CoFund II LLC v. Hitachi Capital Am. Corp.

CoFund II LLC v. Hitachi Capital Am. Corp.

Opinion

OPINION¹

PHIPPS, Circuit Judge.

This dispute between two businesses concerns their claims to a revenue stream established by a third party. Proceeds from the revenue stream were deposited in a blocked account controlled by one of the businesses. That business promised to hold the other business's share of the revenue stream in trust in the blocked account and to turn it over to the other business. But after bankruptcy proceedings commenced against the third party, the blocked-account holder did not remit any of those funds to the other business, who sued it for breach of contract to recover a share of the deposited revenue stream. After a virtual bench trial, the District Court found liability and awarded over $1.5 million in damages. In reviewing the District Court's factual findings for [*2]  clear error, its evidentiary rulings for an abuse of discretion, and its legal conclusions de novo, we will affirm the judgment.

Factual Background (As Found by the District Court After a Bench Trial)

Before it was forced into bankruptcy, Forest Capital LLC provided financing to small businesses. It did so through 'factoring' arrangements whereby it purchased a client's unpaid accounts receivable at a discount, and in return, it received a right to collect the full amount owed on those accounts. But factoring requires capital to pay for the accounts receivable, and Forest itself sought more capital to meet its clients' financing needs.

To obtain that capital, Forest entered an agreement with CoFund II LLC. Through a Master Participation Agreement, which was governed by Maryland law, CoFund and Forest agreed to the terms under which CoFund would purchase participation interests in Forest's factoring arrangements. In exchange for CoFund's up-front investment in those agreements, CoFund received entitlements to pro rata shares in the proceeds of Forest's factoring agreements. CoFund's participation interests matched Forest's factoring agreements in duration, and CoFund assumed the risk that [*3]  Forest's borrowers might default on their obligations.

With the Master Participation Agreement in place, Forest and CoFund entered 24 separate participation agreements for factoring arrangements that Forest had entered. Through those agreements, CoFund provided capital for 24 of Forest's factoring arrangements.

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