Episcopal Church in S.C. v. Church Ins. Co. of Vt.

• Decision Date: 07 May 2021
• Docket Number: No. 20-1143,20-1143
• Citation: 997 F.3d 149
• Parties: The EPISCOPAL CHURCH IN SOUTH CAROLINA, Plaintiff - Appellant, v. The CHURCH INSURANCE COMPANY OF VERMONT, Defendant - Appellee, v. Old St. Andrews Episcopal Church, trading as The Vestries and Churchwardens of The Parish of St. Andrews; All Saints Protestant Episcopal Church, Inc., a/k/a All Saints Episcopal Church, Inc.; Episcopal Church of Our Savior; Holy Trinity Episcopal Church, a/k/a Trinity Episcopal Church; Church of the Cross, a/k/a Church of the Cross, Inc. and/or Church of the Cross Declaration of Trust; St. Philips Episcopal Church, a/k/a The Protestant Episcopal Church of The Parish of Saint Philip, in Charleston, in the State of South Carolina; St. John Episcopal Church; St. Bartholomew's Episcopal Church; Church of the Holy Cross, Stateburg, SC, a/k/a The Church of The Holy Cross; The Church of the Good Shepherd, Charleston, SC, a/k/a Church of the Good Shepherd; The Episcopal Church of the Resurrection, Surfside, a/k/a The Church of The Resurrection, a/k/a Epis Ch of the Resurrection; Episcopal Church of the Holy Comforter ; St. David Episcopal Church, a/k/a St. David's Church; St Michaels Episcopal Church, a/k/a The Protestant Episcopal Church, The Parish of Saint Michael, in Charleston, in the State of South Carolina and/or St. Michael's Church Declaration of Trust; St. Jude's Church, a/k/a The Vestry and Church Wardens of St. Jude's Church of Walterboro, a/k/a St. Jude's Episcopal Church; Vestry and Church Wardens of the Episcopal Church of the Parish of Christ Church, a/k/a Christ Episcopal Church, a/k/a Christ Church Mt. Pleasant; Episcopal Church of the Redeemer, a/k/a Church of the Redeemer, Third Party Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

997 F.3d 149

The EPISCOPAL CHURCH IN SOUTH CAROLINA, Plaintiff - Appellant,

v.The CHURCH INSURANCE COMPANY OF VERMONT, Defendant - Appellee,

v.Old St. Andrews Episcopal Church, trading as The Vestries and Churchwardens of The Parish of St. Andrews; All Saints Protestant Episcopal Church, Inc., a/k/a All Saints Episcopal Church, Inc.; Episcopal Church of Our Savior; Holy Trinity Episcopal Church, a/k/a Trinity Episcopal Church; Church of the Cross, a/k/a Church of the Cross, Inc. and/or Church of the Cross Declaration of Trust; St. Philips Episcopal Church, a/k/a The Protestant Episcopal Church of The Parish of Saint Philip, in Charleston, in the State of South Carolina; St. John Episcopal Church; St. Bartholomew's Episcopal Church; Church of the Holy Cross, Stateburg, SC, a/k/a The Church of The Holy Cross; The Church of the Good Shepherd, Charleston, SC, a/k/a Church of the Good Shepherd; The Episcopal Church of the Resurrection, Surfside, a/k/a The Church of The Resurrection, a/k/a Epis Ch of the Resurrection; Episcopal Church of the Holy Comforter ; St. David Episcopal Church, a/k/a St. David's Church; St Michaels Episcopal Church, a/k/a The Protestant Episcopal Church, The Parish of Saint Michael, in Charleston, in the State of South Carolina and/or St. Michael's Church Declaration of Trust; St. Jude's Church, a/k/a The Vestry and Church Wardens of St. Jude's Church of Walterboro, a/k/a St. Jude's Episcopal Church; Vestry and Church Wardens of the Episcopal Church of the Parish of Christ Church, a/k/a Christ Episcopal Church, a/k/a Christ Church Mt. Pleasant; Episcopal Church of the Redeemer, a/k/a Church of the Redeemer, Third Party Defendants.

No. 20-1143

United States Court of Appeals, Fourth Circuit.

Argued: March 9, 2021

Decided: May 7, 2021

ARGUED: Thomas S. Tisdale, Jr., HELLMAN YATES & TISDALE, Charleston, South Carolina, for Appellant. Melinda Sue Kollross, CLAUSEN & MILLER, PC, Chicago, Illinois, for Appellee. ON BRIEF: Jason S. Smith, HELLMAN YATES & TISDALE, Charleston, South Carolina; Kathleen F. Monoc, MONOC LAW LLC, Charleston, South Carolina, for Appellant. Edward K. Pritchard, III, PRITCHARD LAW GROUP LLC, Charleston, South Carolina, for Appellee.

Before MOTZ, KING, and WYNN, Circuit Judges.

Affirmed by published opinion. Judge Wynn wrote the opinion, in which Judge Motz and Judge King joined.

WYNN, Circuit Judge:

Plaintiff Episcopal Church in South Carolina is embroiled in litigation with its former bishop and his adherents. It filed this action against its own insurer—the Church Insurance Company of Vermont—after discovering that the company had reimbursed its adversaries’ defense costs. The district court dismissed the complaint for lack of standing. We agree with that assessment and affirm.

I.

A.

In 2012, Bishop Mark Lawrence sought to disaffiliate his South Carolina-based diocese from the Episcopal Church ("the Mother Church"). A number of parishes within the diocese aligned with Lawrence and followed suit (together, "the Disassociated Diocese and Parishes"). But the break wasn't a clean one.

The Mother Church insisted that the diocese remained part of its hierarchy; purported to remove Lawrence as bishop; and selected a new bishop to lead (in its view) the still-associated diocese in South Carolina (Plaintiff here, "the Associated Diocese"). See vonRosenberg v. Lawrence , 849 F.3d 163, 166 (4th Cir. 2017). Meanwhile, having declared their independence from the Mother Church, Lawrence and his followers held themselves out as the rightful stewards of the diocese and their respective parishes.

Copious litigation ensued. As relevant here, in January 2013, the Disassociated Diocese and Parishes sued the Mother Church and the Associated Diocese in state court, primarily to clarify the extent of their rights in diocesan and parish property. See Protestant Episcopal Church in S.C. v. Episcopal Church , No. 2013-CP-18-00013 (Ct. Common Pleas, Dorchester Cnty., Jan. 4, 2013). The Mother Church and the Associated Diocese filed counterclaims in that action, then, separately, filed trademark and false-advertising claims in federal court against the Disassociated Diocese and Parishes ("the underlying actions"). Id. ; vonRosenberg v. Lawrence , No. 2:13-587-CWH (D.S.C.). Both cases are ongoing.¹

B.

Defendant Church Insurance Company of Vermont ("the Church Insurance Company") is a "pure captive insurance company" wholly owned by the Church Pension Fund, a freestanding nonprofit affiliated with the Mother Church. J.A. 231–32. Captive insurance companies operate just like ordinary insurers in nearly every respect. However, their distinguishing feature—what makes them "captive"—is that they may only cover the risks of their parent companies and related entities. See S.C. Code Ann. § 38-90-20(A)(1) ("[A] pure captive insurance company may not insure any risks other than those of its parent, affiliated companies, controlled unaffiliated business, ... or a combination of them.").² Accordingly, the Church Insurance Company's charter limits its potential underwriting pool to "the [Mother] Church and its provinces, dioceses, parishes, missions, agencies, institutions and other [connected] entities." J.A. 237–38.

Prior to the schism in 2012, the Church Insurance Company issued a Diocesan Program Master Policy for the period of January 1, 2012 to January 1, 2013 ("the Master Policy"). The "named insured" listed on that policy is "Prot Epis Dio So Caro et al"—the Episcopal diocese in South Carolina. See Church of the Redeemer v. Church Ins. Co. of Vt. , No. 2:15-cv-2590-PMD, Dkt. No. 1-2 (D.S.C.). But the Master Policy also names fifty-six participant parishes—including the now-Disassociated Parishes—in its declarations. Each participant parish has a corresponding "certificate number." Id. ; J.A. 20. The record indicates that the certificate numbers represent separate, individualized insurance policies, distinct from the Master Policy, which were issued to the parishes for the same 2012–13 period ("the Parish Policies").³ The parishes paid the premiums on their respective policies directly to the Church Insurance Company.

The Master and Parish Policies all provide liability coverage for "advertising injury," which includes injuries arising out of "infringement of copyright, title, slogan, trademark, or trade name" during the policy period. J.A. 54–55. And along with that coverage, the policies provide for a broad duty to defend, subject to which the Church Insurance Company has "the right and duty to defend a suit seeking damages which may be covered [by the policy]." J.A. 56.

In April 2013, the Disassociated Parishes tendered defense of the aforementioned state-court counterclaims to the Church Insurance Company under their 2012 Parish Policies. The Church Insurance Company initially rebuffed the requests, prompting the Disassociated Parishes to file a declaratory judgment action against it. That case was ultimately resolved by a joint stipulation of dismissal with prejudice. And since that time, the Church Insurance Company has been reimbursing the Disassociated Parishes’ defense costs in connection with both the state and federal underlying actions.

C.

The Associated Diocese initiated this suit against the Church Insurance Company in June 2019. Its complaint alleged four causes of action: (1) breach of contract; (2) bad faith; (3) breach of fiduciary duty; and (4) aiding and abetting breach of fiduciary duty. But the general thrust of the lawsuit is that the Church Insurance Company funded the Disassociated Parishes’ defense costs when it shouldn't have, thereby prolonging the underlying actions to the Associated Diocese's detriment.

In November 2019, the district court expressed "concerns regarding [the Associated Diocese's] standing to bring a lawsuit against [the Church Insurance Company]" and ordered briefing on the subject sua sponte . J.A. 181–82. The parties complied. And two months later, the court dismissed the case for lack of standing,⁴ concluding, inter alia , that the Associated Diocese had failed to show "any injury" that was "traceable" to the Church Insurance Company's reimbursements.⁵ J.A. 280. The Associated Diocese now appeals.

II.

We review a district court's dismissal for lack of standing de novo. South Carolina v. United States , 912 F.3d 720, 726 (4th Cir. 2019). As the party invoking federal jurisdiction, the Associated Diocese has the burden of demonstrating standing for each of its four claims. Town of Chester v. Laroe Estates, Inc. , ––– U.S. ––––, 137 S. Ct. 1645, 1650, 198 L.Ed.2d 64 (2017).

Because the district court dismissed this case at the pleadings stage, "we accept as true all material allegations of the complaint and construe the complaint in favor of the [Associated Diocese]." David v. Alphin , 704 F.3d 327, 333 (4th Cir. 2013). However, we need not accept allegations "that constitute nothing more than ‘legal conclusions’ or ‘naked assertions.’ " Id. (quoting Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). And we may consider authentic, extrinsic evidence that is integral to the complaint, as well as matters of public record.⁶ See Philips v. Pitt Cnty. Mem'l Hosp. , 572 F.3d 176, 180 (4th Cir. 2009).

III.

Article III requires a live case or controversy over which federal courts may exercise jurisdiction. Spokeo, Inc. v. Robins , ––– U.S. ––––, 136 S. Ct. 1540, 1547, 194 L.Ed.2d 635 (2016). To satisfy that "irreducible constitutional minimum," a plaintiff must have "(1) suffered an injury in fact; (2) that is fairly traceable to the challenged conduct of the defendant; and (3) that is likely to be redressed by a favorable judicial decision." Id. (citing Lujan v. Defs. of Wildlife , 504 U.S. 555, 560–61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) ). Our focus here is on the first two criteria—injury and traceability.

From an Article III standpoint, it can't be that a party is "injured" whenever its litigation opponent puts up a robust, well-financed...