CYNTHIA REED EDDY, Magistrate Judge.
Plaintiff First National Bank of Pennsylvania ("FNB") initiated this civil action for breach of contract and insurance bad faith against the insurer of its bank owned life insurance policies, Defendant Transamerica Life Insurance Company ("Transamerica"), and for breach of fiduciary duty against its insurance broker, Defendant Clark Consulting, Inc. ("Clark"); (collectively "Defendants"). The dispute boils down to whether FNB was paid the entire amount it was owed after it surrendered the policies. FNB claims that in addition to the amount it was paid at surrender (approximately $18 million), it was owed an amount known as the "Bank Enhancement Amount" (worth more than $2.5 million) from a third-party, and that Defendants' actions directly prevented FNB from receiving it. Presently pending before the Court is Defendants' motion for summary judgment. After careful consideration of the parties' arguments on the matter and all of the exhibits filed in connection therewith, and for the reasons that follow, the Court will grant Defendants' motion and enter summary judgment in their favor.
As will be explained in greater detail below, FNB acquired the bank owned life insurance policies at issue in this case ("the Policies") in the fall of 2013 when FNB merged with Park View Federal Savings Bank ("Park View").
The Policies were "separate account" policies, meaning that there were a number of different investment accounts, known as "subaccounts," to which Park View could choose to allocate its policy values. According to the parties, a bank's decision as to which subaccount(s) to allocate its policy values is informed by the material that it receives from the insurance company in a private placement memorandum ("PPM"). The PPM contains detailed disclosures about the attributes of each of the available subaccounts and the terms of any agreements with third parties that may apply if a specific subaccount is selected. The insurance company may later add a new subaccount to the "menu" of available options, at which point the insurance company would send the bank a supplement to the PPM.
When Park View initially purchased the Policies from Transamerica in 2006, it selected the "JP Morgan Core" subaccount. This subaccount was specified in the policy form and was described in multiple PPMs that Park View received prior to selecting it.
On August 7, 2009, Park View, through its Chief Financial Officer, signed a Customer Service Change Form for the Policies (the "2009 Change Form"), which re-allocated 100% of Park View's policy values to a new subaccount offered by Transamerica: the "Stable Value Subaccount." The 2009 Change Form specifically stated that Park View's re-allocation request was "subject to the restrictions of the Stable Value Subaccount." Park View's selection of the Stable Value Subaccount meant that the following additional agreements needed to be executed by parties other than Park View to carry out the subaccount's goal: (1) a Stable Value Agreement between Transamerica and its affiliate Commonwealth General (the "SVA"), and (2) an Enhancement Amortization Agreement between Commonwealth General and JP Morgan (the "EAA").
Parenthetically, Transamerica and Commonwealth General are both subsidiaries of the same parent company. Commonwealth General does not have any employees and was included in the SVA merely for capital and/or accounting purposes. It is undisputed that although Commonwealth General was the signatory to the EAA, Transamerica could also exercise the rights provided to Commonwealth General in the EAA against JP Morgan.
By deciding to re-allocate its policy values into the Stable Value Subaccount, Park View agreed to additional surrender restrictions contained in the SVA and the EAA. Before Park View signed the 2009 Change Form, its CFO, independent auditor, and independent financial accountant all separately reviewed supplements to the original PPMs (which discussed, inter alia, surrender restrictions), as well as forms of the SVA and EAA.
The amount owed to the Policyowner at surrender under the Stable Value Subaccount is governed by various provisions in the SVA and the EAA. Under the EAA, JP Morgan promised that, subject to certain limits and conditions which had to be "strictly satisfied," it would pay an amount known as the "Bank Enhancement Amount" to Commonwealth General at surrender.
Under the SVA, the amount owed to the Policyowner was to be determined after the Policyowner provided notice of surrender.
A few years after Park View selected the Stable Value Subaccount, in the summer of 2012, FNB's parent company was considering a potential acquisition of Park View's parent company and began conducting due diligence of Park View. On February 19, 2013, FNB's parent and Park View's parent publicly announced that they had entered into an Agreement and Plan of Merger (the "Parent Merger Agreement"). The Parent Merger Agreement provided that Park View's parent would merge with and into FNB's parent, and that FNB's parent would be the surviving entity.
The Bank Merger Agreement provided, subject to the terms and conditions of the Parent Merger Agreement, other terms in the Bank Merger Agreement, and approval from the relevant national bank regulator, the Office of the Comptroller of the Currency ("OCC"), that Park View would merge "with and into" FNB and FNB "shall be the surviving bank."
The OCC approved the merger of Park View "with and into" FNB under 12 U.S.C. § 215c "based on a thorough review of all information available, including commitments and representations made in the application, merger agreement, and those of [the] representatives."
Meanwhile, on May 3, 2013, which was approximately two and a half months after Park View and FNB entered into the Bank Merger Agreement but prior to the OCC's approval, Park View contacted Clark for the first time about the merger. Park View's CFO sent an e-mail to Clark's Senior Consultant, Chris Parker, to notify Mr. Parker that Park View was being acquired by FNB and to inquire whether there was anything that needed to be done "regarding carrier or other notifications" in light of the approaching closing of the merger transaction set for October 12, 2013.
A few months later, on August 29, 2013, an FNB representative sent Mr. Parker an e-mail to coordinate the transition of Park View's Policies to FNB in October 2013.
On September 18, 2013, a different FNB representative contacted Transamerica for purposes of "obtaining the necessary procedures and documentation required to make the Owner/Beneficiary change of the Policies currently Owned by Park View."
As expected, FNB's acquisition of Park View closed on October 12, 2013. Four days later, FNB's Treasurer, Scott D. Free, completed the "Customer Service Change Form" for the Policies (the "2013 Change Form") in accordance with Transamerica's instructions from the previous month, and Transamerica recognized FNB as the "New Owner" of the Policies.
In late December 2013, Mr. Free advised Mr. Parker of Clark that FNB was considering a surrender of the Policies. Mr. Parker responded via e-mail to Mr. Free on December 31, 2013. In this message, Mr. Parker warned Mr. Free that JP Morgan might refuse to pay a specific amount at surrender—the Bank Enhancement Amount—based on certain language in the EAA. Specifically, this e-mail states, in relevant part, the following:
A few days later, on January 3, 2014, Barbara Scoles from Transamerica had a conversation with a JP Morgan representative about the same topic. The JP Morgan representative informed Ms. Scoles that JP Morgan "did not believe that Park View could make the [continuous] ownership rep[resentations]" and that its "legal group was looking at the question."
Mr. Parker testified during his deposition that Clark's entire "investigation" into whether FNB could satisfy this condition was one phone call "to JP Morgan to ask whether or not this would potentially be an issue."
In early March 2014, FNB, through Mr. Free, elected to surrender the Policies. Thereafter, Clark provided guidance, assistance, and advice to FNB regarding the procedures and representations commensurate with the surrender of the Policies. Of relevance here, Clark provided a draft form to FNB called a "Surrender Certificate" that contained numerous representations that the Policyowner had to make. As stated above, it was a separate condition under the EAA that, within a specified time period, the Policyowner deliver "a fully executed and complete Surrender Certificate" that is "substantially in the form of the document attached as Exhibit C" to the EAA.
The Surrender Certificate form that Clark provided to FNB complied with this provision in the EAA. Before FNB submitted the Surrender Certificate form, however, it deleted five paragraphs therein, with the effect being that the Surrender Certificate was no longer "substantially in the form of the document attached as Exhibit C" to the EAA.
In Mr. Free's deposition, he explained that the reason he deleted this representation was because FNB felt that JP Morgan was taking an erroneous position in concluding that FNB could not satisfy the continuous ownership condition in the EAA and, therefore, FNB "needed to protect [itself] with this other agreement."
On March 11, 2014, JP Morgan notified Transamerica in writing that it was refusing to pay the Bank Enhancement Amount.
Under the structure of the relevant agreements, JP Morgan was to pay the Bank Enhancement Amount to Commonwealth General; then Commonwealth General would pay the Bank Enhancement Amount to Transamerica; and then Transamerica would pay the Bank Enhancement Amount to FNB. At the time of surrender, the Bank Enhancement Amount was worth about $2.5 million. Because JP Morgan refused to pay the Bank Enhancement Amount, Transamerica did not include the Bank Enhancement Amount in the amount that it paid to FNB at surrender. After deducting the Bank Enhancement Amount, Transamerica paid FNB approximately $18 million, which Defendants assert is the full amount available from liquidation of the assets Park View had re-allocated to the Stable Value Subaccount. Thereafter, FNB attempted to get JP Morgan to reconsider paying the Bank Enhancement Amount by reaching out to its various contacts at JP Morgan. Those attempts, however, were unsuccessful.
This lawsuit followed. FNB filed a complaint against Transamerica and Clark on July 28, 2014, asserting the following claims: (i) breach of contract against Transamerica; (ii) breach of fiduciary duty against Transamerica and Clark; and (iii) insurance bad faith against Transamerica. The case was initially assigned to the Honorable Cathy Bissoon but was reassigned to the undersigned in September 2014 after all of the parties consented to jurisdiction of a magistrate judge under 28 U.S.C. § 636(c). (ECF Nos. 9, 12); see also Roell v. Withrow, 538 U.S. 580, 585 (2003) (when all parties consent to a magistrate judge under § 636(c), "the magistrate judge [has] full authority over dispositive motions, conduct of trial, and entry of final judgment, all without district court review").
Defendants responded to the complaint by filing a Rule 12(b)(6) motion to dismiss for failure to state a claim. The Court granted the motion, in part, dismissing only the claim for breach of fiduciary duty against Transamerica, reasoning that it was duplicative of Plaintiff's other claim for insurance bad faith against Transamerica. See Memorandum Opinion and Order (ECF No. 23); First Nat'l Bank of Pa. v. Transamerica Life Ins. Co., 2015 WL 321657 (W.D. Pa. 2015). The Court denied the motion in all other respects. Id.
Defendants then attempted to add JP Morgan to this action by filing a third party complaint against it. JP Morgan responded by filing a Rule 12(b)(2) motion to dismiss for lack of personal jurisdiction, which the Court granted. See Memorandum Opinion and Order (ECF Nos. 65, 66); First Nat'l Bank of Pa. v. Transamerica Life Ins. Co., 2016 WL 520965 (W.D. Pa. 2016).
Shortly thereafter, the Court held a case management conference and the parties proceeded to discovery. After discovery closed, the Court held another conference with the parties where a summary judgment schedule was discussed and issued. In accord with that schedule, Defendants filed the pending motion for summary judgment. (ECF No. 89). The motion has been fully briefed (ECF Nos. 90, 98, 103, 106, 109) and the record fully developed. (ECF Nos. 91-1-16, 92-1-2, 93-1-10, 94, 95, 99, 100-1-60). Accordingly, the matter is ripe for disposition.
Because federal courts "are courts of limited jurisdiction," possessing "only that power authorized by Constitution and Statute," we must begin by confirming that the Court has subject matter jurisdiction to hear this dispute. See Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) (citations omitted). FNB asserts in the complaint that subject matter jurisdiction is satisfied under 28 U.S.C. § 1332(a)(1), which grants federal district courts original jurisdiction over "all civil actions where the matter in controversy exceeds the sum or value of $75,000, exclusive of interest and costs, and is between citizens of different states." Although Defendants do not challenge the Court's subject matter jurisdiction, the Court has "an independent obligation to determine whether subject-matter jurisdiction exists, even in the absence of a challenge from any party." Arbaugh v. Y & H Corp., 546 U.S. 500, 514 (2006); see also Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 583 (1999) ("subject matter delineations must be policed by the courts on their own initiative").
The party that commences the action in federal court bears the burden of establishing subject matter jurisdiction. Kokkonen, 511 U.S. at 377. Where, as here, the purported basis for jurisdiction is diversity of citizenship jurisdiction under § 1332(a), the citizenship of the parties at the time the action was commenced is what controls. See Grupo v. Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 571 (2004); see also Charles Alan Wright & Arthur R. Miller, 13E Federal Practice & Procedure Juris. § 3608 (3d ed.). FNB commenced this action on July 28, 2014 when it filed its complaint. See Fed.R.Civ.P. 3 ("A civil action is commenced by filing a complaint with the court."). Therefore, FNB bears the burden of establishing jurisdiction on that date.
Determining the citizenship of FNB (a national banking association) and Transamerica (a corporation) is relatively straight forward. By statute, national banking associations are "deemed citizens of the States in which they are respectively located," 28 U.S.C. § 1348, which the Supreme Court has construed as meaning only "the State in which its main office, as set forth in its articles of association, is located." Wachovia Bank v. Schmidt, 546 U.S. 303, 307 (2006). Because FNB is a national banking association with its main office located in Greenville, Pennsylvania, as specified in its articles of association, (ECF No. 87 at ¶ 3), it is a citizen of Pennsylvania for diversity purposes. Additionally, Transamerica, as a corporation, is deemed a citizen of its (1) place of incorporation and (2) principal place of business, i.e., the corporation's "nerve center." 28 U.S.C. § 1332(c); Hertz Corp. v. Friend, 559 U.S. 77, 92-93 (2010). Because it is undisputed that Iowa is both Transamerica's place of incorporation and its principal place of business, Transamerica is a citizen of Iowa for diversity purposes. (ECF No. 87 at ¶ 4); (ECF No. 25 at ¶ 12); see also Transamerica Life Ins. Co. v. Peggy Carskadon Bagala, 2016 WL 3144380, *3 (E.D. La. 2016).
Clark's citizenship, however, is not as obvious. While the complaint identifies Clark as a corporation, the parties' filings and submissions in advance of the case management conference indicated that Clark was actually a limited liability company ("LLC") when the action was commenced. Based on these submissions, it also seemed that Clark was composed of several layers of other entities. This distinction as to whether Clark was an LLC or a corporation at the time the action was commenced matters because "Congress never expanded [the] grant of citizenship [in § 1332(c)] to include artificial entities other than corporations." Americold Realty Trust v. Conagra Foods, Inc., 136 S.Ct. 1012, 1015 (2016).
Although LLCs and corporations share many common characteristics, LLCs are treated like partnerships and other unincorporated associations for diversity jurisdiction purposes. See Zambelli Fireworks Mfg. Co., Inc. v. Wood, 592 F.3d 412, 420 (3d Cir. 2010). Therefore, unlike corporations, the "principal place of business of an [LLC] is ... irrelevant to determine if diversity jurisdiction exists." Johnson v. SmithKline Beecham Corp., 724 F.3d 337, 348 (3d Cir. 2013). Instead, "the citizenship of an LLC is determined by the citizenship of its members." Zambelli, 592 F.3d at 420. In situations "where an LLC has, as one of its members, another LLC, `the citizenship of unincorporated associations must be traced through however many layers of partners or members there may be' to determine the citizenship of the LLC." Id. (quoting Hart v. Terminex Int'l., 336 F.3d 541, 543 (7th Cir. 2003)); see also Americold, 136 S. Ct. at 1015 (noting that the "members" of an unincorporated entity or association are its owners; and in the context of partnerships, the members are the partners).
When the Court learned that Clark was an LLC with multiple layers of members, the Court discussed this issue with the parties at the case management conference and ordered that FNB file a certificate confirming that complete diversity of citizenship exists in this case. (ECF Nos. 71, 86). FNB filed its certificate on October 12, 2016. (ECF No. 87). According to the certificate, on July 28, 2014—the date that FNB commenced the case—Defendant Clark was wholly owned by Clark, LLC. Id. at ¶ 5. Clark LLC, in turn, was wholly owned by Transamerica Retirement Solutions Corporation. Id. at ¶ 6. Transamerica Retirement Solutions Corporation was incorporated in Delaware and had its principal place of business in New York on that date. Id. at ¶ 7. The parties identify no other members of Clark. The Court concludes, therefore, that Clark was a citizen of Delaware and New York for diversity jurisdiction purposes when this action was commenced.
Consequently, the Court has subject matter jurisdiction in this case under 28 U.S.C. § 1332 because at the time the action was commenced, the amount in controversy was more than $75,000 and FNB (a citizen of Pennsylvania) was completely diverse from Defendants Transamerica (a citizen of Iowa) and Clark (a citizen of Delaware and New York). Having determined that subject matter jurisdiction exists, the Court will proceed to consider the merits of the dispute.
Summary judgment is appropriate if, when "view[ing] the facts in the light most favorable to the nonmoving party and draw[ing] all reasonable inferences in that party's favor," the "movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Andreoli v. Gates, 482 F.3d 641, 647 (3d Cir. 2007); Celotex Corp. v. Catrett, 477 U.S. 317, 330 (1986). "Material facts are those that could affect the outcome of the proceeding, and a dispute about a material fact is genuine if the evidence is sufficient to permit a reasonable jury to return a verdict for the non-moving party." Pearson v. Prison Health Svc., 850 F.3d 526, 534 (3d Cir. 2017) (internal marks and citation omitted). "To assess whether the moving party has satisfied this standard, we do not engage in credibility determinations." Id.
Defendants' primary argument is that under the plain terms of the governing agreements (the SVA and the EAA), FNB's breach of contract claim against Transamerica must fail. A breach of contract claim consists of three elements: (1) the existence of a contract, (2) a breach of the contract, and (3) resultant damages. Meyer, Darragh, Buckler & Eck, P.L.L.C v. Law Firm of Malone Middleman, P.C., 137 A.3d 1247, 1258 (Pa. 2016); Nnazor v. Cent. State Univ., ___ N.E.3d ___, 2016 WL 7493651, *4 (Ohio App. 2016). Because JP Morgan refused to pay the Bank Enhancement Amount at surrender, Defendants assert that the governing agreements provide that the amount owed to FNB was to be reduced by the Bank Enhancement Amount, which at the time was worth more than $2.5 million. Accordingly, when Transamerica deducted the Bank Enhancement Amount and promptly paid FNB approximately $18 million, Defendants contend this payment totaled the entire amount owed to FNB under the Policies. As such, Defendants argue that Transamerica did not breach its contract with FNB and that summary judgment should be entered in favor of Transamerica.
In response, FNB agrees that if JP Morgan's refusal to pay the Bank Enhancement Amount was in fact correct, then Transamerica had no duty under the governing agreements to pay FNB the Bank Enhancement Amount. But FNB asserts that Defendants' legal arguments here are a red herring because JP Morgan's refusal to pay the Bank Enhancement Amount was wrong. FNB asserts that since it was not a party to the EAA, it could not enforce the EAA's terms against JP Morgan. There is no dispute that although the EAA was between Commonwealth General and JP Morgan, Transamerica could enforce its terms. Thus, FNB explains that its breach of contract theory against Transamerica is premised on Transamerica's failure to act in FNB's favor once Transamerica learned that JP Morgan would be withholding the Bank Enhancement Amount based on flawed reasons.
Given that FNB concedes that its breach of contract claim fails if JP Morgan's reasons were correct, the Court will turn to that issue now. To recapitulate, JP Morgan withheld the Bank Enhancement Amount because it determined that FNB failed to "strictly satisfy" two conditions in the EAA: (1) that "[t]he Polices are not, and have not been previously, owned by an entity other than the Policyowner on or prior to the Immunization Termination Date," and (2) FNB did not deliver "a fully executed and complete Surrender Certificate" that was "substantially in the form of the document attached as Exhibit C" to the EAA.
Because FNB acquired the Policies through the FNB-Park View merger that closed in October 2013, JP Morgan determined that when FNB surrendered the Policies in March 2014, FNB could not strictly satisfy the condition that "[t]he Polices are not, and have not been previously, owned by an entity other than the Policyowner on or prior to the Immunization Termination Date." JP Morgan concluded that FNB could not satisfy this condition because the original Policyowner, Park View, was no longer in existence and the owner of the Policies had since changed to FNB. To determine whether this conclusion was correct, the Court must examine the Bank Merger Agreement between FNB and Park View, as well as the relevant national bank laws, regulations, and interpretations from the OCC.
The Bank Merger Agreement states that pursuant to 12 U.S.C. § 215c, Park View would merge "with and into" FNB, with FNB being "the surviving bank."
The authority for the FNB-Park View merger, 12 U.S.C. § 215c, was originally enacted as part of the Federal Deposition Insurance Corporation Improvement Act of 1991 ("FDICIA") to expand the types of bank mergers that were permitted under the national bank laws at the time. Pub. L. No. 102-242, Title V, § 502(b), 105 Stat. 2393 (adding Revised Statutes § 5156A). Subject to various other laws and approval by the OCC, Section 215c authorizes a national bank (like FNB) to acquire or be acquired by an insured depository institution (like Park View). 12 U.S.C. § 215c(a).
Unlike some of the similar national bank statutes relating to bank consolidations and mergers that came before it, Section 215c does not contain a corporate succession provision, i.e., a provision relating to the status of the corporate existence of the banks participating in the transaction. In contrast, at 12 U.S.C. §§ 215 and 215a, which authorize other bank mergers/consolidations not relevant to this case, Congress included express corporate succession provisions stating that all participating banks or banking associations "shall be merged into and continued in the consolidated [or receiving] ... banking association" and that the consolidated or receiving association "shall be deemed to be the same corporation as each bank or banking association participating in the consolidation [or the merger]." See 12 U.S.C. §§ 215(e), 215a(e). FNB argues that although Section 215c does not contain such a corporate succession provision, the applicable OCC regulations and interpretations provide that the corporate succession provisions of Sections 215 and/or 215a applied to the FNB-Park View merger as a matter of law. Defendants assert, however, that the regulation FNB relies on does not apply and they argue that a different regulation does. They also contend that the OCC interpretations are not favorable to FNB.
Before addressing the specific OCC regulations and interpretations, the Court notes that the parties are at least in agreement that "the OCC's long-held statutory and regulatory interpretations . . . are entitled to great weight and the OCC's interpretation and regulations implementing Section 215c . . . should not be disturbed." (ECF Nos. 98 at 12, 103 at 6 n. 6); see also Nat'l City Bank of IN v. Turnbaugh, 463 F.3d 325, 332 (4th Cir. 2006) (in cases of statutory silence, courts must defer to the OCC's interpretation of the governing statute, so long as the interpretation is permissible in light of the statutory text and is reasonable); Aguayo v. U.S. Bank, 653 F.3d 912, 920-21 (9th Cir. 2011) ("When an agency such as the OCC offers an `interpretation of its own regulation [that] reflects its considered view,' the court should accept the interpretation if it is not `merely a post hoc rationalization.'") (alteration and emphasis in original; citation omitted). The parties also agree that the Court must apply the applicable regulations that were in place at the time of the merger. See Chase Bank USA, N.A. v. McCoy, 562 U.S. 195, 204 (2011) (the analysis begins with the text of the regulation in effect at the time the dispute arose). As such, with this basic framework in mind, the Court will address the parties' conflicting arguments regarding what regulations apply and what the relevant OCC interpretations are.
Defendants urge the Court to apply 12 C.F.R. § 152.13.
The Court instead agrees with FNB that the version of 12 C.F.R. § 5.33 that was in place at the time of the merger (effective from July 1, 2008 to June 30, 2015) is generally applicable. But at the same time, the Court ultimately rejects FNB's argument that when the FNB-Park View merger occurred in 2013 pursuant to Section 215c, the corporate succession provisions located in Sections 215 and 215a were incorporated through this regulation.
In general, Section 5.33 "sets forth the provisions governing business combinations and the standards for (1) OCC review and approval of an application for a business combination between a national bank and another depository institution resulting in a national bank . . .; and (2) Requirements of notices and other procedures for national banks involved in other combinations with depository institutions." 12 C.F.R. § 5.33(b)(1)-(2). Relevant here, subsection (g)(2) governs consolidations and mergers with Federal savings associations (Park View) under 12 U.S.C. § 215c resulting in a national bank (FNB). Id., at § 5.33(g)(2). Notably, Section 5.33(g)(2) speaks to only the procedures that must be followed when the banks are seeking the OCC's approval for such a merger. In this regard, it requires that a bank entering into a consolidation or merger under Section 215c follow the same procedures already utilized in mergers under Sections 215 and/or 215a. Id., at § 5.33(g)(2)(i)(A).
Although this provision of the regulation does nothing more than borrow the procedures from Sections 215 and 215a for mergers under Section 215c, FNB contends that it also incorporates the corporate succession provisions from those statutes. This argument, however, is not supported by the text of the regulation or by the OCC interpretive decisions that FNB cites. The plain text of Section 5.33(g)(2) clearly applies to only merger application procedures, not substantive rules like the effects of corporate succession. This conclusion is reinforced by looking to other provisions of the same regulation. See Cumberland Coal Res., LP v. Fed. Mine Safety & Health Revie Comm'n, 515 F.3d 247, 254 (3d Cir. 2008) (principles of statutory construction require that courts read a regulation as a whole so that effect is given to all of its provisions). In particular, at subsections (g)(4) and (g)(5) of Section 5.33, the OCC not only instructed that the banks seeking approval to merge follow the procedures of Sections 215a and 214a, respectively, but also explicitly incorporated the relevant corporate succession provisions of those laws in separate subparagraphs. 12 C.F.R. § 5.33(g)(4)(ii), (v); (g)(5)(ii), (v).
Here, in contrast, subsection (g)(2) does not contain an additional subparagraph regarding corporate succession; it only adopts the procedures of Sections 215 and 215a. Accordingly, accepting FNB's interpretation of subsection (g)(2) would improperly render superfluous subsections (g)(4) and (g)(5) of the same regulation. See Marx v. Gen. Rev. Corp., 568 U.S. 371, 133 S.Ct. 1166, 1178 (2013) ("[T]he canon against surplusage is strongest when an interpretation would render superfluous another part of the same [regulatory] scheme."). In other words, the Court cannot assume that the OCC implicitly adopted a corporate succession provision in one part of the regulation when in other parts of the same regulation it explicitly set forth such provisions in separate subparagraphs. To be sure, when the OCC was in the process of promulgating Section 5.33(g)(5)(v) in 2003, it specifically stated: "in our view it is important to be clear that the surviving nonbank affiliate does enjoy corporate succession." 68 Fed. Reg. 70122-01, 2003 WL 22955723 (Dec. 17, 2003).
FNB fares no better by citing to OCC interpretive decisions. FNB contends that "since 1994 the OCC has determined that the corporate succession provisions of Sections 215 and 215a . . . apply to mergers consummated under Section 215c." (ECF No. 98 at 10). Despite this seemingly strong assertion, FNB does not direct the Court to a single OCC decision supporting its premise.
For example, FNB refers the Court to a 2004 OCC conditional approval decision that does not apply to or even discuss Section 215c. See OCC Conditional Approval No. 658, 2004 WL 2725968 (Oct. 13, 2004) (assessing a merger application under 12 U.S.C. § 215a-1). FNB relies on a footnote in that decision where the OCC explained that the corporate succession provision of Section 215a(e) (which FNB seeks to invoke in this case) applies to mergers under Section 215a-1 (which does not apply to this case). Id. at *17 n. 35. The OCC concluded that by authorizing mergers "under this Act" when it enacted Section 215a-1, Congress was making mergers under Section 215a-1 subject to other types of bank mergers already authorized under the National Bank Consolidation and Merger Act, including Section 215a. Id. (emphasis in original).
In a similar vein, FNB's citation to a 1996 OCC corporate decision approving a merger under Section 215c further illustrates that FNB's position is incorrect. See OCC Corporate Decision No. 96-60, 1996 WL 700159 (Oct. 31, 1996). The decision does not even mention the corporate succession provisions of Sections 215 or 215a and it actually concludes that "other laws governing mergers involving national banks," including Section 215a, do not apply to mergers under Section 215c. See id. at *2, 13-14 ("[O]n its face, section 215a would not apply to this transaction [under section 215c] since the target—a federally-chartered savings bank—is not a `state bank.'"). In a series of other decisions, the OCC has likewise concluded that Sections 215 and 215a do not apply to mergers under Section 215c.
As a result, the Court concludes that the OCC regulations and interpretations do not support FNB's theory that Park View continued within FNB upon consummation of the merger. Defendants assert, therefore, that FNB and Park View had no power in private contract to provide for a different legal outcome than the one mandated by the law and regulations. More specifically, Defendants contend that the corporate succession provision in the Bank Merger Agreement stating that FNB "shall be considered the same business and corporate entity" as Park View cannot be given effect.
Rather, FNB only asserts that the corporate succession provision in its Bank Merger Agreement is "entirely in accord" and "wholly consistent" with the applicable OCC regulations and interpretations, and that Park View continued within FNB "as a matter of law." See (ECF No. 98 at 9-10, 13, 15). Because this provision of the Bank Merger Agreement is not consistent with the OCC regulations or interpretations, however, FNB's position here is without merit. Additionally, the Court rejects FNB's assertion that the OCC specifically approved the corporate succession language in the Bank Merger Agreement. The OCC approval letter did not address corporate succession; it did state, however, that the merger was subject to the "applicable OCC regulations and policies." As set forth above, the corporate succession provisions of other national bank statutes did not apply to the FNB-Park View merger under Section 215c during the relevant time period.
Consequently, JP Morgan correctly concluded that FNB could not satisfy the condition in the EAA that "[t]he Polices are not, and have not been previously, owned by an entity other than the Policyowner on or prior to the Immunization Termination Date."
The second reason JP Morgan refused to pay the Bank Enhancement Amount was based on its determination that FNB did not deliver "a fully executed and complete Surrender Certificate" that was "substantially in the form of the document attached as Exhibit C" to the EAA.
Based on the doctrine of demands for adequate assurance of performance, however, FNB contends that it had no obligation to satisfy this condition. FNB explains that in the events leading up to its surrender of the Policies, it made repeated demands to JP Morgan, Transamerica, and Clark for adequate assurance that if it made the representations contained in the form attached to the EAA, it would receive the Bank Enhancement Amount. All of FNB's demands for adequate assurance went unanswered. Therefore, FNB takes the position that it was not required to make the representations contained in the Surrender Certificate form attached to the EAA. Pursuant to a choice of law provision in the EAA, the parties agree that this issue is governed by New York law.
The seminal case in New York on this issue is Norcon Power Partners, L.P. v. Niagara, 705 N.E.2d 656 (N.Y. 1998). In Norcon, a public utility entered into a twenty-five year contract with a power producer for the sale of electricity. But only a few years after the parties executed the long-term contract, the utility anticipated that in future years, based on calculations set forth in the contract, the producer would not be able to perform all of its future repayment obligations. The utility, therefore, demanded adequate assurance that the producer would perform under the contract in the future. The producer responded to the demand by filing a lawsuit against the utility, asserting that the utility did not have the right to demand adequate assurance.
Until Norcon, the doctrine of demands for adequate assurance was recognized under New York law in only two situations: where the promisor becomes insolvent and where the contract is governed by the Uniform Commercial Code. Norcon, 705 N.E.2d at 659. Norcon extended application of the doctrine to common-law contracts that are analogous to certain contracts governed by the UCC. Id. at 662. The Court reasoned that the policies underlying the right to demand adequate assurance for UCC contracts "should apply with similar cogency for the resolution of this kind of controversy" because a "useful analogy can be drawn between the contract at issue [for the sale of electricity] and a contract for the sale of goods." Id. Given that the producer's future performance was still years away, the Court noted that the utility's potential quantifiable damages would only accumulate. Id. Thus, the Court determined that the circumstances justified the utility being able to mitigate its potential damages through the doctrine of demands for adequate assurance.
Norcon's holding, however, was narrow. It limited application of the doctrine "to the type of long-term commercial contract between corporate entities entered into by [the utility] and [producer] here, which is complex and not reasonably susceptible of all security features being anticipated, bargained for and incorporated in the original contract." Id. Accordingly, since Norcon, courts in New York have been "reluctant to extend the right to demand adequate assurances of performance beyond insolvency settings, contracts for the sale of good governed by the Uniform Commercial Code, and closely analogous contracts." Jordan v. Can You Imagine, Inc., 485 F.Supp.2d 493, 502 n. 5 (S.D.N.Y. 2007); see also Bank of N.Y. v. River Terrace Assocs., LLC, 23 A.D.3d 308, 309 (N.Y. App. Div. 2005) ("The Court of Appeals has enjoined the courts to proceed warily in extending this UCC doctrine to the common law of this State."); Scott-Macon Securities, Inc. v. Zoltek Co., 2005 WL 1138476, *16 (S.D. N.Y. 2005) (questioning whether, under Norcon, the doctrine of demands for adequate assurance applies to "this non-UCC case").
Defendants argue that the doctrine of demands for adequate assurance does not extend to this case because, unlike Norcon, the contract at issue here merely involves a one-time promise to pay money and does not involve a party's financial ability to perform under the governing agreements. In response, FNB contends that Defendants' position here is "flatly contradicted by precedent." (ECF No. 106 at 4). The only "precedent" that FNB cites to support this position, however, is a single case that is factually distinguishable. See Palco Telecom Svc., Inc. v. Global Warranty Group, LLC, 2015 WL 1509598, *6 & n. 1 (E.D.N.Y. 2015) (applying the doctrine to a phone repair service contract where the plaintiff had already completed approximately $155,000 in repair services and was in the process of completing approximately $80,000 worth of additional services).
Moreover, aside from the fact that the governing agreements are not analogous to UCC contracts and there is no dispute as to whether any of the parties had the financial ability to perform thereunder, FNB fails to articulate how the situation was "not reasonably susceptible of all security features being anticipated, bargained for and incorporated in the original contract." Norcon, 705 N.E.2d at 662. Both parties make arguments, albeit in other sections of their legal memoranda, that it was foreseeable under the governing agreements that JP Morgan might withhold the Bank Enhancement Amount. Defendants assert, for instance, that "the parties consciously accounted for" this possibility, as evidenced by the surrenders clause in the supplements to the PPM, which Mr. Free from FNB admits reviewing in the fourth quarter of 2013 before he surrendered the Policies. See (ECF No. 103 at 6). Likewise, FNB contends that the "plain terms of the EAA" specifically contemplated that JP Morgan might incorrectly withhold the Bank Enhancement Amount, which would then trigger an "Event of Default" provision in the EAA obligating Transamerica to notify JP Morgan of its error and demand payment. See (ECF No. 106 at 2-3).
For all of these reasons, the doctrine of demands for adequate assurance does not excuse FNB's failure to "strictly satisfy" the condition of delivering "a fully executed and complete Surrender Certificate" that was "substantially in the form of the document attached as Exhibit C" to the EAA. Because it is undisputed that FNB failed to satisfy this condition, JP Morgan was justified in its refusal to pay the Bank Enhancement Amount. In turn, under the structure of the governing agreements, Transamerica properly deducted the Bank Enhancement Amount from the amount owed to FNB, and Transamerica is consequently entitled to summary judgment on this breach of contract claim.
The parties spend little time discussing FNB's insurance bad faith claim, relegating the issue to a few footnotes in their legal memoranda. As FNB previously argued at the motion to dismiss stage, however, the law for an insurance bad faith claim in Ohio and Pennsylvania is similar. (ECF No. 16 at 25-26) (citing Stewart v. Siciliano, 985 N.E.2d 226, 229 (Ohio Ct. App. 2012) and Hanover Ins. Co. v. Ryan, 619 F.Supp.2d 127, 140 (E.D. Pa. 2007)). Defendants argue here that if the Court determines that Transamerica is entitled to summary judgment on the breach of contract claim because it paid FNB the entire amount that was due under the Policies, then this claim for insurance bad faith necessarily fails. (ECF No. 90 at 21 n. 8) (citing Johnson v. State Farm Life Ins. Co., 695 F.Supp.2d 201, 215 (W.D. Pa. 2010); Novinger Grp., Inc. v. Hartford Ins., Inc., 514 F.Supp.2d 662, 674 (M.D. Pa. 2007)). FNB does not dispute this premise.
Instead, FNB argues that its insurance bad faith claim is viable because "Transamerica's refusal to pay the [Bank Enhancement Amount] was not `predicated upon circumstances that furnish reasonable justification there[for].'" (ECF No. 20 n. 12) (quoting Stewart, 985 N.E.2d at 229). But as FNB has conceded in this action, Transamerica did not have to pay the Bank Enhancement Amount to FNB if JP Morgan correctly refused to pay that amount to Commonwealth General in the first instance. Because both of JP Morgan's reasons for withholding the Bank Enhancement Amount were correct, then, by FNB's own concession, Transamerica was reasonably justified in deducting the Bank Enhancement Amount from the amount it paid to FNB. Transamerica is, accordingly, entitled to summary judgment on this claim.
The parties dispute whether FNB's claim for breach of fiduciary duty against Clark is governed by Pennsylvania or Ohio law. The Court's initial task here, therefore, is to determine whether "these states would actually treat this issue any differently." Hammersmith v. TIG Ins. Co., 480 F.3d 220, 230 (3d Cir. 2007) (quoting Air Products & Chem., Inc. v. Eaton Metal Prod. Co., 272 F.Supp.2d 482, 490 n. 9 (E.D. Pa. 2003)). If there is no conflict between the laws, then a choice of law analysis is unnecessary. Id. For the reasons that follow, the Court concludes that neither law imposes a fiduciary duty under the circumstances of this case.
In Ohio, a fiduciary relationship arises in situations where "special confidence and trust is reposed in the integrity and fidelity of another and there is a resulting position of superiority or influence, acquired by virtue of this special trust." In re Termination of Employment of Pratt, 321 N.E.2d 603, 609 (Ohio 1974). Although Ohio law "has recognized a public interest in fostering certain professional relationships, such as the doctor-patient or attorney-client relationships, it has not recognized the insurance agent-client relationship to be of similar importance." Tornado Tech., Inc. v. Quality Control Insp., Inc., 977 N.E.2d 122, 127 (Ohio App. 2012). FNB does not cite any cases indicating that Ohio law treats a relationship between an insurance broker and client any differently than a relationship between an insurance agent and client.
Similarly, in Pennsylvania, a fiduciary duty does not arise as a matter of law for a relationship between an insurance broker and a client. Wisinski v. Brown & Brown Ins. Co. of Pa., 906 A.2d 571, 578-79 (Pa. Super. 2006). A fiduciary duty arises from a confidential relationship "whenever the relative position of the parties is such that the one has power and means to take advantage of, or exercise undue influence over the other." McCown v. Fraser, 192 A. 674, 565 (Pa. 1937); Stewart v. Hooks, 94 A.2d 756, 759 (Pa. 1953) (noting that the terms "fiduciary relationship" and "confidential relationship" carry the same meaning in Pennsylvania). A confidential relationship "appears when the circumstances make it certain the parties do not deal on equal terms, but, on the one side there is an overmastering influence, or, on the other, weakness, dependence or trust, justifiably reposed." Frowen v. Blank, 425 A.2d 412, 416-17 (Pa. 1981). But where one party does not succumb to any overwhelming influence of the other party, does not cede decision-making control to the other party, and proceeds to act on his or her own, then the parties do not have a confidential relationship under Pennsylvania law. Yenchi v. Ameriprise Fin., Inc., ___ A.3d ___, 2017 WL 2644473, *8-9 (Pa. 2017);
For our purposes, there are no relevant differences in these laws to warrant a choice-of-law analysis. Hammersmith, 480 F.3d at 230. FNB is a national bank with extensive resources that unilaterally deferred to its own in-house counsel, not Clark, on its decision to delete numerous representations from the Surrender Certificate, which gave JP Morgan a justifiable reason to withhold the Bank Enhancement Amount. As Clark notes, FNB's corporate designee was unable to point to a single instance where FNB relied on any of Clark's advice after FNB became the Policyowner. Thus, even if JP Morgan's refusal to pay the Bank Enhancement Amount was not justified, these facts alone belie FNB's suggested notion that it was not dealing on equal terms with Clark, Frowen, 425 A.2d at 416-17, or that Clark was in a position of superiority or influence resulting from FNB placing a special trust in Clark. Pratt, 321 N.E.2d at 609.
Further, the Court notes that one of FNB's own arguments in support of this claim actually illustrates why Clark did not owe FNB a fiduciary duty. FNB faults Clark for not conducting a proper investigation after learning that JP Morgan would be withholding the Bank Enhancement Amount. In this regard, FNB notes that Clark's corporate designee, Mr. Parker, testified in his deposition that the entire "investigation" that Clark conducted on the issue was a single phone call to JP Morgan. According to FNB, this demonstrates that Clark violated its duty of "utmost loyalty" to FNB. On closer examination, however, Mr. Parker's deposition testimony here actually leads to a different conclusion: Clark and FNB did not have a fiduciary relationship in the first place.
Mr. Parker testified that he "provided [FNB's Treasurer] Mr. Free the information and let [Mr. Free] decide on his own" what to do, especially since he knew that FNB's attorneys reviewed it.
In accordance with the foregoing, Defendants are entitled to summary judgment on all of FNB's claims. An appropriate Order and Judgment Order will follow.
