United States District Court, D. Arizona
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 ...