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Cf Medical, LLC v. St. Alexius Hospital Corporation

May 20, 2011


The opinion of the court was delivered by: Josephine Staton Tucker United States District Judge




Sun Capital Healthcare, Inc. ("Sun Capital"), a Florida corporation, seeks leave to file a counterclaim in intervention against Plaintiff CF Medical, LLC, a Nevada limited liability company with citizenship in Nevada, Florida, Texas, Georgia, and Wisconsin. (Sun Cap. Mot., Doc. 25, at 1-2; see Doc. 13 at 2.) Sun Capital's Motion presents the question of whether Sun Capital qualifies under Federal Rule of Civil Procedure 24 for intervention, but necessarily raises the jurisdictional question of whether Sun Capital is an "indispensable" party under Rule 19. At the hearing on Sun Capital's Motion, the Court ordered the parties to submit further briefing on whether Sun Capital is an indispensable party (Doc. 32), which the parties did. (Docs. 33, 34.) Having considered all the briefs, heard oral argument, and taken the matter under submission, the Court concludes that Sun Capital is an indispensable party, thereby destroying diversity jurisdiction under 28 U.S.C. section 1332. Accordingly, the Court REMANDS the case to Orange County Superior Court for further proceedings.


The case involves a dispute over certain accounts receivable ("Accounts") of Defendants St. Alexius Hospital Corporation and Forest Park Hospital Corporation, both Missouri corporations. On September 6, 2006, Equicare Capital, LLC ("Equicare"), a business that collects and purchases accounts receivable in the medical field, entered into a Collection Services Agreement ("CSA") with Doctors Community Healthcare Corporation, now known as Envision Hospital Corporation ("Envision") and several of its wholly owned subsidiaries. (Compl. ¶ 8.) Pursuant to the CSA, Equicare paid a $1.5 million recovery advance to Envision for the right to collect on a portfolio of medical accounts. (Id.) Envision and its subsidiaries allegedly breached the CSA by failing to provide to Equicare "certain necessary information to collect on the accounts and by failing to remit direct payments to Equicare." (Id. ¶ 10.) As a result, Equicare filed a demand for arbitration and a complaint in Orange County Superior Court, separate from this action, to compel Envision to participate in arbitration. (Id. ¶ 11.)

On March 6, 2008, Sun Capital, the would-be intervenor here, entered into separate Master Purchase and Sale Agreements ("MPSAs") with each Defendant under which Sun Capital allegedly purchased certain third-party payable accounts receivable owed to Defendants, allegedly making Sun Capital a "secured creditor" to each of the Defendants. (Sun Cap. Mot. at 1; id. Exhs. 1, 3.) On March 5, 2008, Sun Capital filed Uniform Commercial Code ("UCC") Financing Statements with the Missouri Secretary of State naming Defendants as "debtors" and Sun Capital as "secured party" pursuant to the MPSAs. (Id. Exhs. 2, 4.) Sun Capital alleges that these Financing Statements "perfected" its "first priority security interest" in the Accounts. (Id. at 2.) Sun Capital further alleges that on March 27, 2008, each Defendant executed a Wholesale Lockbox Deposit and Blocked Account Service Agreement pursuant to which all payments on the Accounts would be directed to lockboxes and lockbox bank accounts established pursuant to the MPSAs. (Id.) Sun Capital asserts that it has not released its "ownership or security interests in the" Accounts "or the proceeds thereof." (Id.)

On June 4, 2008, Envision and its subsidiaries, including Defendants, settled with Equicare and its affiliate Equicare Portfolio I, LLC ("EPI"), and entered into a Settlement and Release Agreement ("Settlement Agreement"), a Purchase and Sale Agreement ("PSA"), and a Stipulated Judgment in the amount of $2.1 million. (Id.; see id. Exh. 1. "PSA"). Under the PSA, Defendants allegedly agreed to convey all right, title, and interest in the Accounts to EPI. (Id. ¶ 12; see PSA § 2.1.) The PSA listed Sun Capital as "Sellers' senior creditor" or "Senior Lender." (PSA §§ 8.1.1, 8.1.8.) The PSA also required Sun Capital's consent, stating that "[t]he transaction and all transfers of any files as part of the Agreement are subject to the consent of [Sun Capital]." (Id. § 8.1.8; see id. at 37.) Sun Capital alleges it never provided consent to the PSA. (Sun. Cap. Mot. at 4.)

Plaintiff alleges that Envision breached the Settlement Agreement by failing to make certain payments, which caused Equicare to default under certain lending agreements it had with Consumer Solutions NPL-NF, LLC ("Consumer Solutions"). As a result, on August 6, 2008, Consumer Solutions and EPI entered into a Strict Foreclosure Agreement ("Foreclosure Agreement"), under which substantially all of Equicare and EPI's assets were transferred to Consumer Solutions, including EPI's rights under the Settlement Agreement, Stipulated Judgment, and PSA. (Compl. ¶ 13.) The "Transfer of Collateral" section of the Foreclosure Agreement explicitly includes EPI's "rights" under the Settlement Agreement and Stipulated Judgment, but does not specifically list rights under the PSA. (Compl., Exh. 2 ¶ 4(e)-(f).) However, the section includes a catch-all provision in paragraph 4(h), stating that "any and all rights of [EPI] in and to any other claims against hospitals and others that have sold Assets to [EPI] or engaged [EPI] to collect Assets, and entitlements arising from or related to any and all such claims," which may arguably include the PSA and the Accounts. (Compl., Exh. 2 ¶ 4(h).)

On December 10, 2008, Sun Capital alleges that Envision sold 100% of the stock in Defendants to Success Healthcare 2, LLC, a purported "affiliate" of Sun Capital. (Sun Cap. Mot. at 4.) Sun Capital does not provide any additional information on that point.

On May 7, 2009, Plaintiff and Consumer Solutions entered into a Receivables Sales and Purchase Agreement ("Receivables Purchase Agreement"). (Compl. ¶ 14.) Under the Receivables Purchase Agreement, Plaintiff purchased all of Consumer Solutions' rights in the Settlement Agreement, the PSA, and the Stipulated Judgment, which included proceeds from the Accounts. (Id. ¶ 15; see id. Exh. 3.)

On September 21, 2010, Plaintiff filed suit in Orange County Superior Court against Defendants St. Alexius Hospital Corporation and Forest Park Hospital for breach of contract, fraud, conversion, and accounting for allegedly failing to pay over proceeds from the Accounts. Plaintiff alleges that Defendants began reporting direct payments they received on the Accounts, but failed to transfer those payments to Plaintiff. (Id. ¶ 16.) Plaintiff has produced numerous invoices that it sent to Defendants for direct payments on the Accounts. (See id. ¶¶ 18-21; id. Exhs. 4-7.) Plaintiff also alleges that Defendants breached the PSA by failing to report additional direct payments they received. (Id. ¶ 22.)

On October 25, 2010, Defendants removed the case to federal district court based on diversity jurisdiction pursuant to 28 U.S.C. section 1332.

On February 17, 2011, Sun Capital filed a Motion for Leave to File a Counterclaim in Intervention against Plaintiff. (Doc. 25.) Sun Capital alleges that its interest in the Accounts may be impaired or impeded by this action and that such interest is not adequately represented by Defendants. (Sun Cap. Mot. at 4.) Sun Capital alleges that it is entitled to "any and all payments on the Accounts" and seeks to assert counterclaims for declaratory relief, conversion, fraudulent transfer, ...

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