Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_13-cv-01007/USCOURTS-azd-2_13-cv-01007-0/pdf.json

Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 28:1335 Interpleader Action

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WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Society Insurance, 

Plaintiff, 

v. 

Donna Nystrom; Christine St. John, 

individually and on behalf of her minor 

children, S.S. & S.S.; Brenda DeGross; 

Daniel DeGross; Darren DeGross; Dean 

DeGross; the Estate of David DeGross; 

Mountain Vista Medical Center; State Farm 

Mutual Automobile Insurance Company; 

Western General Insurance Company; John 

and Jane Does I - X, 

Defendants. 

No. CV-13-01007-PHX-NVW

ORDER 

On May 15, 2013, Society Insurance filed this action in interpleader under 28 

U.S.C. § 1335. The action will be dismissed for two independent reasons: (1) the parties 

failed to make good faith efforts to comply with their stipulation to resolve this matter by 

agreement or state court adjudication, and (2) the action was filed prematurely. 

I. BACKGROUND 

On February 6, 2013, a motor vehicle collision occurred in Pinal County, Arizona, 

involving James Sparish, who was driving a truck insured by Society Insurance under a 

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business auto insurance policy issued to “James Sparish, Brian Keeler, Kyle Kraine, 

Gregory Weaver dba J J S Auto Body Clinic.” Society Insurance also provided a garage 

business owners policy to “James Sparish, Brian Keeler, Kyle Kraine, Gregory Weaver 

dba J J S Auto Body Clinic.” Sparish is a Wisconsin resident. 

When Sparish was in Arizona, he ran a red light and collided with a vehicle driven 

by Christine St. John. She and her two passengers, Spencer St. John and S.S., are 

Arizona residents. All three received medical treatment after the accident at Mountain 

Vista Medical Center. 

Donna Nystrom and David DeGross were passengers in Sparish’s truck and were 

injured and hospitalized. DeGross died in the hospital. Both were Wisconsin residents. 

On February 7, 2013, Society Insurance received notice of the collision and 

shortly thereafter received communications from attorneys representing some of those 

injured in the collision. Society Insurance believed the claims could exceed the $500,000 

bodily injury policy limit provided by a business automobile policy that protected the 

truck driven by Sparish. By letter to all of the claimants and potential claimants, former 

counsel for Society Insurance offered to “mediate the claim to divide up the $500,000” 

from the business automobile policy bodily injury limits and stated that “if the parties did 

not agree to mediation, then Society Insurance would interplead the funds leaving the 

court to decide the division.” (Doc. 101 at 7.) 

On May 15, 2013, Society Insurance filed this action in interpleader, seeking to 

deposit the business automobile policy limits with the Court. Neither the initial 

Complaint in Interpleader nor the First Amended Complaint in Interpleader admitted that 

its insured is liable for the damages caused by the February 6, 2013 collision or that the 

business automobile policy provides coverage for the collision. The following people 

were named as Defendants: David DeGross’s wife, Brenda DeGross, and his three sons, 

Daniel DeGross, Darren DeGross, and Dean DeGross; Donna Nystrom; Christine St. 

John, Spencer St. John, and S.S.; and Mountain Vista Medical Center. State Farm 

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Mutual Automobile Insurance Company and Western General Insurance Company were 

initially named as Defendants, but were dismissed upon stipulation. 

On January 10, 2014, Society Insurance moved to vacate the Scheduling 

Conference set for January 31, 2014, because the parties had scheduled a global 

settlement conference before an independent mediator on January 27, 2014. The Court 

granted the motion and continued the Scheduling Conference to February 28, 2014. On 

February 7, 2014, Society Insurance filed a motion to stay proceedings because during 

the global settlement conference a conflict arose between Society Insurance and its 

insured, James Sparish, regarding coverage. Because then-counsel for Society Insurance 

represented Sparish for defense of claims made by the Defendants, it was necessary to 

substitute new counsel for Society Insurance. New counsel entered their appearance on 

February 21, 2014. 

The Scheduling Conference was held on March 13, 2014, during which 

Defendants agreed to decide the allocation of the business automobile policy limits by 

either agreement or state court adjudication. On April 11, 2014, the parties filed a 

stipulation to permit Society Insurance to interplead the aggregate policy limits for bodily 

injury under the business automobile policy (“Disputed Funds”) to the registry of the 

Court, enjoin Defendants from bringing suit against Society Insurance relating to the 

business automobile policy or Disputed Funds, and discharge Society Insurance from any 

further liability arising from the dispute among the various Defendants relating to the 

business automobile policy or Disputed Funds. (Doc. 66.) The parties also stipulated 

that: 

The parties will abide either (a) the agreement of the parties of the 

allocation of the Disputed Funds or (b) the adjudication of the state court 

system’s allocation of the Disputed Funds to the Defendants and agree that 

this Court will pay the Disputed Funds to the Defendants according to the 

agreement or allocation. 

(Id.) There was no indication that the parties intended for this Court to decide how the 

Disputed Funds should be allocated. 

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The stipulation also amended the First Amended Complaint in Interpleader to 

correct the business automobile policy number and to change the name of the insured 

under the policy from “James Sparish” to “James Sparish, Brian Keeler, Kyle Kraine, 

Gregory Weaver dba J J S Auto Body Clinic.” The parties further agreed that the 

stipulation did not bar or limit the Defendants from “pursuing James Sparish personally 

as a result of the automobile incident that occurred on or about February 6, 2013” and did 

not bar or limit Defendants’ “rights or claims to pursue other insurance policies provided 

by Society Insurance for the automobile incident that occurred on or about February 6, 

2013.” (Doc. 66.) 

On April 24, 2014, the Court granted the parties’ stipulation. (Doc. 67.) On May 

27, 2014, Plaintiff deposited the sum of $500,000 with the Court. (Doc. 68.) On July 29, 

2014, pursuant to a second stipulation, Plaintiff was dismissed from this action and 

discharged from any further liability with respect to the February 6, 2013 automobile 

accident. (Doc. 71.) 

More than a year later, on October 21, 2015, the Court ordered the remaining 

parties to file joint or separate status reports regarding the status of adjudication in the 

state court system or the status of stipulated agreements as to how the Disputed Funds 

should be divided. (Doc. 77.) The only status report filed provided almost no 

information. (Doc. 79.) Therefore, a status conference was held on December 17, 2015. 

Seeing no apparent progress toward reaching “(a) the agreement of the parties of the 

allocation of the Disputed Funds or (b) the adjudication of the state court system’s 

allocation of the Disputed Funds to the Defendants,” the Court ordered the parties to 

show cause why the stipulated orders should not be vacated and the Disputed Funds 

returned to Plaintiff. (Doc. 84.) 

On July 25, 2016, after considering the parties’ briefing, the Court concluded the 

parties had not pursued diligently and in good faith their stipulation to conclude this 

matter by either agreement or state court adjudication. (Doc. 97.) It vacated the portion 

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of paragraph 3 of the April 24, 2014 order that stated, “The parties will abide either (a) 

the agreement of the parties of the allocation of the Disputed Funds or (b) the 

adjudication of the state court system’s allocation of the Disputed Funds to the 

Defendants.” (Id.) Anticipating that allocation of the Disputed Funds could be resolved 

in this action, the Court set a Rule 16 Scheduling Conference for September 1, 2016, and 

deadlines for disclosures, discovery, case management planning, and a settlement 

conference. (Id.) On September 1, 2016, counsel for Society Insurance and counsel for 

each of the Defendants participated in a status conference with the Court and continued 

settlement discussion outside of the presence of the Court. No settlement was reached. 

II. PENDING CLAIMS AND OTHER LITIGATION 

On January 23, 2015, Brenda DeGross filed a wrongful death lawsuit in Pinal 

County Superior Court under A.R.S. § 12-611 on behalf of all statutory beneficiaries of 

David DeGross, including Daniel DeGross, Darren DeGross and Dean DeGross. In the 

Pinal County Superior Court case, Society Insurance is defending Sparish “under a full 

reservation of rights.” Initially, it agreed to defend Sparish under a reservation of rights 

under the business auto insurance policy and denied coverage to Sparish under the garage 

business owners policy. As of August 14, 2015, Society Insurance is also defending 

Sparish in the Pinal County Superior Court case under a reservation of rights under the 

garage business owners policy. Sparish has admitted that he ran a red light, but denied 

that he drove negligently. He denied liability for damages arising out of the collision and 

alleged affirmative defenses, including assumption of risk and contributory negligence by 

the decedent and comparative fault of non-parties. Counsel for Sparish acknowledged 

that the parties agreed to stay the case twice while this interpleader action and another 

case were being decided, but in June 2016 a case scheduling order was issued. 

Donna Nystrom asserts she was severely injured in the collision and has 

permanent disabilities as a result. Nystrom is not a party to any other lawsuit related to 

the February 6, 2013 motor vehicle collision. 

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Christine St. John, Spencer St. John, and S.S., claim damages for past/future pain, 

suffering, disability, and medical expenses. Christine St. John also claims lost wages and 

pension funds. The St. Johns are not parties to any other lawsuit related to the February 

6, 2013 motor vehicle collision. 

Mountain Vista Medical Center recorded and perfected a medical lien in the 

amount of $39,742.60 for hospital services provided to the St. Johns. The parties agree 

that Mountain Vista Medical Center can recover payment only through the St. Johns. 

On August 11, 2015, Society Insurance filed a declaratory judgment action in a 

Wisconsin state court requesting the court to find there is no coverage under the garage 

business owners policy for the February 6, 2013 collision. Brenda DeGross and Sparish 

are named as defendants. A hearing on the coverage motion is set for November 28, 

2016. 

III. ANALYSIS 

A. The Parties Did Not Make Good Faith Efforts to Comply with Their 

Stipulation to Resolve This Matter by Agreement or State Court 

Adjudication. 

On April 11, 2014, the parties stipulated that: 

The parties will abide either (a) the agreement of the parties of the 

allocation of the Disputed Funds or (b) the adjudication of the state court 

system’s allocation of the Disputed Funds to the Defendants and agree that 

this Court will pay the Disputed Funds to the Defendants according to the 

agreement or allocation. 

After signing this stipulation, the parties did not meet for a settlement conference. They 

did not file a state court action to adjudicate allocation of the Disputed Funds. No one 

attempted to resolve allocation of the Disputed Funds by either agreement or state court 

adjudication. 

To ensure preservation of her claim within the statutory limitation period, on 

January 23, 2015, Brenda DeGross filed a wrongful death lawsuit in state court on behalf 

of the statutory beneficiaries of David DeGross against James Sparish. The suit does not 

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involve all of the parties to the April 11, 2014 stipulation, and it does not purport to 

adjudicate allocation of the Disputed Funds. Sparish and Brenda DeGross twice agreed 

to stay proceedings to see whether money from the garage business owners policy would 

be available and how the Disputed Funds would be allocated by this Court, even though 

they had stipulated that this Court would not decide how the Disputed Funds would be 

allocated. No one has explained how allocation of the Disputed Funds by agreement or 

state court adjudication was expected to occur when the parties never discussed 

settlement together and the DeGrosses and Society Insurance, through counsel defending 

Sparish, twice agreed to delay their state court action so this Court could allocate the 

interpleaded funds first. 

The Court would not have granted the parties’ stipulation to resolve allocation of 

the Disputed Funds if it had known the parties would not at least make good faith efforts 

to do so. 

B. This Action in Interpleader Was Filed Prematurely. 

Under 28 U.S.C. § 1335, the Court has original jurisdiction of a civil action of 

interpleader filed by an entity having issued a policy of insurance of value or amount of 

$500 or more if two or more adverse claimants of diverse citizenship are claiming or may 

claim to be entitled to any of the benefits arising by virtue of the policy and the plaintiff 

has deposited the value of the policy into the registry of the court, there to abide the 

judgment of the court. “The purpose of interpleader is for the stakeholder to ‘protect 

itself against the problems posed by multiple claimants to a single fund.’” Lee v. W. 

Coast Life Ins. Co., 688 F.3d 1004, 1009 (9th Cir. 2012) (citation omitted). 

Society Insurance filed this action in interpleader as though it conceded liability 

and coverage by its business auto insurance policy. It alleged, “Society is merely an 

innocent stakeholder and claims no beneficial interest in the Disputed Funds.” (Doc. 6 at 

3.) It further alleged, “Society cannot make payment of the Disputed Funds without 

assuming the responsibility of determining doubtful questions of fact and law, and 

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without incurring the risk of being subjected to costs and expenses in defending itself or 

its insured in a multiplicity of suits or the possibility of multiple payments of the amount 

due.” (Id. at 3.) Perhaps, at the time, then-counsel for Society Insurance believed that 

liability and coverage would not be disputed. 

But now Society Insurance is defending Sparish against claims by the DeGross 

parties in the Pinal County Superior Court case in which Sparish has denied that he was 

driving negligently, denied he was the sole cause of the collision and ultimate death of 

David DeGross, and denied he is liable for wrongful death. (Doc. 119-1 at 6.) It is 

defending Sparish under a reservation of rights under both the business automobile policy 

and the garage business owners policy, and it is contesting all coverage under the garage 

business owners policy. Although Society Insurance offered the $500,000 bodily injury 

policy limit under the business automobile policy in this interpleader action, it did not 

explicitly concede coverage under the policy for the collision. Thus, Society Insurance 

interpled the Disputed Funds before its obligations to Sparish under the business 

automobile policy were clear. 

Further, Society Insurance filed this action with respect to only the policy limits of 

its business auto insurance policy, ignoring potential obligations to Sparish under its 

garage business owners policy. Now it is contesting coverage under its garage business 

owners policy in the Wisconsin declaratory judgment action. The Court cannot equitably 

apportion the Disputed Funds, provided under the business automobile policy, without 

knowing which, if any, parties may receive additional compensation under the garage 

business owners policy. 

Therefore, this action in interpleader is premature. 

IV. LIMITATION PERIOD 

Under Arizona statute, “If an action is commenced within the time limited for the 

action, and the action is terminated in any manner other than by abatement, voluntary 

dismissal, dismissal for lack of prosecution or a final judgment on the merits, the 

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plaintiff, or a successor or personal representative, may commence a new action for the 

same cause after the expiration of the time so limited and within six months after 

termination.” A.R.S. § 12-504(A). The Defendants did assert claims against James 

Sparish in their pleadings in this case. This case will be terminated for reasons other than 

by abatement, voluntary dismissal, dismissal for lack of prosecution, or a final judgment 

on the merits. Therefore, under Arizona law, the statutes of limitations for any claims by 

the Defendants in this interpleader action against Sparish are extended until six months 

after the entry of this order. 

In the alternative, even if the limitations for Defendants’ claims against Sparish 

were not extended by statute, the equitable nature of interpleader would require extension 

of the limitation period for parties who timely asserted claims in this action. Therefore, 

any party may commence a new action for the same cause within six months of the date 

this order is entered. 

IT IS THEREFORE ORDERED that the Clerk shall pay to Society Insurance 

Company the sum of $500,000.00, which Society Insurance Company deposited with the 

Court on May 27, 2014 (Doc. 68), plus any interest the deposit has accrued. The check 

shall be sent to Plaintiff’s attorney at the following address: 

Timothy R. Hyland 

Cavanagh Law Firm PA 

1850 N. Central Avenue, Suite 2400 

Phoenix, AZ 85004 

IT IS FURTHER ORDERED vacating the orders filed April 24, 2014, and July 

29, 2014 (Docs. 67, 71). 

IT IS FURTHER ORDERED that the Request for Magistrate for Limited Purpose 

of Conducting Settlement Conference (Docs. 117, 118) is denied as moot. 

IT IS FURTHER ADJUDICATED that Defendants’ time to file actions against 

James Sparish for claims arising out of the February 6, 2013 motor vehicle collision is 

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extended pursuant to A.R.S. § 12-504(A) to six months from the date this order is 

entered. 

IT IS FURTHER ORDERED that this case is dismissed without prejudice. The 

Clerk shall close the case. 

Dated this 8th day of September, 2016. 

Neil V. Wake

Senior United States District 

Judge

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