Judge Ralph C. Hofer, Case Number: 24NNCVG00110, Date: 2025-02-14 Tentative Ruling

Plaintiff Hudson Insurance Company has filed this complaint in interpleader alleging that as a condition to maintaining a valid license in California, a car dealer must obtain a license bond in accordance with Vehicle Code section 11710. Plaintiff alleges that it issued a motor vehicle dealer bond to car dealer Bidlane, LLC as principal. Plaintiff alleges that plaintiff’s liability under the bond is limited in the aggregate to $50,000 and that to recover from the bond, claimants must establish a proven violation of Vehicle Code section 11711 and fraud by the bond principal, and that each valid claim is limited to an amount not to exceed the value of the vehicle purchased from or sold to the dealer.

As of the date of filing of the complaint, plaintiff has received at least ten claims against the bond, with defendants having each made conflicting demands against the bond in excess of the $50,000 sum of the bond. The following defendants have made the respective claims or filed lawsuits against the bond issued by plaintiff: Cesarius Yakub; Anne Celona; Jonathan Seclow; William Taylor; Zahn Technik – Keyvan Nakhai; Traci Shuck; Bryan Staab; Sabrina Park; Eric Bradley; Jonathan Schuster.

Plaintiff Hudson alleges that it is exposed to multiple liabilities if it delivers the sum of the bond or any portion thereof to any of the claimants, and therefore files this interpleader complaint to require parties with conflicting claims to litigate those claims against each other instead of against the obligor. Plaintiff denies liability to any or all of the claimants, and requests a court order determining to whom the money belongs, alleging that plaintiff claims no interest in the proceeds of the bond except for the cost and reasonable attorneys’ fees incurred in this action and allowed by CCP section 386.6(a). Plaintiff alleges it is ready and willing to deliver the bond funds, and requests that upon deposit of the funds with the court, plaintiff be discharged from its obligations under the bond.

The complaint also alleges a cause of action for breach of covenant of indemnity against defendant Bidlane LLC and defendant Salim Mohammed Mansoori, alleging that these defendants executed a written indemnification agreement agreeing to indemnify plaintiff as surety from all loss, contingent loss, liability, claims and expenses, that plaintiff has received claims against the bond alleging default by the principal, and that these indemnitor defendants have failed to honor that agreement. The complaint alleges that as a result of the default of these defendants, plaintiff has and will incur claims adjusting fees, attorney’s fees and other expenses and that despite plaintiff’s demands made on the indemnitors to honor their obligations pursuant to the indemnity agreement, the indemnitors have failed to hold plaintiff harmless.

The complaint also alleges a cause of action against the indemnitor defendants, Bidlane and Mansoori, for reimbursement for what plaintiff as surety has disbursed or payments it will make in satisfaction of the principal obligation from the subject bond, including necessary costs and expenses.

Moving party Mercury Insurance Company seeks an order granting it leave to file an answer in intervention in this action as to the first cause of action for interpleader, arguing that it is a claimant to the funds that are the subject of the interpleader cause of action in the complaint by virtue of a subrogation claim. Specifically, Mercury indicates it issued a policy of insurance to named defendant in this action, William Taylor, who, while the policy was in force, sold his insured vehicle to Bidland [sic?] Auto Broker, whose check was returned by the bank NSF, and Bidland Auto Broker resold the vehicle to a third party and kept the funds without ever paying Taylor.

Mercury indicates that Bidland then went out of business and never paid the money owed for the purchase of the vehicle. Taylor then submitted a claim under his Mercury policy for the loss of his vehicle, for which Mercury paid under the policy the fair market value of the vehicle less the $500 deductible, in the sum of $39,606.24, thereby subrogating Mercury to the right of Taylor to recover the amount paid from the responsible parties. Mercury indicates that Taylor retained his right to sue for the deductible and all other uninsured losses sustained as a result of the transaction, including any damages to which he might be entitled as a result of the NSF check.

(c) A nonparty shall petition the court for leave to intervene by noticed motion or ex parte application. The petition shall include a copy of the proposed complaint in intervention or answer in intervention and set forth the grounds upon which intervention rests.

(B) The person seeking intervention claims an interest relating to the property or transaction that is the subject of the action and that person is so situated that the disposition of the action may impair or impede that person's ability to protect that interest, unless that person's interest is adequately represented by one or more of the existing parties.

(2) The court may, upon timely application, permit a nonparty to intervene in the action or proceeding if the person has an interest in the matter in litigation, or in the success of either of the parties, or an interest against both.”

In this case, the insurer Mercury argues that it may intervene pursuant to this section because its claim in this case could be described as a claim or interest adverse to both plaintiff and defendant. Specifically, Mercury argues that it has a claim which could be described as uniting with defendant Taylor to recover a portion of the interpled funds on the subrogated claim paid by Mercury. Mercury argues that it also has a claim adverse to both plaintiff and defendants, as Mercury’s insured Taylor, who is already a defendant claimant, has his own uninsured interests to protect in this action, including for recovery of the deductible and other uninsured damages, such as those arising from the NSF check tendered by the dealer.

Mercury argues that the subrogation claim justifies intervention because the insurer and insured are seeking recovery for the same incident, and a disposition of the subrogation claim without the insurer could result in the insured’s subrogation claim being extinguished or otherwise made nonrecoverable, impairing the insured’s ability to protect that interest. In addition, to the extent the insurer paid only part of the claim being made by Taylor in this action, Mercury argues that as the subrogated party Mercury does not have identical interests to that of its insured, as the insured is only interested in its uninsured losses, so the insurer’s interests are not adequately represented by the insured.

Mercury relies on Hodge v. Kirkpatrick Development Inc. (2005) 130 Cal.App.4th 540, 544-545 in which the court of appeal reversed the trial court’s denial of a motion by an insurer for leave to intervene in a construction defect lawsuit brought by its insureds against third party tortfeasors where the insurer had obtained partial subrogation rights against the third parties by paying a portion of the insureds’ claim for property damage to their house.

The court of appeal concluded that in that case, where the insurer had paid part of the insureds’ claim for water damage to the house, but denied the claim for mold damages, the insured was entitled to intervene due to its subrogation claim, and the conclusion that its interests were not under the circumstances adequately represented by the existing parties to the construction defect lawsuit. The court reasoned:

“Significantly, the standard under Code of Civil Procedure section 387, subdivision (b) is not whether, absent intervention, disposition of the action will destroy the putative intervener's interest in the property or transaction which is the subject of the underlying lawsuit. Rather, the standard is whether disposition of the action will as a practical matter impair or impede the intervener's ability to protect that interest. That standard is met in this case: Disposition of the construction defect lawsuit will as a practical matter impair or impede State Farm's ability to protect its subrogation rights. As a practical matter, neither a lawsuit against the construction defect lawsuit defendants nor a lawsuit for reimbursement against the Hodges is a viable means for State Farm to protect those rights.

Finally, State Farm's interests are not adequately represented by the existing parties to the construction defect lawsuit for two reasons. First, as explained above, State Farm cannot recoup its payment to the Hodges until the Hodges have been made whole from their recovery against defendants in the construction defect lawsuit. (Plut, supra, 85 Cal.App.4th at pp. 104–105, 102 Cal.Rptr.2d 36 [“the insurer is entitled to subrogation only after the insured has recouped his loss and some or all of his litigation expenses incurred in the action against the tortfeasor”]; see also Sapiano v. Williamsburg Nat. Ins. Co., supra, 28 Cal.App.4th at p. 536, 33 Cal.Rptr.2d 659; Barnes v. Independent Auto. Dealers of California, supra, 64 F.3d at p. 1394.) As a result, the Hodges have a disincentive to use their resources to seek damages beyond what is necessary to make themselves whole.

Second, and in a similar vein, the Hodges have an incentive to prove their losses resulted from mold damage caused by defendants' negligence and a disincentive to prove their losses resulted from water damage. State Farm denied the Hodges' claims for mold damage and paid part of the Hodges' claim for water damage. The Hodges' interest therefore is to establish their damages resulted from mold damage rather than water damage; State Farm's interest is to establish the Hodges' losses, to the extent of the insurance payment, were caused by water damage.

The argument is then that this is a similar situation where a subrogating property insurer, paying only part of the insured’s claim being pursued in this interpleader action against the third party tortfeasor’s bond, does not have identical interests to that of its insured. If that is the case, this would appear under Hodge to be an appropriate case for permitting the insurer leave to intervene in the first cause of action for interpleader.

However, a major problem with this motion is that there is no evidence submitted in support of the insurer’s argument. There is no declaration confirming that Mercury insured defendant Taylor, or that there are in fact uninsured portions of Taylor’s claim which would presumably not be protected in favor of the insurer by Taylor’s participation in this lawsuit. The declaration submitted is by counsel for Mercury, who primarily states that no party would be prejudiced by Mercury being granted leave to intervene. [Laurie Decl., para. 3]. This is not sufficient to support granting the relief requested based on only unsupported representations in the moving memorandum. Counsel for the insurer would also likely not have personal knowledge sufficient to attest to matters concerning the insurance transaction between Mercury and Taylor.

The file shows that defendant William Taylor has been served in this matter, filed an answer on May 6, 2024, and appears to be actively participating in the action, so he may be protecting the interests of the insurer. The court will hear argument concerning whether this motion should be continued for an appropriate evidentiary showing by the insurer concerning the policy, Taylor’s claim, any payment to Taylor under the policy, and any uninsured losses to Taylor, on which this motion is directly based.

Motion for Order Granting Leave to Intervene and File an Answer in Intervention is CONTINUED. There is no evidence submitted with the moving papers sufficient to establish pursuant to CCP § 387 that third party Mercury Insurance Company claims an interest relating to the property or transaction that is the subject of this action and that Mercury Insurance Company is so situated that the disposition of the action may impair or impede its ability to protect that interest.

Motion is CONTINUED to March 21, 2025. Supplemental declaration(s) to be filed and served by no later than February 28, 2025. Any opposition and/or reply papers must be filed and served pursuant to Code.

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