Weyant v. The Phia Group LLC

Background

Jessica Weyant brought a proposed class action against The Phia Group LLC (Phia) and INDECS Corporation. The only remaining claim was for conversion. Weyant was a participant in the Orange-Ulster School Districts Health Plan. INDECS administered claims for the Plan, and Phia was INDECS’s authorized agent for subrogation and reimbursement efforts.

After Weyant was injured in a 2012 motor-vehicle accident, the Plan paid $16,057.19 in medical benefits. After Weyant received settlement funds in a separate action related to the accident, the defendants asserted a lien and sought repayment of the Plan benefits. Weyant sent Phia a check for $16,057.19 under protest. Her accompanying letter stated that she reserved the right to challenge the lien and that the payment was not voluntary. Phia kept $3,532.58 as a service fee and sent the remaining amount to INDECS, which forwarded the recovery to the Plan.

The parties disputed the nature and extent of Weyant’s objection to repayment. The defendants maintained that she challenged only payments for treatment unrelated to the accident. Weyant maintained that she contested the entire lien. They also disputed the content of telephone conversations between Weyant’s lawyers and Phia’s claims handler concerning whether the money should be held in escrow and whether Weyant could challenge the payment.

Prior Proceedings and Standard

The court had previously granted summary judgment to the defendants because Weyant had not exhausted administrative remedies. The Second Circuit vacated that decision, held that no clear administrative remedy was available, and sent the case back for consideration of the parties’ remaining arguments. The opinion addressed those remaining arguments on the parties’ cross-motions for summary judgment.

Summary judgment is appropriate when the evidence shows no genuine dispute about a fact that could affect the result and the moving party is entitled to judgment under the law. When such a dispute exists, a jury could resolve it, so summary judgment is not appropriate.

Conversion Claim

The court held that New York’s Uniform Commercial Code (UCC) Article 3 applied to the check. The check was a negotiable instrument because it was signed, ordered payment of a specific amount, was payable on demand to Phia, and otherwise met the requirements for a check. The conditions in Weyant’s cover letter did not change the check’s negotiability because they were not written on the check itself.

The court applied UCC section 3-419, which addresses conversion of an instrument. Under that provision, an instrument may be converted when a person who receives it for payment refuses, after a demand, either to pay or return it. A demand for return may be made when the instrument is delivered or may be implied by the circumstances. The court also considered the voluntary-payment doctrine, which can bar recovery of a payment made voluntarily with knowledge of the relevant facts and without fraud or material mistake.

The court concluded that disputed evidence prevented summary judgment. Weyant did not make a later, express demand for the check’s return after delivering it, and the court rejected her argument that filing complaints automatically satisfied the demand requirement. But a reasonable jury could find that her statements that the payment was made under protest and that she contested the entire lien implied a demand for return at the time of delivery. A jury could also find that the payment was not voluntary.

The conflicting accounts of the parties’ communications were material. If Weyant consistently communicated that the entire payment was involuntary because the lien was invalid, the circumstances could imply a demand for return. If her lawyers instead indicated that some of the lien was valid, challenged only portions of the payment, and encouraged Phia to take the check rather than place the money in escrow, the circumstances might not imply such a demand. Because a reasonable jury could resolve the evidence either way, the court denied summary judgment to both sides on the conversion claim.

The court also denied summary judgment on any common-law conversion claim. It explained that a plaintiff cannot use common-law conversion to avoid the UCC when a UCC conversion claim fails, but common-law and UCC conversion theories may coexist when the UCC claim remains viable. The court left any need to reconcile those theories for possible consideration through jury questions.

Holders-in-Due-Course Defense

The defendants argued that they were holders in due course. A holder in due course is a person who takes a negotiable instrument for value, in good faith, and without notice of a defense or claim against it. Such a holder generally takes the instrument free from claims by other persons.

The court rejected the defendants’ request for summary judgment on this defense because the same factual disputes concerned whether Phia acted in good faith and without notice of Weyant’s claim. The court stated that applying Weyant’s payment to an asserted prior debt could constitute taking the check for value, even though the parties disputed whether the defendants were actually entitled to reimbursement. But the evidence did not clearly establish what the defendants knew about Weyant’s objections. A reasonable jury could therefore find that the defendants were not holders in due course.

Disposition

The court denied the parties’ cross-motions for summary judgment. The conversion claim therefore remained unresolved, and the court directed the parties to submit a joint status letter proposing next steps and scheduled a telephone conference.