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Companion Property and Casualty Insurance Co. v. U.S. Bank National Association

United States District Court, D. South Carolina, Columbia Division

November 16, 2016

Companion Property and Casualty Insurance Company n/k/a Sussex Insurance Company, Plaintiff,
U.S. Bank National Association, Defendant. U.S. Bank National Association, Third-Party Plaintiff,
Redwood Reinsurance SPC, Ltd.; Southport Specialty Finance; Southport Lane Advisers; Administrative Agency Services; Alexander Chatfield Burns; and Aon Insurance Managers Cayman Ltd., Third-Party Defendants. Alexander Chatfield Burns, Fourth-Party Plaintiff,
U.S. Bank Trust National Association, Fourth-Party Defendant.


         This case concerns which party or parties should bear the loss of value in trust accounts that served as security for a reinsurance program occasioned by the substitution into the trust accounts of allegedly worthless and otherwise defective assets. In separately filed motions to dismiss the complaints against them (ECF Nos. 171, 192), Third-Party Defendant Aon Insurance Managers (Cayman) Ltd. (“Aon”) and Fourth-Party Defendant U.S. Bank Trust National Association (“USBT”) challenge, among other things, the court's personal jurisdiction over them in this matter, pursuant to Fed.R.Civ.P. 12(b)(2). For the reasons that follow, the court concludes that Aon and USBT are not subject to the court's personal jurisdiction, GRANTS their motions to dismiss, and DISMISSES the complaints against them.


         Companion Property and Casualty Insurance Company (“Companion”) participated in a fronted insurance program (the “Program”) with Redwood Reinsurance SPC, Ltd. (“Redwood”) and Dallas National Insurance Company (“Freestone”), two reinsurance companies. In a fronted insurance program, the reinsurer-here, Redwood and Freestone-bears the actual risk of program performance. The insurance company-here, Companion-receives a fee for allowing its name and paper to be used as the front. As part of the Program, reinsurance collateral trusts established for Companion's benefit under the reinsurance agreements secured Redwood's and Freestone's reinsurance obligations to Companion.

         U.S. Bank National Association (“U.S. Bank”)[2] was substituted as a successor trustee on Companion's reinsurance trust agreements with Redwood and Freestone under two separate trust agreements, the Redwood Trust Agreement and the Freestone Trust Agreement (collectively the “Trust Agreements”). The Trust Agreements named Redwood and Freestone, respectively, as grantors, U.S. Bank as trustee, and Companion as beneficiary. Under the terms of the Trust Agreements, “[Redwood or Freestone] may direct [U.S. Bank] to substitute Assets of comparable value for other Assets presently held in the Trust Account[s] with written notification to [Companion] of the substitute Assets. [U.S. Bank] shall comply with any such direction.” (ECF No. 50-2 § 4(c).) Under the Trust Agreements, Redwood and Freestone promised that the assets: (1) consisted only of “Eligible Securities” as defined by contract; (2) were in such form that Companion could transfer and dispose of any assets without the consent of anyone else; and (3) at all times had a value sufficient to cover 125% of Redwood's and Freestone's respective reinsurance obligations.

         According to U.S. Bank's pleadings, Alexander Chatfield Burns (“Burns”) founded a number of corporate entities, to which U.S. Bank refers collectively as “Southport, ”[3] which acquired Redwood in 2012 and Freestone in 2013. U.S. Bank alleges that Southport Lane Advisors (“SLA”), named as a third-party defendant, managed the asset allocation strategies, such as determining which assets to buy and sell and in what amounts, for all of the Southport companies, including Redwood and Freestone. U.S. Bank asserts that Burns was, at all times relevant to this action, Southport's beneficial owner, controlling person, and chief strategist, essentially treating SLA and other Southport entities, including Redwood and Freestone, as his alter egos.

         On March 20, 2015, Companion filed a complaint in this court against U.S. Bank, alleging that, between May 2013 and January 2014, U.S. Bank, as trustee, approved and permitted the substitution of assets for various investments for the Freestone and Redwood trust accounts. Companion asserts that U.S. Bank is liable for these substitutions because certain assets in the trust accounts violated the terms of the Trust Agreements. Specifically, Companion alleges that certain Southport affiliate securities held in the trust accounts were not “Eligible Securities” under the Trust Agreements, were not freely negotiable, and/or had little to no value. Companion makes these same allegations with regard to the acquisition of Destra Targeted Income Unit Investment Trust (“Destra UITs”) units for the trust accounts.

         On January 29, 2016, U.S. Bank filed an initial third-party complaint against Redwood, several Southport entities, Administrative Agency Services, and Burns. Although U.S. Bank denies Companion's claims, it argues that, if Companion's allegations are proven at trial, Third-Party Defendants, including Burns, are liable to Companion. First, U.S. Bank alleges Redwood and Freestone-either directly or through SLA-directed U.S. Bank's purchases of securities and other membership interests in various companies and that SLA falsely represented the values of the securities to be purchased. Second, U.S. Bank alleges that Redwood and Freestone caused the Redwood and Freestone trust accounts to acquire Destra UIT units from June 2013 through January 2014. As with the securities and ownership interests, U.S. Bank alleges Redwood and Freestone directed its purchases of units in the Destra UITs-directly or through SLA-from June 2013 through January 2014 and falsely represented the values of the units to be purchased. With respect to Burns, U.S. Bank alleges that he dominated and controlled Redwood, Freestone, and the Southport entities and directed or participated in all of the relevant conduct. Redwood, the Southport entities, Administrative Agency Services, and Burns all moved to dismiss the third-party complaint, and the court dismissed all claims as to those parties except for U.S. Bank's claim for contribution.

         On June 10, 2016, following the previous order partially dismissing its initial third-party complaint, U.S. Bank filed an amended third-party complaint, this time including Aon as a defendant to its renewed contribution claim. (ECF No. 131 at 1, 5, 35-37.) U.S. Bank alleges that, when Southport acquired Redwood, Burns was appointed as Redwood's director, and Aon was appointed as its corporate secretary and, “as corporate secretary[, ] signed the Redwood Trust Agreement.” (Id. at 11, 14-15.) Aon was “identified as [an] authorized signer[] on the Redwood Trust Account, ” which authorized it “on [Redwood's] behalf to direct U.S. Bank to take action” regarding the trust account. (Id. at 18.) Aon also, “[a]s Redwood's [c]orporate [s]ecretary, ” signed an investment management agreement between SLA and Redwood that “authorized SLA to direct [U.S. Bank] on Redwood's behalf and required SLA to manage all assets in accordance with South Carolina insurance law.” (Id. at 19.) “Aon[, ] as [Redwood's] [c]orporate [s]ecretary . . ., directed U.S. Bank to purchase [Destra UIT units] into the Redwood Trust Account[] or to deposit units into the Redwood Trust Account . . . .” (Id. at 27.) Aon did so by signing three investment orders directing U.S. Bank to make the purchases or deposits and, U.S. Bank alleges, these investment orders contained valuations of the units that were overinflated. (Id. at 27-28.) Based on this conduct, U.S. Bank alleges that, if it is found liable to Companion, Aon would also be liable to Companion, and Aon would be liable in contribution to U.S. Bank. (Id. at 28-29, 35-37.)

         In asserting the court's personal jurisdiction over Aon, U.S. Bank alleges that Aon's “conduct and connections with South Carolina” amounted to “sufficient minimum contacts” with the state that personal jurisdiction would be warranted. (Id. at 9.) U.S. Bank listed the following conduct and connections in support of personal jurisdiction:

(i) Aon was an Officer and Company Secretary of Redwood and signed the Redwood Trust Agreement on behalf of Redwood. Aon knew that Redwood had purposefully availed itself of South Carolina law by entering into the Redwood Trust Agreement with Companion, a South Carolina corporation and a South Carolina-regulated insurance company, and consenting to be governed by South Carolina law and the jurisdiction of courts in South Carolina[.]
(ii) Under the Redwood Trust Agreement, which is governed by South Carolina law and has a South Carolina insurance company as a beneficiary, Aon was listed as the contact for all notices, directions, requests or demands, acknowledgements and other communications required or permitted to be given or made. Aon executed the Redwood Trust Agreement on behalf of Redwood as Redwood's corporate secretary.
(iii) Aon employees were authorized signers on the Redwood Trust Account, which is governed by South Carolina law and has a South Carolina insurance company as the beneficiary.
(iv) Aon instructed U.S. Bank to contribute assets for deposit to the Redwood Trust Account, which is governed by South Carolina law and has a South Carolina insurance company as the beneficiary.

(Id. at 9-10 (internal citations and parenthetical omitted).)

         On July 8, 2016, Burns filed a fourth-party complaint against USBT, asserting a claim for contribution. (ECF No. 143 at 1-2, 10.) Burns alleges that, if it is determined that he is liable to Companion, then USBT is liable to him to the extent that USBT is responsible for loss in the trust accounts' value stemming from the substitution into the accounts of overinflated Destra UIT units. (Id. at 2, 10.) In support of this claim, Burns alleges that USBT was named as the trustee and custodian of the Destra UITs at issue. (Id. at 7.) USBT “was obligated to calculate the assets of the Destra UITs and to report to unit holders the value of the unit[s], ” “agreed . . . to calculate each series value and unit value of each series, ” and “agreed . . . to provide periodic statements of the transactions [for each series of the Destra UITs] and the assets on hand.” (Id. at 8-9.) Burns alleges that USBT “breached its duty to Redwood and Freestone by [at least negligently] failing to accurately calculate and state the fair market value of the Destra UITs and by [at least negligently] permitting its affiliate, U.S. Bank, to value and substitute assets into the [trust accounts] before first determining that the fair market value of the Destra UITs was not less than the assets being replaced.” (Id. at 9-10.)

         Burns' fourth-party complaint does not state whether he asserts that the court has general or specific personal jurisdiction over USBT. He alleges, however, that USBT “is trustee and custodian to the Destra UITs, ” and that, in this capacity, USBT “deposited [Destra UIT units] into the [trust accounts.]” (Id. at 3.) He also alleges that “it was sufficiently foreseeable that the contractual forum clause [in the Trust Agreements] would apply to [USBT]” because “[a]s trustee and custodian of the Destra UITs, [USBT] sold or otherwise transferred the Destra UITs into the Trust Accounts which are governed under South Carolina law and which have a South Carolina insurance company as the beneficiary.” (Id.) Thus, Burns asserts that USBT “has sufficient minimum contacts with South Carolina” so that the court's exercise of personal jurisdiction over USBT would be warranted. (Id.)

         On August 17, 2016, Aon filed one of the instant motions to dismiss, seeking dismissal of U.S. Bank's third-party complaint as to it because, pursuant to Fed.R.Civ.P. 12(b)(2) and (6), the court lacks personal jurisdiction over it, and the amended third-party complaint fails to state a claim for relief for which the court could grant relief. (ECF Nos. 171, 171-1.) Regarding personal jurisdiction, U.S. Bank has disclaimed any reliance on general jurisdiction and, instead, asserts only specific jurisdiction. (See ECF No. 213 at 10 n.5.) There is no dispute that Aon is incorporated, and has its principal place of business, in the Cayman Islands, a British Overseas Territory, and not in South Carolina. See Boren Found. v. HHH Inv. Trust, 295 F. App'x 151 (9th Cir. 2008) (citing JPMorgan Chase Bank v. Traffic Stream (BVI) Infrastructure Ltd., 536 U.S. 88, 90 (2002)).

         On August 30, 2016, USBT filed the other instant motion to dismiss, seeking dismissal of Burns' fourth-party complaint for lack of personal jurisdiction and for failure to state a claim upon which relief could be granted under Rule 12(b)(2) and (6). (ECF No. 192, 192-1.) However, unlike the other movant, Burns asserts that the court has personal jurisdiction over USBT under both general and specific jurisdiction. (See ECF No. 219 at 5-16.) Nevertheless, there is no dispute that USBT is incorporated, and has its principal place of business, in Delaware and not South Carolina. (See ECF No. 143 at 2.)

         On November 4, 2016, after the parties' briefs and supporting affidavits, along with exhibits, had been submitted, the court heard arguments from the parties regarding the motions to dismiss. These motions are now ripe for disposition.


         When a defendant challenges the court's personal jurisdiction under Rule 12(b)(2), the plaintiff has “the burden of proving” that jurisdiction exists “by a preponderance of the evidence.” In re Celotex Corp., 124 F.3d 619, 628 (4th Cir. 1997). “If the existence of jurisdiction turns on disputed factual questions[, ] the court may resolve the challenge on the basis of a separate evidentiary hearing, or may defer ruling pending receipt at trial of evidence relevant to the jurisdictional question.” Combs v. Bakker, 886 F.2d 673, 676 (4th Cir. 1989). “[W]hen . . . a district court rules on a Rule 12(b)(2) motion without conducting an evidentiary hearing or without deferring ruling pending receipt at trial of evidence relevant to the jurisdictional issue, but rather relies on the complaint and affidavits alone, ‘the burden on the plaintiff is simply to make a prima facie showing of sufficient jurisdictional basis in order to survive the jurisdictional challenge.” In re Celotex Corp., 124 F.3d at 628; see also New Wellington Fin. Corp. v. Flagship Resort Dev. Corp., 416 F.3d 290, 294 (4th Cir. 2005) (noting that a plaintiff need only make a prima facie showing of jurisdiction when the court does not conduct an evidentiary hearing). In deciding whether plaintiff has met this burden, the court construes all disputed facts and draws all reasonable inferences from the proofs in favor of jurisdiction. Carefirst of Md., Inc. v. Carefirst Pregnancy Ctrs., Inc., 334 F.3d 390, 396 (4th Cir. 2003); Mylan Labs., Inc. v. Akzo, N.V., 2 F.3d 56, 60 (4th Cir. 1993). In ruling on a motion to dismiss for lack of personal jurisdiction, the court may consider evidence outside of the pleadings, such as affidavits and other evidentiary materials, without converting the motion to dismiss into a motion for summary judgment. Magic Toyota, Inc. v. Se. Toyota Distribs., Inc., 784 F.Supp. 306, 310 (D.S.C. 1992).

         A federal court may exercise personal jurisdiction over a defendant in the manner provided by state law. Fed.R.Civ.P. 4(k)(1)(A); ESAB Grp., Inc. v. Centricut, Inc., 126 F.3d 617, 623 (4th Cir. 1997). “Thus, for a district court to assert personal jurisdiction over a nonresident defendant, two conditions must be satisfied: (1) the exercise of jurisdiction must be authorized under the state's long-arm statute; and (2) the exercise of jurisdiction must comport with the due process requirements of the Fourteenth Amendment. Christian Sci. Bd. of Dirs. of the First Church of Christ v. Nolan, 259 F.3d 209, 215 (4th Cir. 2001).

         South Carolina's long arm statute provides as follows:

A court may exercise personal jurisdiction over a person who acts directly or by an agent as to a cause of action arising from the person's: (1) transacting any business in this State; (2) contracting to supply services or things in the State; (3) commission of a tortious act in whole or in part in this State; (4) causing tortious injury or death in this State by an act or omission outside this State if he regularly does or solicits business, or engages in any other persistent course of conduct, or derives substantial revenue from goods used or consumed or services rendered in this State; (5) having an interest in, using, or possessing real property in this State; (6) contracting to insure any person, property, or risk located within this State at the time of contracting; (7) entry into a contract to be performed in whole or in part by either party in this State; or (8) production, manufacture, or distribution of goods with the reasonable expectation that those goods are to be used or consumed in this State and are so used or consumed.

S.C. Code Ann. § 36-2-803(A) (2005). “South Carolina's long-arm statute has been interpreted to reach the outer bounds permitted by the Due Process Clause.” ESAB Grp., 126 F.3d at 623.

         Therefore, the appropriate question for the court in considering a personal jurisdiction defense raised by an out-of-state defendant is whether that defendant has “minimum contacts with [South Carolina] such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.” Id. (quoting Int'l Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (exercise of jurisdiction over a nonresident defendant comports with due process if the defendant has “minimum contacts” with the forum state, such that to require the defendant to defend its interests in that state “does not offend traditional notions of fair play and substantial justice.”)); see Callum v. CVS Health Corp., 137 F.Supp.3d 817, 834 (D.S.C. 2015) (“Because the South Carolina long-arm statute is coextensive with the Due Process Clause, the sole question on a motion to dismiss for lack of personal jurisdiction is whether the exercise of personal jurisdiction would violate due process.” (citing Tuttle Dozer Works, Inc. v. Gyro-Trac (USA), Inc., 463 F.Supp.2d 544, 547 (D.S.C. 2006); Cockrell v. Hillerich & Bradsby Co., 611 S.E.2d 505, 508 (2005))).

         Personal jurisdiction may arise through specific jurisdiction, based on the conduct alleged in the suit, or through general jurisdiction. CFA Inst. v. Inst. of Chartered Fin. Analysts of India, 551 F.3d 285, 292 n. 15 (4th Cir. 2009); ALS Scan, Inc. v. Digital Serv. Consultants, Inc., 293 F.3d 707, 711 (4th Cir. 2002). Under general jurisdiction, a defendant's contacts or activities in the forum state are not the basis for the suit, but it may be sued in this court “for any reason, regardless of where the relevant conduct occurred, ” because its activities in South Carolina are “continuous and systematic.” CFA Inst., 551 F.3d at 292 n.15. These activities must be “so substantial and of such a nature as to justify suit against [a defendant] on causes of action arising from dealings entirely distinct from those activities.” Int'l Shoe Co., 326 U.S. at 318. When the defendant is a corporation, “general jurisdiction requires affiliations ‘so continuous and systematic as to render [the foreign corporation] essentially at home in the forum State, ' i.e., comparable to a domestic enterprise in that State.” Daimler AG v. Bauman, __U.S.__, 134 S.Ct. 746, 758 n.11 (2014) (internal citation and quotation marks omitted) (quoting Goodyear Dunlop Tires Operations, S.A. v. Brown, 576 U.S. 915, 919 (2011)).

         Under specific jurisdiction, a defendant may be sued in this court if the litigation results from alleged injuries that arose out of or related to their contacts with South Carolina and those contacts were sufficient. See, e.g., Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414 (1984). To determine whether specific jurisdiction exists, courts employ a “minimum contacts” analysis that examines “(1) the extent to which the defendant ‘purposefully avail[ed]' itself of the privilege of conducting activities in the State; (2) whether the plaintiffs' claims arise out of those activities directed at the State; and (3) whether the exercise of personal jurisdiction would be constitutionally ‘reasonable.'” ALS Scan, Inc., 293 F.3d at 712. Because this three-part inquiry “‘focuses on the relationship among the defendant, the forum, and the litigation, '” the Supreme Court has emphasized “[t]wo related aspects of this necessary relationship.” Walden v. Fiore, __U.S.__, 134 S.Ct. 1115, 1121-22 (2014) (quotation marks omitted) (quoting Keeton v. Hustler Magazine, Inc., 465 U.S. 770, 775 (1984)). “First, the relationship must arise out of contacts that the ‘defendant himself' creates with the forum State.” Id. at 1122 (quoting Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475, (1985)). “Second, [the] ‘minimum contacts' analysis looks to the defendant's contacts with the forum State itself, not the defendant's contacts with persons who reside there.” Id.

         III. ANALYSIS

         Having reviewed U.S. Bank's third-party complaint against Aon and Burns' fourth-party complaint against USBT, the court concludes that U.S. Bank and Burns have failed to meet their respective burdens to show that Aon and USBT are subject to personal jurisdiction in this court.

         The court begins its analysis with USBT's motion to dismiss before turning to Aon's motion to dismiss.

         A. USBT's motion to dismiss Burns' fourth party complaint

         1. General jurisdiction

         a. The parties' arguments.

         In its motion to dismiss, USBT, relying on Daimler AG, argues that it is not subject to the court's general jurisdiction because it is neither incorporated nor headquartered in South Carolina and because it is not otherwise “at home” in South Carolina.[4](ECF No. 192-1 at 9.) USBT contends that, to be deemed otherwise at home in South Carolina, Burns would have to demonstrate that USBT's in-state presence is exceptional and that he has failed to make this showing. (Id.)

         Although, in his complaint, Burns does not appear to premise this court's personal jurisdiction over USBT on a theory of general jurisdiction (see ECF No. 143 at 3), he does so expressly in his response to USBT's motion to dismiss (see ECF No. 219 at 5-8). Although he concedes that USBT does not fall under the paradigm examples for general jurisdiction-it is not incorporated or headquartered in South Carolina-Burns asserts that USBT is at home in South Carolina, for purposes of the test enunciated in Daimler AG, because its business contacts with South Carolina are so continuous and systematic as to render it essentially at home in South Carolina. (ECF No. 219 at 6.) In support of this assertion, Burns presents evidence, in the form of affidavits and supporting exhibits attached to his response, which, he claims, demonstrate that USBT is a co-trustee of “several large residential mortgage trusts, ” and, in this role, “lend[s] to South Carolina citizens, ” “handles conveyances of, and perfects and protects, security interests in, rights to countless South Carolina properties, ” “administ[ers] on behalf of lenders, prepar[es], negotiate[es] and record[s] interests in South Carolina real property, ” “handles defaults and foreclosures, preparing and ...

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