Crabtree v. Allstate Property and Casualty Insurance Company

District Court, S.D. Mississippi·Decided December 19, 2022·No. 1:21-cv-00399·Unknown

Opinion

IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF MISSISSIPPI SOUTHERN DIVISION

CALEB CRABTREE and ADRIANE PLAINTIFFS CRABTREE, as Assignees of the Claims of Casey Cotton v. CIVIL ACTION NO. 1:21-cv-399-TBM-BWR ALLSTATE PROPERTY AND CASUALTY INSURANCE COMPANY DEFENDANT

MEMORANDUM OPINION AND ORDER

Caleb and Adriane Crabtree have sued Allstate Property and Casualty Insurance Company seeking compensation for a severe accident they suffered at the hands of Casey Cotton. But this is not your typical bad faith case. To be sure, the Crabtrees are suing Allstate based on purported bad faith contract claims that Cotton allegedly had against Allstate, his insurer. For standing to move forward, the Crabtrees claim they received Cotton’s bad faith claims via an assignment from Cotton. Allstate has moved for dismissal of this case arguing that the assignment is invalid. Allstate is correct. The assignment was null because the Crabtrees were assigned the claims by a third party before the third party had received them from Cotton. This case is dismissed without prejudice. I. BACKGROUND A. Factual and Procedural History In September of 2018, Casey Cotton rear-ended the Crabtrees’ car. Cotton was allegedly driving over seventy-five miles per hour just before impact, and Caleb Crabtree was hospitalized. [14], pp. 3-5. Allstate insured Cotton, and over the next four months the Crabtrees’ counsel attempted to obtain a settlement from Allstate. [14], p. 4-9. The negotiations proved unfruitful, and the Crabtrees sued Cotton in the Circuit Court of Lamar County, Mississippi. [14], p. 9; [14- 15], p. 1. Cotton filed for bankruptcy in March of 2021 though. [94], p. 5; [14], p. 9. As a result, the

Crabtrees were concerned they could be unsecured creditors of Cotton’s. This meant that while they could sue Cotton and get a jury verdict, they may ultimately receive little or nothing after the Bankruptcy Trustee sorted out Cotton’s debts. The Crabtrees, believing they had a potential lawsuit worth a large sum of money, objected to Cotton’s attempted bankruptcy discharge. [14- 23], p. 3. The Bankruptcy Trustee resolved the Crabtrees’ objection by agreeing to assign them any

potential bad faith claim Cotton had against Allstate arising from the accident. [14-23], p. 4. As part of that agreement, the Crabtrees also consented to have whatever verdict they obtained against Cotton treated as among the lowest priority of his debts. [14-23], pp. 4-5. The Crabtrees also agreed to pay $10,000 for the claim against Allstate. [14-23], p. 4. However, the Crabtrees did not have $10,000. To get the funds, the Crabtrees entered into an agreement with a third party, Court Properties, Inc. [14-19], p. 1. On October 25, 2021, the Crabtrees signed an agreement providing that Court Properties would pay the Bankruptcy Trustee the $10,000 and in return Court

Properties would receive a promissory note from the Crabtrees which entitled it to $10,000 plus interest if the Crabtrees recovered over $100,000 from Allstate. [60-11]. The agreement also included a document executed by Court Properties assigning Cotton’s claim to the Crabtrees. [14- 19], p. 1. On November 5, 2021, eleven days after Court Properties executed that assignment of Cotton’s claim to the Crabtrees, Court Properties paid the Bankruptcy Trustee the $10,000 and the Bankruptcy Trustee assigned Cotton’s claim to Court Properties. So the Crabtrees executed an assignment for receipt of the claim from Court Properties before Court Properties actually executed the assignment to receive the claim itself. The Crabtrees brought this federal suit against

Allstate in December of 2021. With the bankruptcy issues resolved, the Crabtrees’ state court suit proceeded, and in January 2022 the jury returned a verdict against Cotton in excess of $4.6 million. [14-25], pp. 1-2. Within two months of the Crabtrees filing this federal court suit, Allstate moved for both judgment on the pleadings and summary judgment. [19] & [50]. It argued, among other points, that the assignments from the Bankruptcy Trustee to Court Properties and from Court Properties to

the Crabtrees were void because they violated Mississippi’s law against champerty. [20], pp. 2, 14- 15; [51], p. 22. This Court denied the motions without prejudice at a hearing on July 13, 2022, to allow for a more fully developed record. [80]. The next month, Allstate filed a new Motion to Dismiss for Lack of Jurisdiction, Motion for Summary Judgment. [84]. In addition to a renewed champerty argument based in part on a more complete record, Allstate asserted that the Crabtrees had not actually been assigned anything because Court Properties executed its assignment of Cotton’s claims to the Crabtrees before Court

Properties had received the claims from the Bankruptcy Trustee. In an attempt to cure this alleged deficiency, Court Properties executed a second assignment to the Crabtrees in September of 2022. [93-10]. B. Champerty & Maintenance Some background discussion about champerty is helpful. Prior to the 1800s, “with only limited exceptions, English courts refused to recognize assignments [of causes of action] at all.” Sprint Commc’ns Co., L.P. v. APCC Servs., Inc., 554 U.S. 269, 275, 128 S. Ct. 2531, 171 L. Ed. 2d 424 (2008). Allowing assignments “the courts feared, would lead to the ‘multiplying of contentions and suits,’ and would also promote ‘maintenance[.]’” Id. at 275-76 (internal citations

omitted). Historically, maintenance was the criminal offense of “helping another prosecute a suit.” 14 C.J.S. Champerty and Maintenance § 4 (2022). The individual helping prosecute the suit may do it for free, but champerty is the specific subset of maintenance where an individual helps maintain “a suit in return for a financial interest in the outcome.” Id. § 1. Over time both the United States and the United Kingdom recognized the commercial utility of assignments and relaxed the strict prohibition against it while still maintaining champerty

laws. See Sprint Commc’ns, 554 U.S. at 276-81. These champerty laws still exist in many jurisdictions and are commonly “aimed at the prevention of multitudinous and useless lawsuits and at the prevention of speculation in lawsuits.” 14 C.J.S. Champerty and Maintenance § 4. They stop “strangers having no pretense of right to the subject of a lawsuit” from meddling in that lawsuit. Id. But generally “if a party has an interest independent of and prior to the allegedly champertous arrangement, or the possibility of an interest in the subject litigated, an agreement to carry on the litigation . . . is not champertous.” Id. at § 14.

Today, Mississippi has a single statute criminalizing champerty and maintenance. See MISS. CODE ANN. § 97-9-11. The champerty and maintenance statute bars, among other actions, any person, firm, partnership, or corporation from promising, giving, or offering money “as an inducement to any person to commence or to prosecute further, or for the purpose of assisting such person to commence or prosecute further, any proceeding in any court[.]” MISS. CODE ANN. § 97-9-11. II. ANALYSIS Allstate raises two arguments in its latest motion. First, Allstate says that the assignments were champertous and therefore void. Next, Allstate asserts that even if the assignments were not

void, at the time this federal lawsuit was filed in December of 2021, the Crabtrees had not been assigned Cotton’s claims because Court Properties executed the assignment before the Bankruptcy Trustee actually assigned Cotton’s claim first to Court Properties. In either case, Allstate asserts the Crabtrees lack prudential standing.

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