W. Reserve Life Assurance Co. of Ohio, v. Caramadre

847 F.Supp.2d 329

WESTERN RESERVE LIFE ASSURANCE CO. OF OHIO, Plaintiff,

v.Joseph CARAMADRE; Raymour Radhakrishnan; Estate Planning Resources, Inc.; Harrison Condit; And Fortune Financial Services, Inc., Defendants;

Transamerica Life Insurance Company, Plaintiff,

v.Joseph Caramadre; Raymour Radhakrishnan; Estate Planning Resources, Inc.; Estella Rodrigues; Edward Maggiacomo, Jr.; Lifemark Securities Corp.; and Patrick Garvey, Defendants;

Western Reserve Life Assurance Co. of Ohio, Plaintiff,

v.Joseph Caramadre; Raymour Radhakrishnan; Estate Planning Resources, Inc.; ADM Associates, LLC; Edward Hanrahan; The Leaders Group, Inc.; and Charles Buckman, Defendants;

Western Reserve Life Assurance Co. of Ohio, Plaintiff,

v.Joseph Caramadre; Raymour Radhakrishnan; Estate Planning Resources, Inc.; DK LLC; Edward Hanrahan; The Leaders Group, Inc.; and Jason Veveiros, Defendants;

Western Reserve Life Assurance Co. of Ohio, Plaintiff,

v.Joseph Caramadre; Raymour Radhakrishnan; Estate Planning Resources, Inc.; Natco Products Corp.; Edward Hanrahan; and The Leaders Group, Inc., Defendants;

Transamerica Life Insurance Company, Plaintiff,

v.Lifemark Securities Corp.; Joseph Caramadre; Raymour Radhakrishnan; Estate Planning Resources, Inc.; and Edward Maggiacomo, Jr., Defendants;

Western Reserve Life Assurance Co. of Ohio, Plaintiff,

v.Joseph Caramadre; Raymour Radhakrishnan; Estate Planning Resources, Inc.; Harrison Condit; and Fortune Financial Services, Inc., Defendants.

C.A. Nos. 09–470 S, 09–471 S, 09–472 S, 09–473 S, 09–502 S, 09–549 S, 09–564 S.

United States District Court, D. Rhode Island.

Feb. 7, 2012.

Brooks R. Magratten, Michael J. Daly, Providence, RI, David E. Barry, Portland, ME, for Plaintiff.

Robert G. Flanders, Jr., Adam M. Ramos, Jeffrey S. Brenner, Providence, RI, for Defendants.

OPINION AND ORDER

WILLIAM E. SMITH, District Judge.

Plaintiffs Western Reserve Life Assurance Co. of Ohio (“Western Reserve”) and Transamerica Life Insurance Company (“Transamerica”) (collectively, “Plaintiffs”) ¹ filed these seven suits against various defendants, who are identified below, alleging that the defendants improperly engaged in “stranger-initiated annuity transactions” or STAT schemes.² Before the Court are Defendants Joseph Caramadre, Raymour Radhakrishnan, Estella Rodrigues, Harrison Condit, Estate Planning Resources, Inc., and ADM Associates, LLC's Motion to Dismiss the Newly Amended Complaints and Request for Reconsideration, filed in cases 09–470, 09–471, 09–472, 09–473, 09–502, 09–549, and 09–564; Defendant Edward Hanrahan's Motion to Dismiss and Request for Reconsideration, or, in the Alternative, for a More Definite Statement, filed in cases 09–472, 09–473, and 09–502; DK LLC's Motion for Dismissal of Third Amended Complaint, filed in case 09–473; and Fortune Financial's Motion to Dismiss Plaintiff's Second Amended Complaint, filed in cases 09–470 and 09–564. ³

The movant-Defendants move to dismiss the newly amended complaints and for reconsideration of the Court's June 2, 2010 Opinion and Order (hereinafter “June 2 Order”), in which the Court granted in part and denied in part Defendants' previously-filed motions to dismiss. For the reasons set forth below, DK LLC's motion to dismiss is granted, and the other movant-Defendants' motions are granted in part and denied in part.

I. Background⁴

The following background information is reprised from the Court's June 2 Order (with updates and alterations indicated by brackets):

The genesis of these cases is a scheme for annuity investments that Plaintiffs dub “stranger-initiated annuity transactions,” or STATs. Because the Court must accept the alleged facts as true for purposes of Defendants' motions pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, it here provides an overview of the STATs drawn from the Complaints.

Defendant Joseph Caramadre is an attorney who specializes in reading the fine print of insurance and annuity products and finding “loopholes.” The one he discovered in these actions focused on two components of certain annuities sold by Plaintiffs. One, the annuities were variable, which means that premiums paid to obtain the policy could be invested in securities on behalf of the owner. Two, the annuities allowed the owner to elect a “death benefit.” This option guaranteed the return of premiums upon the death of the annuitant, no matter what the market value of the policy was at that time.

Caramadre's insight was that policies with those two features invited riskless securities speculation. The annuitants would of course die at some point. If one could safely bet that would happen quickly, the annuities could be used to turn fast profits. Investors could make aggressive short-term trades without worrying about losses. Thus, the key to the strategy was finding terminally ill individuals, with a correspondingly short life expectancy, willing to be annuitants.

To find such individuals, Caramadre and his associates, including Defendant Raymour Radhakrishnan, began publicizing a “Program for the Terminally Ill” to hospice patients and workers. Flyers bearing the business name “Estate Planning Resources,” a company allegedly controlled by Caramadre, promised cash payments to dying patients willing to do business with the company. Once either Caramadre or Radhakrishnan identified both a terminally-ill annuitant candidate and an investor, they arranged for a licensed agent of an annuities broker to provide the annuity application. They then paid the sick patient to sign the application as the annuitant. In some instances, Plaintiffs claim, Caramadre, Radhakrishnan, or the agent actually forged the annuitant's signature. The investor would be designated as the owner and beneficiary on the application, and would pony up the cost of the policy.

Once completed, the insurer accepted the application and issued an annuity in which the owner had no relationship to the annuitant, other than through the alleged STAT itself. Within this broad framework, all Defendants fit into one of the following categories:

• “ Sponsors ” of the STAT scheme, a term the Court uses to refer to Caramadre and Radhakrishnan, who solicited the transactions, as well as their alleged company Estate Planning Resources (“EPR”). [They are named Defendants in each of the actions.⁵]

• Annuity brokerage companies[, or the “Brokers”], who sell Plaintiffs' annuities. The broker in case numbers 09–470 and 09–564 is Fortune Financial Services, Inc. (“Fortune”); in 09–471 and 09–549, it is Lifemark Securities Corporation (“Lifemark”); and in 09–472, 09–473, and 09–502, it is The Leaders Group (“Leaders”).

• Agents of the brokers: the individuals who are licensed to sell annuities and provided the policies at issue at the request of Caramadre and/or Radhakrishnan. Fortune's agent, named as a Defendant in cases 09–470 and 09–564, is Harrison Condit; Lifemark's agent, named in 09–471 and 09–549, is Edward Maggiacomo; Leaders's agent, named in 09–472, 09–473, and 09–502, is Edward Hanrahan.

• Owners of annuities in the four actions in which the annuitant is still living, cases 09–470 through 09–473.⁶ These are the people or corporations who paid premiums for the policies, and stand to redeem the proceeds because they are also designated as the beneficiaries. In case number 09–470, the owner is Conreal LLC (“Conreal”); in 09–471, it is Estella Rodrigues; in 09–472, it is ADM Associates, LLC (“ADM”); and in 09–473, it is DK LLC (“DK”). In the other three cases, the annuitants are deceased, and the owners are not named as Defendants. [Since the June 2 Order, Owners Conreal and DK have both agreed to the rescission of their contracts, Conreal is no longer listed as a defendant in 09–471, and Natco Service Corp., the owner of the annuity at issue in 09–502, has been named as a defendant in that case. Western Reserve does not assert any claims or seek damages against Natco Service Corp.]

• Annuitants: the terminally ill individuals who serve as measuring lives for the annuities in cases 09–470 through 09–473. In 09–470, the annuitant is Anthony Pitocco; in 09–471, it is Patrick Garvey; in 09–472, it is Charles Buckman; and in 09–473, it is Jason Veveiros. [Plaintiffs no longer bring claims against any of the Annuitants, but they remain named in the captions of cases 09–471, 09–472, and 09–473.]

W. Reserve Life Assur. Co. of Ohio v. Conreal LLC, 715 F.Supp.2d 270, 273–75 (D.R.I.2010) (internal citations to the record omitted).

In the June 2 Order, the Court dismissed the following counts for failure to state a claim: all counts for rescission, declaratory judgment that the contracts are void, civil liability for insurance fraud, and negligence; the fraud and civil conspiracy counts against owners ADM and DK in cases 09–472 and 09–473, respectively; and the counts against Lifemark for breach of the duty of good faith and fair dealing in cases 09–471 and 09–549. Id. at 290.

Since the June 2 Order, Plaintiffs have filed at least one round of amended complaints in each case, adding claims of: civil liability for forgery (in cases 09–470, 09–549, 09–564); fraud in the factum (in all cases except 09–472 and 09–502 ⁷); and claims of breach of contract and breach of the duty of good faith and fair dealing against Agents Condit and Hanrahan (in cases 09–470, 09–472, 09–473, 09–502, and 09–564).⁸ The operative Complaints are now the Amended Complaint in 09–502 (“502 Complaint”); the Second Amended Complaints in cases 09–472 (“472 Complaint”), 09–549 (“549 Complaint”), and 09–564 (“564 Complaint”); and the Third Amended Complaints in cases 09–470 (“470 Complaint”), 09–471 (“471 Complaint”), and 09–473 (“473 Complaint”). Combined, the Complaints assert against some or all Defendants the following claims for relief: (1) fraud in the factum; (2) fraudulent inducement; (3) declaratory judgment; (4) rescission; (5) breach of contract; (6) breach of the duty of good faith and fair dealing; (7) civil...