Airborne America, Inc. v. Kenway Composites et al, No. 3:2020cv02208 - Document 37 (S.D. Cal. 2021)
Court Description: Order Granting Defendants Gemini Insurance Company and Berkley Insurance Company's Motion to Dismiss Plaintiff's Complaint (ECF No. 8 ). Plaintiff may file an amended complaint within thirty (30) days of the electronic docketing of this Order. If Plaintiff fails to file an amended complaint within the allotted time, this case will proceed against the remaining defendants. Signed by Judge Janis L. Sammartino on 8/16/21. (jmo)
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Airborne America, Inc. v. Kenway Composites et al Doc. 37 Case 3:20-cv-02208-JLS-BLM Document 37 Filed 08/16/21 PageID.543 Page 1 of 12 1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 12 AIRBORNE AMERICA, INC., a Nevada corporation, 15 16 17 18 19 20 21 22 23 24 25 26 ORDER GRANTING DEFENDANTS GEMINI INSURANCE COMPANY AND BERKLEY INSURANCE COMPANY’S MOTION TO DISMISS PLAINTIFF’S COMPLAINT Plaintiff, 13 14 Case No.: 20-CV-2208 JLS (WVG) v. KENWAY COMPOSITES, a Maine corporation; CPK MANUFACTURING, LLC, a Delaware limited liability company; KENWAY CORPORATION, a Maine corporation; CREATIVE PULTRUSIONS, a Pennsylvania corporation; HILL & SMITH HOLDINGS, PLC, a United Kingdom public limited company; KENNETH G. PRIEST II, an individual; SUSAN PRIEST, an individual; MICHAEL PRIEST, an individual; TERRY PRIEST, an individual; IAN KOPP, an individual; GEMINI INSURANCE COMPANY, a Delaware corporation; BERKLEY INSURANCE COMPANY, a Delaware corporation; and DOES 1-100, inclusive, (ECF No. 8) Defendants. 27 28 1 20-CV-2208 JLS (WVG) Dockets.Justia.com Case 3:20-cv-02208-JLS-BLM Document 37 Filed 08/16/21 PageID.544 Page 2 of 12 1 Presently before the Court is Defendants Gemini Insurance Company (“Gemini”) 2 and Berkley Insurance Company’s (“Berkley”) (collectively, “Defendants”) Motion to 3 Dismiss Plaintiff’s Complaint (“Mot.,” ECF No. 8), as well as Plaintiff Airborne America, 4 Inc.’s (“Plaintiff”) Opposition thereto (“Opp’n,” ECF No. 10) and Defendants’ Reply in 5 support thereof (“Reply,” ECF No. 13). The Court took the matter under submission 6 without oral argument pursuant to Civil Local Rule 7.1(d)(1). See ECF No. 15. Having 7 carefully reviewed Plaintiff’s Complaint (“Compl.,” ECF No. 1-4), the Parties’ arguments, 8 and the law, the Court GRANTS Defendants’ Motion. 9 BACKGROUND1 10 This action arises out of Plaintiff’s “catastrophic loss of a[n over $45,000,000] 11 investment into a business that barely opened its doors before being forced to close in 12 2017.” Compl. ¶ 1. Plaintiff invested in developing an indoor skydiving facility in 13 downtown San Diego (the “Project”). Id. ¶ 3(a). Aerolab, LLC (“Aerolab”) designed the 14 Project, which consisted of two wind tunnels in a 10,000 square foot building. Id. ¶¶ 26– 15 27. Each tunnel contained, among other things, a clear tube with a skydiving platform, a 16 large fan, and four turning vanes designed to direct the air inside the tunnel and support the 17 skydivers. Id. ¶¶ 27–30. The large fan had a 2,700-pound nose cone assembly, which was 18 designed to smooth and direct the airflow. 19 subcontractors to construct the Project, one being Kenway Corporation (“Kenway”).2 Id. 20 ¶ 11. Gemini issued Kenway an insurance policy with a policy limit of $1,000,000. Id. 21 ¶ 75; Mot. at 1. Berkley is Gemini’s manager and is defending Kenway in a separate 22 negligence action. Compl. ¶¶ 18, 35. Id. ¶ 3 n.2. Aerolab hired numerous 23 Kenway’s responsibilities in the Project included manufacturing the turning vanes 24 and the large fan’s nose cone. Id. ¶¶ 30–31. Together, Aerolab and Kenway installed the 25 26 27 28 The facts alleged in Plaintiff’s Complaint are accepted as true for purposes of the present Motion. See Vasquez v. Los Angeles Cnty., 487 F.3d 1246, 1249 (9th Cir. 2007) (holding that, in ruling on a motion to dismiss, the Court must “accept all material allegations of fact as true”). 1 2 Kenway is another named defendant in this action. See generally Compl. 2 20-CV-2208 JLS (WVG) Case 3:20-cv-02208-JLS-BLM Document 37 Filed 08/16/21 PageID.545 Page 3 of 12 1 turning vanes. Id. ¶ 32. On December 7, 2016, the turning vanes in Wind Tunnel One 2 exploded, which shut down the Project for several months. Id. ¶¶ 32–33. Kenway 3 allegedly admitted to Defendants that it should have continued to analyze the buckling of 4 the turning vanes, and that the “buckling, combined with the inherent design flaw of the 5 blind leading edge joint[, led] to the catastrophic failure.” Id. ¶ 35 (emphasis omitted). 6 Following this incident, Kenway and its officers3 allegedly schemed to enrich 7 themselves by selling Kenway’s assets to Hill & Smith (“Hill”) and its subsidiary, Creative 8 Pultrusions (“Creative”).4 Id. ¶¶ 36–37. As part of the asset purchase agreement, Hill and 9 Creative would manufacture new turning vanes for the Project, while Kenway would retain 10 liability for the turning vanes’ design. Id. ¶ 41. Additionally, Kenway would process the 11 liability claim for the turning vane failure with Berkley. Id. 12 Plaintiff claims that Kenway “made a secret insurance claim to pay for replacement 13 turning vanes and subsequently planned to secretly pocket the money.” Id. ¶ 37. Mr. Kopp 14 and Mr. Priest, officers of Kenway, allegedly swore under oath to Defendants that the 15 turning vane incident was “the result of Kenway’s (and no one else’s) ‘errors and 16 omissions.’” Id. ¶ 45. Subsequently, Defendants paid Kenway $470,000 on its insurance 17 claim related to the turning vane incident. See id. ¶ 46. Kenway in turn planned to use the 18 insurance payout to hire Creative on a fixed price contract to manufacture replacement 19 turning vanes for the Project. Id. ¶¶ 41, 45–46; see also Mot. at 4. As a result of 20 Defendants’ payment, Kenway released the remainder of the $1,000,000 policy, and 21 Kenway excused Defendants from any further liability to Kenway related to the turning 22 vane incident. Compl. ¶¶ 44, 47. Kenway allegedly further attempted to limit it and 23 24 25 26 27 28 Throughout its Complaint, Plaintiff refers to Kenway’s officers as the “Individual Defendants.” See generally Compl. The Individual Defendants are Kenneth G. Priest II, Susan Priest, Terry Priest, and Ian Kopp, all of whom Plaintiff claims are an alter ego of Kenway. See id. ¶ 13. Plaintiff alleges Kenway and the Individual Defendants “concocted a plan to further enrich themselves and even potentially cut off Plaintiff’s rights while they were at it.” Id. ¶ 36. 3 4 Plaintiff has also named Hill and Creative as defendants. See generally Compl. 3 20-CV-2208 JLS (WVG) Case 3:20-cv-02208-JLS-BLM Document 37 Filed 08/16/21 PageID.546 Page 4 of 12 1 Defendants’ exposure for the turning vane incident by presenting Plaintiff with an 2 agreement stating that Kenway would be released from any further claims resulting from 3 the design or failure of the turning vanes. Id. ¶¶ 48, 51. The release stated, in part: “[Plaintiff] acknowledges that Kenway Corporation is fulfilling all its warranty obligations associated with the Airborne San Diego original turning vane failure by its design, testing and supply of these modified replacement vanes at Kenway Corporation’s costs. In exchange for the design, testing and supply of these replacement vanes, [Plaintiff] releases Kenway from any additional present or future claims, damages, or liabilities of any kind relating to the failure or to the design of the vanes.” 4 5 6 7 8 9 10 11 Id. ¶ 51 (emphasis omitted). 12 Plaintiff claims that Defendants raised concerns to Kenway about the release 13 because it was “‘narrow’ and did not include ‘typical’ release language.” Id. ¶ 53. But 14 Kenway informed Defendants it desired to balance “thorough protection” against 15 “provoking litigation.” Id. ¶ 54. Kenway allegedly represented to Plaintiff that Defendants 16 “w[ould] NOT allow [Kenway] to start the warranty replacement process without this 17 documentation in place.” Id. ¶ 55 (emphasis in original). On March 6, 2017, Plaintiff 18 signed the release, allegedly without knowledge any company but Kenway would be 19 working on the Project. Id. ¶ 57–58. On June 12, 2017, the Project experienced a further 20 catastrophic setback. The nose cone in Tunnel One, designed and manufactured by 21 Kenway and Aerolab, blew apart. Id. ¶¶ 60–61. Plaintiff alleges that the nose cone 22 weighed three times its intended weight. Id. ¶ 60. This incident occurred “only days” after 23 rebalancing work had been done in Tunnel One. Id. ¶ 64. According to Plaintiff, it would 24 have been much more careful about the rebalancing had it known that Kenway had 25 admitted to Defendants that “its design and manufacturing work on the [P]roject had been 26 negligent.” Id. ¶ 63. 27 /// 28 /// 4 20-CV-2208 JLS (WVG) Case 3:20-cv-02208-JLS-BLM Document 37 Filed 08/16/21 PageID.547 Page 5 of 12 1 The nose cone incident proved to be the Project’s “knockout blow.” Id. ¶ 66. 2 Plaintiff learned it would cost an additional $4,500,000 to $7,000,000 to repair the damage. 3 Id. By August 2017, Plaintiff closed its doors and defaulted on its loans. Id. ¶¶ 68–69. 4 Plaintiff filed this action in the Superior Court of California, County of San Diego, 5 on September 21, 2020. See ECF No. 1 (“Not. of Removal”) at 1. Plaintiff’s Complaint 6 alleges two claims against Defendants: (1) intentionally fraudulent transfer in violation of 7 California Civil Code § 3439.10 and 14 Maine Revised Statutes § 3571 et seq.; and (2) 8 common-law fraudulent transfer.5 See generally Compl. On November 12, 2020, Kenway 9 and Creative removed to this Court, based on diversity jurisdiction.6 See generally Not. of 10 Removal. Defendant filed the instant Motion on December 7, 2020. See ECF No. 8. 11 LEGAL STANDARD 12 Federal Rule of Civil Procedure 12(b)(6) permits a party to raise by motion the 13 defense that the complaint “fail[s] to state a claim upon which relief can be granted,” 14 generally referred to as a motion to dismiss. The Court evaluates whether a complaint 15 states a cognizable legal theory and sufficient facts in light of Federal Rule of Civil 16 Procedure 8(a), which requires a “short and plain statement of the claim showing that the 17 pleader is entitled to relief.” 18 allegations,’ . . . it [does] demand more than an unadorned, the-defendant-unlawfully- 19 harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. 20 Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In other words, “a plaintiff’s obligation to 21 provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires more than labels and 22 conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Although Rule 8 “does not require ‘detailed factual 23 24 25 26 Plaintiff’s Complaint originally included a claim for negligent misrepresentation; however, Plaintiff moved to dismiss without prejudice its cause of action for negligent misrepresentation. See ECF No. 35. The Court granted Plaintiff’s motion. See ECF No. 36. 5 6 27 28 In their Notice of Removal, Kenway and Creative note that Plaintiff is incorrect about the location of some of the defendants’ places of incorporation. See Not. of Removal ¶¶ 7–9. However, because Plaintiff is a Nevada corporation and no defendant is a resident of Nevada, diversity jurisdiction still exists. Id. ¶ 10. 5 20-CV-2208 JLS (WVG) Case 3:20-cv-02208-JLS-BLM Document 37 Filed 08/16/21 PageID.548 Page 6 of 12 1 Twombly, 550 U.S. at 555 (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). A 2 complaint will not suffice “if it tenders ‘naked assertion[s]’ devoid of ‘further factual 3 enhancement.’” Iqbal, 556 U.S. at 677 (citing Twombly, 550 U.S. at 557). 4 To survive a motion to dismiss, “a complaint must contain sufficient factual matter, 5 accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id. (quoting 6 Twombly, 550 U.S. at 570); see also Fed. R. Civ. P. 12(b)(6). A claim is facially plausible 7 when the facts pled “allow the court to draw the reasonable inference that the defendant is 8 liable for the misconduct alleged.” Iqbal, 556 U.S. at 677 (citing Twombly, 550 U.S. at 9 556). That is not to say that the claim must be probable, but there must be “more than a 10 sheer possibility that a defendant has acted unlawfully.” Id. Facts “‘merely consistent 11 with’ a defendant’s liability” fall short of a plausible entitlement to relief. Id. (quoting 12 Twombly, 550 U.S. at 557). This review requires context-specific analysis involving the 13 Court’s “judicial experience and common sense.” Id. at 675 (citation omitted). “[W]here 14 the well-pleaded facts do not permit the court to infer more than the mere possibility of 15 misconduct, the complaint has alleged—but it has not ‘show[n]’—‘that the pleader is 16 entitled to relief.’” Id. 17 Where a complaint does not survive 12(b)(6) analysis, the Court will grant leave to 18 amend unless it determines that no modified contention “consistent with the challenged 19 pleading . . . [will] cure the deficiency.” DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 20 658 (9th Cir. 1992) (quoting Schreiber Distrib. Co. v. Serv-Well Furniture Co., 806 F.2d 21 1393, 1401 (9th Cir. 1986)). 22 ANALYSIS 23 Defendants contend that Plaintiff lacks standing to sue them for both intentionally 24 fraudulent transfer and common-law fraudulent transfer. See Mot. at 6, 10. The Court 25 notes that this argument is properly addressed through a Rule 12(b)(6) motion to dismiss. 26 /// 27 /// 28 /// 6 20-CV-2208 JLS (WVG) Case 3:20-cv-02208-JLS-BLM Document 37 Filed 08/16/21 PageID.549 Page 7 of 12 1 See Minden Pictures, Inc. v. John Wiley & Sons, Inc., 795 F.3d 997, 1001 (9th Cir. 2015). 2 Because Plaintiff’s standing is dispositive here, the Court only addresses this argument.7 3 I. Intentionally Fraudulent Transfer 4 In Count I of its Complaint, Plaintiff alleges intentionally fraudulent transfer against 5 Defendants. See Compl. ¶ 70. Plaintiff brings this claim pursuant to California Civil Code 6 § 3439.10 and 14 Maine Revised Statutes §§ 3575, 3576, and 3578.8 Id. Specifically, 7 Plaintiff alleges that Defendants and Kenway “entered into an agreement, as joint 8 conspirators, with the intent of voiding out the balance of the Berkley policy to the 9 detriment of a known creditor, [Plaintiff].” Id. ¶ 74. According to Plaintiff, the decision 10 to surrender and cancel the policy was designed to save Gemini more than $500,000 in 11 loss, which should have been available to Plaintiff. Id. ¶ 75. Plaintiff now “seeks to set 12 aside any intentionally fraudulent transfer of the insurance proceeds and released policy 13 limits” as between Defendants and Kenway. Id. ¶ 83. 14 Defendants assert that because there is no privity of contract between Plaintiff and 15 Defendants, Plaintiff lacks standing “to resolve any types of rights and obligations owed 16 under the liability policy issued to Kenway.” Mot. at 6 (citing Royal Indem. Co. v. United 17 Enters., Inc., 162 Cal. App. 4th 194, 211 (2008)). Plaintiff counters that it is not seeking 18 to resolve any rights or obligations under the policy, but rather is suing based on Defendants 19 “conspiring with and aiding and abetting Kenway’s plans to fraudulently transfer assets.” 20 Opp’n at 1. Plaintiff further contends that Potter v. Alliance United Insurance Co., 37 Cal. 21 /// 22 23 24 25 26 27 28 7 Defendants also contend that the claims should be dismissed because the Complaint fails to allege fraudulent transfer and fails to meet the heightened pleading requirement of Federal Rule of Civil Procedure 9(b). See Mot. at 7, 9 (citing In re Irving Tanning Co., 555 B.R. 70, 80 (Bankr. D. Me. 2016)). California Civil Code § 3439.10(b) provides that “[a] claim in the nature of a claim under this chapter is governed by the local law of the jurisdiction in which the debtor is located when the transfer is made or the obligation is incurred.” Because Kenway, the debtor, has its principal place of business in Maine and is incorporated in Maine, see Compl. ¶¶ 11, 21, Plaintiff has properly alleged claims under 14 Maine Revised Statutes §§ 3571 et seq. 8 7 20-CV-2208 JLS (WVG) Case 3:20-cv-02208-JLS-BLM Document 37 Filed 08/16/21 PageID.550 Page 8 of 12 1 App. 5th 894 (2019), “expressly allows a third party to pursue a fraudulent transfer suit 2 against an insurance carrier.” Opp’n at 2. 3 “The standing doctrine determines ‘whether the litigant is entitled to have the court 4 decide the merits of the dispute or of particular issues.’” U.S. v. Lazarenko, 476 F.3d 642, 5 649 (9th Cir. 2007) (quoting Warth v. Seldin, 422 U.S. 490, 498 (1975)). Unless there 6 exists a recognized exception, a party not in privity of contract with an insurer lacks 7 standing to resolve rights and obligations under an insurance policy. See Otay Land Co. v. 8 Royal Indem. Co., 169 Cal. App. 4th 556, 564 (2008). Despite Plaintiff’s arguments to the 9 contrary, the Court agrees with Defendants that “Plaintiff is seeking to resolve obligations 10 owed under the policy.” Opp’n at 1. This is evidenced by the fact that Plaintiff seeks to 11 set aside Defendants’ payment to Kenway to resolve the turning vane claim. Compl. ¶ 83. 12 Plaintiff alleges that Kenway and Berkley, on behalf of Gemini, “entered into an agreement 13 with the intent to void out the balance of [Kenway’s insurance] policy.” Id. ¶ 73. 14 Generally, as a third party, Plaintiff cannot challenge Defendants’ payment to its insured, 15 Kenway. See San Diego Housing Comm’n v. Indus. Indem. Co., 95 Cal. App. 4th 669, 692 16 (2002) (“A third party claimant cannot bring an action upon a duty owed only to the insured 17 . . . without an assignment of the cause of action for breach of such duty.”); Cowley v. Tex. 18 Snubbing Control, 812 F. Supp. 1437, 1444–45 (S.D. Miss. 1992) (finding a third party 19 has no standing to challenge a settlement agreement between an insurer and an insured). 20 See generally Couch on Insurance 3d § 104:6 (2021) (“Where claimants do not have a right 21 to sue an insurer directly, it necessarily follows that they cannot object to the insurer’s 22 performance of its obligations under the contract of insurance.”). Because Plaintiff is not 23 a party to the insurance policy, it only has standing to sue Defendants if a recognized 24 exception applies. Therefore, the Court next will examine whether an exception applies 25 here. 26 “As a general rule, a third party may directly sue an insurer only when there has been 27 an assignment of rights by, or a final judgment against, the insured.” Reynolds v. Shure, 28 148 F. Supp. 3d 928, 934–35 (E.D. Cal. 2015) (quoting Shaolian v. Safeco Ins. Co., 71 Cal. 8 20-CV-2208 JLS (WVG) Case 3:20-cv-02208-JLS-BLM Document 37 Filed 08/16/21 PageID.551 Page 9 of 12 1 App. 4th 268, 271 (1999)). A third party may also assert a claim directly against an insurer 2 where the insured’s liability insurance provides for medical payments coverage should 3 someone be injured by the insured, or where the insurer is seeking declaratory relief against 4 a third-party claimant. Royal Indem., 162 Cal. App. 4th at 205–06. Finally, a third party 5 “may sue the insurer as a third-party beneficiary utilizing traditional contract principles.” 6 Harper v. Wausau Ins. Co., 56 Cal. App. 4th 1079, 1086 (1997). But Plaintiff does not 7 allege there has been an assignment of rights or that Defendants’ insurance provided for 8 medical payments coverage. 9 declaratory relief, and Plaintiff has not received a final judgment against Kenway. Nor 10 does Plaintiff allege that it is a third-party beneficiary of the policy. See generally id. 11 Accordingly, none of the recognized exceptions apply. See generally Compl. Nor have Defendants sought 12 Plaintiff relies on Potter, 37 Cal. App. 5th 894, in support of its contention that a 13 third party may directly sue an insurance carrier for fraudulent transfer. Opp’n at 2. But 14 Plaintiff’s reliance is misplaced. Potter does not stand for the proposition that a third party 15 has an automatic right to sue an insurer for fraudulent transfer. True, the third-party 16 claimant in Potter succeeded on a fraudulent transfer theory against an insurer. 37 Cal. 17 App. 5th at 911. However, there are two crucial differences between this case and Potter. 18 First, the insured debtor in Potter actually transferred an asset to the insurer—his bad faith 19 failure to settle claim. Id. at 908. Plaintiff does not allege Kenway transferred an asset to 20 Defendants. See generally Compl. Second, and more fundamentally, the third-party 21 claimant in Potter was a judgment creditor, see 37 Cal. App. 5th at 900, and therefore was 22 entitled to sue the insurer directly under California law. See Royal Indem., 162 Cal. App. 23 4th at 205. Plaintiff is not. The Court thus finds Plaintiff’s reliance on Potter unpersuasive. 24 Plaintiff lacks standing to assert a claim against Defendants for intentionally fraudulent 25 transfer. Accordingly, the Court GRANTS Defendants’ Motion to Dismiss as to Count I of 26 27 Plaintiff’s Complaint. 28 /// 9 20-CV-2208 JLS (WVG) Case 3:20-cv-02208-JLS-BLM Document 37 Filed 08/16/21 PageID.552 Page 10 of 12 1 II. Common-Law Fraudulent Transfer 2 In addition to its intentionally fraudulent transfer claim, Plaintiff asserts a common- 3 law fraudulent transfer claim against Defendants in Count III of its Complaint. Compl. 4 ¶ 97. “Case law has established the remedies specified in the [UFTA]9 are cumulative and 5 not the exclusive remedy for fraudulent conveyances.” Berger v. Varum, 35 Cal. App. 5th 6 1013, 1019 (2019). Therefore, a cause of action for common-law fraudulent transfer 7 survives alongside its statutory counterpart in California. Id. However, unlike the UFTA, 8 California common law has an additional requirement that the creditor “have a specific lien 9 on the property or . . . prosecute[] his claim to judgment.” In re Kalt’s Estate, 16 Cal. 2d 10 807, 811 (1940); see also Moore v. Schneider, 196 Cal. 380, 387 (1925) (discussing how 11 it is “universally held” that for a creditor to have a claim for fraudulent conveyance, it must 12 hold a lien on the property or reduce its claim to judgment). 13 Unlike Plaintiff’s intentionally fraudulent transfer claim, Plaintiff is not attempting 14 to resolve any rights or obligations under the policy through its common-law fraudulent 15 transfer claim. Rather, Plaintiff seeks punitive damages, compensatory damages, and other 16 costs. See Compl. ¶ 118. Nonetheless, Defendants contend that Plaintiff lacks standing 17 because it is not a judgment creditor and does not have a lien on Kenway’s property. Mot. 18 at 10. Plaintiff counters that “a defrauded creditor with no judgment lien still ha[s] various 19 remedies to collect [its] debt.” Mot. at 5 (citing Wagner v. Trout, 124 Cal. App. 2d 248, 20 254 (1954)). 21 California courts as far back as the 1800s have held that a defrauded creditor must 22 have a lien on the property or reduce their claim to judgment to assert a claim for common- 23 law fraudulent conveyance. See, e.g., Brown v. Campbell, 100 Cal. 635, 644 (1893). 24 Wagner, on which Plaintiff relies, appears to be an outlier in this line of cases. Wagner 25 26 27 28 While California calls its intentionally fraudulent transfer statute the “Uniform Voidable Transactions Act,” see Cal. Civ. Code § 3439, California courts appear to use “UVTA” and “UFTA” interchangeably. Compare Berger, 35 Cal. App. 5th at 1019 (using the term “UVTA”), with Wisden v. Super. Ct., 124 Cal. App. 4th 750, 759 (2004) (using the term “UFTA”). For clarity’s sake, the Court will refer to California’s fraudulent transfer statute as the UFTA. 9 10 20-CV-2208 JLS (WVG) Case 3:20-cv-02208-JLS-BLM Document 37 Filed 08/16/21 PageID.553 Page 11 of 12 1 stated that a defrauded creditor possesses a number of options to recover fraudulently 2 conveyed property, such as attaching the property, having it sold under execution after 3 obtaining a judgment, or having the transfer declared void through an equitable action. 124 4 Cal. App. 2d at 254. With that said, it does not appear that any California court has applied 5 this statement in Wagner as law.10 Rather, California courts continue to recognize that a 6 creditor must have a judgment or a lien in order to assert a claim against a debtor for 7 common-law fraudulent transfer. See, e.g., Wisden, 124 Cal. App. 4th at 759 (“[P]rior to 8 the passage of the UFTA and its predecessor statute,11 it was necessary for a creditor to 9 obtain a judgment, or a specific lien on the property, before an action could be brought to 10 set aside a fraudulent transfer.” (citation omitted)); Cortez v. Vogt, 52 Cal. App. 4th 917, 11 930 n.12 (1997) (same). Given that Plaintiff does not have a judgment or a lien, Plaintiff 12 lacks standing under California law to assert a cause of action for common-law fraudulent 13 conveyance. 14 Even assuming, arguendo, that the statement in Wagner is not merely dicta,12 the 15 fact remains that Plaintiff’s common-law fraudulent transfer claim does not seek “to have 16 the transfer declared void as to [it] and the property so transferred subjected to [its] claims 17 as a creditor.” 124 Cal. App. 2d at 254. Rather, Plaintiff’s common-law fraudulent transfer 18 claim seeks punitive damages, compensatory damages, and other costs. See Compl. ¶ 118. 19 While California courts have held that a plaintiff asserting a common-law fraudulent 20 transfer claim may recover punitive and consequential damages, these courts have only 21 22 23 24 25 26 27 28 10 In a later decision, the California Court of Appeal characterized Wagner as standing for the proposition that “a defrauded creditor ha[s] various remedies to collect her debts, including an equitable action to have the transfer declared void and the property subjected to her claims.” Wisden, 124 Cal. App. 4th at 756 n.6. However, Wisden dealt with whether a judgment creditor is entitled to a jury trial for a fraudulent transfer claim under the UFTA. See id. at 753–54. The court only cited Wagner to observe that Wagner says nothing about the right to a jury trial. See id. at 756 n.6. 11 As Plaintiff notes in its Opposition, the 1939 Uniform Fraudulent Conveyance Act predated the UFTA in California. Opp’n at 5 (citing Cortez, 52 Cal. App. 4th at 930). 12 While dicta may be considered persuasive, it is not considered precedential. Best Life Assur. Co. of Cal. v. C.I.R., 281 F.2d 828, 834 (9th Cir. 2002) (citing Black’s Law Dictionary 1100 (7th ed. 1999)). 11 20-CV-2208 JLS (WVG) Case 3:20-cv-02208-JLS-BLM Document 37 Filed 08/16/21 PageID.554 Page 12 of 12 1 recognized this remedy where the plaintiff is a judgment creditor. See Berger, 35 Cal. App. 2 5th at 1021, 1024. 3 interpretation of California common law, Plaintiff does not seek a cognizable remedy. See 4 Henry v. Radio One, Inc., No. CV 08-2717 PSG (CTx), 2008 WL 11338294, at *4 (C.D. 5 Cal. June 18, 2008) (dismissing claim because plaintiff had no remedy available to her); 6 Altmann v. Wells Fargo Bank, N.A., No. 1:16-cv-01121-LJO-SKO, 2016 WL 4943924, at 7 *4 (E.D. Cal. Sept. 16, 2016) (same); see also Kenney v. City of San Diego, No. 13cv248- 8 WQH-JLB, 2014 WL 2930871, at *2 (S.D. Cal. June 30, 2014) (“Dismissal under Rule 9 12(b)(6) is appropriate where the complaint lacks a cognizable legal theory.” (citing 10 Plaintiff is not. Thus, even if this Court followed Wagner’s Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990))). 11 Therefore, for two independent reasons—Plaintiff’s lack of standing and the 12 unavailability of the relief it seeks—the Court GRANTS Defendants’ Motion to Dismiss 13 as to Count III of Plaintiff’s Complaint. 14 CONCLUSION 15 In light of the foregoing, the Court GRANTS Defendants’ Motion to Dismiss. The 16 Court DISMISSES WITHOUT PREJUDICE Plaintiff’s Complaint in its entirety as to 17 Defendants Gemini Insurance Company and Berkley Insurance Company. Plaintiff MAY 18 FILE an amended complaint within thirty (30) days of the electronic docketing of this 19 Order. If Plaintiff fails to file an amended complaint within the allotted time, this case will 20 proceed against the remaining defendants. 21 22 IT IS SO ORDERED. Dated: August 16, 2021 23 24 25 26 27 28 12 20-CV-2208 JLS (WVG)
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