PHL Variable Insurance Company v. ESF QIF Trust
MEMORANDUM OPINION re 12 MOTION to Dismiss Based upon Defendant's Counterclaims. Signed by Judge Leonard P. Stark on 12/30/2013. (rpg)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE
PHL VARIABLE INSURANCE
ESF QIF TRUST, by and through its
trustee, DEUTSCHE BANK TRUST
Civ. No. 12-317-LPS
Keith A Walter, Jr., Esquire, NOVAK DRUCE CONNOLLY BOVE +QUIGG LLP,
Thomas F.A. Hetherington, Esquire and Jarret E. Ganer, Esquire, EDISON, MCDOWELL &
HETHERINGTON LLP, Houston, TX.
Attorneys for Plaintiff/Counterclaim Defendant.
Joseph J. Farnan, Jr., Esquire and Brian E. Farnan Esquire, FARNAN LLP, Wilmington, DE.
Steven G. Sklaver, Esquire, Matthew R. Berry, Esquire, and Brian M. Gillett, Esquire, SUSMAN
GODFREY L.L.P ., Los Angeles, CA, Seattle, W A, and Houston, TX.
Attorneys for Defendant/Counterclaim Plaintiff.
December 30, 2013
Before the Court is a motion by Plaintiff/Counterclaim Defendant PHL Variable
Insurance Company ("Phoenix") to dismiss the counterclaims ofDefendant/Counterclaim
PlaintiffESF QIF Trust ("ESF Trust" or "the Trust"). (D.I. 12) The Court heard oral argument
on November 8, 2012. (See Motion Hr'g Tr., November 8, 2012 (D.I. 24) (hereinafter "Tr.")
The Court will grant in part and deny in part Phoenix's motion to dismiss the counterclaims.
Phoenix is a Connecticut insurance company with a principal place of business in
Hartford Connecticut. (D.I. 1 at 2) ESF Trust is a Delaware statutory trust formed pursuant to
the Delaware Statutory Trust Act, 12 Del. C. §§ 3801, et seq. (Id.)
On March 15, 2012, Phoenix filed a declaratory judgment action against ESF Trust
pursuant to 28 U.S.C. § 2201 and Federal Rule of Civil Procedure 57. (Id.) In its complaint,
Phoenix asks the Court to declare as void ab initio a $10 million life insurance policy- number
97519439 ("the Szalay Policy")- insuring the life of John Szalay ("Mr. Szalay").
Phoenix's complaint alleges that ESF Trust acquired the Szalay Policy as part of a
stranger originated life insurance ("STOLl") arrangement. (Id. at 1-2) In a "STOLl"
arrangement, speculators collaborate with an individual or individuals to purchase expensive life
insurance polices and then sell some or all of the death benefit to investors on a secondary
market. (Id. at 2-5) In order to "maximize rates of return on investments," STOLl speculators
engage financially qualified, elderly individuals- with limited expected life spans- to obtain
For purposes of the pending motion, the facts as alleged in the Trust's counterclaims are
taken as true. Other background facts not presently in dispute are derived from Phoenix's
complaint (D.I. 1; see also D.l. 8 at 1-2).
multi-million dollar life insurance policies in the individual's name. (Id. at 5) The insured may
then designate as the beneficiary of the policy some type of third-party entity, which may then
transfer the policy to speculators. (!d.)
In addition to filing an Answer to Phoenix's complaint, the Trust filed six counterclaims.
(D.I. 8) Specifically, the Trust sets forth the following counterclaims:
a declaratory judgment claim that the Szalay Policy is valid, seeking in particular
"a judicial declaration that (a) Phoenix is liable to pay a claim thereunder on the
Szalay Policy upon the occurrence of the Szalay Policy's maturity event, and that
(b) Phoenix is estopped from challenging the Szalay Policy as void ab initio
and/or that Phoenix has waived its right to challenge the Szalay Policy as void ab
initio" (D.I. 8 ~ 44);
violation of the Delaware Consumer Fraud Act, 6 Del. C. § 2513 et seq.
common law negligent misrepresentation;
breach of the duty of good faith and fair dealing; and
common law fraud;
The Court has today issued a Memorandum Opinion and Order in a related action, PHL
Variable Insurance Co. v. ESF QIF Trust, C.A. No. 12-319-LPS D.I. 48, 49. All ofthe issues
raised by the pending motion in the instant action are addressed in the Opinion filed in the related
action. The parties argued the motions in both cases during the same hearing in November 2012.
Neither the law, the analysis, nor the conclusions are any different with respect to the motion
pending here than they are in connection with the motion filed in the related action. 2
Accordingly, the Court will not repeat what it said in the Opinion filed in C.A. No. 12319 but, instead, incorporates that Opinion by reference. Phoenix's motion will be granted in
part and denied in part, consistent with the decision in the related action.
An appropriate Order will be issued.
The principal factual difference between the cases is that whereas the insured involved in
C.A. No. 12-319, Mrs. Griggs, is deceased, here the insured, Mr. Szalay, is alive. The Court's
analysis in the Opinion filed in the related action does not turn on whether the insured is alive.
Just as the Court found a ripe dispute with respect to the fourteen "Additional Policies" in the
related action, so, too, there is a ripe dispute here, even though the "maturity event" on the Szalay
Policy has not occurred. Another difference between the two cases is that here the Trust has filed
fewer counterclaims- however, each counterclaims filed here was also filed in the related action.
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