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The Episcopal Church in South Carolina v. The Church Insurance Company of Vermont

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

November 18, 2019

The Episcopal Church in South Carolina, Plaintiff,
v.
The Church Insurance Company of Vermont, Defendant. The Church Insurance Company of Vermont, Third-Party Plaintiff,
v.
Episcopal Church of the Redeemer a/k/a Church of the Redeemer et ah, Third-Party Defendants. The Church Insurance Company of Vermont, Plaintiff,
v.
Episcopal Church of the Redeemer a/k/a Church of the Redeemer et ah, Defendants.

          ORDER AND OPINION

          Richard Mark Gergel, United States District Court Judge.

         This matter is before the Court on two related cases and various cross-motions: The Church Insurance Company of Vermont's ("CIC-VT") Motion to Consolidate Cases (Dkt. Nos. 6, 7 in 2:19-1672; Dkt. Nos. 7, 10 in 2:19-1713), CIC-VT's Second Motion to Consolidate Cases (Dkt. No. 11 in 2:19-1672), CIC-VT's Motion for Joinder (Dkt. No. 12 in 2:19-1672) and The Episcopal Church in South Carolina's Motion to Dismiss CIC-VT's Counterclaim and Third-Party Complaint (Dkt. No. 15 in 2:19-1672; Dkt. No. 12in2:19-1713).[1] For the reasons set forth below, the Court grants TECSC's motion to dismiss and denies as moot the motions for consolidation and joinder. The Court also orders briefing on TECSC's standing to bring claims for breach of contract, bad faith, breach of fiduciary duty and aiding and abetting a breach of fiduciary duty.

         I. Background

         This case arises out of a schism in 2012 in the Historic Diocese, originally known as the "Protestant Episcopal Church in the State of South Carolina," in which certain members and parishes sought to dissociate from The Episcopal Church ("TEC"), a nationwide hierarchical church. As alleged, CIC-VT is a captive insurance company for TEC, its parent company. (1672 Dkt. No. 1 at ¶¶ 7 - 11.) The insurance company was created to provide insurance to TEC and its "provinces, dioceses, parishes, missions, agencies, institutions and other entities connected with the Church[.]" (Id. at ¶ 12.) Pursuant to its mission, CIC-VT issued a Master Policy to The Episcopal Church in South Carolina ("TECSC"), the associated diocese of TEC in South Carolina. (Id. at ¶¶ 13 - 20.) Multiple parishes within TECSC were included under the Master Policy as participants and provided a certificate number. (Id. at ¶ 16; 1713 Dkt. No. 1 at ¶ 21.)

         In 2012, a group, now calling themselves the Anglican Diocese of South Carolina, (the "Disassociated Diocese") purported to disassociate from TECSC and multiple parishes within TECSC similarly purported to disassociate from TECSC and joined the new Disassociated Diocese ("Disassociated Parishes.") Notably, multiple Disassociated Parishes were included as participants under the Master Policy issued by CIC-VT and are included here as Third-Party Defendants ("Third-Party Disassociated Parishes"). (1713 Dkt. No. 1 ¶ 21.)

         In 2013, the Disassociated Diocese and Disassociated Parishes sued TECSC and TEC in state court, focusing largely on state property claims. (1672 Dkt. No. 1 at ¶ 28.) TEC and TECSC filed counterclaims and, ultimately, on August 2, 2017, the South Carolina Supreme Court held that TEC owned most of the property in dispute and found that twenty-eight of the Disassociated Parishes held real and personal property in trust for TEC. Protestant Episcopal Church in the Diocese of S.C. v. Episcopal Church, 421 S.C. 211, 265, 806 S.E.2d 82, 111 (2017), reh'g denied (Nov. 17, 2017), cert, denied sub nom. Protestant Episcopal Church in the Diocese of S.C v. The Episcopal Church, 138 S.Ct. 2623 (2018). That case has since been remitted to the Dorchester County Circuit Court.

         Also in 2013, TECSC filed a complaint against the Disassociated Diocese in this Court, alleging that the Disassociated Diocese and Disassociated Parishes were infringing and diluting TEC and TECSC's trademarks and engaging in false advertising. (1713 Dkt. No. 1 at ¶ 20.) This Court has since entered judgment in favor of TEC and TECSC in that case, and the case is currently on appeal. See No. 5:13-cv-587, Dkt. Nos. 667, 671, 673.

         Throughout these litigations, CIC-VT has provided a defense to the Third-Party Disassociated Parishes included under the Master Policy. Initially, CIC-VT denied coverage to some of the Disassociated Parishes as they were not "affiliates" of TEC, and some Disassociated Parishes sued CIC-VT in this District, seeking, in part, a declaratory judgment that CIC-VT had a duty to defend the Disassociated Parishes against the counterclaims in the state court action. (Id. at ¶ 44 - 44.) See No. 2:15-cv-2590-PMD, Dkt. No. 1 at ¶¶ 28 - 29.[2] However, the case was ultimately resolved in later 2015 by a joint stipulation of dismissal with prejudice. (1672 Dkt. No. 1 at ¶ 43) See No. 2:15-cv-2590-PMD, Dkt. No. 30. Furthermore, CIC-VT acknowledges in their Complaint in the No. 2:19-cv-l 713 that they have been "providing the Disassociated Parishes a defense in the Underlying [Federal] Action under a reservation of rights pursuant to the applicable Policy issued to each of them" (1713 Dkt. No. 1 at ¶ 29.)

         On June 11, 2019, TECSC brought claims against CIC-VT for breach of contract, bad faith, breach of fiduciary duty and aiding and abetting a breach of fiduciary duty. (1672 Dkt. No. 1.) The Complaint alleges, generally, that CIC-VT breached its contractual duties and engaged in bad faith and a breach of fiduciary duty by funding the litigation efforts of the Third-Party Parishes against TEC, CIC-VT's parent company, and TECSC, the intended beneficiary under the Master Policy. (Id.) The Complaint focuses on the allegation that, under South Carolina law and CIC-VT's corporate charter, a captive insurance company may not insure any risks other than those of its parent and affiliated companies, and that TECSC was the primary and intended beneficiary under the Master Policy. (Id. at ¶¶ 10, 16.) TECSC alleges that by funding the litigation efforts of no longer affiliated parishes, CIC-VT is liable to TECSC for the foreseeable damages from the litigation, such as lost insurance proceeds, lost value of TECSC property, and the increased costs of legal proceedings over six years. (Id. at ¶¶ 52, 58, 64, 71.)

         On June 14, 2019, CIC-VT filed a second, related case against TECSC and the Third-Party Disassociated Parishes seeking a declaratory judgment regarding whether the Disassociated Parishes are covered under the Master Policy, and whether CIC-VT has an indemnity obligation to the Third-Party Disassociated Parishes. (1713 Dkt. No. 1.) Shortly thereafter, CIC-VT additionally filed a third-party complaint in the 1672 Action filed by TECSC seeking the same declaratory judgment and seeking to join the Third-Party Disassociated Parishes into the case. (1672 Dkt. Nos. 10-12.)

         This matter now comes before the Court on motions filed in both cases: First, TECSC moves to dismiss CIC-VT's Counterclaim and Third-Party Complaint (1672 Dkt. No. 15; 1713 Dkt. No. 12), a motion filed in both cases, arguing that CIC-VT's claims are barred under a variety of legal and equitable grounds precluding consideration of the claims and because CIC-VT is not authorized to transact business in South Carolina; Second, CIC-VT moves to consolidate the cases, arguing they share common issues of fact and law (1672 Dkt. Nos. 6, 7, 11; 1713 Dkt. Nos. 7, 10); Finally, CIC-VT moves to join the Third-Party Disassociated Parishes in the action filed by TECSC. (1672 Dkt. No. 12.) Each has been fully briefed by the Parties, including with a Response in opposition to consolidation and joinder filed by the Third-Party Disassociated Parishes. (1672 Dkt. No. 46; 1713 Dkt. No. 41.)

         For the reasons set forth below, the Court finds that CIC-VT's action and answer must be dismissed as they have failed to follow necessary procedures for filing a case in South Carolina, and the Court orders briefing on issues of standing.

         II. Legal Standard

         Rule 12(b)(6) of the Federal Rules of Civil Procedure permits the dismissal of an action if the complaint fails "to state a claim upon which relief can be granted." Such a motion tests the legal sufficiency of the complaint and "does not resolve contests surrounding the facts, the merits of the claim, or the applicability of defenses.... Our inquiry then is limited to whether the allegations constitute 'a short and plain statement of the claim showing that the pleader is entitled to relief.'" Republican Party of N.C. v. Martin,980 F.2d 943, 952 (4th Cir. 1992) (citations omitted). In a Rule 12(b)(6) motion, the Court is obligated to "assume the truth of all facts alleged in the complaint and the existence of any fact that can be proved, consistent with the complaint's allegations." E. Shore Mkts., Inc. v. J.D. Assocs. Ltd. P'ship, 213 F.3d 175, 180 (4th Cir. 2000). ...


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