Marble Bridge Funding Group, Inc v. Euler Hermes American Credit Indemnity Company, No. 5:2012cv02729 - Document 313 (N.D. Cal. 2016)
Court Description: ORDER granting in part and denying in part 218 Motion for Summary Judgment. Signed by Judge Edward J. Davila on 12/2/2016. (ejdlc1S, COURT STAFF) (Filed on 12/2/2016)
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1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 NORTHERN DISTRICT OF CALIFORNIA 9 SAN JOSE DIVISION 10 United States District Court Northern District of California 11 MARBLE BRIDGE FUNDING GROUP, INC., Plaintiff, 12 13 14 15 v. EULER HERMES AMERICAN CREDIT INDEMNITY COMPANY, Case No. 5:12-cv-02729-EJD ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT Re: Dkt. No. 218 Defendant. 16 17 This case stems from a type of commercial financing known as “factoring” and the variety 18 of insurance unique to that industry. Plaintiff Marble Bridge Funding Group (“MBFG”) is a 19 “factor,” or a company that provides accounts receivable financing to growing businesses that sell 20 their products or services to other businesses. First Am. Compl. (“FAC’), Dkt No. 176, at ¶ 3. 21 Defendant Euler Hermes American Credit Indemnity Company (“Euler”) sells credit or trade 22 insurance, which is “purchased by sellers of goods or services to insure their accounts receiveable 23 should the debtors on ther receiveables fail to pay.” Id. at ¶ 4. 24 MBFG alleges in this action that it was induced by Euler to purchase accounts receivable 25 invoices from another business, Nature’s Own, Inc. or Nature’s Own Pharmacy LLC (“Nature’s 26 27 28 1 Case No.: 5:12-cv-02729-EJD ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT 1 Own”).1 Nature’s Own turned out to be a fraud, and Euler, who had insured Nature’s Own 2 accounts receivable, did not pay MBFG’s claims on the policy once the scheme was discovered. Federal jurisdiction arises pursuant to 28 U.S.C. § 1332. Presently before the court is 3 4 Euler’s Motion for Summary Judgment, which MBFG opposes. Dkt. No. 218. Having now 5 carefully considered the parties’ arguments, the court finds that most but not all of Euler’s 6 arguments are meritorious. Thus, the motion will be granted in part and denied in part for the 7 reasons explained below. 8 I. BACKGROUND The basic facts are either undisputed or not reasonably disputed. Euler is a Maryland 9 insurance company licensed to do business in California. Decl. of Deborah L. Stuehrmann 11 United States District Court Northern District of California 10 (“Stuehrmann Decl.”), Dkt. No. 219, at ¶ 2. MBFG is a commercial finance company which, as 12 noted, provides its clients with accounts receivable funding. Id. at Ex. J. Commencing on 13 November 1, 2010, Nature’s Own had a credit insurance policy with Euler designated as a 14 “Domestic Markets Business Credit Insurance Policy.” Id. at Ex. D. The original policy was 15 designated as Policy No. 5033862 (the “First Policy”), and was renewed on November 1, 2011, as 16 Policy No. 5041669 (the “Second Policy”). Id. The terms of First Policy and the Second Policy 17 are nearly identical. Id. 18 A. 19 Under the Policies, Euler agreed to provide Nature’s Own “insurance against covered The Terms of the First and Second Policies 20 credit losses . . . in return for the Premium and [Nature’s Own’s] compliance . . . .” Id. The types 21 of losses covered were further described as follows: 22 Subject to terms and conditions of this Policy, [Euler] will cover [Nature’s Own] against credit losses due to the non-payment of amounts due from a covered Buyer for Shipments of Covered Products made by [Nature’s Own] during the Policy Period, on terms no longer than the Maximum Terms of Sale and which were invoiced in U.S. or Canadian dollars. … 23 24 25 26 27 28 1 The distinction between these two companies, if there is one, is immaterial. 2 Case No.: 5:12-cv-02729-EJD ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT Credit losses covered under this Policy are: 1 1. 2 The insolvency of a covered Buyer, or 2. The Protected Default due to slow payment of a covered Buyer. 3 4 Id. 5 A “Buyer,” or a customer of the insured, was defined in the Policies as “a legal entity and 6 its branch offices, trade styles or divisions, if any, which is domiciled in the United States 7 (including Puerto Rico) or Canada and is approved for coverage under the Policy,” but “does not 8 include subsidiaries or affiliated corporations, which are separate legal entities.” Id. “Covered 9 Products” were defined as “the products and/or services, including associated labor and service costs, described in the Declaration.” Id. Specific to the Nature’s Own Policy, “Covered Products” 11 United States District Court Northern District of California 10 were specified in the Declaration as “Pharm Prods/Natural/Organic/Environ Prodts.” Id. The Policies’ terms make plain that coverage is contingent on “Shipments of Covered 12 13 Products.” Id. This phrase was defined as “Covered Products which are Dispatched by [Nature’s 14 Own] and Delivered to a Buyer.” Id. “Dispatched” means “the point in time when Covered 15 Products leave [Nature’s Own’s] control,” and “Delivery” means “the point in time when legal 16 title to and the risk of loss of the Covered Products is transferred to the Buyer and the Covered 17 Products have left [Nature’s Own] custody and physical control.” Id. MBFG’s Involvement with Nature’s Own and the Policies 18 B. 19 On June 22, 2011, MBFG entered into a Receivables Purchase Agreement “in which 20 [MBFG] purchased certain accounts receivable of Nature’s Own . . . .” FAC, at ¶ 75. Thereafter, 21 on or about July 3, 2011,2 Nature’s Own requested the issuance of an endorsement to the First 22 Policy in order to make MBFG a beneficiary. Stuehrmann Decl., at Ex. D. This was 23 accomplished through a document entitled “Bank/Lender Policy Beneficiary Endorsement,” (the 24 “Endorsement”) which in essence granted MBFG the same rights under the First Policy that 25 26 27 28 2 Though the parties do not dispute the timing of this occurrence, the Request for Beneficiary document contained in the record is dated July 15, 2011. 3 Case No.: 5:12-cv-02729-EJD ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT 1 Nature’s Own would receive absent the beneficiary designation. Id. As relevant to this case, the 2 Endorsement permitted MBFG to file a claim against the First Policy and was entitled to receive 3 any loss payments that would otherwise be payable to Nature’s Own. Id. Furthermore, the 4 Endorsement would remain in effect through any policy renewal absent a written release. Id. The sole member of Nature’s Own was an individual named Richard Wallace. Nature’s 5 6 Own also purported to have an account manager named Anette Zimmerman, who completed and 7 signed the credit insurance policy application that was submitted to Euler. Id. Nature’s Own, 8 however, was not a legitimate business. Indeed, “[i]t turned out that seemingly normal looking 9 invoices/accounts receivable purchased by [MBFG] were fake, printed up by Nature’s Own and ‘issued’ to ‘Buyers’ who never bought anything, in order for Nature’s Own to exact from [MBFG] 11 United States District Court Northern District of California 10 substantial amounts of money.”3 Furthermore, Annette Zimmerman was not a real person; this 12 was a “made-up name” for another individual named Marsha Kay Holloway. 13 C. 14 Euler cancelled the Credit Limits for many of Nature’s Own’s Buyers on February 27th 15 and February 29, 2012. Id. at ¶ 15. On March 7, 2012, MBFG filed claims against the Second 16 Policy for the Nature’s Own Buyers whose credit limits had been cancelled. Id. at ¶ 8. Euler did 17 not pay benefits on MBFG’s claims, and notified MBFG on or about May 24, 2012, that Euler 18 would deny coverage. Id. at ¶ 10, Ex. N. MBFG’s Policy Claims and Ensuing Litigation 19 MBFG filed an action against Nature’s Own Pharmacy LLC and its principals in this court 20 on April 12, 2012. See Case No. 5;12-cv-01839-EJD. MBFG then commenced this action against 21 Euler on May 29, 2012, and filed the FAC on September 12, 2014. These motions followed. 22 II. LEGAL STANDARD 23 A motion for summary judgment or partial summary judgment should be granted if “there 24 is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of 25 26 27 28 3 This fact is asserted in Euler’s Moving Separate Statement as Fact 45, and is undisputed by MBFG. 4 Case No.: 5:12-cv-02729-EJD ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT 1 2 law.” Fed. R. Civ. P. 56(a); Addisu v. Fred Meyer, Inc., 198 F.3d 1130, 1134 (9th Cir. 2000). The moving party bears the initial burden of informing the court of the basis for the motion 3 and identifying the portions of the pleadings, depositions, answers to interrogatories, admissions, 4 or affidavits that demonstrate the absence of a triable issue of material fact. Celotex Corp. v. 5 Catrett, 477 U.S. 317, 323 (1986). If the issue is one on which the nonmoving party must bear the 6 burden of proof at trial, the moving party need only point out an absence of evidence supporting 7 the claim; it does not need to disprove its opponent’s claim. Id. at 325. 8 9 If the moving party meets the initial burden, the burden then shifts to the non-moving party to go beyond the pleadings and designate specific materials in the record to show that there is a genuinely disputed fact. Fed. R. Civ. P. 56(c); Celotex Corp., 477 U.S. at 324. A “genuine issue” 11 United States District Court Northern District of California 10 for trial exists if the non-moving party presents evidence from which a reasonable jury, viewing 12 the evidence in the light most favorable to that party, could resolve the material issue in his or her 13 favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986). 14 The court must draw all reasonable inferences in favor of the party against whom summary 15 judgment is sought. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). 16 However, the mere suggestion that facts are in controversy, as well as conclusory or speculative 17 testimony in affidavits and moving papers, is not sufficient to defeat summary judgment. Id. 18 (“When the moving party has carried its burden under Rule 56(c), its opponent must do more than 19 simply show that there is some metaphysical doubt as to the material facts.”); Thornhill Publ’g Co. 20 v. GTE Corp., 594 F.2d 730, 738 (9th Cir. 1979). Instead, the non-moving party must come 21 forward with admissible evidence to satisfy the burden. Fed. R. Civ. P. 56(c). 22 “If the nonmoving party fails to produce enough evidence to create a genuine issue of 23 material fact, the moving party wins the motion for summary judgment.” Nissan Fire & Marine 24 Ins. Co. v. Fritz Cos., Inc., 210 F.3d 1099, 1103 (9th Cir. 2000). “But if the nonmoving party 25 produces enough evidence to create a genuine issue of material fact, the nonmoving party defeats 26 the motion.” Id. 27 28 5 Case No.: 5:12-cv-02729-EJD ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT 1 III. DISCUSSION MBFG asserts ten claims against Euler in the FAC, including aiding and abetting a fraud, 2 intentional misrepresentation, fraudulent concealment, negligent misrepresentation, declaratory 3 relief, breach of contract, breach of the implied covenant of good faith and fair dealing, violation 4 of the Unfair Competition Law (“UCL”), California Business and Professions Code § 17200 et 5 seq., and two claims for violation of the Racketeer Influenced and Corrupt Organizations Act 6 (“RICO”), 18 U.S.C. § 1961, et seq. Euler moves for summary judgment on each of the first eight 7 claims and argues that MBFG was not permitted leave to assert the RICO claims. 8 9 10 A. Fraud-Based Claims i. Governing Authority The elements of intentional misrepresentation in California are: (1) a misrepresentation; (2) 11 United States District Court Northern District of California knowledge of falsity; (3) intent to defraud or to induce reliance; (4) justifiable reliance; and (5) 12 resulting damage. Engalla v. Permanente Med. Group, Inc., 15 Cal. 4th 951, 974 (1997). The 13 elements of negligent misrepresentation are similar except that a plaintiff need not show that the 14 defendant knew of the falsity of the statement, but rather that the defendant lacked reasonable 15 ground for believing the statement to be true. McReynolds v. HSBC Bank USA, No. 5:11-cv16 05245 EJD, 2012 U.S. Dist. LEXIS 165219, at *6, 2012 WL 5868945 (N.D. Cal. Nov. 19, 2012). 17 “The required elements for fraudulent concealment are (1) concealment or suppression of a 18 material fact; (2) by a defendant with a duty to disclose the fact to the plaintiff; (3) the defendant 19 intended to defraud the plaintiff by intentionally concealing or suppressing the fact; (4) the 20 plaintiff was unaware of the fact and would not have acted as he or she did if he or she had known 21 of the concealed or suppressed fact; and (5) plaintiff sustained damage as a result of the 22 concealment or suppression of the fact.” Graham v. Bank of America, N.A., 226 Cal. App. 4th 23 594, 606 (2014). 24 25 Liability may also be imposed “on one who aids and abets the commission of an intentional tort if the person (a) knows the other’s conduct constitutes a breach of duty and gives 26 substantial assistance or encouragement to the other to so act or (b) gives substantial assistance to 27 28 6 Case No.: 5:12-cv-02729-EJD ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT 1 the other in accomplishing a tortious result and the person’s own conduct, separately considered, 2 constitutes a breach of duty to the third person.” Saunders v. Super. Ct., 27 Cal. App. 4th 832, 846 3 (1994). 4 Because MBFG would bear the evidentiary burden at trial on these claims, Euler need only 5 show MBFG’s inability to prove them. Celotex Corp., 477 U.S. at 325. MBFG must then 6 produce evidence “such that a reasonable juror drawing all inferences in favor of [MBFG] could 7 return a verdict in [its] favor.” Reza v. Pearce, 806 F.3d 497, 505 (9th Cir. 2015) (quoting United 8 States v. Shumway, 199 F.3d 1093, 1103-04 (9th Cir. 1999)). 9 10 11 ii. Analysis a. Intentional Misrepresentation, Fraudulent Concealment and Aiding and Abetting a Fraud United States District Court Northern District of California Euler argues there is no dispute of material fact that Euler cannot prove the knowledge 12 element of its claims for intentional misrepresentation, fraudulent concealment and aiding and 13 abetting a fraud. The court agrees. 14 “To establish a claim for deceit based on intentional misrepresentation, the plaintiff must 15 prove . . . the defendant knew that the representation was false when the defendant made it, or the 16 defendant made the representation recklessly and without regard for its truth . . . .”). Manderville 17 v. PCG&S Grp., Inc., 146 Cal. App. 4th 1486, 1498 (2007). Similarly, a claim for fraudulent 18 concealment requires proof that the defendant knew of undisclosed facts that were “unknown to or 19 beyond the reach of the plaintiff.” Continental Airlines, Inc. v. McDonnell Douglas Corp., 216 20 Cal. App. 3d 388, 404 (1989). Furthermore, a claim for aiding and abetting requires actual 21 knowledge of the specific primary wrong the defendant substantially assisted.” Upasani v. State 22 Farm Gen. Ins. Co., 227 Cal. App. 4th 509, 519 (2014). 23 24 25 Knowledge, like the other elements of fraud, is a “question of fact” and “like any other fact, it may be proved by circumstantial evidence.” Palmquist v. Mercer, 43 Cal. 2d 92, 100 (1954). Indeed, it cannot “be expected that if a man [or woman] made a false representation or 26 was concealing knowledge of a fact that would materially affect the transaction, he would 27 28 7 Case No.: 5:12-cv-02729-EJD ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT 1 willingly admit that he knew of its falsity all the time.” Dyke v. Zaiser, 80 Cal. App. 2d 639, 654 2 (1947). Consequently, “proof indicative of fraud may be given by inference, by circumstances 3 surrounding the transaction, and the relationship and interest of the parties.” Id. 4 Here, MBFG has produced a collection of circumstantial evidence which it believes 5 demonstrates that Euler knew of the Nature’s Own scheme at the time MBFG was made a 6 beneficiary of the First Policy in July, 2011, or when it renewed the policy in November, 2011. 7 First, MBFG points to an article that Euler Vice President John Steel received in April, 2010, from 8 another finance company which describes a prior criminal fraud perpetrated by Holloway. For 9 this scheme, Holloway apparently utilized a company called International Air Cargo, which 10 United States District Court Northern District of California 11 company was also listed as a Nature’s Own Buyer for the Euler policies. Second, MBFG cites to a claim by made by yet another finance company, Factor King, on 12 a different Euler policy insuring U.S. Hay Direct. Factor King submitted its claim on the U.S. 13 Hay Direct policy after several of that company’s buyers defaulted, which buyers included 14 Nature’s Own and several other companies Holloway would later identify as buyers of Nature’s 15 Own in the insurance application she submitted to Euler. Factor King subsequently sued Euler 16 with regard to the U.S. Hay Direct policy. 17 Third, MBFG refers to internal communications between Euler employees between June 18 and October, 2010, suggesting that Euler had doubts about the legitimacy of another of 19 Holloway’s businesses. These Euler employees also discussed negative information submitted 20 from another factor concerning a buyer on the U.S. Hay Direct policy. According to an email 21 from Euler Account Manager Janny Fleitas, the factor “had many concerns with the underwriting 22 since some of the addresses [of the buyers] did not match on application and endorsements issued . 23 . . .” Euler Vice President Paul Haigley responded to Fleitas by stating: “If you think there is 24 fraud involved or think the policy should not be in place because it may be ‘bad business’ then 25 let’s think about ending the relationship ASAP.” Euler Head of Commercial Underwriting Steven 26 Redmer responded with one word: “Shady!!!” In another set of emails between Euler Agent Jess 27 28 8 Case No.: 5:12-cv-02729-EJD ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT 1 Heidel and Redmer in reference to cancelling other policies involving Holloway, Heidel wrote: 2 “Somehow I don’t think we have seen the last of her because her companies [sic] name is 3 changing again and I’m sure she will need to get money from some unlucky factor.” 4 Fourth, MBFG identifies claims made on a policy insuring Equipack, which company was 5 also listed as a buyer on the Nature’s Own policy. Several of the defaulting Equipack buyers also 6 simultaneously defaulted on the U.S. Hay Direct policy, including Nature’s Own. Annette 7 Zimmerman was listed as the contact person for Nature’s Own on the claim form submitted to 8 Euler, and Greg Winters was listed as the contact person for Equipack. 9 Fifth, MBFG references a telephone call between Euler Assistant General Counsel Deborah Stuehrmann and Florida State Attorney General Phil Hanson that occurred in “late 11 United States District Court Northern District of California 10 September or early Fall of 2011.” Stuehrmann was informed by Hanson that “he was conducting 12 a criminal investigation of US Hay, Kay Holloway, and her boyfriend Greg Winters, possibly 13 regarding [] Factor King.” 14 Although MBFG’s evidentiary citations are considerable and interesting, they nonetheless 15 fail to support a reasonable inference that Euler had knowledge of the Nature’s Own scheme 16 before it cancelled the credit limits in February, 2012. Nor do they support MBFG’s conclusions 17 on close review. Though MBFG seeks to connect the individual known as Marsha Kay Holloway 18 to Nature’s Own and the fictitious individual known as Annette Zimmerman, it has produced no 19 evidence to suggest that anyone at Euler knew that Holloway - who inarguably had been 20 implicated in a prior criminal fraud - was also Annette Zimmerman, who Euler only knew as an 21 affiliate of Nature’s Own in its dealings with that company as both a buyer on other policies and 22 eventually as an insured on the First and Second Policies. Notably, the conversation between 23 Stuehrmann and Hanson does not make this connection, since Hanson indicated that his 24 investigation involved Holloway and another company, U.S. Hay Direct. Moreover, though 25 Nature’s Own was identified as a buyer on the U.S. Hay Direct policy, the apparent business 26 relationship between those two companies is not sufficient to reasonably impart to Euler that 27 28 9 Case No.: 5:12-cv-02729-EJD ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT 1 Holloway and Zimmerman were actually the same person. For this reason, MBFG’s contention 2 that Euler renewed the First Policy even though it had “information regarding the fraud and the 3 connection between Zimmerman and Holloway” is unsupported by any evidence in the record, 4 circumstantial or otherwise. 5 Similarly, the article describing Holloway’s earlier fraud involving International Air Cargo 6 and Euler’s suspicions about Holloway’s other businesses do not convincingly connect her to 7 Nature’s Own or Zimmerman, even when coupled with the fact that International Air Cargo was 8 later listed as an illusory buyer of Nature’s Own. If anything, this evidence shows that Euler may 9 have mistakenly approved credit limits for International Air Cargo in light of the article’s revelation. The article does not, however, demonstrate that Euler knew that Nature’s Own and its 11 United States District Court Northern District of California 10 affiliated persona, Zimmerman, were perpetrating a grander fraudulent scheme. 12 Nor do the claims made on the U.S. Hay Direct and Equipack policies or the Factor King 13 lawsuit sufficiently raise such an inference. The claims and the lawsuit suggest nothing more than 14 the defaults of certain buyers and a subsequent denial of benefits by Euler. Missing from the 15 record is any evidence that fraud was raised in conjunction with the claims at the time they were 16 made or alleged in the Factor King lawsuit. Thus, MBFG’s characterization of the Factor King 17 lawsuit as the “Factor King fraud” is merely a conclusion in hindsight without evidentiary support. 18 And though it appears that some Euler employees doubted certain aspects of the information 19 submitted to underwrite the U.S. Hay Direct policy, these doubts about a different company in 20 which Holloway may have been involved do not translate into an inference that Euler later knew 21 of the Nature’s Own scheme and its connection to Holloway through Zimmerman. 22 Even when construed in the manner most favorable to MBFG, none of this evidence either 23 separately or together support MBFG’s sweeping contention that Euler somehow knew through a 24 combination of circumstantial references and “the claims in its system” that Nature’s Own and its 25 buyers were fraudulent, and that Holloway and Zimmerman were the same person. MBFG has 26 only raised the spectre that Euler was aware of the Nature’s Own scheme, but has not produced 27 28 10 Case No.: 5:12-cv-02729-EJD ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT 1 adequate evidence on which the types of fraud requiring knowledge could be proven. In sum, MBFG has not met its burden to produce evidence on which a reasonable juror 2 3 could find that Euler knew any of its alleged representations concerning Nature’s Own were false 4 or reckless when made, that Euler failed to disclose any similar facts from MBFG, or that Euler 5 had actual knowledge that Nature’s Own was engaged in a fraudulent scheme. Accordingly, 6 MBFG cannot prove an element essential to its claims for intentional misrepresentation, fraudulent 7 concealment and aiding and abetting a fraud. Euler is therefore entitled to summary judgment on 8 those claims. Celotex, 477 U.S. at 323 (holding that Rule 56 “mandates the entry of summary 9 judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party’s case, and on 11 United States District Court Northern District of California 10 which that party will bear the burden of proof at trial”); Nissan Fire & Marine Ins. Co., 210 F.3d at 12 1103. 13 14 b. Negligent Misrepresentation Euler challenges the negligent misrepresentation claim on its first element and argues that 15 MBFG cannot support a legally actionable statement with admissible evidence. The record 16 contradicts this argument. 17 As both parties recognize, negligent misrepresentation “requires a positive assertion.” 18 Goonewardene v. ADP, LLC, 5 Cal. App. 5th 154, 175 (2016) (internal quotation marks omitted). 19 “The tort thus encompasses the assertion, as a fact, of that which is not true, by one who has no 20 reasonable ground for believing it to be true, and the positive assertion, in a manner not warranted 21 by the information of the person making it, of that which is not true, though he believes it to be 22 true.” Id. Additionally, “when the defendant purports to convey the ‘whole truth’ about a subject, 23 ‘misleading half-truths’ regarding the subject may constitute positive assertions for the purpose of 24 negligent misrepresentation.” Id. 25 MBFG contends that by granting and maintaining credit limits on the Nature’s Own 26 buyers, Euler asserted that the buyers were credit worthy despite its knowledge that several buyers 27 28 11 Case No.: 5:12-cv-02729-EJD ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT 1 were under criminal investigation or had previously defaulted on other Euler policies. And MBFG 2 has produced sufficient evidence on which a reasonable juror could find in its favor on that issue. 3 As described above, the evidence shows that several of the same buyers included in the U.S. Hay 4 Direct and Equipack policies were also listed as buyers of Nature’s Own in its insurance 5 application. The evidence also shows that overlapping buyers between the three policies 6 defaulted, with some later becoming involved along with Euler in the Factor King lawsuit. In 7 addition, Euler was advised by Attorney General Hanson before it renewed the First Policy in 8 November, 2011, that Holloway, Winters and U.S. Hay Direct were the subjects of a criminal 9 investigation. 10 Although this same evidence was insufficient to support the other fraud-based claims, here United States District Court Northern District of California 11 it suffices. A reasonable juror could infer that Euler at least knew the Nature’s Own buyers who 12 previously defaulted on the U.S. Hay Direct and Equipack policies were not suitable for coverage, 13 and that, despite this knowledge, Euler approved them under the Nature’s Own policy and granted 14 them credit limits. 15 Euler’s opposing argument is unpersuasive. To the extent it avers the coverage grants and 16 credit limit extensions it made to the Nature’s Own buyers are not qualifying assertions as a matter 17 of law, the court concludes otherwise because “expressions of professional opinion are treated as 18 representations of fact” under certain circumstances. Pub. Emps.’ Ret. Sys. v. Moody’s Investors 19 Serv., Inc., 226 Cal. App. 4th 643, 662 (2014). “When a statement, although in the form of an 20 opinion, is not a casual expression of belief but a deliberate affirmation of the matters stated, it 21 may be regarded as a positive assertion of fact.” Id. (internal quotation marks and citations 22 omitted). “Moreover, when a party possesses or holds itself out as possessing superior knowledge 23 or special information or expertise regarding the subject matter and a plaintiff is so situated that it 24 may reasonably rely on such supposed knowledge, information, or expertise, the defendant’s 25 representation may be treated as one of material fact.” Id. 26 27 28 For this case, one need not look further than the Nature’s Own Policies for evidence 12 Case No.: 5:12-cv-02729-EJD ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT 1 reflecting that Euler granted both coverage and credit limits to the buyers from a position of 2 superior knowledge or with special information. The Policies define a “Buyer” as “a legal entity . 3 . . approved for coverage under the Policy.” “Credit Limit” is defined as “the maximum amount 4 of coverage [Euler] will allow for each Buyer under this Policy.” That definition is further refined 5 to state that “[e]ach Buyer has its own Credit Limit which is either assigned by [Euler] or qualified 6 by the Insured under the Discretionary Credit Limit.” All of these provisions imply that Euler 7 undertakes an investigation of the insured’s buyers before approving them for coverage and 8 allowing and assigning credit limits, such that a financing company like Marble Bridge can 9 reasonably rely on the facts that coverage has been approved and credit has been assigned as 10 United States District Court Northern District of California 11 12 13 insinuations of legitimacy. Because there exists a triable issue of fact, Euler is not entitled to summary judgment on MBFG’s negligent misrepresentation claim. B. Declaratory Relief, Breach of Contract and Breach of the Covenant of Good Faith and Fair Dealing 14 15 In its fifth claim for declaratory relief, MBFG requests a determination of coverage under 16 the Nature’s Own Policies. In its sixth claim for breach of contract, MBFG alleges that Euler 17 breached the Second Policy by failing to pay on MBGF’s claims and by failing to provide it with 18 written notice that it cancelled the credit limits for certain Nature’s Own buyers. Euler argues it is 19 entitled to summary judgment on both claims. Euler is correct. 20 21 i. Governing Authority “In a declaratory relief action to determine the insurer’s obligations under the policy, the 22 burden is on the insured initially to prove an event is a claim within the scope of the basic 23 coverage.” Merced Mutual Ins. Co. v. Mendez, 213 Cal. App. 3d 41, 47 (1989). To that end, the 24 insured must show that the underlying claim is “of the nature and kind covered by the policy.” 25 Gray v. Zurich Ins. Co., 65 Cal. 2d 263, 274 (1966). “The burden then shifts to the insurer to 26 prove the claim falls within an exclusion.” Id. 27 28 13 Case No.: 5:12-cv-02729-EJD ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT 1 In California, “[t]he standard elements of a claim for breach of contract are ‘(1) the 2 contract, (2) plaintiff’s performance or excuse for nonperformance, (3) defendant’s breach, and (4) 3 damage to plaintiff therefrom.’” Wall St. Network, Ltd. v. New York Times Co., 164 Cal. App. 4 4th 1171, 1178 (2008) (quoting Regan Roofing Co. v. Super. Ct., 24 Cal. App. 4th 425, 434-35 5 (1994)). 6 Like its fraud claims, Euler need only point out a failure of evidence because MBFG 7 would bear the evidentiary burden at trial for declaratory relief and breach of contract. Celotex 8 Corp., 477 U.S. at 325. If it does so, MBFG must sustain the burden of production. Reza, 806 9 F.3d at 505 (9th Cir. 2015). 10 United States District Court Northern District of California 11 ii. Analysis The plain language of the Policies’ coverage grant was contingent on “Shipments of 12 Covered Products.” Pursuant to the definition of that phrase, products had to be delivered from 13 Nature’s Own to one of its buyers to trigger coverage. The undisputed evidence shows that no 14 such products were ever delivered from Nature’s Own to any of its buyers in a manner satisfying 15 the terms of the policies. MBFG concedes this point, and concedes that “one of its experts opined 16 that there is no coverage under either policy for [MBFG’s] claim based on lack of goods, 17 shipments and/or deliveries to the buyers.” 18 As a result, there is no dispute of material fact as to MBFG’s claim for declaratory relief; it 19 is not entitled to coverage under either the First or Second Policy. MBFG’s legally-unsupported 20 argument that coverage should arise based on Euler’s offer to return premium payments to 21 Nature’s Own is entirely unpersuasive. As is its equitable estoppel argument given the lack of 22 evidence demonstrating Euler had knowledge of the Nature’s Own scheme. 23 Without coverage, the claims for breach of contract and breach of the covenant of good 24 faith and fair dealing fail as a matter of law. See Schar v. Hartford Life Ins. Co., 242 F. Supp. 2d 25 708, 720 (N.D. Cal. Jan. 23, 2003). Consequently, Euler is entitled to summary judgment on these 26 claims, as well as the claim for declaratory relief. 27 28 14 Case No.: 5:12-cv-02729-EJD ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT 1 2 3 4 5 6 C. UCL The UCL “prohibits, and provides civil remedies for, unfair competition, which it defines as ‘any unlawful, unfair or fraudulent business act or practice.’” Kwikset Corp. v. Super. Ct., 51 Cal. 4th 310, 320 (2011). As plead in the FAC, MBFG’s UCL claim has two aspects. First, it is “tethered” to the conduct underlying the preceding claims. FAC, at ¶ 190. Second, it is based on the allegation that MBFG’s “misappropriated funds were funneled to Euler in the form of premiums, fees and other charges paid to Euler by” the perpetrators of the Nature’s Own scheme. 7 Id. at ¶ 191. 8 The fundamental problem with this claim arises from the UCL’s restriction on damages. 9 Only injunctive relief and restitution are permissible remedies for UCL violations (Korea Supply 10 Co. v. Lockheed Martin Corp., 29 Cal. 4th 1134, 1146 (2003)), and MBFG is only seeking the 11 United States District Court Northern District of California latter. FAC, at p. 53:16-17. But MBFG has submitted no evidence of money it paid to Euler that 12 could be ordered returned as restitution. Korea Supply Co., 51 Cal. 4th at 1144-45 (observing that 13 a restitution order under the UCL is one “compelling a UCL defendant to return money obtained 14 through an unfair business practice to those persons in interest from whom the property was taken, 15 that is, to persons who had an ownership interest in the property or those claiming through that 16 person”). Thus, there is a failure of proof on damages. Euler is entitled to summary judgment on 17 the UCL claim. 18 19 D. RICO The RICO claims do not require substantive discussion, because they were pled without an 20 appropriate stipulation or leave of court. The court did not permit MBFG to include these claims 21 in the order permitting it to file an amended complaint (Dkt. No. 170), and Federal Rule of Civil 22 Procedure 15 prohibited MBFG from doing so on its own volition. To be sure, once the period for 23 24 25 amendment as a matter of course expires, “a party may amend its pleading only with the opposing party’s written consent or the court’s leave.” Fed. R. Civ. P. 15(a)(2). Because they were pled without Euler’s consent or leave of court, the RICO claims will be 26 stricken. 27 28 15 Case No.: 5:12-cv-02729-EJD ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT 1 IV. ORDER Based on the foregoing, Euler’s Motion for Summary Judgment (Dkt. No. 218) is 2 GRANTED IN PART and DENIED IN PART. 3 The motion is DENIED as to MBFG’s claim for negligent misrepresentation, but is 4 granted in all other aspects. 5 6 MBFG’s RICO claims are STRICKEN. MBFG’s objections are overruled and its motion to strike is DENIED. Dkt. Nos. 230, 234. 7 8 IT IS SO ORDERED. 9 Dated: December 2, 2016 10 United States District Court Northern District of California 11 12 ______________________________________ EDWARD J. DAVILA United States District Judge 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 16 Case No.: 5:12-cv-02729-EJD ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
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