Wilmington Savings Fund Society FSB et al v. PHL Variable Insurance Company et al

Filing 154

MEMORANDUM OPINION re 136 MOTION to Dismiss Second Amended Complaint. Signed by Judge Richard G. Andrews on 4/9/2014. (nms)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF DELAWARE

WILMINGTON SAVINGS FUND
SOCIETY, FSB, as successor in interest to
CHRISTIANA BANK & TRUST
COMPANY, as trustee for JOHN DOE
TRUST 1, et al.,
Plaintiffs;
Civil Action No. 13-499-RGA

v.
PHLVARIABLEINSURANCE
COMPANY and PHOENIX LIFE
INSURANCE COMPANY,
Defendants.

MEMORANDUM OPINION

David J. Baldwin, Esq., Potter, Anderson & Corroon, Wilmington, DE; John E. Failla, Esq.
(argued), Proskauer Rose LLP, New York, NY; Nathan R. Lander, Esq., Proskauer Rose LLP,
New York, NY; Phillip Hall, Esq., Highland, attorneys for the Plaintiffs.
Richard D. Heins, Esq., Ashby & Geddes, PA, Wilmington, DE; David T. McDowell, Esq.
(argued), Edison, McDowell & Hetherington LLP, Houston, TX; Kendall J. Burr, Esq., Edison,
McDowell & Hetherington LLP, Houston, TX; Bobby B. Debelak, Esq., Edison, McDowell &
Hetherington LLP, Houston, TX; John Beers, Esq., Phoenix Life Insurance Company, attorneys
for the Defendants.

April

!L,

2014

AND~~~~

JUDGE:

Presently before the Court for disposition is the Defendants PHL Variable Insurance
Company and Phoenix Life Insurance Company's Motion to Dismiss the Second Amended
Complaint. (D.I. 136). This matter has been fully briefed. (D.I. 137, 141, 142). The Court
heard oral argument on December 16,2013. (D.I. 149). For the reasons set forth herein, the
Defendants' motion is GRANTED IN PART and DENIED IN PART.
BACKGROUND

The trustee of sixty life insurance trusts, Wilmington Savings Fund Society, originally
brought this suit on June 5, 2012 in the Central District of California. (D.I. 1). The suit was
brought against The Phoenix Companies, Inc., Phoenix life Insurance Company ("Phoenix"), and
PHL Variable insurance Company ("PHL"). Id. The case was transferred to the District of
Delaware on March 28,2013. (D.I. 76). The Plaintiffs then filed a Second Amended
Complaint on July 28, 2013. (D.I. 130). The Second Amended Complaint did not include
Phoenix Companies, Inc. or John Doe Trust 31.
Each life insurance trust at issue in this case owns a flexible premium, universal life
insurance Phoenix Accumulator Universal Life ("PAUL") life insurance policy. Id. at 3. PHL
is a Connecticut insurance company with its principal place of business in Hartford, Connecticut.

Id. Phoenix is a New York life insurance corporation with its principal place of business in East
Greenbush, New York. Id. Wilmington Savings Fund Society, FSB ("Wilmington Savings")
is a Delaware citizen with its principal place ofbusiness in Wilmington, Delaware.
This case involves large face amount life insurance policies, which were purchased by the
Defendants in the form of trusts that could later be sold on the secondary market. Id. at 8.
These insurance plans were purchased via varying vehicles. One method was through non1

recourse premium financing, an arrangement in which a "lender would loan the insured funds to
pay premiums in exchange for the insured pledging the policy as the sole collateral for the loan."
!d. at 9. Another method was for the insured to establish a life insurance trust that would own

the life insurance policy. !d.
The Plaintiffs' complaint alleges that the Defendants made a business decision not to
honor policies it had sold to investors to stave off a financial crisis for the company. !d. at 22.
The Plaintiffs contend that PHL further decided to "undermine or destroy the established
efficient secondary market exchange for its policies and, leaving its policyholders with no
alternatives, continue to collect premiums while trying to force the policyholders to lapse their
policies." !d. The Plaintiffs contend that the Defendants decided that they would deny claims

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on the grounds that the policy lacks an insurable interest, independent of any determination of
whether the plan in fact contained an insurable interest. !d. at 23.
Wilmington Savings has brought ten claims against the Defendants.
I.

Violation of 18 U.S.C. § 1962(b) (racketeering)

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II.

Violation of 18 U.S.C. § 1962(c) (racketeering)

III.

Violation of 18 U.S.C. § 1962(d) (conspiracy for racketeering)

IV.

Fraud and Conspiracy

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V.
VI.
VII.
VIII.
IX.

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Declaratory Judgment

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Breach of Contract
Breach of Good Faith and Fair Dealing

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Promissory Estoppel
Violation of Connecticut Unfair Trade Practices Act

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X.

Violation of California's Unfair Competition Law
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The Defendants have moved for summary judgment on all of the claims with the exception of
claim VI.

LEGAL STANDARD
A well-pleaded complaint must contain more than mere labels and conclusions. See

Ashcroft v. Iqbal, 556 U.S. 662 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007).
The assumption of truth is inapplicable to legal conclusions or to "[t]hreadbare recitals of the
elements of a cause of action supported by mere conclusory statements." Iqbal, 556 U.S. at 678.
When determining whether dismissal is appropriate, the Court conducts a two-part analysis.

Fowler v. UPMC Shadyside, 578 F.3d 203,210 (3d Cir. 2009).
First, the factual and legal elements of a claim are separated. !d. The Court must accept
all of the Complaint's well-pleaded facts as true, but may disregard any legal conclusions. !d. at
210-11. Second, the Court must determine whether the facts alleged in the Complaint are
sufficient to show that the plaintiff has a "plausible claim for relief." Fowler, 578 F .3d at 211.
In other words, the Complaint must do more than allege the plaintiff's entitlement to relief;
rather, it must "show" such an entitlement with its facts. !d. A claim is facially plausible when
its factual content allows the Court to draw a reasonable inference that the defendant is liable for
the misconduct alleged. See Iqbal, 556 U.S. at 678. The plausibility standard "asks for more
than a sheer possibility that a defendant has acted unlawfully." !d. "Where a complaint pleads
facts that are 'merely consistent with' a defendant's liability, it 'stops short of the line between
possibility and plausibility of"entitlement to relief."'" !d. (quoting Twombly, 550 U.S. at 570).
When alleging fraud, Federal Rule of Civil Procedure 9(b) requires that the "party must
state with particularity the circumstances constituting fraud or mistake. Malice, intent,
knowledge, and other conditions of a person's mind may be alleged generally." FED. R. CIV. P.
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9(b). On a motion to dismiss under Rule 9(b) "focusing exclusively on [the rule's] particularity
language is too narrow an approach and fails to take account of the general simplicity and
flexibility contemplated by the rules." Seville Indus. Mach. Corp. v. Southmost Mach. Corp.,
742 F.2d 786, 791 (3d Cir. 1984) (internal quotation marks omitted). The Third Circuit has held
that:
Rule 9(b) requires plaintiffs to plead with particularity the "circumstances" of the
alleged fraud in order to place the defendants on notice of the precise misconduct
with which they are charged, and to safeguard defendants against spurious charges
of immoral and fraudulent behavior. It is certainly true that allegations of "date,
place or time" fulfill these functions, but nothing in the rule requires them.
Plaintiffs are free to use alternative means of injecting precision and some measure
of substantiation into their allegations of fraud.

!d.
DISCUSSION
RICO Claims (Claims I, II, and III)

The Plaintiffs allege that the Defendants violated 18 U.S.C. § 1962(b). (D.I. 141 at 32).
The Defendants argue that the aforementioned claim should be dismissed because (1) the
Plaintiffs do not adequately plead either a Racketeer Influenced and Corrupt Organizations
("RICO") enterprise or that "Phoenix acquired or maintained control of it through racketeering
activity," (2) the RICO claims allege no predicate criminal conduct, and (3) the Plaintiffs' claim
lacks proximately caused damages. (D.I. 137 at 15-24).

Claim 1: 18 US. C.§ 1962 (b)
The Supreme Court has found that a RICO enterprise need only be a "continuing unit that
functions with a common purpose." Boyle v. United States, 556 U.S. 938, 939 (2009).
Such a group need not have a hierarchical structure or a "chain of command";
decisions may be made on an ad hoc basis and by any number of methods-by
majority vote, consensus, a show of strength, etc. Members of the group need not
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have fixed roles; different members may perform different roles at different times.
The group need not have a name, regular meetings, dues, established rules and
regulations, disciplinary procedures, or induction or initiation ceremonies. While
the group must function as a continuing unit and remain in existence long enough
to pursue a course of conduct, nothing in RICO exempts an enterprise whose
associates engage in spurts of activity punctuated by periods of quiescence. Nor
is the statute limited to groups whose crimes are sophisticated, diverse, complex,
or unique; for example, a group that does nothing but engage in extortion through
old-fashioned, unsophisticated, and brutal means may fall squarely within the
statute's reach.
!d. at 2245-46. Thus, the enterprise need only have (1) a common purpose, (2) relationships

among those associated with the enterprise, and (3) sufficient longevity to complete the common
purpose. Id. Furthermore, the Supreme Court has made clear that the enterprise requirement is
to be read broadly. Id.
The Third Circuit has provided guidance as to what constitutes a RICO enterprise. In In
reIns. Brokerage, the Third Circuit addressed two different association-in-fact enterprises. In
reIns. Brokerage Antitrust Litig., 618 F.3d 300 (3d Cir. 2010). The Third Circuit first
addressed an enterprise in which "each defendant broker and its insurer-partners composed an
association-in-fact enterprise." !d. at 373-74 The district court had found "that although
plaintiffs had adequately alleged bilateral agreements (regarding the steering ofbusiness and the
payment of contingent commissions) between each broker and its insurer-partners, plaintiffs had
failed to plead facts plausibly suggesting collaboration among the insurers. The asserted huband-spoke structures therefore lacked a unifying rim." !d. at 374 (internal quotation marks
omitted). The Third Circuit agreed. Id. In the case, the Plaintiffs had pled:
[T]hat each insurer entered into a similar contingent-commission agreement in
order to become a "strategic partner"; that each insurer knew the identity of the
broker's other insurer-partners and the details of their contingent-commission
agreements; that each insurer entered into an agreement with the broker not to
disclose the details of its contingent-commission agreements; that the brokers
utilized certain devices, such as affording "first" and "last looks," to steer business
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to the designated insurer; and that, in the Employee Benefits Case, insurers adopted
similar reporting strategies with regard to Form 5500.

Id. The Third Circuit found that, "Even under the relatively undemanding standard of Boyle,
[the aforementioned] allegations do not adequately plead an association-in-fact enterprise." Id.
The second alleged enterprise that the Plaintiffs asserted in In re Ins. Brokerage was an
insurance broker centered enterprise. Id. at 3 75. Regarding the insurance broker centered
enterprise the "plaintiffs allege a hierarchical structure according to which [the insurance
broker], in accordance with its broking plan, decided from which insurer each sham bid would be
requested." Id. at 376 (internal quotation marks omitted). The Third Circuit found that,
[The] Plaintiffs adequately allege a "common interest" or "purpose," namely to
increase profits by deceiving insurance purchasers about the circumstances
surrounding their purchase. The alleged reciprocal bid rigging also adequately
suggests "relationships among" the insurers "associated with the enterprises"; if
proved, it would plausibly demonstrate the insurers 'joined together' in pursuit of
the aforementioned common purpose.

Id. (internal citations and original brackets omitted). Furthermore, "[T]he complaint does allege
that one reason the insurers were willing to furnish sham bids was so that they would be the
beneficiaries of sham bids in the future." Id. at 3 77. This "alleged agreement by insurers to
provide sham bids plausibly suggests an interrelationship among the insurers-mediated through
[the insurance broker]-in pursuit of achieving greater business and profits by means of
deceiving insurance purchasers." Id. In other words, "the allegations of bid rigging provide the
'rim' to the [insurance broker]-centered enterprise's hub-and-spoke configuration, satisfying

Boyle's requirements." Id. at 375.
Here the Plaintiffs argue that they have sufficiently alleged the existence of an enterprise.
Specifically, the Plaintiffs allege that what they coin the "Phoenix Policy Exchange Enterprise"
("PPE") is an enterprise in fact. (D.I. 130 at 47). First, the Second Amended Complaint states
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that the enterprise's purpose is the efficient exchange oflife insurance policies. !d. Second,
the complaint details the association between the various members of the exchange. !d. at 4855. Third, the complaint alleges sufficient longevity as "at all relevant times the [PPE] has
maintained the same structure .... " !d. at 55. The Defendants argue that the PPE is not an
enterprise as it had no structure beyond that which naturally evolves in a market and that the
members of the enterprise competed with each other. The Court agrees with the Defendants.
While the Supreme Court has provided an expansive definition of the term enterprise, it
is clear that an enterprise must still be a group. Here, the Plaintiffs allege that the purported
enterprise is composed of: "(i) sellers ofPhoenix Policies; (ii) buyers of Phoenix Policies; (iii)
representatives and agents assisting Sellers in selling Phoenix Policies; (iv) representatives and
agents assisting Buyers in purchasing Phoenix Policies; and (v) individuals and entities providing
services to Buyers and Sellers in connection with sales of Phoenix Policies." !d. at 48
(parentheticals omitted). However, this composition is no different from any other regulated or
unregulated marketplace that deals in a single commodity. Furthermore, it is far less than the
rimless hub-and-spoke structure that the Third Circuit discussed in In reIns. Brokerage that was
found not to be an enterprise, as here there does not even appear to be the requisite spokes. It
cannot be that any group of individuals who buy and sell a commodity could satisfy the statute's
requirement that there be an enterprise, as this would all but read out the applicable statutory
requirement. Eighteen U.S.C. § 1962(b) requires the existence of an enterprise. Taking all the
facts in the complaint as true, there is no enterprise. The Court grants the Defendants' Motion
to Dismiss Claim I.
Claim II: 18 U.S. C.§ 1962(c)

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To plead a case under 18 U.S.C. § 1962(c) the Plaintiff must allege "(1) the conduct (2)
of an enterprise (3) through a pattern of racketeering activity." Salinas v. United States, 522
U.S. 52, 62 (1997). An enterprise is defined in the statute as "include[ing] any individual,
partnership, corporation, association, or other legal entity, and any union or group of individuals
associated in fact although not a legal entity." 18 U.S.C. § 1961. As discussed above, an
association-in-fact enterprise exists when there is a "continuing unit that functions with a
common purpose." Boyle, 556 U.S. at 948.
The Plaintiffs allege that that an enterprise existed consistent with the requirement of 18
U.S.C. § 1962(c) consisting of Phoenix and a network of agent-distributors. (D.I. 130 at 68,
69). Relevant portions of the Plaintiffs' complaint allege:
Beginning in or about 2005 and continuing to the present, PHL, Phoenix Life and
the Independent Agents who promoted, marketed and sold PAUL policies have
comprised an association-in-fact enterprise (the "Fraudulent Billing Enterprise")
associated together for a common, shared purpose of engaging in a course of
conduct: (i) the promotion, marketing and sale of PAUL policies; (ii) the servicing
of PAUL policies; and (iii) the billing and collection of premiums for PAUL
policies. As discussed in detail below, beginning in or about 2009, the common
and shared purpose of the Fraudulent Billing Enterprise and its members expanded
to include fraudulently billing and collecting premiums from Plaintiffs and other
investor-owners ofPAUL policies issued by Defendants.

The Independent Agents were integral members of the enterprise because they
provided Defendants with access to customers, particularly affluent and high-networth customers, to whom Defendants otherwise would not have had access.
Defendants sought out and recruited the Independent Agents based on their
connections to non-recourse premium finance programs, the capital markets,
investment banks, and other potential buyers of life insurance policies on the
secondary market, because Defendants knew these Independent Agents could
generate much higher premium revenue than other agents and could gain
Defendants access to buyers wishing to later to sell their PAUL policies on the
secondary market.

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Plaintiffs are informed and believe, and upon such information and belief allege,
that, at all relevant times herein, Phoenix Life's role in the Fraudulent Billing
Enterprise has included the marketing, promotion and sale of PAUL policies,
paying commissions for the PAUL policies sold by Defendants, proving
reinsurance to PHL, and providing key business services for Fraudulent Billing
Enterprise.
(D.I. 130 at 68-70).
The Defendants argue that there are no interpersonal relationships between the relevant
parties as the brokers were independent and not captive to Phoenix, as demonstrated by the fact
that they sold products from other insurers. (D.I. 137 at 18). Furthermore, the Defendants
assert that the "brokers' alleged involvement was not even contemporaneous with the alleged
acts of mail and wire fraud. The producers allegedly helped place the Policies in force between
2005 and 2008 by 'promoting, marketing, and selling' them. Yet, Plaintiffs assert that Phoenix
made its supposed 'decision' to not pay death benefits in 2009, and committed the alleged mail
and wire fraud after that decision." !d. The Plaintiffs contend that "Defendants' argument
should be rejected because, contrary to their unsupported argument, 'independent agents' may be
members in an associated-in-fact RICO enterprise." (D.I. 141 at 41 (internal citation and
emphasis omitted)). While the Court agrees with the Plaintiffs that independent agents may in
some circumstances be members of an association-in-fact RICO enterprise, sufficient facts to
draw this conclusion were not pled here.
Other than the paying of commissions to the third party agents at the time of sale, the
Plaintiffs point to no viable relationship between the third party agents and Phoenix. This is a
far cry from Levine v. First American Title Ins. Co. where the district court found that
independent agents may be members of an association-in-fact RICO enterprise. 682 F.Supp 2d
444 (E.D. Pa. 201 0). In Levine the title agents served as an intermediary for the insurance
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company. !d. at 449. Conversely, here the Plaintiffs have laid out no claim in the Second
Amended Complaint that the third party agents, after they sold the policies, continued to have
any role in the purported association-in-fact enterprise. This is especially true as the Plaintiffs'
RICO claims arise out of the theory that "PHL has overbilled Plaintiffs, and PHL and Phoenix
Life have overbilled other 'investors' policyholders, by fraudulently overstating the cost of
insurance ('COl') charges necessary to prevent their policies from lapsing." (D.I. 130 at 26).
Conversely, this case is like In reIns. Brokerage where the plaintiff claimed that Defendants
may be connected by bilateral agreements, but made no allegation of collaboration among
agents. For the aforementioned reasons, the Court finds that the Plaintiffs have failed to plead
the required enterprise under 18 U.S.C. § 1962 (c) and therefore grants the Defendants' Motion
to Dismiss Claim II.
Claim III: I8 U.S.C. § I962 (d)

Plaintiffs additionally claim that the Defendants conspired under 18 U.S.C. § 1962(d).
"[RICO conspiracy] is a conspiracy to violate RICO-that is, to conduct or participate in the
activities of a corrupt enterprise." Zavala v. Waf Mart Stores Inc., 691 F.3d 527, 539 (3d Cir.
2012). As the Plaintiffs have failed to properly plead claims under 18 U.S.C. § 1962(b) or (c),
the Plaintiffs cannot make out a claim of conspiracy of these same acts. Therefore, the
Defendants' Motion to Dismiss Claim III is also granted.
Fraud and Conspiracy (Claim IV)

Fraud
The Plaintiffs allege three types of fraud. "First, after PHL had decided not to pay
Policy benefits, PHL fraudulently induced Plaintiffs to continue paying premiums by
misrepresenting that PHL would pay benefits upon the insured's death. Second, PHL concealed
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and failed to disclose to Plaintiffs the decision not to pay death benefits. Third, PHL
fraudulently overbilled premiums." (D.I. 141 at 26). The Plaintiffs additionally allege that
"Phoenix life is liable for conspiring with PHL to commit the fraud." I d. Under Delaware law
a claim for fraud must allege five elements. Schmeusser v. Schmeusser, 559 A.2d 1294, 1297
(Del. 1989). These elements are:
1) a false representation, usually one of fact, made by the defendant;
2) the defendant's knowledge or belief that the representation was false, or was
made with reckless indifference to the truth;
3) an intent to induce the plaintiff to act or refrain from acting;
4) the plaintiffs action or inaction taken in justifiable reliance upon the
representation;
5) damage to the plaintiff as a result of such reliance.
!d.
The Plaintiffs have failed to plead both the aforementioned first and second elements. In
the Second Amended Complaint, the Plaintiffs state that a business decision was made to stop
paying death benefits for the Plaintiffs' policies, and yet continue to bill the Plaintiffs. (D.I. 130
at 102-28). FED. R. Crv. P. 9(b) requires that plaintiffs plead with such particularity that it
places the "defendants on notice of the precise misconduct with which they are charged .... "
Seville Indus. Mach. Corp., 742 F.2d at 791. The relevant portion of Plaintiffs' pleading states:
Among other things, Plaintiffs are informed and believe, and upon such information
and belief allege, that, in or about 2009, PHL and Phoenix Life made a business
decision that upon the death of a person insured under a PAUL policy issued by
PHL owned by an investor:
a. PHL would refuse to pay the claim for death benefits if there was a
transfer of the policy or a beneficial interest in the trust owning the policy;

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b. PHL would assert as a pretext for denying benefits that the policy
purportedly lacked an insurable interest, and therefore was void ab initio,
even if, in fact, PHL had not yet investigated insurable interest or PHL had
investigated insurable interest and concluded that the subject policy did
have an insurable interest under the law of the applicable state; and
c. PHL would seek to retain the premiums paid for the policy by asserting
that, because the policy purportedly lacked an insurable interest and was
void ab initio, public policy allowed PHL to keep the premiums.
(D.I. 130 at 103). This generic pleading is no more than attorney argument and devoid of any
facts sufficient to meet the requirements ofFED. R. Crv. P. 9(b). Unlike in PHL Variable, where
the Court found that the Plaintiffs had properly alleged fraud because,
In pleading the alleged fraud, the Trust sets forth "the types of policies subject to
the fraud, the names of agents who issued policies subject to the fraud, the
existence of Phoenix's STOLl tracking spreadsheet that monitors the Trust, and
corroborating sworn testimony from a former Phoenix life insurance producer.
The Trust's counterclaim further alleges sufficient details to identify each of the
policies, their face values, the premiums paid to date, and the premiums to be paid
through the end of2013.

PHL Variable Ins. Co. v. ESF QIF Trust by & through Deutsche Bank Trust Co., 2013 WL
6869803, *7 (D. Del. Dec. 30, 2013). Here, the Plaintiffs fail to allege who made the business
decision, when the business decision was made (the Plaintiffs fail to even confine the date of the
decision to a single year), how the business decision came to pass, or any other relevant
information that would be sufficient to put the Defendants on proper notice. As the Plaintiffs
have failed to plead the existence of the business decision under FED. R. CIV. P. 9(b), it is not
possible for them to make out the required elements for fraud, as there is not support that the
Defendants made a false statement. Therefore, the Court dismisses the Plaintiffs' fraud claim.
Conspiracy
The Plaintiffs additionally allege that PHL conspired with Phoenix Life to defraud
Plaintiffs. (D.I. 130 at 128). As the Court has dismissed the underlying fraud claim, and the
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conspiracy claim adds no further factual allegations, the conspiracy to defraud allegations are
likewise insufficient. Therefore, the Court additionally grants the Defendants' Motion to
Dismiss the Plaintiffs' conspiracy claim.
Declaratory Judgment (Claim V)

The Plaintiffs seek a declaratory judgment on three issues: (1} that the policies are valid,
(2) that Phoenix may not require completion of Phoenix's Certification and Acknowledgement of
Trust Agreement Form, and (3) that the life insurance policies are transferable. The Defendants
argue that the Plaintiffs do not have standing, that the issues are not ripe, that there are
insufficient facts to find an insurable interest, that the opinion would be advisory, and that the
opinion would be redundant.
That the policies have an insurable interest

The Plaintiffs seek a declaration as to whether the "Policies had an insurable interest
when issued by PHL or are void ab initio for lack of insurable interest."
Standing
"In a case of actual controversy within its jurisdiction ... any court of the United States,
upon the filing of an appropriate pleading, may declare the rights and other legal relations of any
interested party seeking such declaration, whether or not further relief is or could be sought.
Any such declaration shall have the force and effect of a final judgment or decree and shall be
reviewable as such." 28 U.S.C. § 2201.
Determining whether declaratory judgment jurisdiction exists in a particular case
requires consideration of the facts alleged, under all the circumstances, in order to
evaluate whether they show that there is a substantial controversy between parties
having adverse legal interests, of sufficient immediacy and reality to warrant the
issuance of a declaratory judgment.

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PHL Variable Ins. Co., 2013 WL 6869803, at *3. (internal quotation marks omitted). The Court

should look to "the adversity of the interest of the parties, the conclusiveness of the judicial
judgment and the practical help, or utility, of that judgment." Step-Saver Data Sys., Inc. v. Wyse
Tech., 912 F.2d 643, 647 (3d Cir. 1990).

The Defendants claim that there is a lack of adversity because Plaintiffs simply "assert[]
that Phoenix's non-actionable and irrelevant litigation elsewhere somehow manifests its intent to
pursue identical claims against Plaintiffs with regard to these Policies." (D.I. 137 at 42). The
Plaintiffs assert that they not only "face a real, substantial and non-contingent threat of future
harm, which itself is sufficient [to] establish adversity, but they already have been harmed by a
diminution in the Policies' value." (D.I. 141 at 23).
The Plaintiffs specifically argue the following:
Defendants already have decided not to pay death benefits, and have implemented
a practice of denying coverage under all policies, where, as here, the beneficial
interest in the trust was transferred. (SAC~~ 107, 110-119, 129-131, 133, 230231, 275-276, 785.)
PHL already has attempted to rescind or void six policies owned by trusts with the
same trustee as Plaintiffs (including Policies owned by four Plaintiffs) and policies
involving the same agents. (SAC~~ 785, 120-121.)
For each of the Policies, PHL already has made a business decision not to pay death
benefits when the insured dies and to attempt to evade paying death benefits by
asserting that the Policy lacks an insurable interest and is void ab initio. (SAC ~~
784, 786; 108,120,122,129-131,133,237-244,248-249,261,279-286,289-290,
303, 785.)
PHL' s pattern of refusing to pay benefits under similar policies, including several
owned by Plaintiffs, has destroyed the market's confidence in the Policies and
significantly diminished their value. (See, e.g.,~~ SAC 126-128.)
!d. at 22, 23.

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The Court concludes that there is sufficient adversity between the parties for there to be
an actual, ripe controversy between the parties. This case is similar to PHL Variable. In PHL

Variable the court found that:
The Trust's counterclaim adequately alleges a present injury: specifically, the harm
to the Trust's assets-i.e., the interests in the Additional Policies-which allegedly
results from Phoenix's pattern of litigating the validity of essentially identical
policies it has issued, and doing so only after it has collected large premiums. The
Trust expressly alleges that the fourteen Additional Policies share many of the same
attributes as policies that Phoenix has challenged in the past, in this District and
elsewhere. It appears that there have been at least 25 lawsuits across the country
raising the same issue, including at least two others that involve Phoenix suing one
or more of the same individuals participating on the Trust's side of the instant
action.
It is undisputed that, absent a declaration of rights in the context of the instant
action, Phoenix will have the ability-at the time a claim is made on the Additional
Policies-to challenge the Additional Policies as void ab initio due to lack of an
insurable interest. Moreover, Phoenix is, in the instant action, challenging the
validity of the Griggs Policy, and the Trust does not dispute that the challenge
asserted by Phoenix presents an actual, ripe controversy. Under the circumstances
as alleged in the Trust's counterclaim, the Court concludes that there is also an
actual, ripe controversy when the Trust-as owner of nearly-identical Additional
Policies also issued by Phoenix-seeks to prevent Phoenix from raising the same
challenge to the validity of these Additional Policies.

Furthermore, a decision in the instant action as to whether the fourteen Additional
Policies are supported by an insurable interest would define and clarify the rights
the parties will have pursuant to the Additional Policies upon the occurrence of
maturity events. Likewise, such a decision would have an immediate impact on
the parties. Should the Trust prevail, the alleged marketability injury would be
cured. Should Phoenix prevail, the Additional Policies will be void and the Trust
may attempt to cease paying premiums on them.

PHL Variable Ins. Co., 2013 WL 6869803 at *4 (internal quotation and citations omitted).
As in PHL Variable, this case involves virtually identical policies that were issued only
after the collection of large premiums, there are similar lawsuits scattered across the United
States, it is undisputed that the Defendants will have the right to challenge the policies as void ab
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initio, a decision here would "define and clarify the rights" of the parties and would have an
immediate impact, i.e., either the marketability injury of the policies would be cured or the trusts
can cease paying premiums on void policies.
Furthermore, now is the most appropriate time to resolve this dispute. As the issue here
is whether the polices are void ab initio, there is no additional information that would come into
creation that would aid in the resolution of the matter. In fact, by waiting, relevant evidence
may be lost. Furthermore, as the life insurance policy only matures upon the death of the
insured, who may also be a key witness, determining whether there is an insurable interest now
would promote the ultimate goals of justice.
Adequacy of the Pleadings
The Defendants additionally allege that the Plaintiffs have inadequately plead sufficient
facts to evaluate whether the life insurance planes have an insurable interests. The Defendants
state that "other states' insurable interest laws are consistent with Dawe . ... " (D.I. 137 at 32).
Therefore, while various state law requirements may apply to the trusts, the Court will look to
whether the pleadings meet the requirements of Dawe for the purposes of this motion.
"The insurable interest requirement serves the substantive goal of preventing speculation
on human life." PHL Variable Ins. Co. v. Price Dawe 2006 Ins. Trust, ex rei. Christiana Bank
& Trust Co., 28 A.3d 1059, 1074 (Del. 2011). The insurable interest requirement applies only

at the time that the policy was purchased and therefore does not prevent its subsequent sale or
transfer. !d. The catch is that, "a third party cannot use the insured as a means or
instrumentality to procure a policy that, when issued, would otherwise lack an insurable
interest." !d.

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Therefore, if a third party financially induces the insured to procure a life insurance
contract with the intent to immediately transfer the policy to a third party, the
contract lacks an insurable interest. Stated differently, if an insured procures a
policy as a mere cover for a wager, then the insurable interest requirement is not
satisfied.
ld. at 1075. Furthermore, the insured's right to purchase a policy and immediately transfer it is

not unqualified, but instead is "limited to bona fide sales of that policy taken out in good faith."
ld. It is for these reasons that courts must "scrutinize the circumstances under which the policy

was issued and determine who in fact procured or effected the policy." ld. at 1076.
The Plaintiffs have set forth a plausible case that the various trusts are not an illegal
wager. For example the complaint sets forth for Jane Doe 2:
327. Jane Doe 2 created Jane Doe Trust 2, a Delaware trust, on or about February
13, 2007. In the Jane Doe Trust 2 Agreement, Jane Doe 2 authorized the trustee
of Jane Doe Trust 2 to "apply, in the name of the Trust, to be the absolute owner
and beneficiary of a life insurance policy ... under which [Jane Doe 2] shall be the
Insured, from such life insurance company ... as [Jane Doe 2] shall hereafter
designate." The initial beneficiary of Jane Doe Trust 2 was Jane Doe 2' s husband.
328. On or about February 13, 2007, an application for the Jane Doe 2 Policy
was submitted to PHL. The application was signed by Jane Doe 2, the trustee of
Jane Doe Trust 2, and a PHL agent. The application identified Jane Doe Trust 2
as the owner and beneficiary of the Jane Doe 2 Policy.
329. On March 1, 2007, PHL issued the Jane Doe 2 Policy to Jane Doe Trust 2,
insuring the life of Jane Doe 2. The Jane Doe 2 Policy identified the "Owner,
Beneficiary" as "As designated in the application," i.e., Jane Doe Trust 2. The
Jane Doe 2 Policy was issued in Delaware.
330. By designating Jane Doe Trust 2 in the application as the owner and
beneficiary of the Jane Doe 2 Policy, Jane Doe 2 funded Jane Doe Trust 2 with the
Jane Doe 2 Policy.
331. After the Jane Doe 2 Policy was issued, the initial beneficiary of Jane Doe
Trust 2, i.e., Jane Doe 2's husband, sold his interest in Jane Doe Trust 2 to the
Retirement Fund.
332. At the time the Jane Doe 2 Policy was issued, the benefits under the Jane
Doe 2 Policy were payable to a person having an insurable interest in Jane Doe 2,
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i.e., Jane Doe 2's husband, as beneficiary of Jane Doe Trust 2, the owner and
beneficiary of the Jane Doe 2 Policy. Jane Doe 2's husband had a substantial
interest in Jane Doe 2's life engendered by love and affection.
333. If Jane Doe 2 had died after the Jane Doe 2 Policy was issued and before
her husband sold his interest in Jane Doe Trust 2, the death benefit of the Jane Doe
2 Policy would have been payable to Jane Doe 2's husband, as beneficiary of Jane
Doe Trust 2, the owner and beneficiary of the Jane Doe 2 Policy.
334. The Retirement Fund did not fund Jane Doe Trust 2 at any time prior to the
date it acquired the interest in Jane Doe Trust 2.
335. Prior to PHL issuing the Jane Doe 2 Policy, there was no agreement between
the Retirement Fund and Jane Doe 2, pre-negotiated or otherwise: (i) for the
Retirement Fund to fund Jane Doe Trust 2, or (ii) for Jane Doe 2 or her husband to
immediately transfer ownership of, or an interest in, the Jane Doe 2 Policy to the
Retirement Fund.
(D.I. 130 at 132-34 (brackets and ellipses in original). While, the Defendants argue that the
Plaintiffs do not spell out whether the "insured had the financial wherewithal to pay premiums,"
the pleadings indicate that the investor did not fund the Trusts, which is sufficient for this stage
of the proceedings and is sufficiently specific under the pleading requirements as set forth in
Twombly and Iqbal. Therefore, the court finds that the Plaintiffs have properly plead sufficient

facts to find an insurable interest and, as the court has already concluded that the issue is ripe, the
Court denies the Motion to Dismiss the Declaratory Judgment for the determination of whether
there is an insurable interest.
Other Sought Declaratory Judgments

The Plaintiffs additionally move the Court to address four other declaratory actions.
These declaratory judgments involve the increase in the cost of insurance, the ability of the
Plaintiffs to transfer the policies, and whether the Plaintiffs can be required to complete a form
listing any transfers of the trust. Even if there is standing for courts to hear a declaratory
judgment suit, the Declaratory Judgment Act "only gives a court the power to make a declaration
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regarding the rights and other legal relations of any interested party seeking such declaration; it
does not require that the court exercise that power." Step-Saver Data Sys., Inc., 912 F.2d at
646-47 (internal quotation marks and citations omitted).
The Court declines to take up the remaining issues about which the Plaintiffs seek a
declaratory judgment. The Court is not persuaded that the same evidentiary concerns mentioned
in regards to the determination of whether there is an insurable interest exists here. Nor is the
Court convinced that it could construct a declaratory judgment that could be efficiently enforced.
For these reasons, the Court grants the Defendants' Motion to Dismiss the Declaratory Judgment
for the other requested relief.
Breach of Good Faith and Fair Dealing (Claim VII)

The Plaintiffs contend that PHL breached an implied covenant of good faith and fair
dealing with the trusts that were issued from Delaware, California, Texas, and New Jersey.
("Independent Implied Covenant Claim Plaintiffs"). The Defendants argue that in Delaware,
California, Texas, and New Jersey a good faith and fair dealing claim is only ripe once policy
benefits are due. (D.I. 137 at 48). The Defendants further argue that, "[Independent Implied
Covenant Claim] Plaintiffs attempt to side-step this requirement by alleging that Phoenix
breached the implied covenant by increasing the cost of insurance and making the business
decision to not ever pay benefits." Id. Finally, the Defendants argue that the Independent
Implied Covenant Claim Plaintiffs are merely repackaging their breach of contract claim. The
Independent Implied Covenant Claim Plaintiffs disagree, and argue that the breach of the
covenant of good faith and fair dealing may be ripe prior to the time when the policy benefits are
due.

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The Court finds that the breach ofthe covenant of good faith and fair dealing claims are
simply the repackaged breach of contract claims. For there to be a breach, the Independent
Implied Covenant Claim Plaintiffs must "identify a specific implied contractual obligation that
has allegedly been violated." PHL Variable Ins. Co., 2013 WL 6869803 at* 8 (internal
brackets and ellipses omitted). "General allegations of bad faith conduct are not sufficient."
Kuroda v. SPJS Holdings, L.L.C., 971 A.2d 872, 888 (Del. Ch. 2009). "Moreover, rather than

constituting a free floating duty imposed on a contracting party, the implied covenant can only be
used conservatively to ensure the parties' reasonable expectations are fulfilled." !d. (internal
quotation marks omitted). Here the Independent Implied Covenant Claim Plaintiffs have failed
to identify any such obligations. Instead, the Independent Implied Covenant Claim Plaintiffs
have only generally stated that the Defendants breached the covenant of good faith and fair
dealing by either not paying death benefits or causing policyholders to lapse or surrender their
policies in bad faith. (D.I. 130 at 226-28). The Court refuses to read in such obligations into
the contract without any allegations that the parties intended for such obligations to be part of the
contracts. Thus, Claim VII is dismissed.
Promissory Estoppel (Claim VIII)

A subset of the Plaintiffs seek to enforce any policies declared void through the equitable
doctrine of promissory estoppel. ("Promissory Estoppel Plaintiffs") !d. at 228-29. The
Promissory Estoppel Plaintiffs allege that "PHL will be unjustly enriched by millions of dollars,
and the Promissory Estoppel Plaintiffs will be unduly penalized, if the terms of the Promissory
Estoppel Plaintiffs' Policies and/or PHL's promise to comply with its obligations under those
Policies are not enforced." (D.I. 130 at 229). The parties disagree as to whether policies void
ab initio can be enforced under a promissory estoppel theory.

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"Certain agreements ... are so egregiously flawed that they are void at the outset. These
arrangements are often referred to as void ab initio. . . . A court may never enforce agreements
void ab initio, no matter what the intentions of the parties." Dawe, 28 A.3d at 1067 (quotation
marks omitted). 1 Therefore, as a contract that is void ab initio may not be enforced equitably
through estoppel, Defendants' Motion to Dismiss is granted as it pertains to this claim.
California's Unfair Competition Law (Claim X)

Plaintiffs additionally claim that Phoenix violated California's Unfair Competition Law.
("CUCL") (D.I. 130 at 232, 230). The California Supreme Court has held that "the [C]UCL
reaches any unlawful business act or practice committed in California." Sullivan v. Oracle
Corp., 51 Cal. 4th 1191, 1208 (2011). However, California has a presumption against
extraterritorial application. Id. For the CUCL the California Supreme Court has determined
that, "Neither the language of the [C]UCL nor its legislative history provides any basis for

1

A Court's inability to breathe life into a void contract is universal for the state laws at issue in this case:

California: Contracts void ab initio may not be enforced and "receive no help from the courts." Yoo v. Robi, 126
Cal. App. 4th 1089, 1104, 24 Cal. Rptr. 3d 740, 750 (2005).
New Jersey: "Rescission voids the contract ab initio, meaning that it is considered 'null from the beginning' and
treated as if it does not exist for any purpose." First Am. Title Ins. Co. v. Lawson, 827 A.2d 230, 237 (N.J.
2003).
Florida: A contract that is void ab initio is unenforceable. Lopez v. Life Ins. Co. ofAm., 406 So. 2d 1155, 1159
(Fla. Dist. Ct. App. 1981) approved sub nom. Life Ins. Co. of Georgia v. Lopez, 443 So. 2d 947 (Fla. 1983).
Maryland: The doctrine of estoppel does not apply to contracts void ab initio. Beard v. Am. Agency Life Ins. Co.,
314 Md. 235, 259, 550 A.2d 677, 688 (1988).
Illinois: "The difference between a contract that is void ab initio and one that is merely voidable is that a voidable
contract can be ratified and enforced by the obligor, although not by the wrongdoer, while the void contract
cannot be." Illinois State Bar Ass'n Mut. Ins. Co. v. Coregis Ins. Co., 355 Ill. App. 3d 156, 164, 821 N.E.2d
706, 713 (2004) (internal quotation marks omitted).
Massachusetts: "When a contract is void ab initio, the contract may not be enforced, and the court will treat the
contract as if it had never been made." United States v. Mardirosian, 602 F.3d 1, 7 (1st Cir. 2010) (internal
quotation marks omitted)
Pennsylvania: "[T]he courts of this Commonwealth will not be used to enforce contracts which violate public
policy; such contracts are void and the law will have nothing to do with them." Am. Ass'n ofMeat Processors
v. Cas. Reciprocal Exch., 527 Pa. 59, 68,588 A.2d 491,496 (1991).
Texas: "A void agreement has no legal effect and cannot be rendered enforceable by other means, such as waiver,
quasi-estoppel, or ratification." Watts v. Pilgrim's Pride Corp., 2005 WL 2404111 (Tex. App. Sept. 30, 2005).

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concluding the Legislature intended the [C]UCL to operate extraterritorially. Accordingly, the
presumption against extraterritoriality applies to the [C]UCL in full force." Id. The California
Plaintiffs allege that because the policies were purchased in California, the CUCL should apply.
The Court disagrees. The policies were purchased prior to the alleged 2009 business decision
and thus are not part ofthe alleged misconduct. Instead, all of the alleged misconduct occurred
outside of California and therefore would not satisfy California's extraterritorial requirements.
Therefore, the Defendants' Motion to Dismiss this claim is granted.
Connecticut Unfair Competition Law (Claim IX)

Plaintiffs assert that the Phoenix violated the Connecticut Unfair Trade Practices Act.
("CUTPA") (D.I. 130 at 229-32). Specifically, the Plaintiffs allege that the Defendants violated
Connecticut General Statutes§§ 42-110a et seq. and§§ 38a-815 et seq.
The Defendants make three arguments. First, the allegation that Phoenix violated
subsection six is not ripe, because it "prohibits ' [u]nfair claim settlement practices,' which, by
definition, can only take place after the insured has died and a claim to the death benefit has been
submitted." (D.I. 137 at 47 (emphasis omitted)). The Court agrees. As a life insurance policy
by definition cannot be settled until after the death ofthe insured, a claim under§ 38a-816(6) is
not ripe until the claim has been settled. Second, the Defendants argue that there cannot be a
claim under§ 38a-816(1), because it would be based on the same fraudulent conduct underlying
the Plaintiffs' fraud and RICO claims, which Defendants argue is insufficient to state a claim.
The Plaintiffs respond that the CUTPA claim is not based on the fraud claim as it is not
necessary to plead fraud in order to plead a CUTPA claim. (D.I. 141 at 48). The Defendants
do not respond to this argument. (D.I. 142 at 23). The Supreme Court of Connecticut has
determined that "knowledge of falsity, either constructive or actual, need not be proven to
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establish a violation ofCUTPA." Kim v. Magnotta, 733 A.2d 809, 816 (1999). Therefore, the
Court finds the Defendants' argument here to be unpersuasive. Third, the Defendants argue that
damages are not properly plead because the Plaintiffs seek all premiums paid under the policies.
(D.I. 137 at 48). The Court disagrees. The Plaintiffs have properly set forth an amount of
damages and it is far too early at this stage to assess whether the evidence will be sufficient to
justify the amount of damages that the Plaintiffs are seeking.
Therefore, the Defendants' Motion to Dismiss the Plaintiffs' § 38a-816(6) is granted and
the Defendants' Motion to Dismiss the Plaintiffs' § 38a-816(1) claim is denied.
CONCLUSION

For the reasons above, the Court will GRANT IN PART and DENY IN PART the
Defendants' Motion to Dismiss the Second Amended Complaint (D.I. 136). An appropriate
order will be entered.

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