Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_11-cv-00934/USCOURTS-caed-2_11-cv-00934-0/pdf.json

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

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

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

Plaintiff, 

v. MEMORANDUM AND ORDER

FRED C. GODINEZ, III, et al., 

Defendants.

----oo0oo----

Plaintiff Universal Casualty Company (“Universal”) seeks

redress from Defendants Fred C. Godinez, III, Yogesh Kumar, Links

Insurance Services, Inc., and National Transportation Associates,

Inc. (collectively, “Defendants”) based on claims of breach of

statutory fiduciary duty under California and Arizona law; breach

of contractual fiduciary duty; breach of common law fiduciary

duty; intentional interference with contractual relations;

negligent interference with contractual relations; fraudulent

transfer in violation of California law; and formation of a

constructive trust.

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Presently before the Court is Defendants’ Motion to Dismiss

Plaintiff’s Complaint for failure to state a claim upon which

relief may be granted pursuant to Federal Rule of Civil Procedure

12(b)(6).1

BACKGROUND2

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.

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 Unless otherwise noted, all further references to Rule or 1

Rules are to the Federal Rules of Civil Procedure.

 The factual assertions in this section are based on the 2

allegations in Plaintiff’s Complaint, unless otherwise specified. 

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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. 

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. 

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

relevant to the dispute at issue. 

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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”).

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. 

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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”). 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.

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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. 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.

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Additionally, under the PMA agreement, Sovereign would issue

a check bi-monthly 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. 

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. 

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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.

ANALYSIS

A. Required Joinder under Rule 19(a)(1)

As a threshold matter, Defendants argue that the immediate

case should be dismissed on the basis that the court lacks

jurisdiction. Defendants explain how there is a nearly identical

lawsuit in San Joaquin, California Superior Court filed by a

different plaintiff insurance company, but with identical

defendants. Defendants here contend that the plaintiff who filed

this parallel lawsuit is a required party under Rule 19(a)(1),

and considering they have not been included, the matter should be

dismissed under Rule 12(b)(7). Rule 19(a)(1) requires in

relevant part:

(a) Persons Required to Be Joined if Feasible.

(1) Required Party. 

A person who is subject to service of process and whose

joinder will not deprive the court of subject-matter

jurisdiction must be joined as a party if:

(A) in that person's absence, the court cannot accord

complete relief among existing parties; or 

(B) that person claims an interest relating to the

subject of the action and is so situated that disposing

of the action in the person's absence may: 

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(i) as a practical matter impair or impede the person's

ability to protect the interest; or 

(ii) leave an existing party subject to a substantial

risk of incurring double, multiple, or otherwise

inconsistent obligations because of the interest.

Rule 19. Here, Universal is a private company that engaged in an

exclusive agreement with Defendants and their employer,

Sovereign. This agreement did not include any additional

parties. Therefore, the matter before the court is exclusively

between Universal and Defendants. As a result, there is nothing

to suggest complete relief could not be granted among the

existing parties. This leaves the first element of Rule 19(a)(1)

unmet. What is more, the third party claimed to be necessary to

this case has not petitioned to be joined and does not claim to

have an interest in the subject matter being contested. 

Therefore, the second option for required joinder is also unmet. 

The Court concludes that joinder is not required, therefore

jurisdiction is proper and denies Defendants’ Motion to Dismiss

on that basis. If joinder is not required, Defendants request

the case be dismissed due to the pendency of the parallel state

court action and on the basis of “wise judicial administration.”

(MTD, 9) In support of this theory, Defendants propose that the

Court follow the Colorado River doctrine. This doctrine provides

a list of factors, any of which, if found to be met, would serve

as grounds to dismiss the case in order to achieve “wise judicial

administration.” Colorado River Water Conservation Dist. v.

United States, 424 U.S. 800, 817-818 (1976). 

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Specifically, Defendants advocate dismissal based on the Colorado

River factor which authorizes the Court to dismiss when a

parallel case would cause “piecemeal litigation.” Id. 

The Court declines to dismiss on this basis. Defendants

have not demonstrated that the State Court action relates to the

instant action in any way that wold merit dismissal. The causes

of action in this case relate to a specific contract between

Universal and Defendants, and Defendants have not shown that the

pending State court litigation would have any effect on the

issues before the Court. 

Accordingly, because joinder is not required under

Rule 19(a)(1) and the parallel state court action has no bearing

on the final decision of the case at bar, this Court denies

Defendants’ petition to dismiss the case on the basis of either

lack of jurisdiction or the Colorado River doctrine.

 

B. Motion to Dismiss

1. Standard

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.” 

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Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1964 (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 1964-65

(internal citations and quotations omitted). A plaintiff’s

factual allegations must be enough to raise a right to relief

above the speculative level. Id. at 1965 (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, at 1965, 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 1960; see also Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949-50

(2009). If the “plaintiffs...have not nudged their claims across

the line from conceivable to plausible, their complaint must be

dismissed.” Id. 

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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. 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).

2. Kumar’s Intentional Interference with Contractual

Relations

Universal asserts that Defendant Kumar knew or should have

known that the PMA and its obligations were binding against

Sovereign, and any act not conforming to the obligation would

negatively impact the contract between Sovereign and Plaintiff.

Kumar claims immunity from liability under this cause of action

because of his “confidential relationship to [Sovereign].” (Reply

to Oppo. to MTD, 12.)

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To prevail on an intentional interference with contractual

relations claim, Plaintiff must properly plead the following:

(1) the existence of a valid contract between the plaintiff and a

third party; (2) the defendant's knowledge of that contract;

(3) the defendant's intentional acts designed to induce a breach

or disruption of the contractual relationship; (4) actual breach

or disruption of the contractual relationship; and (5) resulting

damage. Reeves v. Hanlon, 33 Cal. 4th 1140, 1148 (2004). 

Plaintiff must demonstrate Defendant had knowledge that the

interference was certain or substantially certain to occur as a

result of his or her action. Id.

Plaintiff presents sufficient facts to support the

conclusion that Defendant Kumar, through his majority ownership

and position as CFO of Sovereign, knew or should have known of

the obligations laid out under the PMA. Additionally, Plaintiff

sufficiently alleges Kumar breached the PMA by unlawfully

transferring Sovereign funds, owed to Universal, to himself and

insiders.

Under California law, a contractual interference claim

against a business entity can be sustained against the officers,

directors, or owners of that entity. Woods v. Fox Broadcasting

Sub., Inc., 129 Cal. App. 4th 344, 351 (2005). Having a

“confidential relationship,” as Defendant puts it, can serve as

an escape from liability, only when the acts by the individual

were intended to benefit the business entity in question, here

Sovereign. Id. (citations omitted) (emphasis added). 

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Kumar presented no set of facts suggesting he acted with

Sovereign’s interest in mind when he transferred the contested

funds to insiders and himself. Therefore, the Court finds

Defendant’s “confidential immunity” argument unconvincing.

Accordingly, Defendant’s Motion to Dismiss this cause of

action is denied.

3. Defendant Kumar – Negligent Interference With

Contractual Relations

Defendant Kumar moves to dismiss Plaintiff’s negligent

contractual interference claim on the grounds that California

courts do not recognize this cause of action. Generally,

California courts have declined to recognize this cause of

action. See Fifield Manor v. Finston, 54 Cal. 2d 632 (1960);

J’Aire Corp. v. Gregory, 24 Cal. 3d 799 (1979). In Fifield, the

California Supreme Court explained “the courts have consistently

refused to recognize a cause of action based on negligent, as

opposed to intentional, conduct which interferes with the

performance of a contract...” 54 Cal. 2d at 636. In J’Aire

Corp., the California Supreme Court did not explicitly recognize

a cause of action for negligent interference with contractual

relations, 24 Cal.3d 799, but it did recognize a cause of action

for negligent interference with prospective economic advantage.

Id. This left the door open for lower courts to interpret this

doctrine.

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Plaintiff contends that a California Court of Appeals case

from 1992 supports the conclusion that a negligent interference

with contractual relations claim is viable. Specifically, they

cite SCEcorp v. Superior Court, 3 Cal. App. 4th 673 (Cal.

Ct. App. 1992), which noted, “for purposes of this opinion, we

consider [negligent interference with contractual relations]

within the broad cause of action of negligent interference with

prospective economic advantage which was discussed and recognized

by the [California] Supreme Court....” SCEcorp, at 677. 

However, this language is dicta and not the adoption of a new

cause of action. More recently, the California Court of Appeals

explicitly declined to recognize this cause of action, holding:

“In California there is no cause of action for negligent

interference with contractual relations. While there exists a

cause of action for negligent interference with prospective

economic advantage [], the California Supreme Court...has

rejected a cause of action for negligent interference with

contractual relations.” Davis v. Nadrich, 174 Cal. App. 4th 1,

9-10 (2009).

Federal district courts in California have also held that

California does not recognize a cause of action for negligent

interference with contractual relations. Walters v. Fidelity

Mortg. Of CA, 730 F. Supp. 2d 1185, 1211 (E.D. Cal. 2010);

Duste v. Chevron Products Co., 738 F. Supp. 2d 1027, 1038 (N.D.

Cal. Sept. 2, 2010); Andrew Smith Co. v. Paul’s Pak, Inc.,

2009 WL 3833638, *2 (N.D. Cal. 2009).

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Therefore, Universal’s cause of action for negligent

interference with contractual relations is dismissed with leave

to amend. 

4. Fraudulent Transfer 

Universal contends that Defendants violated the Uniform

Fraudulent Transfer Act under California Civil Code

§ 3439.04(a)(1), and/or § 3439.04(a)(2), by wrongfully

transferring funds entrusted to Sovereign by Universal. 

Specifically, Plaintiff alleges a fraudulent conveyance with

actual intent to defraud, hinder, or delay a creditor. Cal. Civ.

Code § 3539.04(a)(1). See also Haden v. Miller, 141 Cal. App. 3d

169 (1983) (“A conveyance made with actual intent to defraud is,

of course, also in fraud of creditors.”). Universal also claims

the individual Defendants knowingly conspired with Sovereign to

cause these unlawful transfers. Defendants primarily argue that

this cause of action should be dismissed because California law

does not recognize a cause of action for a conspiracy to

fraudulently transfer funds.4

///

///

 Defendants also argue that Plaintiff’s claim should be 4

dismissed because in the Complaint, Plaintiffs cite Cal. Civ.

Code § 3439.04(a)(1) and/or § 3439.04(a)(2) (defining what is

considered a fraudulent transfer); however, in their Opposition

to the Motion to Dismiss, Plaintiffs cite to a different

section—specifically, Cal. Civ. Code § 3439.08 (identifying what

parties can be held liable for a fraudulent transfer claim). 

Because these provisions are complimentary and in toto establish

the standard of a fraudulent transfer claim, the Court dismisses

Defendants’ argument. 

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a. As to Defendant Links

Plaintiff makes a cursory allegation that Defendant Links

conspired with and intentionally transferred funds fraudulently. 

However, Universal provides few details as to Links’ involvement

and how it participated in any of the transfers. This does not

satisfy the standard for pleading set forth in Twombly and Iqbal.

Accordingly, the motion to dismiss should be granted as to

Defendant Links with leave to amend. 

b. As to all other Defendants

Universal alleges that Defendants absconded funds owed to

Universal by transferring the monies to themselves and other

identified insiders. This claim is sufficiently pled and

survives dismissal.

However, Universal also contends that Defendants “knowingly

conspired with Sovereign and its other principals” to cause the

fraudulent transfers. Beyond this conclusory statement,

Universal provides no additional facts demonstrating how

Defendants conspired to transfer funds. Accordingly, Universal’s

theory of conspiracy liability is dismissed with leave to amend. 

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CONCLUSION

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

Defendants’ Motion to Dismiss is DENIED with respect to 5

Universal’s claims of intentional interference with contractual

relations and fraudulent transfer. Plaintiff’s allegation of 6

fraudulent transfer conspiracy is dismissed with leave to amend.

Defendants’ motion is GRANTED as to Universal’s cause of

action against Defendant Kumar and his alleged negligent

interference with contractual relations. The Court provides

final leave to amend as to this cause of action. 

Any amended Complaint shall be filed within twenty (20) days

of the date that this Order is electronically filed.

IT IS SO ORDERED.

Dated: December 15, 2011

_____________________________

MORRISON C. ENGLAND, JR.

UNITED STATES DISTRICT JUDGE

 Because oral argument will not be of material assistance, 5

the Court orders this matter submitted on the briefs. E.D. Cal.

Local Rule 78-230(h). 

 Because Universal’s additional causes of action are 6

uncontested, this Court will not address them. These include the

claims of statutory breach of fiduciary duty; breach of

contractual fiduciary duty; conversion; and constructive trust. 

18

Case 2:11-cv-00934-FB Document 26 Filed 12/15/11 Page 18 of 18