Opinion
Civil No. JFM-04-16.
June 10, 2004
MEMORANDUM
Plaintiffs Allegis Group, Inc. Contractors Health Plan Trust ("the Trust"), David J. Standeven, and Neil D. Mann ("the trustees") have brought this action against Defendant Connecticut General Life Insurance Company ("Connecticut General") for breach of contract arising from Connecticut General's failure to pay money allegedly owed to the Trust pursuant to a stop-loss insurance policy entered into by the parties. Now pending before the Court is plaintiffs' motion to remand and defendant's motion to dismiss the claim brought by the Trust. For the reasons stated below, the motion to remand will be denied and the motion to dismiss will be granted. Defendant has not filed a motion to dismiss the claim asserted by the trustees, and that claim will proceed.
I.
The Trust is an employee benefit plan established by Allegis Group, Inc. ("Allegis") to provide medical and other coverage to employees of Allegis and its subsidiaries. The Trust was established by an agreement between Allegis, the sponsor, and Plaintiffs David J. Standeven and Neil D. Mann, the trustees. The Trust is funded primarily through contributions from the employee-beneficiaries, and all assets of the plan are held in trust. The Trust was the primary source of medical coverage to some of Allegis's employees from approximately April 1, 2002 to April 1, 2003.
The Trust entered into a stop loss insurance contract with Defendant Connecticut General Life Insurance Company, whereby Connecticut General agreed to reimburse the Trust for expenses it incurred in excess of prescribed amounts set forth in the policy. In the event of the policy's termination, Connecticut General agreed to reimburse the Trust for covered expenses that became due during the final contract year and within three months after the termination.
The contract was terminated as of April 1, 2003. Subsequently, the Trust calculated that Connecticut General owed it $1,811,706.61 for covered expenses that became due during the final contract year or within three months after termination. Connecticut General has refused to pay this amount. Allegis loaned over $1.5 million to the Trust to enable the Trust to pay medical benefits when Connecticut General failed to pay the Trust's claims under the stop-loss insurance policy.
The Trust originally filed this breach of contract action against Connecticut General in the Circuit Court for Anne Arundel County, seeking to recover the expenses allegedly owed by Connecticut General under the insurance contract. On January 5, 2004, Connecticut General removed the case to this court based on diversity jurisdiction. Plaintiff moved to remand, arguing that complete diversity does not exist because five individual beneficiaries of the Trust are residents of Connecticut. Connecticut General opposed the remand motion, asserting that the Trust lacks the capacity to sue or be sued under state law and that the jurisdictional inquiry should focus on the citizenship of the plan trustees, both citizens of Maryland, as the only proper plaintiffs. With leave of the Court and the consent of defendant, plaintiff subsequently amended the complaint to add the plan's two trustees as plaintiffs.
Before the amendment, defendant filed a motion for judgment on the pleadings on the ground that the Trust lacks standing as a legal entity to bring this action. Defendant suggests that the motion has been rendered moot by the Trust's amendment of the complaint adding the trustees as plaintiffs. However, insofar as the motion challenged the Trust's standing to sue, the issue is not moot and will be decided together with defendant's motion to dismiss the claim brought by the Trust.
Defendant also argues that by amending its complaint, the Trust waived its right to object to defendant's removal, rendering moot plaintiffs' motion to remand However, subject matter jurisdiction may never be waived by any action of the parties, whether by express consent, conduct, or estoppel. Insurance Corp. of Ireland v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702, 102 S.Ct. 2099, 2105, 72 L.Ed.2d 492 (1982).
II.
Connecticut General now moves to dismiss the complaint under Rule 12(b)(6) for failure to state a claim upon which relief may be granted on the basis that the Trust is not a proper party because it lacks the capacity to sue. In reviewing a complaint under Rule 12(b)(6), the court must accept the well-pled allegations of the complaint as true, and construe the facts and reasonable inferences derived therefrom in the light most favorable to the plaintiffs. Ibarra v. U.S., 120 F.3d 472, 474 (4th Cir. 1997). "The court need not, however, accept unsupported legal conclusions, legal conclusions couched as factual allegations, or conclusory factual allegations devoid of any reference to actual events." Terry v. Legato Systems, Inc. 241 F. Supp.2d 566, 569 (D.Md. 2003) (citations omitted).III.
Fed.R.Civ.P. 17(b), provides that the capacity of a party, other than an individual or corporation, to sue or be sued "shall be determined by the law of the state in which the district court is held . . ." Thus, the Court must look to Maryland law to determine whether the Trust may sue Connecticut General.
Maryland law defines a trust as "a fiduciary relationship with respect to property arising from a manifestation of intention to create the relationship and subjecting the person who holds title to the property to duties to deal with it for the benefit of . . . one or more persons." Restatement (Third) of Trusts § 2 (2003); From the Heart Church Ministries, Inc. v. African Methodist Episcopal Zion Church, 370 Md. 152, 182, 803 A.2d 548, 566 (Md. 2002).
A trust generally is not recognized as a separate legal entity with the capacity to sue or be sued in its own name. See Coverdell v. Mid-South Farm Equipment Ass'n, 335 F.2d 9, 12-13 (6th Cir. 1964); Limouze v. M.M. P. Maritime Advancement, Training, Education and Safety Program, 397 F. Supp. 784, 789-790 (D.Md. 1975); White v. Lundeberg Maryland Seamanship School, Inc., 57 F.R.D. 128, 130 (D.Md. 1972); Yonce v. Miners Memorial Hospital Ass'n, 161 F. Supp. 178, 188 (W.D.Va. 1958) ; Colorado Springs Cablevision, Inc. v. Lively, 579 F. Supp. 252, 254 (D.Colo. 1984); Powers v. Ashton, 45 Cal.App.3d 783, 119 Cal.Rptr. 729, 732 (1975); Morrison v. Lennett, 415 Mass. 857, 616 N.E.2d 92, 94 (1993); Western Life Trust v. State, 536 N.W.2d 709, 712 (1995); see also Bogert, Trusts Trustees §§ 712 (rev.2d ed. 1982); IV Scott, Trusts §§ 280 (1989). The trustee, as the legal holder of the trust property, is generally the real party in interest with the power to prosecute actions in the name of the trust pursuant to Rule 17(a). See Coverdell, 335 F.2d at 13; Colorado Springs Cablevision, 579 F. Supp. at 254; Limouze, 397 F. Supp. at 789-790; White, 57 F.R.D. at 130; Powers, 119 Cal.Rptr. at 732; IV Scott, Trusts at §§ 280.
The Trust argues that it has the power to sue in its own name pursuant to Md. Cts. Jud. Proc. Code Ann. § 6-406(a) (1975). That section provides: "An unincorporated association, joint stock company, or other group which has a recognized group name may sue or be sued in the group name on any cause of action affecting the common property, rights, and liabilities of the group." Plaintiff contends that it is an "unincorporated association" or "other group" within the meaning of the statute because it has a recognized group name and conducts regular business.
However, an express trust is neither an association nor a corporation. See Navarro Sav. Ass'n v. Lee, 446 U.S. 458, 462, 100 S.Ct. 1779, 1782 (1980); Yonce, 161 F. Supp. at 186 (holding that a trust is not an unincorporated association because "[t]he words `unincorporated association', as employed in Rule 17(b) of the Federal Rules of Civil Procedure . . . denote a voluntary group of persons joined together by mutual consent for the purpose of promoting some stated objective. The word `association' as here used refers to associations such as trade unions, fraternal organizations, business organizations, and the like").
In Navarro, the Supreme Court noted that it "never has analogized express trusts to business entities for purposes of diversity jurisdiction." Id. at 463, n. 10. The fact that the Trust entered into contracts and engaged in business-like activities through its trustees does not make the Trust an association, business trust, or other business entity entitled to bring suit in its own name. See Navarro, 446 U.S. at 461-462; In re Secured Equipment Trust of Eastern Air Lines, Inc., 38 F.3d 86, 89 (2nd Cir. 1994) ("while a trust must engage in business-like activities to qualify as a business trust, such activity, without more, does not necessarily demonstrate that a trust is a business trust"). The purpose of the Trust was simply to serve as a repository of funds to be held for the benefit of the participating Allegis employees. The Trust contracted with Connecticut General in furtherance of this purpose.
In Lenon v. St. Paul Mercury Ins. Co., 136 F.3d 1365, 1370 (10th Cir. 1998) the Tenth Circuit considered whether ERISA plans could be considered unincorporated associations rather than trusts. Relying on Navarro, the Court concluded: "we cannot see how it can seriously be argued that an employee benefit plan under ERISA is not an express trust." Id. (comparing Restatement (Second) Trusts § 2 (defining express trust generally as a "fiduciary relationship with respect to property"), with 29 U.S.C. § 1101-1114 (describing fiduciary responsibilities with respect to ERISA plans including requirements that named fiduciaries have authority to manage and control plans (§ 1102(a)(1)) and that with limited exception all plan assets be held in trust (§ 1103(a))). See also May Dept. Stores Co. v. Federal Ins. Co., 305 F.3d 597, 599 (7th Cir. 2002) (finding ERISA plan to be a trust).
In Limouze v. M.M. and P. Maritime Advancement, Training, Ed. and Safety Program, 397 F. Supp. 784, 787 (D.Md. 1975), the court found that "[w]hile Maryland law permits an unincorporated association having a recognized group name to be sued in its own name under certain circumstances . . . there is no Maryland authority recognizing a trust as an unincorporated association for purposes of suability." In support of this proposition, the court cited White v. Lundeberg Maryland Seamanship School, Inc., 57 F.R.D. 128, 130 (D.Md. 1972) for the "general rule . . . that a trust as an entity does not have the capacity to be sued and that that capacity exists only in its trustees." The court ultimately allowed the trust to be sued in its own name on equitable grounds because it had conducted substantial business in that name. Here, the Trust engaged in no such activity.
Plaintiff argues that the amendment of the statutory language conferring authority to sue on "other groups," in addition to unincorporated associations and joint stock companies, was intended to extend the capacity to sue to groups, such as the plaintiff, that have a recognized name. Plaintiff's statutory interpretation is overly expansive, however. As the Court of Special Appeals found, "[t]here is no indication that any substantive change was intended." Bourexis v. Carroll County Narcotics Task Force, 96 Md. App. 459, 468, 625 A.2d 391, 395 (Md.App. 1993). In reaching this conclusion, the court pointed to the title of the bill amending the statutory language as evidence that the General Assembly did not intend to change the substantive reach of the provision. Id. The title, which limits the bill's permissible scope, states that it is "[f]or the purpose of transferring certain provisions relating to unincorporated associations, joint stock companies, and other groups from one article of the Code to another; changing style and punctuation; repealing certain obsolete provisions relating to certain proceedings by or against certain groups; and correcting cross references to those provisions."
The only possible authority that confers standing upon the Trust to sue in its own name is ERISA. 29 U.S.C.A. §§ 1132(d)(1) provides: "An employee benefit plan may sue or be sued under this subchapter as an entity" (emphasis added). However, the Trust has not asserted a claim under ERISA. The Trust asserts, and Connecticut General does not dispute, that the cause of action at issue is a simple state contract claim. Because the Trust has no authority to bring suit under either federal or state law, the claim brought by the Trust must be dismissed.
Because I have determined that the Trust lacks the capacity to sue, I need not reach the question of whether the citizenship of the trust ought to be determined by the citizenship of its trustees or that of all its members. The trustees are the proper plaintiffs and real parties to the controversy for purposes of diversity jurisdiction. See Navarro, 446 U.S. at 464, 100 S.Ct. at 1783 ("[A] trustee is a real party to the controversy for purposes of diversity jurisdiction when he possesses certain customary powers to hold, manage, and dispose of assets for the benefit of others"). Therefore, under Navarro, their citizenship, not the citizenship of the beneficiaries, will determine whether diversity jurisdiction exists. Id. at 465-466, 100 S.Ct. at 1784. If the Trust did have the capacity to sue in its own name, a different result might be warranted by the Supreme Court's analysis in C.T. Carden v. Arkoma Associates, 494 U.S. 185, 110 S.Ct. 1015, 108 L.Ed.2d 157 (1990) (holding that for diversity purposes, the citizenship of an artificial entity depends on the citizenship of all its members).
The remaining plaintiff trustees are both citizens of Maryland Therefore, diversity jurisdiction exists, and plaintiff's motion to remand must be denied.
A separate order is being entered herewith.
ORDER
For the reasons stated in the accompanying memorandum, it is, this 10th day of June 2004,ORDERED that
1. Defendants' motion to dismiss is granted, and
2. Plaintiffs' motion to remand is denied.