Odyssey Reinsurance Co. v. Nagby, No. 16-vc-03038-BTM-WVG, 2019 U.S. Dist. LEXIS 37852 and 42894 (S.D. Ca. Mar. 7 & 14, 2019).

These two decisions arose out of a judgment in Connecticut federal court in favor of the reinsurer and against an underwriting agent for US$3.2 million. The agent underwrote certain risks on the paper of an insurer, which was reinsured by the reinsurer. The reinsurance agreements provided that the agent would receive a provisional commission, paid in part by the reinsurer, on all policies that the agent underwrote. At the end of the year, the commissions were adjusted depending on the profitability of the business underwritten and, where the commissions exceeded the amount to which the agent was entitled to after yearly adjustment, the agent was to pay the difference to the reinsurer. By 2013, the agent owed the reinsurer approximately US$2.7 million. 

The reinsurer alleged that when the amount the agent owed became clear, the defendants – principals of the agent – embarked on a plan to strip the agent of its assets and to conceal funds from creditors, including the reinsurer. The reinsurer alleged that the defendants caused essentially all of the agent’s assets to be transferred to its successor for the specific purpose of continuing business operations of the agent under a different name to delay or defraud creditors. 

In the underlying case, the reinsurer filed an action against the agent and its successor for the amount owed. The court found in favor of the reinsurer for a total of US$3.2 million, plus interest. The reinsurer claimed that, three months before judgment was entered, defendants caused the agent’s successor to sell essentially all of its assets to a third party for US$5 million. Out of the sale proceeds, the third party made payments of US$3 million to the defendants. The remainder was to be paid in three annual installments. 

The reinsurer filed this action under several theories of liability, including the Uniform Fraudulent Transfer Act (UFTA) and California’s alter ego and successor liability law. In its first decision, the court granted default judgment to the reinsurer for US$3.2 million, plus postjudgment interest, and a series of injunctions to stop defendants from dissipating all remaining sale proceeds, including those already paid out. The court ordered the third party to deposit with the court registry the remaining installment payments, a total of US$958,017.66. 

The court also denied a third-party creditor’s motion to intervene in the case. The third-party creditor presented similar claims as the reinsurer and claimed an interest in the funds deposited in the court registry. The court ultimately found that the third-party creditor had no protectable interest in the funds because, unlike the reinsurer, the third-party creditor did not have a money judgment in its favor. Additionally, the court held that the third-party creditor’s intervention application was untimely because it should have known it had a claim over four and a half years ago, and permitting intervention would have prejudiced the existing parties. 

The reinsurer eventually requested that the court direct payment of the money held in the court registry to the reinsurer. In its second decision, the court found that the money in the registry belonged to the successor, not the defendants, because the purchase agreement made clear that a sale was of the assets of the company rather than just personal property (as the defendants argued). Therefore, the consideration received for the sale became the property of the agent’s successor and, because the reinsurer was a judgment creditor of the agent’s successor, the reinsurer was able to execute its judgment by collecting the funds in the registry.