United States District Court, S.D. California
ODYSSEY REINSURANCE COMPANY, a Connecticut corporation, Plaintiff,
RICHARD KEITH NAGBY; DIANE NAGBY a.k.a. DIANE DOSTALIK; PACIFIC BROKERS INSURANCE SERVICES, a Nevada Corporation; CAL-REGENT INSURANCE SERVICES CORPORATION, a California corporation; CLAIMS TECHNOLOGY SERVICES CORPORATION, a California corporation; DAVID DOSTALIK, Defendants.
ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY
JUDGMENT AND GRANTING PLAINTIFF'S REQUEST FOR JUDICIAL
NOTICE [ECF No. 165]
Honorable Barry Ted Moskowitz United States District Judge.
Odyssey Reinsurance (“Odyssey”) moves for summary
judgment, and in the alternative, for summary adjudication,
on Plaintiff's fourth and ninth causes of action against
Defendant Richard Nagby and Defendant Diane Dostalik,
formerly known as Diane Nagby. (ECF No. 165 (“Pl.'s
MSJ”).) Along with its motion, Plaintiff has also filed
a request for judicial notice. (ECF No. 165- 51
(“RJN”).) For the reasons discussed below, the
Court grants Plaintiff's motion for
summary judgment and grants Plaintiff's
request for judicial notice.
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 RJN, Exs. 1-4.) Cal-Regent was an
insurance agency that underwrote certain insurance risks on
behalf of State National Insurance Company (“State
National”). See Odyssey Reinsurance Co. v.
Cal-Regent Ins. Servs. Corp., 123 F.Supp.3d 343, 345-49
(D. Conn. 2015). Plaintiff in turn reinsured State National
for a certain percentage of those risks. (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. (Id.) At the end of
each year, the provisional commissions were adjusted
depending on the profitability of the business underwritten
by Cal-Regent. (Id.) 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.
and Odyssey agreed to the amounts Cal-Regent reported as due
and owing for the 2003, 2004, 2005, and 2007 underwriting
years. (ECF No. 41-3 (“Declaration of Lisa A.
Keenan” or “Keenan Decl.”), ¶ 12-13.)
Odyssey, however, contested the lower figure reported for the
2006 underwriting year. (Id.) Cal-Regent never paid
the return commissions reported due to Odyssey on June 24,
filed a lawsuit in the District of Connecticut to collect the
amounts due from Cal-Regent. (Id.) In October 2015,
the court rendered a judgment in Plaintiff's favor and
against Cal-Regent in the amount of $2, 740, 802.61. (RJN,
Ex. 2.) In November 2015, the court awarded Plaintiff a
supplemental judgment. (RJN, Ex. 4.) 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.)
Richard Nagby and Diane Dostalik are both Cal-Regent's
officers, directors, managers and shareholders. (Pl.'s
MSJ, Exs. 503. 504.) Plaintiff contends that by early 2013,
in order to avoid paying the amount of return commissions
owing to Odyssey, Mr. Nagby and Ms. Dostalik “embarked
on a plan to strip Cal-Regent of assets, ” (ECF No. 24,
(“Second Am. Compl.” or “SAC, ”)
¶ 30). Plaintiff alleges Mr. Nagby and Ms. Dostalik
formed a Nevada corporation named Pacific Brokers Insurance
Services (“PBIS”), transferred Cal-Regent's
assets to PBIS for no equivalent value, sold PBIS to AmTrust
North America, Inc. (“AmTrust”) for $5 million,
and then distributed the sale proceeds between the two of
them. (Id. at ¶¶ 35-37.)
Plaintiff seeks summary judgment only on its Uniform
Fraudulent Transfer Act (“UFTA”) claims brought
under a theory of constructive fraud, which does not require
any showing of fraudulent intent. Thus, the relevant factual
inquiry is whether Cal-Regent transferred its assets to PBIS
without receiving reasonably equivalent value in exchange for
these assets, notwithstanding what Mr. Nagby and Ms. Dostalik
may or may not have intended.
Nagby and Ms. Dostalik sold PBIS to AmTrust in July 2015.
(See Pl.'s MSJ., Ex. 99.) 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 Cal-Regent, PBIS, Mr. Nagby, and Ms. Dostalik,
under several theories of liability, including the Uniform
Fraudulent Transfer Act (“UFTA”),
California's successor liability law, and principles of
corporate law. (SAC.)
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 Mr. Nagby and Ms. Dostalik,
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 Injunction Order”.).)
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 Claims Technology Services Corporation
(“CTS”). (ECF No. 253.) Defendants David Dostalik
and CTS have appealed the order. (ECF Nos. 263, 264.)
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. The
Court has held Ms. Dostalik in contempt for failing to
dates have been set, culminating in the final pretrial
conference scheduled for July 25, 2019. Trial is scheduled to
begin August 19, 2019.
judgment is appropriate under Rule 56 of the Federal Rules of
Civil Procedure if the moving party demonstrates the absence
of a genuine dispute of material fact and entitlement to
judgment as a matter of law. Fed.R.Civ.P. 56(a); Celotex
Corp. v. Catrett, 477 U.S. 317, 322 (1986). A fact is
material when, under the governing substantive law, it could
affect the outcome of the case. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986); Freeman v.
Arpaio, 125 F.3d 732, 735 (9th Cir. 1997). A dispute as
to a material fact is genuine if there is sufficient evidence
for a reasonable jury to return a verdict for the nonmoving
party. Anderson, 477 U.S. at 323 (1986).
the moving party establishes the absence of genuine issues of
material fact, the burden shifts to the nonmoving party to
demonstrate that a genuine issue of disputed fact remains.
Celotex, 477 U.S. at 314. The nonmoving party must
“go beyond the pleadings and by her own affidavits, or
by ‘the depositions, answers to interrogatories, and
admissions on file,' designate ‘specific facts
showing that there is a genuine issue for trial.'”
Celotex, 477 U.S. at 324 (quoting Fed.R.Civ.P.
court must view all inferences drawn from the underlying
facts in the light most favorable to the nonmoving party.
Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 587 (1986). “Credibility determinations,
the weighing of evidence, and the drawing of legitimate
inferences from the facts are jury functions, not those of a
judge, [when] he [or she] is ruling on a motion for summary
judgment.” Anderson, 477 U.S. at 255.
standard for summary adjudication, also known as partial
summary judgment, is the same as that for summary judgment.
Lucent Techs. Inc. v. Gateway Inc., Nos.
02CV2060-B(CAB), 03CV0699-B(CAB), 03CV1108-B(CAB), 2007 WL
925514, at *1 n.1 (S.D. Cal. Mar. 19, 2007); Mora v.
Chem-Tronics, Inc., 16 F.Supp.2d 1192, 1200
(S.D. Cal. 1998); see also Fed. R. Civ. P. 56(a).
District of Connecticut action, the court held that Odyssey
is a creditor of Cal-Regent and that Cal-Regent owes Odyssey
a debt in the amount of $3.2 million plus interest. Plaintiff
now seeks to recover from Defendants Richard Nagby and Diane
Dostalik the money transferred to them from the sale of PBIS
to AmTrust, under several theories of liability, including
California's Uniform Fraudulent Transfer Act (UFTA),
California successor liability law, and Nevada corporate law
with respect to corporate distributions. Plaintiff claims
that Mr. Nagby and Ms. Dostalik are liable based on the
following alleged facts: (1) Cal-Regent transferred its
assets to PBIS and was rendered insolvent; (2) PBIS then sold
all of its assets to AmTrust; (3) the initial proceeds of the
sale and the first earn out payment were distributed to the
Mr. Nagby and Ms. Dostalik; (4) these distributions rendered
Cal-Regent and PBIS insolvent in that they were left unable
to pay off their creditors, specifically the debt owed to
on the basis of any theory hinges on the threshold question
of whether Cal-Regent transferred its assets to PBIS. Thus,
the Court begins by addressing whether there is a genuine
dispute of material fact as to whether there was a transfer
of assets from Cal-Regent to PBIS.
Transfer of Assets from Cal-Regent to PBIS
argue that there was no transfer of assets from Cal-Regent to
PBIS. Defendants propose that when Mr. Nagby assessed that
the value of Cal-Regent's business was declining toward
insolvency, he simply discontinued business operations and
moved on to do business as PBIS. Plaintiff, however, has
established undisputed facts showing that a transfer of
Cal-Regent's business value did indeed occur.
and PBIS shared the same business model. (See ECF No. 178-1
(“Richard Nagby Decl. in Opp'n”),
¶¶ 2, 3.) Both were general agents who underwrote
insurance policies on behalf of insurance carriers.
(Id.) Cal-Regent underwrote policies for a carrier
called State National, while PBIS partnered with the carrier,
CorePoint Insurance Company (“CorePoint”).
(Id.) As part of the business practice, Cal-Regent
and PBIS formed relationships with insurance brokerage
companies (also referred to as producers) who would send
insurance applications on behalf of independent insureds.
(Id.) The policies sold by Cal-Regent or PBIS
expired after twelve months, after which “renewal
applications” would be solicited from insureds through
the insurance brokers. (Id. at ¶ 10.)
the business value of Cal-Regent and PBIS consisted of the
relationships they formed with insurance brokers and the
policies they underwrote. As counsel for Mr. Nagby
articulated during oral argument on February 28, 2019, the
asset of general agents like Cal-Regent and PBIS is that they
have a “product, ” a policy, that they administer
and sell. However, the relationships with the insurance
brokers are also assets, because without them, there would be
no one to sell to. Moreover, not only do the relationships
bear the fruit of whatever initial policies are solicited,
they also provide the benefit of potential renewal
applications. Mr. Nagby has testified that the rate at which
policies renew is an important statistic and estimated that
the renewal rate for Cal-Regent was about 80%. (Dep. Richard
K. Nagby, 159:25-160:10.)
demonstrates that a transfer of assets between Cal-Regent and
PBIS occurred with three factual bases. First, Plaintiff
provides the expert report of Mr. Brian J. Bergmark, which
analyzes and compares the insurance brokers that did business
with both Cal-Regent and PBIS. Second, Plaintiff illustrates
that Mr. Nagby, as he developed PBIS, solicited insurance
brokers that formerly did business with Cal-Regent. Third,
during the divorce proceedings of Mr. Nagby and Ms. Dostalik,
the two stipulated to a judgment requiring them to pay the
creditors of Cal-Regent and PBIS. Together, these facts
establish that there is no genuine dispute as to whether a
transfer of assets occurred.
Bergmark's report, he provides an analysis of the
brokerage firms that sold policies for Cal-Regent and PBIS,
as provided by Mr. Nagby, from July 1, 2012 through June 30,
2015. (Pl.'s MSJ, Decl. Brian J. Bergmark, Attach.
Report, p. 12, Ex. K.) This analysis reflects that Cal-Regent
underwrote policies for insureds brought in by about 490
brokerage firms. (See Id. at Ex. K.) Of this number,
nearly 375 went on to do business with PBIS. (Id.)
Accordingly, about 75% of the brokers with whom Cal-Regent
developed relationships went on to form relationships with
Mr. Bergmark's report analyzes the list of producers
attached as Schedule 4.20 to the purchase agreement for the
sale of PBIS. (Id. at 12, Ex. L.) Schedule 4.20
itemized each producer with which PBIS had a broker agreement
as well as the net premiums brought in by each producer.
(Id.) From this list, Mr. Bergmark provides the
following analysis: “The top 20 producers on the list,
as provided by PBIS, account for $11.631 million of the
$17.945 million written, or 65% of all premium income
received. Of these 20 producers, 19 of them had policies
underwritten by Cal-Regent as well as PBIS.”
(Id. at 13.)
Mr. Bergmark's report concludes that there was an
effective transfer of the brokerage relationships from
Cal-Regent to PBIS. (See id.)
addition to Mr. Bergmark's report, Plaintiff also
presents evidence that Mr. Nagby solicited brokerage firms
with prior Cal-Regent relationships to produce policies for
Mr. Nagby-either himself or outsourcing through his
nephew's company, Meta-Data-solicited brokerage firms on
behalf of PBIS when they contacted Cal-Regent with policy
requests from new insureds during the time when Cal-Regent
was no longer binding policies. For example, during Mr.
Nagby's deposition, Plaintiff's counsel questioned
him about transitioning from operating Cal-Regent to PBIS,
during which Cal-Regent eventually stopped binding policies.
(Dep. Richard K. Nagby, 161:17-162:22.) Counsel specifically
asked Mr. Nagby what would happen “during this
transition period when Cal-Regent was contacted by a broker
on behalf of a new insured, one that didn't already have
an existing State National policy.” (Id. at
162:3-9.) Counsel asked whether Cal-Regent would issue the
policy or whether PBIS would handle the application.
(Id.) Mr. Nagby responded with the following answer:
There's so many instances, there's no general rule.
And it wouldn't be Cal-Regent handling it at this point.
It would have been Meta Data people handling it and deciding
where it would go, based on whenever they wanted to do with
it. . . . And since we were non-renewing-the State National
policies, it would seem that the logical thing would be to
write with Pacific Brokers because it wouldn't make sense
to begin-continue to populate a potential problem that could
be lost at any time.
(Dep. Richard K. Nagby, 162:10-22.) With this testimony, Mr.
Nagby confirmed that during the time when Cal-Regent had
ceased binding policies, rather than turn away new insureds
because Cal-Regent was closing its doors, “the
logicalthing would be to write with ...