Benson v. Casa De Capri Enters.

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Jacob Benson, et al., Plaintiffs, v. Casa De Capri Enterprises LLC, et al., Defendants.

No. CV-18-00006-PHX-DWL

United States District Court, D. Arizona

June 7, 2022

ORDER

Dominic W. Lanza, United States District Judge.

This order addresses the parties' statements regarding post-remand proceedings (Docs. 112, 113), as well as Plaintiffs' motion for attorneys' fees on appeal (Doc. 109).

BACKGROUND

Jacob Benson is a disabled vulnerable adult who received skilled nursing care at a now-defunct facility called Casa de Capri Enterprises, Inc. (“Capri”). In December 2012 Benson and other family members (together “Plaintiffs”) brought a negligence action against Capri in Maricopa County Superior Court. (Doc. 1-1 at 5-15.) At the time, Capri had a “Claims Paid & Reported Liability” insurance policy, which was issued by Defendant Continuing Care Risk Retention Group, Inc. (“CCRRG”). (Doc. 56-1.) Pursuant to this policy CCRRG assumed Capri's defense of the lawsuit. (Doc. 56 ¶¶ 20-21.)

In 2013, Capri experienced financial difficulties. (Id. ¶¶ 24-44.) These difficulties caused Capri to default on its payment obligations to CCRRG, then file for bankruptcy, and eventually cancel its insurance policy. (Id.) Afterward, CCRRG withdrew its defense of Plaintiffs' lawsuit. (Id. ¶¶ 45-47.) In November 2017, after the bankruptcy stay was lifted, Plaintiffs obtained a judgment of just more than $1.5 million against Capri. (Doc. 1-2 at 231-32.)

Plaintiffs' judgment against Capri forms the backdrop for this lawsuit, which is procedurally complex (to put it mildly). In December 2017, Plaintiffs served a writ of garnishment on CCRRG. (Doc. 1 ¶ 2; Doc. 1-2 at 233-35, 238-39.) In response, CCRRG removed the action to federal court^[1] and then moved to compel arbitration. (Docs. 1, 13.) Although the district judge to whom the case was originally assigned denied CCRRG's motion (Doc. 27), CCRRG filed a renewed motion to compel arbitration after the case was reassigned to the undersigned judge (Docs. 35, 63) and the Court eventually granted that motion, holding that even though Plaintiffs were non-signatories to the insurance policy between Capri and CCRRG, they were bound by the arbitration clause in that policy under Arizona's doctrine of direct benefits estoppel. (Doc. 88.) Based on this ruling, the Court also denied, as moot, four other motions that were pending at the time, including Plaintiffs' motion for summary judgment on the core disputed issue in this case-whether Plaintiffs' negligence claim against Capri is covered by Capri's CCRRG insurance policy, and by extension whether Plaintiffs may recover from CCRRG via the law of garnishment.^[2]

Plaintiffs appealed the order compelling arbitration to the Ninth Circuit, which in turn certified a question of law to the Arizona Supreme Court. In January 2022, the Arizona Supreme Court resolved that question in Plaintiffs' favor, holding that “the doctrine of direct benefits estoppel can[not] be applied in an Arizona garnishment proceeding.” Benson v. Casa de Capri Enterprises, LLC, 502 P.3d 461, 465 (Ariz. 2022). Based on this ruling, the Ninth Circuit issued an amended memorandum decision in March 2022 concluding that “the district court erred in granting CCRRG's motion to compel arbitration under the doctrine of direct benefits estoppel.” Benson v. Casa de Capri Enterprises, LLC, 2022 WL 822126, *1 (9th Cir. 2022). In a footnote, the Ninth Circuit also stated the following: “CRRG alternatively argues that the Liability Risk Retention Act of 1986 (LLRA) preempts state law governing the operation of risk retention groups, and apparently by extension precludes Arizona from limiting arbitration provisions in insurance policies provided by a risk retention group. The district court did not address this argument and [Plaintiffs] argue that CCRRG did not adequately raise it below. We leave these matters to the district court in the first instance, with the benefit of the Arizona Supreme Court's new guidance.” Id. at *2 n.1.

After the mandate issued, the Court solicited supplemental briefing from the parties about how to proceed. (Doc. 106.) The parties have now filed their briefs. (Docs. 112, 113.) Additionally, Plaintiffs have filed a motion for their attorneys' fees on appeal, which is also fully briefed. (Docs. 109, 110, 11.)

DISCUSSION

I. Preemption As To Arbitration

CCRRG argues that “the first issue this Court must decide on remand is whether LLRA preempts Arizona law (concerning garnishment or otherwise) from limiting the enforcement of the arbitration provision in the CCRRG insurance policy.” (Doc. 113 at 2.) CCRRG contends that “[t]he Ninth Circuit specifically noted that it did not decide this issue and that it would leave it to this Court to decide the issue in the first instance.” (Id. at 3.) Thus, CCRRG asks the Court to set a briefing schedule on the preemption issue. (Id.)

Plaintiffs disagree. (Doc. 112 at 2, 5-6.) In addition to previewing why they believe CCRRG's preemption arguments should fail on the merits, Plaintiff's argue that “CCRRG has waived the right to compel arbitration at such a late stage by its delay in bringing its Renewed Motion to Compel Arbitration and allowing the case to proceed on the merits as opposed to appealing, as was its right, Judge Logan's decision denying its original motion. By forcing [Plaintiffs] to litigate the merits of the Writ through the discovery deadline and through full briefing of dispositive motions, CCRRG acted inconsistently with its claimed right to compel arbitration to [Plaintiffs'] obvious prejudice.” (Id.)

The Court concludes that the best and most efficient path forward lies in between the parties' proposals. On the one hand, the Court disagrees with Plaintiffs' contention that CCRRG has waived or forfeited its arbitration-related preemption argument. During the initial round of arbitration briefing, CCRRG raised the issue of LLRA preemption in its reply, as a rejoinder to Plaintiffs' arguments about Arizona public policy. (Doc. 22 at 5.) However, Judge Logan did not address the preemption issue in his order denying CCRRG's motion. (Doc. 27.) CCRRG again raised LLRA preemption in its renewed motion to compel arbitration (Doc. 63 at 10), but the Court did not address that issue in the order granting CCRRG's renewed motion given the Court's determination that Arizona's law of direct benefits estoppel supported CCRRG's position (Doc. 88). Now that the Ninth Circuit (via the Arizona Supreme Court) has reversed on the direct benefits estoppel issue, CCRRG's alternative preemption argument is ripe for resolution.

On the other hand, the Court rejects CCRRG's proposal to set a schedule for further briefing. CCRRG had a full and fair opportunity to raise the issue of LLRA preemption in its previous arbitration-related filings and the Court is hesitant to inject even more delay (and cost) into this case by requiring yet another round of arbitration-related briefing. Accordingly, the Court will simply rule, in due course, on CCRRG's arbitration-related preemption argument based on the existing briefing.

II. Motion For Judgment On The Pleadings

One of the motions the Court previously denied as moot was CCRRG's Rule 12(c) motion for judgment on the pleadings. (Doc. 38.) In that motion, CCRRG sought judgment on the pleadings for two reasons: (1) the writ of garnishment “fails to comply with Federal Rules of Civil Procedure 1, 2, 3, 7, and 8 necessary to present the elements of a ‘civil action” stating a ‘short and plain statement of the claim for relief showing [Plaintiffs are] entitled to relief' against CCRRG”; and (2) “assuming for the sake of argument that Arizona garnishment law applies to this action, Plaintiffs have failed to comply with the requirements of A.R.S. § 12-1580(A), which required them both to object to CCRRG's Answer within ten days thereof and to request this matter be set for hearing.” (Id. at 1-2.)

In response, Plaintiffs argued that CCRRG's motion should be denied in full. (Doc. 40.) Plaintiffs also argued that, “though not required to do so, ” they should be allowed to “replead more specifically the grounds upon which [they] allege [] in [their] garnishment action that CCRRG owes a debt (e.g. insurance coverage) to Capri” and “to separately and/or alternatively join claims for declaratory relief . . . and insurance bad faith.” (Id. at 10-11.) However, Plaintiffs later filed a “Notice of Withdrawal” in which they retracted their request to replead their claims. (Doc. 80.)^[3]

In their post-remand statements, both sides agree that CCRRG's second Rule 12(c) argument is foreclosed by the Ninth Circuit's ruling in this case. (Doc. 112 at 3; Doc. 113 at 4.)

As for CCRRG's first Rule 12(c) argument, Plaintiffs incorporate their previous position that repleading is unnecessary. (Doc 112 at 2-4 & n.1.) They note that “CCRRG has never contended that the Writ is substantively defective under the Arizona garnishment statutes or that a Writ of Garnishment that is litigated in the Arizona courts would be subject to dismissal under the corollary Arizona Rules of Civil Procedure, ” further note that CCRRG has never “claimed [it does] not understand the factual and legal basis for [Plaintiffs'] claim that CCRRG is indebted to its insured, Casa de Capri, [for] a debt that has been garnished, ” and argue that “[g]iven the extent to which the parties' respective positions have been repeatedly set forth in this matter, including within the pleadings filed in connection with the [motion for summary judgment], to now argue that they require more detailed pleading would seem rather preposterous.” (Id.) Meanwhile, CCRRG argues that (1) any ruling on the Rule 12(c) motion should be deferred until the Court resolves...