Marble Bridge Funding Grp., Inc. v. Euler Hermes Am. Credit Indem. Co.

225 F.Supp.3d 1034

MARBLE BRIDGE FUNDING GROUP, INC., Plaintiff,

v.EULER HERMES AMERICAN CREDIT INDEMNITY COMPANY, Defendant.

Case No. 5:12–cv–02729–EJD

United States District Court, N.D. California, San Jose Division.

Signed December 2, 2016

Ron Oliner, Denis Francis Shanagher, Justin Jeremy Fields, Duane Morris LLP, Christian Foote, San Francisco, Jose Omar Rodriguez, Law Offices of Vincent P. Hurley, Aptos, CA, for Plaintiff.

Andrew P. Saulitis, Neal W. Cohen, New York, NY, Renee C. Callantine, Cornerstone Law Group, San Francisco, CA, for Defendant.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

EDWARD J. DAVILA, United States District Judge

This case stems from a type of commercial financing known as "factoring" and the variety of insurance unique to that industry. Plaintiff Marble Bridge Funding Group ("MBFG") is a "factor," or a company that provides accounts receivable financing to growing businesses that sell their products or services to other businesses. First Am. Compl. ("FAC"), Dkt No. 176, at ¶ 3. Defendant Euler Hermes American Credit Indemnity Company ("Euler") sells credit or trade insurance, which is "purchased by sellers of goods or services to insure their accounts receiveable should the debtors on ther receiveables fail to pay." Id . at ¶ 4.

MBFG alleges in this action that it was induced by Euler to purchase accounts receivable invoices from another business, Nature's Own, Inc. or Nature's Own Pharmacy LLC ("Nature's Own").¹ Nature's Own turned out to be a fraud, and Euler, who had insured Nature's Own 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 Euler's Motion for Summary Judgment, which MBFG opposes. Dkt. No. 218. Having now carefully considered the parties' arguments, the court finds that most but not all of Euler's arguments are meritorious. Thus, the motion will be granted in part and denied in part for the reasons explained below.

I. BACKGROUND

The basic facts are either undisputed or not reasonably disputed. Euler is a Maryland insurance company licensed to do business in California. Decl. of Deborah L. Stuehrmann ("Stuehrmann Decl."), Dkt. No. 219, at ¶ 2. MBFG is a commercial finance company which, as noted, provides its clients with accounts receivable funding. Id . at Ex. J. Commencing on November 1, 2010, Nature's Own had a credit insurance policy with Euler designated as a "Domestic Markets Business Credit Insurance Policy." Id . at Ex. D. The original policy was designated as Policy No. 5033862 (the "First Policy"), and was renewed on November 1, 2011, as Policy No. 5041669 (the "Second Policy"). Id . The terms of First Policy and the Second Policy are nearly identical. Id .

A. The Terms of the First and Second Policies

Under the Policies, Euler agreed to provide Nature's Own "insurance against covered credit losses ... in return for the Premium and [Nature's Own's] compliance...." Id . The types of losses covered were further described as follows:

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.

...

Credit losses covered under this Policy are:

1. The insolvency of a covered Buyer, or

2. The Protected Default due to slow payment of a covered Buyer.

Id .

A "Buyer," or a customer of the insured, was defined in the Policies as "a legal entity and its branch offices, trade styles or divisions, if any, which is domiciled in the United States (including Puerto Rico) or Canada and is approved for coverage under the Policy," but "does not include subsidiaries or affiliated corporations, which are separate legal entities." Id . "Covered 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" 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 Products." Id . This phrase was defined as "Covered Products which are Dispatched by [Nature's Own] and Delivered to a Buyer." Id . "Dispatched" means "the point in time when Covered Products leave [Nature's Own's] control," and "Delivery" means "the point in time when legal title to and the risk of loss of the Covered Products is transferred to the Buyer and the Covered Products have left [Nature's Own] custody and physical control." Id .

B. MBFG's Involvement with Nature's Own and the Policies

On June 22, 2011, MBFG entered into a Receivables Purchase Agreement "in which [MBFG] purchased certain accounts receivable of Nature's Own...." FAC, at ¶ 75. Thereafter, on or about July 3, 2011,² Nature's Own requested the issuance of an endorsement to the First Policy in order to make MBFG a beneficiary. Stuehrmann Decl., at Ex. D. This was accomplished through a document entitled "Bank/Lender Policy Beneficiary Endorsement," (the "Endorsement") which in essence granted MBFG the same rights under the First Policy that Nature's Own would receive absent the beneficiary designation. Id . As relevant to this case, the Endorsement permitted MBFG to file a claim against the First Policy and was entitled to receive any loss payments that would otherwise be payable to Nature's Own. Id . Furthermore, the 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 Own also purported to have an account manager named Anette Zimmerman, who completed and signed the credit insurance policy application that was submitted to Euler. Id . Nature's Own, however, was not a legitimate business. Indeed, "[i]t turned out that seemingly normal looking 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] substantial amounts of money."³ Furthermore, Annette Zimmerman was not a real person; this was a "made-up name" for another individual named Marsha Kay Holloway.

C. MBFG's Policy Claims and Ensuing Litigation

Euler cancelled the Credit Limits for many of Nature's Own's Buyers on February 27th and February 29, 2012. Id . at ¶ 15. On March 7, 2012, MBFG filed claims against the Second Policy for the Nature's Own Buyers whose credit limits had been cancelled. Id . at ¶ 8. Euler did not pay benefits on MBFG's claims, and notified MBFG on or about May 24, 2012, that Euler would deny coverage. Id . at ¶ 10, Ex. N.

MBFG filed an action against Nature's Own Pharmacy LLC and its principals in this court on April 12, 2012. See Case No. 5;12–cv–01839–EJD. MBFG then commenced this action against Euler on May 29, 2012, and filed the FAC on September 12, 2014. These motions followed.

II. LEGAL STANDARD

A motion for summary judgment or partial summary judgment should be granted if "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of 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 and identifying the portions of the pleadings, depositions, answers to interrogatories, admissions, or affidavits that demonstrate the absence of a triable issue of material fact. Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the issue is one on which the nonmoving party must bear the burden of proof at trial, the moving party need only point out an absence of evidence supporting the claim; it does not need to disprove its opponent's claim. Id . at 325, 106 S.Ct. 2548.

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, 106 S.Ct. 2548. A "genuine issue" for trial exists if the non-moving party presents evidence from which a reasonable jury, viewing the evidence in the light most favorable to that party, could resolve the material issue in his or her favor. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248–49, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

The court must draw all reasonable inferences in favor of the party against whom summary judgment is sought. Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). However, the mere suggestion that facts are in controversy, as well as conclusory or speculative testimony in affidavits and moving papers, is not sufficient to defeat summary judgment. Id . ("When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts."); Thornhill Publ'g Co. v. GTE Corp. , 594 F.2d 730, 738 (9th Cir. 1979). Instead, the non-moving party must come forward with admissible evidence to satisfy the burden. Fed. R. Civ. P. 56(c).

"If the nonmoving party fails to produce enough evidence to create a genuine issue of material fact, the moving party wins the motion for summary judgment." Nissan Fire & Marine Ins. Co. v. Fritz Cos., Inc. , 210 F.3d 1099, 1103 (9th Cir. 2000). "But if the nonmoving party produces enough evidence to create a genuine issue of material fact, the nonmoving party defeats the motion." Id .

III. DISCUSSION

MBFG asserts ten claims against Euler in the FAC, including aiding and abetting a fraud, intentional misrepresentation, fraudulent...