Opinion
Case No. 15cv1464-MMA (NLS)
04-14-2016
ACE BUSINESS SOLUTIONS, LLC, Plaintiff, v. GLOBAL MARKETING & DEVELOPMENT, INC., and AWESOME ENTERPRISES, LLC, Defendants. GLOBAL MARKETING & DEVELOPMENT, INC., Counterclaimant, v. ACE BUSINESS SOLUTIONS, LLC, Counter-Defendant.
ORDER DENYING MOTION TO INTERVENE
[Doc. No. 21]
Third parties TDL Global Ventures ("TDL") and Losany Enterprises, LLC ("Losany") (collectively, "the Intervenors") move to intervene in this action pursuant to Federal Rule of Civil Procedure 24. [Doc. No. 21.] The Court found the matter suitable for determination on the papers and without oral argument pursuant to Civil Local Rule 7.1(d)(1). For the reasons set forth below, the Court DENIES TDL's and Losany's motion to intervene.
BACKGROUND
On July 2, 2015, Plaintiff Ace Business Solutions, LLC ("Ace") filed this interpleader action pursuant to 28 U.S.C. § 1335. [Doc. No. 1.] Plaintiff requests the Court determine, as between Defendants Global Marketing & Development, Inc. ("GMD") and Awesome Enterprises, LLC ("Awesome"), the rights to a particular sum of money ("Net Distribution") that Plaintiff has collected. Plaintiff Ace is a debt processing company that provides processing services for GMD pursuant to an agreement between the two entities. [Doc. Nos. 1, 24.] Ace, as part of its services, collects payments from consumers and pays portions of those funds to GMD. Plaintiff also used to provide processing services to a company called 5STAR, Inc. ("5STAR"), which was originally owned by Awesome. [See Doc. Nos. 1, 21.] At some point, GMD acquired 5STAR and thereby acquired 5STAR's servicing obligations. [See Doc. Nos. 1, 21.] Awesome disputes the propriety of this transaction and as a result, Awesome and GMD allegedly began to give Ace conflicting instructions regarding to whom Ace should distribute collected funds.
The particular facts surrounding 5STAR's relationship to Awesome are unclear, but it appears that at this time, Awesome was still affiliated with 5STAR.
Specifically, on June 17, 2015, Ace alleges it received notice from attorneys who represent organizations that were previously affiliated with 5STAR, who asserted there were certain "improprieties related to the transfer of ownership of 5STAR to GMD and/or parties affiliated with GMD," which affected GMD's entitlement to funds that Ace would typically transfer to GMD. On June 26, 2015, Plaintiff received notice from GMD requesting Plaintiff transfer to it the entire Net Distribution. Awesome claims a portion of the Net Distribution, and asserts GMD is entitled to none of it because GMD committed fraud and "misappropriate[d] companies and assets belonging to Awesome and businesses related to Awesome, [and] the revenue from debt invalidations businesses belonging to businesses related to Awesome." [Doc. No. 26.]
The Complaint indicates that Awesome was one of these organizations. [See Doc. No. 1, ¶ 20.]
Both GMD and Ace have filed counterclaims against one another regarding the agreement between them. [Doc. Nos. 9, 16.] GMD has filed a counterclaim against Ace alleging breach of contract and conversion. Ace has filed a counterclaim against GMD asserting claims for breach of contract and the covenant of good faith and fair dealing.
LEGAL STANDARD
Federal Rule of Civil Procedure 24 governs motions to intervene in federal court. Rule 24 states that a court must, upon a timely motion, allow intervention of right where the movant:
(1) is given an unconditional right to intervene by a federal statute; or (2) claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant's ability to protect its interest, unless existing parties adequately represent that interest.Fed. R. Civ. P. 24(a). The Ninth Circuit has interpreted Rule 24(a) as requiring an applicant meet all of the following four factors:
(1) the application for intervention must be timely; (2) the applicant must have a 'significant protectable' interest relating to the property or transaction that is the subject of the action; (3) the applicant must be so situated that the disposition of the action may, as a practical matter, impair or impede the applicant's ability to protect that interest; and (4) the applicant's interest must not be adequately represented by the existing parties in the lawsuit.Arakaki v. Cayetano, 324 F.3d 1078, 1084 (9th Cir. 2003), as amended (May 13, 2003); Southwest Center for Biological Diversity v. Berg, 268 F.3d 810, 817-18 (9th Cir. 2001); C.S. ex rel. Struble v. California Dep't of Educ., No. 08-CV-0226-W(AJB), 2008 WL 962159, at *2 (S.D. Cal. Apr. 8, 2008). An applicant has a significant protectable interest where its interest is protected under some law, and there is a relationship between its legally protected interest and the plaintiff's claims. Donnelly v. Glickman, 159 F.3d 405, 409 (9th Cir. 1998). The resolution of the plaintiff's claims must actually affect the applicant, but if there would be a substantial effect, the applicant "should, as a general rule, be entitled to intervene." Id.; Southwest Center for Biological Diversity v. Berg, 268 F.3d 810, 822 (9th Cir. 2001).
In the alternative, courts may allow permissive intervention under Rule 24(b). The court may allow anyone to permissively intervene who:
(A) is given a conditional right to intervene by a federal statute; or (B) has a claim or defense that shares with the main action a common question of law or fact. [. . .] (3) Delay or Prejudice. In exercising its discretion, the court must consider whether the intervention will unduly delay or prejudice the adjudication of the original parties' rights.Fed. R. Civ. P. 24(b). Further, a party seeking to permissively intervene must establish that their motion was timely and that the court has an independent jurisdictional basis for the party's claims. See C.S. ex rel. Struble, 2008 WL 962159 at *2.
DISCUSSION
A. TDL's and Losany's Grounds for Intervention
TDL and Losany move to intervene as of right, or in the alternative, seek permissive intervention. TDL asserts that, based on a written agreement between TDL and GMD, it is entitled to 25% of the money that GMD would receive as a result of this interpleader action. Specifically, on March 8, 2015, TDL and GMD entered into a contract concerning services TDL would provide to GMD and the payment TDL would receive in exchange. [Doc. No. 21.] Under the contract, TDL obtained a 25% ownership in GMD. TDL alleges GMD has "disavowed [this agreement] altogether," which has prompted TDL to sue GMD in Maryland District Court. TDL asserts that if it wins its case in the Maryland District Court, it would be entitled to 25% of the funds at issue in this case.
Losany is also a plaintiff in the pending Maryland District Court case, Case No. 15CV1738-GLR. Awesome is not a party to that case.
Losany claims it is entitled to between 7.5-14% of the money due to Awesome, depending on the source of the funds. In July 2011, a company called Another Beginning, Inc. ("ABI") entered into an agreement with a debt validation operation called Debt Defense Services ("DDS") whereby ABI was to receive 30% of DDS's revenue. DDS sold debt modification paperwork. The owners of DDS then organized Awesome. [Doc. No. 21.] ABI had been receiving portions of the income of companies that Awesome eventually purportedly sold to GMD, i.e., in the sale at issue in this interpleader action. In 2013, the owner of ABI started Losany and "folded all of ABI's commission rights into Losany, including all commission rights under the ABI/DDS Agreement." [Doc. No. 21.] In March 2014, "the commissions due to ABI under the ABI/DDS Agreement were assigned to Losany and it received all of the revenue from the ABI/DDS Agreement . . . until the alleged purchase by GMD and the dispute between GMD and Awesome arose." [Doc. No. 21.]
B. Plaintiff Ace's and Defendant GMD's Arguments in Opposition
Ace and GMD oppose the motion to intervene. [See Doc. Nos. 24, 25.] Awesome did not file a response. // //
i. Ace's Arguments
Ace argues that neither TDL nor Losany meet the requirements to intervene as a matter of right because neither have a protectable interest in the interpleader action. Neither TDL nor Losany are parties to, or have a legally recognized interest in the agreement between Ace and GMD that is at issue here. To the extent that TDL and Losany have any stake in the outcome of this proceeding, it is an artifact of their independent and unrelated contractual relationships with Awesome and GMD. The Intervenors merely claim money from the claimants in this action. If successful in the lawsuit pending in Maryland, the Intervenors may obtain a judgment against GMD and attach its assets. Ace argues that the Intervenors are not yet judgment creditors, and even judgment creditors do not have the right to intervene in lawsuits in order to ensure a judgment will be satisfied.
Further, Ace argues that even if the Court were to find this action affects the Intervenors, their interests are not impaired because there are other means by which the Intervenors can protect their interests, such as a prejudgment writ of attachment or lien. Moreover, if the Court finds the Intervenors do have a legally protectable interest in this action, their interests are adequately protected. GMD and Awesome will each advocate for as large of a portion of the Net Distribution as they can obtain.
As for permissive intervention, Ace argues that the Intervenors have not articulated any common question of law or fact that they share with the parties to this action. The interpleader pertains to the agreement between Ace and GMD, but the basis for TDL's intervention is an agreement between TDL and GMD. Losany's basis for intervention arises from the assignment of commissions due to ABI under the ABI/DDS contract. Ace argues it would not be judicially economical to adjudicate all of these disputes in the same action, especially considering the pending Maryland litigation.
Lastly, Ace contends that it would suffer prejudice if the Intervenors are allowed to intervene as parties. Ace would be required to participate in discovery on issues that Ace has no interest in, such as issues pertaining to Losany's contract with GMD and TDL's assignment. Ace argues that the addition of the issues surrounding these new potential parties and other agreements would increase Ace's costs and delay the litigation.
ii. GMD's Arguments
GMD reiterates that neither TDL nor Losany are parties to the agreement between GMD and Ace, which is at the heart of the interpleader action, and that the Intervenors are already involved in pending litigation in Maryland regarding their relationship with GMD. GMD argues that intervention would be inappropriate and premature, and that TDL and Losany should seek a writ of attachment if and when they prevail against GMD in the Maryland lawsuit. GMD argues that the Intervenors have not indicated why intervention would be efficient here. Further, GMD notes that Todd Lubar, whose declaration Intervenors submitted in support of their motion, stated he is uncertain as to whether GMD has other income or assets it could put toward satisfying a potential judgment resulting from the Maryland litigation. Accordingly, GMD argues, the Intervenors' interest in this action is speculative. GMD concludes that, for those reasons, the Intervenors are not entitled to intervention as of right or permissive intervention.
Although both intervention of right and permissive intervention require a timely motion by the applicant, the timeliness of the Intervenors' motions is not at issue here. For that reason, the Court need not address timeliness.
i. Intervention of Right
The Intervenors have not pointed the Court to any federal statute that mandates their intervention into this action. See Fed. R. Civ. P 24(a)(1). Thus, to intervene as of right, the Intervenors must show they have a significant protectable interest related to the property or transaction underlying the litigation, and are "so situated that disposing of the action may as a practical matter impair or impede [their] ability to protect [their] interest, unless existing parties adequately represent [those] interest[s]." Fed. R. Civ. P. 24(a)(2). The Intervenors have not done so.
To have a significant protectable interest, a movant's interest must itself be affected by the resolution of the litigation. Based on the facts presented to the Court, the Intervenors' interests are entirely derivative of Defendants' claims in this action, and are wholly based on contracts not at issue here. Thus, the validity of the Intervenors' rights to some portion of funds that Defendants' will potentially recover as a result of this litigation will not be affected by the Court's determination of Defendants' rights to the Net Distribution. Accordingly, while the Intervenors may have contractual rights under contracts outside the scope of this litigation which are protected by law, the Intervenors have not shown that "there is a relationship between [those rights] and the claims at issue" here. See Donnelly, 159 F.3d at 409; Arakaki v. Cayetano, 324 F.3d 1078, 1084 (9th Cir. 2003), as amended (May 13, 2003). Moreover, the Intervenors do not claim to be third-party beneficiaries of the GMD/Ace contract, which would potentially render their interests related to the claims at issue in this interpleader action. See Hook v. State of Arizona, 972 F.2d 1012, 1015 (9th Cir. 1992).
The Intervenors' circumstances are comparable to those of potential judgment creditors. Courts have found that an impaired ability to collect on potential future judgments does not amount to a legally protectable interest. See U.S. v. Alisal Water Corp., 370 F.3d 915, 920 (9th Cir. 2004) (holding an "interest in the prospective collectability of [a] debt [. . .] [was] not sufficiently related" to the action because the interest was "several degrees removed" from the policies at issue). The Ninth Circuit has stated that holding otherwise would "create an open invitation for virtually any creditor of a defendant to intervene in a lawsuit where damages might be awarded." Id. Further, where potential financial loss is merely speculative or amounts to a bare expectation of economic recovery, courts have found applicants have no legally protectable interest. Portland Audubon Soc'y v. Hodel, 866 F.2d 302, 309 (9th Cir. 1989); Medical Protective Co. v. Pang, 2006 WL 1544192 at *4 (D. Ariz. June 1, 2006).
Here, the Intervenors' interests are both speculative and similar to potential judgment creditors' interests because, by the Intervenors' own admissions, they are only entitled to a portion of the money, if any, which may be due to Defendants, depending on the outcome of this interpleader action. The Intervenors have not yet been denied funds they claim they will be owed. Further, TDL states that it is only due money if it prevails in its litigation against GMD in Maryland. See Pang, 2006 WL 1544192 at *4 (finding no substantial protectable interest where the "economic interest [was] based upon an uncertain expectation [of a future judgment]," and "[b]ecause [the applicant] [did] not currently hold a judgment against Dr. Pang, her interest [was] not only purely economic, but also theoretical").
Lastly, Ace argues that the Intervenors have not shown that their claimed interests would not be adequately protected by Defendants. The Intervenors' interests appear to be essentially the same as GMD's and Awesome's interests. GMD has an interest in obtaining as much money as possible, thereby indirectly increasing the net gain TDL would enjoy based on its 25% interest it may have in GMD's recovery. Losany's interest likewise comports with Awesome's. Awesome wishes to obtain the maximum portion of the Net Distribution, increasing Losany's derivative portion. There is no indication that either of the defendants plan to seek smaller amounts than they believe they are entitled to in order to minimize the amounts they would be potentially required to pay either of the Intervenors.
For the foregoing reasons, the Intervenors do not have significant protectable interests that are at risk of being impaired or impeded by the resolution of this action, and which would not already be adequately protected. Therefore, the Intervenors are not entitled to intervene as a matter of right in this action.
ii. Permissive Intervention
TDL and Losany do not claim to have a conditional right to intervene under a federal statute. See Fed. R. Civ. P. 24(b). Accordingly, the Intervenors must show they have a claim or defense that shares a common question of law or fact with this action. Id. Also, the Court is required to determine whether intervention would unduly delay or prejudice the adjudication of the current parties' rights. Id. In the Intervenors' reply brief, they contend that the common question they share with the parties is "who is entitled to receive what portion of the interplead funds and any future processed funds by Ace." [Doc. No. 27.]
However, such a question is well beyond the scope of this interpleader action. Ace has only requested this Court determine, as between Defendants Awesome and GMD only, who is entitled to the interpleaded funds. Ace has not requested the Court determine whether Defendants owe anyone else money based on other contracts Defendants are parties to—contracts that have no bearing on Defendants' claims to the Net Distribution. Similarly, Ace has not requested the Court determine who has rights to "any future processed funds by Ace."
TDL and Losany indicate they understand the limited nature of Ace's action. They state, "Ace [has interpleaded] the monies and seek[s] a judicial determination from this Court as to what portion of the monies, if any, is due to GMD and what portion, if any, is due to Awesome." [Doc. No. 21.] --------
Further, elsewhere in their briefing, the Intervenors frame their claims much more narrowly. For example, in their motion, the Intervenors state they "seek to intervene in the complaint to protect their interest in the monies being interpled by Ace and to ensure that the judicial determination reach concerning the distribution of the monies includes their interests." [Doc. No. 21.] However, as discussed, the Intervenors' interests arise out of contracts with the claimants that are not at issue in the underlying dispute. Accordingly, based on the facts presented to the Court, the Intervenors' claims regarding rights they have to money Defendants will potentially obtain as a result of this action share no common questions of law or fact with the underlying action.
Lastly, GMD and Ace argue that intervention will unduly delay or prejudice the adjudication of their rights. The Court agrees. To allow intervention would be to significantly increase the scope of this litigation, undoubtedly delaying the resolution of this case. Intervention would result in the addition of two parties and a multitude of issues, such as the issues surrounding the ABI/DDS contract and the GMD/TDL contract, the validity of which is disputed. Further, allowing intervention has a significant risk of prejudicing the parties because the validity of the GMD/TDL contract is currently being litigated in Maryland. Thus, GMD would be put at risk of inconsistent judgments if the same issues are adjudicated in two different courts.
Accordingly, the Court finds no basis to allow the Intervenors to permissively intervene.
CONCLUSION
For the foregoing reasons, the Court DENIES the Intervenors' motion to intervene. [Doc. No. 21.]
IT IS SO ORDERED. Dated: April 14, 2016
/s/_________
Hon. Michael M. Anello
United States District Judge