Branch Banking and Trust Company v. Meridian Holding Company, LLC et al

Filing 70

MEMORANDUM OPINION AND ORDER granting Third-Party Defendant State Auto Property and Casualty Insurance Company, Inc.'s 61 MOTION to Strike or, in the alternative, Sever the 48 THIRD PARTY COMPLAINT filed by Defendant Meridian Holding Company, LLC; striking the 48 THIRD PARTY COMPLAINT in its entirety. Signed by Judge Robert C. Chambers on 11/12/2019. (cc: counsel of record; any unrepresented parties) (jsa)

IN THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF WEST VIRGINIA
HUNTINGTON DIVISION
BRANCH BANKING AND
TRUST COMPANY,
Plaintiff,
v.

CIVIL ACTION NO. 3:18-0486

MERIDIAN HOLDING COMPANY, LLC
a West Virginia limited liability company;
GREGORY L. HOWARD, JR.;
ROGER J. HARRIS, JR.; and
MICHAEL C. DRAGOVICH,
Defendants.
MEMORANDUM OPINION AND ORDER
Presently pending before the Court is a motion to strike filed by Third-Party Defendant
State Auto Property and Casualty Insurance Company, Inc. (“State Auto”). Mot. to Strike, ECF
No. 61. Specifically, State Auto moves the Court to strike—or, in the alternative, sever—the ThirdParty Complaint filed against it by Defendant Meridian Holding Company, LLC (“Meridian”). See
Third-Party Compl., ECF No. 48. The issues have been fully briefed and are ripe for resolution.
For the reasons explained herein, the Court GRANTS State Auto’s motion.
I. BACKGROUND
Plaintiff Branch Banking and Trust Company (“Branch Banking”) initiated this action
when it filed a Complaint seeking monetary damages for an unpaid promissory note it entered into
with Meridian in 2008. Compl., ECF No. 1, at 2. The Note, payable to Branch Banking in the
original principal amount of $858,276.62, was partially secured by a commercial property located
at 2401 Sissonville Drive in Charleston, West Virginia. Mot. for Leave, ECF No. 30, at 2. The

Note matured on January 5, 2018. Compl., at 2. Meridian, along with Defendants Gregory Howard,
Jr., Roger Harris, Jr., and Michael Dragovich, allegedly breached the terms of the Note and the
individual defendants’ subsequent Guaranty Agreements when they defaulted on their debts to
Branch Banking. Id. at 3. As of March 22, 2018, Branch Banking alleges that “Meridian was
indebted to the Bank under the terms of the Note in the principal sum of $614,341.73, plus accrued
interest of $9,594.85, and late fees and other charges of $8,065.88, for a total of $632,002.46.” Id.
Meridian responded to these claims by filing a set of counterclaims against Branch Banking,
alleging breach of contract, breach of the duty of good faith and fair dealing, common law fraud
and misrepresentation, negligence, and promissory estoppel. Answer & Counterl., ECF No. 11, at
5–9. Broadly speaking, these counterclaims are based on a set of allegations that Branch Banking
and its officers made certain oral representations regarding the Note that they later ignored. Id.
On August 23, 2019, Meridian filed a motion for leave to file a third-party complaint. Mot.
for Leave, at 1. Meridian alleged that State Auto’s “improper refusal to repair . . . damage” at the
2401 Sissonville Drive property caused Branch Banking to break various promises and initiate the
instant action. Id. at 3. What actually constituted the “damage” at the property is somewhat
unclear. 1 What is clear is that the damage, whatever it is, occurred after the Note’s January 5, 2018
maturation. Beyond these factual allegations, the Third-Party Complaint contains claims for
declaratory judgment, breach of contract, first-party recovery of common law damages for
substantially prevailing, and first-party statutory unfair claims settlement practices. Id. at 5–10.

1

Meridian’s Third-Party Complaint and its Motion for Leave both reference a flooding
event, which the Complaint dates to January 10, 2018 and the Motion dates to January 11, 2018.
See Third-Party Compl., at 3; Mot. for Leave, at 3. More puzzling is the second instance of damage,
which the Motion alleges was the result of a vandal stealing electrical components from the
property on February 14, 2018. Mot. for Leave, at 3. The Complaint makes no reference to this
event, and only mentions an ambiguous “second loss” that occurred on or about January 27, 2018
in passing. Third-Party Compl., at 3.
-2-

The Court granted Meridian’s unopposed Motion for Leave to Amend on January 14, 2019.
Order, ECF No. 47. On May 13, 2019, State Auto filed the instant Motion to Strike. Mot. to Strike,
at 1. Pursuant to a stipulation extending deadlines, Meridian filed its Response in Opposition to
State Auto’s motion on June 11, 2019. Resp. in Opp’n, ECF No. 63. Though nominally a response
to State Auto’s arguments, Meridian effectively included a motion to amend the Third-Party
Complaint as part of its filing. Id. at 4–6. One week later, State Auto filed a reply memorandum
of law. Reply, ECF No. 65. Against this factual and procedural background, the Court turns to the
legal framework that will govern its analysis.
II. LEGAL STANDARD
Rule 14(a)(1) of the Federal Rules of Civil Procedure provides that a “defending party may,
as third-party plaintiff, serve a summons and complaint on a nonparty who is or may be liable for
all or part of the claim against it.” Where a third-party claim is not proper, “[a]ny party may move
to strike” it. Fed. R. Civ. P. 14(a)(4). “Granting leave to bring a third party into an action pursuant
to Rule 14(a)(1) falls within the sound discretion of the trial judge and should be liberally
construed.” Wright v. Bigger, No. 5:08CV62, 2008 WL 4900566, at *1 (N.D.W. Va. Nov. 13,
2008) (citing Baltimore & Ohio R.R. Co. v. Saunders, 159 F.2d 481, 483–84 (4th Cir. 1947)).
Nevertheless, third-party complaints must be based on a theory of secondary or derivative liability
to be raised under Rule 14. See Plumbers & Pipefitters Loc. 625 v. Nitro Constr. Servs., Inc., No.
2:18-cv-01097, 2018 WL 6031350, at *2 (S.D.W. Va. Nov. 16, 2018). It follows that a “thirdparty complaint is not appropriate where a defendant merely attempts to deflect blame onto another
party.” AIG Europe Ltd. v. Gen. Sys., Inc., No. RDB-13-0216, 2013 WL 6654382, at *2 (D. Md.
Dec. 16, 2013). Nor may a third-party complaint institute a new cause of action against a third-

-3-

party defendant. APC First, LLC v. T.H.T., Inc., No. 2:02-0942, 2006 WL 8438394, at *4 (S.D.W.
Va. Apr. 20, 2006).
“The secondary or derivative liability notion is central” to the scope of third-party claims.
6 Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1446 (3d ed.). Claims
that are simply related to the basis of an action—“even those arising out of the same transaction
or occurrence”—do not automatically satisfy the derivative requirement. AIG Europe Ltd., 2013
WL 665482, at *2; see also Erickson v. Erickson, 849 F. Supp. 453, 456 (S.D.W. Va. 1994) (“It is
not sufficient that the third-party claim is a related claim; the claim must be derivatively based on
the original plaintiff’s claim.”). Put slightly differently, third-party claims are only viable “where
a proposed third party plaintiff says, in effect, ‘If I am liable to plaintiff, then my liability is only
technical or secondary or partial, and the third party defendant is derivatively liable and must
reimburse me for all or part of anything I must pay plaintiff.’” Watergate Landmark Condo. Unit
Owners’ Ass’n v. Wiss, Janey, Elstner Associates, Inc., 117 F.R.D. 576, 578 (E.D. Va. 1987). With
this legal framework in mind, the Court turns to an analysis of the instant dispute.
III. DISCUSSION
At core, State Auto’s motion to strike centers on its argument that the claims contained in
Meridian’s Third-Party Complaint are not secondary or derivative of Branch Banking’s original
claims. True enough. Yet this argument actually understates the degree of separation between the
claims contained in the Third-Party Complaint and the claims that serve as the basis for this action,
as a comparison between both sets of allegations makes abundantly clear.
In the original Complaint, Branch Banking seeks monetary damages for Meridian’s failure
to repay a promissory note. The note in question matured on January 5, 2018, at which time
Meridian and its co-defendants allegedly breached their obligations to Branch Banking. The bank

-4-

seeks repayment of the balance of the Note, plus accrued interest and late fees. This is the full
extent of Branch Banking’s relatively straightforward claims. Meridian’s Third-Party Complaint
focuses on an entirely different set of facts. It mentions two instances of damage to the 2401
Sissonville Drive property, and requests declaratory judgment on State Auto’s denial of coverage
and various resulting damages. As State Auto appropriately points out, both instances of damages
occurred after the Note’s maturation on January 5, 2018, and have no bearing at all on Meridian’s
failure to repay its debts in a timely fashion. 2 Revealingly, the words “note” and “debt” appear
nowhere in the Third-Party Complaint. Far from simply failing to present claims against State
Auto that are secondary or derivative to Branch Banking’s original claims, Meridian has advanced
claims that are entirely unrelated to the very basis for this action.
Indeed, the completely independent nature of these claims is made plain by the simple fact
that State Auto’s liability is not remotely dependent on the outcome of Branch Banking’s claims.
This Court could determine that Meridian and its co-defendants breached the terms of their
promissory note with Branch Banking, or it could determine that no breach occurred. Either way,
resolution of Branch Banking’s underlying claims and Meridian’s counterclaims would have no
effect whatsoever on the claims advanced in the Third-Party Complaint. Even if every other aspect
of this suit were resolved in Meridian’s favor, the Court would still be left to address whether State
Auto improperly denied coverage on the losses at 2401 Sissonville Drive. Simply put, a defendant
may not assert such unrelated claims as a third-party plaintiff under Rule 14. See, e.g., Plumbers
& Pipefitters Loc. 625, 2018 WL 6031350, at *3.

2

Meridian advances the somewhat bewildering argument that “the fact that the original
breach occurred before the loss is not relevant because Meridian would have been able to remedy
any technical breach if State Auto had paid the loss claims.” Resp. in Opp’n, at 3. It is logically
impossible for an unanticipated loss that occurs after a breach to have been the cause of that breach.
-5-

Recognizing all this, Meridian attempts to salvage the Third-Party Complaint by
shoehorning a motion for leave to amend into its Response. Setting aside the fact that no formal
motion for leave to amend is properly before the Court, Meridian’s request is futile. Of course, the
Court recognizes that the “law is well settled that leave to amend a pleading should be denied only
when the amendment would be prejudicial to the opposing party, there has been bad faith on the
part of the moving party, or the amendment would be futile.” Edwards v. City of Goldsboro, 178
F.3d 231, 242 (4th Cir. 1999) (internal quotations omitted). The third exception—futility—is most
immediately applicable to the instant case. Where a “proposed amendment is clearly insufficient
or frivolous on its face,” leave to amend will be denied as futile. Johnson v. Oroweat Foods Co.,
785 F.2d 503, 510 (4th Cir. 1986).
Here, Meridian “seeks to amend its Third-Party Complaint to set forth the facts necessary
to establish (1) State Auto[’s] acts and omissions are the true cause of Meridian’s breach of the
promissory note with Branch Banking; (2) State Auto’s acts and omissions are the cause of
Meridian’s alleged breach of the promissory note with Branch Banking; and (3) adding Gregory
L. Howard, Jr., Roger J. Harris, Jr., and Michael Dragovich as Third-Party Plaintiffs.” 3 Resp., at 5.
Each of these sets of amendments is clearly insufficient to cure the defects in the Third-Party
Complaint. With respect to the first and second categories, the Court has already noted that the
alleged losses occurred after maturation of the Note. More significantly, no new facts establishing
causation alter the reality that the success of Meridian’s claims against State Auto will have no
impact on the success of Branch Banking’s claims against Meridian. Adding the individual

3

The Court is admittedly perplexed by the difference between the first and second category
of proposed amendments; apart from slightly varied phrasing, they appear to be identical.
-6-

defendants as third-party plaintiffs is similarly futile, as the Third-Party Complaint’s fatal defects
would be unaffected by their inclusion.
Put plainly: State Auto did not breach a promissory note to Branch Banking. Whether
Meridian breached a promissory note to Branch Banking is the underlying subject of this lawsuit,
but this question is wholly independent from whether State Auto appropriately denied coverage
for two losses on a property securing such a note. This Court is unwilling to see this action
transform into a briar patch of cross-cutting discovery and evidentiary issues aimed at proving
allegations whose truth is entirely unconnected. It follows that Meridian may not raise its
allegations against State Auto as third-party claims under Rule 14.
IV. CONCLUSION
For the aforementioned reasons, the Court GRANTS State Auto’s motion, ECF No. 61,
and STRIKES Meridian’s Third-Party Complaint, ECF No. 48, in in its entirety.
The Court DIRECTS the Clerk to send a copy of this Opinion and Order to counsel of
record and any unrepresented parties.
ENTER:

November 12, 2019

ROBERT C. CHAMBERS
UNITED STATES DISTRICT JUDGE

-7-