United States District Court, D. New Mexico
MARK PIERCE, WILLIAM C. ENLOE, and JILL COOK, TRINITY CAPITAL CORPORATION and LOS ALAMOS NATIONAL BANK, Plaintiffs,
ATLANTIC SPECIALTY INSURANCE COMPANY, FEDERAL INSURANCE COMPANY, and CONTINENTAL CASUALTY COMPANY, Defendants.
MEMORANDUM OPINION AND ORDER
18, 2016, Atlantic Specialty Insurance Company (ASIC) removed
to this Court three consolidated cases from the First
Judicial District Court in the County of Los Alamos
(“consolidated state court
proceeding”). NOTICE OF REMOVAL (Doc. No.
The sole basis for removal was federal question jurisdiction.
Id. at 1 (citing 28 U.S.C. §§ 1331 and
19, 2016, ASIC filed DEFENDANT [ASIC'S] MOTION TO REALIGN
PARTIES, stating that while ASIC had removed the consolidated
state court proceeding just one day earlier on the sole
ground of federal question jurisdiction, ASIC believed that
realignment of the parties was warranted “based upon
their real (as opposed to their claimed) interests.”
ASIC Motion to Realign (Doc. No. 6). In the Motion to
Realign, ASIC did not expressly argue that realignment of the
parties would result in the Court having diversity
jurisdiction as well as federal question jurisdiction, but
that was the gist of ASIC's request for realignment.
See Id. at 2 (citing case law discussing realignment
of parties in the context of removal based on diversity
jurisdiction). ASIC's Motion to Realign Parties was fully
briefed as of August 18, 2016.
August 19, 2016, Continental filed DEFENDANT
[CONTINENTAL'S] NOTICE OF ADDITIONAL GROUNDS FOR REMOVAL
(Doc. No. 232), in which Continental expressly raised
diversity jurisdiction as an additional basis for federal
court jurisdiction. Also on August 19, 2016, Continental
filed DEFENDANT [CONTINENTAL'S] MOTION TO REALIGN PARTIES
(Doc. No. 233), arguing that complete diversity of
citizenship between the parties would exist if the Court
realigned the Insureds (TCC/LANB,  Enloe, Pierce, and Cook) as
Plaintiffs and the Insurers (ASIC, Travelers/St. Paul,
Continental, and Federal) as Defendants. Id. at 6.
ASIC joined in Continental's Motion to Realign Parties
(Doc. No. 236). However, LANB and the other
“Insureds” gave notice they would not respond to
Continental's Motion to Realign because it was filed in
violation of the Court's earlier August 17, 2016 Order
staying non-remand matters (Doc. Nos. 237-40).
Continental's Motion to Realign Parties was not briefed.
four Plaintiffs identified in the above caption each filed a
Motion to Remand in August 2016: (1) PLAINTIFF PIERCE'S
MOTION TO REMAND TO STATE COURT (Doc. No. 158) (Pierce Motion
to Remand); (2) [LANB'S] MOTION TO REMAND (Doc. No. 225)
(LANB Motion to Remand); (3) JILL COOK'S MOTION TO REMAND
(Doc. No. 226) (Cook Motion to Remand); and (4) ENLOE'S
MOTION TO REMAND (Doc. No. 227) (Enloe Motion to Remand).
August 2016, ASIC filed separate responses to the four
Motions to Remand: (1) DEFENDANT [ASIC'S] RESPONSE IN
OPPOSITION TO PLAINTIFF MARK PIERCE'S MOTION TO REMAND
(Doc. No. 223) and SUPPLEMENT TO DEFENDANT [ASIC'S]
RESPONSE IN OPPOSITION TO PLAINTIFF MARK PIERCE'S MOTION
TO REMAND (Doc. No. 228); (2) DEFENDANT [ASIC'S] RESPONSE
IN OPPOSITION TO PLAINTIFF[ LANB'S] MOTION TO REMAND
(Doc. No. 243); (3) DEFENDANT [ASIC'S] RESPONSE IN
OPPOSITION TO PLAINTIFF WILLIAM ENLOE'S MOTION TO REMAND
(Doc. No. 245); and (4) DEFENDANT [ASIC'S] RESPONSE IN
OPPOSITION TO PLAINTIFF JILL COOK'S MOTION TO REMAND
(Doc. No. 244).
September 16, 2016, LANB, Ms. Cook, Mr. Pierce, and Mr. Enloe
each filed a Reply in support of the Motions to Remand (Doc.
Nos. 247, 249, 251, and 253).
September 28, 2016, Continental requested leave to file a
combined response to the four Motions to Remand, which was
granted. See DEFENDANT [CONTINENTAL'S] RESPONSE
TO REMAND ARGUMENTS BY PLAINTIFFS JILL COOK, MARK PIERCE,
[LANB], AND WILLIAM ENLOE (Doc. No. 263) (Continental's
October 19, 2016, LANB separately filed a reply to
Continental's Consolidated Response in which Ms. Cook,
Mr. Pierce, and Mr. Enloe joined (Doc. Nos. 265, 266, and
267). [LANB'S] REPLY TO DEFENDANT [CONTINENTAL'S]
RESPONSE TO REMAND ARGUMENTS BY JILL COOK, MARK PIERCE,
[LANB] AND WILLIAM ENLOE (Doc. No. 264) (LANB Reply to
Continental's Consolidated Response).
a national banking association organized under the National
Bank Act, with its principal place of business in Los Alamos
and with branch offices in White Rock, Santa Fe, and
Albuquerque. TCC is the sole owner of the outstanding shares
C. Enloe served as Chief Executive Officer and as a member of
the Board of Directors of both TCC and LANB at the time of
the 2012 bank examination conducted by the Office of the
Comptroller of the Currency (OCC). Mr. Enloe resigned his
positions at TCC and LANB in February 2013.
Cook formerly served as Senior Vice President and Chief
Credit Officer for the Loan Department at LANB. In December
2012, LANB terminated Ms. Cook's employment.
Pierce was a loan officer in LANB's loan department
during the 2012 OCC examination. Mr. Pierce continued in that
position until he tendered his letter of resignation on April
Insurance Group (OneBeacon) is a Bermuda domiciled holding
company that is publicly traded on the New York Stock
Exchange. On May 1, 2012, OneBeacon issued LANB a Management
and Professional Liability Insurance Policy with policy
number 474-00-08-14-0003 for the period 5/1/12 to 5/1/13. The
policy was placed with ASIC,  one of several insurance company
subsidiaries of OneBeacon (hereafter, referred to as the ASIC
policy). Coverage was renewed for the 5/1/13 to 5/1/14 policy
Paul and Continental provided excess umbrella insurance
coverage above the ASIC policy issued for the 5/1/12 to
5/1/13 policy period. LANB Motion to Remand at 2-4.
provided excess umbrella insurance coverage above the ASIC
policy issued for the 5/1/13 to 5/1/14 policy year. Federal
also issued a primary “ForeFront Portfolio for
Community Banks” insurance policy for the 5/1/14 to
5/1/15 policy year, when ASIC declined to renew its coverage
for that policy year. Id.
ASIC policy is a specialty policy designed for financial
institutions like LANB, and it provides coverage for a
variety of risks and exposures typically faced in financial
institutions. One such risk is the cost associated with
responding to regulatory investigations. The ASIC policy
defines a “claim” to include “a formal
regulatory proceeding commenced by the filing of a notice of
charges, formal investigative order or similar
document.” LANB Motion to Remand at 4. An
“Insured Person” under the ASIC policy
“means any past, present or future director, member of
the board of trustees, officer, employee, etc.”
Id. The ASIC policy promises to pay on behalf of
Insured Persons “loss” for which the Insured
Persons are not indemnified by LANB. The ASIC policy also
promises to pay on behalf of LANB a “Loss” for
which LANB grants indemnification to Insured Persons.
excess umbrella policies issued by Federal, Travelers/St.
Paul, and Continental are “follow form” policies
that provide the same coverage as the primary ASIC policies
conditioned on exhaustion of the underlying policy limits.
OCC and SEC Investigations
In 2012, the [OCC] conducted an examination of LANB as of
June 30, 2012. The 2012 OCC examination found unsafe or
unsound banking practices relating to management and board
supervision, credit underwriting, credit administration and
deficiencies in internal controls. As a consequence, on
November 30, 2012, LANB entered into a formal written
agreement with the OCC in which LANB agreed to take certain
actions to address and rectify the deficiencies uncovered in
the 2012 OCC examination.
As a further consequence, the deficiencies identified by the
OCC were ultimately determined to have resulted in Trinity
and/or LANB misstating their financial condition and net
income in filings with various federal regulatory agencies,
including the OCC and United States Securities and Exchange
Commission (“SEC”). On December 6, 2012, Trinity
filed a Form 8-K Current Report with the SEC in which it
disclosed the deficiencies uncovered by the 2012 OCC
examination. That same day, LANB sent an e-mail to ASIC's
claims department giving notice of circumstances that could
give rise to a claim under the ASIC policy and attached
copies of the November 30, 2012 OCC agreement and the
December 6, 2012 8-K Current Report. ASIC did not acknowledge
receipt of this notice until February 14, 2013 and then only
advised that it would “simply reserve all rights and
defenses under the policy provisions, and at law, with regard
to future developments in the matter.”
On or about December 8, 2012, an attorney for Jill Cook sent
a letter to the President of LANB, demanding, inter
alia, that LANB indemnify her for attorney fees she
incurred in responding to the OCC investigation and a
so-called “Fifteen Day Letter.” LANB forwarded
Ms. Cook's demand letter to ASIC's claims department
on January 16, 2013 and ASIC acknowledged receipt of the
demand letter and LANB's notice of claim on January 17,
In late 2012 or early 2013, the SEC opened an investigation
captioned In the Matter of Trinity Capital Corporation
(D3320), which related to the circumstances surrounding
the restatement of Trinity's financial statements
following the 2012 OCC examination. Beginning in January,
2013, and continuing into 2014 and 2015, the SEC issued
numerous subpoenas to Trinity, LANB and to various current
and former officers, directors and employees of Trinity and
LANB, requesting production of documents and in some
instances, commanding the recipients to appear and give sworn
testimony at the SEC's regional offices in Denver,
Colorado. Copies of the subpoenas received in 2013 were
forwarded to ASIC's claims department in December of
2013. [Additional subpoenas followed].
Mr. Enloe, Ms. Cook and Mr. Pierce have been targets of these
ongoing regulatory investigations and had requested that LANB
indemnify them for legal fees and costs incurred in
responding to the investigations. LANB denied their requests
because it determined that it was prohibited from
indemnifying these individuals under the provisions of 28
U.S.C. part 359 and the New Mexico Business Corporations Act
On January 7, 2015, ASIC's claims adjuster advised LANB
for the first time that ASIC was reserving its rights to deny
coverage for the ongoing regulatory investigations on the
basis that ASIC had not been provided adequate or timely
notice of a claim or circumstances that could give rise to a
claim during the 2012-2013 ASIC policy period. However, the
ASIC claims adjuster did not accept or deny coverage but
requested additional documents. On April 30, 2015, ASIC's
claims adjuster sent a letter to counsel for Jill Cook
denying coverage for Ms. Cook's claim for reimbursement
of her defense costs in responding to the regulatory
investigations. ASIC's denial of coverage was premised
[on] LANB's alleged failure to give timely or adequate
notice of claims or circumstances that could give rise to a
claim during the 2012-2013 policy period.
LANB Motion to Remand at 4-7.
William C. Enloe's underlying
11, 2015, Mr. Enloe filed an initial Complaint for
Declaratory Relief Regarding Insurance and Indemnity
Agreements against LANB and ASIC in the First Judicial
District Court (County of Los Alamos) (D-132-CV-2015-00047)
and on July 1, 2015, LANB removed D-132-CV-2015-00047 to
federal court on the basis of federal question jurisdiction.
Doc. No. 1- 3 in Civ No. 15-567 WPL/KBM. On July 30, 2015,
Mr. Enloe filed a Rule 41 Notice of Dismissal Without
Prejudice of Civ. No. 15-567.
September 1, 2015, Mr. Enloe filed a Complaint for
Declaratory Relief, Breach of Insurance Contract, Insurance
Bad Faith, Breach of the New Mexico Insurance Practices Act,
and Negligence against ASIC, OneBeacon, Federal, and LANB in
the First Judicial District Court (County of Los Alamos)
(D-132-CV-2015-00082). LANB states that unlike Mr.
Enloe's initial and amended complaints that he filed in
May 2015, this September 1, 2015 Complaint did not include a
claim for indemnity against LANB. LANB Motion at 9
October 7, 2015, Mr. Enloe filed a Verified Waiver and
Disclaimer with prejudice disclaiming his right to pursue a
declaratory judgment action against LANB to indemnify Mr.
Enloe for fees related to the regulatory and enforcement
October 15, 2015, the New Mexico Superintendent of Insurance
accepted service on behalf of ASIC and OneBeacon. On November
16, 2015, ASIC and OneBeacon answered the September 1, 2015
February 1, 2016, the First Judicial District Court in the
County of Los Alamos entered an Order consolidating Mr.
Enloe's lawsuit against ASIC, Federal, and LANB with
LANB's lawsuit against ASIC, Federal, Enloe and Cook (see
below). Thus, State Court Cause Nos. D-132-CV-2015-00082 and
D-132-CV-2015-00083 were consolidated for all purposes and
filings were entered in the lead case, D-132-CV-2015-00082.
See Doc. No. 94 (attached state court filings).
April 28, 2016, the First Judicial District Court in the
County of Los Alamos entered a second Order of Consolidation
upon LANB's unopposed motion, consolidating the three
state court actions, i.e, the Enloe, LANB, and Pierce
lawsuits (see below). Thus, State Court Cause Nos.
D-132-CV-2015-00082, D-132-2015-00083, and D-101-CV-2015-0231
were all consolidated under the lead case,
D-132-CV-2015-00082. The caption used for the consolidated
cases included all three cases.
31, 2016, Mr. Enloe filed a First Amended Complaint for
Declaratory Relief, Breach of Insurance Contract, Insurance
Bad Faith, Breach of the New Mexico Insurance Practices Act,
and Negligence in the consolidated state court proceeding
against ASIC, Federal, LANB, Travelers/St. Paul, and
Continental in the First Judicial District Court in the
County of Los Alamos. This is the first time Mr. Enloe named
Travelers/St. Paul and Continental as Defendants. The Enloe
First Amended Complaint is the operative Enloe Complaint in
this removed action.
LANB's Related Underlying Lawsuits
1, 2015, LANB filed in federal court a Complaint for
Declaratory Relief, Bad Faith Breach of Insurance Contracts
and Violations of the New Mexico Unfair Insurance and Unfair
Trade Practices Act against ASIC, Federal, Mr. Enloe and Ms.
Cook. Doc. No. 1 in Civ. No. 15-564 WPL/KBM. On September 1,
2015, LANB filed a Rule 41 Notice of Voluntary Dismissal
Without Prejudice of CIV No. 15-564 WPL/KBM.
September 1, 2015, LANB filed in the First Judicial District
Court (County of Los Alamos) (D-132-CV-2015-00083) a
Complaint for Declaratory Judgment, Bad Faith Breach of
Insurance Contracts, and Violations of the New Mexico Unfair
Insurance Practices Act and Unfair Trade Practices Act
against ASIC, Federal, Mr. Enloe and Ms. Cook.
September 22, 2015, counsel for ASIC entered an appearance
and accepted service of the LANB state court action on behalf
of ASIC. On October 22, 2015, ASIC filed its Answer in the
LANB state court action.
February 2, 2016, LANB and Mr. Enloe filed a Stipulated
Motion to Dismiss all Declaratory Claims against Defendant
[Enloe] Re Indemnification. See Doc. No. 186
(attached state court filings). This Stipulated Motion
related to Mr. Enloe's October 7, 2015 disclaimer, filed
in Mr. Enloe's state court lawsuit, that there was no
actual controversy under NMSA § 44-6-2 (Declaratory
Judgment Act). Thus, LANB agreed to dismiss its claim for
declaratory relief against Mr. Enloe as to indemnification.
See Stipulated Order.
Mark Pierce's Related Underlying
November 2, 2015, Mr. Pierce filed a “Complaint for
Declaratory Relief on Coverage under an Insurance Policy or
Policies, for Declaratory Relief on Employer's Duty to
Indemnify Employee for Defense Costs Incurred in Defense of
Authorized Actions Done in the Scope and Course of Employment
Duties, and for Damages for Bad Faith Breach of Insurance
Policy or Policies, for Common Law and/or Statutory Bad Faith
by an Insurance Company or Companies, for Violations of the
New Mexico Unfair Practices Act, and for Bad Faith Breach of
Employer's Duty of Good Faith Indemnification under
Respondent (sic) Superior Liability” against ASIC,
LANB, and Federal in the First Judicial District Court
(County of Santa Fe). (D-101-CV-2015-02381).
November 25, 2015, Mr. Pierce filed an Amended Complaint
(with the same title as above) against the same Defendants in
the same state court. On February 22, 2016, ASIC filed its
stated above, the First Judicial District Court (County of
Los Alamos) consolidated the Enloe, LANB, and Pierce lawsuits
on April 28, 2016.
7, 2016, Mr. Pierce filed another Amended Complaint with a
slightly different title than both the original Complaint and
the (first) Amended Complaint. The July 7, 2016 pleading is
identified as an “Amended Complaint for Declaratory
Relief on Coverage Under an Insurance Policy or Policies and
for Damages Resulting from Breach of Insurance Policy or
Policies, Willful Breach of Insurer's Covenant of Good
Faith, Violations of the New Mexico Insurance Trade Practices
and Frauds Act, and Violations of the New Mexico Unfair Trade
Practices Act” against the same Defendants in the First
Judicial District Court in the County of Los Alamos. The July
7th Amended Complaint was filed in the consolidated state
court proceeding and is the operative Pierce Complaint in
this removed action.
Jill Cook's Related Underlying
Cook did not file a lawsuit against any of the parties.
Instead, in her January 8, 2016 Answer to LANB's
Complaint (D-132-CV-2015-00083), Ms. Cook filed a Cross Claim
against ASIC and Federal. See Doc. Nos. 102-103
(attached state court filings). The Cross Claim alleged, in
part, that ASIC and Federal owed Ms. Cook a duty to defend
and indemnify her for costs related to the federal regulatory
investigations of LANB. Cook Answer and Cross Claim
¶¶ 84, 92.
February 3, 2016, Ms. Cook and LANB filed a Stipulated Motion
to Dismiss all Declaratory Claims against Defendant Jill Cook
Re Indemnification, stating that Ms. Cook had agreed not to
pursue claims against LANB for defense and indemnity related
to the federal regulatory investigations. Ms. Cook and LANB
stipulated and agreed that LANB's request for declaratory
relief regarding Ms. Cook could be dismissed, without
prejudice. Doc. No. 187 (attached state court filings). On
February 17, 2016, the First Judicial District Court in the
County of Los Alamos entered a corresponding Stipulated Order
dismissing LANB's claim regarding indemnification of Ms.
Cook. See Doc. No. 136.
ASIC's Removal of the Consolidated State
18, 2016, ASIC filed its Notice of Removal relying on Mr.
Pierce's July 7, 2016 Amended Complaint. ASIC states that
it was served electronically with Mr. Pierce's Amended
Complaint on July 7, 2016 and that it filed the Notice of
Removal within 30 days of receipt of the Pierce Amended
Complaint. Notice of Removal ¶¶ 2, 6. ASIC asserts
that the July 7, 2016 Amended Complaint “raised for the
first time allegations from which the defendant could
ascertain that the case had become removable pursuant to 28