Cetera Advisor Networks LLC v. Protective Property and Casualty Ins. Co. ( 2021 )

1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 EASTERN DISTRICT OF CALIFORNIA 9 10 CETERA ADVISOR NETWORKS LLC, ) Case No. 2:19-cv-00299-JAM-JDP ) 11 Plaintiff, ) ) 12 v. ) ORDER DENYING CAL CAPITAL ) LTD.’S MOTION TO DISMISS 13 PROTECTIVE PROPERTY AND CASUALTY ) INS. CO., CAL CAPITAL LTD., and ) 14 GERALD B. GLAZER, ) ) 15 Defendants. ) AND RELATED COUNTER AND ) 16 CROSSCLAIMS. ) 17 More than two years and several motions into this lawsuit, the 18 Court presumes the parties are familiar with the facts and 19 procedural history. As a result, neither will be reduced into 20 writing again here. Cal Capital Limited (“Cal Capital”) moves to 21 dismiss the First and Second Counts in Protective Property & 22 Casualty Insurance Company’s (“Protective”) cross-claims against 23 it. See Mot. to Dismiss (“Mot.”), ECF No. 90. Protective opposes 24 the motion. See Opp’n, ECF No. 94. Cal Capital filed a reply. 25 See Reply, ECF No. 97. For the reasons discussed below, the Court 26 DENIES Cal Capital’s motion.1 27 1 This motion was determined to be suitable for decision without 28 oral argument. E.D. Cal. L.R. 230(g). The hearing was scheduled 1 I. OPINION 2 A. Request for Judicial Notice 3 Cal Capital requests that the Court take judicial notice of 4 Chesterfield’s Assignments of Rights to Reimbursement for Service 5 Contracts Issued Through Sacramento Infiniti (“reimbursement 6 agreement”), dated October 16, 2020, as it is incorporated by 7 reference in Protective’s First Amended Crossclaim (“FAC”) against 8 Cal Capital. See Req. for Judicial Notice (“RJN”), ECF No. 90-2; 9 see also Cotto Settlement v. Eisenberg, 593 F.3d 1031, 1038 (9th 10 Cir. 2010) (a court may consider materials incorporated into the 11 complaint when deciding a motion to dismiss). Protective does not 12 oppose this request. Accordingly, Cal Capital’s request for 13 judicial notice is GRANTED. 14 B. Analysis 15 Protective’s FAC alleges that Cal Capital breached the 16 Agreement to Assign Rights (“assignment agreement”) and the Trust 17 Agreement (“trust agreement”) by failing to pay its vehicle 18 service contracts (“VSC”). See FAC ¶ 28, ECF No. 89. Protective 19 further alleges that Cal Capital breached its contractual and 20 legal obligations by interfering with Protective’s reimbursements 21 and seeking to unduly influence the consumer claims process in 22 order to profit financially. Id. ¶¶ 28, 30. Protective also 23 requests that the Court issue a declaration that any remaining 24 funds in the trust account be transferred to a financial 25 institution to be held for future distribution. Id. ¶ 36. 26 To state a viable claim for breach of contract under 27 California law, a party must allege: (1) the existence of a valid 28 contract; (2) plaintiff’s performance or excused nonperformance of 1 the contract; (3) defendant’s breach; and (4) damage to plaintiff 2 caused by defendant’s breach. Sacramento Reg’l Pub. Safety 3 Comm’ns Ctr. v. Tyler Techs., Inc., WL 1255252, at *1 (E.D. Cal. 4 2019). Cal Capital argues that Protective’s breach of contract 5 and declaratory relief claims fail because: (1) Protective did not 6 identify a provision breached by Cal Capital; (2) Protective fails 7 to allege a valid assignment; (3) Protective admits that another 8 party caused its damages; and (4) a trustee cannot sue its 9 beneficiary as a matter of law. See generally Mot. 10 1. Breach of Contract 11 a. Provisions Breached 12 Pursuant to California law, a breach of contract claim must 13 “allege the specific provisions in the contract creating the 14 obligation the defendant is said to have breached.” Young v. 15 Facebook, Inc., 790 F.Supp.2d 1110, 1117 (N.D. Cal. 2011). Cal 16 Capital argues that Protective failed to specify the breached 17 provisions. See Mot. at 6–7. Protective contends that several 18 portions of the FAC detail Cal Capital’s obligations under the 19 assignment and trust agreements and specify how Cal. Capital 20 disregarded them. See Opp’n at 6–9 (citing FAC ¶¶ 7, 8, 16, 15, 21 28). Cal Capital argues that, “none of these [portions of the 22 FAC] specify the provisions in the Contracts that are purportedly 23 breached.” Reply at 2. Instead, they mainly consist of legal 24 conclusions. Id. 25 The FAC states that the assignment agreement obligates Cal 26 Capital to reimburse Chesterfield International Reinsurance 27 Limited (“Chesterfield”), one of Protective’s affiliates, for 28 amounts that Protective is “legally obligated to pay in accordance 1 with the terms of the [VSC’s] . . . .” FAC ¶ 7 (citing Assignment 2 Agreement § 6, Ex. A to FAC, ECF No. 89). And that, pursuant to 3 the trust agreement, if Cal Capital is “unable to pay any of the 4 above charges, it is the sole responsibility of [Cal Capital] to 5 satisfy those demands.” FAC ¶ 16, n.7 (citing Trust Agreement 6 Conditions, Ex. B to FAC, ECF No. 89). The “above charges” 7 include “net amounts due under the assignment agreement.” Id. 8 The FAC goes on to allege that, beginning in August 2017, Cal 9 Capital instructed Cetera not to allow withdrawals by Protective 10 from the account. FAC ¶ 15. And that, by November 2017, Cetera 11 was complying with Cal Capital’s instructions and refusing 12 Protective’s withdrawal requests. FAC ¶¶ 15, 28. In failing to 13 pay its VSC-related liabilities and interfering with, and 14 preventing, Protective’s reimbursements from the trust account for 15 VSC consumer claims and related liabilities, Protective alleges 16 that “Cal Capital breached the [agreements].” FAC ¶ 28. 17 The above portions of the FAC describe Cal Capital’s 18 obligations under specific provisions of the assignment and trust 19 agreements, respectively. Pursuant to those provisions, Cal 20 Capital was responsible for covering the amounts Protective was 21 legally obligated to pay per the various VSCs. The FAC then sets 22 forth the factual allegations Protective believes constitute a 23 breach of those obligations. By instructing Cetera to stop 24 reimbursing Protective, Cal Capital, in effect, failed to fulfill 25 its obligations regarding VSC-related payments. These portions of 26 the FAC are not mere legal conclusions. Thus, the Court finds 27 that Protective has set forth the provisions breached, and how 28 they were breached, with sufficient specificity. 1 b. Assignment 2 Cal Capital argues that Protective lacks the right to assert 3 its breach of contract claim against it because reimbursement 4 rights were not validly assigned from Chesterfield to Protective. 5 Mot. at 7–8. Cal Capital relies on the language of § 10.8 of the 6 assignment agreement to make this argument. Id. Section 10.8 7 states: “This agreement may only be modified in writing in 8 accordance with the mutual and express consent of all parties 9 hereto.” Assignment Agreement § 10.8. This argument fails. An 10 assignment of rights under a contract is not a modification of the 11 contract. See In re Trejos, 374 B.R. 210, 216 (B.A.P. 9th Cir. 12 2007) (finding a party’s assignment of its financial interest in a 13 contract was not a modification of the contract). Indeed, 14 California “has a strong policy in favor of the free 15 transferability of all types of property, including rights under 16 contracts.” Land Lot 1, LLC v. City of Bakersfield, 2012 WL 17 2357405, at *3 (Cal. Ct. App. 2012) (citations omitted). 18 The assignment did not modify a party’s obligations under the 19 contract. Thus, the assignment agreement did not require Cal 20 Capital’s consent for Chesterfield to transfer its right to 21 reimbursement to Protective. The right to reimbursement was 22 properly transferred to Protective. 23 c. Causation 24 Cal Capital argues that Protective’s breach of contract claim 25 fails because “Cetera—and not Cal Capital—refused to comply with 26 Protective’s requests” for reimbursement. Mot. at 8. As a 27 result, there is no proximate cause. Id. “The test for causation 28 in a breach of contract cause of action is whether the breach was 1 a substantial factor in causing the damages.” BladeRoom Grp. Ltd. 2 v. Emerson Elec. Co., 331 F.Supp.3d 977, 987 (N.D. Cal. 2018) 3 (internal quotation marks and citation omitted). “The substantial 4 factor standard generally produces the same result as [] the but 5 for rule of causation, but it also reaches beyond it to address 6 other situations, such as those involving independent or 7 concurrent causes in fact.” ChromaDex, Inc. v. Elysium Health, 8 Inc. 2019 WL 7166056, at *1 (C.D. Cal. 2019) (internal quotation 9 marks and citation omitted). 10 According to the FAC, Cal Capital breached the assignment and 11 trust agreements by failing to pay its VSC-related liabilities and 12 preventing Cetera from complying with Protective’s withdrawal 13 requests. See FAC ¶¶ 15, 28 (“Glazer, acting on behalf of Cal 14 Capital, directed Cetera’s Robert Taylor and his staff to refuse 15 Protective’s withdrawal requests, and Cetera complied with 16 Glazer’s instructions rather than Protective’s.”). The FAC goes 17 on to allege that, “[a]s a direct and proximate result of Cal 18 Capital’s breaches, Protective has suffered damages in the minimum 19 amount of $475,114.96.” FAC ¶ 28. These factual allegations 20 support Protective’s contention that Cal Capital’s alleged breach 21 amounts to a substantial factor in causing the damages. The Court 22 finds that Protective has adequately alleged proximate cause in 23 its breach of contract claim. 24 d. Ripeness 25 Cal Capital argues that Protective’s breach of contract claim 26 is unripe and will only become ripe after Protective’s arbitration 27 with Cetera has concluded. Mot. at 9. However, Cal Capital fails 28 to support this argument with any relevant law. Ripeness doctrine 1 requires “an immediate and certain injury to a party.” Clinton v. 2 Acequia, Inc., 94 F.3d 568, 572 (9th Cir. 1996). Here, Protective 3 seeks damages for an alleged breach of contract that has already 4 occurred. See generally FAC. Protective alleges that the breach 5 resulted in it incurring $475,114.96 in damages. FAC ¶ 28. Thus, 6 Protective’s claims are ripe for adjudication. 7 e. Damages 8 Cal Capital’s final argument specific to the breach of 9 contract claim is that Protective failed to plead damages because 10 Chesterfield assigned its rights to reimbursement under the 11 reimbursement agreement on October 16, 2020, after the 12 reimbursement claims were filed. Mot. at 9–10 (citing FAC ¶ 16). 13 This argument is without merit. In the reimbursement agreement, 14 Chesterfield assigned “all of its right, title, and interest to 15 receive reimbursements under the Cal Capital Agreement to 16 [Protective].” See Reimbursement Agreement ¶ 1, Ex. C to RJN, ECF 17 No. 90-2. For the reasons explained above, this assignment of the 18 right to reimbursement was also valid under California law. And, 19 in transferring all of its right to receive reimbursement, 20 Chesterfield transferred its right to outstanding and future 21 reimbursements over to Protective. This includes outstanding 22 reimbursement claims that predated the October 16, 2020 23 reimbursement agreement. 24 As such, Protective’s damages are not improperly pled. The 25 FAC sufficiently pleads each element of a breach of contract claim 26 and Cal Capital’s motion to dismiss Count One is DENIED. 27 2. Declaratory Relief Claim 28 A claim for declaratory relief must present an “actual 1 controversy” that is “definite and concrete, touching the legal 2 relations of parties having adverse legal interests . . . as 3 distinguished from an opinion advising what the law would be upon a 4 hypothetical state of facts.” In re Adobe Sys., Inc. Privacy 5 Litig., 66 F.Supp.3d 1197, 1219-20 (N.D. Cal. 2014) (quoting 28 6 U.S.C. § 2201(a)). Cal Capital argues that Protective’s 7 declaratory relief claim is invalid because it seeks to adjudicate 8 past liability incurred by Cal Capital and is duplicative of its 9 breach of contract claim. 10 This dispute centers on the amount Protective is allegedly 11 entitled to recover under its agreements with Cal Capital. 12 Protective argues that it is entitled to an amount exceeding the 13 $473,643.62 Cetera interpled into the Court’s registry. See FAC 14 ¶ 19. Cal Capital disagrees. See Mot. at 9–10. If the Court 15 ultimately concludes that Protective is entitled to less that the 16 amount in the Court’s registry, there will be a controversy over 17 where the remaining funds should be transferred. With this 18 eventuality in mind, Protective requests that the Court declare 19 that any remaining trust account proceeds be transferred to 20 SunTrust Bank and held for future disbursement. FAC ¶ 38. The 21 relief sought is distinct from Protective’s breach of contract 22 claim and constitutes a viable claim for declaratory relief. 23 Accordingly, Cal Capital’s motion to dismiss Count Two is DENIED. 24 3. Trustee Suit 25 In a final effort to succeed on this motion, Cal Capital 26 argues that Protective is its fiduciary because it is a trustee, 27 and, because “a fiduciary cannot sue its beneficiary,” the FAC is 28 entirely “void as a matter of law.” Mot. at 11. The authorities nen ee nn nee en nnn ne nnn nn en ne ON IIE OE 1 |J|cited by Cal Capital do not support this conclusion. For 2 |jJinstance, in Donahue v. Donahue, 182 Cal. App. 4th 259, 268 (Cal. 3 |}/Dist. Ct. App. 2010), a trustee sued his beneficiary for fees and 4 \lexpenses. There, the court did not conclude that the trustee, as 5 |}such, could not sue as a matter of law. 6 Moreover, as Protective points out, this case involves a 7 |}reinsurance relationship. See Opp’n at 15. Under the assignment 8 |}agreement, Cal Capital, a reinsurer, was to reimburse Protective, 9 |}/the reinsured, for all claims reasonably paid to consumers under 10 ||}the VSCs. And, within a reinsurance relationship, “neither party 11 |}owes the other a fiduciary duty.” See Cal. Joint Powers Ins. 12 |}Auth. v. Munich Reinsurance Am., Inc., WL 1885754, at *4 (C.D. 13 |JCal. 2008) (“[T]he relevant policy reasons inherent in a finding 14 |lof a fiduciary relationship, e.g., one party’s dominance, do not 15 |}extend to the reinsurance context.”). Therefore, Cal Capital’s 16 |J/role as reinsurer does not prevent Protective from filing suit 17 |Jagainst it. 18 19 Il. ORDER 20 For the reasons discussed above, the Court DENIES Cal 21 ||Capital’s Motion to Dismiss. 22 IT IS SO ORDERED. 23 ||Dated: April 12, 2021 24 kA 25 teiren staves odermacr 7008 26 27 28