Woodbridge Structured Funding, LLC v. Arizona Lottery
235 Ariz. 25, 326 P.3d 292, 686 Ariz. Adv. Rep. 24 (2014)
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Rule of Law:
A party seeking to intervene in an action as a matter of right must demonstrate a direct, not merely contingent, legal interest in the property or transaction at issue. An unapproved and unperformed contract to purchase lottery winnings, which by statute are not freely assignable without court approval, constitutes only a contingent interest insufficient to support intervention.
Facts:
- In October 2010, Wallace Thomas, Jr. (Thomas) won a one million dollar prize from the Arizona Lottery (AZ Lottery), payable in twenty-five annual installments of $40,000.
- Thomas negotiated with both Genex Capital Corporation (Genex) and Woodbridge Structured Funding, LLC (Woodbridge) to sell his future payments for a lump sum.
- On June 8, 2012, Thomas signed an agreement to assign his remaining lottery payments to Genex for a lump sum of $428,148.
- Later that same day, Thomas emailed Genex to cancel the agreement, and the next day, June 9, he faxed a cancellation letter.
- On June 9, 2012, Thomas entered into a written agreement to assign his lottery payments to Woodbridge for a lump-sum payment of $430,000.
- On June 14, 2012, Genex's president left Thomas a voicemail rejecting the cancellation notice and asserting the agreement was still valid.
- On June 19, 2012, Genex filed a UCC-1 financing statement with the Arizona Secretary of State in an attempt to perfect a security interest in the lottery payments.
Procedural Posture:
- On June 26, 2012, Thomas and Woodbridge filed a complaint against the AZ Lottery in superior court (trial court) seeking a court order approving their assignment agreement (the 'Approval Action').
- On July 12, 2012, Genex filed a separate lawsuit against Thomas for breach of contract and Woodbridge for tortious interference (the 'Damages Action').
- Thomas and Woodbridge moved for summary judgment in the Approval Action, which the trial court granted on July 27, 2012.
- After the ruling, Genex moved to intervene in the Approval Action.
- The trial court signed the final order granting summary judgment to Thomas and Woodbridge on August 16, 2012.
- The trial court denied Genex’s motion to intervene and its subsequent motion for reconsideration.
- Genex, as appellant, appealed the denial of its motion to intervene to the Arizona Court of Appeals.
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Issue:
Does a company with a contingent, unapproved contract to purchase a lottery prize, for which it has not yet paid any value, have a direct legal interest sufficient to grant a right to intervene in a separate court action approving the assignment of that same prize to another company?
Opinions:
Majority - Orozco, Judge
No. A company with a contingent, unapproved contract to purchase a lottery prize does not have a direct legal interest sufficient to grant a right to intervene in an approval action. To intervene as of right under Arizona Rule of Civil Procedure 24(a), an applicant must assert a direct legal interest in the transaction, not one that is merely possible or contingent. Under Arizona statute A.R.S. § 5-563, lottery winnings are not freely assignable and require a court order for any assignment to be valid. Because Genex's agreement with Thomas had not received the required judicial approval, its interest remained contingent and was therefore insufficient to justify intervention. Furthermore, Genex's UCC-1 filing did not create an enforceable security interest because a security interest does not attach until value has been given, and Genex had not paid Thomas. The judgment approving the Woodbridge assignment does not impair Genex's ability to protect its interests, as it can still pursue its separate claims for breach of contract and tortious interference against Thomas and Woodbridge.
Analysis:
This decision clarifies the high threshold required for intervention of right in Arizona, particularly concerning statutorily restricted assets like lottery winnings. The court establishes that a mere contractual claim, without the necessary statutory or judicial validation, is a 'contingent' interest insufficient to allow a party to join a separate legal proceeding. This precedent forces parties with competing claims to pursue them in separate damages actions rather than attempting to unwind an already-approved transaction through intervention. The ruling also reinforces the fundamental UCC principle that a security interest is unenforceable against debtors and third parties until value has been given, regardless of whether a financing statement has been filed.
