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MARTENS v. HADLEY MEM. HOSP.

February 2, 1990

VERNON E. MARTENS, M.D., Plaintiff
v.
HADLEY MEMORIAL HOSPITAL, Defendant v. BLUE CROSS AND BLUE SHIELD OF THE NATIONAL CAPITAL AREA, and FIRST AMERICAN BANK, N.A., Garnishees



The opinion of the court was delivered by: PARKER

 (Awarding Payment of Judgment)

 BARRINGTON D. PARKER, SENIOR UNITED STATES DISTRICT JUDGE

 BACKGROUND

 Several months after the jury award, plaintiff's counsel attempted to satisfy the judgment by securing from this Court two Writs of Attachment. *fn1" The first, served on Blue Cross and Blue Shield of the National Capital Area ("BC/BS"), revealed an indebtedness to Hadley for a BC/BS claims payment in the amount of $ 76,565. Thereafter, plaintiff's counsel moved to condemn that claims payment.

 The second attachment, served on First American Bank ("First American" or "Bank"), revealed that Hadley had on deposit $ 203,076 in demand accounts and $ 1,306,042 in a Debt Service Reserve Fund established in accordance with a Hospital Revenue Bond Issue and Loan Agreement ("Loan Agreement"). *fn2" Martens moved to condemn these two accounts. The Bank then filed a motion to release attachment of the accounts, arguing that it had a prior perfected security interest in the attached funds.

 Plaintiff's counsel's response memorandum of November 21, 1989, in opposition to the Bank's motion to release attachment, did not contest the Bank's superior interest as a secured creditor. Rather, he argued that a material default by Hadley on the Loan Agreement is a precondition to First American's right to dissolve the writ or take possession of the assets. For authoritative support, he relied primarily upon section 28:9-311, D.C.Code Ann. (1981) ("Alienability of a debtor's rights [in collateral]: judicial process") and upon cases decided under the corresponding Uniform Commercial Code ("U.C.C.") Section 9.311. *fn3"

 On January 5, 1990, the Bank as intervenor filed a response to Martens' opposition to release attachment of the BC/BS claims, arguing that its security interest extended to Hadley's interest in the BC/BS claims payment. It further alleged that Hadley was in default under the Loan Agreement and that as a secured party, the Bank was entitled to exercise its remedies under the U.C.C. to defeat plaintiff's judgment lien.

 First American specifically argued that: default by Hadley was not legally required for this Court to direct the transfer of the attached assets to the Bank as Trustee; even if default was found to be a prerequisite to the exercise of the Bank's remedies as a secured creditor, Hadley's failure to stay execution of the judgment against it violated the conditions of the Loan Agreement and permitted the Bank to declare Hadley in default; having declared Hadley in default, the Bank was now free to accelerate any indebtedness owed to it by Hadley, including a separate unsecured $ 2.5 million loan ("First American Loan"). *fn4" Finally, First American contended that it is entitled to exercise a common law right of set off against debts owed to it by Hadley as to any accounts and investments held by the Bank. The Bank has not accelerated any debt of the Hospital or declared any debt presently due and payable.

 Two issues are presented by the motions now before the Court: whether under the U.C.C. and the applicable D.C. Code, First American's priority interest in the BC/BS revenue and in the Hospital accounts held by the Bank enables the Bank to defeat Martens' writ of attachment; whether First American may use its common law right of set off to quash the attachment of the Hospital's bank accounts. These issues will be addressed in turn.

 A.

 First American claims, and the plaintiff Martens does not contest, that under the Loan Agreement, First American as Trustee has an enforceable security interest in the "unrestricted revenues" *fn5" of Hadley Memorial Hospital. *fn6" Nor does he dispute that the BC/BS revenues owed to Hadley are accounts *fn7" under the Loan Agreement and therefore subject to First American's prior perfected security interest. *fn8" Rather, he argues that in the absence of a material default on the loan underlying the debt, First American's security interest in the BC/BS account is neither presently enforceable nor does it suffice to dissolve the writ of attachment. The Bank alleges ...


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