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Susquehanna Bank v. Stewart

United States District Court, D. Maryland

September 29, 2014

KAREN WELDIN STEWART, INSURANCE COMMISSIONER OF THE STATE OF DELAWARE, in her capacity as the Insurance Commissioner and in her capacity as the Receiver for Indemnity Insurance Corporation, RRG Defendant.


RICHARD D. BENNETT, District Judge.

This case is a declaratory judgment action in which Plaintiff Susquehanna Bank seeks to establish its rights to certain funds in an account at the bank. The account is held by an insurance company currently in receivership in the State of Delaware. Defendant Karen Weldin Stewart, the Insurance Commissioner of the State of Delaware, ("the Commissioner") filed a Motion to Dismiss (ECF No. 10), and that motion is now fully briefed. The parties' submissions have been reviewed and no hearing is necessary. See Local Rule 105.6 (D. Md. 2014). For the reasons that follow, Defendant Karen Weldin Stewart's Motion to Dismiss (ECF No. 10) is GRANTED.


This Court accepts as true the facts alleged in the plaintiffs' complaint. See Aziz v. Alcolac, Inc., 658 F.3d 388, 390 (4th Cir. 2011).

This case involves funds held in a bank account (the "Account") at Plaintiff Susquehanna Bank that belongs to Indemnity Insurance Corporation, RRG ("IICRRG"), a risk retention group that is organized under the laws of Delaware but which has its principal place of business in Sparks, Maryland.[1] IICRRG is now in receivership in Delaware. Susquehanna Bank asserts that it is nevertheless entitled to the funds in the Account- roughly five million dollars-because the account was pledged as collateral for a loan that is now in default.

Specifically, Susquehanna Bank alleges that it made a commercial loan in the principal amount of five million dollars to RB Entertainment Ventures, LLC, which is a Delaware limited liability company that is affiliated with IICRRG and which has its principal place of business in Sparks, Maryland. The proceeds of the loan were placed in the Account. IICRRG executed a Guaranty Agreement and pledged to repay the Loan; in connection to that pledge, IICRRG entered an Account Pledge and Security Agreement and Control Agreement, in which IICRRG granted Susquehanna Bank a first priority security interest to the funds in the Account. The loan documents indicate that Maryland law is to govern the agreements. Susquehanna Bank filed a UCC-1 financing statement[2] and perfected its interest.[3]

Defendant Karen Weldin Stewart (the "Commissioner") is the Insurance Commissioner of the State of Delaware and, therefore is vested with authority to enforce the Delaware Insurance Code. Additionally, the Commissioner is designated as the statutory receiver for insurers subject to Delaware delinquency proceedings. See 18 Del. Code ch. 59.

The Commissioner instituted a proceeding in the Delaware Court of Chancery on May 30, 2013, seeking an ex parte order authorizing the Commissioner to take temporary control of the assets and operations of IICRRG. In essence, the Commissioner sought to determine the financial health of IICRRG. The Delaware Court of Chancery issued a seizure order ("the Delaware Seizure Order"), which required all persons and entities in possession of assets of IICRRG to provide an accounting of those assets and surrender them to the Commissioner.

In light of the fact that IICRRG's assets were primarily located in Maryland, the Commissioner next filed an action in the Circuit Court for Baltimore County, Maryland in order to enforce the Delaware Seizure Order in Maryland.[4] The Maryland Court issued an ex parte order on June 17, 2013 ("the Maryland Seizure Order"). Under the authority of this Order, the Commissioner obtained a Writ of Garnishment of Property directed to Susquehanna Bank.

By letter, Susquehanna Bank identified the Account as one of the accounts held by IICRRG at the bank, but it denied that the funds in that account were properly classified as assets of IICRRG. Susquehanna Bank refused to turn over the funds held in the Account, but it did surrender IICRRG's other assets. The Bank also filed a formal Answer to the Writ of Garnishment.[5]

After reviewing the various materials uncovered during the investigation, the Commissioner determined that IICRRG was insolvent. Accordingly, the Commissioner filed a Liquidation Petition on July 26, 2013. Thereafter, the Commissioner filed a petition for entry of rehabilitation and injunction order. On November 7, 2013, the Delaware Court of Chancery entered a rehabilitation order ("the Delaware Rehabilitation Order"). The Delaware Rehabilitation Order appointed the Commissioner as the receiver for IICRRG and again ordered an accounting and surrender of IICRRG's assets. The Rehabilitation Order also authorized the Commissioner to determine and adjudicate claims asserted by creditors to IICRRG under the Delaware Insurance Code.[6]

Meanwhile, Susquehanna Bank moved forward in the Maryland litigation in an attempt to determine its rights. Specifically, it filed a motion for judgment on the writ of garnishment under Maryland Rule 2-645(g), and it also filed a motion for relief from the Maryland Seizure Order. In response, the Commissioner argued that the Delaware Rehabilitation Order had superseded the Maryland Seizure Order and that the Maryland litigation was now superfluous. Additionally, the Commissioner filed motions to vacate the Maryland Seizure Order and to dissolve the writs of garnishment. Susquehanna Bank opposed the Commissioner's motion to dissolve the writ.

Susquehanna Bank filed the presently pending action in this Court on December 16, 2013. The Complaint is an action for declaratory judgment, and the Bank seeks a declaration that it has "the sole and exclusive right to the funds on deposit in the [Account]" and that it may "exercise its right of set-off with respect to the funds... and to apply such funds to reduce the balance of the Loan [to RBEV]". The Commissioner has moved to dismiss the action under Rule 12(b)(1), and that motion was fully briefed.

By direction of the Court, the parties also submitted letters that provided updates on recent developments in the other state proceedings involving the entities and parties involved in this case. In the Delaware action, the Commissioner shifted course and converted the receivership action for a rehabilitation into a liquidation. The Delaware Court of Chancery entered a Liquidation and ...

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