This case was on the court's calendar on November 9, 2012 for hearing of the following motions filed by plaintiff Arch Insurance Company ("Arch"): Motion for Preliminary Injunction against defendants Sierra Equipment Rental Inc. ("Sierra"), Melvin R. Weir and Carolyn Scarola, as trustee of the Dry Creek Ranches Trust ("DCR"); Motion for Temporary Restraining Order against proposed defendants Carolyn Scarola, Karrie Kindell, Roy Lanza and Hust Brothers, Inc. ("Hust") (ECF 58); and Motion for Leave to File a First Amended Complaint and Modify the Pretrial Scheduling Order (ECF 52). Sierra, Weir and Scarola filed an opposition to the Motion for Leave to Amend (ECF 60) but did not submit a written opposition to the Motion for Preliminary Injunction. There was no response filed or appearance made in response to the Motion for Temporary Restraining Order. At hearing, Andrew Ramos appeared for Arch; Kevin Rooney appeared for Sierra and Weir; Bruce Cornelius appeared for Carolyn Scarola individually; and Chris Kuhner appeared for Carolyn Scarola as Dry Creek Ranches Trustee.
For the reasons explained below, the court GRANTS Arch's Motion for Preliminary Injunction and Motion for Leave to File a First Amended Complaint and Modify the Pretrial Scheduling Order, but DENIES Arch's Motion for Temporary Restraining Order without prejudice.
Arch's claims arise from its issuance of surety bonds to Sierra for Sierra's contracted construction projects for the State of California Department of Transportation ("CalTrans") and Tutor-Saliba between December 2009 and January 2011. (ECF 2 ¶¶ 9-10.) In its original complaint filed on March 9, 2012, Arch alleged that Sierra, Weir, Scarola,*fn1 and the Dry Creek Ranch Trust (collectively, "Indemnitors") executed a General Indemnity Agreement ("GIA") promising to indemnify Arch against any losses that Arch might incur from issuing the bonds. On January 31, 2012, Sierra notified Arch that it needed $3 million in financial assistance after defaulting on its project for CalTrans. (ECF 2 ¶¶ 19-20.) In turn, Arch requested that Sierra and Indemnitors deposit $1,461,918.83 in collateral, the amount Arch estimated it had received in claims, discharge Arch from the bonds, and allow Arch to inspect books and records, consistent with the terms of the GIA. (Id. ¶ 21.) Arch asserts that Sierra and Indemnitors have not complied with these obligations under the GIA. (Id. ¶¶ 28-30.) The court issued an order for a writ of attachment on May 18, 2012 allowing Arch to attach defendants' property in the amount of $1,661,980, which included attorney's fees. (ECF 36.)
Through its declarations submitted in support of its Motion for Preliminary Injunction, Arch has established that it provided three surety bonds to Sierra in the amounts of $11,311,521.95, $5,655,760.98 and $6,532,874.00. (Decl. of William Pearce ¶ 6, ECF 59.) Subsequently, Arch paid $3,500,000.00 to CalTrans for the difference between the contracted price and the actual completion price. (Id. ¶ 7.) Arch also made numerous payments to various other parties regarding the same project, totaling more than $1,440,840.00. (Id. ¶¶ 8-9.) Arch's total losses on its bonds to Sierra are $5,355,243.74. (Id. ¶ 10.) Indemnitors were obligated under the GIA to reimburse Arch for these losses. (Id. ¶ 11.)
After filing its original complaint, Arch subpoenaed defendants' bank records and discovered the facts on which it bases the present motions. (Decl. of Andrew J. Ramos, ¶¶ 9-11, ECF 54.) Arch's forensic accountant, Mary Lynn Kotansky, reviewed transactions between Sierra and CalTrans. (Decl. of Mary Lynn Kotansky ¶¶ 3-4, ECF 58-6.) CalTrans paid Sierra a total of $2,783,907.13 for the construction project. (Id. ¶ 5.) Kotansky was unable to locate deposits into Sierra's Bank of Marin account corresponding to $2,019,492.57 of those payments from CalTrans.*fn2 (Id. ¶ 8.) Kotansky also determined that on the same date that Sierra received $465,355.15 from CalTrans in Sierra's account, Sierra President Karrie Kindell wrote a check from the same account to Weir personally for $300,000.00, which Kotansky concluded came from the CalTrans payment. (Id. ¶¶ 9-10; Decl. of Andrew J. Ramos ¶¶ 12-15, ECF 54; Exs. CE, ECF 57.) Arch provided evidence that Weir withdrew $100,000 from Sierra's Bank of America account after Arch requested that Sierra and Indemnitors pay collateral owed under the GIA, (Decl. of Andrew J. Ramos ¶¶ 18-19, Exs. F-G, ECF 57), and that Scarola withdrew $100,000 from DCR's account after Arch filed its initial complaint (Decl. of Andrew J. Ramos
¶ 21, Ex. H, ECF 57) and an additional $25,000 from DCR's account after the court's issuance of a writ of attachment (Decl. of Andrew J. Ramos ¶ 22, Exs. I, K, ECF 57). Arch also asserts that Roy Lanza, a co-owner of DCR's property in Butte County, withdrew $165,000 from DCR's account with Gold Country Bank after Arch requested that Indemnitors pay collateral. (Decl. of Andrew J. Ramos ¶¶ 26-29, Ex. L-N, ECF 54.)
Additionally, Arch provided evidence that DCR received $268,331.00 from the sale of its cattle in September 2012, which was paid to Weir and Hust Brothers, Inc. ("Hust"). (Id. ¶¶ 32-35.) The Bill of Sale for the cattle represented that they belonged to Hust, and Weir told the livestock auction he wanted the sale to proceed in Hust's name, but the sale proceeded in DCR's name because a brand inspector for the State of California Department of Food and Agriculture determined the cattle were DCR's. (Decl. of Cris Carlson, ¶¶ 5-8, ECF 58-4.)
Defendants contest that DCR received funds from the cattle sale and asserts that DCR's funds "were used to pay [DCR] expenses; including but not limited to walnut orchard maintenance, feed for cattle, rent for trucks, watering for the properties and other necessary expenses." (Decl. of Carolyn S. Scarola ¶¶ 5-6, ECF 61.)
In its original complaint filed on March 9, 2012, Arch alleged claims for
(1) breach of contract against Sierra and Indemnitors, (2) promissory estoppel against Sierra and Indemnitors, (3) a claim for conspiracy to commit fraud against Sierra, Indemnitors, and Scarola,
(4) a claim for negligent misrepresentation against Sierra, Indemnitors, and Scarola, and (5) a claim for intentional misrepresentation against Scarola. (ECF 2.) Arch sought (1) declaratory relief against Sierra and Indemnitors, (2) damages of at least $75,000, plus attorneys' fees, for each of Arch's claims for breach of contract, promissory estoppel, conspiracy to commit fraud, negligent misrepresentation, and intentional representation, (3) specific performance of the GIA by Sierra and Indemnitors, and (4) injunctive relief/quia timet against Sierra and Indemnitors. (Id.)
Arch's proposed First Amended Complaint ("FAC") omits the third, fourth, or fifth causes of action of Arch's original complaint and includes several new claims, including claims against new defendants. (ECF 55.) The proposed FAC includes (1) a claim for conversion against Indemnitors, (2) a claim for conspiracy to convert against Indemnitors and Kindell, (3) a claim for conversion against DCR Trust, Weir, Scarola, Lanza and Hust, (4) a claim for fraud against Indemnitors, (5) a claim for violation of the Uniform Fraudulent Transfer Act ("UFTA"), Cal. Civ. Code § 3439, et seq. against all defendants, and (6) a claim for conspiracy to violate the Uniform Fraudulent Transfer Act against Indemnitors, Scarola, Kindell, Lanza and Hust. (Id.) In addition to its original ...