Pan-American Life Ins. Co. v. Antarctica Capital Mgmt.

• Decision Date: 31 March 2022
• Docket Number: 1:20-CV-9236-ALC
• Parties: Pan-American Life Ins. Co., Vista Life &Casualty Reinsurance Co., &Vista PC3.19 IC, Inc., Plaintiffs, v. Antarctica Capital Mgmt., LLC, Antarctica Vista Legacy Investment, LLC, &DLA Piper, LLP, Defendants.
• Court: U.S. District Court — Southern District of New York

Pan-American Life Ins. Co., Vista Life &Casualty Reinsurance Co., &Vista PC3.19 IC, Inc., Plaintiffs,
v.
Antarctica Capital Mgmt., LLC, Antarctica Vista Legacy Investment, LLC, &DLA Piper, LLP, Defendants.

No. 1:20-CV-9236-ALC

United States District Court, S.D. New York

March 31, 2022

OPINION AND ORDER

ANDREW L. CARTER, JR., UNITED STATES DISTRICT JUDGE

This is an action sitting in diversity involving a reinsurance transaction. Before the Court are Defendants' motions to dismiss the Second Amended Complaint. For the reasons stated herein, Defendants Antarctica Capital Management, LLC and Antarctica Vista Legacy Investments, LLC's (the “Antarctica Defendants”) motion is DENIED without prejudice. Defendant DLA Piper's (“DLA”) motion is DENIED IN PART and GRANTED IN PART.

I. BACKGROUND^[1]

On August 28 and 29, 2019, Plaintiffs Pan-American Life Insurance Company (“PanAmerican” or “PALIC”) and Vista PC 3.19 IC, Inc. (“Vista PC”), an incorporated protected cell of Vista Life &Casualty Reinsurance Company (“Vista Re”), executed a Reinsurance Agreement, in which Vista PC agreed to reinsure the liabilities of PALIC in connection with an in-force book of disability income business (“Disability Income Block”). See Second Amended

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Complaint ¶ 20, Ex. A (the “SAC”). The Reinsurance Agreement stipulated, among other things, that Vista Re would fund Vista PC with $6.6 million in additional capital no later than October 10, 2019. SAC ¶ 20. Failure to fulfill the term would allow PALIC “in its sole discretion” to terminate the Reinsurance Agreement. SAC, Ex. A Section 18(B)(4)). Contemporaneous with the Reinsurance Agreement, Antarctica Capital and Plaintiffs executed a Participant Agreement, under which PALIC would be a participant in Vista PC while Vista Re would manage Vista PC. SAC ¶ 22, Ex. B. On August 29 and 30, 2019, PALIC, Vista PC, and nonparty Fifth Third Bank entered into a Reinsurance Trust Agreement whereby Vista PC would establish a Reinsurance Trust Account for the benefit of PALIC, which would contain sufficient assets to cover Vista PC's reinsurance obligations under the Reinsurance Agreement. SAC ¶ 20-23, Ex. C.

According to the SAC, prior to execution of the Reinsurance Agreement and following Vista Re's efforts to solicit investment from Antarctica Capital for the Reinsurance Agreement, Antarctica Capital agreed to provide additional investment to Vista PC. SAC ¶ 12, 18-19. Plaintiffs allege that Antarctica Capital proposed a capital contribution in the amount of $6.6 million-$2 million in cash, plus a promissory note totaling $4.6 million that would be secured by collateral and held in escrow. SAC ¶ 21, 24. The collateral would comprise Antarctica Capital's ownership interests in an entity called OMNIH QOZB, LLC whose value at the time exceeded $4.6 million (the “Collateral”). SAC ¶ 24. In early September 2019, Vista Re and Antarctica Capital exchanged drafts of agreements that would formalize Antarctica Capital's potential investment in Vista PC via an affiliate, Antarctica Legacy, through a promissory note and Shareholder Agreement. SAC ¶ 25. On September 18, 2019, Antarctica Capital provided documentation related to the Collateral that would be used to secure Antarctica Legacy's obligations under the promissory note. SAC ¶ 26. On September 20, 2019, the closing date of the

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Reinsurance Agreement, PALIC deposited approximately $54 million in the Reinsurance Trust Account. SAC ¶ 27.

In fulfillment of Antarctica Capital's investment in Vista PC, on September 30, 2019, Vista PC, Vista Re, and Antarctica Legacy executed a Shareholders Agreement, which set forth that Antarctica Legacy would purchase shares in Vista PC in exchange for a $6.6 million capital contribution to Vista PC. SAC ¶ 28, Ex. D. Vista PC sought the capital contribution to fulfill its reinsurance obligations under the Reinsurance Agreement. SAC ¶ 28. Article 10.3 of the Shareholders Agreement states that the agreement shall be governed by the laws of the State of Vermont and that any claims or actions brought by any party thereunder related to any matter must be brought in “federal and state courts located within Chittenden County in the State of Vermont.” SAC ¶ 28, Ex. D at 11.

On the same day, Antarctica Legacy contemporaneously issued a promissory note for $4.6 million to Vista PC as part of its payment for 6, 000 shares of Class B stock acquired from Vista PC (the “Promissory Note”). SAC ¶ 29. Defining Antarctica Legacy as “Investor” and Vista PC as “Reinsurer” or “Beneficiary, ” the Note reads, in relevant part:

Acknowledgment of Security Assignment. To secure the performance of this Promissory Note and Investor's obligations under the Collateral Loan Agreement, dated an even date herewith (the “Collateral Loan Agreement”), between the Investor and the Reinsurer, and without limiting any other rights and remedies of the Reinsurer as set forth in the Collateral Loan Agreement, the Reinsurer is a beneficiary of the Collateral Loan Agreement and Investor has among other things irrevocably granted to the Reinsurer rights, title and interest in and to this Promissory Note and any related documentation (including financing statements), including without limitation, the right to collect all amounts due hereunder or thereunder during the continuation of an Event of Default. Investor hereby acknowledges the granting such rights and the irrevocable power of attorney granted by Investor to the Reinsurer pursuant to the Collateral Loan Agreement, to (i) perform any act, execute any documents or otherwise to take any action with respect to the advances evidence by this Promissory Note and (ii) demand, receive and enforce all of the Reinsurer's rights, powers and remedies with respect to this Promissory Note

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SAC, Ex. E at 2-3.

Antarctica Legacy and Vista PC executed a third contemporaneous agreement-the Collateral Loan Agreement (“CLA”). SAC ¶ 30; SAC, Ex. F. Under Section 2.1 of the CLA, Antarctica Legacy put up the Collateral-a portion of its ownership of OMNIH QOZB, LLC- which fair market value as of the date of the agreement was not less than $5, 060, 000. SAC ¶ 30.

Section 2.1 reads:

Contribution

Investor hereby contributes to Beneficiary such portion (the “Initial Interests”), of its ownership of OMNIH QOZB, LLC (the “Issuer”) having a fair market value as of the close of business the day before the date of this Agreement of not less than $5, 060, 000, (ii) any Additional Interests that may be required, and any Substitute Interests that may be permitted, under Section 3 after the date hereof, and (iii) all proceeds of the foregoing (collectively, the “Interests”). Investor shall issue or cause to be issued to Beneficiary a promissory note substantially in the form of Exhibit A hereto.

SAC, Ex. F. Under Section 2.3 of the CLA, the parties agreed to appoint Defendant DLA Piper LLP (U.S.) (“DLA Piper”) or another third party as escrow agent to hold the Collateral. SAC ¶ 31. Antarctica Legacy was required to deliver the Collateral on the date of execution of the CLA. SAC ¶ 31. Section 2.3 reads:

Investor and Beneficiary hereby agree to the appointment of DLA Piper LLP (U.S.) as escrow agent to hold physical possession of the Initial Interests and any assets of the Additional Interests that are certificated securities. On the date of this Agreement, Investor shall deliver to DLA Piper LLP (U.S.) the Initial Interests. To the extent any assets of the Interests are assets other than certificated securities, Investor and Beneficiary shall agree to appoint a third-party to hold custody of such assets. As used in this Agreement, “Escrow Agent” shall mean DLA Piper LLP (U.S.) or such other third party appointed under this Section 2.3, as the context may require.

SAC, Ex. F. On September 30, 2019, Antarctica Legacy was required to pay the $2 million cash portion for its purchase of Vista PC shares under the Shareholders Agreement but failed to do so.

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SAC ¶ 38. Vista PC and Antarctica Capital discussed a proposed arrangement that would permit PALIC to pre-approve a certain amount of assets to be distributed to an escrow agent for the Reinsurance Trust Account. SAC ¶ 44. On or about November 2019, Antarctica Capital negotiated such an arrangement with PALIC and DLA Piper. SAC ¶ 46. Vista PC requested that DLA Piper provide a letter acknowledging that they would return any funds to the Reinsurance Trust Account if such funds were not used to buy an asset for the Reinsurance Trust Account. SAC ¶ 46. According to Plaintiffs, this “proposed escrow arrangement for assets purchased by Antarctica for the Reinsurance Trust is a separate and distinct arrangement from the escrow arrangement where DLA Piper was already holding the Collateral for the Promissory Note executed by Antarctica Legacy.” SAC ¶ 46.^[2]

Amid discussions about the proposed new escrow agreement, Antarctica Capital separately directed DLA Piper to return the Collateral for the Promissory Note, which was returned on November 30, 2019. SAC ¶ 47. Plaintiffs allege that they did not learn about the return of the Collateral until after the termination of the Reinsurance Agreement between PALIC and Vista PC. SAC ¶ 47. Between December 4 and December 11, 2019, Antarctica Capital sent email correspondence to Vista PC representing that they continue to coordinate with DLA Piper on the proposed new escrow arrangement. SAC ¶ 48. On December 11, 2019, Antarctica Capital emailed Vista Re/Vista PC to inform them that they agreed on the process and had found an escrow agent-the law firm of Woods Oviatt Gilman-and that Antarctica Capital would send “the form of investment orders for the mortgages shortly” for approval “so that [they] [could]

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finalize and execute and have the firm hold in escrow.” SAC ¶ 49. Plaintiffs assert that Antarctica Legacy, despite its assurances...