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Berrey v. Investment Funding LLC

United States District Court, D. Arizona

August 28, 2015

Andrew Berrey, Plaintiff,
v.
Plaintiff Investment Funding LLC, et al., Defendants.

ORDER

BRIDGET S. BADE, Magistrate Judge.

This in an interpleader action in which Plaintiff Andrew Berrey asserts jurisdiction under 28 U.S.C. § 1335.[1] (Doc. 15 at ¶ 6.) Berrey has deposited funds in the Court's registry and asserts that there are conflicting claims to these funds and therefore he may be exposed to multiple liability if the Court does not determine the correct claimants. (Id. )

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.

I. Procedural Background

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.[2] (Docs. 62, 63 and 64.) Thus, $12, 950.02 of the settlement proceeds remain in the Court's registry.

A. Berrey's and Injury Assistance's Motions for Summary Judgment

Plaintiff Berrey and Defendant Injury Assistance filed cross motions for summary judgment.[3] (Docs. 66, 72.) In his motion, Berrey argued that Injury Assistance cannot assert a claim against the settlement proceeds based on a health care provider lien, or assert a claim against these proceeds based on the parties' contract for medical services. Berrey argued that under Arizona law such claims are barred as an unenforceable assignment of the proceeds of his personal injury claim. (Doc. 66 at 4, 9.) Therefore, Berrey argued that he is entitled to summary judgment on Injury Assistance's affirmative defense that it has health care provider lien rights, and on Injury Assistance's counterclaim for breach of contract. (Doc. 66 at 5-7.)

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.)

B. The Court's Order on the Motions for Summary Judgment

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.[4] (Id. (citing Druke, 576 P.2d at 492 (Ariz. 1978)).) Therefore, the Court entered summary judgment in Berrey's favor on Injury Assistance's counterclaim to the extent that claim asserted lien rights against the settlement proceeds of Berrey's personal injury claim. (Id. )

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."[5] (Doc. 95 at 2-3. Ex. 2.) Berrey filed a joinder to PIF's brief. (Doc. 96.)

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, ...


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