Judge Upinder S. Kalra, Case Number: 19STCV33910, Date: 2023-08-09 Tentative Ruling

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CASE NAME: Motor Vehicle Software Corporation v. Sentry Select Insurance Company

1. An order authorizing Moving Cross-Complaint to deposit with the Clerk of Court $50,000.

On September 24, 2019, Plaintiff Motor Vehicle Software Corporation filed a complaint against Defendants Sentry Select Insurance Company and Sentry Insurance Foundation, Inc. (“Defendants.”) The complaint alleged two causes of action: (1) Breach of Written Contract and (2) Breach of Surety Bond. Plaintiff is a First Line Service Provider, whereby it collects registration fees from a dealership and the Department of Motor Vehicle withdraws fees from Plaintiff’s bank account. Lang Nissan was required to post a surety Bond and Defendants issued such a bond for $50,000. The Lang Nissan dealership incurred new car registration fees of $31,161.00. Plaintiff demanded to recover the registration fees, but Defendants failed to honor the terms of the Bond.

On October 24, 2019, Defendant Sentry Select Insurance Company filed a Cross-Complaint in Interpleader against Motor Vehicle Software Corporation, Oscar Traders, Inc., The Golden 1 Credit Union, California Coast Credit Union, Alexander Brandao, Eddie Gomez, Rolf Brandes, Jose Cerillo, and the State of California Department of Motor Vehicles.

On November 13, 2019, Cross-Defendant Motor Vehicle Software Corporation filed an Answer.

On December 16, 2019, Cross-Defendant California Coast Credit Union filed an Answer.

On May 18, 2019, Cross-Complainant Sentry Select Insurance Company filed a Motion for Order Discharging Stakeholder.

On May 25, 2023, Cross-Defendant California Coast Credit Union filed a Motion for Summary Adjudication. On June 29, 2023, Cross-Complainant Sentry Select Insurance Company filed a Notice of Non-Opposition to the Motion for Summary Adjudication.

Interpleader is a procedure whereby a person holding money or personal property to which conflicting claims are being made by others, can join the adverse claimants and force them to litigate their claims among themselves. (For example, an escrowholder who receives conflicting demands from the parties to the escrow regarding the funds or documents he or she holds.) (Hancock Oil Co. v. Hopkins (1944) 24 C2d 497, 508; City of Morgan Hill v. Brown (1999) 71 Cal.App.4th 1114, 1122.)

Once the stakeholder’s right to interplead is established, and he or she deposits the money or personal property in court, he or she may be discharged from liability to any of the claimants. This enables the stakeholder to avoid a multiplicity of actions, and the risk of inconsistent results if each of the claimants were to sue him or her separately. (Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 874; City of Morgan Hill v. Brown, supra, 71 Cal.App.4th at 1122.)

“An interpleader action is traditionally viewed as two suits: one between the stakeholder and the claimants to determine the stakeholder's right to interplead, and the other among the claimants to determine who shall receive the funds interpleaded ... As against the stakeholder, claimants may raise only matters which go to whether the suit is properly one for interpleader; i.e., whether the elements of an interpleader action are present.” (State Farm Fire & Cas. Co. v. Pietak (2001) 90 Cal.App.4th 600, 612.)

If the defendant stakeholder claims no interest in the funds or property held, he or she need not file an interpleader cross-complaint. He or she may simply apply to the court for permission to deposit the money or property with the court clerk, and for an order discharging him or her from further liability to the adverse claimants. Such order will also substitute the adverse claimants as parties to the action; or, if only money is involved, simply dismiss the stakeholder. (Code Civ. Proc., §§ 386, subd. (a), 386.5.) The motion must be supported by an affidavit by the stakeholder establishing the ground for interpleader. (Code Civ. Proc., § 386, Subd. (a).) The supporting affidavit must also state that the moving party is “a mere stakeholder with no interest in the amount or any portion thereof and that conflicting demands have been made upon him for the amount by parties to the action…” (Code Civ. Proc., § 386.5.) Notice of the motion must be served on each of the adverse claimants to the funds or property. (Code Civ. Proc., §§ 386, subd. (a), 386.5.) “Where a deposit has been made pursuant to Section 386, the court shall, upon the application of any party to the action, order such deposit to be invested in an insured interest-bearing account.” (Code Civ. Proc., § 386.1.)

The stakeholder may seek reimbursement for its costs and reasonable attorneys’ fees incurred. (UAPColumbus JV 326132 v. Nesbitt (1991) 234 Cal.App.3d 1028, 1036.) The court may order payment thereof out of the funds deposited by the stakeholder. (Code Civ. Proc., § 386.6.)

Moving Cross-Complainant Sentry Select Insurance Company moves to have the Court to allow Sentry to deposit the penal sum of the dealer bond, totaling $50,000, with the clerk of Court into an insured, interest-bearing account pending final adjudication, discharge Sentry from any liability, enter a judgment of dismissal with prejudice in favor of Sentry, and award Sentry costs and attorneys’ fees totaling $5,000.00.

The issue in this matter concerns a Surety Bond, which was provided to Lang Nissan for $50,000. Cross-Defendants claim that Lang Nissan made fraudulent representations, giving rise to each cross-defendants’ rights of action against Lang and its surety. Three Cross-Defendants, Motor Vehicles Software Corporation, California Coast Credit Union, and Graciela Escobedo, claim an interest in the funds. The remaining Cross-Defendants have failed to file a responsive pleading within the allowable period. (Dec. Cadden ¶ 6.) Cross-Complainant Sentry asserts that it is a mere stakeholder and claims no interest in the $50,000 Penal Sum. Thus, the Court can and should resolve the controversy. Further, Sentry seeks discharge from liability as to the Sentry Bond.

The proof of service attached to the current motion indicates that the Plaintiff and Cross-Defendants were each served at their respective addresses.

The Court finds that Sentry has satisfied all requirements for the instant Motion. Sentry has indicated it is a mere stakeholder without any interest in the bond, there are conflicting claims on that bond, and the parties have been served with notice of the current motion.

Cross-Complaint Sentry’s Motion to Deposit and Discharge Stakeholder is GRANTED.

Under CCP § 386.6, a party may seek attorneys’ fees, after following the procedures in CCP §§ 386 or 386.5. The court, in its discretion, may award “costs and reasonable attorney fees from the amount in dispute which has been deposited with the court.” (CCP § 386.6(a).)

As the court in Sweeney stated, “fees must be limited to those incurred only in pursuit of the stakeholder's remedy, whether by complaint or cross-complaint.” (Sweeney v. McClaran (1976) 58 Cal.App.3d 824, 830.)

Here, Sentry requests $5,000 in costs and fees. “In ordering the discharge of such party, the court may, in its discretion, award such party his costs and reasonable attorney fees from the amount in dispute which has been deposited with the court.” (CCP § 386.6(a).) While the Court finds that fees are appropriate, Cross-Complainant has failed to provide any information as to how Cross-Complainant calculated the fees. Accordingly, the Court will set fees at a reasonable amount based upon filing of this action in the amount of $1,500.

Motion for Order for Authorizing Depositing of Funds and Discharging Shareholders is GRANTED.

CASE NAME: Motor Vehicle Software Corporation v. Sentry Select Insurance Company

RESPONDING PARTY(S): Cross-Complainant Sentry Select Insurance Company filed a Notice of Non-Opposition.

1. An order granting summary adjudication as to whether Cross-Defendant CCCU has a valid claim to the surety bond.

2. An order granting summary adjudication as to whether Cross-Defendant MVSC has a valid claim to the surety bond.

3. An order granting summary adjudication as to whether CCCU and MVSC are entitled to a prorated share of the Penal Sum.

1. Motion for Summary Adjudication as to Issue 1, whether Cross-Defendant CCCU has valid claims against the surety bonds, is GRANTED.

2. Motion for Summary Adjudication as to Issue 2, whether Cross-Defendant MVSC has valid claims against the surety bonds, is GRANTED.

3. Motion for Summary Adjudication as to Issue 3, whether the Court should pro rate the Penal Sum, is GRANTED.

On November 13, 2019, Cross-Defendant Motor Vehicle Software Corporation filed an Answer.

On December 16, 2019, Cross-Defendant California Coast Credit Union filed an Answer.

On May 18, 2019, Cross-Complainant Sentry Select Insurance Company filed a Motion for Order Discharging Stakeholder.

The purpose of a motion for summary judgment or summary adjudication “is to provide courts with a mechanism to cut through the parties’ pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute.” (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843.) “Code of Civil Procedure section 437c, subdivision (c), requires the trial judge to grant summary judgment if all the evidence submitted, and ‘all inferences reasonably deducible from the evidence’ and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” (Adler v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.)

“On a motion for summary judgment, the initial burden is always on the moving party to make a prima facie showing that there are no triable issues of material fact.” (Scalf v. D.B. Log Homes, Inc. (2005) 128 Cal.App.4th 1510, 1519.) A defendant or cross-defendant moving for summary judgment or summary adjudication “has met his or her burden of showing that a cause of action has no merit if the party has shown that one or more elements of the cause of action . . . cannot be established, or that there is a complete defense to the cause of action.” (Code Civ. Proc., § 437c, subd. (p)(2).) “Once the defendant or cross-defendant has met that burden, the burden shifts to the plaintiff or cross-complainant to show that a triable issue of one or more material facts exists as to the cause of action or a defense thereto.” (Code Civ. Proc., § 437c, subd. (p)(2).) “If the plaintiff cannot do so, summary judgment should be granted.” (Avivi v. Centro Medico Urgente Medical Center (2008) 159 Cal.App.4th 463, 467.) “When deciding whether to grant summary judgment, the court must consider all of the evidence set forth in the papers (except evidence to which the court has sustained an objection), as well as all reasonable inferences that may be drawn from that evidence, in the light most favorable to the party opposing summary judgment.” (Id. at p. 467; Code Civ. Proc., § 437c, subd. (c).)

Cross-Defendant California Coast Credit Union (“CCCU”) moves for summary adjudication.

4. CCCU and MVSC will be entitled to their pro rata share of the $50,000 Penal Sum.

Cross-Defendant argues that CCCU has valid claims against the surety bonds based on Vehicle Code § 5753.

Within 15 business days after receiving payment in full for the satisfaction of a security interest and a written instrument signed by the grantor of the security interest designating the transferee and authorizing release of the legal owner's interest, the legal owner shall release its security interest and mail, transmit, or deliver the vehicle's certificate of ownership to the transferee who, due to satisfaction of the security interest, is lawfully entitled to the transfer of legal ownership.

The Court finds that Cross-Defendant has established valid claims as to the surety bonds. Here, seven different customers[1] of CCCU financed their vehicles between February 13, 2019, and June 27, 2019. CCCU paid $135,576.85[2] for the vehicles but has not received title to any of the vehicles. (UMF 14, 21, 30, 38, 47, 55, 63.) Additionally, CCCU submitted a Record of Complaint Form to the DMV on behalf of each customer. (UMF 15, 25, 33, 41, 50, 58, 66.) Based on Vehicle Code § 5733, once CCCU paid each of the customer’s claims, for a total of $135,646.85, Lang Nissan was statutorily obligated to transfer title to CCCU. Thus, based on the evidence above, a reasonable jury could find Cross-Defendant has established valid claims as to the surety bond totaling $135,576.85.

Motion for Summary Adjudication as to Issue 1, whether Cross-Defendant CCCU has valid claims against the surety bonds, is GRANTED.

Defendant also argues that Motor Vehicles Software Corporation (“MVSC”) has a claim against the Sentry Bond based on Vehicle Code § 10701, which states the following:

The failure of a dealer upon demand to pay the fees and penalties determined to be due as provided in Section 4456 hereof is declared to be a violation of Division 3 (commencing with Section 4000) of this code, and Part 5 (commencing with Section 10701), Division 2 of the Revenue and Taxation Code and to constitute loss or damage to the state in the amounts of such fees and penalties determined to be due and not paid.

(a) When selling a vehicle, dealers and lessor-retailers shall report the sale using the reporting system described in Section 4456.2. After providing information to the reporting system, the dealer or lessor-retailer shall do all of the following:

(1) The dealer or lessor-retailer shall attach for display a copy of the report-of-sale form provided by the reporting system on the vehicle before the vehicle is delivered to the purchaser.

(2) The dealer or lessor-retailer shall submit to the department an application accompanied by all fees and penalties due for registration or transfer of registration of the vehicle within 30 days from the date of sale, as provided in subdivision (c) of Section 9553, if the vehicle is a used vehicle, and within 20 days if the vehicle is a new vehicle. Penalties due for noncompliance with this paragraph shall be paid by the dealer or lessor-retailer. The dealer or lessor-retailer shall not charge the purchaser for the penalties.

The Court finds that Cross-Defendant has established that MVSC has a valid claim as to the Sentry surety bond. As a First Line Service Provider, MVSC collects registration fees from dealerships, and then the California Department of Motor Vehicle withdraws these mandated fees. (UMF 71-72.) Here, the DMV withdrew $52,293.85 as required under Vehicle Code § 4456. (UMF 74.) However, Lang Nissan has only paid $21,032.85, leaving a remaining balance of $31,161.00. (UMF 76-77.) Thus, Cross-Defendant MVSC has a valid claim as to the surety bond.

Motion for Summary Adjudication as to Issue 2, whether Cross-Defendant MVSC has valid claims against the surety bonds, is GRANTED.

Cross-Defendant lastly argues that because there are multiple claims as to the surety bonds which exceed the total sum, the amounts should be prorated. As the Court of Appeal stated in Walton,

[W]here a bond is given to protect the individual members of the public who deal with the principal on the bond from injury caused by his fraud or negligence, and the extent of the surety's liability is limited to certain amount, when claims are made to the surety in excess of the amount of the penalty the total amount of the penalty should be prorated among the persons so damaged. [citation omitted.] The surety may go into a court of equity and have all claimants interpleaded, and have the court prorate the fund upon the claims established.

The Court finds that Cross-Defendant has established that CCCU and MVSC are entitled to a prorated share of the Penal Sum. CCCU and MVSC have valid claims as to the surety bonds as established above. However, CCCU’s claim is for $135,576.85 and MVSC is for $31,161.00, which exceeds the $50,000. (UMF 79-81.) Therefore, based on Walton, the Court has the authority to prorate the funds. (Id.) After Cross-Defendant Graciela Escobedo’s trial, the Court will determine how the funds shall be prorated.

Motion for Summary Adjudication as to Issue 3, whether the Court should pro rate the Penal Sum, is GRANTED.

[1] Members (1) C.M, (2) A.L., (3) F.S., (4) C.O., (5) L.V., (6) M.S., and (7) N.P.

[2] There are two different amounts: $135,576.85 and $135,646.85 in Cross-Defendant’s motion. The Court calculated the total to be $135,576.85 based on the amounts in the Separate Statement, i.e. “CCCU was damaged in the amount of $29,862.01…on behalf of Member N.P.” (UMF 67.)