United Republic Ins. Co. v. Chase Manhattan Bank

• Decision Date: 21 August 2001
• Docket Number: No. 100-CV-76.,100-CV-76.
• Parties: UNITED REPUBLIC INSURANCE COMPANY, in Receivership, Plaintiff, v. CHASE MANHATTAN BANK; Fleet Bank; Fleet National Bank; Shawmut Bank Connecticut, c/k/a Fleet National Bank, as Indentured Trustee of the Trust Indenture and Security Agreement; Lincoln Bank; Chase Lincoln Bank; Shawmut Bank Connecticut, National Association, as Trustee of the Trust Indenture and Security Agreement; Bank of New York, as Trustee of Alpha Trust; Alpha Trust; and the Bank of New York, Defendants.
• Court: U.S. District Court — Northern District of New York

Page 8

168 F.Supp.2d 8

UNITED REPUBLIC INSURANCE COMPANY, in Receivership, Plaintiff, v. CHASE MANHATTAN BANK; Fleet Bank; Fleet National Bank; Shawmut Bank Connecticut, c/k/a Fleet National Bank, as Indentured Trustee of the Trust Indenture and Security Agreement; Lincoln Bank; Chase Lincoln Bank; Shawmut Bank Connecticut, National Association, as Trustee of the Trust Indenture and Security Agreement; Bank of New York, as Trustee of Alpha Trust; Alpha Trust; and the Bank of New York, Defendants.

No. 100-CV-76.

United States District Court, N.D. New York.

August 21, 2001.

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Ainsworth, Sullivan, Tracy, Knauf, Warner & Ruslander, PC, John W. Bailey, Rebecca A. Slezak, of counsel, Albany, NY, for plaintiff.

Nixon Peabody, LLP, Carolyn G. Nussbaum, Steven S. Miller, of counsel, Rochester, NY, for defendants Chase Manhattan Bank, Fleet Bank, Fleet National Bank, Shawmut Bank Connecticut c/k/a Fleet National Bank, Lincoln Bank, and Chase Lincoln Bank ("Lender Banks").

Buchanan, Ingersoll, William M. O'Connor, for counsel, New York City, for defendants Shawmut Bank Connecticut, National Association, as Trustee of the Trust Indenture and Security Agreement, ("Indenture Trustee"), Alpha Trust.

King & Spalding, Jennifer L. Hurley, Jeffrey Q. Smith, of counsel, New York City, for defendant Bank of New York.

MEMORANDUM-DECISION AND ORDER

HURD, District Judge.

I. INTRODUCTION

Plaintiff, United Republic Insurance Company (hereinafter "URIC" or "plaintiff"), seeks damages as a result of the failed repayment of its loan to the defendant Alpha Trust, which was created by URIC's majority shareholder, Albert Lawrence, to repay debts for another of his companies. In its amended complaint, URIC alleges six claims: (1) breach of fiduciary duty; (2) fraud; (3) constructive fraud; (4) negligence; (5) fraudulent conveyance under New York's debtor/creditor law; and (6) conversion. URIC argues that the defendants had constructive and/or actual knowledge that the collateral for URIC's loan to the Alpha Trust was worthless, yet failed to inform URIC of this fact, and instead, supported the creation of the Alpha Trust. URIC seeks to recover $14,000,000.00, the amount of its loan to the Alpha Trust.

Defendants, Chase Manhattan Bank, Fleet Bank, Fleet National Bank, Lincoln

Bank, and Chase Lincoln Bank (collectively "the Lender Banks"); Shawmut Bank Connecticut, c/k/a Fleet National Bank, as Indentured Trustee of the Trust Indenture and Security Agreement, and Shawmut Bank Connecticut, National Association, as Trustee of the Trust Indenture and Security Agreement (collectively "Indenture Trustee"); and Bank of New York, as Trustee of Alpha Trust, Alpha Trust, and The Bank of New York, (collectively "Bank of New York") move to dismiss the amended complaint pursuant to Fed.R.Civ.P. 12(b)(6), contending that (1) URIC lacks standing to bring suit; (2) the claims are barred by the applicable statute of limitations; and (3) none of the claims are legally viable.

URIC opposes the motion and cross-moves to amend its amended complaint to include two additional claims based on: (1) money had and received and (2) the Racketeer Influenced and Corrupt Organizations Act (hereinafter "RICO"), 18 U.S.C. § 1962(a)-(d). The proposed second amended complaint is identical to the amended complaint, except that it adds these two claims.

Oral argument was heard on June 8, 2001 in Utica, New York. Decision was reserved.

II. FACTS

The essential facts pled by URIC, which must be taken as true, are as follows. URIC, which is currently in receivership, is a Texas corporation that sold policies of insurance to consumers in Texas and was at all relevant times 93.2% owned by Albert Lawrence. Defendants are New York corporations doing business in New York and are combined into the three groups: (1) the Lender Banks; (2) the Indenture Trustee; and (3) the Bank of New York.

Lawrence Group, Inc. ("LGI") had loans of $27,000,000.00 from the Lender Banks that were due on December 31, 1993. The Alpha Trust was created on January 14, 1994. URIC loaned $14,000,000.00 and United Community Insurance Co. ("UCIC," an Albert Lawrence subsidiary) loaned $13,000,000.00 to the Alpha Trust.¹ URIC alleges that the Alpha Trust was essentially a pass through entity to avoid reporting to the Superintendents of Insurance of New York and Texas a transfer of funds from URIC and UCIC to LGI. The amounts of these new loans represented more than five percent of the respective companies' admitted assets, and as such, required reporting if paid directly to LGI. Likewise, because under New York and Texas insurance regulations URIC and UCIC could not provide the collateral to secure these new loans, the collateral was placed in a second trust, pursuant to the Indenture Trust and Security Agreement. This was known as the Indenture Trust, which was also created on January 14, 1994. Under this Agreement, URIC and UCIC were beneficiaries, and defendant Shawmut Bank was the Indenture Trustee.

The $27,000,000.00 was then loaned to LGI by the Alpha Trust. The loan was secured by similar collateral to the collateral which the Lender Banks accepted as security for the original loans.² Hence, all three loans were secured by property of Albert Lawrence and his corporations or subsidiaries. In sum, URIC loaned $14,000,000.00 to the Alpha Trust, which then loaned the funds to LGI, which used the funds to pay off the previous loans owing to the Lender Banks. LGI was then to repay the Alpha Trust loan, and the Alpha Trust was to repay URIC. The Indenture Trust held the collateral securing the loans from URIC to the Alpha Trust in the event of a default by the Alpha Trust or LGI.

As noted above, the Alpha Trust and the Indenture Trust were both created on January 14, 1994. Copies of both Agreements were sent to the New York State Insurance Department on January 21, 1994, which then sent a letter on January 28, 1994 to Albert Lawrence's attorneys stating that the Alpha Trust was illegal and the funds had to be returned to URIC and UCIC immediately. URIC was placed under confidential supervision by the Texas Commissioner of Insurance on June 22, 1994.

LGI made payments to the Alpha Trust until October 1, 1996. The Alpha Trust repaid URIC until October 15, 1996. The default on these loans led to the liquidation of URIC and UCIC.³

The attached diagram (Exhibit 1) demonstrates the relationship between the parties and this lawsuit.

Plaintiffs filed this action on January 13, 2000. Defendants were granted several extensions of time to file motions or answer. The instant motions were filed on May 14, 2001.

III. DISCUSSION

A. Defendants' Motion to Dismiss

1. Standard

A claim that would entitle a plaintiff to relief will not be dismissed unless it appears beyond a reasonable doubt that the plaintiff will not be able to prove any set of facts to support the claim. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). When considering a motion to dismiss, the court must assume all of the allegations put forth in the complaint are true. Id. The issue for the court during the pleading stage is not if the plaintiff will ultimately prevail, but rather, if the claimant is entitled to present evidence to support its claims. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). When a party makes a motion to dismiss prior to discovery or the filing of an answer the court is loath to dismiss the complaint, unless the defendant can show that the plaintiff is unable to prove facts to support claims that would entitle the plaintiff to relief. Wade v. Johnson Controls, Inc., 693 F.2d 19, 22 (2d Cir.1982); see also Egelston v. State Univ. Coll. at Geneseo, 535 F.2d 752, 754 (2d Cir.1976).

2. Standing

"[A] receiver for an insolvent insurance corporation ... has a right to maintain a suit which is necessary to preserve the corporation's assets and to recover assets of which the corporation has been wrongfully deprived through fraud." Cotten v. Republic Nat'l Bank of Dallas, 395 S.W.2d 930, 941 (Tex.App.1965); see also 66 Am.Jur.2d Receivers § 448 (1973)(stating "the receivership does not impair [the corporation's] capacity to sue"). The receiver of an insurer shall "deal with the same in the person's own name as receiver or in the name of the insurer as the court may direct." Tex. Ins.Code Ann. art. 21.28(2)(a) (Vernon 1996). "The said receiver ... shall be vested by operation of law with the title to all of the ... rights of action of such insurer." Id. art. 21.28(2)(b). The complaint's caption identifies URIC as in receivership and the receiver has authorized this suit to recover assets that URIC has allegedly lost through fraud. Hence, the standing requirements are satisfied.

3. Statute of Limitations

a. Claims One, Two, Three, Five, and Six

The defendants argue that all causes of action are time-barred pursuant to the New York borrowing statute. N.Y. C.P.L.R. § 202 (McKinney 1990).⁴ Assuming that Texas law applies, with regard to claims one, two, three, five, and six, the statute of limitations is different for each claim and there exists genuine issues of material fact as to when the limitations period begins to accrue under the applicable Texas limitations periods, some of which are not settled conclusively under Texas law. The question is further complicated by the possible tolling of such statutes under the imputed knowledge and adverse domination doctrines. See F.D.I.C. v. Shrader & York, 991 F.2d 216 (5th Cir.1993); Askanase v. Fatjo, 828 F.Supp. 465 (S.D.Tex.1993). Under current Texas law, it is unclear if either doctrine is applicable in this case. F.D.I.C., 991 F.2d at 216; Askanase, 828 F.Supp. at 465. For these reasons, the breach of fiduciary duty, fraud, constructive fraud, fraudulent conveyance, and conversion claims will not be decided on statute of limitations grounds.

b. Claim Four: Negligence

The...