Companion Property and Casualty Insurance Company v. US Bank NA

Filing 118

ORDER AND OPINION GRANTING IN PART DENYING IN PART Third-Party Defendants' Motions to Dismiss 80 AND 83 . This court specifically dismisses U.S. Bank's claims for apportionment and equitable indemnification. Signed by Honorable J Michelle Childs on 5/27/2016.(asni, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
COLUMBIA DIVISION
Companion Property and
Casualty Insurance Company (n/k/a
Sussex Insurance Company),

)
)
)
)
Plaintiff,
)
v.
)
)
U.S. Bank National Association,
)
)
)
Defendant.
)
___________________________________ )
)
U.S. Bank National Association,
)
)
Third-Party Plaintiff,
)
v.
)
)
Redwood Reinsurance SPC, Ltd.;
)
Southport Specialty Finance;
)
Southport Lane Advisers;
)
Administrative Agency Services;
)
Alexander Chatfield Burns,
)
)
)
Third-Party Defendants.
)
___________________________________ )

Civil Action No. 3:15-cv-01300-JMC

ORDER AND OPINION

Companion Property and Casualty Insurance Company (“Companion”) filed this action
against Defendant and Third-Party Plaintiff, U.S. Bank National Association (“U.S. Bank”), for
(1) breach of contract – trust agreements, (2) breach of fiduciary duty, (3) negligence/gross
negligence, (4) negligent misrepresentation, (5) equitable estoppel, and (6) violation of the South
Carolina Unfair Trade Practices Act (“SCUTPA”), S.C. Code Ann. §§ 39-5-10 et seq. (2015). (See
ECF No. 1.) U.S. Bank filed a Motion to Dismiss (ECF No. 16), and this court dismissed

Companion’s claims against it except for the claims of breach of contract, breach of fiduciary duty,
and negligent misrepresentation. (See ECF No. 41.)
Now before the court are the Motions to Dismiss of Third-Party Defendants Southport
Specialty Finance (“Southport”), Southport Lane Advisers (“SLA”), and Administrative Agency
Services (“AAS”), (ECF No. 80), as well as the Motion to Dismiss of Third-Party Defendant
Alexander Chatfield Burns, (ECF No. 83-1) (collectively, “Third-Party Defendants”) as to U.S.
Bank’s third-party action against them for apportionment, contribution, and equitable
indemnification. 1 (See generally ECF No. 50.) For the reasons stated herein, this court GRANTS
IN PART and DENIES IN PART Third-Party Defendants’ Motions to Dismiss (ECF Nos. 80,
83). Specifically, the court dismisses U.S. Bank’s third-party claims of apportionment and
equitable indemnification. 2
I.

JURISDICTION

The District Court has subject matter jurisdiction over this action under 28 U.S.C. § 1332
(2012) because the parties are citizens of different states and the amount in controversy exceeds
$75,000. 3 (See ECF No. 50 at 2–9.)

1

On May 10, 2016, the court held a hearing regarding Third-Party Defendants’ Motions to
Dismiss. (ECF No. 112.)
2
This court does not consider in this Order U.S. Bank’s claim for contractual indemnification
against Redwood Reinsurance SPC, Ltd. (“Redwood”) (see ECF No. 50 at 35), as Redwood did
not file a motion to dismiss regarding that claim.
3
See infra IV.D for a discussion of Third-Party Defendant Burns’s arguments concerning
dismissal of claims against him under Fed. R. Civ. P. 12(b)(1) (2012) for lack of subject matter
jurisdiction.
2

II.
A.

RELEVANT FACTUAL AND PROCEDURAL BACKGROUND 4

Companion’s Claims against U.S. Bank: Factual Background
Companion participated in a fronted insurance program (the “Program”) with Redwood

Reinsurance SPC, Ltd. (“Redwood”) and Dallas National Insurance Company (“Freestone”), two
reinsurance companies. (ECF No. 1.) In a fronted insurance program, the reinsurer—here,
Freestone and Redwood—bears the actual risk of program performance. (ECF No. 50 at 7.) The
insurance company—here, Companion—receives a fee for allowing its name and paper to be used
as the front. (Id.) As part of the Program, reinsurance collateral trusts established for Companion’s
benefit under the reinsurance agreements secured Redwood’s and Freestone’s reinsurance
obligations to Companion. (ECF No. 1 at 4.) According to U.S. Bank, the main purpose of these
trusts was to provide liquid assets to satisfy the reinsurers’ reinsurance obligations in the event that
the reinsurers became insolvent. (ECF No. 16-1 at 7.)
Third-Party Defendant Burns founded Southport, 5 a New-York based private equity firm,
and was at all times relevant to this action Southport’s beneficial owner, controlling person, and
chief strategist. (ECF No. 50 at 11.) Affiliates of Southport acquired Redwood in 2012 and
Freestone in 2013. (Id. at 12.) During the time of these acquisitions (the fall of 2012), U.S. Bank
was substituted as a successor trustee on Companion’s reinsurance trust agreements with Redwood
and Freestone. (Id. at 13.) U.S. Bank became trustee to Companion under two separate trust
agreements: (1) the “Redwood Trust Agreement,” between Redwood as Grantor, Companion as
4

The relevant facts referenced from the Complaint in this section are taken as true only for the
purposes of Third-Party Defendants’ Motions to Dismiss. See E.I. du Pont de Nemours & Co. v.
Kolon Indus., Inc., 637 F.3d 435, 440 (4th Cir. 2011) (“When ruling on a Rule 12(b)(6) motion to
dismiss, a judge must accept as true all of the factual allegations contained in the complaint.”
(quotations omitted).).
5
“Southport” refers collectively to Southport Lane, LP; Southport Lane Management, LLC;
Southport Lane Genesis, LP; SLI Holdings, Inc.; and Southport Lane Financial, Inc. and their
respective subsidiaries and affiliates.
3

Beneficiary, and U.S. Bank as trustee; and (2) the “Freestone Trust Agreement,” between
Freestone as Grantor, Companion as Beneficiary, and U.S. Bank as trustee. (ECF No. 50 at 14.)
The Redwood Trust Agreement (ECF No. 50-1) and the Freestone Trust Agreement (ECF
No. 50-2) (collectively the “Trust Agreements”) stated that Freestone and Redwood, as Grantors,
would be making representations and warranties regarding the quality and sufficiency of the assets
that they transferred for deposit in the trust accounts. (§ 1(c).) Specifically, by agreement,
Redwood and Freestone would promise that the assets: (1) consisted only of “Eligible Securities” 6
as defined by contract; (2) were in such form that Companion could transfer and dispose of any
assets without the consent of anyone else; and (3) at all times had a value sufficient to cover 125%
of Redwood’s and Freestone’s respective reinsurance obligations. (Id.; see also id. § 6.)
Companion vested authority to administer the trust’s assets and make investment decisions
in Redwood and Freestone, who then gave directions to U.S. Bank for investing the assets. (§§
4(b)-(d) (requiring U.S. Bank to “execute Investment Orders as directed”).) In executing these
orders, U.S. Bank was “authorized to follow and rely upon all instructions” pursuant to Redwood’s
and Freestone’s authorized signatories—if U.S. Bank followed the instructions, it was not to incur
liability for actions “in reliance in good faith on such instructions.” (Id. § 7(h).) Other provisions
of the Trust Agreements specifically highlighting the parties’ responsibilities provided that:
Section 4(c): “From time to time, subject to Section 2 of this Agreement, [Redwood
or Freestone] may direct [U.S. Bank] to substitute Assets of comparable value for
other Assets presently held in the Trust Account with written notification to
[Companion] of the substitute Assets. [U.S. Bank] shall comply with any such
direction. Each time that [Redwood or Freestone] provides [Companion] with
substitution direction it shall be considered a representation and warranty of
[Redwood or Freestone] that (i) the substitute Assets are Eligible Securities or cash,
6

The Trust Agreements define Eligible Securities as “investments permitted or allowed under
South Carolina’s investment laws applicable to domestic insurance companies” including cash and
investment of the types specified in South Carolina’s Investments of Insurers Act. (§ 11.) The
Trust Agreements further provide that securities issued by a Parent, Subsidiary, or Affiliate of any
Grantor are not Eligible Securities. (Id.)
4

and (ii) [U.S. Bank] has determined that the fair market value of the substituted
Assets is not less than the fair market value of the Assets being replaced thereby.”
Section 7(b): “Before accepting any Asset submitted for deposit to the Trust
Account, [U.S. Bank] shall determine that such Asset is in such form that
[Companion] whenever necessary may, or [U.S. Bank] upon direction by
[Companion] will be able to, negotiate such Asset without consent or signature
from [Redwood or Freestone] or any person or entity other than [U.S. Bank] in
accordance with the terms of this Agreement.”
Section 7(f): “[U.S. Bank] shall furnish to [Redwood or Freestone] and
[Companion] a statement of all Assets in the Trust Account including their fair
market value (1) as of the inception of the Trust Account and (2) as of the end of
each calendar month . . . . Such statement shall be considered a certification of [U.S.
Bank] that the fair market value of the Assets in the Trust Account is true and
correct according to the best information and belief of [U.S. Bank].” (Freestone
Trust Agreement)
Moreover, the Trust Agreements provide that:
Section 7(i): “The duties and obligations of [U.S. Bank] shall only be such as are
specifically set forth in this Agreement . . . and no implied duties or obligations shall
be read into this Agreement against [U.S. Bank]. [U.S. Bank] shall not be liable
except for its own negligence, willful misconduct or lack of good faith.”
Finally, the Trust Agreements also provide that:
Section 7(l): “[U.S. Bank] shall not be responsible for the genuineness or value of
any of the Assets or for the validity, perfection, priority or enforceability of liens in
any of the Assets, whether impaired by operation of law or by reason of any action
or omission to act on its part hereunder (except to the extent such action or omission
constitutes negligence, willful misconduct or lack of good faith on the part of [U.S.
Bank]), for the validity of title to the Asset, for insuring the Assets or for the payment
of taxes, charges, assessments or liens upon the Assets.”
As Grantors and parties of these Trust Agreements, Redwood and Freestone identified
authorized signers, as referenced, supra, who could act for them with regard to each trust account.
(ECF No. 50 at 17.) One of the authorized signers empowered to act was Michael Morrow,
President and Chief Investment Officer of Third-Party Defendant SLA. (Id.)
Third-Party Defendant SLA was registered as an investment advisor with the Securities
and Exchange Commission until March 31, 2014 and managed the asset allocation strategies for

5

all of Southport’s companies, including Redwood and Freestone. (Id. at 4.) Third-Party Defendant
Burns was the “Ultimate Control Person” and “Chief Strategist” for Third-Party Defendant SLA.
(Id.) Through Morrow, Third-Party Defendant SLA had authority to “at all times act on behalf of,
and as agent of” Redwood and Freestone based on “Investment Management Agreements” entered
into with each of them. (Id. at 18.) Freestone and Redwood, “directly or through [Third-Party
Defendant SLA],” decided which assets to buy, which to sell, and in what amounts. (Id. at 37.)
Between May 2013 and January 2014, U.S. Bank, as trustee, approved and permitted the
substitution of assets for various investments for the Freestone and Redwood trust accounts. (Id.
at 18–21.) Companion alleges U.S. Bank is liable because certain assets in the trust accounts
violated the terms of the Trust Agreements. (ECF No. 1 at 7–10.) Specifically, Companion alleges
certain Southport affiliate securities held in the trust accounts were not “Eligible Securities” under
the Trust Agreements, were not freely negotiable, and/or had little to no value. (Id. at 12–18.)
Companion makes these same allegations with regard to the acquisition of Destra Targeted Income
Unit Investment Trusts (“Destra UITs”) for the trust accounts. 7 (Id.). 8

7

A unit investment trust (“UIT”) is a registered investment vehicle governed by the Investment
Company Act of 1940. A UIT typically offers multiple series. Each series holds a fixed portfolio
of underlying assets (known as “Portfolio Securities”) that have been contributed to the UIT. Each
series issues a fixed number of units, and each unit represents an undivided fractional interest in
the underlying Portfolio Securities. Unitholders receive shares of income that the Portfolio
Securities generate. (ECF No. 50 at 22.)
8
More generally, Companion alleges that in January 2013 the Redwood Trust Account had assets
totaling approximately $107.2 million. (ECF No. 1 at 7.) Companion alleges that as of March
2014, the Redwood Trust Account had approximately $364,000 in cash, investments in Destra
Unit Investment Trusts (“UITs”) purported to be worth approximatively $93.4 million but
allegedly worth far less, and investments in stocks and other securities purported to be worth $28.1
million but that appear to have little value. (See id. at 8.) As for the Freestone Trust Account,
Companion alleges that in January 2013 the account had approximately $72.8 million in cash.
(Id.) Companion further alleges that as of March 2014, the Freestone Trust Account had $5,000
in cash, investments in Destra UITs purported to be worth approximately $33.8 million but worth
far less, and investments in stocks and other securities purported to be worth approximately $21
million but that appear to have little value. (See id. at 9.)
6

B.

U.S. Bank’s Third-Party Action against Third-Party Defendants: Factual Background
U.S. Bank, who managed the contribution of assets from May 2013 through January 2014

as Companion’s trustee, denies Companion’s claims. However, it argues that if Companion’s
allegations are proven at trial, Third-Party Defendants are liable to Companion. (ECF No. 50 at
27.)
First, U.S. Bank alleges Redwood and Freestone—either directly or through Third-Party
Defendant SLA—directed U.S. Bank’s purchases of securities and other membership interests in
various companies. (Id. at 18–21.) Companion now disputes these assets. (Id.) U.S. Bank alleges
that Third-Party Defendant SLA provided a false representation regarding the values of the
securities to be purchased—specifically, that the value of these securities and interests was
“grossly overinflated.” (Id. at 20.)
Southport affiliates controlled several of the companies that issued the membership
interests. (Id. at 18–20.) Third-Party Defendant AAS was the “managing member” for some of
these issuing companies. (Id. at 18 (stating that in that position, Third-Party Defendant AAS
“executed multiple stock certificates in the names of Companion’s reinsurance trusts with
Redwood and Freestone”).) Third-Party Defendant SSF, a wholly-owned Southport subsidiary,
(id. at 4), was Third-Party Defendant AAS’s sole member, which means Third-Party Defendant
SSF had the “exclusive and complete authority and discretion to manage Third-Party Defendant
AAS’s business affairs.” (Id. at 4.) Third-Party Defendant Burns was Third-Party Defendant
SSF’s sole director, sole authorized signatory, and “control person.” (Id. at 7–8.)
Second, U.S. Bank alleges that Redwood and Freestone caused the Redwood and Freestone
trust accounts to acquire Destra UITs from June 2013 through January 2014. (Id. at 21.)
Companion also disputes these assets. (Id.) Southport established the Destra UITs, and Third-

7

Party Defendant SSF contributed the underlying portfolio of securities for the UITs. (Id. at 22.)
Third-Party Defendant Burns personally executed a series of contribution agreements that
contained representations regarding the nature and value of the assets contributed to the Destra
UITs. (Id. at 22.)
Per another trust agreement, Third-Party Defendant AAS was the “administrative agent”
for the Destra UITs. (Id.) As an administrative agent, Third-Party Defendant AAS was responsible
for valuing the portfolio securities and for approving important decisions regarding the transfers
of units. (Id. at 22–23.) U.S. Bank was not a party to that agreement, but its affiliate, “U.S. Bank
Trust National Association,” was a party. (Id. at 22.) U.S. Bank states that Third-Party Defendant
AAS had “the most authority and duties with respect to the Destra UITs” (e.g., valuing the
underlying assets, directing distributions, etc.) and that U.S. Bank’s affiliate, U.S. Bank Trust
National Association, had limited duties. (Id. at 23–24.)
As with the securities and ownership interests, U.S. Bank alleges Redwood and Freestone
directed its purchases of units in the Destra UITs—directly or through Third-Party Defendant
SLA—from June 2013 through January 2014 and provided a representation regarding the values
of the units to be purchased. (Id. at 24–26.) In its action against U.S. Bank, Companion alleges
the values of the units were overstated. (Id.) Third-Party Defendant AAS approved each sale and
approved Companion as a unitholder. (Id.)
C.

U.S. Bank’s Third-Party Claims
U.S. Bank alleges Third-Party Defendant SLA owed a duty of reasonable care to

Companion and that if Companion’s allegations against U.S. Bank are proven as true, Third-Party
Defendant SLA “acted negligently, grossly negligently, recklessly, willfully, knowingly, and
wantonly in” both causing Companion’s reinsurance trusts to acquire the assets and in

8

misrepresenting and overstating their value. (Id. at 28.) U.S. Bank also claims Third-Party
Defendant SLA breached a fiduciary duty to Companion in managing the assets, and/or aided and
abetted Redwood and Freestone in breaching their fiduciary duty to Companion by causing the
trust accounts to acquire the assets. (Id. at 29.)
U.S. Bank claims Third-Party Defendant SSF “negligently, grossly negligently, recklessly,
willfully, knowingly, and wantonly” misrepresented the value and nature of the portfolio securities
it contributed to the Destra UITs and the assets sold to the trust accounts. (Id. at 30.) On this basis,
U.S. Bank claims Third-Party Defendant SSF procured Redwood and Freestone’s breaches of the
Trust Agreements. (Id.) U.S. Bank also claims Third-Party Defendant SSF aided and abetted
Redwood and Freestone’s breach of fiduciary duty to Companion. (Id. at 31.)
As for Third-Party Defendant AAS, U.S. Bank claims that it “acted negligently, grossly
negligently, recklessly, willfully, knowingly, and wantonly in”: (a) valuing the portfolio securities
in the Destra UITs, (b) approving submission of the values to NASDAQ and Bloomberg (where
the Destra UITs were listed and quoted, respectively), (c) approving the purchase and/or transfer
of the units of the Destra UITs into the trust accounts, (d) approving Companion’s reinsurance
trusts with Redwood and Freestone as unitholders, (e) entering into subscription agreements with
Companion, and (f) selling and/or contributing certain of the securities into the trust accounts. (Id.
at 31.) U.S. Bank also alleges Third-Party Defendant AAS “negligently, grossly negligently,
recklessly, willfully, knowingly, and wantonly misrepresented” the value and nature of the
portfolio securities and other security assets sold by Third-Party Defendant AAS to the trust
accounts. (Id. at 32.) U.S. Bank further alleges Third-Party Defendant AAS tortiously interfered
with Redwood and Freestone’s performance of the Trust Agreements and aided and abetted
Redwood and Freestone’s breach of fiduciary duty to Companion. (Id. at 32–33.)

9

In sum, U.S. Bank alleges that Third-Party Defendants SLA and Redstone “directed the
conduct that underlies Companion’s claims.” (ECF No. 104 at 12.) U.S. Bank further alleges that
Third-Party Defendants SSF and AAS “created the contested assets, provided valuations that
Companion says were inflated, and sold or contributed the contested assets to the trusts.” (Id.)
U.S. Bank names Third-Party Defendant Burns as a Third-Party Defendant since he allegedly
“dominated and controlled” each of the other Third-Party Defendants and “directed or participated
in all of the relevant conduct.” (Id.; ECF No. 50 at 33.) U.S. Bank alleges that “it was reasonably
foreseeable, and [Third-Party Defendant] Burns should have known, did know, and/or intended,
that Companion . . . would receive the asset valuations that [Third-Party Defendant] Burns
originated in account statements and other communications directed to Companion” and that
Third-Party Defendant Burns had a pecuniary interest in making representations regarding the
assets. (Id.)
With these underlying tort theories of liability, U.S. Bank alleges the following specific
causes of action against Third-Party Defendants: 1) apportionment under S.C. Code. Ann. § 1538-15 (2015); 2) contribution under S.C. Code § 15-38-10 (2015) “or other applicable grounds”;
and 3) equitable indemnification.
D.

Procedural Posture
Companion filed a Complaint in this court on March 20, 2015. (ECF No. 1). On May 18,

2015, U.S. Bank moved to dismiss that action, (see ECF No. 16), a motion this court granted in
part and denied in part. 9 (See ECF No. 41.) After this court issued that Order, U.S. Bank filed a
Third-Party Complaint (ECF No. 50) against Third-Party Defendants (as well as Redwood). ThirdParty Defendants SLA, SSF, and AAS moved to dismiss U.S. Bank’s third-party action, (see ECF

9

On September 10, 2015, the court held a hearing regarding the Motion to Dismiss. (ECF No. 37.)
10

No. 80), under Fed. R. Civ. P. 12(b)(6) (2012). Third-Party Defendant Burns separately moved to
dismiss U.S. Bank’s third-party action under both Rule 12(b)(6) and Fed. R. Civ. P. 12(b)(1)
(2012). (ECF No. 83-1.) The court addresses Third-Party Defendants’ Motions to Dismiss below.
III.
A.

LEGAL STANDARD

Fed. R. Civ. P. 12(b)1) Motion to Dismiss
A Rule 12(b)(1) motion for lack of subject matter jurisdiction raises the fundamental

question of whether a court has jurisdiction to adjudicate the matter before it. Fed. R. Civ. P.
12(b)(1). “Federal courts are courts of limited subject matter jurisdiction, and as such there is no
presumption that the court has jurisdiction.” Pinkley, Inc. v. City of Frederick, Md., 191 F.3d 394,
399 (4th Cir. 1999). Unless a matter involves an area of a federal court’s exclusive jurisdiction, a
plaintiff may bring suit in federal court only if 1) the matter involves a federal question arising
“under the Constitution, laws or treaties of the United States,” 28 U.S.C. § 1331, or 2) “the matter
in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between
citizens of different states,” 28 U.S.C. § 1332(a)(1). In determining whether jurisdiction exists,
the 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.R. Co. v. United States, 945 F.2d 765, 768 (4th Cir. 1991)
(citing Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir. 1982)). “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. (citation omitted).
B.

Fed. R. Civ. P. 12(b)(6) Motion to Dismiss
A Rule 12(b)(6) motion for failure to state a claim upon which relief can be granted

“challenges the legal sufficiency of a complaint.” Francis v. Giacomelli, 588 F.3d 186, 192 (4th

11

Cir. 2009) (citations omitted); see also Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th
Cir. 1992) (“A motion to dismiss under Rule 12(b)(6) . . . does not resolve contests surrounding
the facts, the merits of a claim, or the applicability of defenses.”). To be legally sufficient, a
pleading must contain a “short and plain statement of the claim showing that the pleader is entitled
to relief.” Fed. R. Civ. P. 8(a)(2).
A court should not grant a Rule 12(b)(6) motion unless it appears certain that the plaintiff
can prove no set of facts that would support her claim and would entitle her to relief. Mylan Labs.,
Inc. v. Matkari, 7 F.3d 1130, 1134 (4th Cir. 1993). When considering a Rule 12(b)(6) motion, the
court should accept as true all well-pleaded allegations and should view the complaint in a light
most favorable to the plaintiff. Ostrzenski v. Seigel, 177 F.3d 245, 251 (4th Cir. 1999); Mylan
Labs., Inc., 7 F.3d at 1134. “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.’” Ashcroft
v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
“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.” Id. The
court may consider only the facts alleged in the complaint, which may include any documents
either attached to or incorporated in the complaint, and matters of which the court may take judicial
notice. Tellabs v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007).

12

IV.
A.

THE COURT’S ANALYSIS 10

Apportionment Claim under South Carolina Law
In its Third-Party Complaint, U.S. Bank alleges:
To the extent any liability can be determined as belonging to U.S. Bank, which is
denied, U.S. Bank asserts that the Third-Party Defendants possess an identifiable
difference in the degree of fault. Pursuant to S.C. Code. Ann. § 15-38-15 et seq. the
Court is to determine fault allocation as to Third-Party Defendants and/or any nonparties responsible for the damages alleged by [Companion]. U.S. Bank requests
relief from any and all damages owed to [Companion] which resulted from the
relative fault of the Third-Party Defendants and/or any responsible non-parties.

(ECF No. 50 at 34.) S.C. Code. Ann. § 15-38-15 addresses “[l]iability of defendant responsible
for less than fifty per cent of total fault; apportionment of percentages; willful, wanton, or grossly
negligent defendant and alcoholic beverage or drug exceptions.” 11

10

For the purposes of its analysis, this court regards the arguments in the Motion to Dismiss of
Third-Party Defendants SLA, SSF, and AAS, (ECF No. 80), as encompassing of the same
arguments Third-Party Defendant Burns advances in his Motion to Dismiss, (ECF No. 83-1),
unless otherwise acknowledged. (See ECF No. 83-1 (“For purposes of this motion, Burns adopts
each and every argument set forth by Southport Lane Advisors (“SLA”), Southport Specialty
Finance (“SSF”) and Administrative Agency Services (“AAS”) (collectively, “Southport”) in their
motion to dismiss the third-party complaint pursuant to Rule 12(b)(6), FRCP.”).)
11
Section 15-38-15, in its entirety, reads:
(A) In an action to recover damages . . . if indivisible damages are determined to be
proximately caused by more than one defendant, joint and several liability does not
apply to any defendant whose conduct is determined to be less than fifty percent of
the total fault for the indivisible damages as compared with the total of: (i) the fault of
all the defendants; and (ii) the fault (comparative negligence), if any, of plaintiff. A
defendant whose conduct is determined to be less than fifty percent of the total fault
shall only be liable for that percentage of the indivisible damages determined by the
jury or trier of fact.
(B) Apportionment of percentages of fault among defendants is to be determined as
specified in subsection (C).
(C) The jury, or the court if there is no jury, shall:
(1) specify the amount of damages;
(2) determine the percentage of fault, if any, of plaintiff and the amount of
recoverable damages under applicable rules concerning “comparative
negligence”; and
13

1. Third-Party Defendants’ Arguments
Third-Party Defendants contend that South Carolina law does not recognize an action for
apportionment. (ECF No. 80 at 2, 9–10.) They explain that there is no reported case that
recognizes an apportionment cause of action and that there is “nothing in the South Carolina
Contribution Among Tortfeasors Act (“SCCATA”) to suggest a legislative intent to create this
action.” (Id. at 2.) Third-Party Defendant Burns separately argues that according to the statute’s
text, only after Companion elects to name more defendants “would U.S. Bank then have the right
to seek apportionment of any verdict, by motion at the appropriate time.” (ECF No. 83-1 at 12.)
Third-Party Defendant Burns further contends that the “right” referred to in § 15-38-15(D) 12 refers

(3) upon a motion by at least one defendant, where there is a verdict under items
(1) and (2) above for damages against two or more defendants for the same
indivisible injury, death, or damage to property, specify in a separate verdict
under the procedures described at subitem (b) below the percentage of liability
that proximately caused the indivisible injury, death, damage to property, or
economic loss from tortious conduct, as determined by item (1) above, that is
attributable to each defendant whose actions are a proximate cause of the
indivisible injury, death, or damage to property. In determining the percentage
attributable to each defendant, any fault of the plaintiff, as determined by item (2)
above, will be included so that the total of the percentages of fault attributed to
the plaintiff and to the defendants must be one hundred percent. . . .
(a) For this purpose, the court may determine that two or more persons are to
be treated as a single party. . . .
(b) After the initial verdict awarding damages is entered and before
the special verdict on percentages of liability is rendered, the parties
shall be allowed oral argument, with the length of such argument
subject to the discretion of the trial judge, on the determination of
the percentage attributable to each defendant. However, no
additional evidence shall be allowed.
(D) A defendant shall retain the right to assert that another potential tortfeasor, whether
or not a party, contributed to the alleged injury or damages and/or may be liable for
any or all of the damages alleged by any other party.
12
“A defendant shall retain the right to assert that another potential tortfeasor, whether or not a
party, contributed to the alleged injury or damages and/or may be liable for any or all of the
damages alleged by any other party.”
14

to a right to contribution and does not create a separate cause of action for apportionment. (ECF
No. 111 at 6.)
2. U.S. Bank’s Arguments
U.S. Bank counters that South Carolina does recognize an apportionment cause of action,
emphasizing that the SCCATA specifically references “apportionment” at § 15-38-15 and that
Defendants overlook the significance of § 15-38-15(D) in creating that right. (ECF No. 104 at 18–
19.) Furthermore, in response to Third-Party Defendant Burns’s argument, U.S. Bank maintains
that a “tortfeasor,” as used in the statute, need not be a defendant and therefore that the provision
“authorizes a defendant to assert a claim against a potential wrongdoer, even if the tortfeasor is not
already in the suit.” (Id. at 19.) 13
3. Court’s Review
The court first observes that U.S. Bank’s claim amounts to one of negligence per se. See
Rayfield v. S.C. Dep’t of Corr., 374 S.E.2d 910, 915 (S.C. Ct. App. 1988) (“Negligence per se
simply means the jury need not decide if the defendant acted as would a reasonable man in the
circumstances. The statute fixes the standard of conduct required of the defendant, leaving the jury
merely to decide whether the defendant breached the statute . . . .”). As both parties point out, a
cause of action in South Carolina is “a primary right possessed by plaintiff, and a corresponding
primary duty devolving upon the defendant; a delict or wrong done by the defendant which consists
13

The Supreme Court of South Carolina is currently considering a potentially related issue of
whether state law permits a jury to apportion fault to a non-party employer where the plaintiff
employee was injured on the job. See Machin v. Carus Corp., No. 3:12-cv-02675 (D.S.C. Apr.
24, 2015) (Anderson, J.) (Certifying Appellate Question: “Under South Carolina law, when
Plaintiff seeks recovery from a person, other than his employer, for an injury sustained on the job,
may the court allow the jury to apportion fault among the non-party employer by placing the name
of the employer on the verdict form?”). Upon review of the particular facts and legal issues of that
case, this court is satisfied that the issue currently before it in this third-party action—essentially,
whether “apportionment” is a cause of action in South Carolina—is sufficiently different such that
this court’s ruling on the issue would not be premature.
15

in a breach of such primary right, and duty.” Harth v. United Ins. Co., 221 S.E.2d. 102, 104 (S.C.
1975). In the context of negligence per se, the primary factor to determine whether a statute creates
such a “primary right” is legislative intent, which “is determined primarily from the language of
the statute.” Doe v. Marion, 645 S.E.2d 245, 248 (S.C. 2007).
At the outset, this court finds it compelling that in over a decade since the passage of the
SCCATA in 2005, not a single state or federal court in South Carolina has ever recognized
apportionment, or “non-party fault allocation,” as a cause of action under the SCCATA. 14 This is
unsurprising, given that the statute’s plain text neither makes apparent that an apportionment cause
of action exists, nor suggests that there was a legislative intent to do so in the SCCATA.
As to the plain text of the SCCATA, the statute appears to describe “apportionment” as a
procedure that occurs only after the jury (a) has awarded damages to a plaintiff, (b) has determined
any comparative negligence by the plaintiff, and then (c) only after motion by the defendant. See
S.C. Code Ann. § 15-38-15(B)-(C). It is not evident that apportionment, as the statute describes
it, is a cause of action that involves “a delict or wrong done by the defendant which consists in a
breach of such primary right, and duty.” Harth, 221 S.E.2d. at 104. As Third-Party Defendant

14

U.S. Bank points out that a South Carolina trial court recently agreed not to dismiss a cause of
action for apportionment. (See ECF No. 104 at 19; ECF Nos. 104-1–104-5 (Exs.).) That court
denied the third-party defendant’s motion to dismiss by a form order, providing this court with no
analysis or discussion otherwise to determine on what grounds the court actually accepted the
third-party plaintiff’s arguments that “apportionment” is a separate cause of action. To highlight
the insufficiency of that lone South Carolina trial court form order, this court references, as an
example, its own decision in Simons v. Wal-Mart Stores East, L.P. to deny dismissal for a cause
of action for “apportionment.” No. 8:11-cv-03180-JMC, 2013 WL 417671, at *5 (D.S.C. 2013).
In denying the dismissal, this court construed the claim for apportionment as one for contribution.
See id. Thus, that South Carolina trial court decision not to dismiss the claim does not bind this
court in its own determination of whether South Carolina recognizes a cause of action for
apportionment.
16

Burns explains, apportionment appears to be “a procedural process involving U.S. Bank’s claim,
and not a claim or substantive right to recovery in and of itself.” (ECF No. 83-1 at 11.)
Ultimately, however, this court must interpret the statute under this guidance: “The cardinal
rule of statutory construction is that the intent of the legislature must prevail if it reasonably can
be discerned from the words used in the statute.” Cabiness v. Town of James Island, 712 S.E.2d
416, 425 (S.C. 2011). At a hearing on the Motions to Dismiss, U.S. Bank reasoned that the
disjunctive, “and/or,” in § 15-38-15(D) marks the South Carolina legislature’s intention of creating
a cause of action separate from contribution; otherwise, the inclusion of the disjunction in the
provision would be unnecessary. U.S. Bank further argued at the hearing that the statute’s
reference to “retain” in the statute refers to the future right against non-parties, while Third-Party
Defendants countered in response that the “[retained] right” § 15-38-15(D) refers to a future right
to contribution. (See ECF No. 111 at 6–7.)
This court finds that U.S. Bank’s arguments do not overcome the strong evidence that the
South Carolina legislature did not intend to create a separate cause of action for apportionment.
First, “contribution,” which U.S. Bank also alleges as a claim against Third-Party Defendants, is
explicitly described as a “right of contribution,” S.C. Code Ann. § 15-38-20 (2015) (emphasis
added), and an “action for contribution,” S.C. Code Ann. § 15-38-40 (2015) (emphasis added),
several provisions later in the SCCATA. See Byrd v. Irmo High Sch., 468 S.E.2d 861, 865 (S.C.
1996) (finding when one provision does not include a right that is included in a related provision,
legislative intent is that a right will not be implied where it does not exist). 15

In Doe v. Marion, for example, the Supreme Court of South Carolina considered whether a
particular statutory provision gave rise to a private cause of action for negligence per se against a
physician or psychiatrist for failing to report or warn of her patient’s predilection for child
molestation. 645 S.E.2d 245, 246–50 (S.C. 2007). That court explained that because that
provision was “silent as to civil liability” and because other provisions did clearly impose liability
for making a false report, those other provisions “indicate[d] the legislature intended to impose
15

17

Similarly, this court finds significant that the language and statutory construction creating
the contribution cause of action—namely, the “action for contribution” and “right to contribution”
subtitles in the SCCATA—are absent with regard to apportionment. Compare, e.g., S.C. Code
Ann. § 15-38-40(A) (“[C]ontribution may be enforced by separate action.”), with S.C. Code Ann.
§ 15-38-15(D) (“Apportionment of percentages of fault among defendants is to be determined as
specified in subsection (C).”) It is reasonable to conclude that had the South Carolina legislature
intended to allow for a separate third-party cause of action for apportionment as part of the
SCCATA, it would have done so using the same language and structure to make clear its intent to
do so. This assumption is buttressed by the fact that where a South Carolina statute uses terms
that have well-recognized meaning in the law, like “right to contribution” and “action for
contribution,” “the presumption is that the Legislature intended to use the term in that sense.” See
Coakley v. Tidewater Constr. Corp., 9 S.E.2d 724, 726 (1940). Therefore, by logical inverse, the
legislature also presumably avoided the use of those terms in other provisions in the SCCATA—
as to describe “apportionment,” for example—when it did not want to use those terms as they are
commonly recognized in the law.
Second, assuming, arguendo, that § 15-38-15(D)—with its reference to a “right to
assert”—created a separate cause of action for apportionment against another potential non-party
tortfeasor, § 15-38-15(C)(3) states that “the total of the percentages of fault attributed to the
plaintiff and to the defendants must be one hundred percent,” with no mention of any fault
allocation to third-party defendants. (emphasis added).

As Third-Party Defendant Burns’s

references, (see ECF No. 83-1 at 12), a strict reading of the statute implies, then, that third-party

civil liability and establish private causes of action in certain instances.” Id. at 397. Especially
relevant to this court’s determination, the Doe court concluded: “The fact that such language is
missing . . . indicates the legislative intent was . . . not to create civil liability.” Id.
18

defendants cannot be “liable,” or “at fault” under § 15-38-15(D) for purposes of fault allocation.
U.S. Bank nonetheless rebuts that the provision’s reference to “another potential tortfeasor”
suggests that the tortfeasor need not be a first-party defendant and therefore that the provision
“authorizes a defendant to assert a claim against a potential wrongdoer, even if the tortfeasor is not
already in the suit.” (ECF No. 104 at 19.)
But U.S. Bank’s interpretation of the statute in this way conflicts with another District
Court of South Carolina ruling on this issue, albeit a ruling not within the specific context of a
third-party action. See Fagnant v. K-Mart Corp., No. 4:11-cv-00301-RBH, 2013 WL 6901907, at
*4 (D.S.C. 2013). The specific issue before the Fagnant court was whether it was appropriate
under § 15-38-15 to include a non-party on the jury verdict form “in order to permit the jury to
allocate fault among all tortfeasors.” Id. In concluding that it was not, the court explained:
A review of section 15–38–15 reveals that only subsections (D) and (E) refer to
other potential tortfeastors. See S.C. Code Ann. § 15-8-15(E) . . . . All other
subsections only refer to “defendants.” This distinction is significant because only
subsections (A), (B), and (C) affected substantive changes in the law as it existed
at the time [before the 2005 enactment of SCCATA]. Also telling is how the special
verdict procedure outlined in subsection (C)(3) only provides for jury findings
regarding the allocation of fault when there are “two or more defendants” who were
previously found liable. The subsection provides no accommodation for non-party
tortfeasors. Nevertheless, there is little question that subsection (D) presents an
apparent conflict and thus an ambiguity in the scheme. But such a conflict can be
harmonized by the context in which the law was passed. . . . [T]he Supreme Court
emphatically reaffirmed—after the enactment of the statute at issue—the longrecognized rule that “a plaintiff has the sole right to determine which cotortfeasor(s) she will sue.” Chester [v. S.C. Dep’t of Pub. Safety], 698 S.E.2d [559],
560 [(S.C. 2010)] . . . Moreover, prior to the statute’s passage, defendants were
entitled to assert an “empty chair” defense at trial and receive a setoff for any
settlement obtained from a joint and several tortfeasor. See Chester, 698 S.E.2d at
560. The plain language of the statute simply codified a defendant’s retention of
these rights. A reading to the contrary would create more friction with the plain
language than it would resolve.
Id. (emphasis added). The Fagnant court stated that for it to rule that the non-party be included
on the verdict form to allow allocation of fault, “the intent of the General Assembly must be more
19

readily apparent from the plain language of the statute,” effectively concluding that § 15-3815(D)’s reference to “tortfeasor” did not refer to non-parties. Id.
With this same emphasis on discerning the apparent intent of the South Carolina legislature
based on the language of the SCCATA, this court cannot conclude that the legislature intended to
create an apportionment cause of action. Accordingly, U.S. Bank’s claim for apportionment is
dismissed.
B.

Contribution Claim under South Carolina Law
The court turns next to U.S. Bank’s contribution claim. U.S. Bank alleges in its Third-

Party Complaint:
In the event that U.S. Bank is held liable to [Companion], then it is entitled to
contribution from the Third-Party Defendants under S.C. Code § 15-38-10 et
seq. or other applicable grounds in an amount to be determined pursuant to the
provisions of said statute.
(ECF No. 50 at 34.)
South Carolina recognizes the right of joint tortfeasors to seek contribution from one
another. See S.C. Code Ann. § 15-38-20 (2015). But “the right of contribution exists only in favor
of a tortfeasor who has paid more than his pro rata share of the common liability, and his total
recovery is limited to the amount paid by him in excess of his pro rata share.” § 15-38-20(B). The
SCCATA further indicates that it “does not apply to breaches of trust or of other fiduciary
obligation.” § 15-38-20(G).
1. Third-Party Defendants’ Arguments
Third-Party Defendants argue that U.S. Bank’s contribution claim should be dismissed
because the underlying tort claims, as alleged, “sound in breach of trust and/or breach of fiduciary
obligation,” a theory of liability for which a plaintiff cannot recover under the SCCATA. (ECF
No. 80 at 2–3, 11–13 (referring to § 15-38-20(G)).) Secondly, Third-Party Defendant Burns
20

contends that all of the underlying theories of tort liability U.S. Bank relies on to support its thirdparty claims, including contribution, fail because Third-Party Defendants owed no duty of care to
Companion. (ECF No. 83-1 at 21; ECF No. 111 at 9–13.) Third-Party Defendant Burns further
challenges the adequacy of the factual allegations to support liability against him under any of the
tort theories, asserting that U.S. Bank attempts to “impute upon [him] some sort of broad-stroked
owner or director’s liability.” (ECF No. 83-1 at 21.) Finally, Third-Party Defendants collectively
maintain that because U.S. Bank fails to allege that it has made any payments to Companion, its
contribution claim is not yet “ripe” under § 15-38-20(B). (Id. at 11–13.)
2. U.S. Bank’s Arguments
U.S. Bank responds by first noting that just one of Companion’s three tort claims against
it 16 explicitly relate to a breach of fiduciary duty. (ECF No. 104 at 21–22.) U.S. Bank further
notes that the negligent misrepresentation claim “on its face does not rest on any purported breach
of trust or other fiduciary obligation—instead, any duty arose out of U.S. Bank’s alleged pecuniary
interests in the transactions.” (Id.) And as to the Third-Party Defendants’ potential contribution
based on the negligence claim, U.S. Bank explains that “the ultimate basis for any negligence
liability” is unknown and possibly will be determined through discovery. (Id. at 22.)
Regarding Third-Party Defendants’ separate arguments for why the underlying tort
theories fail, U.S. Bank responds that to owe a duty of care for purposes of negligent
misrepresentation, Third-Party Defendants need only have “‘a pecuniary interest in the
transaction.’” (ECF No. 104 at 16.) Second, the other causes of action U.S. Bank alleges in this
third-party action against Defendants—intentional misrepresentation, aiding and abetting

16

Companion’s tort causes of action against U.S. Bank included breach of fiduciary duty,
negligence/gross negligence, and negligent misrepresentation. (See ECF No. 1 at 14–19.)
21

Redwood and Freestone’s breach of fiduciary duty, and tortious interference with the Trust
Agreements—are all torts for which no duty is required. (Id. at 16–18.) Finally, U.S. Bank argues
that its allegations that Freestone, Redwood, and Third-Party Defendant SLA had the authority
to—and did—direct investments in the Trust Accounts for Companion’s benefit support a finding
that Third-Party Defendants had a duty of care to support its simple negligence claim. (Id. at 17.)
U.S. Bank further clarifies that Third-Party Defendant Burns’s liabitliy does not “arise
from his mere status as a director or passive shareholder” and states that it has more than
sufficiently pleaded facts to demonstrate that Third-Party Defendant Burns could be held liable.
(Id.) As to the ripeness of the contribution claim, U.S. Bank counters that courts in the District of
South Carolina have been clear that “a claim for contribution is properly pleaded as a third party
claim before the third-party plaintiff has incurred liability.” (ECF No. 104 at 20 (relying heavily
on Brown v. Shredex, Inc., 69 F. Supp. 2d 764, 766–69 (D.S.C. 1999).)
3. Court’s Review
a. Sufficiency of Underlying Theories of Tort Liability
As a threshold matter, this court generally agrees that U.S. Bank’s underlying non-fiduciary
duty tort claims still allow for it to pursue its contribution claim under South Carolina law. On the
specific issue of whether Third-Party Defendants need to have owed Companion a duty for U.S.
Bank to pursue those non-fiduciary duty tort claims, this court sides with U.S. Bank. In particular,
U.S. Bank is correct that to sustain its underlying negligent representation claim, pleading a
pecuniary interest supports a reasonable finding that a duty existed. See Winburn v. Ins. Co. of N.
Amer., 339 S.E.2d 142, 146 (S.C. Ct. App. 1985) (“A duty to exercise reasonable care in giving
information exists when the defendant has a pecuniary interest in the transaction.”) (emphasis
added); S.C. State Ports Auth. v. Booz-Allen & Hamilton, Inc., 346 S.E.2d 324, 325 (S.C. 1986)

22

(“A cause of action for negligence requires . . . the existence of a duty on the part of the defendant
to protect the plaintiff . . . .”); see also deBondt v. Carlton Motorcars, Inc., 536 S.E.2d 399, 406
(S.C. Ct. App. 2000) (“[E]vidence that a statement was made in the course of the defendant’s
business, profession, or employment is sufficient to prove the defendant’s pecuniary interest. . . .
.”). In this matter, U.S. Bank specifically alleges Third-Party Defendants’ pecuniary interest.
(ECF No. 50 at 28–33.)
Further, the presence of a “duty” is not required to allege intentional misrepresentation, see
Fed. R. Civ. P. 9(b) (2012) (providing that “[m]alice, intent, knowledge and other conditions of a
person’s mind may be alleged generally”), or tortious interference with contract, see Dutch Fork
Dev. Group II, LLC v. SEL Props., LLC, 753 S.E.2d 840, 844 (S.C. 2012) (describing the elements
of a tortious interference with contract claim). Neither is it required for aiding and abetting breach
of fiduciary duty, see Vortex Sports Entm’t, Inc. v. Ware, 662 S.E.2d 444, 448 (S.C. 2008)
(describing the elements of a claim for aiding and abetting breach of fiduciary duty), to the extent
that the S.C. Code Ann. § 15-38-20(G) does not preclude it as one of U.S. Bank’s grounds for
pursuing its third-party claims. Therefore, it would be erroneous for this court to dismiss U.S.
Bank’s contribution claim based on the grounds that the underlying tort theories fail for insufficient
pleading.
Only Third-Party Defendant Burns contests the adequacy of the factual allegations against
him. (See ECF No. 83-1 at 21–23; ECF No. 111 at 12–15.) To this challenge, this court also finds
that U.S. Bank makes adequate allegations to maintain a claim personally against Third-Party
Defendant Burns under the tort theories described, supra, as well as under a theory of simple
negligence.

23

First,

Third-Party

Defendant

Burns

argues

that

with

regard

to

intentional

misrepresentation, U.S. Bank’s allegations fail under Fed. R. Civ. P. Rule 9(b) because U.S. Bank
limits its Third-Party Complaint to allegations “that the communications ‘included representations
regarding the value’ and that those are ‘values that Companion now alleges were grossly inflated.’”
(ECF No. 111 at 12–13; see also ECF No. 83-1 at 22–23.) Though Rule 9(b) of the Federal Rules
of Civil Procedure provide that “[m]alice, intent, knowledge and other conditions of a person’s
mind may be alleged generally,” Third-Party Defendant Burn contends: “U.S. Bank’s pleading
does not say that [Third-Party Defendant] Burns, or any of the other Third-Party Defendants that
made such representations knew or should have known those [asset] values were inflated. The
only scienter it has pled is that Burns ‘should have known, did know, and/or intended’, that
Companion would receive those statements, but not that he knew or should have known that the
representations contained therein were false when made.” (ECF No. 111 at 13.)
But this court cannot reconcile Third-Party Defendant Burns’s arguments of pleading
insufficiency under Rule 9(b) with the instances throughout the Third-Party Complaint where U.S.
Bank pleads:
1) Third-Party Defendant SLA “acted negligently, grossly negligently, recklessly,
willfully, knowingly, and wantonly in” not just “causing Companion’s reinsurance
trusts to purchase and otherwise acquire” the allegedly overinflated assets, but also
“issuing Investment Orders and other communications that misrepresented and
overstated the value” of those assets. (ECF No. 50 at 28 (emphasis added).);
2) Third-Party Defendant SSF “negligently, grossly negligently, recklessly, willfully,
knowingly, and wantonly misrepresented and failed to disclose the value and nature”
of the assets it contributed and provided. (Id. at 30 (emphasis added).);

24

3) Third-Party Defendant AAS “negligently, grossly negligently, recklessly, willfully,
knowingly, and wantonly misrepresented and failed to disclose the value and nature”
of the assets it contributed and provided.
(Id. at 32 (emphasis added).)

In addition, U.S. Bank specifically alleges that Third-Party

Defendant Burns was the sole owner, director, and authorized signatory for Third-Party Defendant
SSF, which, in turn, had exclusive and complete control over Third-Party Defendant AAS. (ECF
No. 50 at 4.) Moreover, U.S. Bank alleges that Third-Party Defendant Burns was Third-Party
Defendant SLA’s “Ultimate Control Person,” “beneficial owner,” and “chief strategist.” (Id. at 3.)
The allegations also state that Third-Party Defendant Burns personally had a pecuniary interest in
making representations regarding the assets. (Id. at 33.) Therefore, contrary to Third-Party
Defendant Burns’s argument that U.S. Bank’s allegations fail under Rule 9(b), this court finds that
these allegations, taken together, more than “generally” implicate Third-Party Defendant Burns
and the other Third-Party Defendants’ knowledge in accordance with Rule 9(b), as they provide
at least a minimal factual basis for allegations of scienter. See Fed. R. Civ. P. 9(b) (2012)
(providing that “[m]alice, intent, knowledge and other conditions of a person’s mind may be
alleged generally”); United States v. N. Tr. Co., 372 F.3d 886, 888 (7th Cir. 2004) (ruling that the
district court’s dismissal of a complaint was improper and explaining: “If . . . the word
‘misrepresentation’ connotes a culpable state of mind, then the complaint pleads that state of mind
by using the word “misrepresentation,” for under Rule 9(b) ‘[m]alice, intent, knowledge, and other
condition of mind . . . may be averred generally.’”).
Third-Party Defendant Burns’s argument that because U.S. Bank did not plead his duty of
care, specifically, then “there can be no actionable negligence claim” against him, (ECF No. 111
at 12), fails for similar reasons. U.S. Bank states that its allegation that Freestone, Redwood, and

25

Third-Party Defendant SLA authorized and directed investments in the Trust Accounts for
Companion’s benefit gives rise to a duty of care. 17 (ECF No. 104 at 17.) This court agrees. Indeed,
it is difficult for this court to imagine how U.S. Bank has not alleged an inherent duty Third-Party
Defendant Burns owed Companion, given his authority, actions, and responsibilities in relation to
the other Third-Party Defendants, all of which U.S. Bank pleads. See BPS, Inc. v. Worthy, 608
S.E.2d 155, 159–61 (S.C. Ct. App. 2005) (explaining that, generally speaking, a director or an
officer of a corporation is not personally liable for the corporation’s torts merely because of his
position in the corporation, but if the officer or director participated in, authorized, or directed the
tort, he or she is subject to personal liability).
This court finds that U.S. Bank pleads factual allegations from which it can comfortably
infer that Third-Party Defendant Burns owed Companion a duty of care. See Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009) (“To survive a motion to dismiss, a complaint must contain sufficient

17

U.S. Bank explains:
[The Third-Party Complaint] expressly alleges that Burns “participated in and/or
directed each of the tortious acts alleged” in the Third-Party Complaint. (Third Pty.
Compl. ¶ 99.) U.S. Bank further avers that Burns “dominated and controlled each
of the other Third-Defendants [sic].” (Id.) For example, the Third-Party Complaint
alleges that Burns: (1) was SLA’s Ultimate Control Person and Chief Strategist; (2)
was SSF’s sole owner, sole director, sole authorized signatory, and control
person—such that SSF could, and did, act only through him; (3) was AAS’s sole
owner and control person—such that Burns, through SSF, had sole and complete
authority over AAS; and (4) actively controlled both Redwood and Freestone as
their sole or super-majority owner. (Third Pty. Compl. ¶¶ 6-9, 11(b)-(d), 22-26, 99.)
Beyond that, the Third-Party Complaint pleads various actions and
misrepresentations directly by Burns as part of the Third-Party Defendants’ tortious
conduct. (Id. ¶¶ 53, 57-58, 62, 72, 77.) U.S. Bank also alleges that Burns had a
pecuniary interest in the transactions and in making representations regarding the
Portfolio Securities, Targeted Income Units, and Closely Held Shares, and that he
received the financial benefits of the challenged transactions. (Id. ¶¶ 54, 59, 74, 79,
100.)

(ECF No. 104 at 17.)
26

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.” (quoting Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 570 (2007))); Bass v. E.I. Dupont de Nemours & Co., 324 F.3d
761, 764–765 (4th Cir. 2003) (concluding that it is not the legal conclusions asserted by the
plaintiff, but rather “the alleged facts supporting those words, construed liberally, which are the
proper focus at the motion to dismiss stage”). Specifically, this court finds sufficient U.S. Bank’s
allegations as to Third-Party Defendant Burns’s leadership positions, participation, and actions in
relation to the other Third-Party Defendants to survive dismissal of the underlying negligence
claim against him in this case. 18 See, e.g., Rotter v. Institutional Brokerage Corp., No. 93 Civ.
3578 (JFK), 1994 WL 389083, at *4 (S.D.N.Y. 1994) (granting a motion to dismiss and explaining
that while New York law prevents directors or officers of a corporation from incurring personal
liability for torts of a corporation due “solely” to their positions as directors and officers, “some
type of participation or authorization by the official is required to hold that person liable”). This
court relies on this same rationale and conclusion regarding Plaintiff’s pleadings to reject ThirdParty Defendant Burns’s contention that U.S. Bank inappropriately tries to impute on him
director’s liability because U.S. Bank does not plead that Third-Party Defendant Burns “‘directed’
In Crago v. Capital Advantage Fin. & Dev., Inc., 242 F.R.D. 341, 346 (D.S.C. 2007), for
example, the court granted leave to amend to assert individual tort claims against a representative
of the defendant corporation; the court specifically found that granting leave to amend would not
be “futile” under Fed. R. Civ. P. 15(a). In granting leave to amend, the court pointed to the
plaintiff’s proposed allegations that the individual was “a director, officer, shareholder, agent,
and/or employee of” the corporation, and that “all or some of the acts or omissions of [the
corporation] . . . were personally committed, participated in, directed, or authorized” by the
individual. Id. Of relation to the present issue before this court, the standard a court should employ
for analyzing whether an amendment is futile—the standard the Crago court applied—is the same
standard as the motion to dismiss under Fed. R. Civ. P. 12(b)(6). See Perkins v. United States, 55
F.3d 910, 917 (4th Cir. 1995) (concluding that an amendment is futile if the amended claim would
fail to survive motion to dismiss).
18

27

any of the acts,” his “knowing participation,” or that he “knew or should have known that anything
was misstated.” (ECF No. 83-1 at 21.)
In sum, this court finds that U.S. Bank has made sufficient allegations of underlying tort
theories for its claim of contribution to proceed against Third-Party Defendants SLA, SSF, and
AAS as well as Third-Party Defendant Burns.
b. Ripeness of Contribution Claim
The court next turns to why the contribution claim will not be dismissed for lack of
ripeness.
The Supreme Court of South Carolina has held that because “the right to contribution does
not arise prior to payment,” there is no “existing right” upon which a third-party plaintiff could
file an impleader action for contribution. See First Gen. Servs. v. Miller, 445 S.E.2d 446, 448
(S.C. 1994).

U.S. Bank does not allege that it has made any payments to Companion.

Consequently, under South Carolina law, U.S. Bank would not be permitted to assert its
contribution claim in a third-party action filed under Rule 14 of the South Carolina Rules of Civil
Procedure, a rule that instructs when a defendant may bring a third-party claim. See Brown v.
Shredex, Inc., 69 F. Supp. 2d 764, 766 (D.S.C. 1999) (concluding the same).
However, district courts have also recognized that Rule 14(a) of the Federal Rules of Civil
Procedure, which similarly instructs when a defendant may bring a third-party claim in federal
court, permits third-party contribution actions if the governing substantive law recognizes a right
of contribution. See, e.g., Brown, 69 F. Supp. 2d at 767 (citing 6 Charles Alan Wright, Arthur R.
Miller & Mary Kay Kane, Federal Practice & Procedure § 1448, at 386 (1990)). South Carolina’s
substantive law recognizes a right to contribution, yet qualifies that recognition such that a
tortfeasor has to file a separate action for recovery after he has paid out more than his pro rata
share. See S.C. Code Ann. § 15-38-20(B) (2015); First Gen. Servs., 445 S.E.2d at 448. The Brown
28

court determined that “because the inchoate right to contribution after payment is clearly
substantive, the key question becomes whether the rule regarding when this right may be asserted
is a matter of substance or procedure.” Brown, 69 F. Supp. 2d at 767.
As a general matter, this court is required to follow a state rule that is substantive. See
Myrick v. United States, 723 F.2d 1158, 1159 (4th Cir. 1983). But if the state rule is procedural,
this court must apply Rule 14(a) of the Federal Rules of Civil Procedure, assuming it comports
with the Rules Enabling Act. See generally Hanna v. Plumer, 380 U.S. 460 (1965).
In Brown, the court concluded that the state rule was procedural, reasoning:
Procedure is “‘the judicial process for enforcing rights and duties recognized by
substantive law and for justly administering remedy and redress for disregard or
infraction of them.’” Hanna v. Plumer, 380 U.S. 460, 464, 85 S. Ct. 1136, 14
L.Ed.2d 8 (1965) (quoting Sibbach v. Wilson & Co., 312 U.S. 1, 14, 61 S. Ct. 422,
85 L.Ed. 479 (1941)). The South Carolina Contribution Among Tortfeasors Act
and the decisional law interpreting it mandate that the enforcement of the right to
contribution occur by separate action after a tortfeasor has paid more than his pro
rata share of the judgment. See S.C. Code Ann. § 15-38-20(B) (Supp. 1998); First
Gen. Servs. of Charleston, Inc. v. Miller, 314 S.C. 439, 445 S.E.2d 446, 448 (1994).
Regardless of whether the contribution question is litigated as a third-party action
or as a separate action, the outcome in principle ought to be the same. As a result,
this court found the rule to be basically procedural.
Brown, 69 F. Supp. 2d at 767. Accordingly, that court found that Rule 14(a) of the Federal Rules
of Civil Procedure took precedence over South Carolina’s conflicting state-law rule since Rule
14(a) is also valid under the Rules Enabling Act. Brown, 69 F. Supp. 2d at 768. Again, the court
explained, rather compellingly:
Under this [Rules Enabling] Act, the Rule must be within the Supreme Court's
“power to prescribe general rules of practice and procedure” and “shall not abridge,
enlarge or modify any substantive right.” 28 U.S.C. § 2072(a), (b) (1994). Although
following the Federal Rule would alter the method of enforcing the state substantive
right to contribution, the United States Supreme Court has noted that “[t]o hold that
a Federal Rule of Civil Procedure must cease to function whenever it alters the
mode of enforcing state-created rights would be to disembowel either the
Constitution’s grant of power over federal procedure or Congress’ attempt to
exercise that power in the Enabling Act.” Hanna, 380 U.S. at 473, 85 S. Ct. 1136 .
29

. . The court is not aware of any Federal Rule that has been found to violate the
“substantive” term of the Act, and the court can conceive of no reason why Rule 14
would do so either. See [Burlington N. R.R. Co. v.] Woods, 480 U.S. 1, 6 [(1987)]
(“[T]he study and approval given each proposed Rule by the Advisory Committee,
the Judicial Conference, and [the Supreme] Court, and the statutory requirement
that the Rule be reported to Congress for a period of review before taking effect
give the Rules presumptive validity under both the constitutional and statutory
restraints.”) (citations omitted); Hanna, 380 U.S. at 471 (“[T]he court has been
instructed to apply the Federal Rule, and can refuse to do so only if the Advisory
Committee, this Court, and Congress erred in their prima facie judgment that the
Rule in question transgresses neither the terms of the Enabling Act nor
constitutional restrictions.”). Consequently, Rule 14 takes precedence over the
state-law rule prohibiting the assertion of the third-party complaint for contribution
so that [Third-Party Plaintiff] may assert such a claim against [Third-Party
Defendant] in this case.
Id.
Instead of distinguishing Brown or countering the authorities or analyses on which that
decision relies, Third-Party Defendants remind the court that it “is free to disagree with prior court
decisions.” (ECF No. 80 at 13.) That very well may be. But this court can find no justification
for ignoring the well-reasoned analysis of its fellow district court in Brown that Rule 14(a) of the
Federal Rules of Civil Procedure is a procedural right that accelerates the determination of liability
without enlarging or modifying any substantive state right. Brown, 69 F. Supp. 2d at 767–69.
Other district courts also agree with Brown’s analysis and conclusions. See, e.g., Tetra Tech
EC/Tesoro Joint Venture v. Sam Temples Masonry, Inc., No. 3:10-cv-1597-CMC, 2011 WL
1527066, at *3 (D.S.C. Apr. 20, 2011) (considering and rejecting a challenge to Brown similar to
Third-Party Defendants’ challenge in this case). Applying the same rationale as Brown, this court
finds that Rule 14(a) of the Federal Rules of Civil Procedure permits third-party contribution
actions under South Carolina law because it trumps South Carolina’s conflicting state-law rule.
U.S. Bank denies any liability to Companion, but, to the extent that it is found negligent, it
seeks to share liability with Third-Party Defendants. (ECF No. 50 at 34.) In addition to the specific
factual allegations of Third-Party Defendants’ tortious conduct toward Companion that U.S. Bank
30

outlines in its Third-Party Complaint, the Trust Agreements suggest that Third-Party Defendants
owed separate duties of care to Companion, that which sounds in joint tortfeasance. See infra
IV.C.3.a (addressing the issue of joint tortfeasor liability in considering U.S. Bank’s equitable
indemnification claim).

As a result, U.S. Bank has sufficiently pleaded its cause of action for

contribution under S.C. Code Ann. § 15-38-20, and the court therefore does not dismiss it.
C.

Equitable Indemnification Claim under South Carolina Law and Fed. R. Civ. P. 14(a)
The court next turns to U.S. Bank’s final claim of equitable indemnification. U.S. Bank

alleges as part of its Third-Party Complaint:
U.S. Bank denies that it has liability of any type to [Companion]. The ThirdParty Defendants’ tortious conduct caused U.S. Bank to become involved in
legal disputes and to incur attorneys’ fees and costs. The damages alleged by
[Companion], if any are proven at trial, were due to the actions of the ThirdParty Defendants and were not caused by any act or omission on the part of
U.S. Bank. The damages alleged by [Companion], if any are proven at trial,
were due to the active and/or primary fault of the Third-Party Defendants, and
to the extent liability or damages are imposed against U.S. Bank, U.S. Bank
alleges that its liability to [Companion], if there is any at all, is secondary or
passive based on the Third-Party Defendants’ conduct, and [Companion’s]
injuries, if any are proven at trial, were caused by the active or primary fault of
the Third-Party Defendants.
U.S. Bank is entitled to be equitably indemnified by the Third-Party Defendants
for all damages, costs, and expenditures in connection with this action, said
indemnity to include any and all such damages for which U.S. Bank is held
liable, together with the costs and attorney’s fees that U.S. Bank incurs in this
action.
(ECF No. 50 at 35–36.)
A successful equitable indemnity claim would allow U.S. Bank to recover expenses
remunerated in the first-party action “because of negligence imputed to him as the result of a tort
committed by another.” Vermeer Carolina’s Inc. v. Wood/Chuck Chipper Corp., 518 S.E.2d 301,
305 (S.C. Ct. Ap. 1999). But for U.S. Bank to recover the “damages for which [it] is held liable,

31

together with the costs and attorney’s fees” 19 it seeks under a theory of equitable indemnification,
it must prove that: (1) Third-Party Defendants were liable for causing Companion’s damages, (2)
U.S. Bank was innocent of any liability for those damages, and (3) U.S. Bank suffered damages
as a result of Companion’s claims, which were eventually proven to be the fault of Third-Party
Defendants. Vermeer Carolina’s, Inc., 518 S.E.2d at 305–08.
1. Third-Party Defendants’ Arguments
Third-Party Defendants assert that U.S. Bank cannot recover for equitable indemnification
based on South Carolina law and the requirements of Rule 14(a) of the Federal Rules of Civil
Procedure. (ECF No. 80 at 3.) According to Third-Party Defendants, U.S. Bank’s allegations
suggest that it is a joint tortfeasor, and South Carolina law does not allow recovery for equitable
indemnification between joint tortfeasors. (Id. at 3, 14–18.) Third-Party Defendants also point
out that U.S. Bank fails to fulfill Rule 14(a)’s requirement that Third-Party Defendants’ liability
“relate” to Companion’s first-party claim against U.S. Bank—that is, U.S. Bank fails to show that
Third-Party Defendants’ liability “arises only if U.S. Bank is first held liable to [Companion].”
(Id. at 3, 18–20.) Third-Party Defendants lastly contend that U.S. Bank fails to allege a “special
relationship” with Third-Party Defendants, as South Carolina law requires, to recover from ThirdParty Defendants under an equitable indemnification claim. (Id. at 3, 20–23.)
2. U.S. Bank’s Argument
U.S. Bank responds that an equitable indemnification claim for attorneys’ fees should stand
because this court could find that it satisfied all of its duties to Companion under the Trust

19

This court notes that in its Response, U.S. Bank seems to emphasize that it “[p]roperly [p]leads
a [c]laim for [e]quitable [i]ndemnity for [a]ttorney [f]ees,” (ECF No. 104 at 22–24), and does not
discuss whether dismissal of its claim for equitable indemnification of damages would be
appropriate.
32

Agreements but did not simultaneously detect Third-Party Defendants’ misconduct. (ECF No.
104 at 23.) Consequently, U.S. Bank argues that it could “recover the legal fees and expenses it
incurred by being subjected to suit because of the . . . [Third-Party] Defendants’ actions.” (Id.)
3. Court’s Review
a. Equitable Indemnity under South Carolina Law
Given the three requirements for making out an equitable indemnity claim, see Vermeer
Carolina’s Inc. v. Wood/Chuck Chipper Corp., 518 S.E.2d at 307, this court must be satisfied that
U.S. Bank and Third-Party Defendants have no legal or contractual relation to one another and
that they do not share duties of care to Companion—that is, that they do not share a common
liability and are not joint tortfeasors. Otherwise, U.S. Bank is without a right to indemnity from
Third-Party Defendants. Vermeer Carolina’s, Inc., 518 S.E.2d at 307 (citing Scott v. Fruehauf
Corp., 396 S.E.2d 354 (S.C. 1990).).
First, Third-Party Defendants note that based on U.S. Bank’s allegations, they and U.S.
Bank have no legal relation. (ECF No. 80 at 15.) And to be joint tortfeasors, U.S. Bank and ThirdParty Defendants must be parties who “contributed to [Companion’s] injury.” Black’s Law
Dictionary 1718 (10th ed. 2014). As evidence of how the two parties appear to share common
liability as joint tortfeasors, Third-Party Defendants explain:
U.S. Bank alleges [that Third-Party Defendants] had a role in causing the trust
accounts to acquire the Assets, which had values that were overstated and/or
misrepresented. (Complaint at ¶¶ 1-3, 80, 84, 89, 94). However, under the Trust
Agreements, U.S. Bank was required to certify that the fair market value of the
Assets was not less than the fair market value of the assets being replaced, and that
the fair market value was true and correct to best [sic] information and belief of
U.S. Bank. (Exhibits 1 and 2 to Complaint, at ¶¶ 4(c), 7(f) (Dkt. Nos. 50-1 and 502). Based on these provisions, U.S. Bank shares in the same duties it alleges were
owed by the [Third-Party Defendants] and – if Companion’s allegations are proven
to be true – U.S. Bank shares a common liability to Companion.

33

In addition to these duties, U.S. Bank also had duties independent of the Trust
Agreements and independent of any duties owed by [Third-Party Defendants]. For
example, the South Carolina Trust Code does not allow the terms of a trust to limit
“the duty of a trustee to act in good faith and in accordance with the purposes of
the trust.” S.C. Code § 62-7-105(b)(2). Furthermore, this Court has recognized that
South Carolina Code section 62-7-804 sets forth that “[a] Trustee shall administer
the trust as a prudent person would . . . . In satisfying this standard, the trustee shall
exercise reasonable care, skill, and caution.” (Order and Opinion at 13-14 (Dkt. No.
41) (citing Verenes v. Alvanos, 387 S.C. 11, 16 n.4, 690 S.E.2d 771, 773 n.4 (S.C.
2010) (stating that “a trustee owes a trust a duty of reasonable care.”)). Based on
these duties, U.S. Bank is a joint tortfeasor and has no right of equitable
indemnification against the Southport entities.
(Id. at 15–16.)
Third-Party Defendants conclude that as a result of the duties the Trust Agreements and
South Carolina trust law set forth, “[t]here is no scenario where U.S. Bank can satisfy all three of
the required elements for an equitable indemnity claim . . . .” (ECF No. 80 at 16.) Third-Party
Defendants maintain:
If [Third-Party Defendants] w[ere] negligent, U.S. Bank was also negligent because
U.S. Bank had a duty to make a determination that the fair market value of the
substituted Assets was comparable, as well as a duty of good faith and reasonable
care. If [Third-Party Defendants] w[ere] not negligent, then although U.S. Bank
may be found “innocent,” it is not entitled to equitable indemnity from [Third-Party
Defendants] because [Third-Party Defendants] ha[ve] not been found to be at fault.
(Id.) This court finds availing Third-Party Defendants’ explanation. Because U.S. Bank’s
allegations suggest that it is a joint tortfeasor that shares common liability with Third-Party
Defendants—that is, that U.S. Bank and Third-Party Defendants have contributed to Companion’s
injury—it cannot make out an equitable indemnity claim.
U.S. Bank, in response, nonetheless suggests a scenario wherein a potential recovery of
attorneys’ fees—not damages—justifies a claim for equitable indemnity. (See ECF No. 104 at 23
(“U.S. Bank could recover the legal fees and expenses it incurred by being subjected to suit because
of the . . . [Third-Party] Defendants’ actions.”).) U.S. Bank specifically argues that this court could

34

“find that U.S. bank satisfied all of its duties, and so was not liable to Companion, yet did not
detect [Third-Party Defendants’] misconduct” that “caused Companion to sue U.S. Bank.” (Id.)
This court disagrees.
Based on Third-Party Defendants’ apparent duties, as set forth in the Trust Agreements
and included in the allegations, any “misconduct” on Third-Party Defendants’ part with regards to
valuation of assets necessarily implicates U.S. Bank. U.S. Bank’s direction to Companion to
substitute various assets was considered “a representation and a warranty” that the fair market
value of the assets was not less than the fair market value of the assets being replaced, and that
statements of assets and their fair market value provided to Companion were considered “a
certification” that the fair market value was “true and correct to [its] best information and belief.”
(ECF Nos. 50-1, 50-2.) And because the allegations and Trust Agreements suggest that U.S. Bank
and Third-Party Defendants share common liability as joint tortfeasors, the equitable
indemnification claim fails under South Carolina law with regard to recovery of attorneys’ fees for
the same reason it fails as a claim more generally. 20 See, e.g., Stuck v. Pioneer Logging Mach.,
Inc., 301 S.E.2d 552, 553 (S.C. 1982) (holding that equitable indemnity lies “where one person is
exposed to liability by the wrongful act of another in which he does not join”).

Moreover, the Supreme Court of South Carolina has explained that “[t]he law of equitable
indemnification allows recovery of expenses when the act of the wrongdoer involves the innocent
defendant in litigation or places him in such relation with others as makes it necessary to incur
expenses to protect his interest.” Vermeer Carolina’s Inc. v. Wood/Chuck Chipper Corp., 518
S.E.2d 301, 305 (S.C. Ct. Ap. 1999). “Expenses” refer to “any costs which are reasonably
necessary to defend litigation or otherwise protect the innocent party’s interest.” Id. (emphasis
added). Therefore, for the same reasons U.S. Bank’s equitable indemnity claim fails with regard
to damages as “expenses,” it also fails with regard to attorneys’ fees as “expenses”—common
liability as joint tortfeasors would seem to preclude recovery of either under an equitable indemnity
theory under South Carolina law.
20

35

b. Equitable Indemnity under Fed. R. Civ. P. 14(a)
Even if U.S. Bank had successfully made out an equitable indemnity claim under South
Carolina law, this court finds that the claim would still fail as a third-party action. It appears here
that making out an equitable indemnification claim would simultaneously preclude U.S. Bank
from showing that Third-Party Defendants’ liability is “derivative” or secondary to its liability in
accordance with the requirements of Fed. R. Civ. P. 14(a). See Scott v. PPG Indus. Inc., No. 892362, 1990 WL 200655, at *3 (4th Cir. Dec. 13, 1990); Deutsche Bank Nat’l Tr. Co. v. Tyner, 233
F.R.D. 460, 462 (D.S.C. 2006). More specifically, for U.S. Bank’s third-party claim to satisfy
Rule 14(a)’s requirements, 1) Third-Party Defendants must be potentially liable to U.S. Bank, and
2) Third-Party Defendants’ liability must relate to Companion’s claim against U.S. Bank such that
Third-Party Defendants’ liability arises only if U.S. Bank is first held liable to Companion. See,
e.g., Tetra Tech EC/Tesoro Joint Venture v. Sam Temples Masonry, Inc., No. 3:10-CV-1597-CMC,
2011 WL 1048964, at *5 (D.S.C. 2011). A successful equitable indemnity cause of action under
South Carolina law would seem to prevent U.S. Bank from being able to fulfill the second
requirement.
As Third-Party Defendants explain:
U.S. Bank must be innocent of any liability to Companion under South Carolina
law in order to recover for equitable indemnity against [Third-Party Defendants].
Therefore, there is no scenario where U.S. Bank’s claim is appropriate as a Rule
14(a) third-party claim. If U.S. Bank is exonerated of liability to Companion, then
its indemnity action against [Third-Party Defendants] ends. If U.S. Bank is found
liable to Companion . . . , it is not entitled to equitable indemnification from [ThirdParty Defendants].
(ECF No. 80 at 19.) This court agrees. See, e.g., Pickett v. United States, 724 F. Supp. 390, 395
(D.S.C. 1989) (granting the third-party defendant’s motion to dismiss the South Carolina
indemnity claim under the same rationale); Surber v. Shanghai Zhenhua Heavy Indus. Co., No.
36

C14-FL79RBL, 2015 WL 630573, at *3 (W.D. Wash. Feb. 13, 2015) (finding a first-party
defendant’s equitable indemnification claim against third-party defendants improper under Rule
14(a) since the first-party defendant’s claims against them alleged their liability to the first-party
plaintiff and not to it).
As to U.S. Bank’s reliance on First General Servs. v. Miller for the opposing argument that
South Carolina law allows equitable indemnification claims to be pleaded as third-party derivative
claims under Rule 14(a), (see ECF No. 104 at 26), this court first notes that First General Services
involved a state court interpreting its own state impleader rule, First General Servs., 445 S.E.2d
446, 448 (S.C. 1994)—an interpretation of little authority on the issue of what federal courts
require under Fed. R. Civ. P 14(a) as here. Moreover, the reason why the court in First General
Services seemed to permit the third-party equitable indemnity claim under its impleader rule is not
as persuasive here. In First General Services, the court found that the first-party plaintiff’s “mere
allegations” of the third party defendant’s negligence should not defeat a third-party derivative
claim of equitable indemnity. Id. In this matter, however, as already discussed, this court relies
not on scant allegations from Companion for U.S. Bank and Third-Party Defendants’ common
liability, but rather on the liability for which the actual Trust Agreements appear to provide.
In sum, this court agrees with Third-Party Defendants that the third-party equitable
indemnity claim would fail under Fed. R. Civ. P. Rule 14(a), even if U.S. Bank could successfully
plead it as a cause of action under the facts of this case. In light of this conclusion, this court finds
no reason to also discuss whether a “special relationship” existed between U.S. Bank and ThirdParty Defendants, as South Carolina law requires to sustain an equitable indemnification claim.

37

D.

Subject Matter Jurisdiction over Claims against Third-Party Defendant Burns
The court finally turns its attention to Third-Party Defendant Burns’s arguments regarding

this court’s lack of subject matter jurisdiction over claims against him.
1. Third-Party Defendants’ Arguments
Third-Party Defendant Burns argues that U.S. Bank cannot compel contribution for
Companion’s claims because he shares common citizenship with Companion; therefore, U.S.
Bank’s claim against him should be dismissed under Fed. R. Civ. P. 12(b)(1) for lack of subject
matter jurisdiction. (ECF No. 83-1 at 14.) In his Response, Third-Party Defendant Burns further
declares that “‘original jurisdiction’ can only be conferred . . . at the inception of [Companion]’s
first-party case” and that “U.S. Bank’s diversity with [Third-Party Defendant] Burns cannot
provide a second basis for ‘original’ jurisdiction because its claims against him depend upon, and
could not have been brought in the absence of, [Companion]’s first-party claims.” (ECF No. 111
at 2.) Third-Party Defendant Burns primarily relies on Balt. & O. R. Co. v. Saunders, 159 F.2d
481, 484 (4th Cir. 1947) (affirming the district court’s decision to deny a motion to implead a third
party), for why U.S. Bank’s third-party action should be dismissed for want of jurisdiction. (Id. at
3–4.)
2. U.S. Bank’s Arguments
In response, U.S. Bank argues that based on its pleadings and the record, the court clearly
has diversity jurisdiction over Third-Party Defendant Burns and the fact that Third-Party
Defendant Burns shares South Carolina citizenship with Companion does not matter since
Companion has not asserted a claim against him. (ECF No. 104 at 24–25.)

38

3. Court’s Review
This court agrees with U.S. Bank. “The fact that [plaintiff] and [third-party defendant]
may be co-citizens is completely irrelevant. Unless [plaintiff] chooses to amend his complaint to
assert a claim against [third-party defendant], [plaintiff] and [third-party defendant] are simply not
adverse, and there need be no basis of jurisdiction between them.” Caterpillar, Inc. v. Lewis, 519
U.S. 61, 66 n.1 (1996) (quotations omitted). While Third-Party Defendant Burns may have
concerns about him not being a party in the first-party action, the fact is that this court’s
jurisdictional analysis of U.S. Bank’s third-party claim against him is distinct from Companion’s
first-party claim against U.S. Bank. See 3 J. Wm. Moore, Moore’s Federal Practice § 14.41[1],
(Matthew Bender 3d ed. 2015) (explaining that “once federal subject matter jurisdiction is
established over the underlying case, other claims may be asserted . . . if they individually invoke
a basis of subject matter jurisdiction” and that “the relevant inquiry is simply whether this claim—
by Defendant against Third-Party Defendant—satisfies a basis of subject matter jurisdiction”); see
also Johnson v. New River Scenic Whitewater Tours, Inc., 313 F. Supp. 2d 621, 626 (S.D.W. Va.
2004) (concluding that it had subject matter jurisdiction over the third-party defendant despite the
fact that the first-party plaintiff was a resident of the same state because the jurisdictional analysis
of a claim by the third-party plaintiff against a third-party defendant is separate from that of
plaintiff over defendant); Guigliano v. Danbury Hosp., 396 F. Supp. 2d 220, 224 (D. Conn. 2005)
(“Impleader of a third-party defendant who is not diverse from the plaintiff does not divest a court
of diversity jurisdiction.”).
As to Third-Party Defendant Burns’s reliance on Balt. & O. R. Co. v. Saunders, 159 F.2d
481, 484 (4th Cir. 1947), the court directs Third-Party Defendant Burns’s attention to Ford Motor

39

Co. v. Milby, 210 F.2d 137, 138 (4th Cir. 1954) (distinguishing Saunders and Pierce v. Ford Motor
Co., 190 F.2d 910 (4th Cir. 1951) (following Saunders), both of which Defendant Burns marshals
in support of his argument, (ECF No. 111 at 4–5)). Saunders involved a plaintiff bringing a
negligence claim against a defendant, who then moved to bring in a third party on the same
negligence claim. Saunders, 159 F.2d at 483. The Saunders court explained that the district
court’s decision to deny that motion was appropriate since bringing in a third party “would have
required plaintiffs to litigate a cause of action which they did not assert in their complaint against
parties whom they did not join as defendant, and whose joinder, if they had been joined, would
have defeated the jurisdiction of the court.” Id. at 484.
This third-party action does not involve such a scenario. In the words of the Fourth Circuit,
distinguishing Saunders: “The bringing in of a third party defendant liable to the original defendant
for a liability asserted by plaintiff against the original defendant alone is an entirely different
matter.” 21 Ford Motor Co. v. Milby, 210 F.2d 137, 138 (4th Cir. 1954) (citing Blair v. Cleveland
Twist Drill Co., 197 F.2d 842 (7th Cir. 1952)). Moreover, Third-Party Defendant Burns’s request
that U.S. Bank “not be permitted to prosecute [Companion]’s claims on its behalf,”—the same
concern the Saunders court addressed, Saunders, 159 F.2d at 484—is inapposite. It is not evident,
for example, that Companion would stand to gain anything from U.S. Bank’s recovery from ThirdParty Defendants under a contribution, equitable indemnification, or apportionment claim. Thus,

In Ford Motor Co., the Court of Appeals for the Fourth Circuit distinguished Saunders, pointing
out that Rule 14(a) of the Federal Rules of Civil Procedure did not apply to cases where the
defendant was seeking to hold the third party liable to the defendant if the plaintiff should obtain
a judgment against the defendant. 210 F.2d 137, 138 (4th Cir. 1954). The Ford Motor Co. court
further noted that the 1946 amendment of Rule 14, effective 1948, eliminated from Rule 14(a) the
language permitting the joinder that Saunders condemned. Id. The court was referring to the fact
that prior to the 1946 amendment, Rule 14(a) provided that a defendant might serve a third-party
complaint upon a person “who is or may be liable to him for all or part of the plaintiff’s claim
against him or against the plaintiff.” The 1948 amendment eliminated the quoted portion.
21

40

while Third-Party Defendant Burns proclaims that his jurisdictional arguments “are not unique,”
(ECF No. 111 at 3), this court concludes that dismissal of U.S. Bank’s claims on such grounds
would be nonetheless erroneous.
U.S. Bank and Third-Party Defendant Burns are citizens of different states; there is a matter
in controversy between them; U.S. Bank alleged damages; and the amount in controversy exceeds
$75,000. (See ECF No. 50 at 1–5.) This court therefore has diversity jurisdiction over U.S. Bank’s
third-party claims against Third-Party Defendant Burns per 28 U.S.C. § 1332. In light of this
court’s determination that it has original jurisdiction over the claims against Third-Party Defendant
Burns, this court will not address his arguments regarding whether it would be appropriate for this
court to exercise supplemental jurisdiction over them. See 3 James Wm. Moore, Moore’s Federal
Practice § 14.41[4][d][v] (Matthew Bender 3d ed. 2015) (“If a claim independently satisfies
federal question or diversity of citizenship jurisdiction, supplemental jurisdiction is not needed and
should not be addressed.”)
V.

CONCLUSION

For the reasons set forth above, the court hereby GRANTS IN PART and DENIES IN
PART Third-Party Defendants’ Motions to Dismiss (ECF Nos. 80, 83-1). This court specifically
dismisses U.S. Bank’s claims for apportionment and equitable indemnification.
IT IS SO ORDERED.

United States District Judge
May 27, 2016
Columbia, South Carolina

41