Mao-Mso Recovery II, LLC v. Mercury General

• Court: Court of Appeals for the Ninth Circuit
• Decided: February 7, 2023
• Docket: 21-56396
• Status: Unpublished

Opinion

NOT FOR PUBLICATION FILED UNITED STATES COURT OF APPEALS FEB 7 2023 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS FOR THE NINTH CIRCUIT

MAO-MSO RECOVERY II, LLC, a No. 21-56395 Delaware entity; MSP RECOVERY CLAIMS SERIES LLC, a Delaware entity; D.C. No. MSPA CLAIMS 1, LLC, a Florida entity, 2:17-cv-02525-AB-AFM

Plaintiffs-Appellants, MEMORANDUM* v.

MERCURY GENERAL, a California company, its subsidiaries and affiliates,

Defendant-Appellee.

MAO-MSO RECOVERY II, LLC, a No. 21-56396 Delaware entity; MSP RECOVERY CLAIMS SERIES LLC, a Delaware entity; D.C. No. MSPA CLAIMS 1, LLC, a Florida entity, 2:17-cv-02557-AB-AFM

Plaintiffs-Appellants,

v.

MERCURY GENERAL, a California company, its subsidiaries and affiliates,

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Appeal from the United States District Court for the Central District of California Andre Birotte, Jr., District Judge, Presiding

Argued and Submitted December 9, 2022 Pasadena, California

Before: BERZON, R. NELSON, and BADE, Circuit Judges. Partial Dissent by Judge BERZON.

In these consolidated appeals, Appellants MAO-MSO Recovery II, LLC;

MSP Recovery Claims Series LLC; and MSPA Claims 1, LLC (collectively

“Appellants”) appeal the district court’s dismissal of their claims against Appellee

Mercury General (“Mercury”) for lack of standing and its denial of Appellants’

request for leave to amend the operative complaints. 1 We have jurisdiction under

28 U.S.C. § 1291, and we affirm.

Because “standing is an essential and unchanging part of the case-or-

controversy requirement of Article III,” federal courts cannot exercise jurisdiction

over parties that lack standing. See Lujan v. Defs. of Wildlife, 504 U.S. 555, 560

(1992). “The party invoking federal jurisdiction bears the burden of establishing”

standing at each stage in legal proceedings. Id. at 561. This requires a plaintiff to

show, among other things, that it “suffered an injury in fact—an invasion of a

legally protected interest which is (a) concrete and particularized and (b) actual or

1 We previously consolidated these appeals for argument, and now we consolidate them for disposition.

2 imminent, not conjectural or hypothetical.” Id. at 560 (citations and internal

quotation marks omitted).

1. Appellants first contend the district court erred procedurally by not

requiring Mercury to move for summary judgment on the issue of standing

consistent with Federal Rule of Civil Procedure 56. But this court has long held

that a summary judgment motion is an inappropriate vehicle for challenging a

plaintiff’s standing “because ‘[t]he plaintiff’s obligation to establish standing

should not be passed to the defendant by the simple device of waiting for a

summary judgment motion.’” Am. Postal Workers Union v. U.S. Postal Serv., 861

F.2d 211, 213 (9th Cir. 1988); see also 10A CHARLES ALAN WRIGHT & ARTHUR R.

MILLER, FEDERAL PRACTICE AND PROCEDURE § 2713 (4th ed. 2022) (explaining

that the “general rule” in the federal system “is that it is improper for a district

court to enter judgment under Rule 56 for defendant because of a lack of

jurisdiction”). Appellants’ procedural arguments are thus foreclosed by precedent

and practice.

2. Appellants also contend the district court erred on the merits by

declining to find standing for Appellants to bring claims related to (1) an individual

named J.R., (2) an individual named D.M., and (3) unpled “data matching

exemplar” plaintiffs, whose relevant allegations were not part of either of the

operative complaints.

3 (a) Appellants first contend the district court erred in concluding

Appellants lacked standing to bring the claim related to J.R. because neither the

ultimate holder of J.R.’s recovery rights nor the holder’s “parent” LLC were

named plaintiffs. Appellants admit these parties are not identified as plaintiffs in

either of the operative complaints, but they contend that naming the wrong plaintiff

was a “ministerial or technical defect” they should be permitted to correct by

amending the complaint. But even if we accepted Appellants’ characterization of

their pleading errors, the fact remains that after years of litigation and multiple

amendments, Appellants’ operative complaints continued to assert allegations for

an entity that is not a party to the litigation and that is not alleged to have suffered

any harm. Given the procedural posture and age of this case, the district court did

not err in exercising its considerable discretion to deny Appellants’ request for

leave, see Chodos v. West Publ’g Co., 292 F.3d 992, 1003 (9th Cir. 2022), and in

dismissing the J.R. claim for lack of standing.

(b) Appellants next argue the district court erred in dismissing the claims

related to D.M. because the evidence demonstrated they had received the rights of

recovery to this claim from a contract with Trinity Physicians, LLC. But the

record demonstrates that, prior to entering into this agreement with Appellants,

Trinity had already assigned those rights to another entity, Freedom Health Care.

Appellants’ contentions that this result is “mind-boggling,” are based on extrinsic

4 evidence and thus are irrelevant because the contract’s unambiguous text controls.

See, e.g., Trident Ctr. v. Conn. Gen. Life Ins. Co., 847 F.2d 564, 568 (9th Cir.

1988) (“Under traditional contract principles, extrinsic evidence is inadmissible to

interpret, vary or add to the terms of an unambiguous integrated written

instrument.”).

Their argument that the assignment of rights pertains to the merits rather

than standing is similarly unpersuasive: whether Appellants had the legal right to

seek reimbursement for payments allegedly made for the J.R. and D.M. claims

relates directly to whether Appellants have a sufficient “legally protected interest”

in bringing suit, a quintessential standing question. See Lujan, 504 U.S. at 560–61;

see also Flast v. Cohen, 392 U.S. 83, 99–100 (1968) (explaining that “when

standing is placed in issue in a case, the question is whether the person whose

standing is challenged is a proper party to request an adjudication of a particular

issue”). And Appellants’ contention that Trinity did not contractually assign to

Freedom its statutory rights of recovery is contradicted by the unambiguous text of

the agreement between Trinity and Freedom. Moreover, their argument is

logically unsound: if Trinity were unable to assign statutory remedies to Freedom

by contract (as Appellants claim), it is unclear how Trinity would nevertheless be

5 able to assign those same statutory remedies to Appellants by contract.2

(c) Finally, Appellants contend the district court erred by dismissing the

complaints for lack of standing when there were numerous unpled “data matching

exemplars” that purportedly established Appellants’ standing. Appellants’

contention that they can rely on unpled injuries to establish standing over a case

involving entirely unrelated injuries is foreclosed by well-established case law.

Standing “is not dispensed in gross”; instead, “a plaintiff must demonstrate

standing for each claim he seeks to press and for each form of relief that is sought.”

Davis v. Fed. Election Comm’n, 554 U.S. 724, 734 (2008) (internal quotation

marks and citations omitted). And dismissal of a complaint on the merits is proper

when the plaintiff alleges only “[t]hreadbare recitals of the elements of a cause of

action, supported by mere conclusory statements.” Ashcroft v. Iqbal, 556 U.S. 662,

678 (2009). As Appellants concede that none of the operative facts related to the

“data matching exemplars” are pled in the operative complaints, they plainly fail to

establish these claims can support federal jurisdiction.

2 Appellants further contend they have standing to pursue the D.M. claims because those claims were assigned to an unnamed “subsidiary series” LLC and parent LLCs have standing to bring suit on behalf of their subsidiary series LLCs. We have yet to determine whether a parent LLC has standing to bring suit on behalf of a subsidiary series LLC, and we need not do so here as Appellants failed to provide evidence demonstrating the series LLCs granted such authority to their parent in the relevant operating agreement. Cf. MSP Recovery Claims, Series LLC v. ACE Am. Ins. Co., 974 F.3d 1305, 1319–20 (11th Cir. 2020).

6 Accordingly, the district court did not err in its consideration of the merits of

Appellants’ standing, and it properly dismissed the complaints for lack of

jurisdiction.

3. Finally, Appellants contend the district court abused its discretion in

denying their request for leave to file third amended complaints. District courts

have broad discretion in denying subsequent requests for leave to amend where, as

here, previous requests were granted. See Chodos, 292 F.3d at 1003. Appellants’

contentions that leave to amend should be freely given to cure standing defects

relies on an overly solicitous reading of Northstar Financial Advisors Inc. v.

Schwab Investments, 779 F.3d 1036 (9th Cir. 2015), and characterizing their

substantive amendments—including adding and removing allegations and even

parties—as merely implicating standing concerns. Their assertion that they did not

unduly delay in seeking amendment given prior instructions from the district court

misreads the record and fails to explain why Appellants waited more than a month

after the dismissal order before seeking leave to amend their complaints. And the

argument that the proposed amendment is not prejudicial to Mercury because it is

the dismissal, not leave to amend, that would “essentially [require Mercury] to

restart the entire litigation and defend itself based on a new set of operative facts,”

ignores that these inefficiencies are the result of Appellants’ own scattershot

litigation strategy—a strategy, it should be noted, that has resulted in dismissals for

7 lack of standing in district courts across the country. See, e.g., MAO-MSO

Recovery II, LLC v. State Farm Mut. Auto. Ins. Co., 994 F.3d 869, 872 (7th Cir.

2021); MSP Recovery Claims, Series LLC v. AIG Prop. Cas., Inc., No. 20-CV-

2102, 2021 WL 1164091, at *15–16 (S.D.N.Y. Mar. 26, 2021); MSP Recovery

Claims, Series LLC v. Tech. Ins. Co., Inc., No. 18 CIV 8036, 2020 WL 91540, at

*5 (S.D.N.Y. Jan. 8, 2020); MSP Recovery Claims, Series LLC v. USAA Gen.

Indem. Co., No. 18-21626, 2018 WL 5112998, at *13 (S.D. Fla. Oct. 19, 2018).

For these reasons, we conclude the district court did not abuse its discretion in

denying Appellants’ leave to amend the operative complaints.

AFFIRMED.

8 FILED MAO-MSO Recovery v. Mercury General FEB 7 2023 Nos. 21-56395, 56396 MOLLY C. DWYER, CLERK U.S. COURT OF APPEALS BERZON, Circuit Judge, dissenting in part:

I agree that Appellants lack standing on the basis of the current complaints.

But I would hold that denying leave to amend was an abuse of discretion.

First, I would hold that Appellants did not unduly delay in seeking leave to

amend. There was no deadline in the scheduling order for the filing of amended

complaints. The district court stated that it did not want to consider the possibility

of any motions for leave to amend the complaints at least until the class

certification hearing, which was held in May 2021. In their supplemental briefs on

standing filed June 2021, Appellants concluded by stating that, if their arguments

were rejected, any standing defects should be cured through a supplemental or

amended pleading under Fed. R. Civ. P. 15(d).

This Court does not require formal motions for leave to amend. United

States v. $11,500.00 in U.S. Currency, 710 F.3d 1006, 1013 (9th Cir. 2013);

Edwards v. Occidental Chem. Corp., 892 F.2d 1442, 1445 n.2 (9th Cir. 1990).

Appellants provided sufficient notice of their desire for leave to amend to the

district court and to Mercury at least as early as June 2021, when the standing brief

was filed.

Second, permitting the proposed amendments would not be significantly

prejudicial to Mercury, in light of the district court’s dismissal of the complaints

1 without prejudice. In dismissing without prejudice, the district court has permitted

Appellants to restart litigation against Mercury through the filing of new

complaints that could include the proposed amendments. Allowing Appellants

instead to amend the current complaints would improve judicial efficiency and

minimize the burden on all parties by permitting the parties to build upon the

discovery and motions practice that have already occurred in these cases. The

majority asserts that any “inefficiencies” resulting from new litigation “are the

result of Appellants’ own scattershot litigation strategy.” Mem. Disp. at 7–8. While

Appellants have certainly struggled to sufficiently plead facts to establish standing,

those failings are not relevant to assessing the prejudice to Mercury caused by a

third amended complaint, as compared to an entirely new suit.

Moreover, the nature of the amendments Appellants seek to make are not

seriously “substantive,” as the majority suggests. Mem. Disp. at 7. At the hearing

on standing held July 2021, Appellants read into the record contractual language

indicating that the parent corporation had authority to sue on behalf of the series

LLCs, thus showing that the complaints could readily be amended to cure that

problem. Nor do the facts pertaining to additional beneficiaries constitute new

“claims,” as the claims alleged were on behalf of the Medicare Advantage

Organizations, not individual beneficiaries. So, adding new “exemplars” would not

be adding new claims. Finally, although technically new parties, the proper

2 corporate entities that would be added are closely related to the named parties, not

some entirely new third parties.

Appellants were certainly sloppy. And their mode of filing complaints

before ascertaining the possibly meritorious claims assigned is not to be

encouraged, and in some instances will appropriately lead to dismissal for lack of

standing. Here, however, enough of the errors appear to be easily curable that

amendment should have been allowed in lieu of dismissing the cases without

prejudice. Halting litigation on account of misnamed entities or failure to quote

from governing documents that actually exist is inefficient and pointless, in my

view.

For the foregoing reasons, I would hold that the district court abused its

discretion in denying Appellants leave to amend the operative complaints.