MPB Collection LLC v. Everest National Insurance Co.

          ORDER

          G. Murray Snow, Chief United States District Judge

         Pending before the Court are Defendant Everest National Insurance Company (“Everest”)'s Motion for Summary Judgment (Doc. 39) and Plaintiff MPB Collection, LLC (“MPB”)'s Motion for Summary Judgment (Doc. 41). MPB's Motion is granted and Everest's Motion is denied.^[1]

         BACKGROUND

         In 2012, MPB loaned 3.6 million dollars to Global Medical Equipment of America, Inc. (“GMEA”). GMEA obtained this loan to purchase two other medical equipment companies-JCare Medical and A&A Medical-and to pay off an existing loan with a different bank. Because GMEA was taking out a small additional loan from the owners of both acquired companies to fund the purchase, MPB required that GMEA would not make payments to creditors other than MPB during the first four years of the repayment plan. At the time, MPB thought GMEA had submitted valid Standby Creditor's Agreements (“SC Agreements”) from Michael Trahktman, who was selling A&A Medical stock, and Debra Sloan, who was selling JCare Medical stock. These two agreements required Trahktman and Sloan (“the creditors”) to refuse any payments from GMEA during the first four years of the loan repayment period. The agreements further required the creditors to pay MPB any payments made from GMEA to the creditors during this four-year period.

         Between 2013 and 2017, Everest issued MPB two financial institution bonds: one for 2013-2014 (“2013-2014 Bond”) and one for 2014-2017 (“the Bond”). Insuring Agreement (E) of the Bond provides coverage for a “Loss resulting directly from [MPB] having, in good faith, for its own account or for the account of others, . . . acquired sold or delivered or given value, extended credit or assumed liability on the faith of, any Written, Original . . . personal Guarantee. . . or Security Agreement . . . which (i) bears a handwritten signature which is material to the validity or enforceability of the security, which is a Forgery.” (Doc. 18, Ex. 1 at 7, Ex. 2 at 5.)

         In 2014, MPB exercised its right of receivership under the loan agreement with GMEA. After the receivership was in place, MPB discovered that GMEA had not been truthful in its loan application. In addition to misrepresenting the selling prices of A&A Medical and JCare, GMEA had forged the S.C. Agreements with the creditors. Furthermore, in contravention of the two S.C. Agreements, GMEA purportedly made payments to both Trahktman and Sloan. Specifically, GMEA paid Trahktman $178, 225.95 and Sloan $22, 000. In what appeared to be a violation of the S.C. Agreement, neither Trahktman nor Sloan remitted these payments to MPB.

         In March 2016, MPB notified Everest of a claim resulting from the forged S.C. Agreements. In April 2016, MPB provided Everest with proof of loss and requested that Everest consider the claim under both the 2013-2014 Bond and the 2014-2017 Bond. Everest denied coverage for the S.C. Agreements. Consequently, MPB filed this suit in Maricopa County Superior Court on October 10, 2017 alleging breach of contract and seeking to recover the total amount of the loan that GMEA never repaid under Insuring Agreement (E). Everest removed to this Court on October 31, 2017. On April 20, 2018, MPB filed a motion for partial summary judgment and Everest filed a motion for summary judgment. After determining that the two S.C. Agreements constituted “guaranties” as defined by the Bond, the Court granted MPB's motion and denied Everest's motion. On July 3, 2019, having stipulated regarding the issues left for summary judgment, Everest and MPB cross filed these motions for summary judgment. The remaining issue before the Court is whether the causation requirement embodied in the “loss resulting directly from” language in Insuring Agreement (E) is satisfied with respect to the forged S.C. Agreements.^[2]

         DISCUSSION

         I. Analysis

         A. Satisfaction of the Direct Loss Requirement

         According to the plain language of Insuring Agreement (E), a covered loss must be the direct result of credit extended on the faith of a guarantee which “bears a handwritten signature . . . which is a forgery.” (Doc. 18-1 at 7, 18-2 at 5.) Thus, according to the plain meaning of the Bond, the “loss resulting directly from” language refers to loss directly caused by the extension of credit-in this case, MPB's loan to GMEA. There is nothing in the language of the Bond that suggests that loss directly caused by the loan which resulted from the forgery is limited by the purported value of the forged instrument, or by other factors that might have caused the loan to be valueless. Where the language of an insurance policy is clear, the Court must “afford it its plain and ordinary meaning and apply it as written.” Liberty Ins. Underwriters, Inc. v. Weitz Co., LLC, 215 Ariz. 80, 83, 158 P.3d 209, 212 (Ct. App. 2007).

         Everest argues that MPB's loss did not “result directly” from the forged S.C. Agreement, but rather from the many other misrepresentations made to MBP by GMEA so that GMEA could obtain the loan that both violated the understandings on which the loan was issued and impaired the likelihood that GMEA could meet its obligations under the loan.^[3] This argument is misplaced because the issue raised by the language of the Bond is whether the loss was directly caused by the loan, not whether the loan may have lacked value for reasons in addition to the forged S.C. agreements. The parties point to no language in the Bond that suggests these coverage provisions become inoperative if there were other instances of fraud in the loan procurement that, if known, would have prevented the loan and the loss that resulted directly therefrom.

         In this case the parties have stipulated to facts that demonstrate that the loan was extended “on the faith of, a[] Written, Original . . . personal Guarantee . . . which (i) bears a handwritten signature which is material to the validity or enforceability of the security, which is a Forgery.” (Doc. 18-1 at 7, 18-2 at 5.) The parties stipulated that:

The Bank would not have made the Loan without an SBA guarantee. The SBA guarantee was conditioned on, among other things, Trahktman and Sloan each signing a Standby-Creditor's Agreement. The Bank ...