Mark Pierce, William C. Enloe, & Jill Cook, Trinity Capital Corp. v. Atl. Specialty Ins. Co.

• Decision Date: 26 July 2017
• Docket Number: Civ. No. 16-829 JAP/KBM
• Court: U.S. District Court — District of New Mexico
• Parties: MARK PIERCE, WILLIAM C. ENLOE, and JILL COOK, TRINITY CAPITAL CORPORATION and LOS ALAMOS NATIONAL BANK, Plaintiffs, v. ATLANTIC SPECIALTY INSURANCE COMPANY, FEDERAL INSURANCE COMPANY, and CONTINENTAL CASUALTY COMPANY, Defendants.

MARK PIERCE, WILLIAM C. ENLOE, andJILL COOK, TRINITY CAPITAL CORPORATIONand LOS ALAMOS NATIONAL BANK, Plaintiffs, v. ATLANTIC SPECIALTY INSURANCE COMPANY, FEDERAL INSURANCE COMPANY,and CONTINENTAL CASUALTY COMPANY, Defendants.¹

Civ. No. 16-829 JAP/KBM

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO

July 26, 2017

MEMORANDUM OPINION AND ORDER

On July 18, 2016, Atlantic Specialty Insurance Company (ASIC) removed to this Court three consolidated cases from the First Judicial District Court in the County of Los Alamos ("consolidated state court proceeding").² NOTICE OF REMOVAL (Doc. No. 1).³ The sole basis for removal was federal question jurisdiction. Id. at 1 (citing 28 U.S.C. §§ 1331 and 1441(a)).

On July 19, 2016, ASIC filed DEFENDANT [ASIC'S] MOTION TO REALIGN PARTIES, stating that while ASIC had removed the consolidated state court proceeding just oneday earlier on the sole ground of federal question jurisdiction, ASIC believed that realignment of the parties was warranted "based upon their real (as opposed to their claimed) interests." ASIC Motion to Realign (Doc. No. 6). In the Motion to Realign, ASIC did not expressly argue that realignment of the parties would result in the Court having diversity jurisdiction as well as federal question jurisdiction, but that was the gist of ASIC's request for realignment. See id. at 2 (citing case law discussing realignment of parties in the context of removal based on diversity jurisdiction). ASIC's Motion to Realign Parties was fully briefed as of August 18, 2016.

On August 19, 2016, Continental filed DEFENDANT [CONTINENTAL'S] NOTICE OF ADDITIONAL GROUNDS FOR REMOVAL (Doc. No. 232), in which Continental expressly raised diversity jurisdiction as an additional basis for federal court jurisdiction. Also on August 19, 2016, Continental filed DEFENDANT [CONTINENTAL'S] MOTION TO REALIGN PARTIES (Doc. No. 233), arguing that complete diversity of citizenship between the parties would exist if the Court realigned the Insureds (TCC/LANB,⁴ Enloe, Pierce, and Cook) as Plaintiffs and the Insurers (ASIC, Travelers/St. Paul, Continental, and Federal) as Defendants. Id. at 6. ASIC joined in Continental's Motion to Realign Parties (Doc. No. 236). However, LANB and the other "Insureds" gave notice they would not respond to Continental's Motion to Realign because it was filed in violation of the Court's earlier August 17, 2016 Order staying non-remand matters (Doc. Nos. 237-40). Continental's Motion to Realign Parties was not briefed.

The four Plaintiffs identified in the above caption each filed a Motion to Remand in August 2016: (1) PLAINTIFF PIERCE'S MOTION TO REMAND TO STATE COURT (Doc. No. 158) (Pierce Motion to Remand); (2) [LANB'S] MOTION TO REMAND (Doc. No. 225) (LANB Motion to Remand); (3) JILL COOK'S MOTION TO REMAND (Doc. No. 226) (CookMotion to Remand); and (4) ENLOE'S MOTION TO REMAND (Doc. No. 227) (Enloe Motion to Remand).

In August 2016, ASIC filed separate responses to the four Motions to Remand: (1) DEFENDANT [ASIC'S] RESPONSE IN OPPOSITION TO PLAINTIFF MARK PIERCE'S MOTION TO REMAND (Doc. No. 223) and SUPPLEMENT TO DEFENDANT [ASIC'S] RESPONSE IN OPPOSITION TO PLAINTIFF MARK PIERCE'S MOTION TO REMAND (Doc. No. 228); (2) DEFENDANT [ASIC'S] RESPONSE IN OPPOSITION TO PLAINTIFF[ LANB'S] MOTION TO REMAND (Doc. No. 243); (3) DEFENDANT [ASIC'S] RESPONSE IN OPPOSITION TO PLAINTIFF WILLIAM ENLOE'S MOTION TO REMAND (Doc. No. 245); and (4) DEFENDANT [ASIC'S] RESPONSE IN OPPOSITION TO PLAINTIFF JILL COOK'S MOTION TO REMAND (Doc. No. 244).

On September 16, 2016, LANB, Ms. Cook, Mr. Pierce, and Mr. Enloe each filed a Reply in support of the Motions to Remand (Doc. Nos. 247, 249, 251, and 253).

On September 28, 2016, Continental requested leave to file a combined response to the four Motions to Remand, which was granted. See DEFENDANT [CONTINENTAL'S] RESPONSE TO REMAND ARGUMENTS BY PLAINTIFFS JILL COOK, MARK PIERCE, [LANB], AND WILLIAM ENLOE (Doc. No. 263) (Continental's Consolidated Response).

On October 19, 2016, LANB separately filed a reply to Continental's Consolidated Response in which Ms. Cook, Mr. Pierce, and Mr. Enloe joined (Doc. Nos. 265, 266, and 267). [LANB'S] REPLY TO DEFENDANT [CONTINENTAL'S] RESPONSE TO REMAND ARGUMENTS BY JILL COOK, MARK PIERCE, [LANB] AND WILLIAM ENLOE (Doc. No. 264) (LANB Reply to Continental's Consolidated Response).

Background⁵

A. Parties

LANB is a national banking association organized under the National Bank Act, with its principal place of business in Los Alamos and with branch offices in White Rock, Santa Fe, and Albuquerque. TCC is the sole owner of the outstanding shares of LANB.

William C. Enloe served as Chief Executive Officer and as a member of the Board of Directors of both TCC and LANB at the time of the 2012 bank examination conducted by the Office of the Comptroller of the Currency (OCC). Mr. Enloe resigned his positions at TCC and LANB in February 2013.

Jill Cook formerly served as Senior Vice President and Chief Credit Officer for the Loan Department at LANB. In December 2012, LANB terminated Ms. Cook's employment.

Mark Pierce was a loan officer in LANB's loan department during the 2012 OCC examination. Mr. Pierce continued in that position until he tendered his letter of resignation on April 4, 2013.

OneBeacon Insurance Group (OneBeacon) is a Bermuda domiciled holding company that is publicly traded on the New York Stock Exchange. On May 1, 2012, OneBeacon issued LANB a Management and Professional Liability Insurance Policy with policy number 474-00-08-14-0003 for the period 5/1/12 to 5/1/13. The policy was placed with ASIC,⁶ one of several insurance company subsidiaries of OneBeacon (hereafter, referred to as the ASIC policy). Coverage was renewed for the 5/1/13 to 5/1/14 policy year.

Travelers/St. Paul and Continental provided excess umbrella insurance coverage above the ASIC policy issued for the 5/1/12 to 5/1/13 policy period. LANB Motion to Remand at 2-4.

Federal provided excess umbrella insurance coverage above the ASIC policy issued for the 5/1/13 to 5/1/14 policy year. Federal also issued a primary "ForeFront Portfolio for Community Banks" insurance policy for the 5/1/14 to 5/1/15 policy year, when ASIC declined to renew its coverage for that policy year. Id.

B. Insurance Policies

The ASIC policy is a specialty policy designed for financial institutions like LANB, and it provides coverage for a variety of risks and exposures typically faced in financial institutions. One such risk is the cost associated with responding to regulatory investigations. The ASIC policy defines a "claim" to include "a formal regulatory proceeding commenced by the filing of a notice of charges, formal investigative order or similar document." LANB Motion to Remand at 4. An "Insured Person" under the ASIC policy "means any past, present or future director, member of the board of trustees, officer, employee, etc." Id. The ASIC policy promises to pay on behalf of Insured Persons "loss" for which the Insured Persons are not indemnified by LANB. The ASIC policy also promises to pay on behalf of LANB a "Loss" for which LANB grants indemnification to Insured Persons.

The excess umbrella policies issued by Federal, Travelers/St. Paul, and Continental are "follow form" policies that provide the same coverage as the primary ASIC policies conditioned on exhaustion of the underlying policy limits.

C. OCC and SEC Investigations⁷

In 2012, the [OCC] conducted an examination of LANB as of June 30, 2012. The 2012 OCC examination found unsafe or unsound banking practices relating to management and board supervision,credit underwriting, credit administration and deficiencies in internal controls. As a consequence, on November 30, 2012, LANB entered into a formal written agreement with the OCC in which LANB agreed to take certain actions to address and rectify the deficiencies uncovered in the 2012 OCC examination.

As a further consequence, the deficiencies identified by the OCC were ultimately determined to have resulted in Trinity and/or LANB misstating their financial condition and net income in filings with various federal regulatory agencies, including the OCC and United States Securities and Exchange Commission ("SEC"). On December 6, 2012, Trinity filed a Form 8-K Current Report with the SEC in which it disclosed the deficiencies uncovered by the 2012 OCC examination. That same day, LANB sent an e-mail to ASIC's claims department giving notice of circumstances that could give rise to a claim under the ASIC policy and attached copies of the November 30, 2012 OCC agreement and the December 6, 2012 8-K Current Report. ASIC did not acknowledge receipt of this notice until February 14, 2013 and then only advised that it would "simply reserve all rights and defenses under the policy provisions, and at law, with regard to future developments in the matter."

On or about December 8, 2012, an attorney for Jill Cook sent a letter to the President of LANB, demanding, inter alia, that LANB indemnify her for attorney fees she incurred in responding to the OCC investigation and a so-called "Fifteen Day Letter." LANB forwarded Ms. Cook's demand letter to ASIC's claims department on January 16, 2013 and ASIC acknowledged receipt of the demand letter and LANB's notice of claim on January 17, 2013.

In late 2012 or early 2013, the SEC opened an investigation captioned In the Matter of Trinity Capital Corporation (D3320), which related to the circumstances surrounding the restatement of Trinity's financial statements following the 2012 OCC examination. Beginning in January, 2013, and continuing into 2014 and 2015, the SEC issued numerous subpoenas to Trinity, LANB and to various current and former officers, directors and employees of Trinity and LANB, requesting production of documents and in some instances, commanding the recipients to appear and give sworn testimony at the SEC's regional offices in Denver, Colorado. Copies of the subpoenas received in 2013 were

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