YERKES v. CESSNA AIRCRAFT COMPANY et al

Filing 54

OPINION FILED. Signed by Judge Renee Marie Bumb on 3/24/16. (js)

[Dkt. No. 39]
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
CAMDEN VICINAGE
ERIC NELS YERKES,
Plaintiff,
v.

Civil No. 14-5925
OPINION

CESSNA AIRCRAFT CO., et al.,
Defendants.
Appearances:
Melissa A. Bozeman
Oliver D. Griffin
Kutak Rock LLP
Two Liberty Place
50 S. 16th St., Suite 28B
Philadelphia, PA 19102
Attorneys for Plaintiff
Jeffrey W. Moryan
Susan Kwiatkowski
Connell Foley LLP
85 Livingston Ave.
Roseland, NJ 07068
Attorneys for Defendant Cessna
Aircraft Company
Michael J. Miles
Brown & Connery, LLP
360 Haddon Ave.
Westmont, NJ 08108
Joseph L. Ruby
Lewis Baach PLLC
1899 Pennsylvania Ave., NW
Suite 600
Washington, DC 20006
Attorneys for Defendants Certain
Underwriters at Lloyd’s, London

BUMB, UNITED STATES DISTRICT JUDGE:
This matter comes before the Court upon a motion seeking
leave to file an amended complaint.

Plaintiff Eric Nels Yerkes

(the “Plaintiff”) filed a complaint on September 23, 2014 in
this Court against among others, Cessna Aircraft Company
(“Cessna”), Underwriters at Lloyd’s of London and First Lincoln
Holdings, LLC.

[Dkt. No. 1.]

The complaint contained four

claims for breach of contract and a single claim for unjust
enrichment.

(Id.)

After two amendments, this Court dismissed

the Second Amended Complaint on June 25, 2015.

Now, Plaintiff

seeks leave to file a third amended complaint against Cessna, FL
Assignments Corp.,1 and the Insurers.2
motion below.

The Court addresses that

(Mot. to Am. Ex. 1 (Proposed Third Amended

Complaint (hereinafter “Prop. TAC at ___”).)
I.

BACKGROUND
Plaintiff’s Proposed Third Amended Complaint operates on

the same core facts as his previously dismissed claims, which
are summarized below, and borrowed largely from this Court’s

FL Assignments Corp. (“FL Assignments”) assumed all rights
and obligations of FEC, the parent company of ELNY. (Prop. TAC
at ¶ 52.) As such, FL Assginments is the current owner of
Plaintiff’s annuity. (See infra at 18.) Plaintiff mistakenly
named another entity as the owner of the annuity in its previous
complaints.
2 Plaintiff also names as defendants 100 anonymous “London
Market Companies.” (See Prop. TAC.)
1

2

previous statement of the facts with regard to the prior motion
to dismiss.
On August 18, 1981, Plaintiff sustained severe and
permanent injuries in a plane crash that occurred near the Grand
Canyon in Arizona. (Prop. TAC at ¶¶ 1, 13.) The plane in which
Plaintiff was injured was manufactured by Cessna, whose
insurance policy was underwritten by certain “companies
participating in the London insurance market,” including Lloyd’s
(collectively, Cessna’s “Insurers”). (See id. at ¶¶ 7, 13.)
Following the plane crash, Plaintiff filed suit against Cessna
and its Insurers in Arizona federal court. (Id. at ¶ 1.) The
parties resolved that suit by entering into a settlement
agreement, the terms of which were embodied in a Release and
Indemnity Agreement (“RIA”), as well as an Assignment Agreement,
both of which are alleged by Plaintiff to be dated April 1,
1986. (Id. at ¶ 13.) Under the settlement agreement, Plaintiff
was to receive a $125,000.00 lump-sum payout, as well as
periodic payments throughout his lifetime, which were to be
funded by an annuity carrying an ultimate value in excess of
$6,000,000.00. (Id. at ¶¶ 13-14.) The annuity was to be
purchased from Executive Life Insurance Company of New York
(“ELNY”) and assigned to First Executive Corporation (“FEC”).
(See id. at Ex. A.) Plaintiff has attached unexecuted and
undated copies of the RIA and Assignment Agreement to his
3

Proposed Third Amended Complaint, but Plaintiff avers that these
documents evidence the settlement agreement. (See id. at ¶ 13 &
Ex. A.)
Specifically, the RIA provides that:
In consideration of payment of $125,000.00 cash,
receipt of which is acknowledged by [Plaintiff], and
payment of periodic sums, [Plaintiff] releases
[Cessna] and its [Insurers], and all those related or
that may be related to them, from all claims, demands
and causes of action, known or unknown, arising out of
a Grand Canyon Airlines plane crash occurring August
18, 1981.
In consideration for this Release and an
Assignment Agreement, Cessna and [Lloyd’s], in
addition to payment of $125,000.00, agree to purchase
an annuity from [ELNY] to fulfill their obligation to
provide . . . periodic payments [to Plaintiff] . . . .
. . .
It is also understood and agreed that [Cessna]
and [Lloyd’s] will assign their obligation for these
periodic payments to First Executive Corporation as
set forth in the Assignment Agreement. This assignment
is accepted by [Plaintiff] . . . in full release of
Cessna and [Lloyd’s] with respect to these periodic
payments. [Plaintiff] acknowledges that once this
assignment is made Cessna and [Lloyd’s] are released
from the obligation to make such payments.
(Prop. TAC Ex. A 1-2 (emphasis added).)
Attached, and incorporated by reference, to the RIA is the
Assignment Agreement, which states:
In consideration of payment of a premium payment
by [Cessna’s Insurers], (“Assignor”) to [FEC], a
California Corporation (“Assignee”), Assignee assumes,
and Assignor assigns to Assignee, the liability of
Assignor to make periodic payments in the amounts and
at the times set forth in the Schedule of Payments
attached as Exhibit A, to [Plaintiff] . . . .
[Plaintiff] agrees that, by reason of such assumption

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and assignment, [Cessna’s Insurers are] fully released
from [their] liability to make all periodic payments.
(Id. at Ex. A, p. 6.) The Assignment Agreement purports to be a
“qualified assignment” under Section 130(c) of the Internal
Revenue Code. (See id. at ¶ 20 & Ex. A, p. 6.)
Plaintiff alleges that Cessna and/or its Insurers purchased
an annuity from ELNY. (Id. at ¶ 17.) Plaintiff received
structured settlement payments pursuant to this annuity
apparently from March 15, 1986 until August 8, 2013 (totaling at
least $788,000 by this Court’s calculation),3 when ELNY underwent
a restructuring and liquidation process. (Id. at ¶ 2; see also
id. at ¶ 23.) ELNY’s remaining assets were transferred to
Guaranty Association Benefits Company (“GABC”), which has been
responsible for managing assets and making payments on behalf of
ELNY. (Id. at ¶¶ 61-62.) On October 13, 2014, GABC sent a letter
to Plaintiff’s New Jersey residence informing him that, due to
the liquidation and restructuring of ELNY, Plaintiff’s total
payout on the annuity owned by FEC would be reduced by 43.54%,
bringing Plaintiff’s total future payout to $2,394,700. (See id.
at ¶ 67 & Ex. D, p. 1.)
Plaintiff traces this poor performance back to Cessna and
the Insurers.

Plaintiff alleges that Cessna and the Insurers

This amount is based upon the terms of the RIA but does
not include the $125,000.00 lump sum payment that Plaintiff
alleges he also received.
3

5

failed to disclose to Plaintiff one or more of the following
factors concerning the annuity that would be purchased:


The “present value” of the proposed annuity payments;



The discount rate used to calculate a “present value”
of the proposed annuity payments;



The actual cost to purchase the annuity;



The existence of any rebates or affiliations with the
issuer/broker, if any, affecting the purchase price of
the annuity;



The designated internal rate of return of the annuity
with underlying assumptions;



The mortality table valuations used for the annuity;



Plaintiff’s “rated age” or “impaired risk rating”; and



Insolvency risks associated with the assignee and
issuer, which were known or should have been known to
Cessna and/or the London Market Insurers at the time
of purchase.

(Id. at ¶ 19.)
Furthermore, Plaintiff alleges that information about ELNY,
and its parent company FEC, was known and available to Cessna
and the Insurers from various sources.

(Id. at ¶ 27.)

Plaintiff alleges that by way of such information, it could be
known that ELNY’s financial situation was unstable.

Plaintiff

points to the “primary (albeit, counterintuitive)” indicator:
ELNY’s rapid growth which outpaced industry averages.
28.)

(Id. at ¶

Plaintiff alleges that this rapid growth, without a

serious depletion of ELNY’s reported surplus or net worth should
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have been a “red flag” to Cessna or the Insurers.

(Id. at ¶

30.)
Due to its poor financial condition, Plaintiff next alleges
that to cover the high rates paid to policyholders and maintain
perceived profitability, “ELNY and FEC began to invest heavily
(Id. at ¶ 34.)

in high-risk assets called ‘junk bonds.’”

ELNY

also reduced policy reserves on its balance sheets through
“bogus reinsurance transactions and received from its parent
holding company, FEC, millions of dollars of surplus infusions
and loans.”

(Id. at 35.)

Plaintiff also points to many other

media and industry reports that Plaintiff alleges would have
shown the financial insolvency of ELNY.

(Id. at ¶¶ 38-39.)

Plaintiff alleges that in exchange for releasing his claims
against Cessna and the Insurers, a “special relationship”
between Plaintiff on the one hand and Cessna and the Insurers on
the other hand arose, and that those parties also owed him
fiduciary duties.

(Id. at ¶ 22.)

Plaintiff claims that by

failing to recognize the significant risk the precarious
financial condition of the annuity placed Plaintiff’s annuity
in, Cessna and the Insurers failed to act with reasonable care
and breached the implied covenant of good faith and fair
dealing.

As such, Plaintiff brings claims for: (1) negligence

and negligence per se against Cessna and the Insurers (counts I
and II, respectively); (2) bad faith breach of the covenant of
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good faith and fair dealing against the Insurers (count III);
and (3) breach of contract against FL Assignments Corporation.
II.

LEGAL STANDARD
Under the Federal Rules of Civil Procedure, a motion for

leave to amend should is governed under Rule 15(a), which states
in relevant part:
A party may amend its pleading once as a matter of
course within: (A) 21 days after serving it, or (B) if
the pleading is one to which a responsive pleading is
required, 21 days after service of a responsive
pleading or 21 days after service of a motion under
Rule 12(b), (e), or (f), whichever is earlier. . . .
In all other cases a party may amend its pleading only
with the opposing party’s written consent or the
court’s leave. The court should freely give leave
when justice so requires.
Fed. R. Civ. P. 15(a)(2); see also Wolf v. PRD Mgmt., Inc., Civ.
No. 11-2736 (RMB/JS), 2012 WL 1623849, at *2 (D.N.J. May 8,
2012) (citing Fed. R. Civ. P. 15(a)(2)).
“[T]he grant or denial of an opportunity to amend is within
the discretion of the District Court.” Foman v. Davis, 371 U.S.
178, 182 (1962). Leave to amend generally is “freely given.”
Lake v. Arnold, 232 F.3d 360, 373 (3d Cir. 2000) (quoting Foman,
371 U.S. at 182). However, a district court has discretion to
deny leave to amend “if it is apparent from the record that (1)
the moving party has demonstrated undue delay, bad faith or
dilatory motives, (2) the amendment would be futile, or (3) the
amendment would prejudice the other party.” Id.

8

“Amendment would be futile if the amended complaint would
not survive a motion to dismiss for failure to state a claim.”
Budhun v. Reading Hosp. & Med. Ctr., 765 F.3d 245, 259 (3d Cir.
2014) (citing Travelers Indem. Co. v. Dammann & Co., 594 F.3d
238, 243 (3d Cir. 2010)). Therefore, in determining whether an
amendment is futile, this Court must apply “the same standard of
legal sufficiency as applies under Federal Rule of Civil
Procedure 12(b)(6).” Travelers, 594 F.3d at 243 (internal
quotations and modifications omitted) (quoting In re Burlington
Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d Cir. 1997)).
Therefore, Plaintiff's motion to amend should only be granted if
the Proposed Third Amended Complaint “contain[s] sufficient
factual material, accepted as true, to ‘state a claim to relief
that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550
U.S. 544, 570 (2007)); accord Budhun, 765 F.3d at 259.
III. ANALYSIS
Plaintiff’s Proposed Third Amended Complaint brings claims
based upon two theories of negligence, breach of the covenant of
good faith and fair dealing, and breach of contract.

The Court

addresses each of these proposed causes of action below.
A. Neglgience Theories
Looking first to Plaintiff’s proposed claim for negligence,
the Court determines that Plaintiff has not stated a cause of
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action, and therefore this portion of the amendment is deemed
futile.
Plaintiff brings this cause of action against Cessna and
the Insurers, (Prop. TAC at p. 18), alleging:
In releasing his tort claims against Cessna and [the
Insurers], Plaintiff reasonably expected that the
annuity Cessna and [the Insurers] promised to purchase
would be, among other things: (a) a fair and
transparent reflection of the actual value of the
settlement reached; (b) purchased for his express
benefit and well-suited to meet his future personal
needs; (c) competitively priced to maximize settlement
value; (d) tax-advantageous; (e) a restraint on any
premature dissipation or reduction of his personalinjury recoveries; (f) a guarantee that the periodic
payments would be paid in full when they became due;
and (g) selected by Cessna and the London Market
Insurers only after a reasonable and careful
investigation and analysis of the annuity market based
upon all available information.
(Prop. TAC at ¶ 71.)
Plaintiff also alleges the existence of a “special
relationship” between himself and Cessna and the Insurers which
created a legal duty to use due care in selecting the annuity
issuer and assignee.

(Prop. Tac at ¶¶ 71–72, 74.)

Plaintiff

alleges this duty was breached when Cessna and the Insurers
failed to:


Disclose or properly evaluate the actual cost of the
annuity;



Disclose or properly evaluate the long-term security of the
annuity;

10



Disclose or properly evaluate whether the annuity was
adequately designed to ensure maximum compensation to
Plaintiff;



Disclose or properly evaluate whether a structured
settlement was appropriate under the circumstances; and



Properly design a structured settlement plan for Plaintiff.

(Prop. TAC at ¶ 75.)
In order to state a claim for negligence, it must be
alleged that: (1) the defendant owed the plaintiff a duty of
care, (2) the defendant breached that duty of care, (3) that the
defendant’s breach of that duty of care was the proximate cause
of the plaintiff’s injury, and (4) the plaintiff must prove
actual damages.

Weinberg v. Dinger, 106 N.J. 469, 484-85 (1987)

(citation omitted).

Central to this analysis is the

determination that “defendants . . . owe plaintiff a duty.”
Kernan v. One Wash. Park Urban Renewal Assocs., 154 N.J. 437,
445 (1998).

When determining whether a duty exists, “ultimately

is a question of fairness,” which “involves a weighing of the
relationship of the parties, the nature of the risk, and the
public interest in the proposed solution.”
at 485.

Weinberg, 106 N.J.

The existence of a duty is “quintessentially a question

of law for the court.”

Highlands Ins. Co. v. Hobbs Grp., LLC,

373 F.3d 347, 351 (3d Cir. 2004).
Plaintiff’s conceptualized duty revolves around the duty of
Cessna and the Insurers to disclose to Plaintiff information

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concerning the nature of the annuity.

Plaintiff contends that

he released his claims against those parties in return for the
promises of guaranteed future payments as described in the
settlement agreement.

(Prop. TAC at ¶ 22.)

A duty to disclose

arises in three situations: (1) a fiduciary relationship, such
as the principal/agent relationship or attorney/client
relationship; (2) “a situation in which one or each of the
parties enters the transaction expressly has a trust and
confidence in the other or such a trust and confidence is
necessarily implied because of the circumstances of the case,
the nature of their dealings, or their position towards each
other;” and (3) “contracts or transactions which are
intrinsically fiduciary by nature and necessarily call for
perfect good faith and full disclosure, without regard to the
intention of the parties.”

Bonnieview Homeowners Ass’n v.

Woodmont Builders, L.L.C., 655 F. Supp. 2d 473, 512 (D.N.J.
2009).
Plaintiff has not plead any facts which bring the case as
it now stands into the ambit of the above-listed duties to
disclose.

Plaintiff, represented by counsel, entered into an

arm’s-length settlement transaction.
at p. 3.)

(Prop. TAC at ¶ 1, Ex. A

It would be a strange result, indeed, to rule that

parties negotiating against each other as part of a litigation,
(Prop. TAC at ¶ 1), owe each other a duty of disclosure.
12

This

is consistent with rulings touching upon similar situations.

In

Graddy v. Deutsche Bank, Civ. No. 11-3038 (RBK/KMW), 2013 WL
1222655 (D.N.J. Mar. 25, 2013), a court in this District held
that for purposes of a negligence claim, parties negotiating a
loan at arm’s-length do not act as fiduciaries for the opposite
side.

Id. at *3.

Likewise in United Jersey Bank v. Kensey, 306

N.J. Super. 540 (App. Div. 1997), the court ruled that, “It
would be anomalous to require a lender to act as a fiduciary for
interests on the opposite side of the negotiating table, because
their respective positions are essentially adversarial.

Id. at

553 (quoting Paradise Hotel Corp. v. Bank of Nova Socita, 842
F.2d 47, 53 (3d Cir. 1988)).

The only difference here is that

the relationship was not a lender/borrower relationship which is
“essentially adversarial,” but rather a Plaintiff/Defendant
relationship which is explicitly adversarial.

That posture also

rules out the existence of a duty to disclose predicated upon
the second and third situation in which a duty arises.
Plaintiff’s alleged “facts” supporting a “special
relationship” do not change the outcome.

The first fact, (Prop

TAC at ¶ 72(a)), that “the purchase of the annuity . . . was
intended to provide Plaintiff a life-time of reliable payments”
is just a restatement of the definition of an annuity.

The

second “fact,” (Prop. TAC at ¶ 72(b)), “the foreseeability of
harm resulting from . . . [the Defendants’] selection of ELNY .
13

. . is a foregone conclusion,” is a legal conclusion concerning
the existence of a purported breach and proximate cause, not a
fact creating a duty to disclose.

The third and fourth “facts,”

(Prop. TAC at ¶ 72(c)-(d)), are legal conclusions concerning the
injury and causation elements of a negligence claim.

The final

two “facts,” (Prop. TAC at ¶ 72(e)-(f)), are conclusory public
policy statements in favor of tort victims that are vague and do
not create a relationship at the time of the alleged failure to
disclose.4
Plaintiff’s argument that a “special relationship” was
formed pursuant to California Insurance Code § 332 also misses
the mark with regard to negligence per se.

Even assuming

Plaintiff is correct that the Assignment Agreement was made

Plaintiff’s analogy to insurance broker cases is also
unavailing. (See Pl.’s Rep. Br. at 10-11.) These cases rely
upon a notion, first elicited in Rider v. Lynch, 42 N.J. 465,
476 (1964), that an insurance broker’s relationship with members
of the public is similar to a principal/agent relationship.
That is fundamentally dissimilar from the relationship between
parties negotiating a settlement agreement and therefore
implicates fiduciary issues.
The Court additionally finds Plaintiff’s arguments based
upon Massie v. U.S., 166 F.3d 1184 (Fed. Cir. 1999) are
unavailing. Massie dealt with a breach of contract action, not
tort, and ultimately held that contractual interpretation
suggested the government had guaranteed annuity payments in that
particular contract, not that settling defendants are as a
matter of law liable in a tort theory for annuity shortfall.
Massie v. U.S., 166 F.3d 1184, 1190 (Fed. Cir. 1999) (“Because
the payments are mandatory, the government must be responsible
for their payment; no one else is a party to the Agreement.”)
4

14

pursuant to California law, the relevant portion of that code
section states:
Each party to a contract of insurance shall
communicate to the other, in good faith, all facts
within his knowledge which are which he believes to be
material to the contract and as to which he makes no
warranty, and which the other has not the means of
ascertaining.
Cal. Ins. Code § 332.

The Release and Indemnification Agreement

was not a “contract of insurance.”

The contract by which the

annuity was purchased is not included in the Complaint, and the
Court cannot infer that Plaintiff was a party to that, either.
(Prop. TAC at p. 7.)

This statute section is plainly

inapplicable for purpose of a negligence claim.5
Given the adversarial relationship between these parties as
the Release and Indemnification Agreement was reached, the Court
does not find that a duty of disclosure or any other duty was
owed by Cessna or the Insurers to Plaintiff.

The Court

additionally finds that the California Insurance Code section
offered by Plaintiff is inapplicable.

As such, Plaintiff’s

attempt to amend for purposes of alleging negligence and
negligence per se claims is futile.6

Moreover, even if the statute were applicable to the
Assignment Agreement, Plaintiff has not sufficiently alleged
that any party to that contract withheld facts within its
knowledge that it knew would be material to the contract or that
those facts were unavailable to Plaintiff.
6 The Court does not reach the additional issues of
causation or breach of any duty, although the Court is dubious
5

15

B. Breach of Covenant of Good Faith and Fair Dealing
Plaintiff also brings a claim for breach of the covenant of
good faith and fair dealing against the Insurers.

Plaintiff

largely relies upon Enyart v. Transamerica Insurance Co., 195
Ariz. 71 (Ct. of Appeals 1998) in making this argument.

In

Enyart, the court recognized a tort theory of recovery (“Tort of
Bad Faith”) stemming from the breach of an implied covenant in a
contract.

Id. at 76.

Specifically, that tort provided that,

with a showing of a “special relationship,” a plaintiff can
recover in tort for breaching an implied covenant of good faith
and fair dealing.

Id.

In that case, after a settlement annuity

failed, the Court held that “Were the current sources of payment
to Enyart to fail, he could be left destitute, and the whole
purpose of his settlement egregiously denied.”

Id. at 77.

Enyart is a decision from the Court of Appeals of Arizona,
Division 1, Department E and is superficially similar to this
case.

In that case, the plaintiff was injured in an accident

and the insurance company for the injuring party settled with
the plaintiff by purchasing an annuity for him.
Nevertheless, the similarities end there.

Id. at 73-74.

As a further

guarantee that the structured settlement would provide payments

Plaintiff has sufficiently plead these elements as well.
Additionally, the Court does not reach the issue of whether the
economic loss doctrine would also prevent Plaintiff from
recovering, as argued by Cessna and the Insurers.
16

to the plaintiff, the insurance company agreed to purchase a
backup annuity policy, “in the unlikely event [the annuity
company] becomes insolvent and unable to pay according to the
terms of the annuity.”

Id. at 73.

The insurance company failed

to actually purchase the backup annuity, which was an express
violation of the contract.

Id.

Here, to the extent this Court could be persuaded of
Enyart’s applicability, Plaintiff has not stated an underlying
breach of the contract with regard to the Insurers and has not
alleged that the Insurers did anything but what the contract
obligated them to do.

Plaintiff instead has alleged that the

Insurers did exactly what the parties agreed they should
purchase: purchase an annuity from ELNY.
A, p. 1.)

(See Prop. TAC at Ex.

As the Insurers point out, “[t]here is no allegation

that Lloyd’s Underwriters purchased the annuity from ELNY and
not from another provider in order to deprive Plaintiff of the
benefit of his bargain.”

(Insurers’ Br. at 35.)

C. Breach of Contract
Plaintiff also seeks the Court’s leave for purposes of
amending to name FL Assignments Corp., which was the transferee
of all rights and obligations of the parent company of ELNY, as
a defendant in this action for purposes of a breach of contract
action.

(Prop. TAC at ¶ 52, 57.)

The previous entity held out

as the owner of the annuity contract, First Lincoln Holdings,
17

LLC, was mistakenly named on the Second Amended Complaint.
(Pl.’s Rep. Br. at 2 n.4.)

Because Plaintiff’s claim against

the owner of the annuity was brought it the previous complaints,
albeit against the incorrect owner, the Court will permit the
Proposed Third Amended Complaint to be filed with regard to FL
Assignments only.

In so doing, the Court does not pass on the

merits of the claim against FL Assignments Corp.

The Court

anticipates doing so once FL Assignments Corp. has been served
and appears.
IV.

CONCLUSION
Plaintiff’s motion to amend for purposes of asserting

negligence and breach of the covenant of good faith and fair
dealing against Cessna and the Insurers is DENIED.

Plaintiff’s

motion to amend for purposes of naming FL Assignments
corporation is GRANTED.
s/Renée Marie Bumb
RENÉE MARIE BUMB
UNITED STATES DISTRICT JUDGE

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