Lentz v. Trinchard, Civil Action No. 02-1235

Decision Date02 August 2010
Docket NumberCivil Action No. 02-1235
Citation730 F.Supp.2d 567
PartiesKimberly LENTZ, in her capacity as interim trustee of the bankruptcy estate of Gary Eugene Hale, v. Claire W. TRINCHARD, esq., et al.
CourtU.S. District Court — Eastern District of Louisiana

Bruce Arne Cranner, Benjamin Melvin Castoriano, Michael H. Pinkerton, Miles Paul Clements, Frilot L.L.C., New Orleans, LA, for Kimberly Lentz, in her capacity as interim trustee of the bankruptcy estate of Gary Eugene Hale.

Gustave A. Fritchie, III, Edward Winter Trapolin, McDonald Provosty, Irwin, Fritchie, Urquhart & Moore, LLC, Claire Willis Trinchard, James L. Trinchard, Trinchard & Trinchard, Ellis B. Murov, Deutsch, Kerrigan & Stiles, LLP, Paul C. Miniclier, The Law Office of Paul C. Miniclier, New Orleans, LA, Adam C. Armstrong, Neil F. Freund, Robert W. Young, Freund, Freeze & Arnold, Dayton, OH, Anne Burguieres Rappold, Anne R. Burguieres Rappold, Attorney at Law, Sun Prairie, WI, Brian S. Kaas, Max B. Chester, Foley & Lardner, LLP, Milwaukee, WI, Janice M. Culotta, Kean Miller, Baton Rouge, LA, David Scranton Daly, Allen & Gooch, Metairie, LA, John J. Kuzman, Jr., Kuzman Law Office, LLC, Liberty Township, OH, for Claire W. Trinchard, Esq., et al.


LANCE M. AFRICK, District Judge.

Before the Court is a motion to dismiss or, alternatively, to stay the above-captioned case, filed by Armco Insurance Group, Inc., Armco Financial Services Corporation, AFSG Holdings Company, Inc., AKS Investments, Inc., and AK Steel Corporation ("AK defendants").1 Also before the Court is a motion to dismiss or, alternatively, to stay the above-captioned case filed by Northwestern National Insurance Company of Milwaukee, Wisconsin ("NNIC"). 2 The plaintiff has filed an opposition.3


The facts of this case are set forth in two opinions by the U.S. Court of Appeals for the Fifth Circuit, Stanley v. Trinchard, 500 F.3d 411 (5th Cir.2007) (" Trinchard I ") 4 and Stanley v. Trinchard, 579 F.3d 515 (5th Cir.2009) (" Trinchard II ").5 In the early 1980's, Gary Hale ("Hale"), a detective employed by the St. Tammany Parish Sheriff, was insured under a policy issued by American Druggists Insurance Company ("ADIC"). 6 NNIC reinsured ADIC and, by virtue of ADIC's insolvency, assumed responsibility under the policy issued to Hale.7 In 1991, Gerald Burge ("Burge") filed a lawsuit against Hale and the St. Tammany Parish Sheriff pursuant to 42 U.S.C. § 1983, stemming fromBurge's 1986 wrongful murder conviction ("Burge lawsuit").8 A multi-million dollar judgment against Hale forced him into involuntary bankruptcy in October 2001. 9

In 2002, the appointed trustee 10 of Hale's bankruptcy estate brought claims against NNIC under Louisiana law, alleging that in the course of defending and settling some of Burge's claims, NNIC breached a duty of good faith and fair dealing to Hale. The trustee also alleged that Hale's counsel committed legal malpractice.11

On December 16, 2009, the plaintiff filed a fifth amended complaint 12 and added allegations against NNIC and the newly added defendants,13 including the AK defendants. Plaintiff claims that NNIC "is merely an alter ego of one or more of" the AK defendants and that the AK defendants are "all alter egos of each other." 14 Alternatively, plaintiff asserts that NNIC and "one or more of" the AK defendants "operated as a single business enterprise." 15 Plaintiff further alleges:

26(A). Northwestern, the Northwestern Individuals, and/or the [AK defendants] were aware of and/or participated in the decision to limit the defense of Mr. Hale and the Sheriff solely to the policy period, from September 1, 1980 to September 1, 1983.
26(B). Northwestern, the Northwestern Individuals, and/or the [AK defendants] also had specific knowledge that this Court substantially denied Ms. Gaudin's motion to establish the policy limits at $100,000 and limit the coverage under the policy to damages sustained by Mr. Burge after 1983 and stated it would not rule on those policy limits question until after a trial on the merits.
26(C). Notwithstanding that ruling, Northwestern, the Northwestern Individuals and/or the [AK defendants] participated in and/or had specific knowledge of (i) the rejection of offers to fully and finally settle the case against Mr. Hale for less than $1,000,000; (ii) the subsequent settlement agreement and mere partial release of Mr. Hale; and (iii) the cessation of representation by Mr. Hale's counsel despite Mr. Hale's continued right to a defense, all due to the fact, at least in part, that they considered Mr. Hale to be "judgment proof." 16

The fifth amended complaint states that the AK defendants are also "liable" to Hale for all previously pled "breaches of professional and fiduciary duty, breach ofgood faith and fair dealing, and acts of conspiracy and fraud" attributable to NNIC.17 Plaintiff's fifth amended complaint also seeks to annul a transfer of funds, made pursuant to an order of a Wisconsin state court, from NNIC to AFSG Holdings, Inc.18

On January 27, 2009, the AK defendants filed a motion to dismiss plaintiff's claims, arguing that this Court lacks personal jurisdiction pursuant to Rule 12(b)(2) of the Federal Rules of Civil Procedure and that plaintiff failed to state a claim pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.FN19FN20 On February 18, 2010, NNIC filed a motion to dismiss the allegations in plaintiff's fifth amended complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.21 Alternatively, both NNIC and the AK defendants argue that the Court should stay plaintiff's claims against NNIC and the AK defendants, pending resolution of NNIC's state court rehabilitation proceedings in Wisconsin.22 The plaintiff has opposed the motions to dismiss and the motions to stay.23

FN19. R. Doc. No. 507. In addition, the AK defendants argue that the Court "lacks subject matter jurisdiction" because Louisiana's Uniform Insurers Liquidation Law, La.Rev.Stat. 22:757(7), and Louisiana Supreme Court precedent in All Star Advertising Agency v. Reliance Insurance Co., 898 So.2d 369 (La.2005) would strip a Louisiana court of subject matter jurisdiction over claims against NNIC because if its status as an insurance company in rehabilitation proceedings. See R. Doc. No. 507, pp. 2, 6-7.
FN20. The AK defendants state in a section entitled "improper venue" that "for reasons more fully addressed above in the section regarding subject matter jurisdiction and based on the pending rehabilitation of NNIC in Wisconsin ... the proper venue for any NNIC related claims is Wisconsin." R. Doc. No. 507, pp. 21-22. However, the AK defendants do not cite Rule 12(b)(3) of the Federal Rules of Civil Procedure. Accordingly, the Court construes such statements as argument in support of the AK defendants' motion to dismiss pursuant to Rule 12(b)(6).
A. Federal Question Jurisdiction

It is undisputed that this Court has diversity jurisdiction in the above-captioned case. In response to the defendants' motions to dismiss or, alternatively, to stay, plaintiff argues for the first time that this Court also has federal subject matter jurisdiction because the above-captioned case relates to the Hale bankruptcy, a case under Chapter 7 of Title 11 of the United States Code, 11 U.S.C. §§ 101-1330 (as amended, the "Bankruptcy Code"). See In re Hale, Ch. 7 Case No. 01-55539 (Bankr.S.D.Miss. filed Oct. 16, 2001). Because whether this Court has bankruptcy jurisdiction affects the Court's personal jurisdiction analysis, this issue must be addressed first.

28 U.S.C. § 1334(b) grants the district courts original, but not exclusive, jurisdiction over "all civil proceedings arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b); see also In re Wood, 825 F.2d 90, 92 (5th Cir.1987). A matter is "related to" a case under title 11 if "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." Wood, 825 F.2d at 93 (emphasis in original). "Certainty is unnecessary; an action is 'related to' bankruptcy if the outcome could alter, positively or negatively, the debtor's rights, liabilities, options, or freedom of action or could influence the administration of the bankruptcy estate." In re TXNB Internal Case, 483 F.3d 292, 298 (5th Cir.2007).

i. Plaintiff's Allegations with Respect to Bankruptcy Jurisdiction

When plaintiff filed the above-captioned case in 2002, plaintiff expressly premised this Court's federal subject matter jurisdiction on diversity jurisdiction pursuant to 28 U.S.C. § 1332.24 Defendants argue that plaintiff has waived the right to assert "related to" bankruptcy jurisdiction at this stage in the litigation, nearly eight years after plaintiff filed the original complaint.

The Court has permitted plaintiff to amend her complaint to allege "related to" jurisdiction pursuant to 28 U.S.C. § 1334(b). The Court further finds that plaintiff's original complaint contains sufficient allegations to state a basis for "related to" bankruptcy jurisdiction. "[W]here a complaint fails to cite the statute alleging jurisdiction, the omission will not defeat jurisdiction if the facts alleged in the complaint satisfy the jurisdictional requirements of the statute." Hildebrand v. Honeywell, Inc., 622 F.2d 179, 181 (5th Cir.1980). Plaintiff's original complaint states that plaintiff is appearing in his capacity as "Trustee of the Bankruptcy Estate of Gary Eugene Gale, the adjudication of which is currently pending before the U.S. Bankruptcy Court for the Southern District of Mississippi, Southern Division, bearing Docket Number 01-55539 SEG with that court." 25 The original complaint describes the Hale bankruptcy and the trustee's commencement of the above captioned case as follows:

30. After the finality of the judgment, and because Mr. Hale has no significant assets otherwise susceptible to seizure, involuntary bankruptcy

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