The opinion of the court was delivered by: Morrison C. England, Jr. United States District Judge
Before the Court is Defendant National Transportation Associates Inc.'s ("NTA") Motion to Dismiss ("MTD") Plaintiff Universal Casualty Company's ("UCC") First Amended Complaint (ECF No. 37) ("MTD").
Also before the Court is Third-Party Defendant Crusader Insurance Company's ("Crusader") Motion to Dismiss Third-Party Plaintiffs Yogesh Kumar ("Kumar") and Links Insurance Company's ("Links") Third-Party Complaint (ECF No. 56) ("MTD3PC").*fn1 For the reasons that follow, NTD's Motion is DENIED and Crusader's Motion is GRANTED without leave to amend. In addition, the Court sua sponte DISMISSES, without leave to amend, Godinez's Third Party Complaint against Crusader (ECF No. 51) for failure to state a claim. Finally, The Court sua sponte DISMISSES, with leave to amend, the cross-claims of and Links and Kumar (ECF No. 42) and Godinez (ECF No. 51) for failure to state a claim.
The facts alleged in UCC's FAC (ECF No. 27) are generally the same as those alleged in its original Complaint; the Court will, except where otherwise noted, simply republish its Background Section from its December 15, 2011 Order. (ECF No. 26.)
This case arises from the commercial relationship between Universal, an insurance carrier, and Defendants, individuals and entities who were in the business of selling insurance policies on behalf of Universal. Universal provided insurance to its customers ("policyholders") by relying on the services of various managing general agents who would quote, bind and issue the insurance policies.
Between August 2005 and July 2009, Defendant Godinez was a Shareholder, President, Director and Officer of Sovereign General Insurance, Inc. ("Sovereign"). From April 2008 to July 2009, Defendant Kumar became the majority shareholder, CFO, Director and Officer of Sovereign. Kumar was also the Chairman of Sovereign's Board of Directors between 2008 and 2009. Together with Godinez, Kumar controlled, directed and oversaw Sovereign's operations between 2008 and 2009.
Kumar, Godinez, and Sovereign were at all relevant times licensed as insurance brokers and agents by the California Department of Insurance and the Arizona Department of Insurance. As part of its business, Sovereign functioned as the managing general agent for various insurance carriers, including Universal.
A. The Program Manager Agreement
On August 2, 2005, Plaintiff entered into a Program Manager Agreement ("PMA") with Sovereign.*fn3 Through the PMA, Universal appointed Sovereign as its non-exclusive managing general agent, authorized to bind commercial vehicle-related insurance policies on behalf of Universal in California and Arizona.
Under the PMA, Sovereign's duties and responsibilities included, among other things, (I) soliciting customers; (ii) underwriting insurance policies and binding risks on behalf of Universal; (iii) charging, collecting, holding, and remitting all premiums due on policies bound or written under the PMA; (iv) refunding Return Unearned Premiums, resulting from cancellations or to Insured Parties and Premium Finance Companies when appropriate; (v) accounting for all transactions and insurance policies written under the PMA; and (vi) other work necessary or incidental to the insurance business written under the PMA.
Under Article III.N. of the PMA, labeled "Fiduciary Capacity
- Premium Trust Funds," Sovereign was obligated to "act as a fiduciary for [Universal]" and the insurance premiums collected from "policyholders" were required to be deposited into a segregated premium trust account (the "Premium Trust Account"). The Premium Trust account was opened at Pacific State Bank under the name "UCC Trust Account" (i.e., "Universal Casualty Trust Account").
Article III.N.3. prohibited Sovereign from commingling any premiums or other funds relating to insurance policies written under the PMA with funds it held in any other capacity. Specifically, subject to certain exceptions set forth in the PMA, the Premium Trust Account existed "solely for the ... approved purpose" of (I) holding and remitting amounts due to Universal under the PMA, (ii) refunding Return Premiums to Insured Parties and Premium Finance Companies and (iii) withdrawing Sovereign's earned commissions.
Under the PMA, insurance premiums collected from an Insured Party or Premium Finance Company must be refunded to such party in certain situations (known as a "Return Premium") where (I) the Insured Party's policy is canceled; (ii) there is a reduction in the number of insured vehicles in a fleet; or (iii) when the Insured Party or Premium Finance Company paid a greater estimated premium at the time of purchasing the policy, and the premium is later determined to be less than the initial estimate.
Pursuant to the PMA, Sovereign and its agents were expressly obligated to refund Universal for commissions it retained on account of premiums that were sold but later required to be refunded to Insured Parties or Premium Finance Companies as Return Premiums.
On the same day of the PMA signing, Godinez executed the "Program Manager Agreement - Sovereign General Insurance, Inc. Manager's Personal Guaranty" (the "Guaranty").
The Guaranty (1) Promised Sovereign's obligations to collect and forward premiums received by the issued insurance policies written by Sovereign on behalf of Universal; (2) Promised that Sovereign would manage and account for the trust funds in the Premium Trust Account in accordance with the PMA; and (3) Promised Sovereign's payment of interest amounts due under the PMA and payment of costs and attorney's fees incurred in collecting amounts due.
The Guaranty, to which Godinez provided his personal guaranty of "faithful performance of all the terms and conditions of the [PMA]," listed Godinez as an "officer of Manager." The PMA defines the term Manager as "Sovereign and all related entities as identified in the ENDORSEMENTS attached [to the PMA] and made part of this Agreement (collectively and individually: 'Manager')." (emphasis in original). The Guaranty was incorporated as part of the PMA as Endorsement G thereto.
B. Godinez's and Kumar's Alleged Wrongful Conduct
Between the execution of the PMA in 2005 and the termination of the agreement in 2009, Plaintiff alleges Defendants Godinez and Kumar breached their statutory and contractual fiduciary duties owed to Universal with respect to premiums collected on Universal's behalf. Specifically, between 2005 and 2009, Godinez, through his position at Sovereign, caused multiple transfers from Sovereign's bank accounts to himself and a number of insiders. The funds transferred were allegedly funds from the premiums owed to Universal.
Between the years 2008 and 2009, Plaintiff alleges that Defendant Kumar caused multiple transfers from Sovereign's bank accounts to himself and a number of insiders totaling $1,465,950.00. Alleged insiders include Links, Mr. Subhas Chand (his father), Krishna Devi, DD/BS, LLC, and Din Sharma. These funds allegedly consisted of premiums due to Universal.
Pursuant to the PMA, each month Sovereign would prepare and submit a monthly spreadsheet (each spreadsheet is referred to as a "Bordereau" and two or more Bordereau, "Bordereaux") showing:
(I) the gross premium due to Universal for each policy written by Sovereign for Universal; (ii) the Return Premium due to an Insured Party, if any; (iii) the amount of Sovereign's commission; and (iv) the net premium owed to Universal after deductions for any Return Premium and for Sovereign's commission (the "Net Bordereau Premium"). According to Plaintiff, the Bordereaux were prepared at the direction and with the approval of Kumar and Godinez.
Additionally, under the PMA agreement, Sovereign would issue a check bimonthly to Universal for the Net Bordereau Premiums which included all premium sales for the prior month. The amount of each check was ...