Life Share Collateral Holdings, LLC v. Albers et al

Filing 77

ORDER denying 66 Motion for Summary Judgment. (Written Opinion) Signed by Judge Joan N. Ericksen on July 1, 2013. (CBC)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Life Share Collateral Holdings, LLC
Plaintiff,
v.

Civil No. 11-3605 (JNE/JJK)
ORDER

Ronald Albers; Raymond Byron Whitaker,
an individual, d/b/a Easy Financial Software
& Solutions, LLC; Reginald Barnes;
Sterling Harris; and Volios Group, LLC,
Defendants.

Adam M. Simon, The Simon Law Firm, and Thomas H. Schaefer, Erstad & Riemer, appeared
for Plaintiff Life Share Collateral Holdings, LLC.
Eric N. Linsk, Eric C. Tostrud, Lockridge Grindal Nauen PLLP, appeared for Defendant Ronald
Albers.

The predecessor to Plaintiff Life Share Collateral Holdings, LLC (“LSCH”) entered into
a loan agreement with a trust. Pursuant to the loan agreement, LSCH’s predecessor loaned a
substantial amount of money to that trust, for which Defendant Ronald Albers signed a personal
guarantee, and those loan proceeds were used to purchase two large life-insurance policies on
Albers’s life. The loan was not repaid. In this lawsuit, LSCH seeks compensation for more than
$600,000 it alleges is owed to it by Albers as guarantor.
This case is before the Court on LSCH’s motion for summary judgment, where LSCH
asks this Court to enter judgment against Albers for the amount owed to it. Even though it is
undisputed that Albers signed the personal guarantee and defaulted on the loan agreement, the
Court denies LSCH’s motion because the undisputed evidence shows that LSCH’s predecessor
and LSCH participated in insurance fraud known as stranger-oriented life insurance, or STOLI,
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and the Court refuses to allow LSCH to recover sums from Albers when LSCH and LSCH’s
predecessor were part of the wrongdoing.
A STOLI scheme generally involves an elderly person with high net worth working with
speculators to purchase life insurance. Commonly, the elderly person is promised cash upon the
future sale of the policy or two years of free life insurance. The speculators provide financing to
purchase the policy, and that financing is secured by the policy. At the end of the policy’s twoyear contestability period, when the insurer can challenge the policy, the financing becomes due.
If the insured dies during the two-year contestability period, the financing is repaid from the
proceeds of the policy. If the insured survives the period, then the insured may pay the financing
and retain the policy or sell the policy on the secondary market and repay the financing from the
proceeds of the sale. Carton v. B&B Equities Grp., LLC, 827 F. Supp. 2d 1235, 1239 (D. Nev.
2011). In this case, the insured was Albers, and LSCH’s predecessor provided the financing to
purchase the high-value insurance policies on Albers’s life.
I.

BACKGROUND

The following facts are undisputed.
In 2008, Albers met with Defendant Sterling Harris to discuss Albers’s interest in
purchasing life insurance. Harris encouraged Albers to consider the life-settlement business,
where Albers would purchase a substantial life-insurance policy, hold it for at least two years,
and then sell it on the secondary market for a significant return. Harris told Albers he knew a
lender who would finance the premiums on the insurance policy. Harris and his co-broker,
Defendant Reginald Barnes, told Albers he would never have to pay back the loan financing the
insurance premiums because the loan would be repaid either from the proceeds of the insurance

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policy’s sale or from the policy’s death benefit if Albers died. Albers let Harris and Barnes go
forward with the life-insurance application.
Life Share Financial (“Life Share”), the premium-finance lender, sent Albers the
documents creating the Ronald Albers 2008 Family Irrevocable Trust (“Trust”) with tabs
indicating where Albers should sign. Albers discussed the creation of the Trust with David
Simon, who represented that he was a lawyer for Life Share, and David Simon indicated that
Life Share would only loan money to a trust and that the Trust would be created at Wells Fargo.
The Trust was formed on November 7, 2008.
Harris, Barnes, and a general insurance agent decided Albers should apply for life
insurance through Lincoln National Life Insurance Company (“Lincoln”), and an application
signed on November 12, 2008 was submitted to Lincoln. The first part of the application
reported Albers’s annual income and net worth—both of which were grossly inflated—and
Albers asserts he did not fill out or sign that portion of the application. Another portion of the
application, the Insured & Owner Premium Financing Questionnaire, included an
acknowledgment that Albers expected to keep the life insurance policy for at least five years and
that Albers had not had any discussions about eventually selling the policy. That questionnaire
also asked if the life insurance policy was the only collateral for the loan, and Albers
acknowledged that a Personal Guaranty acted as additional collateral. Albers does not deny that
he filled out and signed the questionnaire.
Around this time, Albers had several telephone conversations with David Simon and
Lawrence McTernan, a managing partner at Life Share, about the premium-finance loan from
Life Share; Albers was told that Life Share would pay the premiums on the life-insurance
policies for two years and could pay for an additional two years almost automatically. On

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November 17, 2008, McTernan signed Lincoln’s Premium Financing Lender Certification. In
that document, McTernan represented to Lincoln that Life Share understood that Lincoln “does
not want to issue any life insurance policies where any of the parties are considering, or actually
intend, the eventual transfer of the life insurance policy to a life settlement company or other
investors.” (Dkt. 72-7 at 3.)
On November 28, 2008, Lincoln issued two $10 million policies (“Policies”) to the Trust
insuring the life of Albers. The Policies contained incontestability provisions, where Lincoln
agreed that it would not contest the Policies after they had been in force for two years.
In early December 2008, Adam Simon and David Simon received Albers’s 2006 and
2007 tax returns and life-insurance applications. Albers’s 2006 and 2007 tax returns show an
income of approximately $143,000 and $63,000, respectively. In contrast, his annual earned
income as reported on his life insurance application was $250,000.
On December 16, 2008, the Trust as the borrower, Life Share as the lender, and Albers as
the insured entered into the Loan and Security Agreement (“Loan Agreement”). In the Loan
Agreement, Albers represented that he had a net worth exceeding $5 million, that the
applications for life insurance were correct, that he understood the Loan Agreement and the
documents relating to the Policies, and that he had sought out his own legal advice with respect
to the Loan Agreement. The Loan Agreement included a Personal Guaranty, where Albers
agreed to be responsible for 25% of the sums that were due under the Loan Agreement. 1 Albers
asserts that the Loan Agreement was presented to him on a take-it-or-leave-it basis.
Also on December 16, 2008, the Trust requested that Life Share disburse the loan
proceeds. That same day, Life Share sold the Loan Agreement to Gesher, LLC—whose sole and
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The Personal Guaranty is to be interpreted in accordance with the laws of Minnesota.
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managing member is David Simon. At some point, Gesher assigned all of its rights, title, and
interest in the Loan Agreement to LSCH. The sole and managing member of LSCH is David
Simon.
In late 2010 and early 2011, multiple emails between and among David and Adam
Simon, Sterling Harris, Reginald Barnes, Lawrence McTernan, Ryan McTernan, and individuals
employed by life-settlement companies evidence the efforts of David and Adam Simon, Harris,
and Lawrence and Ryan McTernan to sell the Policies. 2 During that time, David and Adam
Simon sent applications to Albers to sell the Policies; one of the applications was from Ashar
Group, a life-settlement company. The Ashar application asked several questions about Albers’s
intent in obtaining the Policies; David Simon encouraged Albers to answer no to the question of
whether Albers had arranged to sell or transfer the Policies to a third party when Albers procured
the Policies. Albers avers he was nervous about this question because from the beginning the
plan had been to sell the Policies after two years.
The Policies were never sold on the secondary market. 3 Eventually, Albers was
informed that Life Share would not make any more premium payments on the Policies,
and the Policies lapsed for lack of payment in April and July 2011.
In November 2011, David Simon, acting as an attorney for LSCH, sent Albers a letter
stating, “Our client has instructed us to commence litigation with regard to the [Life Share]

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In one email, David Simon informed Ryan McTernan, a person employed by a
company named Madison One Associates, that Madison One should pay the premium on
one of the Policies because “Gesher never wanted to place” that Policy. (Dkt. 72-2 at 29.)
The record shows that Ryan McTernan and Lawrence McTernan worked at Madison One
in 2010 and 2011. And an April 2011 email stated that “Lawrence McTernan/Madison
One Associates will sign off as broker for the sale of the Albers policy.” (Dkt 72-2 at
120.)
3

Albers’s increased life expectancy was one reason the Policies were not sold.
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premium finance loan. In order to help mitigate your liability, our client is willing to . . . accept
an assignment of your claims against Reginald Barnes, Sterling Harris,” and others. Albers
signed the enclosed assignment of claims form and returned it. At some point, Albers had a
telephone conversation with David Simon, where Simon told Albers that if Albers cooperated,
LSCH would not accuse Albers of fraud. David and Adam Simon also visited Albers at his home
in Texas, Albers told them that his signature had been forged on the Lincoln application, and
they agreed that there was a discrepancy between the signature on the application and Albers’s
actual signature.
LSCH then commenced a lawsuit against Albers, Barnes, Harris, and others. LSCH
moved for summary judgment on Count I of the Third Amended Complaint, which is only
alleged against Albers and asserts default on the Loan Agreement and Personal Guaranty.
II.

ANALYSIS

Summary judgment is proper “if the movant shows that there is no genuine dispute as to
any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
56(a). In determining whether summary judgment is appropriate, a court must look at the record
and any inferences to be drawn from it in the light most favorable to the nonmoving party.
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
Albers argues that that summary judgment in favor of LSCH is not appropriate because
the doctrine of in pari delicto bars LSCH’s recovery against Albers. The doctrine of in pari
delicto is a defense embodying the principle “that a plaintiff who has participated in wrongdoing
may not recover damages resulting from the wrongdoing.” Grassmueck v. Am. Shorthorn Ass’n,
402 F.3d 833, 837 (8th Cir. 2005) (quotation omitted); see In re Senior Cottages of Am., LLC,
482 F.3d 997, 1004 (8th Cir. 2007). “One purpose of the doctrine is to prevent the courts from

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getting thrust into the position of finding facts where the parties have devised a scheme to
deceive outsiders.” Christians v. Grant Thornton, LLP, 733 N.W.2d 803, 814 (Minn. App. 2007)
(quotation omitted); see Kansas City Operating Corp. v. Durwood, 278 F.2d 354, 358 (8th Cir.
1960) (“Ordinarily one who participates in a conspiracy to defraud third persons is regarded as
morally delinquent and not entitled to restitution from another participant.” (quotation omitted)).
The doctrine is applied to “parties to an illegal contract” because “[g]enerally anyone who
engages in a fraudulent scheme forfeits all right to protection, either at law or in equity.” State v.
AAMCO Automatic Transmissions, Inc., 199 N.W.2d 444, 448 (Minn. 1972) (quotation omitted).
“Minnesota courts will not apply the doctrine to defeat the performance of a contract which was
in itself not illegal either on its face or in its enforcement.” Katun Corp. v. Clarke, 484 F.3d 972,
978 (8th Cir. 2007) (quotation omitted). Consequently, if the contract was “not part of an illegal
scheme,” the doctrine of in pari delicto will not apply. Id. The doctrine can apply even though no
injury to an outside party has been shown. Long v. Smead Mfg. Co., 383 N.W.2d 452, 455 (Minn.
App. 1986).
The Court concludes that the doctrine of in pari delicto bars LSCH’s attempt to enforce
the Personal Guaranty against Albers. Albers has presented undisputed facts that suggest that
Albers and the predecessor to LSCH (Life Share) and its agents (Lawrence McTernan and David
Simon) were involved in a scheme to defraud Lincoln. David Simon aided in the creation of the
Trust to which Life Share loaned money, told Albers that Life Share would pay the premiums on
the Policies for the first two years, assisted in the process of finding a purchaser for the Policies
after the Policies’ two-year contestability provisions expired, and encouraged Albers to falsely
assert on an application for Ashar Group that Albers had not intended to sell the Policies to a
third party when Albers purchased them. Lawrence McTernan signed Lincoln’s Premium

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Financing Lender Certification in November 2008, where he acknowledged that Lincoln did not
want to issue life-insurance policies to parties who were considering the transfer of the policies
to a life-settlement company. However, an April 2011 email sent to an individual at a lifesettlement company states that Lawrence McTernan—now working for Madison One
Associates—would sign off as a broker on the sale of the Policies. Life Share also had Albers’s
2006 and 2007 tax returns and his Lincoln life-insurance application before the Loan Agreement
was signed, and those documents show a vast discrepancy in Albers’s annual income as reported
to Lincoln and as reported on his tax returns. Albers himself did not deny filling out and signing
the Lincoln Insured & Owner Premium Finance Questionnaire, where Albers asserted that he
expected to keep the policy for at least five years and where he stated that he had not had any
discussions about the eventual sale of the Policies. And crucial to the scheme to defraud Lincoln
was the Loan Agreement, of which the Personal Guaranty is part, because the Loan Agreement
made the purchase of the Policies possible. The Loan Agreement contained the false assertions
that the life insurance applications were correct and all documents relating to the Policies were
correct. By its predecessor’s involvement—and the involvement of its current sole and managing
member, David Simon—in a fraudulent scheme, LSCH has forfeited the right to enforce the
Personal Guaranty against Albers.
Based on the files, records, and proceedings herein, and for the reasons stated above, IT
IS ORDERED THAT:
1. LSCH’s Motion for Summary Judgment [Docket No. 66] is DENIED.
Dated: July 1, 2013
s/Joan N. Ericksen
JOAN N. ERICKSEN
United States District Judge

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