The Penn Mutual Life Insurance Company v. Blumberg

Filing 95

MEMORANDUM OPINION. Signed by Chief Judge Deborah K. Chasanow on 8/20/10. (sat, Chambers)

The Penn Mutual Life Insurance Company v. Blumberg

Doc. 95

IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND THE PENN MUTUAL LIFE INSURANCE COMPANY v. JONATHAN S. BERCK, TRUSTEE OF THE MARVIN ROSENBLATT IRREVOCABLE TRUST, et al. : : : : : : Civil Action No. DKC 09-0578

MEMORANDUM OPINION Presently pending and ready for resolution in this case is Plaintiff's counterclaim. motion to strike or dismiss Defendant Berck's

(Paper 71).1

The issues are fully briefed and the

court now rules pursuant to Local Rule 105.6, no hearing being deemed necessary. For the reasons that follow, Plaintiff's

motion will be granted. I. Background A. Factual Background

This case involves a purported "stranger originated life insurance" scheme, commonly called a STOLI scheme. Plaintiff

The Penn Mutual Life Insurance Company alleges that sometime before February 21, 2007 STOLI plan promoters approached

The pending motions to seal filed by Plaintiff and Defendant Finfer (Paper 80 & 87), as well as the motion to disqualify filed by Defendant Finfer (Paper 79), are addressed in separate opinion.

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Dockets.Justia.com

Defendant Marvin Rosenblatt ("Rosenblatt").

(Paper 56 ¶ 18).

According to Plaintiff, Rosenblatt agreed with the promoters to apply for a life insurance policy to be issued by Plaintiff; the promoters would later sell the policy (or an interest in the policy) to an investor in the a secondary $6 market. life (Id.). insurance (Id.

Rosenblatt

subsequently

obtained

million

policy (the "Policy") from Plaintiff a few months later. at ¶ 35).

Plaintiff alleges that Rosenblatt then transferred

the Policy (or an interest in the Policy) to an investor whom Rosenblatt did not know prior to completing the application. (Id. at ¶ 46). material Plaintiff maintains that three individuals made and committed fraud in order to

misrepresentations

advance the scheme:

Rosenblatt, Defendant Jonathan Berck, the

current trustee of the Rosenblatt Trust, and Defendant Robert Finfer, the soliciting agent on the Policy.2 Defendant Berck contends that Plaintiff knew it possessed a potential claim against him at some time before Plaintiff's

complaint was brought in this action, but that Plaintiff delayed in bringing from the action until Berck. it received (Paper an 62, annual at premium In

payment

Defendant

17).

particular, Defendant Berck alleges that Plaintiff brought this

A detailed background of this case can be found in a previous memorandum opinion, at Paper 54. 2

2

action

on

"the

next

business

day"

after

accepting

Defendant

Berck's premium payment, which Defendant Berck also alleges is the final day of the Policy's "contestability period." 14). In Berck's view, by accepting its right payment to in (Id. at these [the

circumstances,

"Plaintiff

waived

challenge

Policy], Plaintiff is estopped to challenge [the Policy], and/or Plaintiff has ratified [the Policy]." B. Procedural Background (Id. at 17).

Plaintiff filed its original complaint on March 9, 2009, and the case was assigned to United States District Judge Peter Messitte. (Paper 1). On May 13, 2009, Plaintiff filed a two (Paper

count amended complaint, seeking declaratory judgments. 14).

This court allowed Plaintiff to file a second amended (Paper 56). The

complaint, which it did, on March 23, 2010.

new complaint added two new defendants, additional facts, and stated an additional cause of action for fraud. complaint, Plaintiff seeks a declaratory In its amended under 28

judgment

U.S.C. § 2201 as to its rights and obligations under the Policy and damages. (Paper 56). Berck filed an answer to the second amended (Paper

Defendant

complaint, as well as a counterclaim and cross-claims. 62). Defendant Berck's answer advances eleven

affirmative (Id. at

defenses, including waiver, estoppel, and ratification. 11-12).

The accompanying counterclaim seeks declarations that 3

Plaintiff (1) "has waived its challenge to the Policy, (2) is estopped from challenging the Policy, (3) has ratified the

policy, and (4) is, under Maryland law, "otherwise barred from challenging" the Policy. filed a motion to (Id. at 18). or Plaintiff subsequently Defendant Berck's

strike

dismiss

counterclaim. II.

(Paper 71).

The motion is now fully briefed.

Motion to Strike or Dismiss Plaintiff has moved under Rules 12(b), 12(f), and 8(c)(2)

of the Federal Rules of Civil Procedure and styles its motion as a "motion to strike or dismiss." (Paper 71). The court will A motion to

treat Plaintiff's motion as a motion to dismiss.

strike "is neither an authorized nor proper way to procure the dismissal of all or a part of . . . a counterclaim." 5C Wright

& Miller, Federal Practice & Procedure § 1382 (3d ed. 2004). Whatever the nomenclature, the central issue remains the same: whether the court can properly entertain Defendant

Berck's counterclaim.

The Declaratory Judgment Act states that

"[i]n a case of actual controversy within its jurisdiction . . . any court of the United States . . . may declare the rights and other legal relations whether or of any interested party is seeking sought." Circuit such 28 has

declaration, U.S.C. §

not

further added).

relief The

2201(a)

(emphasis

Fourth

further explained that a federal court may properly exercise jurisdiction where three criteria are met: 4 "(1) the complaint

alleges an actual controversy between the parties of sufficient immediacy and reality to warrant issuance of a declaratory

judgment; (2) the court possesses an independent basis for the jurisdiction over the parties (e.g., federal question or

diversity jurisdiction); and (3) the court does not abuse its discretion in its exercise of jurisdiction." Volvo Equip. N.

Am. v. CLM Equip. Co., Inc., 386 F.3d 581, 592 (4th Cir. 2004) (citing 28 U.S.C. § 2201; Cont'l Cas. Co. v. Fuscardo, 35 F.3d 963, 965 (4th Cir. 1994)). There is no dispute that the first and second requirements for the exercise of jurisdiction are met here. Thus, the

central issue is whether the court should use its discretion to hear the counterclaim. the normal principle their "In the declaratory judgment context, that federal courts to should adjudicate of

claims

within

jurisdiction

yields

considerations

practicality and wise judicial administration."

New Wellington

Fin. Corp. v. Flagship Resort Dev. Corp., 416 F.3d 290, 296 (4th Cir. 2005) (quoting Wilton v. Seven Falls Co., 515 U.S. 277, 287 (1995)). Accordingly, the court may, in the exercise of its

"broad discretion," S.C. Dept. of Health & Envtl. Control v. Commerce & Indus. Ins. Co., 372 F.3d 245, 260 (4th Cir. 2004), decline to exercise its jurisdiction and dismiss the action. Volvo Constr. Equip., as 386 it F.3d should 5 at 594. only A court to must be

cautious,

however,

decline

exercise

jurisdiction where there is a "good reason" to do so. particular, a court should normally entertain a

Id.

In

declaratory

action where the "relief sought (i) `will serve a useful purpose in clarifying and settling the legal relations in issue,' and (ii) `will terminate and afford relief from the uncertainty, insecurity, Fuscardo, Winchester and 35 controversy at Inc., of 965 15 giving rise to the proceeding.'" Ins. Cir. Co. v.

F.3d

(quoting F.3d 371,

Nautilus 375 (4th and

Homes,

1994)). are

"[C]onsiderations also significant.

federalism,

efficiency,

comity"

Aetna Cas. & Sur. Co. v. Ind-Com Elec. Co.,

139 F.3d 419, 422-23 (4th Cir. 1998). Defendant Berck offers little explanation as to how the counterclaim clarifies the parties' obligations, other than to state that the defenses and counterclaim stem from discrete

facts and law and that declaratory judgment counterclaims like this one are "commonplace." (Paper 81, at 7-9). Despite

Defendant Berck's assurances, his counterclaim will not assist in "clarifying and settling the legal relations in issue" or "terminate and afford relief" from the uncertainties leading to this dispute. Fuscardo, 35 F.3d at 965 (quotations omitted).

Nor does the counterclaim promote judicial efficiency, as it forces twice. the parties and the court to handle the same issues

For

example,

Defendant

Berck's

second

affirmative

defense contends that "Plaintiff's claims are barred in whole or 6

in part by the doctrine of waiver."

(Paper 62, at 11).

He also

seeks a declaration that "Plaintiff has waived its challenge" to the Policy. the same. (Paper 62, at 18). The two averments are one and

The other requested declarations similarly parallel (See Paper 82, at 4). This type of

affirmative defenses.

double pleading is not the purpose of a declaratory judgment. Aetna Cas. & Sur. Co. v. Quarles, 92 F.2d 321, 325 (4th Cir. 1937) (stating declaratory judgment is meant "to afford a speedy and inexpensive method of adjudicating legal disputes . . . and to settle legal rights and remove uncertainty and insecurity from legal relationships without awaiting a violation of the rights or a disturbance of the relationships."). Federal Rule of Civil Procedure Rule 8(c) also supports the conclusion that the counterclaim should be dismissed. provides: If a party mistakenly designates a defense as a counterclaim, or a counterclaim as a defense, the court must, if justice requires, treat the pleading as though it were correctly designated, and may impose terms for doing so. Rule 8(c)(2). The counterclaims constitute affirmative That rule

defenses. Rule 8(c).

Indeed, two of the defenses are listed by name in Therefore, the court might normally redesignate the

counterclaims as affirmative defenses, but Defendant Berck has

7

already

included

identical

defenses,

rending

redesignation

superfluous. Other courts agree that claims such as Defendant Berck's counterclaim should be dismissed. v. Greatbanc Trust Company, No. In Penn Mutual Life Ins. Co. 09 C 6129, 2010 WL 2928054

(N.D.Ill. July 21, 2010), for instance, the court dismissed two of the defendant's counterclaims for declaratory judgment that "mirror[ed] its affirmative defenses." Id. at *5. The court

explained that "counterclaims that mimic affirmative defenses are no less duplicative [than] counterclaims that mirror the plaintiff's request for declaratory relief." Id. at *5. See

also, e.g., Boone v. MountainMade Found., 684 F.Supp.2d 1, 12 (D.D.C. 2010) (listing cases supporting dismissal of duplicative counterclaims); Zytax, Inc v. Green Plains Renewable Energy,

Inc., No. H-09-2582, 2010 WL 2219179, at *8 (S.D.Tex. May 28, 2010) (dismissing declaratory United counterclaim v. duplicative 353 of

affirmative

defense);

States

Zanfei,

F.Supp.2d

962, 965 (N.D.Ill. 2005) (same, and noting that it is "well settled" that courts may dismiss such claims). may be situations where facially duplicative Although there counterclaims

should proceed, Defendant Berck has offered nothing to suggest that that is the case here.

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III. Conclusion For the foregoing reasons, Plaintiff's motion to strike or dismiss will be granted. A separate Order will follow.

/s/ DEBORAH K. CHASANOW United States District Judge

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