In re Doctors Hospital of Hyde Park Case Brief Summary | Law Case Explained

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In re Doctors Hospital of Hyde Park, 337 F.3d 951 (2003)
Many companies have accounts receivable, which are outstanding amounts owed by customers for products received or services rendered under a contract. The customers are known as account debtors. Frequently, a company, particularly one in financial distress, will assign its accounts receivable to a third party. The third party pays the company a percentage of the amounts owed, and in exchange, the third-party assignee receives the right to collect the full amounts from the account debtors. In In re Doctors Hospital of Hyde Park, Incorporated, we explore whether the assignee is subject to the original contract terms.
The Doctors Hospital of Hyde Park had a contract with the state of Illinois under which the state agreed to reimburse the hospital for providing care to Medicaid patients. The state owed money under the contract. When the hospital assigned its accounts receivable to Daiwa Special Asset Corporation, Daiwa acquired the right to recover the amount owed by the state.
The hospital subsequently entered bankruptcy. At the time, the hospital owed taxes to the state. The hospital’s debts exceeded its assets, making recovery of the taxes unlikely. The state therefore petitioned the bankruptcy court, asking that the state be allowed a setoff, deducting the tax amount owed by the hospital from the amount the state owed under the Medicaid contract assigned to Daiwa. Daiwa objected. But the state argued that the Illinois Comptroller Act created an implied contract term allowing setoff and that it continued to apply after the hospital’s assignment to Daiwa.
The bankruptcy court held in Daiwa’s favor. But the district court reversed, allowing setoff. Daiwa appealed to the Seventh Circuit.
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