Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_11-cv-00934/USCOURTS-caed-2_11-cv-00934-3/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Fiduciary Duty

---

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

UNIVERSAL CASUALTY COMPANY, No. 2:11-cv-00934-MCE-GGH

 

Plaintiff, 

v.

FRED C. GODINEZ III,

et al.,

 MEMORANDUM AND ORDER

Defendants.

______________________________

AND RELATED CROSS-ACTIONS AND

THIRD PARTY ACTIONS

----oo0oo----

Before the Court is Defendant National Transportation

Associates Inc.’s (“NTA”) Motion to Dismiss (“MTD”) Plaintiff

Universal Casualty Company’s (“UCC”) First Amended Complaint (ECF

No. 37) (“MTD”). 

///

///

///

///

1

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 1 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Also before the Court is Third-Party Defendant Crusader Insurance

Company’s (“Crusader”) Motion to Dismiss Third-Party Plaintiffs

Yogesh Kumar (“Kumar”) and Links Insurance Company’s (“Links”)

Third-Party Complaint (ECF No. 56) (“MTD3PC”). For the reasons 1

that follow, NTD’s Motion is DENIED and Crusader’s Motion is

GRANTED without leave to amend. In addition, the Court sua

sponte DISMISSES, without leave to amend, Godinez’s Third Party

Complaint against Crusader (ECF No. 51) for failure to state a

claim. Finally, The Court sua sponte DISMISSES, with leave to

amend, the cross-claims of and Links and Kumar (ECF No. 42) and

Godinez (ECF No. 51) for failure to state a claim. 

BACKGROUND2

The facts alleged in UCC’s FAC (ECF No. 27) are generally

the same as those alleged in its original Complaint; the Court

will, except where otherwise noted, simply republish its

Background Section from its December 15, 2011 Order. (ECF

No. 26.)

///

///

 Because oral argument would not be of material assistance, 1

the Court ordered this matter submitted on the briefing. E.D.

Cal. R. 230(g).

 The following facts are taken from UCC’s First Amended 2

Complaint (ECF No. 1) (“FAC”) as well as Kumar and Links’ First

Amended Cross-Claim and Third-Party Complaint (ECF No. 42)

(“3PC”). Page references will be to the Court’s ECF pagination. 

For the purposes of this Motion, the Court accepts UCC’s and

Kumar and Links’ facts as true and makes all inferences in the

light most favorable to Plaintiff/Third-Party Complainants.

2

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 2 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

This case arises from the commercial relationship between

Universal, an insurance carrier, and Defendants, individuals and

entities who were in the business of selling insurance policies

on behalf of Universal. Universal provided insurance to its

customers (“policyholders”) by relying on the services of various

managing general agents who would quote, bind and issue the

insurance policies. 

Between August 2005 and July 2009, Defendant Godinez was a

Shareholder, President, Director and Officer of Sovereign General

Insurance, Inc. (“Sovereign”). From April 2008 to July 2009,

Defendant Kumar became the majority shareholder, CFO, Director

and Officer of Sovereign. Kumar was also the Chairman of

Sovereign’s Board of Directors between 2008 and 2009. Together

with Godinez, Kumar controlled, directed and oversaw Sovereign’s

operations between 2008 and 2009.

Kumar, Godinez, and Sovereign were at all relevant times

licensed as insurance brokers and agents by the California

Department of Insurance and the Arizona Department of Insurance. 

As part of its business, Sovereign functioned as the managing

general agent for various insurance carriers, including

Universal. 

///

///

///

///

///

///

///

3

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 3 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

A. The Program Manager Agreement

On August 2, 2005, Plaintiff entered into a Program Manager

Agreement (“PMA”) with Sovereign. Through the PMA, Universal 3

appointed Sovereign as its non-exclusive managing general agent,

authorized to bind commercial vehicle-related insurance policies

on behalf of Universal in California and Arizona. 

Under the PMA, Sovereign’s duties and responsibilities

included, among other things, (I) soliciting customers;

(ii) underwriting insurance policies and binding risks on behalf

of Universal; (iii) charging, collecting, holding, and remitting

all premiums due on policies bound or written under the PMA;

(iv) refunding Return Unearned Premiums, resulting from

cancellations or to Insured Parties and Premium Finance Companies

when appropriate; (v) accounting for all transactions and

insurance policies written under the PMA; and (vi) other work

necessary or incidental to the insurance business written under

the PMA. 

Under Article III.N. of the PMA, labeled “Fiduciary Capacity

- Premium Trust Funds,” Sovereign was obligated to “act as a

fiduciary for [Universal]” and the insurance premiums collected

from “policyholders” were required to be deposited into a

segregated premium trust account (the “Premium Trust Account”). 

The Premium Trust account was opened at Pacific State Bank under

the name “UCC Trust Account” (i.e., “Universal Casualty Trust

Account”).

 It is undisputed that the PMA was in force at all times 3

relevant to the dispute at issue. 

4

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 4 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Article III.N.3. prohibited Sovereign from commingling any

premiums or other funds relating to insurance policies written

under the PMA with funds it held in any other capacity.

Specifically, subject to certain exceptions set forth in the PMA,

the Premium Trust Account existed “solely for the ... approved

purpose” of (I) holding and remitting amounts due to Universal

under the PMA, (ii) refunding Return Premiums to Insured Parties

and Premium Finance Companies and (iii) withdrawing Sovereign’s

earned commissions.

Under the PMA, insurance premiums collected from an Insured

Party or Premium Finance Company must be refunded to such party

in certain situations (known as a “Return Premium”) where (I) the

Insured Party’s policy is canceled; (ii) there is a reduction in

the number of insured vehicles in a fleet; or (iii) when the

Insured Party or Premium Finance Company paid a greater estimated

premium at the time of purchasing the policy, and the premium is

later determined to be less than the initial estimate. 

Pursuant to the PMA, Sovereign and its agents were expressly

obligated to refund Universal for commissions it retained on

account of premiums that were sold but later required to be

refunded to Insured Parties or Premium Finance Companies as

Return Premiums. 

On the same day of the PMA signing, Godinez executed the

“Program Manager Agreement - Sovereign General Insurance, Inc.

Manager’s Personal Guaranty” (the “Guaranty”). 

///

///

///

5

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 5 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

The Guaranty (1) Promised Sovereign’s obligations to collect and

forward premiums received by the issued insurance policies

written by Sovereign on behalf of Universal; (2) Promised that

Sovereign would manage and account for the trust funds in the

Premium Trust Account in accordance with the PMA; and

(3) Promised Sovereign’s payment of interest amounts due under

the PMA and payment of costs and attorney’s fees incurred in

collecting amounts due. 

The Guaranty, to which Godinez provided his personal

guaranty of “faithful performance of all the terms and conditions

of the [PMA],” listed Godinez as an “officer of Manager.” The

PMA defines the term Manager as “Sovereign and all related

entities as identified in the ENDORSEMENTS attached [to the PMA]

and made part of this Agreement (collectively and individually:

‘Manager’).” (emphasis in original). The Guaranty was

incorporated as part of the PMA as Endorsement G thereto.

B. Godinez’s and Kumar’s Alleged Wrongful Conduct

Between the execution of the PMA in 2005 and the termination

of the agreement in 2009, Plaintiff alleges Defendants Godinez

and Kumar breached their statutory and contractual fiduciary

duties owed to Universal with respect to premiums collected on

Universal’s behalf. Specifically, between 2005 and 2009,

Godinez, through his position at Sovereign, caused multiple

transfers from Sovereign’s bank accounts to himself and a number

of insiders. The funds transferred were allegedly funds from the

premiums owed to Universal. 

6

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 6 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Between the years 2008 and 2009, Plaintiff alleges that Defendant

Kumar caused multiple transfers from Sovereign’s bank accounts to

himself and a number of insiders totaling $1,465,950.00. Alleged

insiders include Links, Mr. Subhas Chand (his father), Krishna

Devi, DD/BS, LLC, and Din Sharma. These funds allegedly

consisted of premiums due to Universal.

Pursuant to the PMA, each month Sovereign would prepare and

submit a monthly spreadsheet (each spreadsheet is referred to as

a “Bordereau” and two or more Bordereau, “Bordereaux”) showing:

(I) the gross premium due to Universal for each policy written by

Sovereign for Universal; (ii) the Return Premium due to an

Insured Party, if any; (iii) the amount of Sovereign’s

commission; and (iv) the net premium owed to Universal after

deductions for any Return Premium and for Sovereign’s commission

(the “Net Bordereau Premium”). According to Plaintiff, the

Bordereaux were prepared at the direction and with the approval

of Kumar and Godinez.

Additionally, under the PMA agreement, Sovereign would issue

a check bimonthly to Universal for the Net Bordereau Premiums

which included all premium sales for the prior month. The amount

of each check was based on the Bordereau prepared for the prior

month. 

On June 30, 2009, Universal received a check from Sovereign

in the amount of $511,702.40 payable out of the Premium Trust

Account for the Net Bordereau Premium of April 2009 (the “June 30

Check”). Universal was unable to deposit the June 30 Check

because Sovereign allegedly placed a stop payment on the check. 

///

7

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 7 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Plaintiff alleges that when Universal asked Sovereign to remove

the hold, Sovereign, through Kumar and Godinez, failed to do so,

so the check did not clear. Subsequently, Universal contacted

Pacific State Bank and was told that the Premium Trust Account

held a total of only $67.00.

According to the three Bordereaux statements Sovereign

submitted to Universal for the months of April, May and June

2009, at least $1,867,823.00 of Net Bordereaux Premiums were owed

to Universal and should have been available in the Premium Trust

Account. 

Subsequent to terminating its commercial relationship with

Sovereign, Universal started receiving complaints from various

Insured Parties and Premium Finance Companies that they never

received their owed Return Premiums. Universal claims that

Sovereign, through Godinez and Kumar, failed to refund Return

Premiums to Insured Parties and Premium Finance Companies, even

though Sovereign was reporting on the Bordereaux statements

represented to Universal that it was paying such refunds. As a

result, Universal has bore the cost and used its own funds to

make these refunds. To date, Universal has refunded

approximately $577,209.00 of Return Premiums to affected parties.

Universal claims that Sovereign, pursuant to California law,

which imposes personal liability on Officers and Directors, owes

Universal at least $2,377,041.60.

///

///

///

///

8

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 8 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Turning to the present motions, on December 15, 2011, the

Court issued its Order granting in part and denying in part

Defendants’ Motion to Dismiss, pursuant to Fed. R. Civ. P.

12(b)(6) the original complaint. (See ECF No. 26.) Of note, in 4

that Order the Court explicitly rejected Defendants’ contention

that joinder was required for a lawsuit brought by Crusader

against them in the San Joaquin Superior Court. (See id. at

8-10.) 

On January 3, 2012, UCC filed its First Amended Complaint

(ECF No. 27), which adds some additional factual detail and a

cause of action for Negligent Interference With Contractual

Relations, but is otherwise similar to the original complaint

(ECF No. 1). 

On February 17, 2012, NTA filed its Motion to Dismiss. (ECF

No. 37.) In its Motion, NTA notes that only UCC’s Fifth Cause of

Action (conversion) and Sixth Cause of Action (fraudulent

transfer) are asserted against NTA. NTA argues that the Court

must dismiss both causes of action as to it on the basis that UCC

has failed to demonstrate that Defendant Kumar formed NTA with

converted funds, and UCC does not otherwise allege any wrongful

conduct against NTA. 

5

 Unless otherwise noted, all further references to Rule or 4

Rules are to the Federal Rules of Civil Procedure.

 Pursuant to Federal Rules of Evidence 201(b) (authorizing 5

judicial notice of adjudicative facts ‘capable of accurate and

ready determination by resort to sources whose accuracy cannot be

reasonably questioned’), NTA requests the Court take judicial

notice of its incorporation documents. (Request for Judicial

Notice (“RJN”) (ECF No. 38) NTA’s request is unopposed and is the

proper subject of judicial notice. See, e.g., Champlaie v. BAC

(continued...)

9

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 9 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

(MTD at 6-10.) UCC opposes NTA’s Motion. (“UCC Opp.,” ECF

No. 47.) 

On March 2, 2012, Kumar and Links filed their six-page First

Amended Cross-Claim and Third-Party Complaint against Godinez, as

the Cross-Defendant, and against Crusader, as the Third Party

Defendant. (ECF No. 42.) In this document, Kumar and Links

allege that the alleged wrongful conduct at issue in this action

is also the subject of the lawsuit brought by Crusader which is

pending in the San Joaquin Superior Court. (Id. at 3.) Beyond

that, virtually no other facts are alleged. (Id. at 3-4.) Kumar

and Links bring three causes of action, none of which identify

any statutes, case law, or any other basis for their claims. 

Specifically, they bring the following causes of action seeking:

(1) indemnification from all Cross-Defendants but Crusader;6

(2) indemnity and contribution from all Cross-Defendants but

Crusader in the event that UCC should prevail against them; and

(3) apportionment of damages as to all Cross-Defendants and

Third-Party defendants (so including Crusader), alleging that

they are all the proximate cause of UCC’s damages and seek

apportionment of fault. (Id. at 4-5.) 

(...continued) 5

Home Loans Servicing, LP, 706 F. Supp.2d 1029, 1040 (E.D. Cal.

2009); Lee v. County of Los Angeles, 250 F.3d 668, 688 (9th Cir.

2001) (court may take judicial notice of matters of public

record). Accordingly, NTA’s RJN is granted. 

 It is unclear what “Cross-Defendants” or “Third Party 6

Defendants” Links and Kumar are referring to as they only name

Godinez and the Third-Party Defendant and Crusader as the CrossClaimant. They also refer to “Roes 1-10” inclusive, but they are

not listed in the caption and there is no indication in this

filing as to who those Roes might refer to. (See 3PC ¶ 6.)

10

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 10 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

On March 22, 2012, Godinez filed a Cross-Claim and ThirdParty Complaint against Kumar, Links, NTA and Roes 20-25, as well

as against Crusader. (ECF No. 51.) In this action, Godinez

generally alleges that the Cross-Defendants are subject to UCC’s

lawsuit and that Crusader has brought an identical action in

state court and has been brought in as a Third-Party Defendant by

Kumar and Links. (Id. at 2-4.) Like Kumar and Links’ First

Amended Cross-Claim and Third-Party Complaint, Godinez raises

three claims a claim for indemnification, as well as indemnity

and contribution against the Cross-Defendants, as well as a third

cause of action which also adds Crusader and seeks

indemnification and other relief. (Id. at 4-7.) 

On April 3, 2012, Crusader filed its Motion to Dismiss Kumar

and Links’ Third-Party Complaint. (ECF No. 56, 57.) In this 7

motion, Crusader generally argues that Kumar and Links ThirdParty Complaint fails to meet the pleading standards established

by Rule 8(a), that Crusader is not a proper party to this action,

and that the Court should use its discretion to abstain, decline

jurisdiction, and dismiss the Third Party Complaint. 

///

///

///

///

 Pursuant to Federal Rules of Evidence 201(b), Crusader 7

requests that the Court take judicial notice (“Crusader’s RJN,”

ECF No. 58) of (1) the docket sheet from the San Joaquin Superior

Court action where Crusader is the plaintiff. (Ex. A); (2) a

Notice of Ruling from the state court action(Ex. B); and (3) this

Court’s December 15, 2011 Order (ECF No. 26) ( Ex. C). The RJN

is unopposed. For the reasons set forth in footnote 5, the Court

finds these documents are the proper subject of judicial notice. 

11

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 11 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

(Id.) Kumar and Links oppose this motion. ((“Opp. to MTD3PC”), 8

ECF No. 60.)

Standard for 12(b)(6) Motion to Dismiss

On a motion to dismiss for failure to state a claim under

Rule 12(b)(6), all allegations of material fact must be accepted

as true and construed in the light most favorable to the

nonmoving party. Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336,

337-38 (9th Cir. 1996). Rule 8(a)(2) requires only “a short and

plain statement of the claim showing that the pleader is entitled

to relief” in order to “give the defendant fair notice of what

the. . . claim is and the grounds upon which it rests.” Bell

Atl. Corp. v. Twombly, 550 U.S. 544, 554-55 (2007) (internal

citations and quotations omitted). Though “a complaint attacked

by a Rule 12(b)(6) motion to dismiss does not need detailed

factual allegations, a plaintiff’s obligation to provide the

‘grounds’ of his ‘entitlement to relief’ requires more than

labels and conclusions, and a formulaic recitation of the

elements of a cause of action will not do.” Id. at 555 (internal

citations and quotations omitted). 

///

 Pursuant to Federal Rules of Evidence 201(b), Kumar and 8

Links request that the Court take judicial notice (“K&L’s RJN,”

ECF No. 61) of (1) the First Amended Complaint filed in the

San Joaquin Superior Court action where Crusader is the plaintiff

(Ex. A); (2) UCC’s FAC (Ex. B); Kumar and Links’ Motion to

Dismiss (ECF No. 7)(Ex. C); and civil minutes from the

San Joaquin Superior Court action where Crusader is the

Plaintiff. The RJN is unopposed. For the reasons set forth in

footnote 5, the Court finds these documents are the proper

subject of judicial notice. 

12

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 12 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

A plaintiff’s factual allegations must be enough to raise a right

to relief above the speculative level. Id. (citing 5 C. Wright &

A. Miller, Federal Practice and Procedure § 1216, pp. 235-36

(3d ed. 2004) (“The pleading must contain something more. . .

than . . . a statement of facts that merely creates a suspicion

[of] a legally cognizable right of action”)).

Moreover, “Rule 8(a)(2) . . . requires a ‘showing,’ rather

than a blanket assertion of entitlement to relief. Without some

factual allegation in the complaint, it is hard to see how a

claimant could satisfy the requirements of providing not only

‘fair notice’ of the nature of the claim, but also ‘grounds’ on

which the claim rests.” Twombly, 550 U.S. at 555, n.3 (internal

citations omitted). A pleading must contain “only enough facts

to state a claim to relief that is plausible on its face.” Id.

at 570; see also Ashcroft v. Iqbal, 556 U.S. 662, 677-679 (2009). 

If the “plaintiffs . . . have not nudged their claims across the

line from conceivable to plausible, their complaint must be

dismissed.” Twombly, 550 U.S. at 570; Iqbal, 556 U.S. at 680. 

A court granting a motion to dismiss a complaint must then

decide whether to grant leave to amend. Rule 15(a) empowers the

court to freely grant leave to amend when there is no “undue

delay, bad faith[,] dilatory motive on the part of the movant,

. . . undue prejudice to the opposing party by virtue of . . .

the amendment, [or] futility of the amendment. . . .” Foman v.

Davis, 371 U.S. 178, 182 (1962). Leave to amend is generally

denied when it is clear the deficiencies of the complaint cannot

be cured by amendment. 

///

13

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 13 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir.

1992); Balistieri v. Pacifica Police Dept., 901 F. 2d 696, 699

(9th Cir. 1990) (“A complaint should not be dismissed under Rule

12(b)(6) unless it appears beyond doubt that the plaintiff can

prove no set of facts in support of his claim which would entitle

him to relief.”)(internal citations omitted).

Analysis

Before the Court is Defendant NTA’s Motion to Dismiss UCC’s

First Amended Complaint (ECF No. 37). Also before the Court is

Crusader’s Motion to Dismiss Kumar (“Kumar”) and Links’ Third

Party Complaint (ECF No. 56). Each will addressed in turn.

A. NTA’s Motion to Dismiss

1. Parties’ Contentions

NTA notes that UCC’s FAC alleges that Kumar used funds

wrongfully acquired from UCC to form and/or maintain NTA as the

basis for its fifth and sixth causes of action, which are for

conversion and fraudulent transfer, respectively. (MTD at 6; FAC

¶¶ 85-110, 114.) NTA contends that it was incorporated on

December 19, 2008, but that the earliest time that UCC asserts

Sovereign failed to maintain sufficient funds in its account was

April 2009. (See MTD at 6-7; RJN, ECF No. 38; FAC ¶¶ 49-50,

108.). NTA therefore contends that the allegation that Kumar

used funds to form NTA is necessarily false. (MTD at 7.) 

14

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 14 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Furthermore, NTA contends that UCC has failed to sufficiently

allege facts that would support either the conversion or

fraudulent transfer causes of action. (Id. at 8-8.)

UCC responds that, in its FAC, it alleges that between 2008

and 2009 Kumar siphoned off funds that were due to UCC to, inter

alia, “form and/or maintain” NTA, (UCC Opp., ECF No. 47 at 7; FAC

¶¶ 42, 43, 90, 108.) UCC contends that NTA is misreading the FAC

by claiming that the conversion began in April 2009, when UCC

alleges it occurred between 2008 and 2009. In addition, UCC

argues that NTA misreads the FAC when it claims that UCC funds

could not have been used to form NTA because NTA was formed in

December 2008 and the alleged fraud occurred in April 2009. (Id.

at 9.) UCC asserts that, by alleging that the fraud occurred

between 2008 and 2009, the FAC sufficiently supports their theory

that wrongfully obtained UCC funds could have been used to form

NTA. (Id.) UCC also contends that NTA does not sufficiently

rebut their additional or alternative theory that the funds were

used to maintain NTA. (Id. at 9-10.) Furthermore, UCC contends

it has sufficiently pleaded its conversion and fraudulent

transfer claims.

2. Analysis

In its FAC, UCC clearly alleges that, between 2008 and

Sovereign’s collapse in 2009, Kumar initiated wrongful and

fraudulent transfers from Sovereign’s bank accounts, including

the UCC Trust Account, to various third parties. (See, e.g., FAC

at ¶¶ 42, 43, 89-110. 

15

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 15 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Further, UCC’s FAC explicitly states that the funds were used to

“form and/or maintain NTA.” (FAC ¶ 108.) NTA’s argument that

because its incorporation predates the collapse of Sovereign and

the discovery of the wrongful transfers, UCC’s claim must fail,

as the wrongfully obtained funds could not have been used to form

NTA, therefore misses the mark in two key respects. 

First, UCC has sufficiently alleged that the wrongful

transfers occurred early enough to have contributed to the

formation of NTA. Second, UCC also contends that funds could

have been used to “maintain” NTA. So, even if no wrongful

transfers occurred before NTA’s formation, they could still have

been used after NTA’s formation. Therefore, NTA’s incorporation

date argument fails.

Furthermore, UCC has sufficiently pleaded both its

conversion and fraudulent transfer claims to survive NTD’s motion

to dismiss. “The elements of a conversion claim are (1) the

plaintiff’s ownership or right to possession of the property at

the time of the conversion; (2) the defendant’s conversion by a

wrongful act or disposition of property rights; and (3) damages.” 

Mindys Cosmetics, Inc. v. Dakar, 611 F.3d 590, 601 (9th Cir.

2010). UCC has sufficiently alleged that it had a right to the

possession of the funds at issue at the time of the conversion

and that it was damaged by its failure to receive the same. 

Furthermore, UCC has sufficiently alleged that NTA was

responsible for the acts complained of, as UCC alleges that Kumar

misappropriated the funds for the benefit of NTA. Id. 

///

///

16

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 16 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

(“‘Where the conversion is the result of the acts of several

persons, which, though separately committed, all tend to the same

end, there is a joint conversion. . . . If the principal is a

wrong-doer, the agent is a wrong-doer also.’” (quoting

McCafferty v. Gilbank, 249 Cal. App.2d 569, 576 (Cal. Ct. App.

1967))). 

Similarly, UCC’s fraudulent conversion claim is also

sufficiently stated to survive NTA’s Motion to Dismiss. First,

the Court has previously upheld this cause of action against NTA

in its prior Order. (See ECF No. 26 at 16-17.) Second, NTA

bases its claim on its contention that it was formed before the

allegedly fraudulent transfers occurred. However, the Court has

already rejected this contention as baseless.

Because UCC has sufficiently stated facts in support of its

claim against NTA, and because UCC has sufficiently pleaded both

conversion and fraudulent transfer against NTA, NTA’s Motion to

Dismiss is denied.

B. Crusader’s Motion to Dismiss the Third Party Complaint

1. Parties’ Contentions

Crusader contends that Kumar and Links’ Third Party

Complaint must be dismissed because, inter alia: (1) it fails to

sufficiently state a claim under Rule 8(a) and is “completely

incomprehensible, unintelligible and hopelessly vague”; and

(2) Crusader is not a proper party to this action, whether joined

under Rule 19 or 20. (ECF No. 57 at 7-14.) 

17

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 17 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

Crusader asks this Court to exercise its discretion and decline

jurisdiction. (Id. at 14-17.) In response, Kumar and Links

assert they are requesting a judicial determination of the

amounts that UCC and Crusader are entitled to recover from a

single source, therefore Crusader should properly be joined in

this action as a Third Party Defendant. (ECF No. 60 at 5-9.) In

their Reply, Kumar and Links argue that Crusader is a necessary

party and must be joined pursuant to Rule 19(a)(1).

2. Analysis

In its prior Order, the Court rejected Defendants’

contention that Crusader was a necessary party to this action

under Rule 19(a)(1). (See ECF No. 26 at 8-10.) To the extent

that Kumar and Links are attempting to relitigate that issue by

means of a Third-Party Complaint, their arguments fail. 

In addition, the Court agrees with Crusader’s argument that

Kumar and Links’ Third-Party Complaint is “completely

incomprehensible, unintelligible and hopelessly vague.” Other

than asserting that Crusader has initiated a similar lawsuit in

San Joaquin County against them, Plaintiffs have not provided

either Crusader or the Court with either factual allegations or

legal argument that would support any theory of recovery against

either Crusader, or against each other as cross-claimants. Such

conclusory and vague allegations violate the Rule 8(a) pleading

standards established by Iqbal and Twombly. See, e.g., 

Twombly, 550 U.S. at 555, n.3 (“Rule 8(a)(2) . . . requires a

‘showing,’ rather than a blanket assertion of entitlement to

18

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 18 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

relief. Without some factual allegation in the complaint, it is

hard to see how a claimant could satisfy the requirements of

providing not only ‘fair notice’ of the nature of the claim, but

also ‘grounds’ on which the claim rests.”) (internal citations

omitted)).

Crusader is not asserting a joint right to relief with UCC

and Kumar and Links have not sufficiently alleged facts that

would suggest that joinder is otherwise appropriate here. The

Court has already declined to exercise jurisdiction over

Crusader’s state court action pursuant to the Colorado River

doctrine. (Order, ECF No. 26 at 9-10.) The Court will also

decline to exercise jurisdiction here under the Wilton/Brillhart

doctrine. 

The Declaratory Judgement Act confers on federal courts

“unique and substantial discretion in deciding whether to declare

the rights of litigants.” Wilton v. Seven Falls Co., 515 U.S.

277, 286 (1995) (reaffirming the application to declaratory

judgment actions of Billhart v. Excess Ins. Co. of America,

316 U.S. 491 (1942)). The Declaratory Judgment Act is “‘an

enabling Act, which confers a discretion on the courts rather

than an absolute right on the litigant.’” Id. at 287 (quoting

Public Serv. Comm’n of Utah v. Wycoff Co., 344 U.S. 237, 241

(1952)). 

Here, Kumar and Links simply appear to be attempting to join

Crusader here as a means of delaying trial in the state court

action, a trial which is apparently scheduled for July of this

year. 

///

19

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 19 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

To the extent that Kumar and Links are doing so, that would be a

wholly inappropriate use of scarce judicial resources and could

result in sanctions.

Because Kumar and Links have failed to state a claim against

Crusader, and because their failure cannot be cured by amending

their complaint, the Court grants Crusader’s Motion to Dismiss

Kumar and Links’ Third-Party Complaint (ECF No. 42) against it

without leave to amend.

C. Sua Sponte Dismissal of Godinez’s Third Party Complaint

against Crusader for Failure to State a Claim

For the same reasons discussed in Section B, above, the

Court dismisses, sua sponte and without leave to amend, Godinez’s

Third Party Complaint against Crusader (ECF No. 51). 

Pursuant to Rule 12(b)(6), a court may dismiss a claim

sua sponte for failure to state a claim when the plaintiff

“cannot possibly win relief.” Omar v. Sea–Land Service, Inc.,

813 F.2d 986, 991 (9th Cir. 1987) (citing Wong v. Bell, 642 F.2d

359, 361–62 (9th Cir. 1981)). A court may do so even when the

defendant has not made a motion to dismiss. Id.; Ricotta v.

State of California, 4 F. Supp. 2d 961, 968 (S.D. Cal.1998),

aff’d. 173 F.3d 861 (9th Cir. 1999).

As was true for Kumar and Links’ Third Party Complaint,

Godinez’s Third Party Complaint fails to conform to the pleading

requirements of Rule 8(a) and provides no persuasive basis for

the Court to join Crusader as a Third Party Defendant in this

action.

20

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 20 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

D. Sua Sponte Dismissal of both Kumar and Links’ and Godinez’s

Cross-Claims for Failure to State a Claim

The cross-claim and third party complaints of (1) Kumar and

Links (ECF No. 42), and (2) Godinez (ECF No. 51) fail to

sufficiently plead any facts or legal basis to put the other

party on notice of the claims that they are apparently raising. 

9

Rule 13(g) provides that: 

A pleading may state as a crossclaim any claim by one

party against a coparty if the claim arises out of the

transaction or occurrence that is the subject matter of

the original action or of a counterclaim, or if the

claim relates to any property that is the subject

matter of the original action. The crossclaim may

include a claim that the coparty is or may be liable to

the cross-claimant for all or part of a claim asserted

in the action against the cross-claimant.

However, rule 13(g) is cabined by Rule 8(a)’s requirement that

the pleader set forth “a short and plain statement of the claim

showing that the pleader is entitled to relief.” See Rule 8(a). 

Here, both cross-claimants have failed to sufficiently set forth

both a factual and a legal basis for their cross-claims

sufficient to state a claim under Rule 8(a) as interpreted by

Iqbal and Twombly and their progeny. 

The cross-claims (ECF Nos. 42 and 51) are therefore sua

sponte dismissed, with leave to amend.

///

///

///

 Remarkably, Kumar and Links have somehow managed to come 9

up with forty-four affirmative defenses to Godinez’s crossclaims. (See ECF No. 64.) 

21

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 21 of 22
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

CONCLUSION

As a matter of law, and for the reasons set forth above,

NTD’s Motion to Dismiss (ECF No. 37) is DENIED and Crusader’s

Motion to Dismiss Kumar and Links’ Third-Party Complaint (ECF

Nos. 56, 57) is GRANTED without leave to amend. In addition, the

Court sua sponte DISMISSES, without leave to amend, Godinez’s

Third-Party Complaint against Crusader (ECF No. 51) for failure

to state a claim. The Court also sua sponte DISMISSES, with

leave to amend, the cross-claims by Kumar and Links, as well as

Godinez (ECF Nos. 42 and 51). The Cross-Claimants shall file any

amended cross-claims within thirty days of the electronic filing

of this Order.

IT IS SO ORDERED.

Dated: July 6, 2012

_____________________________

MORRISON C. ENGLAND, JR.

UNITED STATES DISTRICT JUDGE

22

Case 2:11-cv-00934-FB Document 65 Filed 07/09/12 Page 22 of 22