Florida Department of Ins. v. Chase Bank of Texas Nat'l Ass'n

Decision Date30 November 2001
Docket NumberNo. 01-10272,01-10272
Citation274 F.3d 924
Parties(5th Cir. 2001) FLORIDA DEPARTMENT OF INSURANCE, as receiver of Western Star Insurance Company, Ltd., Plaintiff-Appellant, v. CHASE BANK OF TEXAS NATIONAL ASSOCIATION, formerly known as Texas Commerce Bank National Association, formerly known as Ameritrust of Texas National Association, Defendant-Appellee
CourtU.S. Court of Appeals — Fifth Circuit

Appeals from the United States District Court for the Northern District of Texas

Before REAVLEY, HIGGINBOTHAM and PARKER, Circuit Judges.

REAVLEY, Circuit Judge:

The Florida Department of Insurance (Florida), receiver for Western Star Insurance Company, appeals the district court's order granting Chase Bank of Texas's Motion for Summary Judgment, and denying Florida's Cross-Motion for Summary Judgment. The district court dismissed Florida's claims for fraud and breach of fiduciary duty against Chase Bank, who was trustee of a trust established to (1) allow Western Star to conduct business in California, and (2) provide assets as security for policyholders. Because Florida lacks standing to sue on behalf of the policyholders, and because it has not raised a disputed issue of material fact with respect to the claims raised on behalf of Western Star, we affirm the judgment of the district court.

BACKGROUND

The facts are largely undisputed. Western Star was an insurance company, based in Antigua, selling surplus line insurance in California. Although Western Star was not admitted as an insurance company in California, it conducted business there on the assumption that it could do so unless California regulatory authorities entered a cease and desist order against it. In November 1992, California passed a law requiring that every alien surplus line insurer establish a trust containing at least $5.4 million to create a readily available pool of assets for payment of claims. Compliant trusts were to be established by May 25, 1993.

Western Star contacted Ameritrust, whose successor in interest is Chase Bank of Texas (Chase), to establish an acceptable trust. In February 1993, Western Star and Chase executed a trust instrument largely patterned on the NAIC (National Association of Insurance Commissioners) standard trust instrument, approved by California regulators. The trust agreement provided that Western Star "desires to establish a trust fund in the United States as security for said Policyholders and Third Party Claimants and to qualify as an eligible or approved surplus lines insurer therein." As the trust settlor, Western Star funded the trust on March 10, 1993 with a certificate of deposit issued by First Asia Development Bank, which had a face value of $5.4 million.

Almost immediately, Chase sent a letter to insurance brokers in California informing them that Western Star had established a trust account at Chase worth $5.4 million. On March 18, 1993, Western Star's sponsoring broker in California repeated this information in a notice to "All Brokers." Beginning in April, Western Star sold thousands of insurance policies in California.

In May 1993, the California Department of Insurance asked Western Star and Chase for additional information about the trust agreement and the First Asia certificate of deposit. Chase responded with a "certification" to the Department that the trust assets had a market value of $5.4 million; this document may have been filed with the California Department of Insurance as part of Western Star's Surplus Line Insurance application package around May 21, 1993. For reasons that are not clear from the record, the initial application was rejected, but Western Star refiled the application on June 1, 1993. The Department of Insurance continued to find the CD suspicious and, on June 15, 1993, denied the application and ordered brokers to cease and desist selling Western Star policies in California.

California was rightly suspicious; the CD was worthless. Issued by First Asia Development Bank, an unregulated bank from the South Pacific Republic of Vanuatu,1 the CD stated, "Ameritrust Texas National Association [Chase], as Trustee for Western Star Insurance, Ltd., Antigua has lodged a deposit in the amount of United States Dollars Five Million and Four Hundred Thousand only."2 In fact, neither Western Star nor Chase had deposited any money with First Asia Development Bank. Instead, Western Star was "renting" the CD from Europe-America Capital Corporation, in what is euphemistically described as a "credit enhancement" transaction. The CD could not be drawn on by the holder.3

In 1994, unpaid insurance claims against Western Star were mounting. A Florida state court placed Western Star into receivership, and appointed the Florida Insurance Commissioner as the domiciliary receiver and the California Insurance Commissioner as ancillary receiver. The Western Star receivership estate does not have sufficient assets to pay policyholder claims, and may not even have enough money to pay all of the Florida receiver's administrative costs.

During preliminary litigation, a district court in the Northern District of Texas discharged Chase from any further obligations as trustee when Chase tendered the CD into the court registry. The discharge order did not, however, determine the value of the trust assets, or consider liability Chase might have incurred for conduct relating to its duties as trustee.4 Florida originally filed the instant suit against Chase in Florida state court, but that case was dismissed for lack of personal jurisdiction. Florida subsequently brought this action against Chase in the Northern District of Texas. Although the California Insurance Commissioner has filed an amicus brief in this appeal, it is not a plaintiff in the present suit against Chase, nor is any individual policyholder a party to this action.

DISCUSSION

Summary judgment is reviewed de novo,5 and is appropriate when, viewing the evidence in the light most favorable to the nonmoving party, no genuine issue of material fact exists, and the moving party is entitled to judgment as a matter of law.6 After a defendant properly moves for summary judgment, the non-movant plaintiff must bring forward sufficient evidence to demonstrate that a genuine issue of material fact exists on every element of a claim.7

Difficulties in this case arise in part because the briefing does not clearly distinguish between the various theories of liability by identifying to whom a duty was breached and the proper measure of damages with respect to each claim. Some of Florida's theories rely on breaches of duty to the policyholders, while others rely on breaches of fiduciary and trust duties by Chase to Western Star directly. Disentangling the various theories of liability is crucial to determining whether the elements of each have been properly identified, and whether the record reveals a disputed issue of material fact on every required element.

A. Policyholder Claims and Florida's Standing

At the 12(b)(6) Motion to Dismiss stage of this case, the district court denied Chase's motion to dismiss Florida's claims on behalf of the policyholders for lack of standing. Although the parties have not briefed the standing issues as part of this appeal, standing is a component of Article III's case or controversy requirement, and is jurisdictional in nature.8 Standing must exist for a suit to proceed:

In its constitutional dimension, standing imports justiciability: whether the plaintiff has made out a "case or controversy" between himself and the defendant . . . . As an aspect of justiciability, the standing question is whether the plaintiff has "alleged such a personal stake in the outcome of the controversy" as to warrant his invocation of federal-court jurisdiction and to justify exercise of the court's remedial powers on his behalf.9

As articulated by the Supreme Court in Lujan v. Defenders of Wildlife,10 the elements of constitutional standing are: (1) that the plaintiff have suffered an "injury in fact-an invasion of a legally protected interest which is (a) concrete and particularized, and (b) actual or imminent"; (2) that there is "a causal connection between the injury and the conduct complained of"; and (3) that the injury is likely to be redressed by a favorable decision.11 Under Lujan, courts must carefully examine whose injury is at issue, and to whom the recovery will go. If the plaintiff is not the party who sustained the concrete and particularized injury for which a remedy is sought, and is not the assignee or designated representative of the injured party,12 then it does not have standing. "The Art. III judicial power exists only to redress or otherwise to protect against injury to the complaining party, even though the court's judgment may benefit others collaterally."13

In Caplin v. Marine Midland Grace Trust Co. of New York,14 a case similar in many respects to the present one, the Supreme Court held that a trustee in bankruptcy did not have standing to bring claims against a third party on behalf of creditors of the insolvent corporation. In Caplin, a company called Webb & Knapp issued debentures worth $8,600,000 and pledged to limit its debt-equity ratio, which would be certified by an annual report to Marine Midland Trust. Subsequently, Webb & Knapp's debt sky-rocketed, but Marine failed to report inflated appraisals of the value of Webb's assets. When Webb entered bankruptcy, the trustee in bankruptcy sued Marine on behalf of the debenture holders, "seeking to recover the principal amount of the outstanding debentures as damages for Marine's alleged bad-faith failure to compel compliance with the terms of the indenture."15

The Supreme Court held that the trustee lacked standing to bring the action against Marine on behalf of the debenture holders. First, the Court focused on the statutory power accorded the bankruptcy trustee to sue on behalf of third parties; the Court...

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