GWG DLP Funding V, LLC v. PHL Variable Ins. Co.

54 F.4th 1029

GWG DLP FUNDING V, LLC; Wells Fargo Bank N.A., solely in its capacity as Securities Intermediary, Plaintiffs - Appellants

v.PHL VARIABLE INSURANCE COMPANY, Defendant - Appellee

No. 21-3648

United States Court of Appeals, Eighth Circuit.

Submitted: October 18, 2022

Filed: December 6, 2022

Counsel who represented the appellant was Rikke Dierssen-Morice, of Minneapolis, MN., Peter K. Doely of Minneapolis, MN.

Counsel who represented the appellee was Michael T. Leigh of Louisville, KY.

Before LOKEN, GRUENDER, and GRASZ, Circuit Judges.

GRUENDER, Circuit Judge.

GWG DLP Funding V, LLC was the policyowner and beneficiary of a life insurance policy issued by PHL Variable Insurance Company. After GWG transferred beneficiary rights and ownership to Wells Fargo, PHL terminated the policy. GWG and Wells Fargo disputed the termination, and the parties attempted to settle the dispute. After some negotiations, the insured died, and PHL refused to honor the alleged agreement the parties had reached. GWG and Wells Fargo sued PHL for breach of contract and breach of the covenant of good faith and fair dealing and sought a declaratory judgment that prevents PHL from terminating the policy. The plaintiffs appeal the district court's¹ dismissal of their claims. We affirm.

I.

In 2007, PHL issued a policy insuring the life of Barry Keller. The policy contained a $500,000 death benefit to be paid out upon Keller's death. It also contained a guarantee of the death benefit, allowing the policy to remain in effect when it otherwise might be in default. The policy stated that the death-benefit guarantee would terminate if a third party without an insurable interest became the policyowner or beneficiary. The policy terminates if a policyholder does not pay required premiums within a sixty-one-day grace period after default. If a policy terminates, policyowners may pay the required premium payment to reinstate the policy but only "while the Insured is alive."

At some point, GWG became the policyowner and beneficiary of the policy. GWG is a publicly traded financial institution with substantial investments in the secondary life insurance market. In September 2020, GWG transferred ownership and beneficiary rights to Wells Fargo and notified PHL. As a result, PHL informed Wells Fargo that the death-benefit guarantee terminated and that Wells Fargo would need to make additional premium payments to prevent the policy from lapsing. PHL claims that it subsequently sent Wells Fargo two notices stating the policy was in default and in danger of lapsing unless additional premium payments were made. GWG and Wells Fargo allege they never received either notice. Because the plaintiffs made no additional premium payments, PHL terminated the policy.

The parties disputed whether the death-benefit guarantee and policy should have terminated. In an attempt to settle, on February 1, 2021, PHL offered to restore the policy in return for a grace payment, higher premium payments, and the plaintiffs’ agreement that the death-benefit guarantee remain terminated. On February 5, the plaintiffs agreed by email to the terms of PHL's offer, confirming they "will agree to reinstatement on the conditions below and will be in contact shortly."

PHL then drafted an agreement to memorialize the terms of the alleged February 5 agreement. The draft agreement contained many terms not mentioned in the emails, for example, a warranty provision requiring the plaintiffs to guarantee that the insured was alive "as of the Effective Date of this Agreement," which was February 24, 2021. The plaintiffs signed and returned the draft agreement to PHL on February 26. PHL responded that its counsel would send its signed version and provided instructions for sending payment. The plaintiffs paid that day. On March 1, the plaintiffs learned that the insured had died and so informed PHL. PHL then refused to sign the draft agreement.

The plaintiffs sued PHL in Minnesota state court, bringing claims for breach of contract and breach of the covenant of good faith and fair dealing. They also requested a declaratory judgment that PHL could not lawfully terminate the policy. PHL removed the case on diversity grounds and moved to dismiss the claims under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. The plaintiffs opposed the motion and, in the alternative, requested leave to amend the complaint if the district court dismissed the complaint. Attached to the motion-to-dismiss briefs were the policy, the emails exchanged in early February, and the draft agreement. The district court granted PHL's motion and dismissed the plaintiffs’ complaint with prejudice. The plaintiffs appeal.

II.

We review Rule 12(b)(6) dismissals de novo. Doe v. N. Homes, Inc. , 11 F.4th 633, 637 (8th Cir. 2021). "Under Rule 12(b)(6), a complaint fails to state a claim upon which relief can be granted if the plaintiff fails to plead factual content that, if true, would allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Richardson v. BNSF Ry. Co ., 2 F.4th 1063, 1068 (8th Cir. 2021) (internal quotation marks omitted). We must "grant all reasonable inferences from the pleadings in favor of the non-moving party." Gallagher v. City of Clayton , 699 F.3d 1013, 1016 (8th Cir. 2012). At the motion-to-dismiss stage, we can consider "documents necessarily embraced by the complaint," including "documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleadings." Zean v. Fairview Health Servs. , 858 F.3d 520, 526 (8th Cir. 2017). Here, the life insurance policy, the draft agreement, and the communications between the parties in early February qualify as such.

A.

We first address the plaintiffs’ breach-of-contract claim, which is based on the allegation that a contract had been formed during the February email exchanges before the draft agreement was written. In this diversity case, the parties agreed to apply Connecticut substantive law,² so the district court applied Connecticut law. We do too. See Kostelec v. State Farm Fire & Cas. Co. , 64 F.3d 1220, 1224 (8th Cir. 1994) (applying Missouri law because the parties and district court applied Missouri law). To determine whether "parties intended legally to bind themselves prior to the execution of a formal contract is to be determined from (1) the language used, (2) the circumstances surrounding the transaction, and (3) the purpose that [the parties] sought to accomplish." Fowler v. Weiss , 15 Conn.App. 690, 546 A.2d 321, 323 (1988).

"[If] any essential matters are left open for further consideration, [a] contract is not complete." Geary v. Wentworth Labs., Inc. , 60 Conn.App. 622, 760 A.2d 969, 973 (2000). "[A]n essential term is one without which a party would not have entered into an agreement." Squillante v. Cap. Region Dev. Auth. , 208 Conn.App. 676, 266 A.3d 940, 950-51 (2021) (concluding that "the letter was in the nature of an ‘agreement to agree,’ rather than an enforceable contract, because essential terms had yet to be agreed upon"). Whether a term is essential depends on the "particular circumstances of each case." Willow Funding Co. v. Grencom Assocs. , 63 Conn.App. 832, 779 A.2d 174, 182 (2001).

The plaintiffs argue that they alleged facts sufficient to prove that their February 5 acceptance of PHL's terms created an enforceable agreement. We disagree. The alleged agreement reached in early February lacked an essential term—a guarantee that the insured was alive at the time of reinstatement, including the date on which the insured needed to be alive. The plaintiffs argue that this term is nonessential because, even though the later draft agreement contained a guarantee provision, no language indicates that the provision was a condition precedent to PHL's obligations. But the policy is clear that reinstatement can occur only if the insured is alive, and the later draft agreement accordingly required the plaintiffs to warrant that the insured is living. The plaintiffs thus did not plausibly plead that PHL would have entered into an agreement that permitted reinstatement even if the insured had already passed away. See Squillante , 266 A.3d at 950 ; O'Connor v. Metro. Life Ins. , 186 A. 618, 622 (Conn. 1936) (concluding that "[a] waiver of any requirement for the valid reinstatement of the policy is necessarily based on the assumption that the insured is still alive at the time it takes place").

It naturally follows that also essential to any agreement is a date on which the plaintiffs needed to guarantee that the insured was alive; otherwise, there would be no way for the parties to ascertain whether the insured was alive for purposes of enforcing the agreement. Considering the facts alleged in the complaint as well as the policy and draft agreement, see Willow Funding , 779 A.2d at 182, we conclude that the plaintiffs did not plausibly plead that PHL would have entered into an agreement that lacked a date that determined when the insured needed to be alive.³ See Squillante , 266 A.3d at 950.

The language of the early February communications also suggests that the parties did not intend to be bound. See Fowler , 546 A.2d at 323. When the plaintiffs agreed to the terms in PHL's email, the plaintiffs stated that they "will agree to reinstatement on the conditions below and will be in contact shortly." The use of future tense suggests that the parties did not intend to be bound by the emails. See Copano Energy, LLC v. Bujnoch , 593 S.W.3d 721, 729 (Tex. 2020) (concluding that "[t]he future-tense phrasing of the December 7 e-mails further confirms the absence of an agreement to be bound by the terms stated therein," which confirms "what is already evident from the e-mails’ context"). But see Anschutz v. Blind Tiger Brewery & Rest., LLC , No. 105,321, 2011 WL 4444505, at *3 (Kan. App. Ct. Sept. 23, 2011) (unpublished) (...