money owed the hospital by the state for Medicaid patients. The contract did not contain a clause authorizing the state to offset. Doctors went broke. The state moved to lift the automatic stay against creditors' enforcement actions to the extent necessary to enable the state to set off against the money it owed Daiwa, as the hospital's assignee, taxes that the hospital owed the state plus a small amount of Medicaid overpayments that the state had made to the hospital. Daiwa agreed that the recoupment part was proper, but not the former. The bankruptcy court agreed with Daiwa and denied the state's motion to lift the automatic stay, but the district court disagreed and allowed the setoff of the state taxes as well. Daiwa appealed. The state claims that the Comptroller Act created an implied term in the contract between the state and the hospital that bound Daiwa. Daiwa claims the taxes are an unrelated debt of the hospital to the state, and while the Medicaid contract could have contained a provision expressly entitling the state to set off any taxes the hospital owed it against any Medicaid payments that it owed the hospital, it did not.