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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

August 23, 2017

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

          ORDER AND OPINION

         Before the court are two motions, pursuant to Fed.R.Civ.P. 42(b), one filed by Plaintiff Companion Property and Casualty Insurance Company (“Companion”) (Motion to Sever Third and Fourth Party Claims, ECF No. 279), and one filed by Third-Party Defendant Alexander Chatfield Burns (“Burns”) (Motion to Bifurcate Trial, ECF No. 329) (collectively, motions for separate trials), both requesting the court to order separate trials, one trial for Companion's claims against U.S. Bank National Association (“U.S. Bank”) and U.S. Bank's counterclaims against Companion and a second trial for all remaining third-party claims by U.S. Bank against Redwood Reinsurance SPC (“Redwood”), Ltd., Southport Specialty Finance, Southport Lane Advisors, Administrative Agency Services, and Burns (together “Third-Party Defendants”) and Burns' counterclaim against U.S. Bank and crossclaim against Companion. (ECF Nos. 279 & 329.) For the reasons that follow, the court GRANTS both motions for separate trials.

         I. RELEVANT FACTUAL AND PROCEDURAL BACKGROUND[1]

         Companion participated in a fronted insurance program with two reinsurance companies, and, as part of the program, reinsurance collateral trusts established for Companion's benefit under the reinsurance agreements secured the reinsurance companies' obligations to Companion. In 2012, U.S. Bank was substituted as a successor trustee on these reinsurance agreements through two separate trust agreements, which named U.S. Bank as trustee and Companion as beneficiary. Under the terms of the trust agreements, the reinsurance companies “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).) Further, under the trust agreements, the reinsurance companies 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 the reinsurance companies' respective reinsurance obligations.

         According to U.S. Bank's pleadings, Third-Party Defendant Burns founded a number of corporate entities, to which U.S. Bank refers collectively as “Southport, ” which acquired the reinsurance companies in 2012 and 2013. U.S. Bank alleges that Third-Party Defendant Southport Lane Advisors (“SLA”) 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 the two acquired reinsurance companies. 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 the reinsurance companies, 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 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.

         In its January 15, 2016 answer, U.S. Bank denied that the trust agreements imposed the obligations on it that Companion asserts in its complaint and denied that its actions breached any obligations imposed by the trust agreements. (Compare ECF No. 1 ¶¶ 25, 30, 37, 45 with, ECF No. 46 ¶¶ 25, 30, 37, 45.) U.S. Bank's answer also asserted numerous affirmative defenses against Companion's claims, including, as relevant here, that Companion's injuries were caused by Companion's own acts or omissions or by the acts or omissions of Third-Party Defendants. (ECF No. 46 ¶¶ 79-80.) U.S. Bank also asserted counterclaims for breach of contract and negligent misrepresentation against Companion based on the allegation that Companion withdrew cash and securities from the trust accounts for purposes other than those permitted by the trust agreements while falsely representing that the withdrawals were necessary to fulfill the reinsurance companies' obligations under the reinsurance agreements. (Id. at 13-22.)

         On January 29, 2016, U.S. Bank filed a third-party complaint against Third-Party Defendants.[2] U.S. Bank argues that, if Companion's allegations are proven at trial, Third-Party Defendants are liable to Companion. First, U.S. Bank alleges that the reinsurance companies- 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 the reinsurance companies caused the trust accounts to acquire ineligible securities, directed U.S. Bank to purchase the ineligible securities, and falsely represented the values of the securities. With respect to Burns, U.S. Bank alleges that he dominated and controlled several of the corporate Third-Party Defendants and directed or participated in all of the relevant conduct.

         In his answer to U.S. Bank's third-party complaint against him, Burns asserted a number of counterclaims against U.S. Bank, including, as relevant here, a claim for contribution premised on the allegation that, if, in some future litigation, Burns is found liable to Companion, then he is entitled to contribution from U.S. Bank. Burns also asserted a number of crossclaims against Companion, including, as relevant here, a claim for contribution or comparative negligence.[3] (ECF No. 139 at 43 to 65.) The contribution crossclaim appears to be premised on the assertion that, if Burns is found liable to U.S. Bank, then he is entitled to recover against Companion.[4] (Id. at 56.)

         After disposing of various motions to dismiss (see ECF Nos. 41, 118, 268 & 280), a number of claims remain pending, which, for purposes of this motion, may be placed in one of two groups. In the first group are Companion's claims against U.S. Bank for breach of contract, breach of fiduciary duty, negligence or gross negligence, and negligent misrepresentation and U.S. Bank's counterclaims against Companion for breach of contract and negligent misrepresentation. In the second group are U.S. Bank's third-party claims against Third-Party Defendants for contribution, U.S. Bank's third-party claim against Third-Party Defendant Redwood for contractual indemnification, Burns' counterclaim against U.S. Bank for contribution, [5] and Burns' crossclaim against Companion for contribution (together, the “third-party claims”).[6]

         On November 14, 2016, Companion filed one of the instant motions, asking the court, pursuant to Rule 42(b) to order separate trials, one to first adjudicate the claims between Companion and U.S. Bank and another to adjudicate the third-party claims, if Companion prevails on its claims in the first trial. (ECF No. 279.) U.S. Bank opposes the motion. (ECF No. 294.) Burns joined in Companion's motion but “explicitly reserve[d] the right to file a separate motion to sever the third-party claims in whole or in part, citing the same, similar and/or different grounds.” (ECF No. 292.)

         On January 25, 2017, the court noted in a text order that, though Companion and U.S. Bank had waived their right to a jury on the first-party claims, a jury trial has been demanded for the third-party claims. (ECF No. 324.) Accordingly, the court directed Companion and U.S. Bank to file supplemental briefs addressing “how the fact that the primary claims are set to be tried to the court and that the third-party claims are set to be tried to a jury affects the analysis of [] Companion's Rule 42(b) motion.” (Id.) In the text order, the court also gave Burns the choice of briefing the same issue or relying on the briefing of another party. (Id.)

         On February 3, 2017, Burns filed his own motion to bifurcate the trial, which included responsive briefing to the court's text order. (ECF No. 329.) Both U.S Bank and Companion submitted their own responsive briefs, arguing that the presence of a jury strengthens their original arguments in favor of consolidation and bifurcation, respectively. (ECF Nos. 331 & 332.) Thereafter, on February 17, 2017, Companion and U.S. Bank filed responses to Burns' motion (ECF Nos. 336 & 337), and Burns filed a reply (ECF No. 374).

         II. LEGAL STANDARD

         Rule 42(b) provides that “[f]or convenience, to avoid prejudice, or to expedite and economize, the court may order a separate trial of one or more separate issues, claims, crossclaims, counterclaims, or third-party claims.” Fed.R.Civ.P. 42(b). It further directs that, “[w]hen ordering a separate trial, the court must preserve any federal right to a jury trial.” District courts have broad discretion in deciding whether to bifurcate claims for trial. See Sentry Select Ins. Co. v. Guess Farm Equip., Inc., No. 5:12-03504-JMC, 2013 WL 5797742, at *4 (D.S.C. Oct. 25, 2013) (citing Dixon v. CSX Transp., Inc., 990 F.2d 1440, 1443 (4th Cir. 1993); White v. Bloomberg, 501 F.2d 1379 (4th Cir. 1974)); see also 9A Charles Alan Wright et al., Federal Practice and Procedure § 2388 (3d ed. 2008). Whether bifurcation should be ordered is to be determined based on the facts and circumstances of each case. Although bifurcation should not be ordered routinely and should remain an exception to the normal practice of all claims and issues being tried together, see 8 James Wm. Moore et al., Moore's Federal Practice § 42.20[4][a] (3d ed. 2016); 9A Wright et al., supra, § 2388, bifurcation is not uncommon in certain types of cases, see F&G Scrolling Mouse, L.L.C. v. IBM Corp., 190 F.R.D. 385, 387 (M.D. N.C. 1999); 9A Wright et al., supra, § 2390.

         “The party seeking bifurcation has the burden of proving that bifurcation will satisfy the expressed objectives of the rule, including furtherance of convenience, avoidance of prejudice, or enhancement of expedition and economy.” 8 Moore et al., supra, § 42.20[8]; see Sentry Select, 2013 WL 5797742, at *4; 9A Wright et al., supra, § 2388. However, a court may order separate trials under Rule 42(b) even in the absence of a motion. See 8 Moore et al., supra, § 42.20[5][a]; 9A Wright et al., supra, ยง 2388. Although a decision on a motion for separate trials generally turns on whether bifurcation would satisfy the expressed objectives of Rule 42(b), the Fourth Circuit has held that a court abuses its discretion when its decision, even if otherwise serving those ...


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