Penn Mut. Life Ins. Co. v. Wells Fargo Bank, N.A.

336 F.Supp.3d 474

PENN MUTUAL LIFE INSURANCE COMPANY, Plaintiff,

v.WELLS FARGO BANK, N.A., as Securities Intermediary, Defendant.

CIVIL ACTION NO. 18-40

United States District Court, E.D. Pennsylvania.

October 1, 2018

Jason P. Gosselin, Katherine L. Villanueva, Drinker Biddle & Reath LLP, Philadelphia, PA, for Plaintiff

Elise A. Yablonski, John E. Failla, Nathan R. Lander, Proskauer Rose LLP, New York, NY, David R. Fine, K & L Gates LLP, Harrisburg, PA, for Defendant

MEMORANDUM OPINION

Rufe, District Judge

Plaintiff Penn Mutual Life Insurance Company filed this declaratory judgment action, seeking a determination that the life insurance policy it issued on the life of a Florida resident is void ab initio . Wells Fargo moves to dismiss the complaint, arguing that the Court should decline jurisdiction pursuant to the Declaratory Judgment Act ("DJA")¹ in favor of an action pending in Florida state court.² For the reasons set forth below, the Court will grant the motion and decline to exercise jurisdiction.

I. BACKGROUND

Penn Mutual seeks a declaration regarding the validity of the $3 million life insurance policy ("the Policy") it issued on the life of Sylvia Criden-Roebuck, a Florida resident. When the policy was issued in 2007, the original owner was the Sylvia Criden-Roebuck 2007 Insurance Trust. Shortly after the policy was issued and in force, Ms. Criden-Roebuck and the Family Trust that she formed sold the beneficial interest in the Insurance Trust that owned the Life Insurance Policy to the GIII Accumulation Trust.³ In 2015, GIII placed the Policy into a securities intermediary account with Wells Fargo.⁴ The Policy is presently owned by Wells Fargo as securities intermediary.⁵ After Ms. Criden-Roebuck's death on October 20, 2017, Wells Fargo and the insured's son, Arthur Criden, both submitted a claim for the benefit payable under the Policy. During the claim review process, Penn Mutual "determined that the policy may have been an illegal wagering contract" procured by and paid for by investors through the GIII Accumulation Trust.⁶

Instead of formally denying the claim, Penn Mutual filed this declaratory judgment action on January 5, 2018. First, Penn Mutual requests a declaratory judgment that the Policy is void ab initio as "an illegal wagering contract" under Delaware law.⁷ Second, Penn Mutual requests a declaration that the Policy lacked "any insurable interest under Delaware law."⁸ Third, alleging that the trust formed to obtain the Policy was a "sham," Penn Mutual seeks a declaration that the trust is void ab initio under Delaware law and therefore "lacked capacity to apply for the Policy, thus rendering the Policy void ab initio ."⁹

On February 28, 2018, Wells Fargo filed an action in Florida state court against Penn Mutual, Arthur Criden as the personal representative of the Criden-Roebuck estate, and Penn Mutual's Florida-based agent, Larry Schweiger. Wells Fargo asserts a claim for breach of contract against Penn Mutual for its failure to pay the death benefits as required under the policy.¹⁰ If Penn Mutual successfully avoids coverage under the Policy based on the allegation that Ms. Criden-Roebuck did not pay the initial premiums with her own funds, Wells Fargo seeks damages from Schweiger for fraud, negligent misrepresentation, and negligent procurement based on his actions in connection with the Policy.¹¹

II. DISCUSSION

Wells Fargo argues that the Court should decline to exercise jurisdiction pursuant to the DJA, which "authorizes district courts to ‘declare the rights and other legal relations of any interested party seeking such declaration’ "¹² but "does not itself create an independent basis for federal jurisdiction."¹³ Instead, actions seeking only declaratory relief are discretionary and are not "subject to the ‘normal principle that federal courts should adjudicate claims within their jurisdiction.’ "¹⁴ Courts may therefore decline jurisdiction over such suits.¹⁵

In Reifer v. Westport Insurance Co. ,¹⁶ the Court of Appeals for the Third Circuit established factors to be considered when determining whether to decline jurisdiction, beginning with whether there is a parallel state proceeding.¹⁷ Though not dispositive, "the existence of a parallel state proceeding militates significantly in favor of declining jurisdiction."¹⁸ A state court proceeding is parallel if it "involv[es] the same parties and present[s] [the] opportunity for ventilation of the same state law issues."¹⁹ Germane factors include "the scope of the pending state court proceeding[,] the nature of the defenses open there," and whether necessary parties are subject to the jurisdiction of the court and have been joined.²⁰

After determining whether there is a parallel state court proceeding, courts consider the following Reifer factors, to the extent they are relevant:

(1) the likelihood that a federal court declaration will resolve the uncertainty of obligation which gave rise to the controversy;

(2) the convenience of the parties;

(3) the public interest in settlement of the uncertainty of obligation;

(4) the availability and relative convenience of other remedies;

(5) a general policy of restraint when the same issues are pending in a state court;

(6) avoidance of duplicative litigation;

(7) prevention of the use of the declaratory action as a method of procedural fencing or as a means to provide another forum in a race for res judicata; and

(8) (in the insurance context), an inherent conflict of interest between an insurer's duty to defend in a state court and its attempt to characterize that suit in federal court as falling within the scope of a policy exclusion.²¹

The Court analyzes Wells Fargo's motion to dismiss within this framework.

A. The Existence of a State Parallel Proceeding

The parties dispute whether the Florida action should be considered a parallel proceeding to this federal case. Penn Mutual and Wells Fargo are parties in both actions. In this federal declaratory judgment action, Penn Mutual named only Wells Fargo and Arthur Criden.²² In the Florida state action, Wells Fargo has named Penn Mutual, Arthur Criden as the personal representative of the Criden-Roebuck Estate, and Larry Schweiger as defendants.

Penn Mutual contends that the Florida court cannot exercise personal jurisdiction over it and thus there is no parallel state court action for purposes of abstention. Therefore, as a threshold matter, this Court must determine whether the Florida court has personal jurisdiction over Penn Mutual for Wells Fargo's breach of contract claim.

For a Florida court to exercise personal jurisdiction over a nonresident defendant, the defendant must be subject to personal jurisdiction under Florida's long-arm statute; and the defendant must have sufficient minimum contacts with the state to satisfy due process²³ Because Penn Mutual concedes that the Florida court has jurisdiction under the state's long-arm statute,²⁴ this Court must only determine whether: (1) Penn Mutual has sufficient minimum contacts with Florida; and (2) the exercise of jurisdiction over Penn Mutual would offend "traditional notions of fair play and substantial justice."²⁵

1. Minimum Contacts

The minimum contacts requirement is satisfied where: (1) the plaintiff's claims "arise out of or relate to" defendant's contacts with the forum state; (2) the nonresident defendant "purposefully availed" itself of the privilege of conducting activities within the forum state; and (3) the defendant's contacts within the forum state are "such that it should reasonably anticipate being haled into court there."²⁶

Sufficient minimum contacts exist to justify haling Penn Mutual into a Florida court. First, Wells Fargo's breach of contract claim arises out of Penn Mutual's contacts with Florida. Wells Fargo alleges Penn Mutual breached a policy that Penn Mutual solicited through a Florida insurance agent, issued on the life of a Florida resident, and put into effect in Florida when Ms. Criden-Roebuck paid it the initial premium due on the Policy by a check drawn on her account in Florida. Therefore, Penn Mutual's activities in the state of Florida are connected directly to Wells Fargo's cause of action.

Penn Mutual contends that based on the Supreme Court's decision in Bristol-Myers Squibb Co. v. Superior Court of California, San Francisco County ,²⁷ the Florida court does not have personal jurisdiction over it for purposes of Wells Fargo's breach of contract claim. In Bristol-Myers Squibb , the Supreme Court held that for a suit to "aris[e] out of or relat[e] to the defendant's contacts with the forum ... there must be an affiliation between the forum and the underlying controversy, principally, [an] activity or an occurrence that takes place in the forum State."²⁸ Penn Mutual argues that there is no personal jurisdiction over it in Florida in relation to claims by Wells Fargo, a South Dakota entity that owns the policy, or the original owner of the policy, a Delaware trust. But there were significant activities that occurred in Florida: Penn Mutual issued the policy through an insurance agent in Florida, on the life of a Florida resident, and put the policy into effect in Florida. Penn Mutual, through its Florida insurance agent, "deliberately reached out" to a Florida resident and issued a life insurance policy that envisioned continuing contacts with the insured in Florida in the form of premium payments.²⁹ Because "[t]he primary focus of [the] personal jurisdiction inquiry is the defendant's relationship to the forum State"³⁰ and the "prior negotiations and contemplated future consequences, along with the terms of the contract and the parties' actual course of dealing,"³¹ evince a connection between Penn Mutual and Florida, the Florida court may exercise personal jurisdiction over Penn Mutual.

Penn Mutual purposefully availed itself of the Florida forum in such a way that it could reasonably foresee being haled into a Florida court; its contacts with the state can in no...