Odyssey Reinsurance Company v. Nagby et al

Filing 68

ORDER Granting Plaintiff's #41 Motion for Default Judgment against PBIS in the amount of $3,200,000.00 plus post-judgment interest. The Court also Grants Plaintiff's #41 Motion for Preliminary Injunction against the Nagbys. Plaintiff's #66 Emergency Motion for Temporary Restraining Order is Denied as Moot. Plaintiff is ordered to file a request for post-judgment interest by October 10, 2017. Any objections should be filed by noon on October 13, 2017. Signed by Judge Barry Ted Moskowitz on 10/04/2017. (jcj)

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1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 ODYSSEY REINSURANCE COMPANY, a Connecticut corporation, 13 14 15 16 17 18 19 20 21 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, Case No.: 16-cv-03038-BTMWVG ORDER GRANTING PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT AND MOTION FOR PRELIMINARY INJUNCTION [ECF No. 41] Defendants. 22 23 Plaintiff Odyssey Reinsurance Company has filed a Motion for Default 24 Judgment against Defendants Pacific Brokers Insurance Services (“PBIS”) and 25 Cal-Regent Insurance Services Corporation (“Cal-Regent”) pursuant to Federal 26 Rule of Civil Procedure 55(b)(2). Plaintiff also seeks a preliminary injunction 27 against Defendants Richard and Diane Nagby (collectively the “Nagbys”), Cal- 28 Regent’s and PBIS’ officers and sole shareholders. The Court addresses each 1 16-cv-03038-BTM-WVG 1 motion below. 2 I. FACTUAL BACKGROUND 3 This action arises out of the judgment entered by the United States 4 District Court for the District of Connecticut in favor of Odyssey and against Cal- 5 Regent in the amount of $3,200,000.00 (“Odyssey Judgment”) 1. (Second Am. 6 Compl. (“SAC”) ¶¶ 15–17.) Cal-Regent was an insurance agency that 7 underwrote certain insurance risks on behalf of State National Insurance 8 Company (“State National”). (SAC ¶ 18.) Plaintiff in turn reinsured State 9 National for a certain percentage of those risks, ranging from 90%–100%. (Id.) 10 In accordance with a series of reinsurance agreements between the parties, Cal- 11 Regent received a provisional commission—paid in part by Plaintiff—on all 12 policies that it underwrote for State National. (SAC ¶ 19.) At the end of each 13 year, the provisional commissions were adjusted depending on the profitability of 14 the business underwritten by Cal-Regent. (SAC ¶ 20.) Where the provisional 15 commission paid by Plaintiff exceeded the amount to which Cal-Regent was 16 entitled to after the yearly adjustment, Cal-Regent was obligated to pay the 17 difference to Plaintiff. (Id.) By 2013, Cal-Regent owed Plaintiff $2,740,802.61 in 18 return commissions, in part due to a lawsuit against State National that settled in 19 February 2013. (SAC ¶¶ 21–23, 25.) 20 Plaintiff alleges that by early 2013, the Nagbys “understood that the amount 21 of return commissions owing to [Plaintiff] would substantially increase” as a result 22 of the lawsuit. (SAC ¶ 29.) Plaintiff claims that “[a]s the potential effect of the 23 24 1 25 26 27 28 The parties request that this Court take judicial notice of prior court judgments and documents filed in previous court actions, documents found on Nevada’s Secretary of State’s website, and documents filed with California’s Secretary of State. See (Pl.’s Req. for Judicial Notice (“RJN”), ECF No. 41–6.); (Def. Richard Nagby’s Opp’n to Pl.’s Mot. for Preliminary Injunction, ECF No. 43-3.); (Def. Diane Nagby’s Opp’n to Pl.’s Mot. for Preliminary Injunction, ECF No. 42–2.) The Court GRANTS the parties’ requests and takes judicial notice of these exhibits. See Fed. R. Evid. 201(b)–(c); see also Rosales-Martinez v. Palmer, 753 F.3d 890, 894 (9th Cir. 2014) (“It is well established that we may take judicial notice of judicial proceedings in other courts.”); Gerritsen v. Warner Bros. Entm’t Inc., 112 F. Supp. 3d 1011, 1033 (C.D. Cal. 2015) (taking judicial notice of business entity profiles on the California Secretary State’s websites). 2 16-cv-03038-BTM-WVG 1 [lawsuit] on Cal-Regent’s obligation to pay return commission became clear to 2 the Nagbys, they embarked on a plan to strip Cal-Regent of assets.” (SAC ¶ 30.) 3 Plaintiff alleges that Mr. Nagby, with the help of Defendants Claim 4 Technology Services Corporation (“CTS”) and its Chief Executive Officer (“CEO”) 5 David Dostalik, “caused funds otherwise owing to Cal-Regent and/or to its 6 successor PBIS to be transferred to one or more account(s) held in the name of 7 CTS” to conceal funds from creditors including Plaintiff. (SAC ¶¶ 32, 40.7.) 8 Defendant Dostalik allegedly released to the Nagbys or for their benefit, “portions 9 of the funds held by CTS on behalf of Cal-Regent.” (SAC ¶ 33.) Some of the 10 funds were also deposited into the Cal-Regent and PBIS operating accounts to 11 pay creditors, “in order to deceive them as to the true status of Cal-Regent and 12 CTS.” (Id.) “Other funds deposited into the Cal-Regent or PBIS operating 13 accounts were characterized by the Nagbys as loans to those entities, so that 14 payments back to the Nagbys could be characterized as tax-free loan 15 repayments.” (Id.) 16 Plaintiff also claims that in April 2013, while Cal-Regent’s debts remained 17 outstanding, the Nagbys formed PBIS and subsequently “caused Cal-Regent to 18 transfer substantially all of its assets to PBIS,” including its goodwill and “book of 19 business,” without receiving reasonably equivalent value in exchange for these 20 assets. (SAC ¶¶ 35–36, 45.) The Nagbys are both Cal-Regent’s and PBIS’s 21 officers, directors, managers and shareholders. (SAC ¶ 46.) Plaintiff alleges that 22 “PBIS was formed by the Nagbys for the specific purpose of continuing the 23 business operations of Cal-Regent under a different name in order to hinder, 24 delay or defraud the creditors of Cal-Regent.” (SAC ¶ 49.) 25 In April 2014, Plaintiff filed an action in the District of Connecticut against 26 Cal-Regent to recover the amount owed to Plaintiff in return commissions. (SAC 27 ¶ 12.) In October 2015, the court rendered a judgment in Plaintiff’s favor and 28 against Cal-Regent in amount of $2,740,802.61. (SAC ¶ 14.) In November 3 16-cv-03038-BTM-WVG 1 2015, the court awarded Plaintiff a supplement judgment. (SAC ¶¶ 15–17.) In 2 addition to the October 2015 judgment the court also awarded Plaintiff 3 $459,197.39, bringing the judgment to a total sum of $3,200,000.00 plus interest. 4 (Id.) Plaintiff alleges that “three months after oral argument on [Plaintiff’s] motion 5 for summary judgment in the Connecticut action and three months before the 6 Judgment was entered, the Nagbys caused PBIS to sell substantially all of its 7 assets to AmTrust for $5 million.” (SAC ¶ 37.) AmTrust made an initial payment 8 of $3 million which was distributed to the Nagbys. (SAC ¶ 37.) 9 Plaintiff now brings this action against several defendants including PBIS, 10 Cal-Regent and the Nagbys under several theories of liability including the 11 Uniform Voidable Transactions Act (“UVTA) and California’s alter ego and 12 successor liability law. 13 II. PROCEDURAL BACKGROUND 14 Plaintiff filed the SAC on March 21, 2017. Cal-Regent and PBIS were 15 served on March 21, 2017, in accordance with Federal Rule of Civil Procedure 16 4(e)(2)(A). (ECF Nos. 25–26.) Cal-Regent and PBIS have failed to appear or 17 respond to the SAC. On May 31, 2017, default was entered against Cal-Regent 18 and PBIS by the Clerk. (ECF No. 38.) On July 7, 2017, Plaintiff filed the motions 19 at issue, seeking a default judgment and permanent injunction against PBIS and 20 Cal-Regent, and a preliminary injunction against the Nagbys to prevent the 21 proceeds of the AmTrust sale from being dissipated. (ECF No. 41.) 22 III. JURISDICTION 23 When considering whether to enter a default judgment a court has “an 24 affirmative duty to look into its jurisdiction over both the subject matter and the 25 parties.” In Re Tuli, 172 F.3d 707, 712 (9th Cir. 1999). Plaintiff brought this 26 action under diversity jurisdiction, permitting the Court to exercise subject matter 27 jurisdiction over this case. Additionally, Plaintiff alleges that Cal-Regent is a 28 California corporation with its principal place of business within the Southern 4 16-cv-03038-BTM-WVG 1 District of California and that PBIS is a Nevada corporation with its principal place 2 of business within the Southern District of California. (SAC ¶ 5.) The Court relies 3 on the pleadings to find that it has personal matter jurisdiction over Cal-Regent 4 and PBIS. See BNSD Ry. Tyrrell, __ U.S. __, 137 S.Ct. 1549, 1558 (2017) (“[A] 5 court may assert general jurisdiction over foreign (sister-state or foreign-country) 6 corporations to hear any and all claims against them when their affiliations with 7 the State are so ‘continuous and systematic’ as to render them essentially at 8 home.”) (internal citations omitted). 9 10 IV. STANDARD A. Default Judgment 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Entry of default judgment is governed by Federal Rule of Civil Procedure 55(b) and is left to the trial court’s sound discretion. Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). After default has been entered, the well-pleaded factual allegations of the complaint, except those relating to the amount of damages, shall be taken as true. Geddes v. United Fin. Group, 559 F.2d 557, 560 (9th Cir. 1977). In determining damages, the court can rely on evidence submitted by the plaintiff or may conduct a full evidentiary hearing. Fed. R. Civ. P. 55(b)(2). A judgment by default shall not award damages that are different from or exceed the amount requested in the plaintiff’s complaint. Fed. R. Civ. P. 54(c). Factors which may be considered by courts in exercising their discretion as to whether to enter default judgment include: (1) the possibility of prejudice to plaintiff; (2) the merits of plaintiff’s substantive claims; (3) the sufficiency of the complaint; (4) the sum of money at stake in the action; (5) the possibility of a dispute concerning material facts; (6) whether the default was due to excusable neglect; and (7) the strong policy underlying the Federal Rules of Civil Procedure 27 28 5 16-cv-03038-BTM-WVG 1 favoring decisions on the merits. Eitel v. McCool, 782 F.2d 1470, 1472 (9th Cir. 2 1986). 3 B. Preliminary Injunction 4 “A preliminary injunction is an extraordinary and drastic remedy.” 5 Wonderful LLC v. Hubbard, 775 F.3d 1118, 1124 (9th Cir. 2014) (citing Munaf v. 6 Geren, 553 U.S. 674, 689 (2008)). A plaintiff seeking a preliminary injunction or a 7 temporary restraining order must establish that (1) it is likely to succeed on the 8 merits; (2) it is likely to suffer irreparable harm in the absence of preliminary relief; 9 (3) the balance of equities tips in its favor; and (4) where applicable, an injunction 10 is in the public interest. Winter v. Natural Resources Defense Council, 555 U.S. 11 7, 20 (2008). Alternatively, “serious questions going to the merits and a balance 12 of hardships can support issuance of a preliminary junction, so long as the plaintiff 13 also shows that there is a likelihood of irreparable injury and that the injunction is 14 in the public interest.” Alliance for the Wild Rockies v. Cottrell, 632 F.3d 1127, 15 1135 (9th Cir. 2011) (internal quotation marks omitted). Due to the exigent nature 16 of a preliminary injunction, a court may consider hearsay and other evidence that 17 would otherwise be inadmissible at trial. See Johnson v. Couturier, 572 F.3d 1067, 18 1083 (9th Cir. 2009). 19 Pom V. DISCUSSION 20 A. Default Judgment 21 1. Eitel Factors 22 The Eitel factors weigh in favor of granting default judgment. Cal-Regent 23 and PBIS were properly served but have failed to respond to the SAC. Plaintiff 24 has yet to recover the final judgment from Cal-Regent and it appears to have no 25 other recourse but this Court’s relief given that now both Cal-Regent and PBIS 26 are left with no assets or income. There is no evidence that the default was due 27 to excusable neglect since Plaintiff has stated facts showing that Mr. Nagby, Cal- 28 Regent’s and PBIS’ CEO, has made an appearance in this action but has not 6 16-cv-03038-BTM-WVG 1 directed Cal-Regent or PBIS to appear. Therefore, whether default judgment is 2 appropriate turns on the merits and sufficiency of Plaintiff’s claims. 3 2. Sufficiency and Merits of Claims 4 “Upon entry of a default judgment, facts alleged to establish liability are 5 binding upon the defaulting part . . . .” Danning v. Lavine, 572 F.2d 1386, 1388 6 (9th Cir. 1978). The second and third Eitel factors require a court to assess the 7 substantive merits of a plaintiff’s claims and the sufficiently of its pleadings. Eitel, 8 782 F.2d at 1472. The Ninth Circuit has suggested that these factors require a 9 plaintiff’s allegations to “state a claim on which the [plaintiff] may recover.” 10 Danning, 572 F.2d at 1388. Here, Plaintiff seeks default judgment on its claim 11 under the UVTA, California Civil Code sections 3439.04 and 3439.05, as well as 12 under the law of successor liability. After reviewing the Complaint, the Court 13 finds that Plaintiff has pled sufficient facts to support each cause of action. 14 15 i. Fraudulent Transfer “A fraudulent conveyance under the [UVTA] involves ‘a transfer by the 16 debtor of property to a third person undertaken with the intent to prevent a 17 creditor from reaching that interest to satisfy its claim.’” Filip v. Bucurenciu, 129 18 Cal. App. 4th 825, 829 (2005) (citing Kirkeby v. Super. Ct., 33 Cal. 4th 642, 648 19 (2004)). Under section 3439.04(a)(1) of the UVTA a transfer is fraudulent and 20 therefore voidable if the debtor made the transfer or incurred the obligation with 21 “the actual intent to hinder, delay, or defraud any creditor of the debtor.” Cal. Civ. 22 Code. § 3439.04(a)(1). Because direct evidence of intent is uncommon, courts 23 may consider the following factors to determine an actual intent to defraud a 24 creditor: 25 26 27 28 (1) Whether the transfer or obligation was to an insider; (2) whether the debtor retained possession or control of the property transferred after the transfer; (3) whether the transfer or obligation was disclosed or concealed; (4) whether before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit; (5) whether the transfer was 7 16-cv-03038-BTM-WVG of substantially all the debtor’s assets; (6) whether the debtor absconded; (7) whether the debtor removed or concealed assets; (8) whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred; (9) whether the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred; (10) whether the transfer occurred shortly before or shortly after a substantial debt was incurred. 1 2 3 4 5 6 7 8 9 10 Cal. Civ. Code § 3439.04(b)2. A transfer is also voidable as to a creditor “if the debtor made the transfer . . . without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.” Cal. Civ. Code § 3439.05. 11 12 13 Plaintiff alleges that nearly all of the enumerated factors are present here. For instance, the transfer of the business was made from one corporation owned by the Nagbys to another. (SAC ¶¶ 40.1, 50.1.) Though no physical assets may 14 have been transferred, Plaintiff alleges that Cal-Regent transferred its “book of 15 business” and goodwill to PBIS, which supports a claim of fraudulent transfer. 16 17 18 19 20 21 22 23 24 See Hyosung (America), Inc. v. Hantle USA, Inc., No. 10-02160 SBA, 2011 WL 835781, at * 5 (N.D. Cal. March 4, 2011) (finding that the plaintiff had sufficiently alleged a fraudulent transfer claim where the property allegedly transferred was the debtor’s business of selling and marketing ATM machines); see also Stoumbus v. Kilimnik, 988 F.2d 949, 963–64 (9th Cir. 1993) (interpreting an analogous provision of the Washington Bankruptcy Code and holding that the transfer of a company’s goodwill or “going concern value” could support a fraudulent transfer claim). Because both companies were managed and controlled by the same actors, the Nagbys also retained possession or control of 25 26 27 28 2 The UVTA was amended by Stats. 2015, Ch. 44 which took effect on January 1, 2016. Because the transfers occurred before January 1, 2016 and the merits of this motion do not depend on the amendments, the Court relies on the language of the statute in effect during the period from 2013 to 2015. 8 16-cv-03038-BTM-WVG 1 the business before and after Cal-Regent’s assets were transferred to PBIS. 2 Cal-Regent allegedly concealed the transfer by “purporting to operate and 3 conduct business as Cal-Regent even though it had been stripped of its assets.” 4 (Compl. ¶ 54.3.) Event though Plaintiff had not initiated the Connecticut lawsuit 5 before PBIS was formed, the transfer of Cal-Regent’s assets to PBIS occurred 6 shortly after the Nagbys became aware of the substantial debt Cal-Regent would 7 owe Plaintiff in return commissions. (SAC ¶ 54.1.) Plaintiff also claims that Cal- 8 Regent transferred all of its assets, including its “book of business” and the 9 goodwill it built up over 25 years of business, and left the business without the 10 ability to satisfy its debt to Plaintiff. (SAC ¶ 54.2.) Additionally, based on 11 Plaintiff’s claim that Cal-Regent became insolvent after transferring its business 12 to PBIS, one can reasonably infer that it did not receive “reasonably equivalent 13 value” of the asset transferred. (SAC ¶¶ 55, 59.) These allegations are sufficient 14 to state a claim under Cal. Civ. Code sections 3439.04(a)(1) and 3439.05. 15 ii. Successor Liability 16 Under California law, a corporation that purchases all of the assets of 17 another corporation is not liable for the former corporation’s liabilities unless, “(1) 18 there is an express or implied agreement of assumption, (2) the transaction 19 amounts to a consolidation or merger of the two corporations, (3) the purchasing 20 corporation is a mere continuation of the seller, or (4) the transfer of assets to the 21 purchaser is for the fraudulent purpose of escaping liability for the seller’s debts.” 22 Ray v. Alad Corp., 19 Cal.3d 22, 28 (1977). Although successor liability often 23 refers to formal purchases, courts have extended liability to transfers of assets as 24 well. See Stoumbus, 988 F.2d at 961 (interpreting Washington law and stating 25 that successor liability can extend to “transfers other than straightforward 26 purchases); see also Cleveland v. Johnson, 209 Cal. App. 4th 1315, 1327 (2012) 27 (sustaining a jury’s finding of successor liability where there was no formal 28 purchase of assets of another corporation, but instead where a corporation which 9 16-cv-03038-BTM-WVG 1 established a separate line of business assigned leases for that businesses’ 2 equipment to another corporation). To prevail on a theory of “mere continuation,” 3 a plaintiff must show one or both of the following factual elements: “(1) no 4 adequate consideration was given for the predecessor corporation’s assets and 5 made available for meeting the claims of its unsecured creditors; (2) one or more 6 persons were officers, directors, or stockholders of both corporations.” Ray, 19 7 Cal. 3d at 29. 8 9 “As with other equitable doctrines, it is appropriate to examine successor liability issues on their own unique facts and considerations of fairness and equity 10 apply.” Cleveland, 209 Cal. App. 4th at 1330 (internal citations omitted). Thus, 11 the significant principle remains that “‘if a corporation organizes another 12 corporation with practically the same shareholders and directors, transfers all of 13 the assets but does not pay all the first corporation’s debts, the separate entities 14 may be disregarded and the new corporation held liable for the obligations of the 15 old.’” Id. at 1334 (quoting McClellan v. Northridge Park Townhouse Owners 16 Ass’n, 89 Cal. App. 4th 746, 753 (2001)). 17 Here, Plaintiff does not allege that PBIS formally purchased Cal-Regent’s 18 assets. Instead, Plaintiff alleges that because Cal-Regent transferred its “book of 19 business” and goodwill to PBIS, it is a “mere continuation” of Cal-Regent and 20 should therefore assume its liabilities. The Court finds that taking the allegations 21 as true, Plaintiff has sufficiently established this claim. As already discussed 22 above, Plaintiff has pled that PBIS did not pay adequate consideration for the 23 transfer of assets and that both corporations were operated and managed by the 24 Nagbys. Moreover, having found that Plaintiff has adequately pled actual and 25 constructive fraud under Cal. Civ. Code sections 3439.04(a)(1) and 3439.05, its 26 successor liability claim survives under the “fraudulent purpose” theory as well. 27 28 Accordingly, Plaintiff has established a case on the merits for its claims against PBIS and is entitled to a default judgment under both the UVTA and 10 16-cv-03038-BTM-WVG 1 successor liability. 2 3. Damages 3 Plaintiff requests that the Court award the full amount it is owed under the 4 Odyssey Judgment, $3,200,000.00 plus post-judgment interest at a legal rate 5 from November 9, 2015 pursuant to 28 U.S.C. § 1961, as well as injunctive relief 6 against dissipation of the Amtrust sale proceeds. 7 Under the UVTA, a creditor may bring an action to void a fraudulent 8 transaction to the extent necessary to satisfy its claim. Cal Civ. Code § 9 3439.07(a)(1). To the extent a transfer is voidable, a “creditor may recover 10 judgment for the value of the asset transferred . . . or the amount necessary to 11 satisfy the creditor’s claim, whichever is less.” Cal Civ. Code § 3439.08(b)(1). A 12 judgment may be entered against “[t]he first transferee of the asset or the person 13 for whose benefit the transfer was made,” as well as “[a]n immediate or mediate 14 transferee of the first transferee.” § 3439.08(b)(1)(A)-(B). A creditor may also 15 bring an action for injunctive relief “against further disposition by the debtor or a 16 transferee, or both, of the asset transferred or other property of the transferee.” § 17 3439.07(a)(3)(A). 18 Here, Plaintiff is entitled to recover the Odyssey Judgment from PBIS in the 19 amount of $3,200,000.00 plus post-judgment interest at a legal rate from 20 November 9, 2015 pursuant to 28 U.S.C. § 1961. Additionally, because justice 21 so requires, a permanent injunction is warranted so as to prevent disposition of 22 the remaining assets. The injunction shall prohibit PBIS and Cal-Regent from 23 distributing any remaining proceeds from its sale to Amtrust. 24 B. Preliminary Injunction 25 Plaintiff seeks a preliminary injunction against the Nagbys to prevent them 26 from disposing of any funds or property in their possession which are proceeds of 27 the AmTrust sale. The Court addresses the merits of Plaintiff’s request below. 28 // 11 16-cv-03038-BTM-WVG 1 1. Likelihood of Success of the Merits 2 First, Plaintiff must establish a likelihood of success on the merits of its 3 4 fraudulent conveyance claim under the UVTA. See Winter, 555 U.S. at 20. As already discussed above, Section 3439.04 of the UVTA enumerates 5 factors that are “regarded as circumstantial ‘badges of fraud’ that are probative of 6 intent.’” In re Beverly, 374 B.R. 221, 235 (B.A.P. 9th Cir. 2007). Plaintiff argues 7 that these factors demonstrate that the Nagbys personally acted with the “intent 8 to prevent a creditor from reaching that interest to satisfy its claim.” Filip, 129 9 Cal. App. 4th at 829 (internal citations omitted). 10 First, from the evidence, Plaintiff has established a substantial likelihood 11 that Cal-Regent fraudulently transferred its assets to PBIS under both sections 12 3439.04 and 3439.05 of the UVTA. As to the Nagbys’ personal liability, under 13 the UVTA a judgment may be entered against transferees or against “the person 14 for whose benefit the transfer was made.” Cal. Civ. Code. § 3439.08(b)(1). 15 Here, Plaintiff moves against the Nagbys as persons for whose benefit the 16 transfer was made. Plaintiff alleges and submits evidence that they have 17 received proceeds of the sale to AmTrust—a sale of fraudulently transferred 18 assets from Cal-Regent to PBIS. While in most cases the only beneficiaries of a 19 fraudulent transfer are debtors who avoid their creditors, in the case of a closely 20 held corporation, it is reasonable to infer that the sole shareholders and officers 21 of the corporation stood to benefit from the fraudulent transfer. See Qwest 22 Commc’ns Corp. v. Weisz, 278 F. Supp. 2d 1188, 1191 (S.D. Cal. 2003) (holding 23 that a creditor could obtain a judgment under the UFTA against the majority 24 shareholder of a debtor corporation that had fraudulently transferred corporate 25 assets to the shareholder’s father); see also Oracle Am., Inc. v. Appleby, No. 16- 26 cv-2090-JST, 2016 WL 5339799, at *9 (N.D. Cal. Sept. 22, 2016) (holding that 27 the co-owners of the “selling” and “buying” corporations, who forced the alleged 28 fraudulent transfer, could be held liable under the UVTA as persons for whose 12 16-cv-03038-BTM-WVG 1 benefit such transfer was made). 2 Second, Plaintiff has submitted an email exchange between Mr. Nagby and 3 Mr. Dostalik which Plaintiff argues is direct evidence of an intent to hinder, delay, 4 and defraud it so that it could not collect its debt from Cal-Regent. The emails of 5 May 19, 2014 include in relevant part: 6 Richard Nagby @ Pacific Brokers [9:55 a.m.]: 7 that’s [their] stupid threat to make a motion to the court means written declarations of what the money is where it comes from and [make] a permanent public record that will tell Odyssey re and State national that we have another source of [income] to pay them off . . . the money should get [distributed] quietly through CTS . . . 8 9 10 11 12 13 14 15 Richard Nagby @ Pacific Brokers [11:35 a.m.]: do you really want state national/odyssey Re/Knight/Corpeointe knowing about this source of income? Do you see why this should be a private matter not a public one in the court house? And why you [don’t] want anyone tracing funds from CTS to cal regent? without proper documentation? 16 (Decl. of James J. Reardon in Supp. of Pl.’s Mot. for Prelim. Inj. (“Reardon’s 17 Decl.”), Ex. 14, ECF No. 41–4.) 18 19 20 21 22 23 24 25 26 27 These emails raise the likelihood that the Nagbys acted with the intent to hinder or delay Plaintiff from recovering from Cal-Regent. Finally, Plaintiff has demonstrated that instead of directing Cal-Regent to pay Plaintiff, the Nagbys began taking money from the business, transferring it to CTS, and then transferring it to themselves. This too raises the likelihood that Plaintiff would succeed on the merits under the UVTA. In response to Plaintiff’s motion, Mrs. Nagby argues that there is no evidence she did anything to assist in hindering, delaying or defrauding Plaintiff in its efforts to collect its debt from Cal-Regent. In fact she argues that Mr. Nagby unilaterally and without her knowledge or consent opened PBIS. Mr. 28 13 16-cv-03038-BTM-WVG 1 Nagby disputes Mrs. Nagby’s alleged passive participation, arguing that she 2 managed Cal-Regent’s finances. Mr. Nagby also argues that he started PBIS for 3 legitimate purposes, namely his desire to begin a new, virtual online company 4 that contracted with Corepointe instead of State National. Notwithstanding these 5 disputes, the Court finds that Plaintiff has established a likelihood of success on 6 the merits or at a minimum, has raised serious questions on the merits. See 7 Alliance, 632 F.3d at 1131. 8 2. Likelihood of Irreparable Harm 9 Second, Plaintiff must show that it is likely to suffer irreparable harm in the 10 absence of the order. “A party seeking an asset freeze must show a likelihood of 11 dissipation of the claimed assets, or other inability to recover monetary damages, 12 if relief is not granted.” Johnson v. Courturier, 572 F.3d at 1085 (citing Conn. 13 Gen. Life Ins. Co. v. New Images of Beverly Hills, 321 F.3d 1067, 1085 (9th Cir. 14 2009)). A court may also issue an injunction freezing assets where a plaintiff 15 demonstrates that a “defendant has engaged in a pattern of secreting or 16 dissipating assets to avoid judgment.” In re Estate of Marcos, 25 F.3d 1467, 17 1480 (9th Cir. 1994). Although generally a preliminary injunction may not be 18 issued to preserve assets to which a party does not yet have a legal claim, the 19 Supreme Court and Ninth Circuit have specifically exempted instances of 20 fraudulent conveyances and bankruptcy from this rule. See In re Focus Media 21 Inc., 387 F.3d 1077, 1085 (9th Cir. 2004) (citing Grupo Mexicano de Desarrollo 22 S.A. v. All. Bond Fund, Inc., 527 U.S. 308, 312 (1999)); see also Wimbledon 23 Fund, SPC Class TT v. Graybox, LLC, 648 Fed. Appx. 701, 702 (9th Cir. 2016) 24 (upholding a preliminary injunction in a fraudulent conveyance case and one in 25 which the plaintiff sough equitable relief). 26 PBIS has sold all of its assets to AmTrust, which has already paid PBIS $3 27 million in cash. (Decl. of Dean Kirby in Supp. of Pl.s’ Mot. for Prelim. Inj. 28 (“Kirby’s Decl.”), Ex. 38, 18, ECF No. 41–5.) In accordance with a stipulated 14 16-cv-03038-BTM-WVG 1 agreement in the Nagby’s divorce action, these proceeds were immediately 2 distributed to them individually. (Pl.’s RJN, Ex. 22, 2, ECF No. 41–6.) Mrs. 3 Nagby received $2.5 million and Mr. Nagby received $500,000. (Id.) The 4 remaining earn out payments are being paid to Mr. Nagby. (Kirby Decl., Ex. 38, 5 18) Plaintiff argues that these proceedings, both the lump sum and remaining 6 earn out payments, are proceeds of the fraudulently transferred Cal-Regent 7 assets and that without an injunction, it will be unable to recover its judgment 8 against Cal-Regent and now, PBIS. The Court finds that there is a substantial 9 danger that Defendants may continue to transfer or dissipate the funds they have 10 received from the sale if the injunction were denied, resulting in denying recovery 11 to Plaintiff. Thus, this factor tips strongly in favor of Plaintiff. 12 3. Balance of the Equities 13 Plaintiff argues that the balance of equities tips in favor of granting it a 14 preliminary injunction because if the Court does not, there may not be any assets 15 from which it could collect its judgments against Cal-Regent and PBIS. In 16 response, Mr. Nagby argues that to go “after the divorced Nagbys at this point is 17 not an equitable result when the plaintiff knew all along the minimal financial 18 strength of Cal-Regent.” (Def. Richard Nagby’s Opp’n to Pl.’s Mot. for 19 Preliminary Injunction, ECF No. 43, 12.) He argues that Plaintiff knew that it was 20 working with a small family business and that it could have “demanded personal 21 guarantees from the Nagbys or, at any time could have cancelled their contract 22 with Cal-Regent unless the contingent commissions were held in trust or 23 segregated from Cal-Regent’s operating income . . . .” (Id.) The Court, however, 24 is not persuaded by Mr. Nagby’s assumption of risk argument and finds that the 25 balance tips in Plaintiff’s favor. 26 Plaintiff is a judgment creditor that seeks equitable relief to preserve its 27 right to recover what it is owed. It was unable to recover from Cal-Regent and is 28 now unable to recover all of its claim from PBIS, since PBIS has already 15 16-cv-03038-BTM-WVG 1 distributed the majority of the proceeds from the Am-Trust sale to the Nagbys 2 and no longer has any income. In contrast, the Nagbys will suffer minimal harm 3 by not immediately reaping the benefits of the sale. In fact, given their 4 stipulation, if the earn out payments to Mr. Nagby fall short of the projected 5 amount in any year then Mrs. Nagby will have to make up one half of the short 6 fall for that year. As Plaintiff points out, the payouts the Nagbys received remain 7 contingent on what AmTrust ultimately pays PBIS. Thus, they are nevertheless 8 prevented from dissipating those proceeds until the payments are completed. 9 Therefore, the balance of equities tips in Plaintiff’s favor. 10 4. Public Interest 11 Finally, the Court finds that the public interest factor is netural to both 12 parties. “When the reach of an injunction is narrow, limited only to the parties, 13 and has no impact on non-parties, the public interest will be ‘at most a neutral 14 factor in the analysis rather than one that favor[s] [granting or] denying the 15 preliminary injunction.’” Stormans, Inc. v. Selecky, 586 F.3d 1109, 1138–39 (9th 16 Cir. 2009) (quoting Bernhardt v. L.A. County, 339 F.3d 920, 921 (9th Cir. 2003)). 17 “If, however, the impact of an injunction reaches beyond the parties, carrying with 18 it a potential for public consequences, the public interest will be relevant to 19 whether the district court grants the preliminary injunction.” Stormans, 586 F.3d 20 at 1139. Here, the injunction would not implicate the public’s interest, as it is 21 aimed at the Nagbys and the proceeds of the AmTrust sale. 22 Mrs. Nagby argues that if the Court were to grant Plaintiff an injunction it 23 will effectively divest Judge Murphy, the state court judge presiding over the 24 Nagbys’ divorce proceedings, of his power to manage the community property 25 funds. She argues that Judge Murphy has already appointed a financial receiver 26 that is responsible for distributing the sale proceeds from PBIS to the Nagbys, 27 rendering an injunction unnecessary. However, the financial receiver is merely 28 responsible for ensuring that PBIS distributes the proceeds in accordance with 16 16-cv-03038-BTM-WVG 1 the stipulation the Nagbys entered into, not to ensure that fraudulently transferred 2 assets are not further dissipated. The issue of fraudulent transfers was never 3 before Judge Murphy. Therefore, the Court is not persuaded by Mrs. Nagby’s 4 argument. 5 Accordingly, the public interest is not a significant factor in this case and 6 the Winter factors weigh in favor of granting Plaintiff’s motion for a preliminary 7 injunction. 8 // 9 // 10 // 11 // 12 // 13 // 14 // 15 // 16 // 17 // 18 // 19 // 20 // 21 // 22 // 23 // 24 // 25 // 26 // 27 // 28 // 17 16-cv-03038-BTM-WVG 1 VI. CONCLUSION 2 For the reasons discussed above, Plaintiff’s motion for default judgment 3 against PBIS (ECF No. 41) is GRANTED in the amount of $3,200,000.00 plus 4 post-judgment interest at a legal rate from November 9, 2015 pursuant to 28 5 U.S.C. § 1961. A permanent injunction is also issued against PBIS and Cal- 6 Regent prohibiting them from disposing of or commingling any funds or property 7 representing the proceeds of the sale of PBIS to AmTrust including but not 8 limited to all “earn out” distributions collected or to be collected from AmTrust, 9 and further ordering PBIS to deposit those funds into the registry of this Court. 10 The Court also GRANTS Plaintiff’s motion for preliminary injunction against 11 the Nagbys (ECF No. 41). They will be enjoined from transferring, disposing of 12 or commingling any funds or property representing the proceeds of the sale of 13 the property of PBIS to AmTrust, including but not limited to any initial payments 14 distributed by PBIS from the sale, as well as all “earn-out” distributions collected 15 or to be collected from AmTrust, and it will be ordered that each of the Nagbys 16 deposit those funds into the registry of this Court. 17 Because this Order addresses the same issues raised in Plaintiff’s 18 emergency motion for temporary restraining order, that motion is DENIED as 19 moot (ECF No. 66). 20 Lastly, Plaintiff is ordered to file a request for post-judgment interest by 21 October 10, 2017 to supplement the declaration submitted by Dean Kirby. See 22 (Kirby’s Decl. ¶ 5). Any objections should be filed by noon on October 13, 2017. 23 IT IS SO ORDERED. 24 Dated: October 4, 2017 25 26 27 28 18 16-cv-03038-BTM-WVG

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