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Accident Insurance Company, Inc. v. U.S. Bank N.A.

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

July 3, 2019

Accident Insurance Company, Inc., a South Carolina Corporation Plaintiff,
v.
U.S. Bank National Association, Defendant. U.S. Bank National Association, Third-Party Plaintiff,
v.
Southport Lane Advisors, Southport Specialty Finance, Administrative Agency Services, and Alexander Chatfield Burns, Third-Party Defendants.

          ORDER AND OPINION

         Plaintiff Accident Insurance Company, Inc. (“AIC”) filed this action against Defendant U.S. Bank National Association (“U.S. Bank”) seeking monetary damages for breach of contract, breach of fiduciary duty, negligence/gross negligence, negligent misrepresentation, and civil conspiracy regarding a trust agreement. (ECF No. 154 at 21 ¶ 116-25 ¶ 141.)

         This matter is before the court pursuant to U.S. Bank's Motion in Limine to Exclude Testimony and Evidence Related to Punitive Damages, filed on June 11, 2019. (ECF No. 257.) AIC filed a Response in Opposition to the Motion on June 25, 2019. (ECF No. 262.) Upon its review, the court concludes that all of AIC's claims are subject to the jurisdiction of the Delaware Court of Chancery, and, for the reasons set forth below, GRANTS U.S. Bank's Motion in Limine to Exclude Testimony and Evidence Related to Punitive Damages (ECF No. 257).

         I. JURISDICTION

         This court has subject matter jurisdiction over this action pursuant to 28 U.S.C. § 1332, because the parties are citizens of different states and the amount in controversy exceeds $75, 000.00, exclusive of interest and costs. (See ECF No. 154.) AIC is organized and incorporated in the State of South Carolina, with its principal place of business in Lexington County, South Carolina. (ECF No. 1 at 1.) U.S. Bank is a wholly owned subsidiary of U.S. Bancorp and is a national chartered bank with its principal place of business and headquarters in the State of Minnesota. (Id.) The court is satisfied the amount in controversy in this matter exceeds $75, 000.00. (Id. at 2.)

         II. ANALYSIS

         The Trust Agreement at issue in this matter, in which AIC is the Beneficiary, and U.S. Bank is the Trustee, provides in relevant part that “[t]his Agreement shall be subject to and governed by the laws of the State of Delaware.” (ECF No. 262-1 at 9 ¶ 13.) In the instant matter, the parties dispute whether AIC can be awarded punitive damages because if the case was properly heard in Delaware's Court of Chancery, it would not have jurisdiction to assess punitive damages. (ECF No. 257 at 1.)

         A. The Parties' Arguments

         1. U.S. Bank

         In its Motion, U.S. Bank argues that AIC should be precluded from “offering any testimony, evidence, or argument concerning punitive damages because Delaware law prohibits the recovery of punitive damages on [AIC]'s claims.” (ECF No. 257 at 1.) In support of this argument, U.S. Bank asserts that exclusive jurisdiction over AIC's equitable claims would lie with Delaware's Court of Chancery, and, absent express statutory authorization, the Court of Chancery has no jurisdiction to assess punitive damages. (Id. at 2 (citing Prospect St. Energy, LLC v. Bhargava, C/A No. N13C-08-203 WCC CCLD, 2016 WL 446202, at *6 (Del. Super. Ct. Jan. 27, 2016); Cardone v. State Dep't of Corr., C/A No. 3370-VCN, 2008 WL 2447440, at *11 (Del. Ch. June 4, 2008)).) U.S. Bank further asserts that AIC's breach of fiduciary duty claim would properly be heard in the Court of Chancery because it is the quintessential equitable claim. (Id. (citing Prospect St. Energy, LLC, 2016 WL 446202, at *4).)

         Additionally, U.S. Bank argues that AIC's negligence claims would properly be heard in the Court of Chancery because, under Delaware law, negligence claims sounding in equity must be pursued in the Court of Chancery. (Id. at 3. (citing Prospect St. Energy, LLC, 2016 WL 446202, at *7).) Moreover, U.S. Bank asserts that AIC's other claims, including for breach of contract, would also properly be heard in the Court of Chancery because it would have the discretion to assume jurisdiction over the entire dispute under the equitable clean-up doctrine. (Id. at 3-4 (citing Getty Ref. & Mktg. Co. v. Park Oil, Inc., 385 A.2d 147, 149 (Del. Ch. 1978); Those Certain Underwriters at Lloyd's v. Nat'l Installment Ins. Servs., Inc., No. 19804-NC, 2007 WL 2813774, at *3 (Del. Ch. Feb. 8, 2007) (“[I]t is settled law that when equity obtains jurisdiction over some portion of the controversy it will decide the whole controversy and give complete and final relief, even though that involves the grant of a purely law remedy such as a money judgment.”) (citation omitted)).)

         2. AIC

         In its Opposition to U.S. Bank's Motion, AIC asserts that it should be allowed to recover punitive damages based on § 198 of the Restatement (Second) of Trusts, which provides that a trust beneficiary's breach of fiduciary duty claim is legal, and not equitable, if the trustee has a duty to pay money immediately and unconditionally to the beneficiary. (ECF No. 262 at 3 (citing Restatement (Second) of Trusts §§ 197 and 198 (1959)).) AIC contends that its trust agreement required U.S. Bank to immediately transfer the assets at issue in the litigation, absolutely and unequivocally, to the beneficiary. (Id.) Therefore, AIC asserts that the exception would be applied in this case and its claims would be considered as legal rather than equitable.[1] (Id. at 3-4.)

         Furthermore, AIC argues that it can still seek punitive damages in this court for breach of fiduciary duty. (Id. at 4.) In support of this argument, AIC asserts that federal procedural law is controlling and, therefore, Delaware procedural law foreclosing an award of punitive damages based on the jurisdiction of the Court of Chancery is inapplicable. (Id. at 4-5.) To this point, AIC states that it is seeking money damages and such a remedy is legal in nature. (Id. at 5.) Thus, AIC surmises that it is allowed to seek punitive damages under federal procedural law. (Id.)

         Additionally, AIC argues that the clean-up doctrine is applied as a matter of judicial discretion and asserts that the Court of Chancery would not apply the doctrine in this case. (Id. at 6.) In this regard, AIC asserts that the court may refuse to apply Delaware law relating to punitive damages if its application is offensive to the public policy of South Carolina and prejudicial to the general interests of its citizens. (Id. at 8. (citing Rauton v. Pullman Co., 191 S.E. 416, 422 (S.C. 1937)).) AIC contends that South Carolina holds trustees to the highest of fiduciary obligations and protects its citizen beneficiaries by providing a wide range of ...


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