Sanderina LLC v. Great American Insurance Company

• Court: District Court, D. Nevada
• Decided: September 11, 2019
• Docket: 2:18-cv-00772
• Status: Unknown

Opinion

1 UNITED STATES DISTRICT COURT 2 DISTRICT OF NEVADA 3 Sanderina, LLC, et al., Case No.: 2:18-cv-00772-JAD-DJA 4 Plaintiffs Order Granting Great American 5 v. Insurance Company’s Motion for Summary Judgment 6 Great American Insurance Company, [ECF No. 22] 7 Defendant 8 This is an insurance-coverage dispute regarding a policy issued to Sanderina, LLC and 9 Sanderina II, LLC (collectively, Sanderina) by Great American Insurance Company. In 2017, 10 Sanderina was the victim of an online scam. An unknown third party sent emails that appeared 11 to be from Sanderina’s majority owner to Sanderina’s controller askingher to transfer funds to 12 the imposter’s bank accounts. Sanderinatransferred $260,994, but was later able to recover 13 $82,234.79. Sanderina filed a claim for the remaining sum with Great American, but it denied 14 coverage. 15 Sanderina sues Great American for (1) breach of contract, (2) breach of the covenant of 16 good faithand fair dealing, and (3) violations of the Nevada Unfair Claims Practices Act. Great 17 American moves for summary judgment, arguing that its policy does not cover this claim. 18 Because the plain language of the policy does not cover losses from an incident like this one, 19 Sanderina has not shown agenuine issue of material fact to sustain its claims. So I grant 20 summary judgment in favor of Great American and close this case. 21 22 23 1 Background 2 Sanderina’s insurance policycovers, among other things, forgeryor alteration, computer 3 fraud, and funds-transfer fraud.1 In relevant part, the forgery-or-alteration provision covers 4 losses “resulting directly from forgery or alteration of checks, drafts, promissory notes, or similar 5 written promises,orders, or directions to paya sum certain in money . . ..”2 The computer-fraud

6 provision extends tolosses “resulting directly from the use of any computer to impersonate you, 7 or your authorized officer or employee, to gain direct access to your computer system, or to the 8 computersystem of your financial institution, and thereby fraudulently cause the transfer of 9 money . . . .”3 Finally, the funds-transfer fraud provision covers losses “resulting directly from a 10 fraudulent instruction directing a financial institution to transfer, pay or deliver funds from your 11 transfer account.”4 In turn, “fraudulent instruction” is defined as a “written instruction . . . which 12 purports to have been issued by you and which was sent or transmitted to a financial institution 13 to establish the conditions under which transfers are to be initiated by such financial institution 14 through an electronic funds transfer system and which was issued, forged or altered without your

15 knowledge or consent.”5 16 In 2017, an unknown third-party sent a series of emails to Donna Atwood, Sanderina’s 17 controller.6 The emails appeared to have been sent by Victor Salerno, Sanderina’s majority 18 19 20 1 ECF No. 36-3. 21 2 Id. at 11. 3 Id. at 12. 22 4 Id. at 27. 23 5 Id. 6 ECF No. 37-2 at 6–13. 1 owner.7 The unknown sender’s email address was nearlyidentical to Salerno’s, except the 2 domain name was altered from “usfantasy.com”to “usfontasy.com.”8 Over the course of eight 3 days, the imposter asked Atwood to make six transfers to his bank accounts.9 Atwood submitted 4 the transfer requests to Bank of America, which transferred a total of $260,994 to the imposter.10 5 After recognizing that it was the victim of a scam, Sanderina investigated the incident.

6 Sanderina’s domain name was owned by former Sanderina employee Michael Knapp and 7 registered through GoDaddy.11 After contacting GoDaddy, Knapp reported to Atwood that 8 GoDaddy “was insistent” that Sanderina’s email accounts had not been hacked.12 Rather, 9 GoDaddy “opined someone was attempting deception.”13 Sanderina’s consultant, Network 10 Security Associates (Network Security), investigated whether there was a breach of Sanderina’s 11 computer systems.14 Network Security was unable to identify any instances of a third party 12 accessing Sanderina’s computer system or email accounts.15 13 During discovery, Sanderina’s Rule 30(b)(6) representativedescribed the results of the 14 investigation:

15 Q: Do you know if the imposter ever logged into a computer system that was owned by Sanderina or accessed it in any 16 way? 17 18 7 Id.; ECF No. 22-1 at 6:25–7:3. 8 ECF No. 37-2 at 6–13. 19 9 Id. 20 10 ECF No. 37-2 at 37. 21 11 ECF No. 22-1 at 22:6–23:7. 12 ECF No. 37-2 at 25. 22 13 Id.at 24. 23 14 ECF No. 22-1 at 17:4–18:6. 15 Id. at 18:22–19:5. 1 A: I don’t know the answer tothat. I think we looked at it and we didn’t really see a breach, but that doesn’t mean there 2 wasn’t a breach. 3 Q: Did Sanderina hire any consultants, IT consultants or anything like that to analyze its computer systems and 4 determine whether or not they had been accessed by a third party? 5 A: Yeah . . . . 6 Q: Do you know what the result of the [consultant’s] 7 investigation was? 8 A: My understanding was that they did not find a breach. . . . 9 Q: What is the factual basis for the contention that a criminal 10 hacked into Sanderina’s computer system? 11 A: Well, I don’t know specifically that a criminal hacked in . . . . But it was important for us to point out that there was 12 a potential hack into the system. We just didn’t find it.16 13 Sanderina first notified Great American of its claim days after discovering the scam.17 14 Sanderina latersubmitted a sworn proof of loss, whichGreat American denied.18 Sanderina then 15 filed this suit, and Great American now moves for summary judgment. 16 Discussion 17 A. Standard 18 Summary judgment is appropriate when the pleadings and admissible evidence “show 19 there is no genuine issue as to any material fact and that the movant is entitled to judgment as a 20 matter of law.”19 When considering summary judgment, the court views all facts and draws all 21 16 Id. at 17:4–19:5, 29:13–30:22. 22 17 ECF No. 37-2 at 36. 23 18 Id. at 53,59. 19 See Celotex Corp. v. Catrett, 477 U.S. 317, 330 (1986) (citing Fed. R. Civ. P.56(c)). 1 inferences in the light most favorable to the nonmoving party.20 If reasonable minds could differ 2 on material facts, summary judgment is inappropriate because its purpose is to avoid unnecessary 3 trials when the facts are undisputed, and the case must then proceed to the trier of fact.21 If the 4 moving party satisfies Rule 56 by demonstrating the absence of any genuine issue of material 5 fact, the burden shifts to the party resisting summary judgment to “set forth specific facts

6 showing that there is a genuine issue for trial.”22 “To defeat summary judgment, the nonmoving 7 party must produce evidence of a genuine dispute of material fact that could satisfy its burden at 8 trial.”23 9 B. Authentication of Exhibits 10 Sanderina argues that the motion should be denied because Great American failed to 11 authenticate its exhibits and trial courts may only consider admissible evidence on summary 12 judgment.24 Sanderinarelies on outdated summary-judgment standards.25 It is true that in Orr v. 13 Bank of America, the Ninth Circuit “made it clear that ‘unauthenticated documents cannot be 14 considered in a motion for summary judgment.’”26 But Orr was decided in 2002,and that

15 decision interpreted Federal Rule of Civil Procedure 56before its 2010overhaul. The 2010 16 amendment “eliminate[d] the unequivocal requirement” that evidence must be admissible in its 17 18 20 Kaiser Cement Corp. v. Fishbach & Moore, Inc., 793 F.2d 1100, 1103 (9th Cir. 1986). 21 Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir. 1995); see also Nw. Motorcycle Ass’n 19 v. U.S. Dep’t of Agric., 18 F.3d 1468, 1471 (9th Cir. 1994). 20 22 Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986); Celotex, 477 U.S. at 323. 23 Sonner v. Schwabe N. Am.,Inc., 911 F.3d 989, 992 (9th Cir. 2018). 21 24 ECF No. 35 at 13–15. 22 25 Sanderina also cites FRCP 56(e) as the rule’s affidavit provision,seeECF No. 35 at 13,but the affidavit provision is now FRCP 56(c)(4). 23 26 Las Vegas Sands, LLC v. Nehme, 632 F.3d 526, 533 (9th Cir. 2011) (citing Orr v. Bank of Am., 285 F.3d 764, 773 (9th Cir. 2002)). 1 present formin order to be considered at summary judgment.27 The rule now mandates only that 2 the substanceof the proffered evidence be admissible at trial, so Great American neededto 3 demonstrate merely that its evidence can be presented in an admissible form.28 Great American 4 has met that burden.29 5 C. Breach of contract

6 To prevail on a breach-of-contract claim, Sanderinamust demonstrate: (1) the existence 7 of a valid contract; (2) a breach by the defendant; and (3) damages as a result of the breach.30 8 Neither Great American nor Sanderinadisputes the existence of a validcontract or damages, 9 leaving only the breach element at issue here. Great American argues that its policy’s plain 10 language provides no coverage forSanderina’s claim for four reasons: (1) the forgerypolicy 11 covers negotiable instruments, not emails; (2) the computer-fraud policy covers losses resulting 12 only from direct access to the insured’s computer system; (3) the funds-transfer fraud policy does 13 not apply; and (4) Sanderina’s losses did not directly result from the fraudulent emails. 14 Sanderina responds that: (1) the policy extends to Sanderina’s claim; (2) direct access is an issue

15 of material fact for trial; and (3) Great American did not sufficiently investigate the crime. 16 17 18 27 Romero v. Nev. Dep’t of Corr., 673 F. App’x 641, 644 (9th Cir. 2016) (unpublished). 19 28 Id.; see alsoFed. R. Civ. P. 56 advisory comm. note to 2010 amendment. 20 29 Even if the old standard applied, Great American’s exhibits have been fully authenticated by the original motion for summary judgment, Sanderina’s opposition, and the declaration attached 21 to Great American’s reply brief. For example, the deposition transcript for Sanderina’s 30(b)(6) witness is properly authenticated by inclusion of the deponents’ names and court-reporter’s 22 certificate, which are included in the excerpts attached to Sanderina’s opposition. SeeECF No. 36-2. 23 30 Cohen-Breen v. Gray Television Group, Inc., 661 F. Supp. 2d 1158, 1171 (D. Nev. 2009) (citing Richardson v. Jones, 1 Nev. 405, 405 (Nev. 1865)). 1 Sanderina’s breach theory turns on the scope of the policy’s coverage. “The starting 2 point for the interpretation of any contract, including insurance policies, is with its plain 3 language.”31 Clear and unambiguous provisions will be construed according to their plain and 4 ordinary meaning,32 but “[a]ny ambiguity in an insurance contract must be interpreted against the 5 drafting party and in favor of the insured.”33 Applying these principles, I find that none of the

6 three relevant policy provisions covers Sanderina’s claim. 7 1. Forgery 8 The forgery-or-alteration provision covers losses “resulting directly from forgery or 9 alteration of checks, drafts, promissory notes, orsimilar written promises, orders, or directions to 10 pay a sum certain in money . . . .”34 Sanderina argues that the policy covers “forgery . . . or . . . 11 directions to pay a sum certain in money” and that the emails contained directions to pay 12 money.35 But the policy unambiguously requires “directions to pay a sum certain in money” to 13 be “similar”to “checks, drafts, [and] promissory notes.” The Ninth Circuit consideredsimilar 14 facts in Taylor & Lieberman v. Federal Insurance Companyand concluded that emails

15 containing directions to pay money were not similar tochecks or drafts.36 So it is clear that this 16 provision does not cover Sanderina’s losses here. 17 18 19 31 Hunt v. AAA Nevada Ins. Co., 369 F. Supp. 3d 1113, 1117 (D. Nev. 2019) (citing McDaniel v. 20 Sierra Health and Life Ins. Co., Inc., 53 P.3d 904, 906 (Nev. 2002)). 21 32 Id. (citing Dickenson v. Nevada, 877 P.2d 1059, 1061 (Nev. 1994)). 33 Farmers Ins. Grp. v. Stonik By & Through Stonik, 867 P.2d 389, 391 (Nev. 1994). 22 34 ECF No. 36-3 at 11. 23 35 ECF No. 35 at 22(alteration in original). 36 Taylor & Lieberman v. Fed. Ins. Co., 681 F. App’x 627, 628 (9th Cir. 2017). 1 2. Computer fraud 2 The policy’s computer-fraud provision covers losses “resulting directly from the use of 3 any computer to impersonate you, or your authorized officer or employee, to gain direct access 4 to your computer system, or to the computer system of your financial institution, and thereby 5 fraudulently cause the transfer of money . . . .”37 Great American argues that there is no dispute

6 of material fact as to whether the perpetrator “gain[ed] direct access” to Sanderina’s computer 7 system, and thus Sanderina’s claim must fail.38 Sanderina responds that “direct access” is 8 ambiguous and a disputed issue of material fact.39 9 In Taylor & Lieberman, the Ninth Circuit concluded that losses resulting from similar 10 emails were not covered under a policy requiring “entry into” a computer system without 11 authorization because “there is no support for [plaintiff’s] contention that sending an email, 12 without more, constitutes an unauthorized entry into the recipient’s computer system.”40 The 13 “direct access” requirement here is substantially similar to the “entry into” requirement inthe 14 Taylor & Lieberman policy, and this record does not support a finding that merely sending an

15 email to a Sanderina employee constituteddirect access to Sanderina’s computer system.41 16 Sanderina’s 30(b)(6) representative testified that neither it nor Network Securityfound any 17 18 37 ECF No. 36-3at 12. 38 ECF No. 22 at 11–16. 19 39 ECF No. 35 at 16–19. 20 40 Taylor & Lieberman, 681 F. App’x at 629. 41 Cases from other circuits interpreting similar policies but finding coverage are distinguishable 21 because the facts present emails that were infected with malicious code or intercepted by hackers. See, e.g., Medidata Sols. Inc. v. Fed. Ins. Co., 729 F. App’x 117, 118 (2d Cir. 2018) 22 (“[T]he attack represented a fraudulent entry of data into the computer system, as the spoofing code was introduced into the email system.”); Childrens Place, Inc. v. Great Am. Ins. Co., No. 23 CV-18-11963-ES-JAD, 2019 WL 1857118 at *3 (D.N.J. Apr. 25, 2019) (“The Hacker redirected [email] messages to go to him.” (alteration in original)). 1 evidence that the perpetrator accessed Sanderina’s computer system.42 In its opposition, 2 Sanderina conjectures a “high likelihood” that the perpetrator may have accessedSanderina’s 3 computer system to“case the joint” because the emails were signed “Vic” and sent during the 4 CEO’s vacation.43 But Sanderina is required to “produce evidence of a genuine dispute of 5 material fact that could satisfy its burden at trial,”44 andSanderina’s speculation45 is not

6 evidence. Because a reasonable person could not findon this recordthat the perpetrator directly 7 accessed Sanderina’s computer system, there is no genuine dispute of material fact for trial based 8 on the computer-fraud provision. 9 3. Funds-transfer fraud 10 The funds-transfer fraud provision covers losses “resulting directly from a fraudulent 11 instruction directing a financial institution to transfer, pay or deliver funds from your transfer 12 account.”46 The policy defines “fraudulent instruction” as a “written instruction . . . which 13 purports to have been issued by you and which was sent or transmitted to a financial institution 14 to establish the conditions under which transfers are to be initiated by such financial institution

15 through an electronic funds transfer system and which was issued, forged or altered without your 16 knowledge or consent.”47 Sanderina argues that the funds-transfer fraud provision applies 17 because (1) the provision covers fraudulent instructions that are indirectly transmitted to 18 19 42 ECF No. 22-1at 17:4–19:5, 29:13–30:22. 20 43 ECF No. 35 at 17. 44 Sonner, 911 F.3d at 992. 21 45 Great American points out that a “Google search . . . reveals numerous articles and online 22 profiles that identify Salerno as ‘Vic.’” ECF No. 37 at 10. Additionally, Salerno’s email address was “vic@usfantasy.com.” ECF No. 37-2 at 7. 23 46 ECF No. 36-3at 27. 47 Id. 1 financial institution through an unwitting employee and (2) “knowledge” and “consent” require 2 more than approval of a transfer.48 3 But the Ninth Circuit considered a similar provision in Taylor & Lieberman and 4 concluded that the policy did not extend to the plaintiff’s losses resulting from similar emails for 5 two reasons.49 First, the fraudulent instruction was not without “knowledge or consent”—

6 plaintiff “did not know the emailed instructions were fraudulent,”but it “requested and knew 7 about the wire transfers.”50 Second, the emails did not constitute “fraudulent . . .instructions 8 issued to a financial institution” because the emails were sent to the plaintiff—not a financial 9 institution.51 10 Both reasons applyequally here. Sanderina is not a financial institution, so the fraudulent 11 instructions werenot “sent or transmitted to a financial institution.” Plus, Sanderina controller 12 Donna Atwood requested and knew about the transfers, so the fraudulent instructions were not 13 “issued, forged or altered without [Sanderina’s] knowledge or consent.” So there is no disputed 14 issue of material fact for trial on the funds-transfer fraud provisioneither. And, because I find

15 that there is nodisputed issue of fact as to whether the policy covers Sanderina’s loss, I grant 16 summary judgment in favor of Great American on Sanderina’s breach-of-contract claim. 17 D. Remainingclaims 18 Sanderina concedes that if its coverage claim fails, so do its claims forbreach of the 19 covenant of good faith and fair dealing and violations of the Nevada Unfair Claims Practices 20 21 48 ECF No. 35 at 23–24. 22 49 Taylor & Lieberman, 681 F. App’x at 629. 23 50 Id. 51 Id. 1 Act.52 Because there is no disputed issue of material fact for trial, I also grant summary 2 judgment in favor of Great American on these remaining claims. 3 E. Discovery 4 To stave off summary judgment, Sanderina also requests additional discovery underRule 5 56.53 Rule 56(d) provides “a device for litigants to avoid summary judgment when they have not

6 had sufficient time to develop affirmative evidence.”54 To prevail on a Rule 56(d) request, the 7 movant must show: “(1) that it has set forth in affidavit form the specific facts that [she] [hopes] 8 to elicit from further discovery, (2) that the facts sought exist, and (3) that these sought-after 9 facts are ‘essential’ to resist the summary judgment motion.”55 A Rule56(d) motion “may be 10 denied where the movant has been dilatory, or where the movant seeks irrelevant, speculative, or 11 cumulative information.”56 12 In its summary-judgment opposition, Sanderina details the discovery it hopes to conduct, 13 including depositions of Great American witnesses and production of Great American’s 14 underwriting file and claims procedures. But Sanderina fails to comply with Rule 56(d) because

15 16 52 ECF No. 35 at 25. 17 53 Sanderina requests “Rule 56(f) relief” for additional discovery. ECF No. 35 at 26–27. Great American points out that the provision was moved “to subdivision (e) when Rule 56 was 18 amended in 2010.” ECF No. 37 at 17 n. 5. But “[s]ubdivision (d) carries forward without substantial change the provisions of former subdivision (f).” Fed. R. Civ. P.56(d)advisory 19 comm.note to 2010amendment. So I apply Rule 56(d). 20 54 United States v. Kitsap Physicians Serv., 314 F.3d 995, 1000 (9th Cir. 2002). 55 Family Home & Fin. Ctr., Inc. v. Fed. Home Loan Mortg. Corp., 525 F.3d 822, 827 (9th Cir. 21 2008); California v. Campbell, 138 F.3d 772, 779 (9th Cir. 1998). 56 Slama v. City of Madera, 2012 WL 1067198, *2 (E.D. Cal. March 28, 2012) (internal citations 22 omitted); see California Union Ins. Co. v. Am., 914 F.2d 1271, 1278 (9th Cir. 1990) (stating that under former Rule 56(f) a district court may deny a request for further discovery if the movant 23 has failed to pursue discovery in the past or if the movant fails to show how the information sought would preclude summary judgment). it did not attach an affidavit. And, the underwriting file, claims procedures, and Great 2|| American’s witnesses do not bear on the key issue of whether the perpetrator accessed 3|| Sanderina’s computer system. So I deny the Rule 56(d) request for additional discovery because it fails procedurally and substantively. 5 Conclusion 6 IT IS THEREFORE ORDERED that Great American’s motion for summary judgment [ECF No. 22] is GRANTED. I grant summary judgment in favor of Great American and 8|| against Sanderina on all claims. The Clerk of Court is directed to ENTER JUDGMENT 9} ACCORDINGLY and CLOSE THIS CASE. 10 Dated: September 11, 2019

US trict Judge aifer A. Dorsey 12 13 14 15 16 17 18 19 20 21 22 23