Am. Gen. Life Ins. v. Goldstein

741 F.Supp.2d 604

AMERICAN GENERAL LIFE INSURANCE, Plaintiff,

v.Helen GOLDSTEIN, The Helen Goldstein Insurance Trust, Jonathan S. Berck Individually and as Trustee of the Helen Goldstein Insurance Trust, Thomas Laskaris Individually and as Trustee of the Helen Goldstein Insurance Trust, XLI Holdings, LLC, Frank B. Weisz, Frank B. Weisz and Associates, P.C. and Highland Capital Brokerage, Inc., Defendants.

Civ. No. 09–369–SLR.

United States District Court, D. Delaware.

Sept. 30, 2010.

Jason A. Cincilla and Amaryah K. Bocchino, Esquire of Cooley Manion Jones LLP, Wilmington, DE, Of Counsel: Robert P. Lesko, Esquire of Wilson, Elser, Moskowitz, Edelman & Dicker LLP, Philadelphia, PA, for Plaintiff.Andrew G. Ahern III, Esquire of Joseph W. Benson, P.A., Wilmington, DE, Of Counsel: Kevan F. Hirsch, Esquire of Kaplin Stewart LLP, Blue Bell, PA, for Defendant.

MEMORANDUM OPINION

SUE L. ROBINSON, District Judge.I. INTRODUCTION

On November 20, 2009, plaintiff American General Life Insurance Company (“plaintiff”) filed the present action against defendants Helen Goldstein (“Goldstein”); Jonathan S, Berck (“Berck”); Thomas Laskaris (“Laskaris”); The Helen Goldstein Insurance Trust (the “Trust”); XLI Holdings, LLC (“XLI”); Highland Capital Brokerage Inc. (“Highland”); Frank B. Weisz (“Weisz”); and Frank B. Weisz and Associates P.C. (“Weisz and Associates”) (collectively, “defendants”). (D.I. 24) Plaintiff alleges in its complaint that defendants fraudulently procured a $5 million insurance policy (the “Policy”) on the life of Goldstein. ( Id. at ¶ 1) Specifically, plaintiff brings claims of breach of fiduciary duty, breach of contract, and negligence against Weisz and Highland as well as civil conspiracy against all parties. ( Id. at ¶¶ 101–120) In addition, plaintiff claims material misrepresentation and fraud against Goldstein, Berck, Weisz, Weisz and Associates and the Trust. ( Id. at ¶¶ 73–97) Plaintiff seeks a declaratory judgment that the Policy: is voidable or void ab initio: (1) for lack of insurable interest; (2) for being procured by material and fraudulent misrepresentations. ( Id. at ¶¶ 98–106) Plaintiff also seeks damages, attorney fees, and a retainment of some or all of the premiums paid under the Policy. ( Id. at ¶¶ 89, 97, 102, 105) The court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332(a)(1). Presently before the court is Weisz and Weisz and Associates' (collectively, the “Weisz defendants”) motion to dismiss counts I, II, V, VI and VII of plaintiffs amended complaint. ¹ (D.I. 31) For the reasons that follow, the court denies the Weisz defendants' motion.

II. BACKGROUND ²

Plaintiff is a life insurance company with its principal place of business in Texas. (D.I. 24 at ¶ 12) The Weisz defendants and Goldstein are citizens of Pennsylvania, and the Trust, Laskaris, XLI and Fink are citizens of Delaware. ( Id. at ¶¶ 14–19) Breck is a citizen of New York, and Highland of Alabama. ( Id. at ¶¶ 13, 20)

Stranger-originated life insurance (“STOLI”) policies have emerged over the last decade, and are comparable to unlawful wagering policies that have been around and disfavored by courts for centuries. ( Id. at ¶ 21) In a STOLI arrangement, speculators collaborate with an individual to obtain a life insurance policy in the name of that individual, and then sell some or all of the death benefit payable upon the death of the Insured to stranger investors. ( Id. at ¶ 22) In turn, the sooner the insured die s, the more profit these stranger investors are positioned to reap. ( Id.) To maximize the expected rate of return, STOLI speculators often target individuals who are elderly, and material information concerning the proposed insured is often inflated or otherwise misrepresented in order to qualify for the most valuable policies with the highest death benefits at the lowest premiums. ( Id. at ¶¶ 22–23) The speculators will usually pay for the insured's related costs, such as application fees and premiums, and may even pay the insured some compensation upon issuance of the policy. ( Id. at ¶ 22, 26) In order to conceal the nature of such policies, the insured individual will often designate the policyholder and/or beneficiary of the proceeds to be a shell third-party entity such as a trust, and then transfer the beneficiary interest to a STOLI entity after obtaining the policy. ( Id. at ¶ 25)

In the winter of 2007, Goldstein received a telephone call from an unidentified friend who told her about a fast-money scheme, calling it a “fabulous deal.” (D.I. 43 at 7) Goldstein's friend told her that all she had to do was submit to a medical examination and apply for an insurance policy, which would be sold upon issuance for a six-figure cash payment. ( Id.) As part of the alleged STOLI scheme, Goldstein established the Trust on March 13, 2007, naming her husband, Stanford Goldstein, as the beneficiary. (D.I. 24 at ¶ 7, 49) On March 14, 2007, Goldstein, Berck and Weisz submitted a formal application (the “Application”) to plaintiff requesting $5 million in life insurance coverage, naming the Trust as the proposed owner and beneficiary. ( Id. at ¶¶ 27, 32) The Application indicated that Goldstein had a net worth of $5.5–$6 million and an unearned annual income of $200,000. ( Id. at ¶ 30–31) It was signed by Berck on behalf of the Trust as the proposed owner; Weisz as the producing agent; and Goldstein as the proposed insured. ( Id. at ¶ 27; D.I. 43, ex. A at Appx. 015) All signing parties represented that the reason for the Policy was “estate planning.” (D.I. 24 at ¶ 33) The Application was executed in Wilmington, Delaware. ( Id. at ¶ 28) In the “Agent Certification Form,” Weisz represented that:

1) I have reviewed and am familiar with all aspects of the premium financing proposal.

2) Based on my review of the financing proposal I believe that the costs associated with this premium financing proposal are such that assuming no change in the insured's health it is more likely than not that the insured will maintain the policy in force for the benefit of his/her beneficiaries and those beneficiaries will receive more than 50% of the policy death benefit.

3) The insured is not receiving cash payment, borrowing funds in excess of those required to pay the scheduled premiums and interest or receiving any other consideration as an inducement to participate in this transaction.

4) There is no prearranged agreement to transfer the policy nor will the policyholder have a prearranged option or right of first refusal to transfer the policy to a third party.

...

6) I have read the Field Bulletins regarding Investor Owned Life Insurance, Stranger Owned Life Insurance and Viatical Transactions, and I believe this transaction is in compliance with the company policies as set forth in those bulletins regardless of whether the lending program is a recourse or non-recourse transaction.

(D.I. at ¶ 36) In his agent's report, Weisz represented to plaintiff that he was not “aware of any information that would adversely affect any proposed insured's eligibility, acceptability, or insurability.” ( Id. at ¶ 38)

On or about April 4, 2007 in Wilmington, Goldstein, Berck, and Weisz completed and executed a financial questionnaire. ( Id. at ¶ 39). Consistent with the Application, the parties indicated that Goldstein's personal pretax income for 2007 was $200,000, comprised of unearned income from “interest, dividends, and net real estate income.” ( Id. at ¶ 41) Goldstein's approximate net worth was reported to be between $5.5 and $6 million. ( Id. at ¶ 43)

While reviewing the Application, plaintiff received Goldstein's U.S. Individual Income Tax return for 2006, which indicated an adjusted income of only $89,604, along with $22,534 in Social Security benefits. ( Id. at ¶ 44) In response to plaintiffs concern about Goldstein's ability to pay the premium for a policy, Goldstein, Berck, Weisz, Weisz and Associates and the Trust represented to plaintiff that Goldstein planned to liquidate her investment assets and move those assets to the Trust in order to pay the premium. ( Id. at ¶ 46) These representations were confirmed in a letter dated April 23, 2007 from Thomas Sea, Esq. Of Weisz and Associates. ( Id.) In reliance on these assurances and the answers given in the Application and financial questionnaire, plaintiff issued and delivered the Policy to the Trust with an issue date of May 24, 2007. ( Id. at ¶ 47)

On June 15, 2007, less than a month after plaintiff issued the Policy, Stanford Goldstein sold his beneficial interest in the Trust to Tall Tree Advisors, Inc (“Tall Tree”) for $113,975. ( Id. at ¶ 49) Twenty-one days later, Tall Tree sold its beneficial interest in the Trust to XLI for $267,700. ( Id. at ¶ 50) On March 12, 2009, after a series of transactions, XLI became the owner of the Trust and the primary beneficiary of the Policy. ( Id. at ¶ 54)

After XLI became the owner of the Trust and the primary beneficiary of the Policy, plaintiff conducted a routine review and investigation of the Application and representations contained therein. ( Id. at ¶ 55) During the course of the investigation, plaintiff alleges that it discovered that Goldstein, Berck, Weisz, Weisz and Associates and the Trust materially misrepresented Goldstein's net worth, personal income, reason for purchasing the Policy, and intention to liquidate assets to pay the Policy's premiums. ( Id. at ¶ 56) Plaintiff has been unable to verify Goldstein's personal net worth or income to date. ( Id. at ¶ 57) After speaking with Goldstein's daughter, Barbara Minnix, plaintiff confirmed that Goldstein's income, net worth and reason for applying for the Policy were misrepresented on the Application. ( Id. at ¶ 58)

Plaintiff claims that neither Goldstein, Berck nor the Trust had, at any time prior to the issuance of the Policy, any intention of maintaining a controlling or beneficial ownership interest in the Policy. ( Id. at ¶ 66) Rather, Goldstein...