IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
____________________
No. 95-31062
Summary Calendar
____________________
THE SECURITY TITLE GUARANTEE CORPORATION OF BALTIMORE,
Plaintiff-Appellee,
versus
UNITED GENERAL TITLE INSURANCE COMPANY,
Defendant-Third Party Plaintiff-Appellant,
versus
STEWART TITLE GUARANTY COMPANY,
Third Party Defendant-Appellee.
_______________________________________________________________
Appeal from the United States District Court for the
Eastern District of Louisiana
(95-CV-1519)
_______________________________________________________________
May 29, 1996
Before JOLLY, JONES, and STEWART, Circuit Judges.
PER CURIAM:*
The sole issue on appeal is the district court's Rule 54(b)
dismissal of United General Title Insurance Company's ("United")
claim for punitive damages. We affirm.
The fundamental dispute in this matter concerns the correct
choice of state law with respect to a claim for punitive damages.
*
Pursuant to Local Rule 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in Local Rule 47.5.4.
The parties agree that, should Louisiana law apply, United is not
entitled to punitive damages. La. C.C. arts. 2315.3, 2315.4,
2315.7; see also Billiot v. B.P. Oil Co., 645 So.2d 604, 612-13
(discussing Louisiana's narrow authorization of exemplary or
punitive damages). However, if Texas or Maryland law is the proper
choice, punitive damages may be appropriate.
The parties to this litigation (United, Security Title
Guarantee Corporation of Baltimore, and Stewart Title Guaranty
Company) are competing title insurers who transact business in the
state of Louisiana. Each engaged the now defunct Charter Title
Ltd. ("Charter") to act as its agent in connection with Louisiana
real estate closings. In or about December 1994, Security Title
Guarantee Corporation ("Security") learned that Charter lacked
sufficient funds to pay premiums due and owing to Security. About
that same time, Stewart Title Guaranty Company ("Stewart") became
concerned over Charter's solvency and conducted an audit in New
Orleans of Charter's escrow accounts. United alleges that, upon
learning of Charter's shaky financial situation, both Stewart and
Security terminated their agency agreements with Charter and made
contemporaneous corporate decisions in their respective home
offices not to notify the Louisiana Insurance Commissioner of
Charter's insolvency, which violated the Louisiana Insurance Code.
United learned of Charter's escrow shortages in January 1995.
Charter thereafter collapsed, and Security initiated this
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litigation by seeking a declaratory judgment to absolve itself of
liability.
United responded by filing a counterclaim against Security and
a third-party claim against Stewart. United contended that
Security and Stewart breached their duty to inform United and the
Louisiana Insurance Commissioner of Charter's financial situation.
United further contended that Security and Stewart aided and
abetted the commission of a fraudulent insurance act by diverting
funds from United-insured transactions to cover disbursements in
transactions that Security and Stewart insured. United claimed
punitive damages in the amount of $50,000,000. Security and
Stewart moved to dismiss United's claims and, in the alternative,
to strike United's punitive damage claim. After hearing oral
argument on the motions, the district court declined to dismiss the
lawsuit but granted the motions to strike United's punitive damages
claim. In its ruling, the district court concluded that the
Louisiana Civil Code (the "Code"), and in particular Article 3548
of the Code, barred an award of punitive damages to United. The
district court issued a final judgment under F.R.C.P. 54(b) on the
issue of punitive damages, from which United appeals.
On appeal, United argues that the district court should have
applied the substantive laws of Texas and Maryland to its claim for
punitive damages and calls our attention to the relevant choice of
law rules contained in Code Articles 3546 and 3548. In applying
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Article 35461 to this case, we must focus on three potentially
different locations, each of which is related to the tortfeasor
(referred to hereinafter as an "Article 3546 location"):
(1) where the injurious conduct occurred;
(2) where the resulting injury occurred; and
(3) where the person whose conduct caused the injury was
domiciled.
As drafted, Article 3546 expressly prohibits a Louisiana court from
awarding punitive damages unless the substantive law of no less
than two of the Article 3546 locations authorizes such an award.
See LOUISIANA AND COMPARATIVE CONFLICTS LAW 328 (3d ed. 1992)
(discussing the meaning and operation of Article 3546).
At the outset, the parties disagree over the first Article
3546 location. United maintains that the injurious conduct
occurred in Texas and Maryland. According to United, the tortious
conduct consisted of two separate corporate decisions: one made in
1
Article 3546 provides:
Art. 3546. Punitive damages
Punitive damages may not be awarded by a court
of this state unless authorized:
(1) By the law of the state where the injurious
conduct occurred and by either the law of the state
where the resulting injury occurred or the law of
the place where the person whose conduct caused the
injury was domiciled; or
(2) By the law of the state in which the injury
occurred and by the law of the state where the
person whose conduct caused the injury was
domiciled.
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Texas at Stewart's home office and the other in Maryland at
Security's home office. United claims that each home office made
a deliberate decision not to notify the Louisiana Insurance
Commissioner of Charter's insolvency. Stewart and Security counter
that the decision to take (or not to take) an action does not
constitute a tort. Without conceding fault, they maintain that the
injurious conduct, if any, was the act of failing to transmit
information to the Insurance Commissioner in Baton Rouge. This
failure to inform, they argue, occurred in Louisiana.
The situs of the second Article 3546 location is not disputed.
All parties agree that the resulting injury occurred in Louisiana.
Finally, the third Article 3546 location, the tortfeasor's
domicile, has triggered a dispute among the parties similar to that
surrounding their disagreement over the first location. The
district court resolved this dispute by relying on Code Article
3548.2 The district court concluded that Stewart and Security
(the persons whose conduct caused the injury) must be deemed
Louisiana domiciliaries because each was a juridical person
2
Article 3548 provides:
Art. 3548. Domicile of juridical persons
For the purposes of this Title, and provided
it is appropriate under the principles of Article
3542, a juridical person that is domiciled outside
this state, but which transacts business in this
state and incurs a delictual or quasi-delictual
obligation arising from activity within this state,
shall be treated as a domiciliary of this state.
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domiciled outside of Louisiana but, nonetheless, (i) transacted
business in Louisiana and (ii) incurred a tort that arose from
activity within Louisiana. On appeal, United disputes this
conclusion on the ground that the dispositive "activities" for the
purposes of Article 3548 were the two corporate decisions that
occurred in Texas and Maryland, not in Louisiana.
We are not persuaded by United's overly-narrow reading of
Article 3548's reference to "a delictual ... obligation arising
from activity within this state." Even accepting United's argument
that an isolated corporate decision "not to act" occurred at some
point in each of the home offices of Stewart and Security, in a
fair reading of Article 3548 we cannot disregard the considerable
business activities that Stewart and Security conducted in
Louisiana, which gave rise to the underlying tort and without which
the resulting injury would not have occurred. Each is an insurance
company licensed by the state of Louisiana and subject to
regulation by the Louisiana Insurance Commissioner. Each
underwrote title insurance in Louisiana through the same New
Orleans title agent, the now insolvent Charter. On behalf of
Stewart and Security, Charter conducted real estate closings in
Louisiana and maintained escrow accounts in, and made disbursements
from, several New Orleans area banks. At the heart of this lawsuit
are deficits in Charter's escrow accounts, which occurred in
Louisiana. When Stewart suspected these irregularities, it
conducted an audit of Charter in New Orleans. Considering the
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breadth of the tortfeasors' business activities that occurred
within the state of Louisiana, we affirm the district court's
ruling that, in accordance with Article 3548, Stewart and Security
must be treated as Louisiana domiciliaries for the purposes of the
Code's choice of law rules applicable to tort actions.
Having thus determined that Louisiana is the situs of at least
two of the Article 3546 locations, we hold that Louisiana
substantive law governs and prohibits United's punitive damage
claim.
Accordingly, the district court's dismissal of United's
punitive damages claim is
A F F I R M E D.
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