American Zurich Insurance Company v. ESG Republic, Inc.

• Court: District Court, E.D. California
• Decided: May 29, 2025
• Docket: 1:23-cv-00643
• Status: Unknown

Opinion

1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 EASTERN DISTRICT OF CALIFORNIA 9 10 AMERICAN ZURICH INSURANCE No. 1:23-cv-00643-KES-CDB COMPANY, 11 ORDER GRANTING IN PART AND Plaintiff, DENYING IN PART MOTION FOR 12 SUMMARY JUDGMENT v. 13 (Doc. 73) ESG REPUBLIC, INC., et al., 14 ORDER DENYING MOTION TO STRIKE Defendants. 15 (Doc. 75)

16 17 American Zurich Insurance Company (“American Zurich”) filed a breach of contract suit 18 against various defendants for unpaid insurance policy premiums and deductibles. Doc. 34 19 (Second Amended Complaint (“SAC”)). Although American Zurich issued the insurance policies 20 to ESG Republic, Inc., it contends that the other defendants are also liable for breach of contract, 21 including through alter ego, successor liability, merger, and joint and several liability theories of 22 liabilities. Id. ¶ 23. 23 Defendants Vensure Employer Services, Inc. (“Vensure”) and WL Acquisition, LLC 24 (“WL Acquisition”) move for summary judgment.1 Doc. 73. American Zurich opposes summary 25

1 The parties stipulated to dismiss defendants Thorn Insurance Services LLC dba Worklogic HR 26 Insurance Services, Bradley C. Burks, and Vensure HR, Inc., and those defendants were 27 terminated on April 7, 2025. Docs. 98, 99. As such, the motion for summary judgment proceeds only as to Vensure and WL Acquisition (collectively, the moving defendants). WL Acquisition 28 indicates that it was erroneously sued as WL Acquisitions, LLC. Doc. 73-1 at 1. 1 judgment and moves to strike the motion for summary judgment. Docs. 75, 88, 91. This matter 2 is suitable for resolution without a hearing pursuant to Local Rule 230(g). Doc. 95. The Court 3 has considered the parties’ briefs, and for the reasons explained below, denies the motion to strike 4 and grants in part the motion for summary judgment. 5 I. BACKGROUND 6 A. Procedural Background 7 On January 18, 2024, American Zurich filed a second amended complaint against 8 defendants ESG Republic, Inc. (“ESG Republic”), ESG Republic II, LLC (“ESG Republic II”), 9 Jeffrey D. Thorn, Vensure, WL Acquisition, and the subsequently dismissed defendants.2 SAC. 10 In its second amended complaint, American Zurich alleges a cause of action for breach of 11 contract against all defendants, asserting that all defendants are liable for the unpaid insurance 12 premiums and deductibles. Id. ¶ 23. American Zurich also alleges that ESG Republic and ESG 13 Republic II are alter egos of Thorn and that the corporate veil of those entities should be pierced. 14 Id. ¶¶ 14, 19. American Zurich further alleges that Vensure and Vensure HR subsequently 15 purchased ESG Republic and ESG Republic II by forming WL Acquisition, and that Vensure and 16 WL Acquisition are successors in interest to Thorn, ESG Republic, and ESG Republic II, and are 17 also jointly and severally liable by agreement, pursuant to merger, or as alter egos of those 18 entities. Id. ¶¶ 14, 20-22. 19 On November 29, 2024, Vensure and WL Acquisition filed a motion for summary 20 judgment. Doc. 73. American Zurich filed a motion to strike the summary judgment motion on 21 December 5, 2024. Doc. 75. In light of a pending discovery dispute conference before the 22 magistrate judge, the Court modified the briefing schedule on the motions. Doc. 78. The 23 magistrate judge subsequently ruled on the various discovery issues, set forth deadlines for the 24 parties to conduct additional discovery, including the completion of depositions, and stayed 25 briefing on the motion for summary judgment and motion to strike. Doc. 81. Vensure and WL 26

27 2 On December 1, 2023, an entry of default was entered against ESG Republic and ESG Republic 28 II. Doc. 30. 1 Acquisition filed an opposition to the motion to strike on December 20, 2024. Doc. 83. On 2 January 10, 2025, the Court set a briefing schedule on the motion for summary judgment. 3 Doc. 85. An opposition to the motion for summary judgment was filed on February 15, 2025, 4 and a reply was filed on February 25, 2025. Docs. 88, 91, 94. 5 B. Factual Background3 6 American Zurich alleges it is owed unpaid insurance premiums and deductibles pursuant 7 to insurance policies it issued to ESG Republic. SAC ¶ 39. Although neither Vensure nor WL 8 Acquisition was a contracting party when the insurance policies were issued, American Zurich 9 alleges that, through a series of transactions between ESG Republic, Thorn, WL Acquisition and 10 Vensure, Vensure and WL Acquisition became liable for the unpaid insurance premiums and 11 deductibles. American Zurich argues that the transactions between ESG Republic, Thorn, WL 12 Acquisition, and Vensure establish a de facto merger, as well as successor liability through 13 agency and alter ego doctrines. Doc. 88. 14 On May 1, 2015, ESG Republic and American Zurich entered into three contracts: 15 (1) Paid Deductible Agreement, (2) Specifications to Paid Deductible Agreement, which 16 contained an American Zurich insurance policy (policy # WC109218501), and (3) Addendum to 17 Paid Deductible Agreement. DSUF Nos. 1-2. ESG Republic and American Zurich also entered 18 into three additional contracts on May 1, 2015: (1) Incurred Loss Retrospective Agreement, 19 (2) Specifications to Incurred Loss Retrospective Agreement, and (3) Addendum to Incurred Loss 20 Retrospective Agreement, which includes the Worker’s Compensation policies that apply to the 21 Incurred Loss Retrospective Agreement. DSUF Nos. 3-4. The Incurred Loss Retrospective 22 Agreement and the Specifications to Incurred Loss Retrospective Agreement incorporate the 23 Retrospective Rating Plan Premium Endorsement, which states that ESG Republic owes 24 American Zurich for expenses incurred due to certain ongoing workers’ compensation claims. 25

3 The facts that follow are relevant undisputed facts unless otherwise noted and are derived from: 26 undisputed facts submitted by the moving defendants and responded to by American Zurich (Doc. 27 91) (“DSUF”)), additional undisputed facts identified by American Zurich to which the moving defendants did not respond (Doc. 91 (“PSUF”)), and declarations and exhibits attached to the 28 motion for summary judgment and opposition. 1 DSUF No. 5. 2 On October 23, 2017, Vensure caused WL Acquisition to be formed. Ex. G., Doc. 73-9 at 3 1. WL Acquisition was a wholly owned subsidiary of ESG Republic. Id. On January 1, 2018, 4 ESG Republic and WL Acquisition entered into three contracts through which ESG Republic 5 transferred assets to WL Acquisition in exchange for ESG Republic receiving all interest in the 6 membership of WL Acquisition: (1) Contribution Agreement, (2) Assignment and Assumption 7 Agreement, and (3) Bill of Sale. DSUF No. 6. Schedule 15(e)(ii) of the Contribution Agreement 8 outlines the “Categories of Assumed Contract” that WL Acquisition assumed from ESG 9 Republic, including the “First Dollar Workers’ Compensation Policies” to which ESG Republic 10 was a party in connection with its business of providing professional employer organization 11 (“PEO”) services to clients. DSUF No. 7. The Contribution Agreement also outlines the 12 categories of “Excluded Assets” that WL Acquisition did not assume from ESG Republic, 13 including all insurance policies of ESG Republic not included in the Contributed Assets. DSUF 14 No. 8. 15 On January 31, 2018, ESG Republic and Vensure entered into a Purchase Agreement in 16 which ESG Republic sold 75% of its membership interest in WL Acquisition to Vensure. DSUF 17 No. 9. As part of the Purchase Agreement, ESG Republic and Vensure entered into the “WL 18 Acquisition, LLC Amended and Restated Limited Liability Company Agreement.” DSUF No. 19 10. ESG Republic and WL Acquisition also entered into a Security Agreement indicating that 20 ESG Republic lent WL Acquisition $9,103,087.89 in connection with Vensure’s purchase of the 21 75% membership interest. DSUF No. 11. American Zurich disputes that the money was actually 22 lent. Id. On or around February 11, 2022, Vensure purchased additional shares in WL 23 Acquisition. PSUF No. 29; Ex. 59, Doc. 88-2. WL Acquisition thus became wholly owned by 24 Vensure. PSUF No. 30. 25 II. MOTION TO STRIKE 26 American Zurich moves to strike the summary judgment motion on the basis that the 27 moving defendants failed to comply with the meet and confer requirements set forth in the 28 scheduling order and failed to produce several witnesses for deposition. Doc. 75. In opposition, 1 the moving defendants argue that they met and conferred in advance of the filing deadline for the 2 motion for summary judgment and that American Zurich has had ample time to conduct 3 discovery. Doc. 83. Briefing on the summary judgment motion was continued or stayed pending 4 the resolution of various discovery disputes, and the magistrate judge ordered additional 5 discovery, including the deposition of various witnesses. American Zurich does not allege in its 6 opposition to the summary judgment motion that further discovery is needed for it to oppose the 7 summary judgment motion. See Doc. 88. Accordingly, to the extent that the motion to strike is 8 based on the moving defendants’ failure to produce witnesses for deposition, the motion to strike 9 is denied as moot. 10 The moving defendants proffer that they sent a detailed meet and confer correspondence 11 to American Zurich prior to the filing of the motion for summary judgment. Doc. 83. There is 12 also no allegation that American Zurich was prejudiced due to a failure to comply with the 13 twenty-one-day meet and confer deadline. Given the preference for resolving issues on the 14 merits, the motion to strike the summary judgment motion on the basis that the moving 15 defendants did not comply with the meet and confer deadline is denied. 16 Accordingly, American Zurich’s motion to strike is denied. 17 III. EVIDENTIARY OBJECTIONS 18 American Zurich raises objections to the evidence cited in support of the motion for 19 summary judgment. See generally Docs. 88, 91. The objections are “garden variety evidentiary 20 objections” such as relevancy, hearsay, foundation, and speculation. See Torres v. Los Angeles 21 Sheriff’s Dept., Case No. CV 22-07450-MWF (MARx), 2024 WL 4720808, at *5 (C.D. Cal. Aug. 22 14, 2024). 23 “[A]t the summary judgment stage, we do not focus on the admissibility of the evidence’s 24 form. We instead focus on the admissibility of its contents.” Sandoval v. Cnty. of San Diego, 985 25 F.3d 657, 666 (9th Cir. 2021). That is, though such objections could prove cognizable at trial, 26 only the admissibility of the relevant facts at trial, not the form of these facts as presented in the 27 motion, matters for purposes of a motion for summary judgment. See id. Where “the contents of 28 a document can be presented in a form that would be admissible at trial—for example, through 1 live testimony by the author of the document—the mere fact that the document itself might be 2 excludable hearsay provides no basis for refusing to consider it on summary judgment.” Id. 3 (citations omitted). 4 To the extent that the Court relies upon evidence to which a party objects in deciding the 5 motion for summary judgment, the objections are overruled. To the extent the Court does not, the 6 objections are denied as moot. 7 IV. MOTION FOR SUMMARY JUDGMENT 8 A. LEGAL STANDARD 9 Summary judgment is appropriate when the moving party “shows that there is no genuine 10 dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. 11 Civ. P. 56(a). A dispute is “genuine” if “a reasonable jury could return a verdict for the 12 nonmoving party.” Momox-Caselis v. Donohue, 987 F.3d 835, 841 (9th Cir. 2021) (internal 13 quotations omitted) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). A fact is 14 “material” if it “might affect the outcome of the suit under the governing law.” Anderson, 477 15 U.S. at 841. The parties must cite “particular parts of materials in the record.” Fed. R. Civ. P. 16 56(c)(1). The Court then views the record in the light most favorable to the nonmoving party and 17 draws all reasonable inferences in that party’s favor. City of Pomona v. SQM N. Am. Corp., 750 18 F.3d 1036, 1049 (9th Cir. 2014); Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970). 19 The party moving for summary judgment must first carry its initial burden of production. 20 See Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986); Nissan Fire & Marine Ins. Co. v. Fritz 21 Cos., Inc., 210 F.3d 1099, 1102 (9th Cir. 2000). If, as in this case, the moving party would not 22 have the burden to prove the disputed claim at trial, then it must carry its initial burden of 23 production at summary judgment in one two ways: it must “either produce evidence negating an 24 essential element of the nonmoving party’s claim or defense or show that the nonmoving party 25 does not have enough evidence of an essential element to carry its ultimate burden of persuasion 26 at trial.” Nissan Fire, 210 F.3d at 1102. 27 If the moving party meets its initial responsibility, the burden then shifts to the opposing 28 party to establish that a genuine issue as to any material facts exists. Matsushita Elec. Indus. Co. 1 v. Zenith Radio Corp., 475 U.S. 574, 585-87 (1986); First Nat’l Bank of Ariz. v. Cities Serv. Co., 2 391 U.S. 253, 288–89 (1968). In the endeavor to establish the existence of a factual dispute, the 3 opposing party need not establish a material issue of fact conclusively in its favor. It is sufficient 4 that “the claimed factual dispute be shown to require a jury or judge to resolve the parties’ 5 differing versions of the truth at trial.” First Nat’l Bank of Ariz., 391 U.S. at 288–89. Thus, the 6 “purpose of summary judgment is to ‘pierce the pleadings and to assess the proof in order to see 7 whether there is a genuine need for trial.’” Matsushita Elec. Indus. Co., 475 U.S. at 587 (quoting 8 Rule 56(e) advisory committee’s note on 1963 amendments). “Where the record taken as a whole 9 could not lead a rational trier of fact to find for the nonmoving party, there is no ‘genuine issue 10 for trial.’” Id. at 587. To carry its burden of persuasion on the motion, the moving party must 11 “persuade the court that there is no genuine issue of material fact.” Nissan Fire, 210 F.3d at 12 1102. 13 B. ANALYSIS 14 Defendants Vensure and WL Acquisition move for summary judgment on the basis that 15 there is no valid contract between them and American Zurich. Doc. 73-1 at 2. WL Acquisition 16 argues that, when it acquired ESG Republic, it did not acquire ESG Republic’s workers’ 17 compensation insurance policies from American Zurich, and that the Contribution Agreement 18 between ESG Republic and WL Acquisition expressly excluded all insurance policies that were 19 not included in the Contributed Assets. Doc. 73-1 at 8. In opposition, American Zurich argues 20 that the moving defendants fail to meet their burden of proof on summary judgment because they 21 do not address its alternative allegations that, through a series of transactions involving the named 22 defendants, the moving defendants are liable for ESG Republic’s unpaid insurance premiums and 23 deductibles based on successor liability, merger, and/or alter ego theories of liability. Doc. 88 at 24 2. 25 “[U]nder [...] California law, a plaintiff cannot maintain a breach of contract claim against 26 an entity who is not a party to the contract.” Bordeaux v. Lions Gate Ent., Inc., No. 2:22-CV- 27 04244-SVW-PLA, 2022 WL 19076668, at *8 (C.D. Cal. Dec. 28, 2022) (internal citation and 28 quotation marks omitted); see also Tri-Continent Internat. Corp. v. Paris Sav. & Loan Assn., 12 1 Cal. App. 4th 1354, 1359 (1993). Vensure and WL Acquisition were not signatory parties to 2 American Zurich’s policies with ESG Republic. American Zurich also admits that WL 3 Acquisition assumed ESG Republic’s First Dollar Workers’ Compensation Policies but did not 4 assume other insurance policies of ESG Republic not listed in the Contributed Assets agreement. 5 DSUF Nos. 5, 7, 8. American Zurich does not establish that any of the policies listed in its 6 complaint are First Dollar Workers’ Compensation policies. Further, American Zurich does not 7 oppose the moving defendants’ evidence showing that Vensure and WL Acquisition did not agree 8 to assume American Zurich’s policies. Accordingly, the undisputed evidence shows that Vensure 9 and WL Acquisition are not signatory parties to, and did not contractually agree to assume, 10 American Zurich’s insurance policies. The moving defendants are entitled to summary judgment 11 as to American Zurich’s claim in breach of contract based on the theory that the moving 12 defendants entered into or agreed to assume American Zurich’s insurance policies. 13 American Zurich’s opposition to summary judgment instead focuses on its alternative 14 theories of liability: that Vensure and WL Acquisition are liable under successor liability, merger, 15 and/or alter ego theories. See Doc. 88 at 2. Although American Zurich alleges in the second 16 amended complaint that defendants are liable under such theories, the moving defendants fail to 17 address those allegations in their motion for summary judgment. The moving defendants have 18 the initial burden of production and ultimate burden of persuasion. Nissan Fire, 210 F.3d at 19 1102. To carry their burden of production, the moving defendants “must either produce evidence 20 negating an essential element of the nonmoving party’s claim or defense or show that the 21 nonmoving party does not have enough evidence of an essential element to carry its ultimate 22 burden of persuasion at trial.” Id.; see also Exoto Inc. v. Sunrich Co., LLC, No. 2:21-CV-03754- 23 MEMF-JEMx, 2022 WL 17181787, at *6 (C.D. Cal. Nov. 22, 2022) (defendant met its initial 24 burden of production by demonstrating that there was an absence of evidence to support 25 plaintiff’s alter ego claims by pointing to discovery responses where plaintiff admitted that it did 26 not possess any documents that would support its alter ego allegations.). 27 By not addressing the successor in interest, merger, and/or alter ego allegations in their 28 motion for summary judgment, Vensure and WL Acquisition have failed to meet their initial 1 | burden. Nissan Fire, 210 F.3d at 1102-03; see also Liu v. Win Woo Trading, LLC, No. 14-CV- 2 | 02639-KAW, 2016 WL 3279466, at *4—5 (N.D. Cal. June 15, 2016) (defendants failed to meet 3 | their initial burden on alter ego theory of liability when defendants did not address alter ego 4 | allegations set forth in complaint). To the extent the moving defendants address the successor in 5 | interest allegations for the first time in their reply, the moving defendants have failed to carry 6 | their initial burden with respect to those theories of liability. Top Brand LLC v. Cozy Comfort 7 | Co. LLC, 688 F. Supp. 3d 924, 950 (D. Ariz. 2023) (rejecting defendants’ challenge to sufficiency 8 || of plaintiffs’ evidence when defendants raised arguments for first time in reply brief.). 9 “If a moving party fails to carry its initial burden of production, the nonmoving party has 10 | no obligation to produce anything, even if the nonmoving party would have the ultimate burden 11 | of persuasion at trial.” Nissan Fire, 210 F.3d at 1102-03. Accordingly, Vensure and WL 12 | Acquisition’s motion for summary judgment is denied as to American Zurich’s claim that the 13 | defendants are liable for the unpaid insurance premiums and deductibles under successor in 14 | interest, merger, and/or alter ego theories of liability. 15 V. CONCLUSION 16 For the reasons explained above: 17 1. American Zurich’s motion to strike (Doc. 75) is denied. 18 2. Vensure and WL Acquisition’s motion for summary judgment (Doc. 73) is granted in 19 part and denied in part as set forth above. 20 21 92 | IT IS SO ORDERED. _ 23 Dated: _ May 28, 2025 4h UNITED STATES DISTRICT JUDGE

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