United States District Court, S.D. California
ODYSSEY REINSURANCE COMPANY, a Connecticut corporation, Plaintiff,
RICHARD KEITH NAGBY, et al, Defendants.
ORDER HOLDING DEFENDANT DIANE DOSTALIK IN CONTEMPT
AND GRANTING PRELIMINARY INJUNCTIONS [ECF Nos. 199, 172,
HONORABLE BARRY TED MOSKOWITZ, UNITED STATES DISTRICT JUDGE
the Court is an order to show cause (“OSC”) why
Defendant Diane Dostalik, formerly known as Diane Nagby,
(“Defendant”) should not be held in contempt of
Court. (ECF No. 199 (“December 2018 OSC re
Contempt”).) The OSC required that Ms. Dostalik show
cause, if any, why the Court should not find her in contempt
• the injunction order entered on October 4, 2017, (ECF
No. 69 (“October 4, 2017 Injunction Order”));
• the injunction order entered on May 4, 2018 (ECF No.
137 (“May 4, 2018 Injunction Order”)); and
• the temporary restraining order entered on August 8,
2018 (ECF No. 172 (“August 8, 2018 TRO”)).
reasons discussed below, the Court holds Defendant Diane
Dostalik in civil contempt.
pending before the Court are two temporary restraining orders
(“TROs”) issued by the Court on August 8, 2018
and November 7, 2018. (August 2018 TRO; ECF No. 194
(“November 7, 2018 TRO”).) Those orders required
Defendant to show cause why preliminary injunctions should
not issue having the same terms as the TROs. For the reasons
discussed below, the Court grants the preliminary
action arises out of the judgment entered by the United
States District Court for the District of Connecticut in
favor of Plaintiff Odyssey Reinsurance Company
(“Plaintiff” or “Odyssey”) and
against Defendant Cal-Regent Insurance Services Corporation
(“Cal-Regent”) in the amount of $3, 200, 000.00
plus interest. (See ECF No. (“Second Am. Compl. or
SAC”) ¶¶ 15-17.) Cal-Regent was an insurance
agency that underwrote certain insurance risks on behalf of
State National Insurance Company (“State
National”). (SAC ¶ 18.) Plaintiff in turn
reinsured State National for a certain percentage of those
risks, ranging from 90%-100%. (Id.) In accordance
with a series of reinsurance agreements between the parties,
Cal-Regent received a provisional commission-paid in part by
Plaintiff-on all policies that it underwrote for State
National. (SAC ¶ 19.) At the end of each year, the
provisional commissions were adjusted depending on the
profitability of the business underwritten by Cal-Regent.
(SAC ¶ 20.) Where the provisional commission paid by
Plaintiff exceeded the amount to which Cal-Regent was
entitled to after the yearly adjustment, Cal-Regent was
obligated to pay the difference to Plaintiff. (Id.)
By 2013, Cal-Regent owed Plaintiff $2, 740, 802.61 in return
commissions, in part due to a lawsuit against State National
that settled in February 2013. (SAC ¶¶ 21-23, 25.)
alleges that by early 2013, Defendants Richard Nagby and
Diane Dostalik “understood that the amount of return
commissions owing to [Plaintiff] would substantially
increase” as a result of the lawsuit. (SAC ¶ 29.)
Plaintiff claims that “[a]s the potential effect of the
[lawsuit] on Cal-Regent's obligation to pay return
commission became clear to the Nagbys, they embarked on a
plan to strip Cal-Regent of assets, ” (SAC ¶ 30),
which began with the Nagbys forming Pacific Brokers Insurance
Services (“PBIS”), a Nevada corporation, (SAC
alleges that Mr. Nagby, with the help of Defendants CTS and
David Dostalik, “caused funds otherwise owing to
Cal-Regent and/or to its successor PBIS to be transferred to
one or more account(s) held in the name of CTS” to
conceal funds from creditors including Plaintiff. (SAC
¶¶ 32, 40.7.) Defendant David Dostalik allegedly
released to the Nagbys for their benefit, “portions of
the funds held by CTS on behalf of Cal-Regent.” (SAC
¶ 33.) Some of the funds were also deposited into the
Cal-Regent and PBIS operating accounts to pay creditors,
“in order to deceive them as to the true status of
Cal-Regent and CTS.” (Id.) “Other funds
deposited into the Cal-Regent or PBIS operating accounts were
characterized by the Nagbys as loans to those entities, so
that payments back to the Nagbys could be characterized as
tax-free loan repayments.” (Id.)
also claims that in April 2013, while Cal-Regent's debts
remained outstanding, Mr. Nagby and Ms. Dostalik formed PBIS
and subsequently “caused Cal-Regent to transfer
substantially all of its assets to PBIS, ” including
its goodwill and “book of business, ” without
receiving reasonably equivalent value in exchange for these
assets. (SAC ¶¶ 35-36, 45.) Mr. Nagby and Ms.
Dostalik are both Cal-Regent's and PBIS's officers,
directors, managers and shareholders. (SAC ¶ 46.)
Plaintiff alleges that “PBIS was formed by [Mr. Nagby
and Ms. Dostalik] for the specific purpose of continuing the
business operations of Cal-Regent under a different name in
order to hinder, delay or defraud the creditors of
Cal-Regent.” (SAC ¶ 49.)
April 2014, Plaintiff filed an action in the District of
Connecticut against Cal-Regent to recover the amount owed to
Plaintiff in return commissions. (SAC ¶ 12.) In October
2015, the court rendered a judgment in Plaintiff's favor
and against Cal-Regent in the amount of $2, 740, 802.61. (SAC
¶ 14.) In November 2015, the court awarded Plaintiff a
supplement judgment. (SAC ¶¶ 15-17.) In addition to
the October 2015 judgment the court also awarded Plaintiff
$459, 197.39, bringing the judgment to a total sum of $3,
200, 000.00 plus interest. (Id.)
alleges that “three months after oral argument on
[Plaintiff's] motion for summary judgment in the
Connecticut action and three months before the Judgment was
entered, [Mr. Nagby and Ms. Dostalik] caused PBIS to sell
substantially all of its assets to AmTrust North America,
Inc. (“AmTrust”) for $5 million.” (SAC
¶ 37.) Of the sale proceeds (“the AmTrust
proceeds”), AmTrust made an initial payment of $3
million to PBIS. (ECF No. 160-1, ¶¶ 3-4.) The
remainder was to be paid in the form of contingent
“earn out” payments in three annual installments.
(ECF No. 165, Ex. 133, ¶ 3.)
only PBIS shareholders, Mr. Nagby and Ms. Dostalik decided
how to allocate the AmTrust proceeds between the two of them
during the course of their divorce proceedings. See In
re: Marriage of: Diane M. Nagby v. Richard K. Nagby, No.
ED80574, in the Superior Court of California, County of San
Diego. Per the “Stipulation and Order Re Division of
PBIS Sale Proceeds and Outstanding Post-Judgment
Issues” signed by the parties in May 2015, the two
agreed that Ms. Dostalik would receive $2.5 million of the
initial $3 million payment, while Mr. Nagby would receive the
remaining $500, 000. See Id. They also agreed that
Mr. Nagby would receive the earn out payments. Id.
August 4, 2015, Ms. Dostalik received $2.5 million, and Mr.
Nagby received $500, 000. (ECF No. 140-3, Ex. 77; ECF No.
160-1, ¶ 14; ECF No. 165, Ex. 133 ¶¶ 2, 5.) In
October 2016, AmTrust wired the first earn out payment in the
amount of $894.583.19 to a PBIS bank account. (ECF No. 140-3,
Ex. 543.) Mr. Nagby received those funds on October 21, 2016.
(ECF No. 140-3, Ex. 544.)
filed the SAC on March 21, 2017, against several defendants
including PBIS, Cal-Regent, and the Nagbys under several
theories of liability including the Uniform Fraudulent
Transfer Act (“UFTA”), California's alter ego
and successor liability law, and principles of corporate law.
October 4, 2017, the Court granted Plaintiff's motion for
the entry of a default judgment against Cal-Regent and PBIS
in the amount of $3.2 million plus post-judgment interest.
(See ECF No. 68.) The Court also granted Plaintiff a
preliminary injunction against the Nagbys, restraining them
from the dissipation of the AmTrust proceeds, including
“all funds already received in connection with the sale
of PBIS to AmTrust, and payments that are hereafter received
from AmTrust.” (ECF No. 69 (“October 2017
October 10, 2017, a stipulated order was entered directing
AmTrust to pay into the Court registry the second and third
earn out payments. (See ECF No. 74 (“October 2017
Registry Order”).) Plaintiff and AmTrust filed a joint
motion to dismiss AmTrust without prejudice. (See ECF No.
84.) The dismissal order required that AmTrust continue to
abide by the October 2017 Registry Order. (Id.)
AmTrust has now deposited the second and third earn out
payments, totaling $958, 017.66, into the Court registry.
(See ECF No. 223 (“Pl.'s Opp'n to
October 27, 2017, the Court entered a judgment as to
Cal-Regent and PBIS, including a monetary award against PBIS
in the amount of $3, 219, 482.68, the amount owing on the
District of Connecticut judgment against Cal-Regent. (ECF No.
82.) On March 5, 2018, the Court certified the judgment as
final under Fed.R.Civ.P. 54(b). (ECF No. 105.) No appeal was
March 7, 2019, the Court denied a motion to intervene by
third party Knight Insurance. (ECF No. 233.) On March 14,
2019, the Court granted a turnover motion in favor of Odyssey
and directed payment of the AmTrust proceeds in the Court
registry (the second and third earn out payments) to Odyssey.
(ECF No. 234.) Knight Insurance has appealed both orders.
(ECF Nos. 235, 236.) Mr. Nagby has appealed the order
granting Plaintiff's turnover motion. (ECF No. 246.)
April 22, 2019, the Court denied in part and granted in part
a motion for summary judgment submitted by Defendants David
Dostalik and CTS. (ECF No. 253.) Defendants David Dostalik
and CTS have appealed the order. (ECF Nos. 263, 264.)
dates have been set, culminating in the final pretrial
conference scheduled for July 25, 2019. Trial is scheduled to
begin August 19, 2019.
Court has issued a series of injunctions and temporary
restraining orders requiring Ms. Dostalik to deposit AmTrust
proceeds in her possession into the Court registry, starting
with the Court's October 4, 2017 Injunction Order. OSC
proceedings as to why Ms. Dostalik should not be held in
contempt with respect to those orders concluded on June 6,
2019. Below, the Court details the findings of fact and
conclusions of law that serve as the basis for this Order
holding Ms. Dostalik in civil contempt.
district court has the inherent power to enforce its orders
through civil contempt. See Shillitani v. United
States, 384 U.S. 364, 370 (1966). In the Ninth Circuit,
a finding of civil contempt is proper when a party disobeys a
specific and definite court order by failure to take all
reasonable steps within the party's power to comply.
See Go-Video, Inc. v. Motion Picture Ass'n of
America, 10 F.3d 693, 695 (9th Cir. 1993).
party moving the Court to adjudge another of contempt bears
the initial burden of showing by clear and convincing
evidence that the alleged contemnor has violated a specific
and definite order of the Court. See FTC v. Affordable
Media, 179 F.3d 1228, 1239 (9th Cir. 1999) (citing
Stone v. City and Cty. of San Francisco, 968 F.2d
850, 856 n.9 (9th Cir. 1992)). Upon such a showing, the
burden shifts to the alleged contemnor to demonstrate why she
was unable to comply. Id.
inability to comply may constitute a defense to a charge of
civil contempt. Id. (citing United States v.
Rylander, 460 U.S. 752, 757 (1983)). In raising this
defense, the defendant has the burden of production.
Rylander, 460 U.S. at 757. The party asserting the
defense “must show categorically and in detail why he
is unable to comply.” Affordable Media, 179
F.3d at 1241. “The contempt need not be willful.”
In re Dual-Deck Video Cassette Recorder Antitrust
Litig., 10 F.3d 693, 695 (9th Cir. 1993) (internal
quotation marks and citation omitted). “Contempt
sanctions, however, are not warranted where the nonmoving
party's action ‘appears to be based on a good faith
and reasonable interpretation' of the court's
order.” Newmark Realty Capital, Inc. v. BGC
Partners, Inc., No. 16-cv-01702-BLF, 2018 WL 2416242, at
*2 (N.D. Cal, May 29, 2018) (quoting In re Dual-Deck
Video Cassette Recorder Antitrust Litig., 10 F.3d at
contempt hearing, the propriety of the underlying order is
not at issue; rather, the question for the Court is whether
the alleged contemnor has the present ability to obey the
Court's order. See Maggio v. Zeitz, 333 U.S. 56,
69 (1948). “[A] contempt proceeding does not open to
reconsideration the legal or factual basis of the order
alleged to have been disobeyed and thus become a retrial of
the original controversy.” Maggio, 333 U.S. at
69; Rylander, 460 U.S. at 756-57.
Court finds that Ms. Dostalik has violated two specific and
definite Court orders by failing to take all reasonable steps
within her power to comply. See Go-Video, Inc. v. Motion
Picture Ass'n of America, 10 F.3d 693, 695 (9th Cir.
1993). Plaintiff's presentation of evidence has revealed
several violations of both the October 4, 2017 Injunction
Order and the August 8, 2018 TRO.
Defendant Violated the October 4, 2017 Injunction
October 4, 2017 Injunction Order
October 4, 2017, the Court ordered that Ms. Dostalik is:
Preliminary enjoined and restrained from directly or
indirectly: (a) Transferring, assigning, disposing of or
commingling any funds or property received in connection
with the sale of PBIS to AmTrust, including but not
limited to all “earn out” distributions collected
or to be collected from AmTrust.
(October 4, 2017 Injunction Order, 2:15-23) (emphasis added).
Court also ordered Ms. Dostalik to:
deposit in the registry of the Court by October 11, 2017 all
funds already received in connection with the sale of
PBIS to AmTrust, and payments that are hereafter
received from AmTrust or its agent within 24 hours of
(Id. at 2:24-27) (emphasis added).
the Court warned that any act “in violation of the
terms of [the] Order may be considered and prosecuted as
contempt of this Court.” (Id. at 3:6-7.)
Defendant Failed to Deposit At Least $176, 263.13 in AmTrust
Proceeds into the Court Registry
Court finds that on October 4, 2017, Ms. Dostalik had in her
possession at least $176, 263.13 in AmTrust Proceeds and
failed to deposit these funds into the Court registry, in
violation of the October 4, 2017 Injunction.
Dostalik initially received the $2.5 million payment in
connection with the sale of PBIS to AmTrust on August 4, 2015
through an incoming wire transfer. (See Pl. Ex. 91A.) The
testimony of Plaintiff's expert witness, Mr. Brian
Bergmark, demonstrates what happened to the AmTrust proceeds
from its initial deposit on August 4, 2015 to October 4,
2017, when the Court entered its Order. (See generally ECF
No. 229 (“Tr. of OSC Hr'g on May 20, 2019” or
“Tr. May 20, 2019”), 3-54.) Mr. Bergmark
testified that in conducting his analysis of the $2.5
million, he relied on a method called proportional or
allocation tracing. (Id. at 17:9-12.) Mr. Bergmark
explained that as the $2.5 million was transferred throughout
Ms. Dostalik's various bank accounts or used to pay for
expenses, he kept track of “two separate buckets of
monies, ” one that consisted of AmTrust money and the
other that consisted of personal funds. (Id. at
16:20-17:8.) With this tracing, Mr. Bergmark at all times
tracked the proportion or percentage of each account balance
consisting of AmTrust proceeds. (Id. at 18-2019:13.)
When money was transferred between accounts, Mr. Bergmark
preserved the “character” of the funds, whether
AmTrust or personal, to ensure that the percentage of AmTrust
funds in each account remained accurate. (Id. at
20:16-22:2.) When money was used to pay for expenses, Mr.
Bergmark attempted to characterize the type of expense as an
AmTrust withdrawal or personal in nature. (Id. at
17:14-18:18.) He then subtracted the expense from the AmTrust
funds or personal funds in the account accordingly.
(Id.) Mr. Bergmark emphasized that for this part of
the analysis, he was always “conservative, ” and
would subtract expenses from the AmTrust money unless he
could clearly identify that it was personal in nature.
Bergmark analyzed nine of Ms. Dostalik's bank accounts to
trace the initial $2.5 million deposit:
• Bank of the West Personal Checking (0019)
• Bank of the West Personal Money Market (0001)
• Wells Fargo Personal Checking (9396)
• Wells Fargo Personal Savings (9984)
• Wells Fargo Green Tree Funding LLC Checking (1268)
• Wells Fargo Green Tree Funding LLC
“Additional” Checking (9404)
• Wells Fargo Green Tree Funding LLC Savings (9976)
• Chase Nevada Cactus Growers LLC Checking (6375)
• Chase Nevada Cactus Growers LLC Savings (7150)
(Id. at 14:5-15:11.) The $2.5 million was originally
deposited into Bank of the West Personal Checking (0019) on
August 4, 2015. (Pl. Ex. 91A; Tr. May 20, 2019, 15:20-16:4.)
For the next two years, the money was disbursed throughout
Ms. Dostalik's nine accounts. (Pl. Exs. 91, 93, 149.)
From the date of the initial deposit to October 4, 2017, Mr.
Bergmark testified that the total aggregate balance of the
nine accounts was never less than 97% AmTrust proceeds. (Tr.
May 20, 2019, 42:24-43:12.)
October 4, 2017, three of Ms. Dostalik's accounts had
balances consisting of both ...