Estate of Phyllis M. Malkin v. Wells Fargo Bank, N.A.

Filing 174

ORDER DENYING 118 MOTION TO DISMISS. Signed by Judge Marcia G. Cooke on 1/11/2019. See attached document for full details. (smz)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 17-23136-Civ-COOKE/LOUIS
ESTATE OF PHYLLIS M. MALKIN,
By its Personal Representative, Toni Ellen Guarnero,
Plaintiff,
vs.
WELLS FARGO BANK, N.A.,
as Securities Intermediary, and BERKSHIRE
HATHAWAY LIFE INSURANCE
COMPANY OF NEBRASKA,
Defendants.
________________________________________/
ORDER DENYING MOTION TO DISMISS
THIS MATTER is before me on Defendant Berkshire Hathaway Life Insurance
Company of Nebraska’s Motion to Dismiss the Amended Complaint (“Motion”) (ECF No.
118). The Motion is fully briefed and ripe for review. For the reasons set forth herein, the
Motion is denied.
I. BACKGROUND
I recently observed in a separate matter that “[c]ases involving stranger-originated
life insurance (or ‘STOLI’) policies usually involve the same set of facts.” Wilmington Tr.,
N.A. v. Lincoln Benefit Life Co., 2018 U.S. Dist. LEXIS 162010, at *2 (S.D. Fla. Sept. 20,
2018). That is particularly true here. The policy at issue in this case was one of three policies
taken out on the life of Phyllis Malkin. One of those policies has already been the subject of
litigation before Judge Beth Bloom in the Southern District of Florida, Sun Life Assurance Co.
of Canada v. U.S. Bank Nat’l Ass’n, 2016 U.S. Dist. LEXIS 4732 (S.D. Fla. Jan. 13, 2016),
and Judge Bloom’s “thorough and well-reasoned orders” in that case were largely affirmed
by the Court of Appeals for the Eleventh Circuit. 693 F. App’x 838, 840 (11th Cir. 2017). In
the interest of judicial economy, I refer to Judge Bloom’s orders for the broader factual
context of this case, and recite only the allegations specific to the policy at issue here.
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On or about March 15, 2006, a life insurance application (the “Application”) was
submitted to American General Life Insurance Company (“American General”), seeking a
$4-million policy on the life of Phyllis Malkin. Am. Compl., ECF No. 88, at ¶ 82. Ms. Malkin
was in her mid-seventies at the time, and was retired and living in Aventura, Florida, with
her husband. Id. at ¶¶ 68, 83. The Application identified the “Phyllis Malkin Insurance
Trust” (the “Malkin Trust”) as the proposed owner and sole beneficiary of the Policy, and it
identified Wilmington Trust Company in Delaware as the trustee of the Malkin Trust. Id. at
¶ 84. American General subsequently issued a policy to the Malkin Trust in Delaware, with
a face amount of $4 million (the “Policy”). Id. at ¶ 85. The Policy states: “THIS IS A
DELAWARE CONTRACT.” Id. at ¶ 86. On March 17, 2006, Wilmington Trust Company
signed a form titled “Policy Acceptance and Amendment of Application,” by which it
“acknowledge[d] receipt and acceptance of the [P]olicy” in Delaware. Id. at ¶ 87. It is
alleged that Ms. Malkin was never shown or given a copy of either the completed
Application or the Policy itself. Id. at ¶ 88.
Around the time the Policy was issued, a sub-trust to the Malkin Trust was also
created (the “Sub-Trust”). Id. at ¶ 89. The Sub-Trust entered into a non-recourse premium
finance agreement with Coventry First LLC (“Coventry”), whereby Coventry would pay
the premiums on the Policy during the two-year contestable period, and then take formal
ownership of the Malkin Trust, the Sub-Trust and the Policy after the contestable period
ended. Id. Through the terms of the Sub-Trust agreement and the financing agreement with
Coventry, all interests and assets in the Malkin Trust and the Sub-Trust, including any
interests or rights in the Policy, were assigned to Coventry. Id. at ¶ 90. Ms. Malkin did not
pay any of the premiums for the Policy. Id. at ¶ 91. Instead, the initial premium payment for
the Policy was paid by Coventry, and was sufficient to keep the Policy in effect for about 26
months. Id. at ¶ 92. When that period expired, Ms. Malkin executed documents formally
relinquishing to Coventry all rights, title and interest in the Policy, the Malkin Trust and the
Sub-Trust. Id. at ¶¶ 93–94.
On August 4, 2008, about two and one-half years after the Policy was issued,
Coventry and the Malkin Trust submitted to American General a request to change the
ownership and beneficiary of the Policy from the Malkin Trust to “U.S. Bank, NA, as
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Securities Intermediary,” “c/o Coventry First.” Id. at ¶ 95. On or about August 23, 2012,
the Policy was again transferred after Wells Fargo submitted to American General a request
to change the ownership and beneficiary of the Policy from “U.S. Bank, NA, as Securities
Intermediary,” to “Wells Fargo Bank NA, as Securities Intermediary.” Id. at ¶ 96. Along
with that request, Wells Fargo provided American General with written authorization to
permit Coventry to make inquiries about the Policy, and it requested that duplicate copies of
all Policy-related correspondence be sent to Coventry. Id.
Ms. Malkin passed away on September 13, 2014. Id. at ¶ 98. On or about October 17,
2014, Wells Fargo made a claim to American General for the Policy’s death benefits. Id. at ¶
99. On or about October 28, 2014, American General issued a check to Wells Fargo in the
amount of $4,013,976.47, as payment of the death benefits. Id. at ¶ 100. At some point
thereafter, Wells Fargo transferred that amount to Berkshire Hathaway Life Insurance
Company of Nebraska (“Berkshire”). Id. at ¶ 101; Mot., ECF No. 118, at p. 3.
Ms. Malkin’s estate (the “Estate”) brought this action against Wells Fargo on August
17, 2017. Compl., ECF No. 1. After learning that Berkshire had received the Policy’s death
benefits, the Estate sought and obtained leave to amend its Complaint and add Berkshire as
a defendant. Endorsed Omnibus Order, ECF No. 89. The Amended Complaint alleges two
causes of action against Wells Fargo and Berkshire. Am. Compl., ECF No. 88, at ¶¶ 104–12.
The first count, against both Defendants, is for recovery of the Policy’s death benefits
pursuant to Delaware’s insurable interest statute, Del. Code Ann. tit. 18, § 2704(b). Id. at ¶¶
104–09. The second count, also against both Defendants, is for recovery of the benefits
under a theory of unjust enrichment. Id. at ¶¶ 110–12.
In the instant Motion, Berkshire argues that both counts of the Amended Complaint
should be dismissed with prejudice. Mot., ECF No. 118, at pp. 3–5. Berkshire argues that
“[t]he Estate’s claims are barred because Ms. Malkin—on whose behalf the Estate is
asserting these claims—relinquished all of her rights and interest in the Policy.” Id. at p. 4.
Alternatively, Berkshire argues that count two, the unjust enrichment claim, should be
dismissed because “the Estate cannot allege that it has conferred any direct benefit on
Berkshire.” Id. at p. 5.

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II. LEGAL STANDARDS
A. Motions to dismiss
“Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain a ‘short and
plain statement of the claim showing that the pleader is entitled to relief.’” Ashcroft v. Iqbal,
556 U.S. 662, 677–78 (2009). “To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its
face.’” Id. at 678 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A district
court can generally consider exhibits attached to a complaint in ruling on a motion to
dismiss[.]” Hoefling v. City of Miami, 811 F.3d 1271, 1277 (11th Cir. 2016). The court can
also “consider a document attached to a motion to dismiss” if it is “(1) central to the
plaintiff’s claim and (2) undisputed.” Day v. Taylor, 400 F.3d 1272, 1276 (11th Cir. 2005).
B. Delaware’s insurable interest law
“Delaware law explicitly provides that an individual may not procure an insurance
policy on the life of another without an insurable interest in the insured’s life.” Sun Life,
2016 U.S. Dist. LEXIS 4732, at *51 (citing Del. Code tit. 18, § 2704(a)). An insurable
interest is defined, for persons who are not close relatives, as “a lawful and substantial
economic interest in having the life, health or bodily safety of the individual insured
continue, as distinguished from an interest which would arise only by, or would be
enhanced in value by, the death, disablement or injury of the individual insured[.]” Del.
Code tit. 18, § 2704(c)(2). The Delaware Supreme Court has held that “if a life insurance
policy lacks an insurable interest at inception, it is void ab initio because it violates
Delaware’s clear public policy against wagering.” PHL Variable Ins. Co. v. Price Dawe 2006
Ins. Tr., 28 A.3d 1059, 1067–68 (Del. 2011).
Delaware’s insurable interest statute also creates a right of action. Specifically, the
statute provides: “If the beneficiary, assignee or other payee under any contract made in
violation of this section receives from the insurer any benefits thereunder accruing upon the
death, disablement or injury of the individual insured, the individual insured or his or her
executor or administrator, as the case may be, may maintain an action to recover such
benefits from the person so receiving them.” Del. Code Ann. tit. 18, § 2704(b).
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C. Unjust enrichment
Under Delaware law, “[u]njust enrichment is ‘the unjust retention of a benefit to the
loss of another, or the retention of money or property of another against the fundamental
principles of justice or equity and good conscience.’” Nemec v. Shrader, 991 A.2d 1120, 1130
(Del. 2010) (quoting Fleer Corp. v. Topps Chewing Gum, Inc., 539 A.2d 1060, 1062 (Del.
1988)). “The elements of unjust enrichment are: (1) an enrichment, (2) an impoverishment,
(3) a relation between the enrichment and impoverishment, (4) the absence of justification,
and (5) the absence of a remedy provided by law.” Nemec, 991 A.2d at 1130.
III. DISCUSSION
In its Motion, Berkshire does not deny that the Policy at issue in this case was indeed
a STOLI policy—in other words, that it was “a speculative investment device that entail[ed]
gambling on the li[fe] of [an] elderly” person. Sun Life, 693 F. App’x at 840 (quoting
Sciarretta v. Lincoln Nat’l Life Ins. Co., 778 F.3d 1205, 1207–08 (11th Cir. 2015)). Nor does
Berkshire choose to “address whether . . . Delaware law applies to determine the validity of
the Policy.” Mot., ECF No. 118, at p. 3 n.2. Not denying that Delaware law applies,
Berkshire implicitly admits that the STOLI policy in this case was void ab initio, so that “no
insurance policy ever legally came into effect[.]” Price Dawe, 28 A.3d at 1067–68. Despite
these admissions, Berkshire believes that it—not the estate of the insured Ms. Malkin, nor,
apparently, the insurer American General—should keep the money that it received when
Ms. Malkin passed away.
Berkshire’s principal argument in support of its keeping the money is that “Ms.
Malkin decided to relinquish the . . . Policy in satisfaction of the loan” that she had received
from Coventry to pay the Policy’s premiums. Reply in Supp., ECF No. 126, at p. 2. Thus,
Coventry legally “acquired” the Policy, which eventually made its way to Berkshire. Id. In
line with that argument, Berkshire attaches to its Motion a copy of the release form in which
Ms. Malkin purported to “fully relinquish . . . all rights, interests, powers, privileges and
benefits created under or reserved to [her] in the Trust and Sub-Trust, including all assets of
the Trust estate and the Sub-Trust estate[.]” Mot., ECF No. 118, at p. 2. Berkshire then
proceeds to cite a host of cases for the uncontroversial proposition that a validly executed
release is legally binding. Id. at p. 5.
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What Berkshire is asking the Court to do is accept the very ruse that was already
rejected by Judge Bloom in a related case. In determining that one of the other two policies
on Ms. Malkin’s life was a STOLI policy, Judge Bloom noted that Coventry had “dictated
every aspect of the transaction,” and that Ms. Malkin “was simply the conduit” for a wager
on her life. Sun Life, 2016 U.S. Dist. LEXIS 4732, at *64. One of the key aspects of the
transaction dictated by Coventry was that “[Ms.] Malkin was to satisfy her obligations
under the loan by either paying Coventry the balance of the loan, or ‘relinquishing to
[Coventry] all of [her] right, title and interest in, to and under [the insurance policies].” Id. at
*17. In other words, the ultimate transfer of the Policy from the insured to a third party was
the whole point of the scheme. See id. at *11 (“[n]early all the deals” organized by Coventry
and its partner Simba “were back-end deals where the insured later relinquished the policy
to Coventry”); Wilmington Tr., 2018 U.S. Dist. LEXIS 162010, at *2 (STOLI cases “usually
involve the same set of facts,” including “the third party acquir[ing] the policy when the
insured purposefully defaults on the loan”).
Delaware’s insurable interest law reflects the reality that the “payee” under a typical
STOLI policy is not the insured herself, but a third party to whom the rights under the
policy have been transferred or relinquished. Del. Code Ann. tit. 18, § 2704(b). It is precisely
in that situation that the statute creates a right of action, despite the fact that, as here, the
insured relinquished her contractual right to the policy’s benefits—indeed, despite the fact
the insurance contract was void ab initio, so the insured had no contractual right to
relinquish at all. See Price Dawe, 28 A.3d at 1067–68. Simply put, the statute reflects a policy
determination that it is better in such cases for the insurance money to wind up with the
insured’s loved ones than with the strangers who gambled on her life. Cf. Beard v. Am. Agency
Life Ins. Co., 550 A.2d 677, 686 n.3 (Md. 1988) (noting that Maryland’s nearly identical
statute imposes a “sanction” on those who receive payment of insurance proceeds despite
lacking an insurable interest).
Here, Berkshire argues that Ms. Malkin “expressly relinquished” not only her rights
under the insurance contract, but also “her right under section 2704(b).” Reply in Supp., ECF
No. 126, at p. 2. Berkshire contends that the “plain language” of the release form signed by
Ms. Malkin covered her right to bring suit under the statute. Id. at p. 6. The Court declines
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to interpret the release form in a manner that is so contrary to “Delaware’s clear public
policy,” Price Dawe, 28 A.3d at 1068—particularly where the form made no mention of the
statute, and where there is little reason to believe that Ms. Malkin even read the form before
signing it. See, e.g., Am. Compl., ECF No. 88, at ¶¶ 77–78 (the terms of the Coventry
contracts were “not negotiable,” and the forms Ms. Malkin signed were “blank”). To hold
that Ms. Malkin gave up her rights under Delaware’s insurable interest statute by signing a
“boilerplate, non-negotiable form[],” id. at ¶ 64, would allow entities like Coventry to defeat
the statute’s intent with the same type of “feign[ed] technical compliance” that characterizes
STOLI schemes in general. Price Dawe, 28 A.3d at 1074.
Berkshire fares no better in arguing for dismissal of the Estate’s alternative claim of
unjust enrichment. Berkshire’s sole argument for dismissal of count two is that Ms. Malkin
and the Estate conferred no “direct benefit” on Berkshire. Reply in Supp., ECF No. 126, at
pp. 8–9. Berkshire argues that such direct conferral is an element of unjust enrichment in
each of the three jurisdictions—Texas, Nebraska and Florida—whose law could plausibly
govern the Estate’s claim. Id. at p. 8 n.7. Berkshire does not, however, venture to pick which
one of those three bodies of law should apply, nor does it articulate any specific reason why
Delaware law should not apply, apart from saying “there is simply no scenario” in which it
could. Id. What is more, the Texas and Nebraska cases that Berkshire cites do not support
its reading of the law in those jurisdictions. See David O. Kemp, P.C. v. Nationwide Agribusiness
Ins. Co., 2012 WL 13019688, at *3 (N.D. Tex. June 12, 2012) (making no mention of direct
conferral, and noting that unjust enrichment can be construed as a claim for “money had
and received,” which is “less restricted and fettered by technical rules and formalities than
any other form of action” and is “solely” focused on “whether the defendant holds money,
which . . . belongs to the plaintiff”); Lamb v. ITT Corp., 2010 WL 376858, at *6 (D. Neb.
Jan. 26, 2010) (making no mention of direct conferral, and noting that unjust enrichment is
a claim of equity, which “is not a rigid concept” and “looks through forms to substance”).
In any event, Berkshire argues alternatively that “even if” Delaware law did govern count
two, the claim would still fail. Id. at p. 8.
Given this rather unhelpful briefing on the choice-of-law issue, the Court will
examine count two using the law under which it is brought—the law of Delaware. Under
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Delaware law, a claim of unjust enrichment requires a showing of: “ (1) an enrichment, (2)
an impoverishment, (3) a relation between the enrichment and impoverishment, (4) the
absence of justification, and (5) the absence of a remedy provided by law.” Nemec, 991 A.2d
at 1130. Taking the facts in the Amended Complaint to be true, see Iqbal, 556 U.S. at 678,
the Estate has sufficiently alleged that Berkshire was enriched, and the Estate impoverished,
by Berkshire’s unjustified retention of money to which the Estate is entitled. True,
Delaware’s insurable interest statute does provide a legal remedy, so the fifth element is
arguably lacking. But it is conceivable that if the Estate’s claim under count one failed, the
fifth element would then be met. The Estate argues that this is the proper function of an
alternative claim, Resp. in Opp’n, ECF No. 123, at p. 18, and Berkshire has provided no
compelling reason to hold otherwise.
IV. CONCLUSION
For all of the reasons set forth above, it is hereby ORDERED and ADJUDGED
that Defendant Berkshire Hathaway Life Insurance Company of Nebraska’s Motion to
Dismiss the Amended Complaint (ECF No. 118) is DENIED.
DONE and ORDERED in Chambers, in Miami, Florida, this 11th day of January
2019.

Copies furnished to:
Lauren Louis, U.S. Magistrate Judge
Counsel of record

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