Holliday v. Womble Bond Dickinson US LLP
Filing
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ORDER and OPINION: The Court GRANTS Defendant's Motion to Dismiss (Dkt. No. 19) on two separate and independent grounds. First, the presumed transfer of the Decedent's survival legal malpractice claim was legal null ity, and the Trustee of the Revocable Trust had no authority to assert the claim that was the exclusive prerogative of the personal representative. Second, the presumed Assignment of the cause of action was collusive and for the purpose of manufacturing federal jurisdiction that otherwise did not properly exist. AND IT IS SO ORDERED. Signed by Honorable Richard M Gergel on 7/28/22.(ltap, ) Modified document type on 7/29/2022 (sshe, ).
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH CAROLINA
CHARLESTON DIVISION
Mark Bennet Holliday, as Trustee of the
Patricia Anne Holliday Revocable Trust
Dated December 29, 2008, amended
and restated August 4, 2017,
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Plaintiff,
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v.
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Womble Bond Dickinson (US) LLP,
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Defendant.
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Civil Action No. 2:22-442-RMG
ORDER AND OPINION
This matter comes before the Court on Defendant’s motion to dismiss for lack of subject
matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1). (Dkt. No. 19). Plaintiff
filed a response in opposition (Dkt. No. 24) to which Defendants replied (Dkt. No. 25). The Court
directed the parties to supplement their briefing. (Dkt. No. 30). Pursuant to that Order, both parties
filed supplemental replies (Dkt. Nos. 31, 32). For the reasons set forth below, the Court grants
Defendant’s motion to dismiss.
I.
Background
Plaintiff initiated this action in federal court alleging four state law claims arising out of
Defendant’s legal representation of Patricia Holliday (hereafter “Decedent”) and asserted federal
jurisdiction on the basis of diversity. (Dkt. No. 1).1 According to the Complaint, from March 2017
until Decedent’s death in February 2020, Defendant represented and advised Decedent regarding
her legal rights to distributions as part of her divorce settlement. (See id., ¶¶ 11, 21, 30). This
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The Court will refer to the four state law claims collectively as the “malpractice suit.”
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representation included the filing of a lawsuit which concluded in November of 2020. (Dkt. No.
1-22).
Defendant now moves to dismiss the Complaint for lack of subject matter jurisdiction,
asserting that complete diversity between the parties does not exist. (Dkt. No. 19). Mark Bennett
Holliday (hereafter “Holliday”) is a citizen of Utah and is both the personal representative of
Decedent’s estate (hereafter “Estate”) and the trustee to Decedent’s revocable trust (hereafter
“Revocable Trust”). (Dkt. No. 1, ¶¶ 34-36; Dkt. No. 24-1). Holliday is also one of the two
beneficiaries of Decedent’s Estate. (Dkt. No. 19-3). Because Decedent was domiciled in South
Carolina prior to her death, the Estate is a citizen of South Carolina for diversity purposes. (See
Dkt. No. 19-2). Since Holliday is a citizen of Utah, the Revocable Trust is a citizen of Utah for
diversity purposes. Defendant is organized as a limited liability partnership under the laws of North
Carolina and has offices and partners domiciled in South Carolina. (Dkt. No. 19-1 at 2). Defendant
does not have any partners domiciled in Utah. (Id.)
II.
Standard
Federal courts are courts of limited jurisdiction, and their jurisdiction will not be presumed.
Pinkley, Inc. v. Cty. of Frederick, 191 F.3d 394, 399 (4th Cir. 1999). District courts have diversity
jurisdiction over civil actions where the amount in controversy exceeds $75,000 and there is
complete diversity among the parties. 28 U.S.C. § 1332(a).
A Rule 12(b)(1) motion challenges the court’s subject matter jurisdiction over an action.
“In determining whether jurisdiction exists, the district court is to regard the pleadings’ allegations
as mere evidence on the issue, and may consider evidence outside the pleadings without converting
the proceeding to one for summary judgment.” Richmond, Fredericksburg & Potomac R. Co. v.
United States, 945 F.2d 765, 768 (4th Cir. 1991). The Court must apply the standard applicable to
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a motion for summary judgment, under which the nonmoving party must set forth specific facts
beyond the pleadings to show that a genuine issue of material fact exits. Id. The moving party
should prevail only if the material jurisdictional facts are not in dispute and the moving party is
entitled to prevail as a matter of law. Id.
III.
Discussion
Diversity does not exist if the malpractice suit must be brought by the Personal
Representative of Decedent’s Estate. Diversity only exists here if the case can be brought by the
Trustee of the Revocable Trust. Therefore, a critical issue is whether the Estate had the legal
authority to transfer the malpractice claim to the Revocable Trust. Plaintiff offers two theories to
support the transfer. First, Plaintiff argues that the malpractice claim was automatically transferred
from the Estate to the Revocable Trust pursuant to a pour-over provision in Decedent’s will. (Dkt.
No. 31 at 3). Alternatively, Plaintiff argues that the Estate assigned the malpractice claim to the
Revocable Trust through a written Assignment. (Dkt. No. 24 at 2; Dkt. No. 24-1). The Court
addresses both theories in turn.
A. The Malpractice Claim Could Not Lawfully Be Transferred Pursuant the PourOver Provision in Decedent’s Will or by Assignment, and the Assertion of the
Malpractice Claim by the Trustee of the Revocable Trust is a Legal Nullity.
South Carolina’s survival statute provides that “[c]auses of action for . . . any and all
injuries to the person . . . shall survive both to and against the personal or real representative, as
the case may be, of a deceased person.” S.C. Code Ann. § 15-5-90. Unlike damages in a wrongful
death action, which are for the benefit of the decedent’s heirs, damages in a survival action are for
the benefit of the decedent’s estate. Welch v. Epstein, 342 S.C. 279, 303, 536 S.E.2d 408, 420 (S.C.
2000) (citing Scott v. Porter, 340 S.C. 158, 530 S.E.2d 389 (S.C. Ct. App. 2000)); Carson v. CSX
Transp., Inc., 400 S.C. 221, 242, 734 S.E.2d 148, 159 (S.C. 2012) (citing F. Patrick Hubbard &
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Robert L. Felix, The South Carolina Law of Torts 706 (4th ed. 2011)). Thus, according to the South
Carolina’s survival statute, a survival claim may only be filed by the personal representative of the
decedent’s estate. Carson, 400 S.C. at 242-43, 273 S.E.2d at 159 (citing F. Patrick Hubbard &
Robert L. Felix, The South Carolina Law of Torts 705-06)). South Carolina’s probate code also
“grants the personal representative the exclusive authority to bring civil actions—including
survival actions—on behalf of an estate.” Fisher v. Huckabee, 422 S.C. 234, 238, 811 S.E.2d 739,
741 (S.C. 2018) (citing S.C. Code Ann. § 62-3-715(20)).
Since the personal representative has the exclusive authority to bring survival actions, the
presumed transfer of the legal malpractice claims to the Revocable Trust, either pursuant to a pourover provision in Decedent’s will or by Assignment, was improper and without legal effect. The
legal malpractice claim must be brought, if at all, by the Estate’s personal representative. The
assertion of the malpractice claim by the Trustee of the Revocable Trust is a nullity and cannot be
the basis of invoking the Court’s jurisdiction.
B. The Written Assignment Was Improperly Made to Invoke the Jurisdiction of the
Federal Courts.
A district court lacks jurisdiction over a civil action “in which any party, by assignment or
otherwise, has been improperly or collusively made or joined to invoke the jurisdiction of such
court.” 28 U.S.C. § 1359. The purpose of this statute is to prevent the “manufacture of Federal
jurisdiction” by means of assignment or otherwise. See Kramer v. Caribbean Mills Inc., 394 U.S.
823, 829 (1969). Put differently, Congress, in enacting § 1359, sought to prevent “a vast quantity
of ordinary contract and tort litigation [from being] channeled into the federal courts at the will of
one of the parties.” Id. at 828; see also Lester v. McFaddon, 415 F.2d 1101, 1104 (4th Cir. 1969)
(recognizing that the purpose of § 1359 is “to exclude from the diversity jurisdiction purely local
controversies with no more than a contrived interstate appearance.”).
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The question of whether an assignment is collusive and motivated by the assignor’s desire
to obtain access to a federal court under diversity jurisdiction is one of fact. Herzog Contracting
Corp. v. McGowen Corp., 976 F.2d 1062, 1066 (7th Cir. 1992). Courts have considered several
factors when analyzing this issue: “(i) whether there was nominal or no consideration involved in
the assignment; (ii) whether the assignee had any previous connection to the assigned claim; (iii)
whether there was a legitimate business reason for the assignment; (iv) whether the timing of the
assignment suggests that it was merely an effort to secure federal diversity jurisdiction; (v) whether
the assignor exercises any control over the conduct of the litigation; (vi) whether the assignor
retains any interest in the action, i.e., is the assignor to receive a percentage of the assignee’s
recovery.” Long & Foster Real Estate, Inc. v. NRT Mid-Atlantic, Inc., 357 F. Supp. 2d 911, 92223 (E.D. Va. 2005) (internal citations omitted).
Based upon these factors, the Court finds that the presumed assignment of the Decedent’s
survival claim was collusive and for the purpose of invoking federal jurisdiction. The timing of
the assignment strongly suggests that it was merely an effort to secure federal diversity jurisdiction.
Decedent passed away on February 23, 2020. (Dkt. No. 1, ¶ 22). The underlying case from which
the alleged malpractice arose concluded later that year on November 19, 2020. (Dkt. No. 1-22).
After the underlying case concluded, the Plaintiff made a formal demand for damages, including
attorney’s fees and costs, that Defendant refused. (Dkt. No. 1, ¶ 36). On January 19, 2022, the
Estate assigned any claims that the Estate may have for malpractice against Defendant to the
Revocable Trust. (Dkt. No. 24-1). Then, less than a month later, Plaintiff initiated the present
action on February 11, 2022. (Dkt. No. 1). Because the Assignment was made after the nonlitigious demand to Defendant and shortly before litigation, the timing of the Assignment casts
doubt on the legitimacy of the reasons advanced by Plaintiff. See Dae Poong Co. v. Deiss, No. C5
05-01470, 2005 WL 2000936, at *4 (N.D. Cal. August 16, 2005) (finding that the timing of the
assignment casts doubt on the legitimacy of the business reasons advanced by plaintiff because the
assignment occurred after a non-litigious alternative was exhausted and shortly before litigation).
Moreover, the Assignment artificially converted the claim into a dispute between citizens
of different states. Holliday is both the personal representative of the Estate and the trustee of the
Revocable Trust. (Dkt. No. 24-1). Additionally, Holliday and the Revocable Trust are the only two
beneficiaries named in Decedent’s Will. (Dkt. No. 19-3 at 13). Since the pour-over clause devised
the remainder of Decedent’s estate to the Revocable Trust, (Dkt. No. 19-3 at 3), any amount
recovered by the Estate from the malpractice suit, if brought by the personal representative, would
flow to the Revocable Trust. Welch, 342 S.C. at 303, 536 S.E. 2d. at 421 (“Actual damages in a
survival action are awarded for the benefit of the decedent’s estate.”) see also S.C. Code Ann.
§ 62-3-1008 (providing that the provisions of the probate code applies if other property is
discovered after the estate has been settled). Since the damages from this malpractice action would
have benefited the Revocable Trust whether or not the Assignment took place, the Assignment had
no practical purpose other than to manufacture federal jurisdiction.
IV.
Conclusion
For the reasons above, the Court GRANTS Defendant’s Motion to Dismiss (Dkt. No. 19)
on two separate and independent grounds. First, the presumed transfer of the Decedent’s survival
legal malpractice claim was legal nullity, and the Trustee of the Revocable Trust had no authority
to assert the claim that was the exclusive prerogative of the personal representative. Second, the
presumed Assignment of the cause of action was collusive and for the purpose of manufacturing
federal jurisdiction that otherwise did not properly exist.
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s/ Richard Mark Gergel
Richard Mark Gergel
United States District Judge
July 28, 2022
Charleston, South Carolina
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