Hildene Opportunities Master Fund, Ltd. v. Arvest Bank et al

Filing 78

ORDER AND OPINION GRANTING IN PART, DENYING IN PART, AND DEFERRING IN PART DEFENDANTS' MOTIONS TO DISMISS, Re: 63 and 65 . Signed on 1/25/16 by District Judge Ortrie D. Smith. (Matthes, Renea)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
HILDENE OPPORTUNITIES MASTER )
FUND LTD,
)
)
Plaintiff,
)
)
vs.
)
)
ARVEST BANK, BANNISTER
)
BANCSHARES, INC. and
)
JEFFREY JERNIGAN,
)
)
Defendants.
)

Case No. 14-1110-CV-W-ODS

ORDER AND OPINION GRANTING IN PART, DENYING IN PART, AND DEFERRING
IN PART DEFENDANTS’ MOTIONS TO DISMISS
Pending are Defendants Arvest Bank’s, Bannister Bancshares, Inc.’s, and Jeffrey
Jernigan’s Motions to Dismiss Plaintiff’s Second Amended Complaint. Doc. #63, Doc.
#65. The Motions are granted in part, denied in part, and deferred in part.
I.

BACKGROUND

In 2003, Bannister Bancshares (“Bannister”) created a wholly-owned trust
subsidiary (“Bannister Trust”) with U.S. Bank serving as Trustee and Jeffrey Jernigan
(“Jernigan”) served as an administrator of the Bannister Trust. At or around the same
time, Bannister also entered into an indenture agreement (“Bannister Indenture”) with
U.S. Bank serving as Indenture Trustee. Second Amended Complaint (“SAC”), ¶ 10.
Pursuant to the Bannister Indenture, Bannister issued $20 million in debentures. SAC,
¶ 3. Bannister Trust purchased the debentures Bannister issued. SAC, ¶¶ 4, 20. To
raise the funds necessary to purchase the debentures, Bannister Trust issued 20,000
Capital Securities. SAC, ¶ 17. Under this arrangement, Bannister was required to
make payments on the debentures to Bannister Trust, and Bannister Trust was required
to make payments on the Bannister Trust Capital Securities. SAC, ¶ 22.
Bannister owned Union Bank and used the money raised from the issuance of
the Bannister Debentures to fund Union Bank’s operations. SAC, ¶ 16. Union Bank

was Bannister’s only substantial asset. SAC, ¶ 3. This is significant because Section
3.7 of the Bannister Indenture prohibited Bannister from selling or conveying “all or
substantially all of its property” unless Bannister complied with Article XI of the
Bannister Indenture. SAC, ¶ 24. Section 11.1 of Article XI of the Bannister Indenture
permitted:
[The] sale, conveyance, transfer or other disposition of the property or capital
stock of the Company…as an entirety, or substantially as an entirety, to any
other Person…provided however, that the Company hereby covenants and
agrees that, upon any such …sale, conveyance, transfer or other disposition, the
due and punctual payment of the principal of (and premium, if any) and interest
on all of the Debentures in accordance with their terms, according to their tenor,
and the due and punctual performance and observance of all the covenants and
conditions of this Indenture…shall be expressly assumed…by the entity which
shall have acquired such property or capital stock.
SAC, ¶ 25; Doc. #64-1 (emphasis in original). This provision (the “Successor Obligor
Provision”) prohibits Bannister from selling all or substantially all its property unless the
purchaser of that property agrees to assume Bannister’s obligations under the Bannister
Indenture. SAC, ¶ 26. In June 2012, Arvest Bank (“Arvest”) purchased Union Bank, but
Arvest did not assume Bannister’s obligations under the Bannister Indenture.1 SAC, ¶¶
5, 27. Bannister has failed to make payments on the Debentures to Bannister Trust,
and thus, Bannister Trust has failed to make payments on the Capital Securities. SAC,
¶ 60.
Based on these factual averments, Plaintiff Hildene Opportunities Master Fund,
Ltd.,2 as assignee of U.S. Bank, asserts claims for Tortious Interference with Contract
against Arvest (Count I), Breach of Contract against Bannister (Counts II and III), and
Breach of Fiduciary Duty against Jernigan (Count IV).

1

Whether Arvest was obligated to do so is a point of contention between the parties, and the
Court is not resolving this issue.
2
In its First Amended Complaint, Plaintiff Hildene Capital Management, LLC, asserted similar
claims based on similar factual allegations. However, in its Order granting in part and denying in part
Defendants’ Motions to Dismiss Plaintiff’s First Amended Complaint, the Court held that Hildene Capital
Management, LLC, had not established it was either (1) the real party in interest to assert these claims, or
(2) that it was a third party beneficiary of the Bannister Indenture. Doc. #57. Thus, the Court granted
Plaintiff leave to file a Second Amended Complaint to accomplish one or both of these tasks. In
response, Plaintiff Hildene Opportunities Master Fund, Ltd. (“Plaintiff”) filed its Second Amended
Complaint, and therein, asserts U.S. Bank assigned its claims set forth in the Second Amended
Complaint to Plaintiff. SAC, ¶ 9.

2

II.

STANDARD

The liberal pleading standard created by the Federal Rules of Civil Procedure
requires “a short and plain statement of the claim showing that the pleader is entitled to
relief.@ Erickson v. Pardus, 551 U.S. 89, 93 (2007) (per curiam) (quoting Fed. R. Civ. P.
8(a)(2)). “Specific facts are not necessary; the statement need only >give the defendant
fair notice of what the . . . claim is and the grounds upon which it rests.=@ Id. (citing Bell
Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007)). In ruling on a motion to dismiss,
the Court Amust accept as true all of the complaint=s factual allegations and view them in
the light most favorable to the Plaintiff[ ].@ Stodghill v. Wellston Sch. Dist., 512 F.3d 472,
476 (8th Cir. 2008).
To survive a motion to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to state a claim to relief that is plausible on its
face. A claim has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged. The plausibility standard is
not akin to a probability requirement, but it asks for more than a sheer
possibility that a defendant has acted unlawfully. Where a complaint
pleads facts that are merely consistent with a defendant's liability, it stops
short of the line between possibility and plausibility of entitlement to relief.
Ashcroft v. Iqbal, 555 U.S. 662, 678 (2009) (internal quotations and citations omitted).
In keeping with these principles a court considering a motion to dismiss
can choose to begin by identifying pleadings that, because they are no
more than conclusions, are not entitled to the assumption of truth. While
legal conclusions can provide the framework of a complaint, they must be
supported by factual allegations. When there are well-pleaded factual
allegations, a court should assume their veracity and then determine
whether they plausibly give rise to an entitlement to relief.
Id. at 679.

3

III.

DISCUSSION

A. Tortious Interference with Contract (Count I)
1. Applicable State Law for Statute of Limitations
Arvest maintains Arkansas’s three-year statute of limitations bars Plaintiff’s
tortious interference with contract claim. “A federal court sitting in diversity applies the
statute-of-limitations rules of the forum.” Great Plains Trust Co. v. Union Pacific R. Co.,
492 F.3d 986, 992 (8th Cir. 2007) (citing Nettles v. Am. Tel. & Tel. Co., 55 F.3d 1358,
1362 (8th Cir. 1995)). “When a cause of action ‘originates’ in a state other than
Missouri,…Missouri applies the foreign state’s statute of limitations through Missouri’s
borrowing statute.” Alvarado v. H & R Block, Inc., 24 S.W. 3d 236, 241-42 (Mo. Ct. App.
2000). The Missouri borrowing statute provides, “Whenever a cause of action has been
fully barred by the laws of the state, territory or country in which it originated, said bar
shall be a complete defense to any action thereon, brought in any of the courts of this
state.” Mo. Rev. Stat. § 516.190. Accordingly, Missouri’s borrowing statute bars an
action if (1) the action originated in another state and (2) the other state’s statute of
limitations bars the action. Alvarado, 24 S.W. 3d at 241-42. Missouri courts have
construed the term “originated” to mean “accrued.” Thompson by Thompson v.
Crawford, 833 S.W.2d 868, 871 (Mo. 1992). Section 516.100 defines “accrued” as
“when the damage resulting therefrom is sustained and is capable of ascertainment.”
“Missouri’s borrowing statute pre-empts any conflict of laws question.” Alvarado, 24
S.W.3d at 242.
Here, the parties dispute which state’s law applies to Plaintiff’s tortious
interference claim. Plaintiff maintains Missouri law is applicable; Defendant Arvest
maintains Arkansas law is applicable.
Plaintiff contends the Court should use the “most significant relationship test” to
determine which state’s law is applicable, but this test determines the substantive law to
apply to the tortious interference claim. This test does not govern the law to apply for
the statute of limitations. Regardless, Plaintiff states Arvest entered Missouri to
negotiate the purchase of and conduct due diligence of Union Bank and to take actions
which resulted in Bannister breaching the Indenture’s Successor Obligor Provision.
Plaintiff notes Arvest has many bank branches in Missouri and that Defendants
4

Bannister and Jernigan are also located in Missouri. Plaintiff also claims the underlying
Indenture and Bannister Trust transaction involved Missouri entities. Finally, Plaintiff
argues that through Arvest’s alleged tortious interference it obtained Missouri assets.
Arvest asserts that Arkansas is the home of its headquarters, and that it allegedly
committed acts of tortious interference from its principal place of business. Arvest also
asserts Plaintiff’s principal allegation is that Arvest’s counsel made misrepresentations
to the Arkansas State Banking Board. Arvest argues that a tort generally accrues
where the defendant’s alleged wrongful conduct occurs, but the case Arvest cites in
support of this argument is discussing accrual for determining venue, not statute of
limitations. See State ex rel. Mo. Prop. & Cas. Ins. Guar. Ass’n v. Brown, 900 S.W. 2d
268, 271-72 (Mo. Ct. App. 1995).
Neither party adequately explained where the alleged tortious interference
accrued. Plaintiff incorrectly applies the significant relationship test, and Arvest
incorrectly applies a test for determining venue. Neither party explained when and
consequently where (1) the damage resulting from the alleged tortious interference was
sustained and (2) was capable of ascertainment. Accordingly, the Court currently is not
in a position to determine whether Arkansas or Missouri law applies to the statute of
limitations for the tortious interference claim.3 The Court denies Arvest’s Motion to
Dismiss on this basis.4
3

Plaintiff asserts Defendant Arvest should be judicially estopped from arguing in its second
Motion to Dismiss that Arkansas law applies to the tortious interference with contract claim, because in its
first Motion to Dismiss Arvest claimed Missouri law applied to the tortious interference claim. In
determining whether judicial estoppel should be applied, courts consider the factors set forth in New
Hampshire v. Maine: (1) whether the positions a party took in the two proceedings are “clearly
inconsistent,” (2) whether the earlier court has accepted the position in such a manner that either the first
or second court would appear to have been misled, (3) and whether the party asserting inconsistent
positions would derive an unfair advantage or impose an unfair detriment. 532 U.S. 742, 750-51 (2001).
First, it is not clear that Arvest actually took inconsistent positions. While Arvest argued in its first
round of Motion to Dismiss briefing that Missouri law should be applied to the tortious interference with
contract claim, Arvest also noted that the tortious interference claim would fail under Arkansas law. Doc.
#29, page 16.
Second, this Court did not accept Arvest’s earlier position that Missouri law applied to the tortious
interference claim. In fact, the Court did not reach the merits of this claim at all. Doc. #57. Plaintiff notes
some courts apply judicial estoppel even if the court did not adopt the party’s prior position, but this is a
minority view. Hossaini v. W. Missouri. Med. Ctr., 140 F. 3d 1140, 1143 (8th Cir. 1998). The Eighth
Circuit consistently places importance on judicial acceptance of a party’s prior inconsistent position. See
e.g. E.E.O.C. v. CRST Van Expedited, Inc., 679 F.3d 657, 679-80 (8th Cir. 2012); Capella Univ., Inc. v.
Executive Risk Specialty Ins. Co., 617 F.3d 1040, 1051 (8th Cir. 2010); Stallings v. Hussman Corp., 447
F.3d 1041, 1049 (8th Cir. 2006).

5

2. Failure to State a Claim
Arvest also argues Plaintiff fails to state a claim for tortious interference with
contract. It is not clear to the Court whether Missouri or Arkansas law applies to this
claim, but the elements of a tortious interference claim under each state’s law are
similar. Under Arkansas law, Plaintiff must establish (1) the existence of a valid
contractual relationship, (2) knowledge of the relationship on the part of the interfering
party, (3) intentional and improper interference inducing or causing a breach or
termination of the relationship, and (4) resultant damage to the party whose relationship
has been disrupted. Hunt v. Riley, 909 S.W. 2d 329, 332 (Ark. 1995); West Memphis
Adolescent Residential, LLC v. Compton, 374 S.W. 3d 922, 927 (Ark. Ct. App. 2010).
Under Missouri law, Plaintiff must demonstrate (1) a contract, (2) knowledge by
defendant of the contract, (3) intentional interference by defendant which induces a
breach of contract, (4) absence of justification, and (5) resulting damages. Kantel
Comms., Inc. v. Casey, 865 S.W. 2d 685, 690 (Mo. Ct. App. 1993); Francisco v. Kansas
City Start Co., 629 S.W. 2d 524, 529 (Mo. Ct. App. 1981).
First, Arvest maintains no breach of the Indenture occurred, because the
Successor Obligor Provision applies only to the sale of Bannister’s assets; the provision
does not apply to the sale of Bannister’s subsidiaries’ (i.e., Union Bank) assets. Arvest
asserts that prior to its purchase of Union Bank, Bannister owned stock shares in Union
Bank; and after the Union Bank purchase, Bannister owned the same stock shares in
Union Bank. Arvest emphasizes that Bannister did not sell its Union Bank stock shares
to Arvest, and thus, Bannister did not sell any of its assets to Arvest. Instead, Union
Bank sold its own assets to Arvest.
Arvest argues that a case Plaintiff repeatedly relies upon to demonstrate a
breach occurred, In re BankAtlantic Bancorp, Inc. Litigation, is factually distinguishable
Because Arvest’s prior position is not clearly inconsistent with its current position and because
the Court did not adopt Arvest’s prior position, the Court declines to judicially estop Arvest from arguing
Arkansas applies to the tortious interference claim.
4
While the Court is not determining which state’s statute of limitations is applicable to Plaintiff’s
tortious interference claim, and thus, whether the claim is barred by those statute of limitations; the Court
notes Plaintiff’s Second Amended Complaint does not relate back to its original Complaint or its First
Amended Complaint. As more fully explained in Section D, Arvest cannot be said to have been on notice
that U.S. Bank’s assignee would bring a claim against it.

6

from the proceedings in this case. 39 A.3d 824 (Del. Ch. 2012). As a preliminary
matter, a Delaware court’s decision is not binding authority on this Court. Nonetheless,
in the Delaware case, Bancorp held 100% of the equity in its subsidiary Bank Atlantic,
and attempted to sell its stock in BankAtlantic to an entity named BB & T Corporation, in
violation of an indenture’s successor obligor provision. Id. at 826, 835. Arvest contends
that unlike Bancorp, Bannister did not sell its own stock. According to Arvest, then, the
Bancorp case is inapplicable and the Indenture was not breached. Whether Arvest’s
purchase of Union Bank constitutes a sale of all or substantially all of Bannister’s assets
is not an issue that can be resolved at this juncture. Rather, the Court finds Plaintiff has
pleaded sufficient factual allegations which permits this Court to draw the reasonable
inference that Arvest’s purchase of Union Bank could be considered a sale of all or
substantially all of Bannister’s assets. For instance, Plaintiff asserts in its Second
Amended Complaint that Union Bank was Bannister’s only substantial asset and that
“U.S. Bank, as the Trustee overseeing the Indenture, declared Bannister in default
under the successor obligor provision of the Indenture, on grounds that the sale of
Union Bank to Arvest constituted a sale of substantially all of Bannister’s assets.” SAC,
¶¶ 3, 37.
Second, Arvest contends that even if the Indenture were breached, Plaintiff has
not sufficiently pleaded that Arvest caused the breach. Arvest points to Downing v.
Riceland Foods, Inc. in support of its position, but the Downing Court only addressed
whether a breach of contract occurred, not whether the defendant in that case had
induced the breach. No. 4:13-321, 2014 WL 4145406, at * 8 (E.D. Mo. Aug. 20, 2014).
Arvest also turns to Tri-Continental Leasing Co. v. Neidhardt for support. 540
S.W.2d 210 (Mo. Ct. App. 1976). However, the procedural posture in the TriContinental Leasing case was the appeal of a trial court’s ruling to sustain the
defendants’ motions for a directed verdict and thereby setting aside the jury verdict.
Here, the Court is reviewing the sufficiency of Plaintiff’s pleading in its Second Amended
Complaint. Therein, Plaintiff states (1) that Arvest “persuaded and/or conspired with
Bannister to breach” the Indenture’s Successor Obligor Provision, (2) that “in order to
clinch Bannister’s agreement to disregard the successor obligor provision of the
indenture, Arvest hired Jernigan as an Executive Vice President/Business to
7

development…,” and (3) that Arvest misrepresented to the Arkansas State Bank Board
that it was not required under the Indenture’s Successor Obligor Provision to assume
the debenture obligations. SAC ¶¶ 5, 7, 39. The Court finds Plaintiff has pleaded
sufficient facts supporting an inference that evidence will be presented demonstrating
Arvest caused or induced the alleged breach of the Indenture.
Third, Arvest claims it did not participate in any improper conduct. Arvest
maintains it was justified in purchasing Union Bank because the purchase helped
prevent Union Bank’s failure and “the harm that would have resulted to its depositors
and the community.” Doc. #64, page 21. Arvest may have had a justification for its
actions, but the Court’s review of Plaintiff’s Second Amended Complaint demonstrates
Plaintiff has adequately pleaded that Arvest employed improper means. Under Missouri
law, “[i]mproper means are those that are independently wrongful, such as threats,
violence, trespass, defamation, misrepresentation of fact, restraint of trade, or any other
wrongful act recognized by statute or the common law.” Stehno v. Sprint Spectrum,
L.P., 186 S.W. 3d 247, 252 (Mo. 2006). Under Arkansas law, courts looks to the
following factors to determine if an actor’s conduct is improper: “(a) the nature of the
actor’s conduct, (b) the actor’s motive; (c) the interests of the other with which the
actor’s conduct interferes; (d) the interests sought to be advanced by the actor; (e) the
social interests in protecting the freedom of action of the actor and the contractual
interests of the other; and (f) the proximity or remoteness of the actor’s conduct to the
interference and the relations between the parties.” J.D. Fields & Co., Inc. v. NucorYamato Steel, 976 F. Supp. 2d 1051, 1066 (E.D. Ark. 2013). Here, Plaintiff asserts
Arvest misrepresented to the Arkansas State Bank Board that the Bancorp decision was
inapplicable to the Union Bank purchase, and thus, Arvest was not required to assume
Bannister’s debenture obligations. Plaintiff asserts Arvest made this misrepresentation
despite its knowledge that U.S. Bank’s and other creditors’ views were that Arvest was
required to assume the debenture obligations. SAC, ¶¶ 7, 30, 31, 33. Plaintiff has
sufficiently pleaded factual allegations leading to the inference that Plaintiff will present
evidence establishing Arvest used improper means to tortiously interfere with the
Indenture.

8

Finally, Arvest argues Plaintiff cannot demonstrate any resultant damage. Arvest
claims Plaintiff’s position is that Union Bank was necessary for Bannister’s performance
under the Indenture. Arvest notes, though, that the FDIC had a $116.6 million lien on
Union Bank, and Plaintiff does not explain how it would have gained priority over this
FDIC lien. Whether this FDIC lien would have prevented Bannister from performing
under the Indenture is an issue for resolution at a later date. As of now, Plaintiff has
more than adequately pleaded that it has suffered damages due to Arvest’s alleged
tortious interference. For example, Plaintiff states in its Second Amended Complaint
that “Bannister never paid any of the outstanding deferred interest due under the
Indenture…”, and that “U.S. Bank sustained substantial economic losses in the form of
loss of payments of principal and interest under the TruPS.” SAC, ¶¶ 60, 68.
Accordingly, Arvest’s Motion to Dismiss is denied.
B. Breach of Contract (Counts II and III)
Plaintiff asserts two claims for breach of contract based on allegations that
Defendant Bannister did not fulfill its obligations pursuant to the Indenture. The parties
agree and Section 14.5 of the Indenture states that New York law governs the Indenture
without regard to conflict of law principles. Doc. #64-1, page 48. To state a claim for
breach of contract under New York law, Plaintiff must establish (1) the existence of a
contract, (2) plaintiff’s performance under the contract, (3) the defendant’s breach of
that contract, and (4) resulting damages. PFM Packaging Machinery Corp. v. ZMY
Food Packing, Inc., 131 A.D.3d 1029, 1030 (N.Y. App. Div. 2015); Hampshire Props. v.
BTA Bldg. & Developing, Inc., 122 A.D. 3d 573, 573 (N.Y. App. Div. 2014).
1. Count II
In its first breach of contract claim, Plaintiff maintains Bannister breached the
Indenture because Bannister did not comply with its obligations under the Successor
Obligor Provision. Specifically, Plaintiff alleges Bannister disregarded its obligations
pursuant to the Successor Obligor Provision when Arvest purchased Union Bank.
Bannister claims Plaintiff has failed to state a claim for breach of contract, because the
Successor Obligor Provision only applies to Bannister, it does not apply to Bannister’s
subsidiaries. As discussed earlier in Section III.A.2, however, the Court finds Plaintiff
9

has pleaded sufficient facts leading to the reasonable inference that evidence will be
presented demonstrating Bannister breached the Indenture, and Bannister’s Motion to
Dismiss Count II is denied.
2. Count III
In its second breach of contract claim, Plaintiff contends Bannister breached the
Indenture because Bannister failed to pay interest when due under the Indenture.
Bannister did not substantively address this Count in its opening Motion to Dismiss.
Instead, Bannister addressed this claim for the first time in its Reply Suggestions in
supports of its Motion to Dismiss, arguing Plaintiff has failed to plead when the interest
was due, what triggered the payment, or how Plaintiff performed under the Indenture.
However, it is improper for a party to raise new arguments in a reply brief. Gilmore v.
Preferred Credit Corp., No. 10-0189, 2011 WL 111238, at *2 (W.D. Mo. Jan. 13, 2011);
King v. Clarke Cty., Ala., No. 12-0312-CG-C, 2012 WL 5287040, at *7 (S.D. Ala. Sept.
27, 2012); Dytch v. Yoon, No. 10-02915, 2011 WL 839421, at *3 (N.D. Cal. Mar. 7,
2011); Performance Contracting, Inc. v. Rapid Response Const., Inc., 267 F.R.D. 422,
425 (D.D.C. 2010). Accordingly, the Court declines to consider Bannister’s new
arguments, and its Motion to Dismiss Count III is denied.
C. Breach of Fiduciary Duty (Count IV)
Plaintiff asserts Defendant Jernigan breached his fiduciary duties pursuant to the
Bannister Trust “by failing to safeguard the Trust’s property” and rejecting the position
that Arvest’s purchase of Union Bank triggered the Indenture’s Successor Obligor
Provision. SAC, ¶ 76. The parties agree and Section 13.2 of the Bannister Trust states
that Connecticut law governs the trust and the parties to the trust and that “all rights and
remedies shall be governed by [Connecticut law] without regard to the principles of
conflict of laws of the State of Connecticut or any other jurisdiction that would call for the
application of the law of any jurisdiction other than the State of Connecticut.” Doc. #442, page 43.
Under Connecticut law, the statute of limitations for a breach of fiduciary claim is
three years. Ahern v. Kappalumakkel, 903 A.2d, 266, 273 n.3 (Conn. App. Ct. 2006).
Defendant Jernigan argues Plaintiff has filed its claim for breach of fiduciary duty out of
10

time, and the Court agrees. According to Plaintiff’s Second Amended Complaint, Arvest
purchased Union Bank in June 2012. Thus, Jernigan breached his alleged fiduciary
duty no later than June 2012.
However, in this proceeding, Plaintiff is U.S. Bank’s assignee. It is well-settled
law that “an assignee stands in the shoes of an assignor.” Nat’l Loan Investors Ltd.
Partnership v. Heritage Square Associates, 733 A.2d 876, 879 (Conn. App. Ct. 1999).
An assignee has the same rights and limitations as the assignor. Gianetti v. Health Net
of Conn., Inc., 976 A.2d 23 (Conn. App. Ct. 2009); Fairfield Credit Corp. v. Donnelly,
264 A.2d 547 (Conn. 1969); also see Hemar Ins. Corp. of Am. v. Ryerson, 108 S.W.3d
90, 95 (Mo. Ct. App. 2003); Doss v. EPIC Heathcare Mgmt. Co., 901 S.W.2d 216, 222
(Mo. Ct. App. 1995).
As such, Plaintiff has the same rights and limitations as U.S. Bank. U.S. Bank’s
claim for breach of fiduciary duty began to run in June 2012 and expired by June 2015.
After June 2015, Connecticut’s statute of limitations bars U.S. Bank’s breach of fiduciary
claim against Jernigan. Because U.S. Bank is barred from bringing a claim; Plaintiff, as
U.S. Bank’s assignee, also is barred from doing so after June 2015. Here, Plaintiff, as
U.S. Bank’s assignee, filed its Second Amended Complaint on August 7, 2015. Doc.
#58. Thus, Plaintiff’s claim for breach of fiduciary duty against Jernigan is barred by the
statute of limitations.
Plaintiff argues the Second Amended Complaint relates back to its first
Complaint and First Amended Complaint. Plaintiff grounds its argument in two Eighth
Circuit decisions discussing an advisory committee note to Federal Rule of Civil
Procedure 15. See Plubell v. Merck & Co., 434 F.3d 1070 (8th Cir. 2006); Crowder v.
Gordons Transps., Inc., 387 F.2d 413 (8th Cir. 1967). The advisory committee note
states:
The relation back of amendments changing plaintiffs is not expressly treated in
revised Rule 15(c) since the problem is generally easier. Again the chief
consideration of policy is that of the statute of limitations, and the attitude taken in
revised Rule 15(c) toward change of defendants extends by analogy to
amendments changing plaintiffs. Also, relevant is the amendment of Rule 17(a)
(real party in interest). To avoid forfeiture of just claims, revised Rule 17(a)
would provide that no action shall be dismissed on the ground that it is not

11

prosecuted in the name of the real party in interest until a reasonable time has
been allowed for correction of this defect in the manner there stated.
In Plubell, the Eighth Circuit observed that in determining whether an amendment
adding a new plaintiff relates back to original complaint, “federal courts generally either
interpret Rule 15(c)(3) or apply a judicially-created test.” 434 F.3d at 1072. The
judicially created test examines whether (1) the original complaint gave the defendant
adequate notice of the claims of the newly-proposed plaintiff, (2) the relation back
unfairly prejudices the defendant, and (3) there is an identity of interest between the
original plaintiff and the newly-proposed plaintiff. Cliff v. Payco Gen. Am. Credits, Inc.,
363 F.3d 1113, 1132 (11th Cir. 2004). The Plubell Court noted that “[b]oth tests
consider the same factors and often yield the same result.” 434 F.3d at 1072.
Here, Plaintiff’s argument fails under either analysis. The mere fact that
Plaintiff’s three complaints are based on the same factual allegations is insufficient.
Defendant cannot be said to have known that U.S. Bank’s assignee would bring a claim
against him. U.S. Bank’s potential claims against Jernigan are wholly different in nature
than those of either Hildene Opportunities Master Fund, Ltd. or Hildene Capital
Management, LLC. U.S. Bank was Trustee for the Indenture and for the Bannister
Trust. According to the First Amended Complaint, Hildene Opportunities Master Fund,
Ltd. was a holder of downstream CDO notes and Hildene Capital Management, LLC is
the manager of Hildene Opportunities Master Fund, Ltd. The relationship U.S. Bank
has to these transactions and the consequent damage it may have incurred because of
these transactions is fundamentally different than that of the Hildene entities. Just
because Hildene brought a claim based on the same facts, does not mean Jernigan
was on notice that U.S. Bank would bring claims. In fact, U.S. Bank has not asserted
claims for years. Additionally, there is no identity of interest between Plaintiff and U.S.
Bank. See e.g., Asher v. Unarco Material Handling, Inc., 596 F.3d 313 (6th Cir. 2010);
Raynor Bros. v. Am. Cyanimid Co., 695 F.2d 382 (9th Cir. 1982); Staren v. Am. Nat’l
Bank & Trust Co. of Chicago, 529 F.2d 1257 (7th Cir. 1976).
Finally, the Plubell and Crowder cases provide no support for Plaintiff’s position.
In Plubell, Carol Richardson, “as class representative, filed a class action lawsuit
against Merck… alleging deceptive trade practices in the development and marking of
12

Vioxx.” 434 F.3d at 1071. Thereafter, Richardson determined she was mistaken about
the company that had manufactured her pain medication. Id. Thus, Plaintiff’s counsel
“sought leave to amend the petition, substituting a new class representative, Mary
Plubell, for Richardson.” Id. The Plubell Court determined that the amended petition
related back to the initial pleading because Defendant Merck was on notice of Plubell’s
claim because she already was a member of the potential class, noting that “Plubell is
only ‘newly-added’ in that she became the named class representative.” Id. at 1073. In
Plubell, the first and second Plaintiff would have had the exact same relationship with
Defendant Merck; and thus, would have had the exact same type of claims. Here, as
discussed in the previous paragraph, U.S. Bank’s relationship with Jernigan is not the
same as the Hildene entities’ relationships with Jernigan (if the Hildene entities have a
relationship with Jernigan at all).
In Crowder, Ruth Crowder, as administratrix of her deceased husband’s estate,
filed a lawsuit against the defendant, seeking damages on her own behalf and on behalf
of her two minor sons. 387 F.2d at 414. Later, Crowder filed an Amended Complaint,
as mother and next friend of her two minor sons, seeking damages on their behalf. Id.
The Crowder Court determined that the amended complaint related back to the initial
complaint because the “defendant was clearly advised by the original complaint that
each of the minors was seeking damages against it for the wrongful death of their
father…” Id. at 419. Here, the same cannot be said, as Jernigan was not on notice in
either the original Complaint or the First Amended Complaint that U.S. Bank was
seeking damages against him. Rather, the first two complaints in this case only put
Jernigan on notice that the Hildene entities were seeking damages. As such, Plaintiff’s
Second Amended Complaint does not relate back to its original Complaint or its First
Amended Complaint, and the Court dismisses Count IV of Plaintiff’s Complaint.

D. Champerty
Defendants argue that U.S. Bank’s assignment of the claims raised in this lawsuit
to Plaintiff is champertous. New York’s champerty law provides:
No person or co-partnership…and no corporation or association, directly or
indirectly, itself or by or through its officers, agents or employees, shall solicit,
13

buy or take an assignment of, or be in any manner interested in buying or taking
an assignment of a bond, promissory note, bill of exchange, book debt, or other
thing in action, or any claim or demand, with the intent and for the purpose of
bringing an action or proceeding thereon.
N.Y. Jud. Law § 489(1). “The ‘critical issue’ in determining whether an assignment is
champertous is ‘the purpose behind [the plaintiff’s] acquisition of rights that allowed it to
sue [the defendant].’” BSC Associates, LLC v. Leidos, Inc., 91 F. Supp. 3d 319, 325
(N.D.N.Y. 2015) (citing Trust for the Certificate Holders of the Merrill Lynch Mortgage
Investors, Inc. v. Love Funding Corp., 918 N.E.2d 889 (N.Y. 2009)). “’[I]n order to fall
within the statutory prohibition, the assignment must be made for the very purpose of
bringing suit and this implies an exclusion of any other purpose.’” Id. at 326 (citing
Fairchild Hiller Corp. v. McDonnell Douglas Corp., 270 N.E. 2d 691 (N.Y. 1971)). An
assignment will not be considered champertous if the assignee plaintiff has a significant,
preexisting interest in the repayment of the subject loan. Id. at 327-328; see also Trust
for Certificate Holders of the Merrill Lynch Mortgage Investors, Inc. v. Love Funding
Corp., 591 F.3d 116 (2d Cir. 2010).
Plaintiff attached a Declaration to its Opposition to Defendants’ Motions to
Dismiss, indicating Plaintiff does have an interest in the repayment of the underlying
transacation that preexists the U.S. Bank assignment. Doc. #73-1. Defendants argue
Plaintiff has pleaded facts in its Opposition that were not pleaded in its Second
Amended Complaint and that the Court should not consider materials outside of the
pleadings.
The Court agrees Plaintiff has recited new, unpleaded facts in its Opposition.
However, the Court will not exclude Plaintiff’s Declaration and will treat the motions on
the issue of champerty as ones for summary judgment under Federal Rule of Civil
Procedure 56. See FRCP 12(d). As such, the Court will give Defendants an
opportunity to present material that is pertinent to the motion on the issue of champerty.
The Court directs Defendants to file their Responses on or before Februrary 8, 2016.
The Court will permit Plaintiff to file its Reply to Defendants’ Responses on or before
February 22, 2016.

14

IV.

CONCLUSION

In sum, the Court dismisses Count IV of Plaintiff’s Second Amended Complaint,
but Counts I, II, and III remain. The Court also gives notice to the parties that the issue
of champerty will be treated as a Motion for Summary Judgment. Defendants shall file
their Responses on or before February 8, 2016; and Plaintiff will file its Reply to
Defendants’ Responses on or before February 22, 2016. Finally, the Court lifts the stay
in this case and directs the parties to file a new Proposed Scheduling Order on or
before February 16, 2016.
IT IS SO ORDERED.

/s/ Ortrie D. Smith
ORTRIE D. SMITH, SENIOR JUDGE
UNITED STATES DISTRICT COURT

DATE: January 25, 2016

15