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Di Loreto v. Costigan

February 19, 2009

JEANNE S. DI LORETO, PLAINTIFF,
v.
WILLIAM F. COSTIGAN; ERIC R. DINALLO; MARK J. PETERS; AND ANDREW J. LORIN, DEFENDANTS.
JEANNE S. DI LORETO, PLAINTIFF,
v.
INSURANCE DEPARTMENT OF THE STATE OF NEW YORK; WILLIAM F. COSTIGAN; ERIC R. DINALLO; MARK J. PETERS; AND ANDREW J. LORIN, DEFENDANTS.



The opinion of the court was delivered by: Ronald L. Buckwalter, S. J.

MEMORANDUM

BUCKWALTER, S. J.

Presently before this Court are three motions to dismiss filed by: (1) Defendant State of New York Insurance Department ("NYSID"); (2) Defendant Costigan; and (3) Defendants Di Nallo, Peters, and Lorin ("NYSID Defendants"). For the reasons discussed below, Defendants' Motions to Dismiss are granted.

I. PROCEDURAL AND FACTUAL HISTORY

These filings are the latest salvos in a long-running legal dispute arising from the Insurance Department of New York's liquidation of Nassau Insurance Company ("Nassau") in 1984. (Compl. ¶ 32.) Since that time, the parties have been involved in near-constant litigation culminating in a $20,000,000 jury verdict against Plaintiff, Jeanne Di Loreto, and her husband.*fn1

The NYSID Liquidator's efforts to enforce that judgment in Pennsylvania are the basis for the present dispute.

Founded in 1965, Nassau was owned by Plaintiff and her husband, Richard Di Loreto. (Id. ¶ 23.) In 1976, the Di Loretos formed Ardra Insurance Company ("Ardra"), a Bermuda corporation, to provide "reinsurance coverage to Nassau." (Id. at ¶ 26.) Plaintiff served as President of Ardra, a position her counsel deems to have been "ceremonial . . . in that she held the office without performing any real or substantive responsibilities." (Id. at ¶ 27.) As President of Ardra, Plaintiff signed key several documents relating to its operation.*fn2 An April 1985, Summons and Complaint issued by James P. Corcoran as NYSID Superintendent and Liquidator of Nassau indicated that Mrs. Di Loreto was the 100% beneficial owner of Tiber Holding Corporation ("Tiber"), Ardra's ultimate parent. (Exs. to Pl.'s Compls. mailed to Chambers, July 30, 2008, Ex. A, Compl. 3.)

In 1985, acting as Liquidator of Nassau (Liquidator), the NYSID Superintendent brought suit seeking, among other things, "recovery of reinsurance proceeds due to Nassau under certain reinsurance agreements between Nassau and Ardra Insurance Company, Ltd.; [and] damages for the costs and disbursement of recovering the reinsurance proceed due to Nassau under the Reinsurance Agreements." (Id. at 1-2.) On April 18, 2002, New York Supreme Court Judge Schlessinger entered a jury verdict against both "DiLoreto Defendants in the amount of $20,507,456.86." Serio v. Ardra Ins. Co., 304 A.D.2d 362, 362 (N.Y. App. Div. 2003). The Appellate Division affirmed Judge Schlessinger's decision noting that "[t]he verdict was not against the weight of the evidence" and "contrary to defendant-appellant's claim, the evidence provided ample support for the jury's finding that the transactions at issue [between Ardra and Nassau] . . . were unfair and inequitable to Nassau [and] . . . the proof showed that the Di Loretos, through their control of Ardra, deprived it of the funds needed to meet its reinsurance obligations." Id. at 363. Given that transactions paid by Nassau "were immediately transferred to other Di Loreto-owned entities, the jury was entitled to consider the sequential transfers as part of an integrated transaction designed to benefit Di Loreto entities by effectively denying Ardra's insured the coverage for which it had contracted and paid." Id. Plaintiff's subsequent appeal to New York's highest court was "dismissed," as was Plaintiff's second motion for leave to appeal. Serio v. Ardra Ins. Co. Ltd., 100 N.Y.2d 576 (N.Y. 2003); Serio v. Ardra Ins. Co. Ltd., 100 N.Y.2d 516 (N.Y. 2003). In 2002, the Liquidator sought to transfer its judgment to Pennsylvania, where the Di Loretos reside. (Compl. ¶¶ 14, 86, 1, 3.) The Liquidator did not attempt to execute on its judgment in Pennsylvania until 2007. (Id. at ¶¶ 15, 87.)

A. Actions Subsequent to the New York Proceedings

As Plaintiff notes, for five years, no efforts were made to enforce the New York judgment. But this changed when the Liquidator sought to execute judgment against Plaintiff, and filed an involuntary bankruptcy petition in the Eastern District of Pennsylvania. The Liquidator initiated both actions as a result of Plaintiff's legal malpractice action against the law firm of Pepper Hamilton. (Id. ¶ 88.) Trying to "secure a favorable resolution of the Pepper claim," Plaintiff's counsel "sought the assistance of the defendants in prosecuting the Pepper claim." (Id. ¶ 90.) Instead, the Liquidator "initiated the execution on judgment and attempted to have the sheriff of Chester County sell her home, and seize all of the furniture and other contents of her home." (Id. ¶¶ 92, 93.) Plaintiff filed a motion in the Chester County Court of Common Pleas to "thwart his [the Liquidator's] attempts to collect against Jeanne Di Loreto," and the Chester County Court of Common Pleas stayed the sheriff's sale. (Id. ¶¶ 94, 95.) Agreement was reached that no action would be taken "until such time as the lawsuit against Pepper Hamilton was resolved," but settlement was delayed due to "Pepper Hamilton's fear that the garnishment filed by the Defendants although improper, prevented them from transferring any money to the Di Loretos in compliance with a settlement agreement." (Id. ¶¶ 94, 95, & 97.) Pepper Hamilton filed an "Emergency Motion to Set Aside Writ of Execution," which was scheduled for hearing. (Id. ¶¶ 99, 100.) But the day before the hearing, the Liquidator filed an Involuntary Bankruptcy Petition against Plaintiff "forcing a stay of the Pepper claim." (Id. ¶ 101.) The involuntary bankruptcy was later dismissed for improper service.

Responding to Defendants' actions, Plaintiff filed two Complaints in Pennsylvania state courts. The first Complaint, filed in the Court of Common Pleas of Philadelphia County (the "Philadelphia Suit" or "Phila. Compl."), named William F. Costigan, Eric R. Di Nallo, Mark G. Peters, and Andrew J. Lorin as defendants. The second suit, filed in the Court of Common Pleas of Chester County (the "Chester Suit" or "Chester Compl."), named the same four defendants and added the NYSID.*fn3 Defendants Lorin, Peters, and Di Nallo filed Notices of Removal in both suits, asserting both federal question and diversity jurisdiction, and later Defendant Costigan filed a Motion to Remove. Plaintiff sought to remand both matters to the state courts, which this Court denied on August 29, 2008. (Doc. No. 29.)

The Complaints*fn4 seek "to prevent the execution of . . . a judgment obtained against her by the New York State Insurance Department's Liquidation Bureau . . . as the judgment was obtained in violation of Plaintiff Jeanne Di Loreto's due process rights." (Compl. 1.) Despite this, Plaintiff avers that she "is not challenging the substance of the underlying litigation but rather, the insufficient process that Plaintiff was forced to endure as a result of the New York Judgment."*fn5 (Pl.'s Resp. to Mot. to Dismiss 10.) Rather, she asserts that due process prevents Pennsylvania courts from honoring the judgment since "[t]he Liquidator brought a lawsuit against Plaintiff with virtually no evidence, that was rendered by a constitutionally defective jury, which was defended by a negligent attorney who was representing both Di Loretos, and a manipulative prosecutor which so tainted the judicial proceedings." (Id.) Given these infirmities, Plaintiff seeks a declaratory injunction barring enforcement of the New York judgment as well as compensatory and punitive damages. (Compl. 3.) In support of her request, Plaintiff alleges five claims: (1) violation of due process (Id. ¶¶ 110-126); (2) equal protection violation (Id. ¶¶ 127-133); (3) abuse of process (Id. ¶¶ 134-140); (4) intentional infliction of emotional distress (Id. ¶¶ 141-148) and (5) declaratory injunction (Id. ¶¶ 149-151).

II. STANDARDS OF REVIEW FOR A MOTION TO DISMISS

A. Motion to Dismiss Under Fed. R. Civ. P. 12(b)(6)

The purpose of a Fed. R. Civ. P. 12(b)(6) motion is to test the legal sufficiency of a complaint. Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993). Under Rule 12(b)(6), a defendant bears the burden of demonstrating that plaintiff has not stated a claim upon which relief can be granted. FED. R. CIV. P. 12(b)(6). When considering such a motion to dismiss, the court must "accept as true allegations in the complaint and all reasonable inferences that can be drawn therefrom, and view them in the light most favorable to the nonmoving party." Rocks v. City of Phila., 868 F.2d 644, 645 (3d Cir. 1989). Notably, though, the court will not accept unsupported conclusions, unwarranted inferences, or sweeping legal conclusions cast in the form of factual allegations. Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997). The question before the court is not whether the plaintiff will ultimately prevail. See Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232 (1984). Rather, the court should only grant a 12(b)(6) motion if "it appears beyond a reasonable doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Carino v. Stefan, 376 F.3d 156, 159 (3d Cir. 2004) (citing Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).

"The defendant bears the burden of showing that no claim has been presented." Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005).

B. Motion to Dismiss Under Fed. R. Civ. P. 12(b)(2)

Federal Rule 12(b)(2) provides for dismissal due to a "lack of personal jurisdiction." FED. R. CIV. P. 12(b)(2). Once a defendant files a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(2), the burden shifts to the plaintiff to come forward with sufficient facts to establish that jurisdiction is proper. Zippo Mfg. Co. v. Zippo Dot Com, Inc., 952 F. Supp. 1119, 1121 (W.D. Pa. 1997). A plaintiff meets this burden by making a prima facie showing of "sufficient contacts between the defendant and the forum state." Id. (quoting Mellon Bank (East) PSFS, N.A. v. Farino, 960 F.2d 1217, 1223 (3d Cir. 1992)). A Rule 12(b)(2) motion inherently requires resolution of factual issues outside the pleadings. Once the defense has been raised, plaintiff must sustain the burden of proof in establishing jurisdictional facts through sworn affidavits or other competent evidence, but may not rely on the pleadings alone. Weber v. Jolly Hotels, 977 F. Supp. 327, 331 (D.N.J. 1997) (citing, inter alia, Time Share Vacation Club v. Atl. Resorts, Ltd., 735 F.2d 61, 67 n.9 (3d Cir. 1984)). Courts must look beyond the pleadings when ruling on a motion brought under Rule 12(b)(2). Id.

III. DISCUSSION

A. NYSID's Motion to Dismiss

In its Motion to Dismiss, the NYSID-as a state agency and not as Liquidator-provides five reasons why Plaintiff's Complaint(s) should be dismissed:*fn6 (1) no cause of action; (2) lack of jurisdiction; (3) failure to state a cause of action under § 1983; (4) res judicata; and (5) barred by the statute of limitations. (N.Y. State Mot. to Dismiss 3-4.) The Court begins by examining the second issued raised by the NYSID. For the reasons discussed below, the Court finds no personal jurisdiction over the NYSID, thereby requiring that the Complaint against it be dismissed.

Federal Rule of Civil Procedure 4(e) provides that federal courts may exercise personal jurisdiction over a non-resident defendant to the extent provided by the law of the state in which the federal court sits. FED. R. CIV. P. 4(e); see also Blue Ribbon Commodity Traders, Inc. v. Supermercados Mr. Special, Inc., Civ. A. No. 07-4036, 2008 WL 2468381, at *2 (E.D. Pa. June 18, 2008). Under Pennsylvania's long-arm statute, personal jurisdiction over nonresident defendants is permitted "to the fullest extent allowed under the Constitution of the United States and may be based on the most minimum contacts with this Commonwealth allowed under the Constitution of the United States." 42 PA. CONS. STAT. § 5322 (1992); see Mellon Bank, 960 F.2d at 1221 ("The Pennsylvania statute permits the courts of that state to exercise personal jurisdiction over nonresident defendants to the constitutional limits of the due process clause of the fourteenth amendment."). Therefore, a court's inquiry is solely whether the exercise of personal jurisdiction over the defendant violates due process. Mellon Bank, 960 F.2d at 1221.

Physical presence within the forum is not required to establish personal jurisdiction over a nonresident defendant, IMO Indus, Inc. v. Kiekert AG, 155 F.3d 254, 259 (3d Cir. 1998), but instead may be based on either a defendant's general or specific contacts with the forum. Gen. Elec. Co. v. Deutz AG, 270 F.3d 144, 150 (3d Cir. 2001). Plaintiff asserts that this Court has both general and specific jurisdiction over the NYSID.

1. General Jurisdiction

General jurisdiction turns upon the defendant's "continuous and systematic contacts" with the forum. Id. (citing Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 414-416 (1984)). Proof of such contact requires a showing of "extensive and pervasive activity" in the forum state. See Reliance Steel Prods. Co. v. Watson, Ess, Marshall, & Engass, 675 F.2d 587, 589 (3d Cir. 1982) (quotations omitted). A defendant's contacts need not be related to the cause of action being litigated. McMullen v. Euro. Adoption Consultants, Inc., 109 F. Supp. 2d 417, 418 (W.D. Pa. 2000). If the foreign defendant "maintains continuous and systematic contacts with a state, the state has general personal jurisdiction over the party, and the non-resident may be sued in that state on any claim." Wilmington Fin., Inc. v. Moonis, Civ. A. No. 08-2365, 2008 WL 4661033, at *3 (E.D. Pa. Oct. 21, 2008) (quotations omitted); see also 4 Charles Alan Wright and Arthur R. Miller, FEDERAL PRACTICE AND PROCEDURE CIV.3D § 1067.5 (3d ed. 2008) ("As many of the illustrative federal cases . . . indicate, the defendant must be engaged in longstanding business in the forum state, such as marketing or shipping products, or performing services or maintaining one or more offices there; activities that are less extensive than that will not qualify for general in personam jurisdiction.").

Plaintiff does not argue that the NYSID has "continuous and systematic" contacts with Pennsylvania. Rather, she notes that the "NYSID, without any further proof or documentation asks the Plaintiffs to simply agree that NYSID lack (sic) any continuous or systematic contacts with the Pennsylvania forum" while providing "no proof of the assertions contained in its Motion. Without further proof, perhaps in the form of deposition, it is impossible for Plaintiffs to take these allegations as truth." (Pl.'s Opp. to N.Y. State Mot. Dismiss 15.) This argument completely misplaces the burden of proof. General jurisdiction imposes a high evidentiary threshold. Contacts may not be "carefully tailored" rather they must be "extensive and pervasive." Compagnie des Bauxites de Guinea v. Ins. Co. of N. Am., 651 F.2d 877, 890 (3d Cir. 1981) (Gibbons, J., dissenting).

Plaintiff fails to establish the extensive and pervasive activity necessary for a finding of general jurisdiction. The NYSID is a New York state regulatory agency whose authority is grounded in New York law and whose scope is limited to New York insurance companies. The NYSID has neither offices nor employees in the Commonwealth of Pennsylvania. Plaintiff provides no other evidence satisfying general jurisdiction's high threshold and may not rely solely on the pleadings to assert jurisdiction. See Weber, 977 F. Supp at 331. Consequently, the Court declines to find general jurisdiction.

2. Specific Jurisdiction

Absent "continuous and systematic" contacts, a plaintiff may rely on "specific jurisdiction" where the cause of action is related to or arises out of the defendant's contacts with the forum. IMO Indus., 155 F.3d at 259 (citing Helicopteros, 466 U.S. at 414 n.8). To properly exercise specific jurisdiction plaintiff must satisfy a three-part test. Louis A. Grant, Inc. v. Hurricane Equip., Inc., Civ. A. No. 07-438, 2008 WL 892152, at *3 (W.D. Pa. Apr. 2, 2008). "First, the plaintiff must show that the defendant has constitutionally sufficient 'minimum contacts' with the forum." IMO Indus, 155 F.3d at 259 (citingBurger King Corp. v. Rudzewicz, 471 U.S. 462, 474 (1985)). Second, plaintiff's claim must "arise out of or relate to those activities." Helicopteros, 466 U.S. at 414. Third, the reviewing court may consider additional factors to ensure that the exercise of jurisdiction otherwise "comport[s] with 'fair play and substantial justice.'" Burger King, 471 U.S. at 476 (quoting Int'l Shoe Co. v. State of Wash., Office of Unemployment Comp. and Placement, 326 U.S. 310, 320 (1945)).

To satisfy the first and second components of the specific jurisdiction test, acts identified by plaintiff must be "such that [the defendant] should reasonably anticipate being haled into court [in the forum state]." World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 266, 297 (1980). It has long been recognized that minimum contacts necessary to support specific jurisdiction exist only where the defendant "has purposefully directed its activities toward the residents of the forum state . . . or otherwise 'purposefully avail[ed] itself of the privilege of conducting activities within the forum State, thus invoking the benefits and protections of its laws.'" IMO Indus,, 155 F.3d at 259 (quoting Hanson v. Denckla, 357 U.S. 235, 253 (1958) (other internal quotations omitted)). "This test is intended to protect a non-resident defendant from jurisdiction based on contacts that are 'random, fortuitous,' or 'attenuated,' or that result from the unilateral activity of another party or a third person." Louis A. Grant, Inc, 2008 WL 892152, at *3 (quoting Burger King, 471 U.S. at 475).

Plaintiff asserts that this Court possesses minimum contacts over the NYSID, and its Superintendent, due to the Liquidation Bureau's actions in the Pennsylvania courts. Plaintiff equates the Liquidation Bureau with the NYSID and its Superintendent on the premises that:

(1) the Liquidation Bureau is a state agency that is part of the NYSID, and (2) that the Superintendent of Insurance, as head of the Liquidation Bureau, is an officer of the State of New York. The NYSID, in response, asserts that neither it nor the Superintendent, as head of the NYSID, had any contacts with Pennsylvania. This Court agrees with Defendant and finds that Plaintiffs's basis for minimum contacts is flawed.

First, as to the NYSID, the Court declines to attribute the Liquidation Bureau's minimum contacts to the NYSID or the State of New York. New York courts have defined a state agency as "[a]ny . . . entity performing a governmental or proprietary function for the state," and determined that the Liquidation Bureau is not a state agency as it "does not perform a governmental or proprietary function 'for the state,' but rather runs the day-to-day operations of private businesses in liquidation." Dinallo, 877 N.E.2d at 648 (citing State Finance Law § 2-a [3]). Further, the Liquidation Bureau "is not part of the Insurance Department's budget, operates without the benefit of state funds, maintains its own errors and omissions coverage, and is represented by its own counsel and not the Attorney General as is normally the case when a state agency is sued." Id.

Plaintiff asserts that the NYSID's actions, in executing judgment and filing an involuntary bankruptcy action in Pennsylvania "were separate and independent actions from the regulatory function involving the Liquidation of Nassau" and that the "New York action was not filed in any way [to] enable the liquidation of Nassau. (Pl.'s Resp. To N.Y. State Mot. to Dismiss 9.) This assertion, however, is without basis. The Liquidation Bureau's authority is only derived from New York statute, and it is within this statutory framework that the Superintendent pursued funds from Plaintiff.*fn7 The New York litigation was inextricably linked to the Nassau's liquidation.

Second, as to the Superintendent, the Court notes that the Superintendent's role as the NYSID head is distinct from any role involving the Liquidation Bureau. New York courts recognize that "the Superintendent of Insurance serves in two distinct capacities: (1) as supervisor and regulator of New York State's insurance industry as a whole; and (2) as a court-appointed receiver on behalf of distressed insurers." Dinallo v. DiNapoli, 877 N.E.2d 643, 644 (N.Y. 2007). This division of labor protects "creditors, policyholders and general public," permitting the Superintendent to "rehabilitate or liquidate a domestic insurer." Id. Upon determining that rehabilitation is futile, the Superintendent "may apply to the court under this article for an order of liquidation," and taking "the place of the insolvent insurer." N.Y. INS. Law § 7403(c) (McKinney 1984); Dinallo, 877 N.E.2d at 644-45 (quotations omitted). The Superintendent, as Liquidator, possesses a legal status "separate and distinct from the Superintendent of Insurance as the public official charged with regulating the industry generally." Id. at 648 (quoting Matter of Ideal Mut. Ins. Co., 140 A.D.2d 62, 67-68 (N.Y. App. Div. 1988). The Superintendent's role as Liquidator "is judicial and private and his role as regulator and supervisor is administrative and public." Id. As a result, the "Superintendent as liquidator is not a state officer but rather one who acts on behalf of a private entity." Id.

Plaintiff "concedes that the Superintendent 'wears two hats' and does not perform a regulatory function when acting as the liquidator of an insolvent insurer." (Pl. Resp. to N.Y. State Mot. to Dismiss 9.) She again asserts, however, that the New York lawsuits were not filed to "enable the liquidation of Nassau," but rather were done under color of state law to deprive Plaintiff of her due process rights. (Id.) Plaintiff fails to recognize, however, that New York law permits the Liquidator to liquidate and operate Nassau while giving notice "to all creditors to present their claims." N.Y. INS. LAW § 7405(a), (b) (McKinney 1984). Thus, empowered by New York Law, the Superintendent-as Liquidator-filed suit against Plaintiff for the benefit of Nassau and not New York State.

Aside from the actions of the Liquidation Bureau, which cannot be attributed to either the NYSID or its Superintendent, Plaintiff provides no evidence that either the NYSID, or its Superintendent, had any contacts with Pennsylvania. Granting specific jurisdiction over the NYSID and its Superintendent, in his official capacity, would open the "judicial floodgates" by creating personal jurisdiction over foreign entities possessing, at best, a tangential relationship to the underlying issues being litigated. Grimes v. Wetzler, 749 A.2d 535, 541 (Pa. Super. 2000). Such a determination would shred any notion that specific jurisdiction requires minimum contacts sufficient to create a reasonable expectation of being haled into court. ...


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