Case 2:10-cv-02990-HGD Document 31 Filed 06/27/11 Page 1 of 10 FILED 2011 Jun-27 PM 02:38 U.S. DISTRICT COURT N.D. OF ALABAMA UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ALABAMA SOUTHERN DIVISION SUZANNE GOLDBERG, et al., ) ) Plaintiffs ) ) vs. ) Case No. 2:10-cv-02990-HGD ) CLAYTON COLLEGE OF ) NATURAL HEALTH, INC., et al., ) ) Defendants ) O R D E R The above-entitled civil action is before the court on the Motion to Intervene filed by Platte River Insurance Company (Platte River). (Doc. 19). Plaintiffs and defendants have opposed the motion (Docs. 27 & 28, respectively, and Platte River has filed a response to the opposition (Doc. 29). After consideration of the briefs of Platte River, plaintiffs and defendants, the court finds and rules as follows. This action was commenced by four former students of Clayton College of Natural Health, Inc. (CCNH), seeking to pursue a class action against CCNH, Kay Channell, Lloyd Clayton, William Fishburne, Jeff Goin and Magnolia Corporate Services, Inc. Plaintiffs assert causes of action for breach of fiduciary duty, conversion Page 1 of 10
Case 2:10-cv-02990-HGD Document 31 Filed 06/27/11 Page 2 of 10 of tuition money, bailment (wrongful use of plaintiffs tuition money), negligence, fraudulent concealment, promissory estoppel, unjust enrichment or breach of quasicontract, equitable estoppel and breach of contract. The claims are based on the sudden closing of CCNH, leaving plaintiffs (and presumably, other former students) without courses of study, certifications or degrees for which they had paid advance tuition. In the Motion to Intervene, Platte River seeks intervention as of right or permissive intervention pursuant to Rule 24, Fed.R.Civ.P. It avers that it issued a bond, Private School Performance Bond, in favor of CCNH pursuant to which the Bond is intended to provide a source of payment of tuition refunds. The Bond is required by Ala. Code 16-46-1 et seq. and was issued in the penal sum of $50,000. Along with the Bond, CCNH and Lloyd Clayton entered into a General Indemnity Agreement (GIA) to reimburse Platte River for the sums paid as refunds, in addition to any sums incurred by Platte River for costs, attorney fees and other expenses of discharging its obligations under the Bond. Platte River estimates such additional sums to total $50,000. Platte River states that it seeks to intervene for the purpose of (A) interpleading the penal sum of the Performance Bond of $50,000.00 with the Court, and (B) enforcing Platte River s indemnification agreement with Lloyd Clayton Page 2 of 10
Case 2:10-cv-02990-HGD Document 31 Filed 06/27/11 Page 3 of 10 and Clayton College and its corresponding right of indemnity against Lloyd Clayton and Clayton College. 1 Plaintiffs oppose Platte River s intervention on several grounds. They characterize the motion as seek[ing] to put $50,000 into this putative class action and then later retrieve $100,000 from it. Plaintiffs also aver that Platte River already has 2 been handling the claims process under the Bond and now seeks to shift the burden 1 The relief sought by Platte River in its proposed complaint in intervention is as follows: (a) That Clayton College and Mr. Clayton be required to immediately reimburse Platte River $100,000.00, the amount of Platte River s expected losses and expenses. (b) That Clayton College and Mr. Clayton be required to render a complete, full and sworn accounting to the Court and to Platte River, as surety, as to any and all assets owned or controlled by him, or in which they have any interest, or in which they have had any interest at any time during the past five (5) years, and further provide Platte River with access to all books and records which in any manner relate, refer or pertain to the financial affairs of Mr. Clayton or Clayton College; (c) That Clayton College and Mr. Clayton be required to immediately provide full and complete access to Platte River of all personal financial records and business records of Clayton College; (d) That pending deposit of collateral as requested herein, a judicial lien be established in favor of Platte River as to any and all assets of Clayton College and Mr. Clayton, including any and all contract balances, retainages, bank accounts, and any other funds identifiable with any other project, whether such assets or funds are real, personal, or mixed, said lien to be subject to any valid and existing security interest or liens in said assets or property which may pre-date the Order of this Court; (e) That Clayton College and Mr. Clayton be required to specifically perform all other obligations as specified in the GIA so as to accomplish the exoneration and indemnification of Platte River; and (f) That the Court provide such further, additional and different relief so as to provide for the exoneration of Platte River, as surety. 2 Platte River states it has already received more than 800 claims for tuition refund, which exceed the penal sum of the Bond. Information provided by plaintiffs show that Plate River created and announced a claims process for students affected by CCNH s closure and set a deadline of Page 3 of 10
Case 2:10-cv-02990-HGD Document 31 Filed 06/27/11 Page 4 of 10 of administering the Bond to the court. Plaintiffs contend that allowing Platte River to intervene would unnecessarily delay and complicate adjudication of plaintiffs class action claims. Plaintiffs rely on the statute requiring the bond, which states that the bond proceeds are payable to the Alabama Department of Postsecondary Education, as trustee, yet the Alabama Department of Postsecondary Education is not a party to 3 this action. Plaintiffs assert that Platte River has no cognizable legal interest in the outcome of this litigation, only in the assets of CCNH and Lloyd Clayton, and that it can commence a separate action against CCNH and Clayton. Plaintiffs reason that a separate interpleader action could be consolidated with this action after the class certification issue has been resolved. Defendants contest the intervention on the grounds that Platte River s request to interplead the Bond is premature and should be deferred until the court determines whether this action may proceed as a class action. Defendants contend that allowing interpleader makes no sense if this action ultimately is not certified as a class action. Defendants also assert that Platte River does not have a judgment against CCNH or Clayton and that the prospect of a potential judgment on its indemnity claim is February 8, 2011, for submission of claims. (Doc. 27 at Ex. 2). 3 Plaintiffs also complain that Platte River has not identified the claimants, but Platte River has responded that such identification is not necessary and, if it is, Platte River will provide the names. Page 4 of 10
Case 2:10-cv-02990-HGD Document 31 Filed 06/27/11 Page 5 of 10 insufficient to allow intervention as of right. Defendants also argue that allowing Plate River to intervene at this early stage of the litigation wold unfairly prejudice their opposition to class certification, further complicate an already complex action by adding collateral issues and impermissibly interject insurance into the lawsuit. In reply, Platte River asserts its position as surety gives it the right to intervene under Rule 24(a), Fed.R.Civ.P. It claims that it has the immediate equitable right to be refunded $50,000, to be reimbursed for its expenses in enforcing the indemnification agreement and to have the assets of CCNH and Clayton marshaled to protect Platte River from sustaining any losses. It further contends that it does matter whether or not a class has been certified because of this asserted immediate right of recovery, but Platte River avers it is willing to wait to assert its indemnity rights until after the class certification issue has been decided. It also contends that its immediate right to be made whole has priority over any recovery plaintiffs may be awarded in the future. Platte River claims that if it is forced to file a separate interpleader action, it will be forced to find and serve all the claimiants on the bond and thus, its expenses would be substantially more than $50,000. This, in turn, would dissipate defendants assets available to plaintiffs to satisfy any judgment. Platte River urges that allowing it to intervene now would benefit plaintiffs because they would receive the benefit of the bond and reduced depletion of defendants assets, would benefit defendants due to Page 5 of 10
Case 2:10-cv-02990-HGD Document 31 Filed 06/27/11 Page 6 of 10 reduced expenses they would have to pay under the GIA, and would benefit Plate River by allowing it to discharge its bond obligations in the most efficient manner. Rule 24, Fed.R.Civ.P., provides in relevant part: (a) Intervention of Right. On timely motion, the court must permit anyone to intervene who: (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. (b) Permissive Intervention. (1) In General. On timely motion, the court may permit anyone to 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. As set out by the Eleventh Circuit Court of Appeals in Fox v. Tyson Foods, Inc., 519 F.3d 1298 (11th Cir. 2008): Intervention of right is governed by Federal Rule of Civil Procedure 24(a), which continues to set bounds that must be observed. The original parties have an interest in the prompt disposition of their controversy and the public also has an interest in efficient disposition of Page 6 of 10
Case 2:10-cv-02990-HGD Document 31 Filed 06/27/11 Page 7 of 10 court business. 7C Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure 1904, at 270 (3d ed.2007). To intervene of right under Rule 24(a)(2), a party must establish that (1) his application to intervene is timely; (2) he has an interest relating to the property or transaction which is the subject of the action; (3) he is so situated that disposition of the action, as a practical matter, may impede or impair his ability to protect that interest; and (4) his interest is represented inadequately by the existing parties to the suit. Chiles v. Thornburgh, 865 F.2d 1197, 1213 (11th Cir. 1989) (citing Athens Lumber Co. v. FEC, 690 F.2d 1364, 1366 (11th Cir. 1982)). Id. at 1302-03. In this case, Platte River s motion to intervene is timely. However, there is, at best, a very tenuous connection between Platte River s interest, to discharge its obligations under the bond and obtain reimbursement for its bond payment and expenses from CCNH and Clayton, and the interests of plaintiffs and defendants to this litigation. Plaintiffs seek compensation for their damages under various tort and contract theories for the sudden closing of CCNH, discontinuation of assisted courses of study and accreditation, and reimbursement for prepaid tuition. The bond provided by Platte River may provide some tuition reimbursement for CCNH s students, but their pro rata share of the $50,000 (assuming 800-plus claimants) would be very small. Defendants interests are in defending against the claims of plaintiffs. It is true that the parties to this lawsuit are not representing Platte River s interests. However, Platte River is not without recourse. It may file a separate interpleader action against CCNH and Clayton, and the costs of doing so would not be Page 7 of 10
Case 2:10-cv-02990-HGD Document 31 Filed 06/27/11 Page 8 of 10 substantially different from the costs of intervening and participating in this action. In the alternative, Platte River could wait until after a ruling on any class certification motion in this action to seek intervention and interpleader. The disposition of this action, as a practical matter, would not impede or impair Platte River s ability to protect its interests under the GIA. In fact, Platte River has argued that its entitlement to reimbursement under the GIA from CCNH and Clayton has priority over any claim by plaintiffs against these defendants. Further, Platte River s interests are mostly opposed to the interests in this litigation of plaintiffs and defendants CCNH and Clayton. Another factor bearing on the court s decision is the fact that there has been no class certification at this time and the court may still decide that class certification is unwarranted. If Platte River pays the bond amount into court in this action, the court essentially would take over Platte River s duties, which it already has begun to undertake, to receive claims and determine who is entitled to what. That would entail making the Alabama Department of Postsecondary Education, the trustee of the bond proceeds, a party to this action. If the class is not certified, the bond funds may not be available to other students seeking reimbursement from CCNH who are not plaintiffs in this action. The inclusion of the issues related to the bond would complicate an already complex action. Based on the foregoing, the court finds that Platte River is not entitled to intervene as of right. Page 8 of 10
Case 2:10-cv-02990-HGD Document 31 Filed 06/27/11 Page 9 of 10 Platte River s secondary position is that it is entitled to permissive intervention. To be so entitled, Platte River must show that it has a claim or defense that shares with the main action a common question of law or fact. Platte River has a contractual claim under a GIA against CCNH and Clayton. There is no common question of law or fact with plaintiffs tort and contract claims against CCNH and Clayton; such claims arise from different sources and actions. The only commonality is that Platte River s bond obligations were triggered by CCNH s closing and the claims of its former students to tuition reimbursement, just as plaintiffs claims in this action came about from CCNH s closing. That connection is simply too attenuated to allow permissive intervention. In addition, allowing Platte River to intervene would unduly delay or prejudice the adjudication of the original parties rights, by participation in discovery and the interjection of the fact of insurance coverage into this litigation. See Worlds v. Dep t of Health and Rehabilitative Servs., 929 F.2d 591, 595 (11th Cir. 1991) ( If there is no right to intervene under Rule 24(a), it is wholly discretionary with the court whether to allow intervention under Rule 24(b) and even though there is a common question of law or fact, or the requirements of Rule 24(b) are otherwise satisfied, the court may refuse to allow intervention. ) (quoting 7C Charles A. Wright, et al., Federal Practice and Procedure 1913, at 376-77 (2d ed.1986) (footnotes omitted)). See also Korioth v. Brisco, 523 F.2d 1271, 1279 n.25 (5th Cir. 1975) ( When an appellant has Page 9 of 10
Case 2:10-cv-02990-HGD Document 31 Filed 06/27/11 Page 10 of 10 other adequate means of asserting its rights, a charge of abuse of discretion in the denial of a motion for permissive intervention would appear to be almost untenable on its face. (affirming denial of permissive intervention where appellant could bring new action)); Head v. Jellico Hous. Auth., 870 F.2d 1117, 1124-25 (6th Cir. 1989) (affirming denial of permissive intervention where appellant subsequently filed separate complaint). But see Brown v. Eckerd Drugs, Inc., 564 F.Supp. 1440, 1444 (W.D.N.C. 1983) (allowing permissive intervention on grounds of judicial economy in employment discrimination suit; [I]f the applicants are not allowed to intervene in this suit, there is a substantial possibility that they will simply pursue their claims in new actions. ). For the reasons stated supra, including the fact that Platte River may file a separate interpleader action, the court finds that permissive intervention is not warranted. Based on the foregoing, it s ORDERED that Platte River s Motion to Intervene is due to be and hereby is DENIED. DONE this 27th day of June, 2011. HARWELL G. DAVIS, III UNITED STATES MAGISTRATE JUDGE Page 10 of 10