Banner Life Insurance Company v. US Bank NA et al

Filing 47

MEMORANDUM OPINION re 35 MOTION to Dismiss the Complaint, and 37 Motion to Dismiss Counterclaims. Signed by Judge Richard G. Andrews on 3/21/2013. (nms)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
BANNER LIFE INSURANCE
COMPANY,
Plaintiff,
Civil Action No. 1:12-CV- 00047- RGA

v.
U.S. BANK, NA, AS SECURITIES
INTERMEDIARY, and THE BANCORP
BANK,
Defendant.

MEMORANDUM OPINION
Joseph C. Schoell, Esq., Drinker Biddle & Reath LLP, Wilmington, DE, Timothy J. O'Driscoll,
Esq., Drinker Biddle & Reath LLP, Philadelphia, P A, Attorneys for the Plaintiff.
Philip A. Rovner, Esq., Potter Anderson & Corroon, LLP, Wilmington, DE, John G. Hutchinson,
Esq., Sidley Austin, LLP, New York, NY, Attorneys for Defendant, U.S. Bank N.A.
David L. Braverman, Esq., RichardS. Julie, Esq., Benjamin Garber, Esq., Braverman Kaskey
PC, Philadelphia, P A, Attorneys for Defendant, The Bancorp Bank

March

~~

, 2013

1

~ ~!tw1A ~~ r~~rJr\{}!t.Jl/\_
1

ANhREWS, U.s~rSTRICT JUDGE:

Before the court is U.S. Bank's motion to dismiss the complaint pursuant to Federal Rule
of Civil Procedure 12(b)(1) and (6). (D.I. 35). Additionally, Banner has moved to dismiss
Bancorp's counterclaims pursuant to Federal Rule of Civil Procedure 12(b)(6). (D.I. 37).
Banner issued an insurance policy on the life of Robert Daniels. The owner of the policy
was Mr. Daniel's law firm, Braverman Daniels Kaskey, Ltd. (D.I. 1, ~ 7). Pursuant to a
"Collateral Security Agreement," the law firm assigned the policy to Bancorp as collateral for a
loan. (!d.

at~

8-1 0). Banner was aware of the assignment. (!d. at

transferred the policy to the Daniels Trust in June 2006. (!d.

at~~

~

10). Braverman Daniels

11-16). The Trust

subsequently sold the policy representing falsely that the policy was free of any liens. In re
Ritchie Risk-Linked Strategies Trading (Ireland), LTD., 471 B.R. 331, 335 (Bankr. S.D.N.Y.

2012). Eventually, Ritchie Risk acquired the policy and declared bankruptcy. !d. at 335. Nutmeg
obtained ownership of the policy from an asset sale as part of the bankruptcy proceedings. The
sales was free and clear of any liens. !d. at 335-36. U.S. Bank then held the policy as securities
intermediary for Nutmeg. !d. at 333-34. Upon Mr. Daniel's death in 2011 both U.S. Bank and
Bancorp submitted a death benefit claim to the policy. (D.I. 1 ~~ 19-24). Pursuant to 28 U.S.C. §
1335, Banner filed this complaint for interpleader. (D.I. 1). On August 13, 2012, the Court
approved a stipulated agreement between Bancorp and U.S. Bank relinquishing the proceeds at
issue to U.S. Bank. (D.I. 29).
The Court's jurisdiction in this case arises from 28 U.S.C. § 1335, which requires
minimal diversity between at least two adverse claimants for an amount in controversy equal or

2

greater than $500. At the time the complaint was fileq, these requirements were alleged.
U.S. Bank's Motion to Dismiss Complaint
As the funds in dispute have been disbursed to U.S. Bank under an agreement reached
with Bancorp, there is no longer a controversy involving two or more adverse parties. The
purpose of this lawsuit was to make sure that if Banner paid one of the claimants the proceeds of
the insurance policy, it would not later be subject to litigation that it should have paid the other.
Banner has accomplished that goal. Therefore, its complaint will be dismissed.
Banner's opposition to U.S. Bank's motion to dismiss the complaint asserts that not all
relief has been granted in this case, as it seeks a release of any future liability and attorney fees.
(D.I. 43, p. 3). U.S. Bank has offered a release ofliability. (D.I. 46, p. 5). Bancorp has been
barred by order ofthe Bankruptcy Court ofthe Southern District ofNew York from asserting any
claims against the policy at issue. In re Ritchie at 341. As the funds in dispute have been
assigned to U.S. Bank with Bancorp's stipulation, Banner's desire for a further release from U.S.
Bank will not preclude dismissal.
The awarding of attorney fees in an interpleader complaint is "committed to the sound
discretion ofthe trial court." Mutual of Omaha Ins. Co. v. Dolby, 531 F.Supp. 511, 516 (E.D. Pa.
1982). Insurance companies regularly encounter disputes between multiple claimants to a
policy's benefits. Making a determination as to which claim prevails is the ordinary business of
insurance companies. I d. at 517. Awarding attorney fees to insurance companies would shift
their ordinary business expenses to the claimants, which is not generally appropriate. Id. at 517.
See Fidelity Bank v. Com. Marine and General Assur. Co., 592 F. Supp. 513, 526 (E.D. Pa.
1984). Banner is in the business of determining which claims to a policy's benefits are valid and
3

therefore there does not appear to be any basis to award attorney fees. 1
For the reasons set forth above, the court will grant U.S. Bank's motion to dismiss
Banner's interpleader complaint.
Banner's Motion to Dismiss Bancorp's Counterclaims
Bancorp filed five counterclaims against Banner for breach of contract (Count I),
negligence (Count II), breach of fiduciary duty (Count III), fraud by omission (Count IV) and
tortious interference with contract (Count V). (D.I. 34). Counterclaim Count I is based on the
contention that the "Collateral Security Agreement" and the insurance policy are contracts
between Banner and Bancorp. (D.I. 34, ~51). Plaintiff contends that Banner is not a party to any
contract with Bancorp as the "Collateral Security Agreement" was merely an acknowledgment of
receipt provided for recording purposes. (D.I. 38, p. 11). The remaining counterclaims assert
that Banner owed a duty to Bancorp to notify subsequent purchasers of the policy ofBancorp's
lien, to object to the sale of the policy, and to notify Bancorp of the policy's impending sale in
the bankruptcy proceedings. (D.I. 34, pp. 15-16). Bancorp alleges that Banner's breach of this
duty was the proximate cause of the interest in the policy created by the "Collateral Security
Agreement" being extinguished and resulting damages to Bancorp in excess of $500,000.
The issue pertaining to Bancorp's breach of contract counterclaim is whether the
counterclaim should be dismissed for a failure to state a claim. Federal Rule of Civil Procedure
12(b)(6) requires that a complaint contain, "enough facts to state a claim to relief that is plausible
on its face." Bell At!. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A cause of action for
1

Banner has not filed any motion for attorney's fees. The Court will grant Banner two
weeks within which to file a properly supported motion for attorney's fees. Failure to do so will
be construed as a waiver of the request, which, as noted, does not appear to have much of a basis.

4

i

breach of contract must be established by pleading ( 1) the existence of a contract, including its
essential terms, (2) a breach of duty imposed by the contract and (3) resultant damages."
Corestates Bank, NA. v. Cutillo, 723 A.2d 1053, 1058 (Pa.Super. 1999). An essential element to

the formation of a contract is consideration. Weaverton Transp. Leasing v. Moran, 834 A.2d
1169, 1172 (Pa. Super. 2003). "Consideration consists of a benefit to the promisor or a detriment
to the promisee." Id. There was no consideration bargained for by Banner in signing the
"Collateral Security Agreement" or the insurance policy. Therefore there is no allegation that
there is a contract between Banner and Bancorp. Nor is there any other contract theory alleged as
to why Banner owed any duty to Bancorp. For the above stated reason, Banner's motion to
dismiss Ban corp's Counterclaim I is granted.
In pleading a cause of action for negligence Bancorp must establish that Banner owed a

duty to Bancorp, that duty was breached, and the breach was the proximate cause of resulting
damages. Reilly v. Tiergarten Inc., 633 A.2d 208,210 (Pa. Super. 1993). As an assignee,
Bancorp is only entitled to the duties due the assignor. See Smith v. Cumberland Group, Ltd., 687
A.2d 1167, 1172 (Pa.Super. 1997). The policy at issue does not impose upon Banner any duty to
provide notice of an impending sale, a duty to notify potential buyers of possible liens nor a duty
to object to a sale of the policy. (D.I. 1, Ex. A). Further, the policy states that, "We will not be
responsible for the validity of an assignment." (D.I. 1, Ex. A at 4). The "Collateral Security
Agreement" also states that Banner "assumes no responsibility for its validity." (D.I. 1, Ex. A).
Banner had no duty to Bancorp to provide notice of the policy's sale or to notify subsequent
buyers of the policy ofBancorp's assignment. An insurer owes no duty of care as policy related
claims must be based on a contract between the parties, not tort law. Greater NY. Mut. Ins. Co.
5

v. North River Ins. Co., 872 F. Supp. 1403, 1409 (E.D. Pa. 1995). Bancorp as an assignee of
Braverman Daniels Kaskey, LTD cannot bring a negligence action against Banner. Therefore
Banner's motion to dismiss Bancorp's Counterclaim II is granted.
Bancorp's counterclaim for breach of fiduciary duty likewise fails to state a claim.
Establishing a cause of action for breach of fiduciary duty requires,
(1) the existence of a confidential relationship; (2) the defendant's failure to act in good
faith and solely for the benefit of the plaintiff with respect to matters within the scope of
the confidential or fiduciary relationship; and (3) an injury to the plaintiff proximately
caused by the defendant's failure to act.

Baker v. Family Credit Counseling Corp., 440 F. Supp. 2d 392,414 (E.D. Pa. 2006). "The
essence of such a relationship is trust and reliance on one side, and a corresponding opportunity
to abuse that trust for personal gain on the other." In re Estate of Scott, 316 A.2d 883, 885 (Pa.
Supreme 1974). There is no claim of such personal gain by Banner nor any other basis for a
confidential relationship to have existed. A breach of fiduciary duty claim is not allowed against
an insurer under Pennsylvania law. Greater N.Y. Mut. Ins. Co. v. North River Ins. Co., 872 F.
Supp. 1403, 1409 (E.D. Pa. 1995). Banner's motion to dismiss Counterclaim III is granted.
Bancorp contends that Banner's omitting to notify it of the pending sale of the insurance
policy is a sufficient basis for stating a claim of fraud by omission. (D.I. 34, p.18). Banner had
no duty to notify Bancorp and absent any duty an omission of notification is not sufficient for a
claim of fraud. See Wilson v. Donegal Mut. Ins. Co., 598 A.2d 1310, 1316-17, (Pa.Super.1991).
There is no allegation of Banner's fraudulent intent. Banner's motion to dismiss Counterclaim IV
is granted.
Counterclaim V is for tortious interference with contract. Pursuant to Hillis Adjustment

6

Agency, Inc. v. Graham Co. 911 A.2d 1008, 1012 (Pa.Super. 2006):
"The elements of tortious interference with contractual relations are: (1) the existence of a
contractual relationship between the plaintiff and a third party, (2) purposeful action on
the part of the defendant intended to harm the relationship, (3) the absence of privilege or
justification on the part of the defendant, and (4) actual damages resulting from the
defendant's conduct."
Bancorp alleges that Banner tortiously interfered with a contract between Bancorp and
Braverman Daniels Kaskey, to wit, the "Collateral Security Agreemen~' Bancorp fails to allege,
however, that Banner acted intentionally or purposefully to harm Bancorp's contractual
relationship with Braverman Daniels Kaskey. Thereis no plausable allegation that supports why
Banner would care about the Bancorp - Braverman Daniels Kaskey relationship. For these
reasons, the court will grant Banner's motion to dismiss Bancorp's Counterclaim V.
Bancorp has not alleged proximate cause of damages for any of the five counterclaims.
Bancorp argues that had Banner notified Ban corp of the pending sale of the policy, the lien could
have been protected. (D.I. 34, pp. 12-13). An assignment of a life insurance policy is an equitable
lien pursuant to Pennsylvania law. In re Tyson, 117 B.R. 181, 186 (Bankr. W.D. Pa. 1990). As an
equitable lien, the assignment would be subordinate to the bankruptcy court's subsequent judicial
lien. I d. Therefore, notice of the sale would not have allowed Bancorp the opportunity to protect
its interest. Bancorp has not alleged that having notice of the impending sale would have resulted
in the equitable lien being preserved by the Bankruptcy Court (which ordered selling the policy
free and clear ofliens). See In re Ritchie Risk-Linked Strategies Trading (Ireland), LTD., 471
B.R. at 335-36 (assets sold free and clear of any liens.)
An appropriate order will be entered.

7