Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caed-2_05-cv-01487/USCOURTS-caed-2_05-cv-01487-3/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 12:635 Breach of Insurance Contract

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UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

----oo0oo----

M. DIANE KOKEN, Insurance

Commissioner of the

Commonwealth of Pennsylvania,

acting in her official

capacity as Statutory

Liquidator of Legion Insurance

Company and Villanova

Insurance Company,

NO. CIV. S-05-01487 FCD DAD

Plaintiff,

v. MEMORANDUM AND ORDER

W.C.A. SERVICE CORPORATION,

INC. d/b/a WESTERN CAR WASH

INSURANCE AGENCY, and XYZ

CORPS. 1-10 and DOES 1-10,

inclusive,

Defendants.

----oo0oo----

This matter is before the court on plaintiff M. Dianne

Koken’s (“Koken”) motion for partial summary judgment and

defendant W.C.A. Service Corporation, Inc.’s (“WCA”) motion for

summary judgment or, in the alternative summary adjudication of 

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1 Unless otherwise noted, the facts herein are

undisputed. (See Def.’s Separate Stmt. of Undisp. Material Facts

in Reply to Pl.’s Opp’n to Def.’s Mot. for Summ. J. (“DUF”),

filed Oct. 20, 2006; Resp. To Pl.’s Stmt. of Undisp. Material

Facts (“RUF”), filed Oct. 13, 2006).

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the claims. On October 27, 2006, the court heard oral argument

on the matter. For the reasons set forth below, defendant’s

motion is GRANTED. 

BACKGROUND1

Plaintiff Koken is the Statutory Liquidator of Legion

Insurance Company (“Legion”) pursuant to the Pennsylvania

Insurance Department Act and the liquidation order of the

Commonwealth Court of Pennsylvania, dated July 25, 2003. (RUF ¶

1). Plaintiff is authorized to pursue all claims belonging to

Legion, for the benefit of policyholders, creditors, and the

estate of Legion. (RUF ¶ 1). Defendant WCA, a corporation

organized under the laws of California, is an insurance producer. 

(RUF ¶¶ 2-3). 

On March 28, 2002, the Commonwealth Court of Pennsylvania

issued an Order placing Legion in rehabilitation and appointing

plaintiff Koken as Rehabilitator. On August 9, 2002, plaintiff

filed a petition for liquidation of Legion. (RUF ¶ 10). On July

25, 2003, the Commonwealth Court of Pennsylvania granted

plaintiff’s petition and entered an order terminating the March

28 Rehabilitation Order and placing Legion in liquidation with

plaintiff Koken named as Liquidator. (RUF ¶ 10; Ex. B to

Compl.). The Liquidation Order directs the Liquidator to “take

possession of all assets that are the property of Legion.” (RUF

¶ 11). In this action, plaintiff “seeks recovery of premiums and

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2 The copy of the Brokerage Agreement attached to the

Complaint is unsigned, and WCA asserts that it has been unable to

locate a signed copy of the Brokerage Agreement. However, for

the purposes of this motion, WCA does not dispute that it entered

into the Brokerage Agreement. (Def.’s Mem. of P.&A. in Supp. of

Mot. for Summ. J. (“Def.’s Mot.”), filed Sept. 26, 2006, at 2

n.9).

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other sums belonging and due to Legion . . ., which defendant[]

[WCA] owe[s] to Legion.” (Compl. ¶ 1).

WCA entered into a Brokerage Agreement with Legion,

effective September 10, 1994, which, inter alia, provides that

WCA “will remit to Legion all premiums, whether collected or not”

and that “[b]alances due must be paid within thirty (30) days of

receipt of audit.” (Ex. A to Compl., filed July 22, 2005, at 1-

2).2 All unpaid premiums that plaintiff seeks to collect from

WCA were due and owing to Legion before July 21, 2001. (DUF ¶

1). After Legion completed its remaining audits on policies

between December 1, 2000, and July 21, 2001, WCA, through its

agents, attempted to collect unpaid premiums from policy holders. 

(DUF ¶ 2). However, WCA was unsuccessful in its efforts to

collect from policyholders some of the premiums that were

outstanding. (DUF ¶ 3). Legion did not seek to enforce the

provision of the Brokerage Agreement requiring that all premiums

owed must be paid within thirty days of receipt of a final audit

statement. (DUF ¶ 4). Subsequently, Legion and WCA agreed

through their representatives that Legion would accept

responsibility for collection efforts on insurance policies with

outstanding unpaid premiums, a practice referred to in the

insurance industry as “direct collections.” (DUF ¶ 5). When

Legion agreed to accept a policy into direct collections, WCA

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ceased its own collection efforts. (DUF ¶ 5). Legion and WCA

both understood that when Legion accepted a policy for direct

collections, WCA was no longer entitled to any additional

commission on that policy. (DUF ¶ 8).

At issue in this case are the premiums for the policies

which Legion accepted into direct collections. Plaintiff asserts

that under the Brokerage Agreement, WCA is obligated to make

payments to Legion, even where the policyholder failed to pay the

premium owed. WCA asserts that it is not obligated to make any

premium payments because Legion and WCA modified the Brokerage

Agreement through their course of conduct, such that WCA was

relieved of any obligation it had for outstanding unpaid premiums

on any policies taken into direct collection by Legion.

On July 22, 2005, plaintiff filed a complaint in this court,

alleging (1) breach of contract; (2) breach of fiduciary duty;

(3) negligence; and (4) demand for accounting. On September 26,

2006, defendant filed a motion for summary judgment. Defendant

asserts that (1) plaintiff’s claims are barred by the statute of

limitations; (2) plaintiff’s breach of contract claim is without

merit because Legion and WCA modified the Brokerage Agreement to

relieve WCA of obligations relating to policies taken into direct

collection; and (3) plaintiff’s tort claims and demand for an

accounting are without merit. On September 28, 2006, plaintiff

filed a motion for partial summary judgment on her claim for

breach of contract. 

STANDARD

Summary judgment is appropriate when it is demonstrated that

there exists no genuine issue as to any material fact, and that

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the moving party is entitled to judgment as a matter of law. 

Fed. R. Civ. P. 56(c); Adickes v. S.H. Kress & Co., 398 U.S. 144,

157 (1970).

Under summary judgment practice, the moving party

[A]lways bears the initial responsibility of informing

the district court of the basis of its motion, and

identifying those portions of “the pleadings,

depositions, answers to interrogatories, and admissions

on file together with the affidavits, if any,” which it

believes demonstrate the absence of a genuine issue of

material fact.

Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). “[W]here the

nonmoving party will bear the burden of proof at trial on a

dispositive issue, a summary judgment motion may properly be made

in reliance solely on the ‘pleadings, depositions, answers to

interrogatories, and admissions on file.’” Id. at 324. Indeed,

summary judgment should be entered against a party who fails to

make a showing sufficient to establish the existence of an

element essential to that party’s case, and on which that party

will bear the burden of proof at trial. Id. at 322. In such a

circumstance, summary judgment should be granted, “so long as

whatever is before the district court demonstrates that the

standard for entry of summary judgment, as set forth in Rule

56(c), is satisfied.” Id. at 323.

If the moving party meets its initial responsibility, the

burden then shifts to the opposing party to establish that a

genuine issue as to any material fact actually does exist. 

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,

585-87 (1986); First Nat’l Bank v. Cities Serv. Co., 391 U.S.

253, 288-289 (1968). In attempting to establish the existence of

this factual dispute, the opposing party may not rely upon the

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denials of its pleadings, but is required to tender evidence of

specific facts in the form of affidavits, and/or admissible

discovery material, in support of its contention that the dispute

exists. Fed. R. Civ. P. 56(e). The opposing party must

demonstrate that the fact in contention is material, i.e., a fact

that might affect the outcome of the suit under the governing

law, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986),

and that the dispute is genuine, i.e., the evidence is such that 

a reasonable jury could return a verdict for the nonmoving party,

Id. at 251-52.

In the endeavor to establish the existence of a factual

dispute, the opposing party need not establish a material issue

of fact conclusively in its favor. It is sufficient that “the

claimed factual dispute be shown to require a jury or judge to

resolve the parties’ differing versions of the truth at trial.” 

First Nat’l Bank, 391 U.S. at 289. Thus, the “purpose of summary

judgment is to ‘pierce the pleadings and to assess the proof in

order to see whether there is a genuine need for trial.’” 

Matsushita, 475 U.S. at 587 (quoting Rule 56(e) advisory

committee's note on 1963 amendments).

ANALYSIS

Defendant asserts that plaintiff’s claims are barred under

California’s statutes of limitations. These statutes provide

that causes of action for breach of a written contract and for an

accounting must be commenced within four years of the claim

having accrued and that claims for breach of fiduciary duty and

negligence must be commenced within two years of the claim having

accrued. See Cal. Code Civ. Proc. §§ 337, 339, 343 (West 2006). 

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3 Plaintiff does not address defendant’s assertion that

her tort claims for breach of fiduciary duty and negligence are

barred by the statute of limitations. However, the court applies

the same analysis to these claims. 

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It is undisputed that all unpaid premiums that plaintiff seeks to

collect from defendant were due and owing to Legion before July

21, 2001. (DUF ¶ 1). This action was filed on July 22, 2005.

Plaintiff Koken does not dispute that her claims are barred

if the court applies California’s statutes of limitations. 

Rather, plaintiff asserts that the Pennsylvania Liquidation

Tolling Statute, not California’s statute of limitations for

breach of contract, should apply.3 This tolling statute

provides:

[A statutory] liquidator may, upon or after an order

for liquidation, within two years or such additional

time as applicable law may permit, institute an action

or proceeding on behalf of the estate of the insurer

upon any cause of action against which the period of

limitation fixed by applicable law has not expired at

the time of the filing of the petition upon which such

order is entered.

40 Pa. Cons. Stat. § 221.26(b) (West 2006). In this case,

plaintiff filed the petition for liquidation on August 29, 2002,

and the Commonwealth Court of Pennsylvania entered an Order

declaring Legion insolvent and appointing plaintiff as

Liquidator. Therefore, plaintiff asserts that under the

Pennsylvania Liquidation Tolling Statute, she is able to recover

on any policies for which the statute of limitations had not run

as of August 29, 2002; she contends that this includes most, if

not all, of the policies at issue in this case. (Pl.’s Mem. of

P.&.A. in Opp’n to Def.’s Mot. for Summ. J. (“Pl.’s Opp’n”),

filed Oct. 13, 2006, 15). 

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Because plaintiff’s claims were brought in a district court

within California, the court must apply the statue of limitations

that would be applied in California state court. Deutsch v.

Turner Corp., 324 F.3d 692, 716 (9th Cir. 2003). Under

“traditional” choice of law theory, statutes of limitation are

procedural and are governed by the forum law. Ashland Chem. Co.

v. Provence, 129 Cal. App. 3d 790, 793 (1982). However, in Reich

v. Purcell, the California Supreme Court abandoned the

“traditional” approach to choice of law issues and adopted the

“government interest” approach. 67 Cal. 2d 551 (1967). Under

this approach, the court “must first consider whether the two

states’ laws actually differ.” Arno v. Club Med Inc., 22 F.3d

1464, 1467 (9th Cir. 1994). If so, the court “must examine each

state’s interest in applying its law to determine whether there

is a “true conflict.” Id. “A state will have an interest in

having its law applied if the policies underlying the law would

be thereby advanced.” Ashland, 129 Cal. App. 3d at 794. If each

state has a legitimate interest, the court must then “compare the

impairment to each jurisdiction under the other’s rule of law.” 

Arno, 22 F.3d at 1467. 

The Ninth Circuit has noted that “[w]here the conflict

concerns a statute of limitations, the governmental interest

approach generally leads California courts to apply California

law, and especially so where California’s statute would bar a

claim.” Deutsch, 324 F.3d at 716-17 (citations omitted). The

court explained that

California’s interest in applying its own law is

strongest when its statute of limitations is shorter

than that of the forum state, because a “state has a

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4 See 42 Pa. Cons. Stat. § 5525 (West 2006).

5 Plaintiff offers no authority or legislative history

analysis in support of her arguments relating to the rationale

underlying Pennsylvania’s tolling statute. At the hearing,

plaintiff’s counsel asserted that the policies and interests of

Pennsylvania were apparent from the face of the statute.

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substantial interest in preventing the prosecution in

its courts of claims which it deems to be ‘stale.’ 

Hence, subject to rare exceptions, the forum will

dismiss a claim that is barred by its statute of

limitations.”

Id. at 717 (quoting Restatement (Second) of Conflict of Laws §

142, cmt. f (1988)).

In this case, both parties agree that California law and

Pennsylvania law differ. While both California and Pennsylvania

law provide for a four year statute of limitations for breach of

contract claims,4 Pennsylvania law grants a statutory liquidator

two years from the entry of a Liquidation Order to bring a cause

of action. 40 Pa. Cons. Stat. § 221.26(b). Therefore, if

California law applies, plaintiff’s claims are stale, but if

Pennsylvania law applies, her claims are timely.

Plaintiff asserts that Pennsylvania has an interest in

having its statute of limitations apply to this action.5

Plaintiff argues that Pennsylvania’s tolling state was enacted

“to ensure the orderly and equitable administration of a defunct

insurance company’s assets” and “so that the statutory liquidator

could avoid the immense administrative costs and uncertainty that

would exist if it needed to continually monitor each policy based

upon a state-specific statute of limitations.” (Pl.’s Opp’n at

16). Therefore, she argues that application of the Pennsylvania

tolling statute would help protect Pennsylvania’s liquidation

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6 California courts have not hesitated to conclude that

California is the only interested state where, as here,

California is the forum and the sole defendant is a California

resident. See Ashland, 129 Cal. App. 3d at 794 (holding that

Kentucky did not have an interest in having its statute of

limitations applied because there were no Kentucky defendants and

Kentucky was not the forum); see also Am. Bank of Commerce v.

Corondoni, 169 Cal. App. 3d 368, 373 (1985) (holding that New

Mexico did not have an interest in having its statute of

limitations applied because the defendant was not a New Mexico

resident and where New Mexico subsequently amended its

limitations period). As such, these courts have found that there

was no “true conflict” present. However, for the sake of

completeness, the court will accept plaintiff’s argument that

Pennsylvania has an interest in the application of its statute of

limitations to protect its liquidation procedures.

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procedures.

However, even if Pennsylvania has an interest in the

application of its Tolling Statute to plaintiff’s claims,6

California also has a clear interest in applying its own laws to

these claims. “Statutes of limitation are designed to protect

the enacting state’s residents and courts from the burdens

associated with the prosecution of stale cases in which memories

have faded and evidence has been lost.” Ashland, 129 Cal. App.

3d at 794. Further, the Ninth Circuit has explicitly stated that 

in light of the purposes served by California’s statute of

limitations, the governmental interest approach ordinarily leads

to the application of California law, “subject to rare

exceptions.” Deutsch, 324 F.3d at 716-17. 

Plaintiff has offered no support to substantiate a claim

that her case is such a “rare exception.” Plaintiff fails to

cite any authority where a forum state’s statute of limitations

was set aside based upon a foreign state’s tolling statute. 

Plaintiff has cited various statutes from states which have

enacted measures tolling limitations periods on actions brought

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7 Plaintiff also cites Hawthorne for her broader argument

that the court should consider the substantial interests of

Pennsylvania in regulating its own liquidation processes. (Pl.’s

Opp’n at 17 n.9). However, in Hawthorne, the court found that

although Pennsylvania is a reciprocal state under the UILA, this

status would not preclude a California state court from

proceeding to decide the merits of the dispute. 421 F.3d at 855-

56. As such, the Ninth Circuit recognized the limits of

Pennsylvania’s interest in protecting its liquidation procedures

relative to other rights and interests under California law.

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by insurance company liquidators. (Pl.’s Opp’n at 17 & n.10). 

However, California has not enacted such legislation. Plaintiff

also cites the Ninth Circuit’s decision in Hawthorne Savings

F.S.B. v. Reliance Insurance Company,7 421 F.3d 835, 852-54 (9th

Cir. 2005), for the proposition that Pennsylvania is a

“reciprocal state” under the terms of the Uniform Insurers

Liquidation Act (“UILA”), Cal. Ins. Code §§ 1064.1-.12. However,

the UILA, as enacted in California, specifies that an out of

state insurance company’s receiver may sue in California to

recover assets it is entitled to “under the laws of this state” –

the laws of California include its statutes of limitation. Cal.

Ins. Code § 1064.10 (West 2006). 

In this case, defendant is a California resident being sued

in a federal district court in California under diversity

jurisdiction. Applying California’s statute of limitations would

advance its underlying policies of protecting the state’s

residents and courts from the burdens associated with the

prosecution of stale cases. See Ashland, 129 Cal. App. 3d 790. 

California’s “interest in regulating the work load of its courts

and determining when a claim is too stale to be adjudicated

certainly suffices to give it legislative jurisdiction to control

the remedies available in its courts by imposing statutes of

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limitations.” Sun Oil Co. v. Wortman, 486 U.S. 717, 730 (1988). 

Even if Pennsylvania has an interest in the application of its

tolling statute, California’s strong interest in applying its own

law when its statute of limitations is shorter that of the

foreign state outweighs such an interest. See Deutsch, 324 F.3d

at 717. As such, plaintiff’s claims are analyzed under the

California state of limitations, and are therefore, untimely. 

CONCLUSION

For the foregoing reasons, defendant WCA’s motion for

summary judgment is GRANTED. The Clerk of the Court is directed

to close this file.

IT IS SO ORDERED.

DATED: October 30, 2006

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