COLUMBUS LIFE INSURANCE COMPANY v. WILMINGTON TRUST, N.A.
Filing
30
OPINION. Signed by Judge John Michael Vazquez on 4/30/21. (jc, )
Not for Publication
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
COLUMBUS LIFE INSURANCE COMPANY,
Plaintiff,
v.
WILMINGTON TRUST, N.A., as Securities
Intermediary,
Civil Action No. 20-7959
(JMV) (MF)
Defendant.
OPINION
John Michael Vazquez, U.S.D.J.
This case concerns a $5 million life insurance policy. Plaintiff Columbus Life Insurance
Company, the issuer of the policy, says that the policy is an illegal stranger-oriented life insurance
(“STOLI”) policy and seeks a declaration from the Court that the policy is void ab initio.
Defendant Wilmington Trust, N.A., the owner and beneficiary of the policy, seeks to collect the
policy’s death benefit and has pleaded several affirmative defenses and counterclaims.
Presently before the Court are Plaintiff’s motions to strike certain affirmative defenses and
dismiss certain counterclaims. The Court reviewed all submissions made in support of the motion1
and considered the motion without oral argument pursuant to Federal Rule of Civil Procedure 78
1
Plaintiff’s omnibus brief in support of its motion to strike affirmative defenses and dismiss
counterclaims will be referred to as “Moving Br.,” D.E. 10-1. Defendant’s omnibus opposition
brief will be referred to as “Opp. Br.,” D.E. 13. Plaintiff’s reply brief will be referred to as “Reply,”
D.E. 15. And Defendant’s sur-reply brief will be referred to as “Sur-Reply,” D.E. 18-1.
and Local Civil Rule 78.1(b).
For the reasons that follow, Plaintiff’s motion to strike is
GRANTED, and its motion to dismiss is GRANTED in part and DENIED in part.
FACTS AND PROCEDURAL HISTORY2
I.
Plaintiff Columbus Life Insurance Company (“Columbus”) is an Ohio corporation with its
principal place of business in the same state. CC ¶ 6. Defendant Wilmington Trust, N.A.
(“Wilmington”) is a national banking association incorporated in Delaware with its principal place
of business also in Delaware. Id. ¶ 5.
On or around November 30, 2007, Carl Goldman applied for a $5 million life insurance
policy from Columbus. CC ¶ 18. A policy (the “Policy”) was then issued, effective November
21, 2007. Id. According to the terms of the Policy, Columbus could not contest the Policy after
two years from the effective date. Id. The Policy expressly provided that Columbus would “pay
the Death Benefit to the Beneficiary” when it received proof of death of the insured. Id. ¶ 25. The
Policy’ annual premium was $285,000 per year with an additional first-year premium of $265,000.
Id. ¶ 20.
The Policy was held by Goldman through the Carl Goldman Life Insurance Trust (the
“Trust”) and the Trust was also the beneficiary of the Policy. Id. ¶ 19. The Trust was responsible
for paying the Policy’s premiums. Id. ¶ 20. The initial trustee was Steve Levenson.3 Id. ¶ 19.
Goldman “established, created, and funded the Trust (which held ownership of the Policy) through
2
The facts are taken from Defendant’s Answer, Affirmative Defenses, and Counterclaims, D.E. 6,
which “the Court accepts . . . as true and draws all inferences in the light most favorable to the
non-moving party.” Duke Univ. v. Akorn, Inc., No. 18-14035, 2019 WL 4410284, at *1 (D.N.J.
Sept. 16, 2019) (citing Phillips v. County of Allegheny, 515 F.3d 224, 228 (3d Cir. 2008)). The
portion of this pleading asserting counterclaims, D.E. 6 at 14-34, will be referred to as “CC.” The
portion of this pleading that serves as the Answer and raises affirmative defenses, D.E. 6 at 1-14,
will be referred to as “Ans.”
3
Neither party identifies Steve Levenson’s relationship to the insured.
2
a loan.” Id. ¶ 20. On or around May 21, 2010, Columbus received a request to transfer the
ownership and beneficiary of the Policy from the Trust to an entity known as Life Trading Trust.
Id. ¶ 21. The Policy permitted such a transfer, and it became effective June 4, 2010. Id. Columbus
then received, on January 3, 2019, second request to transfer the ownership and beneficiary of the
Policy from Life Trading Trust to Wilmington. Id. ¶ 22. On the same day, Columbus provided
Wilmington with a notice, which confirmed that Wilmington was the owner of the Policy, and on
January 4, 2019, Columbus provided Wilmington with a letter confirming that Wilmington was
now the beneficiary of the Policy. Id. ¶ 23.
The Policy was transferred to Wilmington on behalf of a third-party investor who
purchased a portfolio of policies. Id. ¶ 24. Prior to purchasing the portfolio, the third-party
investor reviewed the Policy’s chain of title and the “myriad representations by Columbus that the
Policy was valid and in force[.]” Id. Because Wilmington and the third-party investor were not
involved in the Policy’s initial procurement, they understood that Columbus’s approvals of the
ownership and beneficiary changes meant that the Policy would not be challenged when Goldman
died or at any other time. Id. Columbus also continued to solicit annual premium payments, and
Columbus provided Wilmington with a verification of coverage for the Policy on March 16, 2020.
Id. ¶ 25. Wilmington relied on these actions as assurances that the Policy was in-force and would
not be challenged upon Goldman’s death. Id.
On March 30, 2020, Goldman passed away. Id. ¶ 26. Wilmington, acting on behalf of the
beneficial owner of the policy, submitted a claim for the Policy’s death benefit on May 22, 2020.
Id. ¶ 27.
Columbus did not pay the claim, and instead filed a Complaint against Wilmington on June
29, 2020. D.E. 1. The Complaint raises two causes of action. First, it seeks a declaratory judgment
3
that the Policy was an illegal wagering contract in violation of New Jersey law. Id. ¶¶ 28-32.
Second, it seeks a declaratory judgment that the Policy lacked an insurable interest. Id. ¶¶ 33-36.
Wilmington filed an Answer, D.E. 6, which asserts five affirmative defenses: (1) failure to state a
claim; (2) laches; (3) waiver and estoppel; (4) unclean hands; and (5) “any and all affirmative
defenses that may become apparent during discovery.” Ans. at 12-14. Wilmington also raises five
Counterclaims: Count One: breach of contract; Count Two: breach of the implied covenant of good
faith and fair dealing; in the alternative to Counts One and Two, Count Three: promissory estoppel;
Count Four: unjust enrichment; and Count Five: negligent misrepresentation. CC ¶¶ 36-69.
Wilmington seeks a declaration that Columbus is liable to pay the $5 million death benefit or, in
the alternative, seeks to be awarded a return of all of the premiums it paid to Columbus over the
life of the Policy, among other relief.
Columbus filed the present motions to dismiss counterclaims and strike affirmative
defenses on September 25, 2020.
D.E. 9, 10.
Columbus seeks to dismiss Counts Three
(promissory estoppel), Four (unjust enrichment), and Five (negligent misrepresentation) of
Wilmington’s counterclaims, and to strike Wilmington’s affirmative defenses of laches, waiver
and estoppel, and unclean hands.
II.
STANDARD OF REVIEW
A. Motion to Strike
Rule 12(f) of the Federal Rules of Civil Procedure states that a “court may strike from a
pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.”
Fed. R. Civ. P. 12(f). The decision is discretionary. F.T.C. v. Hope Now Modifications, LLC, No.
09-1204, 2011 WL 883202, at *1 (D.N.J. Mar. 10, 2011). However, “[a]s a general matter,
motions to strike under Rule 12(f) are highly disfavored.” Thompson v. Real Estate Mortg.
4
Network, Inc., No. 11-1494, 2018 WL 4604310, at *2 (D.N.J. Sept. 24, 2018) (citing F.T.C, 2011
WL 883202, at *1).
Rule 12(f) sets forth two standards for striking matter from a pleading: (1) “an insufficient
defense,” or (2) “any redundant, immaterial, impertinent, or scandalous matter.” Fed. R. Civ. P.
12(f). First, “[a]n affirmative defense is insufficient if ‘it is not recognized as a defense to the
cause of action.’” F.T.C., 2011 WL 883202, at *2 (quoting Tonka Corp. v. Rose Art Indus., Inc.,
836 F. Supp. 200, 217 (D.N.J.1993)). Thus, a motion to strike an affirmative defense “will only
be granted ‘when a defense is legally insufficient under any set of facts which may be inferred
from the allegations of the pleading.’” F.D.I.C. v. Modular Homes, Inc., 859 F. Supp. 117, 120
(D.N.J. 1994) (quoting Glenside West Corp. v. Exxon Corp., 761 F. Supp. 1100, 1115
(D.N.J.1991)).
Second, “even where the challenged material is redundant, immaterial,
impertinent, or scandalous, a motion to strike should not be granted unless the presence of the
surplusage will prejudice the adverse party.” Id. Indeed, motions to strike “will generally ‘be
denied unless the allegations have no possible relation to the controversy and may cause prejudice
to one of the parties, or if the allegations confuse the issues.’” Garlanger v. Verbeke, 223 F. Supp.
2d 596, 609 (D.N.J. 2002) (quoting Tonka, 836 F. Supp. at 217).
B. Motion to Dismiss Counterclaims
“Courts use the same standard in ruling on a motion to dismiss a counterclaim under
Federal Rule of Civil Procedure 12(b)(6) as they do for a motion to dismiss a complaint.” RBC
Bank (USA) v. Petrozzini, No. 12-155, 2012 WL 1965370, at *2 (D.N.J. May 31, 2012). Under
this standard, the counterclaim must contain sufficient factual matter to state a claim that is
plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). In evaluating the sufficiency of a counterclaim, the court
5
must separate the factual and legal elements. Fowler v. UPMC Shadyside, 578 F.3d 203, 210-211
(3d Cir. 2009). Restatements of the elements of a claim are legal conclusions, and therefore, are
not entitled to a presumption of truth. Burtch v. Milberg Factors, Inc., 662 F.3d 212, 224 (3d Cir.
2011). A court will, however, accept the counterclaim’s well-pleaded facts as true. Fowler, 578
F.3d at 210.
On a Rule 12(b)(6) motion to dismiss, a district court may not rely on matters extraneous
to the pleading sought to be dismissed. Fed. R. Civ. P. 12(d). A motion to dismiss a counterclaim
must be decided “on the face of the counterclaim.” Lukoil N. Am. LLC v. Turnersville Petroleum
Inc., 2015 WL 5455648, at *1 (D.N.J. Sept. 16, 2015). However, in certain circumstances, a court
may also consider undisputed and authentic exhibits as well as matters of public record. In re
Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1425 (3d Cir. 1997).
III.
ANALYSIS
In an action based on diversity of citizenship, a federal court generally applies the choice-
of-law rules of the jurisdiction in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S.
487, 496 (1941). The parties agree that New Jersey law governs this dispute. D.E. 1 ¶ 29; Opp.
Br. at 7. Seeing no clear reason to deviate from the parties’ assumptions, the Court will apply New
Jersey law. See Manley Toys, Ltd. v. Toys “R” Us, Inc., No. 12-3072, 2013 U.S. Dist. LEXIS, at
*5 (D.N.J. Jan. 22, 2013) (“Because the parties have argued the viability of the . . . claims as though
New Jersey substantive law applies, the Court will assume that to be the case.” (citing USA Mach.
Corp. v. CSC, Ltd., 184 F.3d 257, 263 (3d Cir. 1999))).
A. New Jersey Law on STOLI Policies
The Court first reviews the New Jersey Supreme Court’s decision in Sun Life Assurance
Company of Can. v. Wells Fargo Bank, N.A., 208 A.3d 839 (N.J. 2019), which the parties agree is
6
pertinent, controlling law. Moving Br. at 8, n.5; Ans. at 11. There, the New Jersey Supreme Court
considered two questions of law certified by the Third Circuit: “(1) Does a life insurance policy
that is procured with the intent to benefit persons without an insurable interest in the life of the
insured violate the public policy of New Jersey, and if so, is that policy void ab initio?” and “(2)
If such a policy is void ab initio, is a later purchaser of the policy, who was not involved in the
illegal conduct, entitled to a refund of any premium payments that they made on the policy?” Sun
Life, 208 A.3d at 843.
The Sun Life court answered the first question in the affirmative. First, it determined that
“[i]f a third party without an insurable interest procures or causes an insurance policy to be
procured in a way that feigns compliance with the insurable interest requirement, the policy is a
cover for a wager on the life of another and violates New Jersey’s public policy.” Id. at 849. The
New Jersey Supreme Court also noted that “an incontestability provision does not bar a challenge
to a STOLI policy” because “insurance contracts that are contrary to public policy cannot be
enforced despite an incontestability clause.” Id. at 851. The court in Sun Life explained that “[i]f
a policy never came into effect, neither did its incontestability clause; the clause thus cannot stand
in the way of a claim that the policy violated public policy because it lacked an insurable interest.”
Id. The court continued that in some situations, however, it may not be clear whether the policy
was procured by a STOLI arrangement. Id. at 851. According to the Sun Life court, to determine
whether “a third party without an insurable interest may have caused the policy to be procured,”
several factors are important to consider, including: “the nature and timing of any discussions
between the purchaser and the strangers; the reasons for the transfer; and the amount of time the
policy was held.” Id.
7
As to the second part of the first question – whether such a policy is void ab initio – the
New Jersey Supreme Court determined that “[w]hen an insurance policy violates public policy, it
is as though the policy never came into existence” and, as a result “[t]he policy would be void from
the outset.” Id. at 857.
In response to the second certified question, the court in Sun Life concluded that “a party
may be entitled to a refund of premium payments it made on the policy, depending on the
circumstances.” Id. at 859. The New Jersey Supreme Court found that courts should employ a
fact-sensitive approach in cases of void STOLI policies to assess the parties’ relative culpability
in determining whether premium payments should be refunded. Id. at 858-59. The Sun Life court
explained as follows:
To decide the appropriate remedy, trial courts should develop a
record and balance the relevant equitable factors. Those factors
include a party’s level of culpability, its participation in or
knowledge of the illicit scheme, and its failure to notice red flags.
Depending on the circumstances, a party may be entitled to a refund
of premium payments it made on a void STOLI policy, particularly
a later purchaser who was not involved in any illicit conduct.
Id. at 859.
B. Affirmative Defenses
Three affirmative defenses asserted are implicated in the present motion to strike.
Wilmington asserts that
Columbus’ claims are barred by the doctrine of laches because
“Columbus unreasonably, unexplainably, and inexcusably delayed filing its claims for nearly
thirteen years while the facts relied upon by Columbus for its claims were known to Columbus at
or around the time the Policy was initially issued.” Ans. at 13. Wilmington next claims the defense
of waiver and estoppel, arguing that Columbus waived its claims against Wilmington by waiting
to bring its claims until nearly eleven years after the Policy became incontestable. Id. Wilmington
also asserts the defense of unclean hands, arguing that Columbus acted in bad faith by collecting
8
the Policy’s premiums for nearly thirteen years and representing to Wilmington – along with its
predecessors-in-interest – that the Policy was valid and in force, “while secretly intending to
challenge the Policy as void ab initio.” Id. at 14.
Columbus’s motion to strike does not argue that Wilmington failed to sufficiently plead
the elements of its affirmative defenses. Instead, it contends that these equitable defenses are not
available because under well-settled New Jersey law, courts can never enforce illegal agreements,
like STOLI polices, that are void ab initio as against public policy. Moving Br. at 11. Columbus
cites to numerous cases from New Jersey courts and the District of New Jersey which found that
laches and waiver and estoppel cannot apply to contracts that are void. Id. at 11-12. Columbus
also cites to decisions from other jurisdictions which have found that the doctrine of unclean hands
cannot sustain a contract that is void ab initio. Id. at 14-18. Columbus argues that because these
equitable doctrines are not capable of sustaining a void ab initio policy, they are not relevant to
the question of the Policy’s enforceability. Id. at 13.
“Laches is an equitable doctrine, operating as an affirmative defense that precludes relief
when there is an ‘unexplainable and inexcusable delay’ in exercising a right, which results in
prejudice to another party.” Fox v. Millman, 45 A.3d 332, 341 (N.J. 2012) (quoting County of
Morris v. Fauver, 707 A.2d 958, 970 (1998)). Under New Jersey law, the equitable defense of
laches does not apply to contracts that are void. Jersey City v. Roosevelt Stadium Marina, 509
A.3d 808, 816 (N.J. Super. Ct. App. Div. 1986).
“Waiver, under New Jersey law, involves the intentional relinquishment of a known right,
and thus it must be shown that the party charged with the waiver knew of his or her legal rights
and deliberately intended to relinquish them.” Shebar v. Sanyo Bus. Sys. Corp., 544 A.2d 377,
384 (N.J. 1988). Estoppel is an equitable doctrine “designed to prevent injustice by not permitting
9
a party to repudiate a course of action on which another party has relied to his detriment.” Knorr
v. Smeal, 836 A.2d 794, 799 (N.J. 2003). “Estoppel, unlike waiver, requires the reliance of one
party on another.” Id. “The doctrine of estoppel or waiver asserted cannot be invoked to enforce
an agreement which is void as against public policy.” McCarthy v. National Ass’n for Stock Car
Auto Racing, Inc., 218 A.2d 871, 873 (N.J. Super. Ct. App. Div. 1966).
The “essence” of the equitable doctrine of unclean hands “is that ‘[a] suitor in equity must
come into court with clean hands and he must keep them clean after his entry and throughout the
proceedings.’” Borough of Princeton v. Bd. of Chosen Freeholders, 777 A.2d 19, 32 (N.J. 2001)
(quoting A. Hollander & Son, Inc. v. Imperial Fur Blending Corp., 66 A.2d 319, 324 (N.J. 1949).
The doctrine “is ‘discretionary on the part of the court.’” Id. (quoting Heuer v. Heuer, 704 A.2d
913, 919 (N.J. 1998). Columbus does not cite, and the Court was unable to locate, any New Jersey
case law explicitly stating whether the equitable defense of unclean hands can be invoked to
enforce a contract that is void. However, as a “general rule,” “[a] contract which is void ab initio,
or void from the beginning, may not be enforced.” First Am. Title Ins. Co. v. Lawson, 827 A.2d
230, 242 (N.J. 2003) (LaVecchia, J., dissenting) (alteration in original) (quoting Mass. Mun.
Wholesale Elec. Co. v. Town of Danvers, 577 N.E.2d 283, 292-93 (Mass. 1991). “‘[J]udicial or
equitable doctrines cannot breathe life into such a contract’ given that ‘courts treat the contract as
if it had never been made.’” Id. (quoting Mass. Mun. Wholesale Elec. Co., 577 N.E.2d at 292-93).
STOLI contracts are “void from the outset.” Sun Life, 208 A.3d at 857. As a result, if the
Policy here is ultimately determined to be a STOLI arrangement, the equitable defenses of laches,
waiver and estoppel, and unclean hands cannot be asserted to sustain the Policy. In other words,
if Columbus proves that Policy is a STOLI contract, then the affirmative defenses will not be
available to Wilmington. But if Columbus does not prevail, then the affirmative defenses will be
10
unnecessary. Because the affirmative defenses cannot bar Columbus’s claim for declaratory
judgment on the grounds that the policy is void ab initio, the defenses are “legally insufficient
under any set of facts which may be inferred from the allegations of the pleading[.]” Modular
Homes, 859 F. Supp. at 120. The Court grants Columbus’s motion to strike.
C. Counterclaims
Columbus also moves to dismiss three of Wilmington’s counterclaims:
promissory
estoppel (Count Three); negligent misrepresentation (Count Five); and unjust enrichment (Count
Six).
i.
Promissory Estoppel
The parties do not appear to contest whether Wilmington has sufficiently pled promissory
estoppel. Instead, the parties dispute whether a promissory estoppel counterclaim can proceed if
the Policy is declared void ab initio. Columbus argues that the promissory estoppel counterclaim
should be dismissed for the same reasons that the affirmative defenses should be stricken. Moving
Br. at 10-11, 19. Wilmington responds that New Jersey courts allow promissory estoppel claims
to proceed, even when a contract is alleged to be void ab initio; in support, Wilmington cites two
cases from the District of New Jersey. Opp. Br. at 25-26. First, Wilmington cites to Wells Fargo
Bank Northwest, N.A. v. American General Life Insurance Co., No. 10-1327, 2011 WL 1899338
(D.N.J. May 19, 2011). In that case, although American General alleged that the policy at issue
was void ab initio, the court permitted Wells Fargo, acting on behalf of a trust, to amend its
complaint to add a promissory estoppel claim. 2011 WL 1899338, at *1, *8. The alleged promise
was American General’s assurance that it would not contest the Policy after it had been in issuance
for two years. Id. at *8. However, this case was decided before the New Jersey Supreme Court’s
Sun Life decision, which explicitly ruled that “an incontestability provision does not bar a
11
challenge to a STOLI policy” and explained that “[i]f a policy never came into effect, neither did
its incontestability clause; the clause thus cannot stand in the way of a claim that the policy violated
public policy because it lacked an insurable interest.” Sun Life, 208 A.3d at 851. Thus, the
reasoning in American General, on which Wilmington relies, is no longer viable after Sun Life.
Second, Wilmington cites Weiss, Trustee for Robinson v. Banner Life Insurance Co., where
the district court permitted a promissory estoppel claim to survive summary judgment after
permitting the rescission of the life insurance contract at issue. No. 05-4893, 2008 WL 11509888,
(D.N.J. Apr. 16, 2008). The contract is Weiss was not violative of public policy. Rather, it was
rescinded for a misrepresentation made in the application to reinstate a life insurance policy.
Wilmington’s counterclaim asserts that “[t]he only way to avoid injustice” is for this Court
to “require Columbus to live up to its promises that the Policy is valid, enforceable, and
incontestable and order Columbus to pay [Wilmington] the $5 million face amount on the Policy
. . . or alternatively, to pay [Wilmington] all premiums paid on the Policy since inception plus
interest.” Id. ¶ 56. But under New Jersey law, if the Policy is found to be void ab initio, this Court
cannot order Columbus to abide by the terms of an agreement that “never came into existence.”
Sun Life, 208 A.3d at 857. As a result, Wilmington’s promissory estoppel counterclaim is not
cognizable if the Policy is determined to be void ab initio. The Court grants Columbus’s motion
to dismiss Counterclaim Count Three.
ii.
Negligent Misrepresentation
Columbus argues that Wilmington’s negligent misrepresentation counterclaim fails insofar
as it attempts to enforce the Policy’s death benefit and, to the extent the counterclaim seeks
damages other than enforcing the Policy, it fails because Wilmington has not and “cannot plausibly
allege” the elements of the counterclaim. Reply at 7. Specifically, Columbus argues that
12
Wilmington did not and cannot plausibly allege that Columbus negligently provided false
information, Moving Br. at 19-23; that Columbus had a duty to disclose, id. at 23-24; that
Wilmington reasonably relied on Columbus’s statements, id. at 24-28; and that Wilmington was
damaged, id. at 28.
“In order to sustain a cause of action based on negligent misrepresentation, the plaintiff
must establish that the defendant negligently made an incorrect statement of a past or existing fact,
that the plaintiff justifiably relied on it and that his reliance caused a loss or injury.” Masone v.
Levine, 887 A.2d 1191, 1195 (N.J. Super. Ct. App. Div. 2005). Wilmington submits that
“Columbus supplied false information by repeatedly representing” (1) that Columbus viewed the
Policy as a legitimate life insurance policy; (2) that Wilmington (and its predecessors-in-interest)
were the Policy’s owner and beneficiary; and (3) that so long as Wilmington paid the Policy’s
premiums, Columbus intended to pay $5 million upon Goldman’s death. CC ¶ 65. Wilmington
continues that Columbus was negligent in making these statements because it “knew or should
have known that they were false” and that it needed to disclose its true intentions “because
[Wilmington] and its predecessors-in-interest were relying on this information to determine
whether to acquire the Policy . . . and whether to continue paying premiums on the policy after its
acquisition.” Id. ¶ 66.
Based on the following allegations, Wilmington asserts that Columbus falsely stated that
the Policy was legitimate. After Wilmington procured the Policy, Columbus “continued to provide
[Wilmington] with verifications that the Policy was in force, including soliciting premium
payments annually.” Id. ¶ 25. Additionally, Columbus continued to provide Wilmington with a
notice of annual premiums due, which Wilmington paid as required. Id. And on March 16, 2020,
Columbus provided Wilmington with a verification of coverage for the Policy. Id. Columbus
13
knew this was false, Wilmington alleges, because it “has known since the issuance of the Policy
of the facts that form the basis of its claim in this litigation that the Policy is void.” Id. ¶ 31.
Wilmington continues that, despite this knowledge, Columbus “opted to keep the Policy in force
in order to collect as much money as possible in premiums over the next thirteen years.” Id.
Wilmington fails to allege any plausible facts to support its assertion that Columbus knew,
or should have known, that the Policy was unenforceable when it was procured in 2007. It was
not until June 4, 2019 that the New Jersey Supreme Court issued its decision in Sun Life, which
declared STOLI policies void as against public policy. As a result, the Court finds that any alleged
false statements about the Policy’s legitimacy that were communicated by Columbus to
Wilmington prior to June 4, 2019 cannot serve as the basis for a negligent misrepresentation claim
because Wilmington has failed to sufficiently allege that the statements were false at the time they
were made.
One alleged false communication concerning the Policy’s validity occurred after that date.
On March 16, 2020, Columbus provided Wilmington with a verification of coverage for the Policy.
Id. ¶ 25. Columbus contends that the verification of coverage does not explicitly state that the
Policy was “valid,” “in force.” or “legitimate.” Moving Br. at 21. Based on the title of the
document – “verification of coverage” – along with information provided on the document,
including the value of the Policy, the net death benefits, and the last date the annual premium was
paid, the Court finds that Wilmington has plausibly alleged that this document communicated the
allegedly false statement that the Policy was in force as of March 16, 2020. D.E. 10-3 at 7-8.
Because this document was issued after the Sun Life decision, the Court concludes that Wilmington
has plausibly alleged that Columbus negligently made a false statement concerning the Policy’s
legitimacy. Wilmington also adequately alleges that it justifiably relied on this statement as an
14
“assurance[] that the Policy was still in-force and would not be challenged upon Goldman’s death.”
CC ¶ 25. However, Wilmington does not sufficiently allege the remaining element of a negligent
misrepresentation claim – that its reliance caused a loss or injury – with respect to the March 16,
2020 communication. On March 30, 2020, two weeks after the date of the verification of coverage,
Goldman passed away. CC ¶ 26. Wilmington does not allege that it made any additional premium
payments or otherwise acted in reliance on Columbus’s false statements in the period between the
March 16, 2020 letter and Goldman’s death.
For the foregoing reasons, the Court finds that Wilmington fails to state a claim for
negligent misrepresentation based on Columbus’s false statements concerning the legitimacy of
the Policy.
Next, the Court considers whether Wilmington stated a negligent misrepresentation claim
based on Columbus’s statements that Wilmington was the owner and beneficiary of the Policy.
Wilmington argues that “Columbus’s representations that it viewed [Wilmington] as the owner
and beneficiary of the Policy were false and misleading” because if the Policy never came into
existence, it could not have an owner or beneficiary. Wilmington concedes in its counterclaims
that “[t]here is no dispute” that it “is the sole owner and beneficiary of the Policy.” CC ¶ 4. As a
result, the Court finds that Wilmington has failed to adequately allege that Columbus negligently
made a false or misleading statement concerning Wilmington being the Policy’s owner and
beneficiary. Moreover, Wilmington alleges that the relevant communications occurred on January
3 and 4, 2019. Id. ¶ 23. As discussed above, Wilmington fails to allege any facts to support its
assertion that Columbus knew the Policy was void ab initio – and therefore, that Wilmington could
not have owned or been the beneficiary of this non-existent policy – prior to the Sun Life decision
on June 4, 2019.
As a result, Columbus’s statements concerning the Policy’s owner and
15
beneficiary on January 3 and 4, 2019 cannot serve as the basis for a negligent misrepresentation
claim.
Finally, the Court considers whether Wilmington stated a claim for negligent
misrepresentation based on Columbus’s statements that it would pay the $5 million death benefit
upon Goldman’s death so long as Wilmington paid the Policy’s premiums. As an initial matter,
the Court notes that, contrary to Columbus’ contention, this statement does appear in the Policy:
“We [(Columbus)] agree to pay the Death Benefit to the Beneficiary when We receive proof of
the death of the Insured while this policy is in force, subject to the terms of this policy.” D.E. 9-2
at 2. This Policy document is not dated. If the Policy is the one originally issued, then the
statement was made in November 2007.
The parties dispute whether this statement – which they apparently concede is a statement
of future intent – can form the basis of a negligent misrepresentation claim. Columbus argues that
statements about future or contingent events cannot constitute misrepresentations, even if they turn
out to be wrong. Moving Br. at 22. Wilmington submits that New Jersey law recognizes that
promises concerning future events can be actionable misrepresentations if the promiser had no
intention of fulfilling its promise. Opp. Br. at 10-11. The parties do not cite to any New Jersey
precedent. Courts in the District of New Jersey, applying New Jersey law, have explained that “a
mere promise to do something in the future, which goes unfulfilled, does not constitute fraud unless
the promisor had no intention of keeping such promise at the time it was made.” Stolba v. Wells
Fargo & Co., No. 10-6014, 2011 WL 3444078, at *4 (D.N.J. Aug. 8, 2011); Wells Fargo Bank
Nw, N.A. v. Am. Gen. Life Ins. Co., No. 10-1327, 2011 WL 1899338, at *5 (D.N.J. May 19, 2011);
Automated Salvage Transport, Inc. v. NV Koninklijke KNP BT, 106 F. Supp. 2d 606, 623 (D.N.J.
1999).
16
Wilmington alleges that Columbus had no intention of fulfilling this promise at the time it
was made. CC ¶ 34. But as discussed previously, Wilmington fails to plausibly allege facts to
support this statement. Assuming the Policy document was issued at the Policy’s inception,
Wilmington has not plausibly alleged that Columbus had reason to know in November 2007 that
the Policy was void ab initio and, therefore, that Columbus made the promise to pay the death
benefit with no intention to follow through on that promise.4 The Court thus concludes that
Wilmington has failed to sufficiently state a claim for negligent misrepresentation.
iii.
Unjust Enrichment
Count Four of Wilmington’s counterclaims alleges unjust enrichment, which is pled in the
alternative to Wilmington’s counterclaims for breach of contract (Count One) and breach of the
implied covenant of good faith and fair dealing (Count Two). CC ¶¶ 57-62. If the Policy is deemed
void ab initio, Wilmington asserts it “should receive the value paid for the policy, the value of all
premiums paid on the Policy since inception, plus applicable interest, attorney’s fees, and other
costs and damages.” Id. ¶¶ 61-62. Columbus argues that this counterclaim should be dismissed
because, although the New Jersey Supreme Court instructed that a party might be entitled to a
refund of premium payments made on a STOLI policy, that remedy is typically applied only in
cases where one party was induced by fraud, coercion, or undue influence. Moving Br. at 29-30.
Columbus submits that Wilmington fails to allege that either it or the third-party investor acted as
a result of fraud, coercion, or undue influence. Id. Wilmington responds that the decision as to
whether premiums should be refunded should be made on a full evidentiary record and it is
premature to make such a finding on a motion to dismiss. Opp Br. at 34-35.
4
If the statement was not made when the Policy was issued, Wilmington’s claim is still insufficient
because it fails to allege when the statement was made and that Columbus knew that the Policy
was void ab initio at the time the statement was made.
17
The Court agrees with Wilmington. In Sun Life, the New Jersey Supreme Court ruled that
in some situations, a party may be entitled to a refund of premium payments it made on a STOLI
policy. 208 A.3d at 859. The court explained that to decide the appropriate remedy in cases of
void STOLI policies, courts should employ a “fact-sensitive approach” and should “develop a
record and balance the relevant equitable factors,” including “a party’s level of culpability, its
participation in or knowledge of an illicit scheme, and its failure to notice red flags.” 208 A.3d at
859. Wilmington may ultimately be entitled to a refund on premiums it paid on the Policy;
however, this Court finds it premature to make any determination on these equitable factors at the
motion to dismiss stage. As a result, Columbus’s motion to dismiss Wilmington’s counterclaim
for unjust enrichment is denied.
IV.
CONCLUSION
For the reasons set forth above, Plaintiff/Counterclaim Defendant’s motion to strike is
GRANTED, and its motion to dismiss is GRANTED in part and DENIED in part. An
appropriate Order accompanies this Opinion.
Dated:
April 30, 2021
______________________________
John Michael Vazquez, U.S.D.J.
18
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