Odyssey Reinsurance Co. v. Nagby
| Decision Date | 07 March 2019 |
| Docket Number | Case No.: 16-cv-03038-BTM-WVG |
| Parties | ODYSSEY REINSURANCE COMPANY, a Connecticut corporation, Plaintiff, v. 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, Defendants. |
| Court | U.S. District Court — Southern District of California |
ORDER DENYING KNIGHT INSURANCE'S MOTION TO INTERVENE
Pending before the Court is Knight Insurance's Motion to intervene in the above-captioned case. (See ECF No. 203 ("Mot. to Interv.").) As part of its motion, Knight Insurance ("Knight") has filed a complaint-in-intervention, seeking declaratory and injunctive relief against Plaintiff Odyssey Reinsurance ("Plaintiff" or "Odyssey"). (See ECF No. 203-5 ("Compl.-in-Interv.").) Knight has also submitted an objection to Plaintiff Odyssey's Motion for Order Directing Payment of Registry Funds ("Turnover Motion") (ECF No. 140). (See ECF No. 214 ("Obj. to Turnover Mot.").) For the reasons discussed below, Knight's Motion to Intervene is DENIED and its objection to the Turnover Motion is OVERRULED.
This action arises out of the judgment entered by the United States District Court for the District of Connecticut in favor of Odyssey and against Cal-Regent in the amount of $3,200,000.00 ("Odyssey Judgment"). (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.)
Plaintiff alleges that by early 2013, Defendants Richard Nagby and Diane Nagby "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.)
Plaintiff alleges that Mr. Nagby, with the help of Defendants Claim Technology Services Corporation ("CTS") and its Chief Executive Officer ("CEO")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 Dostalik allegedly released to the Nagbys or 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.)
Plaintiff also claims that in April 2013, while Cal-Regent's debts remained outstanding, the Nagbys 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.) The Nagbys are both Cal-Regent's and PBIS's officers, directors, managers and shareholders. (SAC ¶ 46.) Plaintiff alleges that "PBIS was formed by the Nagbys 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.)
In 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 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.) Plaintiff alleges that "three months after oral argument on [Plaintiff's] motionfor summary judgment in the Connecticut action and three months before the Judgment was entered, the Nagbys caused PBIS to sell substantially all of its assets to AmTrust for $5 million." (SAC ¶ 37.)
Of the sale proceeds ("the AmTrust Proceeds"), AmTrust made an initial payment of $3 million, which was distributed to the Nagbys. (SAC ¶ 37.) Ms. Nagby received $2.5 million, and Mr. Nagby received $500,000. (See ECF No. 195, 3:17-26.) The remainder was to be paid in the form of contingent "earn out" payments in three annual installments. (Id.) In October 2016, AmTrust wired the first earn out payment in the amount of $894.583.19 to a PBIS bank account. (Id.) Those funds were immediately withdrawn by Richard Nagby. (Id.)
Plaintiff 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") and California's alter ego and successor liability 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.) That same day, 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 ("the 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 ("the 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 RegistryOrder. (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), 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.
The Court has also issued a series of injunctions and temporary restraining orders requiring Ms. Nagby to deposit AmTrust Proceeds in her possession into the Court registry, per the October 2017 Injunction Order. Before the Court is an OSC proceeding as to why Ms. Nagby should not be held in contempt with respect to those orders, set to conclude on April 5, 2019.
Finally, pretrial dates have been set, culminating in the final pretrial conference scheduled for May 30, 2019. Trial is scheduled to begin in July 2019.
Knight Insurance now brings a motion to intervene. Knight bases its motion on very similar facts to those that Odyssey has presented throughout its suit against the Defendants. Knight's claims arise from a contractual relationship it had with Cal-Regent and State National Insurance Company that is nearly identical to the relationship among Odyssey, Cal-Regent, and State National Insurance Company. (Mot. to Interv., 3:3-4:14.) In this relationship, Cal-Regent underwrote certain insurance risks on behalf of State National, and Knight reinsured State National for those risks, subject to the terms of a reinsurance agreement, under which Knight would receive payment based on certain commission adjustments. (Id. at 3:22-4:14.) Knight's reinsurance agreement was in effect from July 1, 2009 to July 31, 2014. (Id.) Knight alleges that Cal-Regent owes Knight over $3 million which was never paid. (Id.)
Since 2014, Knight does not allege that it took any steps to recover on its contract losses from Cal-Regent. Knight alleges that it first learned of the current lawsuit on November 21, 2018 and now claims an interest in the funds deposited into the Court registry. (See id. at 12:24-26.)
Along with Knight's motion to intervene filed on December 20, 2018, Knight also submitted to the Court a complaint-in-intervention. (See Compl.-in-Interv.) Even though the allegations are largely similar to those that Odyssey has asserted against the Defendants in this case based on violations of the UFTA and California's alter ego and successor liability law, Knight formally seeks relief against Odyssey only. (See id. at 6:22-8:9.) First, Knight seeks declaratory relief, requesting that the Court determine the respective rights of Knight and Odyssey as to the funds in the Court registry. (Id.) Second, Knight requests injunctive relief, seeking to enjoin Odyssey...
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