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Odyssey Reinsurance Co. v. Nagby

United States District Court, S.D. California

July 2, 2019

ODYSSEY REINSURANCE COMPANY, a Connecticut corporation, Plaintiff,


          Honorable Barry Ted Moskowitz United States District Judge.

         Plaintiff 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.

         This 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. (Id.)

         Cal-Regent 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, 2013. (Id.)

         Odyssey 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.)

         Defendants 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.)

         Here, 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.[1] 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.

         Mr. 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.)

         As the 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.

         On 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.)


         Plaintiff 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.)

         On 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”.).)

         On 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 Mot.-to-Interv.”), 4:15-22.)

         On 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 taken.

         On 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.)

         On 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.)

         The 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 comply.

         Pretrial dates have been set, culminating in the final pretrial conference scheduled for July 25, 2019. Trial is scheduled to begin August 19, 2019.


         Summary 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).

         Once 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. 56(e)).

         The 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.

         The 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).


         In the 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 Odyssey.

         Recovery 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.

         A. Transfer of Assets from Cal-Regent to PBIS

         Defendants 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.

         Cal-Regent 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.)

         Thus, 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.)

         Plaintiff 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.

         In Mr. 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 PBIS.

         Moreover, 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.)

         Thus, Mr. Bergmark's report concludes that there was an effective transfer of the brokerage relationships from Cal-Regent to PBIS. (See id.)

         In 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 PBIS.

         First, 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 ...

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