The Thomas D. Philipsborn Irrevocable Trust dated July 10, 2005 v. Avon Capital, et al.
Filing
213
MEMORANDUM OPINION AND ORDER Signed by the Honorable Harry D. Leinenweber on 3/12/2015:Mailed notice(wp, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
THE THOMAS D. PHILIPSBORN
IRREVOCABLE INSURANCE TRUST,
dated July 10, 2005, and ANDREW
I. PHILIPSBORN, as Trustee on
Behalf of THE THOMAS D.
PHILIPSBORN IRREVOCABLE
INSURANCE TRUST, dated July 10,
2005,
Plaintiffs,
v.
AVON CAPITAL, LLC and DONALD
TRUDEAU, BENISTAR, LTD., and
BENISTAR ADMIN SERVICES, INC.,
Defendants.
and
AVON CAPITAL, LLC.
Third-Party Plaintiff,
v.
FINANCIAL LIFE SERVICES, LLC,
Third-Party Defendant.
and
FINANCIAL LIFE SERVICES, LLC,
Fourth-Party Plaintiff,
v.
AVON CAPITAL, LLC, THOMAS
PHILIPSBORN and ANDREW
PHILIPSBORN,
Fourth-Party Defendants.
Case No. 11 C 3274
Hon. Harry D. Leinenweber
MEMORANDUM OPINION AND ORDER
I.
BACKGROUND
In 2005, as part of his estate planning, Thomas Philipsborn
created the Thomas Philipsborn Irrevocable Insurance Trust (the
“Trust”), with Andrew Philipsborn as the Trustee.
The idea was
for the Trust to purchase policies of insurance on Thomas’ life
with borrowed funds and after holding them for the minimum period
of time, which was then two years, sell them to third parties,
hopefully, at more than their cash value.
The process is known
as a “Life Settlement.”
In pursuance of this idea, in 2005, the Trust purchased
three insurance policies:
one from American General Insurance
Co. in the amount of $5 million; a second from Transamerica
Occidental Life Insurance Company in the amount of $10 million;
and a third from AXA Equitable Life Insurance Company in the
amount of $5 million (the “Policies”).
The Policies had been
purchased with funds borrowed from Coventry Capital (“Coventry”),
a firm specializing in life settlements.
In 2007, as the loans with Coventry were coming due, the
Trustee
sought
offers
from
third
parties
to
purchase
the
policies. He received an offer from defendant Avon Capital, LLC,
(“Avon”)
to
purchase
the
three
policies
for
the
sum
of
$4,550,000, of which $3,044,838 was needed to pay off the loans
from Coventry, which would have netted the Trust the sum of
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$1,505,162. Avon, who considers itself a broker, was represented
in the negotiations by the Defendant, Donald Trudeau (“Trudeau”).
While no specific agreement between the parties was executed, the
parties considered that they had an agreement to that effect.
As
it
turned
out,
the
American
General
policy
had
insufficient equity to justify its maintenance so that Avon
elected to allow the policy to be foreclosed by Coventry.
Avon
had obtained an agreement on the part of Financial Life Services,
LLC (“FLS”) to purchase the remaining two policies.
licensed
life
settlement
provider
that
FLS is a
specializes
in
the
acquisition of life insurance policies encumbered with loans.
Avon was not so licensed so it could have had trouble reselling
the policies in some states that required licensing for life
settlements.
Avon paid the net owed on the American General
policy and directed the Trustee to execute the appropriate
documents to transfer the other two policies to Financial Life.
The two policies were then transferred to Financial Life.
There
apparently
were
no
problems
associated
with
the
transfer of the Transamerica policy, but the documents that were
sent to the Trustee with respect to the AXA policy showed a
purchase price of only $600,000 rather than the approximate
$1,600,000 that was due under the Agreement with Avon. Financial
Life paid off the policy loan to Coventry, and paid the balance
left to the Trustee, which left approximately $820,000 still due
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the Trustee from Avon under the agreement.
FLS subsequently
transferred the AXA policy to Life Trading, a FLS subsidiary, who
subsequently
transferred
the
policy
to
Life
Partners
for
$950,000.
When the Trustee received the transfer papers indicating
that the purchase price of the AXA policy to Financial Life was
only $600,000, an inquiry was made to Avon and Trudeau about the
purchase price. Trudeau stated that this price to FLS was agreed
upon in order to get the loan to Coventry paid, and that FLS had
agreed with Avon that FLS would transfer the policy to Avon for
the price of $660,000 (110% of the purchase price) and then Avon
would resell the policy to a third party in order to compensate
the Trust in accordance with their Agreement.
However, FLS
either welshed on the deal or Avon was not timely in exercising
its
repurchase
rights
or,
as
FLS
contended,
the
right
to
repurchase rested solely with the Trust, which did not exercise
the right to repurchase.
As a result of the foregoing, Philipsborn has sued Avon and
has also sued Trudeau and two other companies, Benistar, Ltd.,
and Benistar Admin Services, Inc., as undisclosed principals.
Avon has, in turn, sued FLS and FLS has turned around and sued
Avon, Thomas Philipsborn and Andrew Philipsborn, the Trustee.
Each party has filed Motions for Summary Judgment.
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II.
A.
DISCUSSION
The Trust’s Motion Against Avon
The Trust’s Motion against Avon is pretty straightforward:
Avon agreed to pay $4,500,000 for the three policies and the
payments came up almost $819,609 short. Trudeau’s testimony does
not dispute this.
So the Motion for Summary Judgment is granted
in favor of the Trust and against Avon.
B.
The Avon, Trudeau and Benistar
Motions Against the Trust
Avon’s Motion is denied for the previously stated reasons.
The Motions, however, for Trudeau and the two Benistars against
the Trust require more discussion.
The Trust’s claim that
Trudeau and the two Benistars are undisclosed principals is based
mainly on the testimony of William Liu (“Liu”), a joint venturer
with one of the Benistars, who claimed that he was to join with
Benistar in purchasing the policies from Avon.
Lui wrote in an
e-mail that Benistar was to be a purchaser based on information
he
obtained
from
Trudeau.
He
later
softened
this
in
his
deposition testimony but the jury is entitled to hear both
versions.
Trudeau was the President of Benistar and as such
could act in its behalf.
Therefore, Benistar’s Motions for
Summary Judgment are denied.
The Motion for Trudeau is more complicated because his role
was disclosed to the Trust.
The Trust contends that he can be
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held liable because he was “an active participant” in violating
a duty to it, citing Merrill Tenant Council v. U.S. Department of
Housing and Urban Development, 638 F.2d 1086 (7th Cir. 1981). In
addition, when the Trust became concerned wither Avon may be
involved with “nefarious” elements, Trudeau gave his personal
references in order to show that Avon was on the up and up.
is enough to make it a jury issue.
This
The Motion of Trudeau and the
two Benistars is denied.
C.
1.
FLS Motions
Motion Against the Trust and Thomas Philipsborn
FLS’ Motion against the Trust and Thomas Philipsborn seeks
judgment on its claim for attorneys’ fees incurred in defending
the third party claim brought against it by Avon.
It also claims
that it may suffer damages if the AXA policy is contested and
voided
because
application.
of
alleged
misrepresentations
in
the
policy
Its argument is that the Trust entered into a
contract to sell the AXA policy to it for $600,000 which it
specifically agreed was for “fair value.”
Section
20
of
the
Agreement
Also, the Trustee in
acknowledged
that
“This
Agreement . . . replaces any prior agreement which may have been
made, either express or implied, by or between the parties with
respect to the subject matter hereof.” Its current position that
the $600,000 was inadequate violates its acknowledgment that
$600,000 was “fair value.”
The fact that the Trust contends in
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this Motion that Avon owes it money under its prior agreement,
according to FLS violates that above quoted provision.
Because
the Trust sued Avon on the prior Agreement, it follows that the
Trust contends that the prior agreement with Avon is still in
effect.
FLS has incurred attorneys’ fees in defending the Third
Party Complaint filed against it by Avon.
The first argument, that the Trust’s statement that the
$600,000 price was fair thus preventing it from claiming more
money from Avon does not fly.
The Trust certainly could agree
that a specific price was fair but still contend that because
another person promised it more money, it has a viable claim for
the additional money promised it, even though it exceeds the
current fair value, the second point has more validity because it
arguably
follows
that
a
denial
that
there
was
a
second
contractual promise would prevent the Trust from filing a suit
against Avon based on that second contractual promise.
However,
the Third Party Complaint bought against it by Avon is based, at
least
in
part,
and
perhaps
in
its
entirety,
on
a
second
undertaking of FLS directly with Avon in which FLS allegedly
agreed to sell the policy to Avon for $660,000.
this
third
estoppel:
party
that
claim
against
FLS
by
Avon
The basis for
is
promissory
FLS made a promise to Avon that it could
repurchase the policy for 110% of the price FLS was paying the
Trust and Avon asserts that the failure to live up to this
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promise cost Avon the profits that it expected to obtain by
reselling the AXA policy.
With respect to this claim Avon
asserts that there was no contract: only an unambiguous promise.
Therefore, arguably, the claim of Avon is not based on an
outstanding competing contract between it and the Trust, but
based on this unambiguous promise.
In
regard
to
its
claim
for
damages
for
alleged
misrepresentations in the policy application, damages at this
point would be completely speculative. First, the contestability
period for the policy has expired. Lauer v. American Family Life
Ins. Co., 199 Ill.2d 384, 388 (2002)(quoting 215 ILCS 5/224(O).
Furthermore, FLS is no longer the owner of the policy, it having
transferred it to Life Trading who in turn transferred the policy
to Life Partners.
Any claims for damages at this point would be
wholly speculative.
The Motion for Summary Judgment is therefore denied.
The
Trust and Thomas Philipsborn’s Motion for Summary Judgment is
granted.
2.
Motion Against Avon
This leaves the Motion for Summary Judgment of FLS against
Avon and Avon’s Motion for Summary Judgment against FLS.
As
stated above, since Avon had no written contract between itself
and
FLS
it
is
now
asserting
a
promissory
estoppel
claim
contending that FLS made an unambiguous promise to allow Avon to
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buy the policy from FLS after FLS completed the purchase from the
Trust for 110% of the purchase price.
the promise was not unambiguous:
However, as FLS points out
because the repurchase rights
were, under the contract between FLS and the Trust, given to the
Trust, not Avon.
Avon had to be aware of this provision because
it forwarded the purchase contract to the Trust and told it to
execute the agreement in spite of its provision. The inescapable
conclusion is that the “promise” was, at best, ambiguous.
The
subjective
not
understanding
of
one
party
of
a
promise
is
unambiguous if this understanding is not shared by the other
party.
Here the conduct of the parties showed a lack of
understanding.
Whatever the promise was to Avon, a promise was
reduced to writing in the agreement drafted by FLS which was sent
to Avon and in turn sent by Avon to the Trust.
Thus, we have a
classic ambiguity which prevents Avon from relying on promissory
estoppel.
Yardley v. Yardley, 484 N.E.2d 873, 879 (2nd Dist.
1985). FLS’ Motion for Summary Judgment is granted against Avon.
Avon’s Motion for Summary Judgment is denied.
III.
CONCLUSION
For the reason stated herein, the Court rules as follows:
1.
The Trust’s Motion for Summary Judgment against Avon is
granted;
2.
The Motions for Summary Judgment against the Trust by
Avon, Trudeau and Benistar are denied;
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3.
FLS’ Motion for Summary Judgment against the Trust and
Thomas Philipsborn is denied;
4.
The Trust and Thomas Philipsborn’s Motion for Summary
Judgment against FLS is granted;
5.
FLS’
Motion
for
Summary
Judgment
against
Avon
is
granted; and
6.
Avon’s Motion for Summary Judgment against FLS is
denied.
IT IS SO ORDERED.
Harry D. Leinenweber, Judge
United States District Court
DATE: 3/12/2015
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