BRIDGET S. BADE, Magistrate Judge.
This in an interpleader action in which Plaintiff Andrew Berrey asserts jurisdiction under 28 U.S.C. § 1335.
As set forth below, Berrey does not face multiple liability to the deposited funds based on claims from diverse claimants. Instead, two of the claimants, Plaintiff Investment Funding, LLC (PIF), and Injury Assistance, LLC (Injury Assistance), have potential contract claims against Berrey, but do not have claims to the deposited funds. The Court's conclusion that PIF and Injury Assistance do not have claims against the deposited funds does not resolve Berrey's potential contract liability to these claimants. The Court, however, does not have federal question or diversity jurisdiction over these contract claims. See 28 U.S.C. §§ 1331, 1332.
The third claimant, Scottsdale Healthcare Corporation, is an Arizona corporation doing business in Arizona, and Berrey resides in Arizona. (Doc. 15 at ¶¶ 1, 4.) Therefore, Berrey and Scottsdale Healthcare are not diverse claimants and the Court does not have jurisdiction over an interpleader claim between Berrey and Scottsdale Healthcare under § 1335. See State Farm, 386 U.S. at 530. Because the Court does not have original jurisdiction over the any of the parties' claims, it cannot exercise supplemental jurisdiction over the potential contract claims. See 28 U.S.C. § 1367. Therefore, the Court will dismiss this matter with prejudice.
In his First Amended Complaint in Interpleader, Berrey alleges that "there are actual conflicting claims to certain settlement proceeds payable to [him] by reason of the settlement of a claim for bodily injury." (Id. at 2, ¶ 8.) Berrey deposited $30,000 in settlement proceeds in the Court's registry. (Docs. 25, 27, and 112.) The parties later stipulated to the disbursement of $5,500 from the settlement proceeds to Defendant Dignity Health, Inc., d/b/a Mercy Gilbert Hospital. (Docs. 43, 57, and 58.) The parties also stipulated to the disbursement of $11,549.98 to Berrey for payment of his attorney's charging lien.
Plaintiff Berrey and Defendant Injury Assistance filed cross motions for summary judgment.
In its opposition to Berrey's motion and in its cross motion for summary judgment, Injury Assistance argued that it has lien rights to the settlement proceeds as the agent or assignee of Berrey's health care providers, and that it also has an enforceable contract with Berrey for payment for medical services. (Doc. 72 at 8-9.) Thus, Injury Assistance argued that Berrey's motion should be denied and that the Court should enter summary judgment for Injury Assistance on its counterclaim for breach of contract. (Doc. 72 at 9.)
The Court entered an order related to these cross motions, partially granting and denying the motions. (Doc. 89.) The Court found that the contract for medical services between Berrey and Injury Assistance contained lien provisions that attempted to create a legally enforceable interest for Injury Assistance in any recovery from Berrey's personal injury claim. (Id. at 16.) The Court found that the lien provisions of the contract were unenforceable under Arizona law as a prohibited assignment of Berrey's personal injury claim.
However, the Court also found that the contract included reimbursement provisions that were independent of Berrey's personal injury claim and were not based on a lien against the proceeds of that claim. (Id. at 17 (citing Blankenbaker v. Jonovich, 71 P.3d 901, 915 (Ariz. 2003)).) The Court found that these contractual reimbursement rights were not an assignment of Berrey's personal injury claim and therefore denied Berrey's motion for summary judgment on Injury Assistance's counterclaim for breach of contract. (Doc. 89 at 18.) The Court also denied Injury Assistance's motion for summary judgment on its counterclaim for breach of contract because Injury Assistance had not established an undisputed factual basis from which the Court could enter summary judgment in its favor. (Id. at 18-19.)
The Court also addressed Injury Assistance's affirmative defense that it has health care provider lien rights as the agent or assignee of the health care providers, but did not decide whether a health care provider lien could be assigned or whether an agent authorized to record a lien for a health care provider had any rights to enforce the lien. (Id. at 9-10, n.9.) The Court concluded that even if Injury Assistance could assert health care provider lien rights as the agent or assignee of Berrey's medical providers, it would only have the rights of those providers. (Id. at 10 (citing K.B. v. State Farm Fire and Cas. Co., 941 P.2d 1288, 1292 (Ariz. Ct. App. 1997)).) However, the Court could not determine from the parties' motions whether the medical providers properly perfected health care provider liens, assigned such lien rights to Injury Assistance, or authorized Injury Assistance to act as their agent to record and enforce liens. Therefore, the Court ordered Injury Assistance and Berrey to provide supplemental briefing on these issues and to submit copies of any relevant documents. (Doc. 89 at 12-13.)
Additionally, the Court concluded that if Injury Assistance did not have health care provider lien rights as the assignee or agent of the medical providers, then Injury Assistance would not have a claim against the interpleaded settlement funds, but would only have a breach of contract claim. (Id. at 20.) Therefore, the Court also ordered Berrey and Injury Assistance to provide supplemental briefing on the Court's supplemental jurisdiction over Injury Assistance's possible breach of contract claim. (Id.) As directed, Berrey and Injury Assistance filed supplemental briefing on these issues. (Docs. 97, 98.)
Finally the Court raised issues with PIF's claims. Although PIF is a limited liability company, and is the only claimant that Berrey alleged to have diverse citizenship, the parties had not addressed the citizenship of PIF's owners or members. (Doc. 89 at 21 (citing Johnson v. Columbia Props. Anchorage, LP, 437 F.3d 894, 899 (9th Cir. 2006)).) Furthermore, the parties had not submitted copies of the agreements between PIF and Berrey, which purportedly formed the basis of PIF's claim to the settlement proceeds, and Berrey had not asserted that its agreements with PIF were unenforceable as assignments of his personal injury claim. (Doc. 89 at 21.)
The Court noted that PIF could have a claim against the settlement proceeds, or that it could have only a contract claim against Berrey, and the nature of PIF's claim could affect the Court's jurisdiction. Therefore, the Court ordered Berrey and PIF to provide supplemental briefing on the citizenship of PIF's owners or members and on the nature of PIF's claim against the settlement proceeds, including whether PIF's claim may be unenforceable as an assignment of a personal injury claim. (Id. at 21-22.) The Court also directed the parties to submit copies of the relevant documents.
In response, PIF filed a brief and supporting affidavit addressing the citizenship of its members. (Doc. 95 at 1-2, Ex. 1.) From this information, the Court finds that PIF's members are not citizens of Arizona and therefore PIF is a diverse claimant. However, PIF and Berrey did not file supplemental briefing addressing the nature of PIF's claims against the settlement proceeds and did not submit copies of the agreements between Berrey and PIF that purportedly formed the basis of PIF's claim against the settlement proceeds. (Docs. 95, 96, 107.) Instead, PIF filed a brief stating that the day after the Court's order directing the parties to file supplemental briefing, PIF and Berrey entered a "novated" settlement agreement that "supersedes all previous agreements between PIF and Mr. Berrey" and in which Berrey "assigns any present interest he has in the interplead funds to PIF."
The Court reviewed the novated settlement agreement, and PIF's and Berrey's arguments, and found that if the novated settlement agreement created a legally enforceable interest for PIF in the settlement proceeds then it would be unenforceable as an assignment of Berrey's personal injury claim. (Doc. 107 at 4-7 (citing Brockman, 609 P.2d at 63; Druke, 576 P.2d at 491-92; St. Joseph's Hosp., 489 P.2d at 842; Lingel, 8 P.3d at 1168; Piano, 840 P.2d at 1040-41; Karp, 647 P.2d at 1199).) Alternatively, the Court found that if the novated settlement agreement did not create an interest for PIF in the settlement proceeds, and if PIF had no other basis to assert a claim to these funds, then PIF would not have a claim in interpleader, but could have a contract claim. (Doc. 107 at 8.)
Because PIF and Berrey did not comply with the Court's order on supplemental briefing, the Court issued an order to show cause, which provided them another opportunity to file supplemental briefing addressing the basis of PIF's claim to the settlement proceeds.
As previously stated, the Court ordered Berrey and Injury Assistance to file supplemental briefing addressing whether the referred providers properly perfected health care provider liens, or assigned such lien rights to Injury Assistance, or authorized Injury Assistance to act as their agent to record and enforce liens.
Although Injury Assistance filed a supplemental brief addressing the issues set forth in the Court's order, it did not submit any health care provider liens that the referred providers had filed with the county recorder in accordance with the perfection provisions of Ariz. Rev. Stat. § 33-932. See Blankenbaker, 71 P.3d at 914 (health care provider lien must be properly perfected to be enforceable). As set forth below, Injury Assistance also did not submit any agency agreements in which the referred providers authorized Injury Assistance to file and enforce health care provider liens on their behalf, or any assignments or agreements in which the referred providers assigned any lien rights to Injury Assistance.
In response to the Court's order directing supplemental briefing, Injury Assistance submitted seventeen agreements it had entered with the referred providers, which are each identified as "Notice of Sale and Agreement" (Agreements). (Doc. 98, Ex. 1.) These Agreements are identical, except for the identity of the referred provider, the date signed, and the amount of the account at issue. In each Agreement, the provider sells and assigns all of its "rights, title, and interest" in an account to Injury Assistance.
Therefore, the Court finds that the referred providers and Injury Assistance did not enter an agency relationship through these Agreements. Instead, in these Agreements the providers sold their rights to medical accounts to Injury Assistance. As Injury Assistance acknowledges, "the medical providers decided to sell and assign their accounts receivable to IA." (Doc. 98 at 4.) Therefore, the Court finds that these Agreements authorized Injury Assistance to collect on these accounts, but did not authorize Injury Assistance to file or enforce liens on behalf of the referred providers.
Injury Assistance also asserts that every provider entered a contract providing that "NHF shall act as an agent of behalf of Medical Provider so as to record the lien and assignment in the county or other appropriate recording office as required." (Id. at 5.) Injury Assistance did not submit a copy of any contract with this provision or a sworn statement setting forth any such contract provision. In addition, the quoted language refers to "NHF," not Injury Assistance, and Injury Assistance provides no other information, such as the relevant time period that these contracts were purportedly in effect. Therefore, the Court finds that there is no competent evidence to support Injury Assistance's assertion it entered contracts to act as the providers' agent. See Beyene v. Coleman Sec. Servs., Inc., 854 F.2d 1179, 1181 (9th Cir. 1988) (inadmissible evidence was insufficient to satisfy moving party's burden of production on a motion for summary judgment).
Therefore, the Court concludes that Injury Assistance has not provided any relevant documents or other evidence to support its assertion that it was authorized to act as the agent of the preferred providers and thus to file and enforce liens. Without deciding whether such agency would be valid under Arizona law, the Court finds that Injury Assistance has not established that it was the agent of the referred providers. Thus, Injury Assistance's purported agency relationship with the referred providers does not support its affirmative defense asserting health care provider lien rights.
The Court also finds that the referred providers did not assign any health care provider lien rights to Injury Assistance through the Agreements. Although each of the Agreements states that it is "supported by the attached duly executed lien," there are no liens attached to the Agreements.
As an initial matter, this argument fails because, as set forth above, Injury Assistance has not presented any documents or other evidence to establish that it was acting as the referred providers' agent. In addition, Injury Assistance has not provided any evidence that the referred providers filed health care provider liens and thus had lien rights that could be assigned to Injury Assistance. Therefore, even if the Court accepted Injury Assistance's argument that health care provider lien rights can be assigned under Arizona law, Injury Assistance's rights, as the assignee of the providers, could not exceed the providers' rights as assignors. See K.B., 941 P.2d at 1292 ("An assignee steps in to the shoes of [its] assignor.") Because there is no evidence that the providers filed any health care provider liens, or authorized Injury Assistance to file liens, the Court finds that the providers did not have any lien rights that they could assign to Injury Assistance.
The Injury Assistance lien, filed February 24, 2011, is valid only to the extent Injury Assistance had the right to file a health care provider lien. Injury Assistance has acknowledged that it is not a health care provider and thus could assert lien rights only as the agent or assignee of the providers. (Doc. 89 at 8.) Therefore, the Court finds that Injury Assistance's lien does not create any valid rights to the settlement proceeds. Because Injury Assistance does not have valid lien rights against the settlement proceeds, the Court grants Berrey's motion for summary judgment on Injury Assistance's affirmative defense that it has lien rights. (Doc. 66.)
As previously stated, in response to the Court's order directing PIF and Berrey to file supplemental briefing addressing the nature of PIF's claims to the settlement proceeds, PIF and Berrey entered a "novated" settlement agreement that purported to assign Berrey's rights in the settlement proceeds to PIF. (Doc. 95 at 2-3; Ex. 2.) The Court has already concluded that this settlement agreement is either unenforceable as an attempted assignment of the proceeds of Berrey's personal injury claim, or that it provides only the basis for a possible contract claim, not a claim in interpleader. (Doc. 107 at 4-5, 8.) The Court also entered an order to show cause, again directing PIF and Berrey to address the basis for PIF's claim against the settlement proceeds from Berrey's personal injury claim. The Court explicitly ordered PIF and Berrey to "address the loan agreements between Berrey and PIF" and warned that it would "not consider any additional argument based on the [novated] settlement agreement." (Id. at 9.)
In response to the order to show cause, PIF submitted copies of three purchase agreements with Berrey. (Doc. 113, Ex. 1.) PIF, however, did not make any argument that these agreements provide a basis for its claim against the settlement proceeds. Although the Court provided PIF two opportunities to explain how its prior agreements with Berrey established a claim to the settlement proceeds, in the Court's order directing supplemental briefing and its order to show cause (Docs. 89, 107), PIF has not done so. Furthermore, PIF has argued that the novated settlement agreement "supersedes all previous agreements between PIF and [] Berrey." (Doc. 95 at 2.) Therefore, the Court will not review the prior agreements and attempt to fashion an argument for PIF to establish a basis for its claim to the settlement funds.
Despite the Court's clear order to address the loan agreements and its warning that it would not consider arguments based on the settlement agreement (Doc. 107 at 9), PIF nonetheless responded to the order to show cause by arguing that "the novated settlement agreement ... unequivocally grants PIF `some entitlement to the money or property at issue' in this action." (Doc. 113 at 5.) PIF further argued that, based on the settlement agreement, Berrey's interest in the settlement proceeds, up to $12,000, were "sold, assigned, and transferred" to PIF and therefore "PIF has an interest in seeing that the interpleaded funds are properly distributed." (Id. at 1.) PIF further argues that based on the settlement agreement it has a "legal right to be paid from the funds in interpleader."
Thus, PIF did not make any arguments based on the loan agreements and instead based its arguments on the settlement agreement. The Court could dismiss PIF's claims based on this violation of its order to show cause. See Fed. R. Civ. P. 41(b); Link v. Wabash R.R. Co., 370 U.S. 626, 629-31 (1962) (recognizing that a federal district court has the inherent power to dismiss a case under Rule 41(b)). Nonetheless, the Court will consider PIF's arguments based on the settlement agreement.
PIF argues that "even if the Court finds PIF's claim for payment unenforceable, it cannot find — on that basis alone — that jurisdiction fails because PIF in not a proper party to the action." (Doc. 113 at 3.) PIF further asserts that it "is entitled to participate in this interpleader because it has an undeniable interest in ensuring that the funds on deposit with the Court are not distributed in a manner that would unlawfully diminish the pool of funds from which PIF has agreed it will accept payment-in-full." (Id.)
Thus, PIF is arguing that, even if it does not have a claim against the interpleaded funds because its settlement agreement with Berrey is unenforceable under Arizona law as an assignment of a personal injury claim, the Court nonetheless has interpleader jurisdiction under § 1335 because Berrey may not have sufficient resources to pay its contractual obligations to PIF and other creditors. As set forth below, this argument fails because it disregards the nature of an interpleader claim.
PIF argues that interpleader actions proceed in two stages: first, the court determines whether the stakeholder is entitled to bring the action; and second, the court determines the competing rights of the competing claimants to the fund. (Id. at 2.) PIF argues that the first requirement has been met because minimal diversity has been established, and because "Berrey has demonstrated that he legitimately fears multiple liability directed against a single fund, regardless of the merits of the competing claims."
Although PIF correctly notes that interpleader is designed to protect stakeholders from multiple claims against the same fund, it assumes, without analysis, that Berrey faces multiple claims to a single fund. As the Ninth Circuit has explained, "a basic jurisdictional requirement of a statutory interpleader action is that there be `adverse claimants' to a particular fund." Libby, McNeill, and Libby v. City Nat'l Bank, et al., 592 F.2d 504, 507 (9th Cir. 1979) (citations omitted). Interpleader is designed to protect the stakeholder from the possibility of multiple liability "when only a single obligation is owing."
"The requirement that the claims as to which interpleader is sought be adverse to each other `is not met when . . . the `stakeholder' may be liable to both claimants.'" Reserve Int'l Liquidity Fund, Ltd. v. Caxton Int'l Ltd., 2010 WL 1779282, at *10 (S.D. N.Y. Apr. 29, 2010) (citations omitted). "Thus, the protection against `double or multiple liability' ... is protection only against double or multiple liability that is unjustifiable because the plaintiff has but a single obligation." Id. (finding that stakeholder faced conflicting claims to a common fund's assets); see also Bradley v. Kochenash, 44 F.3d 166, 168 (2d Cir. 1995) ("Interpleader is designed to prevent multiple recoveries only when there are not multiple obligations; it is not intended to telescope multiple obligations into one. Since in principle multiple recoveries would be justifiable in light of the multiplicity of duties owed by these plaintiffs, interpleader was properly denied.").
Here, the Court has already determined that Injury Assistance and PIF do not have claims against the settlement proceeds because their claims are unenforceable as the legal equivalent of an assignment of Berrey's personal injury claim. Instead, PIF and Injury Assistance may have contract claims against Berrey, but they do not have a right of payment from the settlement proceeds deposited with the Court. Therefore, Berrey does not face multiple claims to a single fund, or multiple liability based on a single obligation. Instead, Berrey faces possible multiple liability based on multiple contractual obligations. See Nevada v. Pioneer Cos., Inc., 245 F.Supp.2d 1120, 1128 (D. Nev. 2003) (interpleader inappropriate when stakeholder's liability arose from a variety of contractual relationships it had entered, which resulted in competing obligations).
PIF's asserts that it has an "interest in seeing that the interplead funds are properly distributed," and in ensuring that these funds are not "distributed in a manner that would unlawfully diminish the pool of funds." (Doc. 113 at 1, 2.) Thus, it asserts interpleader jurisdiction is appropriate in this case. In Nevada, the court rejected a similar argument that interpleader would be appropriate based on the concern that the stakeholder would not have sufficient money to satisfy its multiple contractual obligations. 245 F. Supp. 2d at 1128. The court explained that:
Id. (citing State Farm, 386 U.S. at 536 ("None of the legislative and academic sponsors of a modern federal interpleader device viewed their accomplishment as a `bill of peace,' capable of sweeping dozens of lawsuits out of the various state and federal courts in which they were brought and into a single interpleader proceedings.")). Interpleader is not available whenever there are multiple claimants against a particular defendant. Nevada, 245 F. Supp. 2d at 1128 (citing 4 James Wm. Moore, et al, Moore's Federal Practice § 22.02[1] (3d ed. 2002)). Therefore, the Court finds that PIF and Injury Assistance do not have claims to the interpleaded funds, and therefore Berrey cannot establish the requirements of statutory interpleader based on their claims.
PIF also asserts that it has a claim to the interpleaded settlement funds under the theory of unjust enrichment. (Doc. 113 at 4-5.) To establish this claim, PIF must establish, in part, an "absence of a remedy provided by law."
PIF cites no authority or Arizona case applying the theory of unjust enrichment in this manner. Indeed, Arizona cases have rejected unjust enrichment claims based on contracts that are illegal or that violate public policy. See Mousa, 218 P.3d at 1044 (plaintiff could not recover under theory of unjust enrichment for performing contract for broker services, which was prohibited by law because he was not licensed broker); Landis v. Arkules, 835 P.2d 458, 467-68 (Ariz. Ct. App. 1992) (contract was unenforceable because it involved conducting private investigation without a license, therefore equitable relief of unjust enrichment was not available because contract was void as against public policy).
As the Arizona Court of Appeals explained in Landis, when a contract is illegal, the person entering this contract is denied enforcement and restitution. Landis, 835 P.2d at 468 (citation omitted). The court further stated that if restitution were allowed, it would encourage illegal contracts:
Id.
Furthermore, PIF's argument, if accepted, would nullify Arizona law prohibiting the assignment of personal injury claims. PIF's argument that it does not have a legal remedy to recover advanced funds because its agreement is prohibited by Arizona law, would apply with equal force to every assignment of a personal injury claim. Therefore, the Court rejects this argument and finds that PIF does not have a claim to the interpleaded settlement funds under the theory of unjust enrichment.
As set forth above, Berrey does not face multiple liability to the interpleaded funds based on claims from diverse claimants. Instead, PIF and Injury Assistance have potential contract claims against Berrey, but do not have claims to the interpleaded funds. The only claimants to the interpleaded funds, Berrey and Scottsdale Healthcare, are not diverse and therefore the Court does not have jurisdiction under § 1335. Because the Court does not have original jurisdiction over the parties' claims, it cannot exercise supplemental jurisdiction over any claims. Therefore, Court will dismiss this matter with prejudice.
Accordingly,
The Court has previously denied Berrey's motion for summary judgment (Doc. 66) and Injury Assistance's cross motion for summary judgment (Doc. 72) on Injury Assistance's counter claim for breach of contract. (Doc. 89.) The Court does not have supplemental jurisdiction over Injury Assistance's contract claim. The Court finds that PIF does not have a claim to the interpleaded funds, but may have a contract claim against Berrey. The Court does not have supplemental jurisdiction over PIF's contract claim. The Court also finds that Berrey and Scottsdale Healthcare are not diverse claimants and the Court does not have jurisdiction over an interpleader claim between Berrey and Scottsdale Healthcare under § 1335.
