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Boling v. Prospect Funding Holdings, LLC

United States District Court, W.D. Kentucky, Bowling Green Division

March 30, 2017

CHRISTOPHER BOLING PLAINTIFF
v.
PROSPECT FUNDING HOLDINGS, LLC DEFENDANT

          MEMORANDUM OPINION AND ORDER

          Greg N. Stivers, Judge United States District Court

         This matter is before the Court on Plaintiff's Renewed Motion for Summary Judgment (DN 45), Defendant's Cross-Motion for Summary Judgment (DN 56), and Defendant's Motion to Strike Plaintiff's Renewed Motion for Summary Judgment (DN 57). For the reasons outlined below, Plaintiff's motion is GRANTED, and Defendant's motions are DENIED.

         I. STATEMENT OF FACTS AND CLAIMS

         On May 23, 2008, Plaintiff Christopher Boling (“Boling”) suffered severe burns when vapors escaping from a gas can ignited upon coming into contact with a hot metal eye bolt. (Am. Compl. ¶¶ 9-11, DN 7). As a result of his injuries, Boling and his then-wife filed suit against the gas can manufacturer, Blitz USA (“Blitz”), in this Court (Boling v. Blitz USA, Inc., Civil Action No. 1:09-CV-00067-JHM-ERG).[1] During the course of their litigation against Blitz, the Bolings entered into a series of agreements (collectively “Agreements”) with Prospect Funding Holdings, LLC (“Prospect”) and Cambridge Management Group, LLC (“CMG”)[2] to borrow monies secured by Boling's prospective recovery from Blitz. (Compl. Exs. A-D, DN 1-1 to 1-4). The terms of the Agreements are summarized as follows:

Date

Lender

Amount & Fees

October 2009

CMG

$10, 000.00 plus fees of $1, 275.00 plus additional costs

March 2010

CMG

$5, 000.00 plus fees of $825.00 plus additional costs

May 2012

Prospect

$5, 000.00 plus fees of $1, 025.00 plus additional costs

April 2013

Prospect

$10, 000.00 plus fees of $1, 800.00 plus additional costs

(Am. Compl. ¶¶ 14-31; Compl. Exs. A-D, DN 1 to 1-4). By their terms, the loans[3] were to accrue interest at a rate of 4.99% per month.[4] (Compl. Exs. A-D, DN 1 to 1-4).

         On June 19, 2014, Boling filed this lawsuit against Prospect seeking a declaratory judgment that the Agreements are to be interpreted by and deemed unenforceable under Kentucky law. (Compl. ¶¶ 43, 45, DN 1). Subsequently, on September 4, 2014, Prospect filed suit against the Bolings in the Superior Court of New Jersey, Chancery Division, which Boling removed to the U.S. District Court for the District of New Jersey. Both cases have since been consolidated in this Court. (Order, DN 35).

         On September 25, 2015, the Court granted Boling's motion for partial summary judgment, and denied Prospect's motion to dismiss. (Mem. Op. & Order, DN 31). In granting Boling's motion, the Court held that this Court was a proper forum to hear the dispute and that Kentucky law would apply in addressing the enforceability of the Agreements. (Mem. Op. & Order 10-14). Following some discovery, both parties have filed the present motions.

         II. JURISDICTION

         This Court has subject-matter jurisdiction of this matter based upon diversity jurisdiction. See 28 U.S.C. § 1332.

         III. STANDARD OF REVIEW

         In ruling on a motion for summary judgment, the Court must determine whether there is any genuine issue of material fact that would preclude entry of judgment for the moving party as a matter of law. See Fed. R. Civ. P. 56(a). The moving party bears the initial burden of stating the basis for the motion and identifying evidence in the record that demonstrates an absence of a genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). If the moving party satisfies its burden, the non-moving party must then produce specific evidence proving the existence of a genuine issue of fact for trial. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986).

         While the Court must view the evidence in the light most favorable to the non-moving party, the non-moving party must do more than merely show the existence of some “metaphysical doubt as to the material facts.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986) (citation omitted). Rather, the non-moving party must present specific facts proving that a genuine factual issue exists by “citing to particular parts of the materials in the record” or by “showing that the materials cited do not establish the absence . . . of a genuine dispute.” Fed.R.Civ.P. 56(c)(1). “The mere existence of a scintilla of evidence in support of the [non-moving party's] position will be insufficient; there must be evidence on which the jury could reasonably find for the [non-moving party].” Anderson , 477 U.S. at 252.

         IV.DISCUSSION

         A. Plaintiff's Renewed Motion for Partial Summary Judgment

         In his renewed motion, Boling seeks partial summary judgment challenging the validity of the Agreements on two bases. He argues that the Agreements: (i) violate Kentucky's prohibition on champerty and are void; and (ii) contain an interest rate that is usurious. (Pl.'s Mem. Supp. Mot. Summ. J. 2-17, DN 45-1).

         1. Champerty

         In diversity actions, federal courts generally must apply state law in accordance with the decisions of the state's highest court. See Ziegler v. IBP Hog Market, Inc., 249 F.3d 509, 517 (6th Cir. 2003) (internal citations omitted). In the present case, neither party has identified any specific pronouncement by Kentucky's highest court addressing whether agreements granting security interests in prospective tort claims would be enforceable under Kentucky law.

         When evaluating an undecided question of Kentucky law, a federal court sitting in diversity must make “the best prediction, even in the absence of direct state precedent, of what the Kentucky Supreme Court would do if it were confronted with [the] question.” Combs v. Int'l Ins. Co., 354 F.3d 568, 577 (6th Cir. 2004) (quoting Managed Healthcare Assocs., Inc., v. Kethan, 209 F.3d 923, 927 (6th Cir. 2000)). In doing so, the Court looks to “the decisions (or dicta) of the Kentucky Supreme Court in analogous cases, pronouncements from other Kentucky courts, restatements of law, commentaries, and decisions from other jurisdictions.” State Auto Prop. & Cas. Ins. Co. v. Hargis, 785 F.3d 189, 195 (6th Cir. 2015) (internal citations omitted). Federal courts “must proceed with caution” when making such predictions. Combs, 354 F.3d at 577 (internal citations omitted).

         Kentucky courts have long recognized the common law doctrine of champerty. See Roberts v. Yancey, 21 S.W. 1047, 1047 (Ky. 1893). As Kentucky's highest court has noted:

At common law champerty is defined to be a bargain by the terms of which a person having otherwise no interest in the subject matter of an action undertakes to carry on the suit at his own expense or to aid in so doing in consideration of receiving, in the event of success, some part of the ...

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