SPV-LS, LLC v. Transamerica Life Insurance Company

Filing 451

ORDER denying 245 Motion for Reconsideration. Signed by U.S. District Judge Lawrence L. Piersol on 12/8/16. (SLW)

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
SOUTHERN DIVISION
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CIV 14-4092

SPV-LS,LLC,

Plaintiff,
ORDER ON MOTION

FOR RECONSIDERATION

(Doc. 245)

TRANSAMERICA LIFE INSURANCE

COMPANY,
Defendant and

Third-Party Plaintiff,

NACHMAN BERGMAN,as Trustee

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of The N Bergman Insurance Trust

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dated December 18, 2006;
MALKA SILBERMAN,as Successor
Trustee ofTheN Bergman Insurance
Trust dated December 18, 2006;

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LIFE TRADING TRUST,

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dated August 8, 2007;

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T-LEG, LLC, a/k/a T-LEG LLC;

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FINANCIAL LIFE SERVICES,LLC;

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SPV II LLC; and

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THE REPRESENTATIVE OF THE

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ESTATE OF NANCY BERGMAN,

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Third-Party Defendants.

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In a previous opinion this Court held that New York rather than New Jersey law applied to
this dispute. The Court further held that the ten million dollar ($10,000,000) life insurance policy
in question on the life ofNancy Bergman was a stranger-originated life insurance policy("STOLI")
and when the policy was obtained in 2007, STOLIs were not prohibited under New York law. The
New York legislature subsequently prohibited STOLIs in 2009. This Court then entered summary

judgment in favor of SPV dismissing the claims to policy proceeds asserted by Representatives of
the Estate of Nancy Bergman ("Estate"). The Estate then moved under Fed. R. Civ. P. 54(b) for
reconsideration and to allow further discovery and to avoid a manifest injustice.

Although there was little showing by the Estate as to what discovery might yield to show a
manifest injustice or some other basis for relief, the Court was concerned that there had been many

allegations but little discovery, so discovery was allowed to proceed as to all parties. Discovery is
now closed.

The Estate now claims that no attention was given in the prior opinion to the question ofan
insurable interest. That claim was addressed in the previous opinion.

The Estate also claims that there was undue influence and coercion brought to bear on Nancy

Bergman. The Estate also claims that Nancy Bergman did not know that she was applying for life
insurance. All of the testimony from family members and an examining medical doctor is to the

contrary. The record shows that Nancy Bergman was an 82 year old retired school teacher who was
"sharp" and independent in 2007 and 2008 and well knew what was going on about her. Nancy

Bergman was not knowledgeable about life insurance,but her grandson,Nachman Bergman,testified
that she knew she was applying for life insurance policies. Nancy Bergman was also aware that she
underwent at least one life insurance physical from a medical doctor.

There are a total offive life insurance policies involved in this scheme. The policies, each

from a different life insurance company and on the life ofNancy Bergman,total $37,000,000 in life
insurance benefits. Nachman Bergman got his grandmother into this scheme and had her sign
various documents that others completed. Some ofthose documents made gross misrepresentations

as to Nancy Bergman's annual income and net worth so that the life insurance companies would be
duped into writing the requested life insurance policies. There is no evidence that Nancy Bergman
knew ofthose misrepresentations although she knew she was signing life insurance applications with
blanks for information. In addition, Nachman Bergman testified that as to the Transamerica policy

in question,it was represented to Naney Bergman that it was for a million and a halfso that it would
appear to make more sense to Nancy Bergman.

For his efforts on these five policies, Nachman Bergman testified that he received

approximately $130,000. Nachman Bergman also testified that Nancy Bergman got about $50,000
from her participation in all five (5) policies. Although there are no documents to support the
understanding,Nachman Bergman testified that it was his understanding that Nancy Bergman would
get ten percent(10%)ofthe proceeds ifa policy was sold and ifnot sold,then when Nancy Bergman
died, her estate would get ten percent(10%)ofthe policy proceeds. There was also testimony from

Nachman Bergman that if payment was accepted early the payment would be smaller. The Court

speculates that may have been what happened. It is clear that Nancy Bergman was being used in the
scheme as she was an older person in good health who could be issued a life insurance policy, but
it is also clear that she was a willing if not a knowledgeable participant.

The Estate claims that the limited consideration for Nancy Bergman's participation precluded

the finding of an insurable interest. The Estate cites Warnockv. Davis, 104 U.S. 775 (1881) and

Grigsby v. Russell, 222 U.S. 149(1911)to support the Estate's claim that "It has been the law for
over 100 years that a ten percent(10%)interest in life insurance policy benefits does not constitute
insurable interest; a pre-agreement whereby a stranger gets ninety percent (90%) of the policy
benefits is invalid as against policy because the policy lacks insurable interest."(Estate Doc.426 at

That claim is not the law, nor is it applicable to this ease for more than one reason. To begin

with,Grigsby acknowledged WarnockdLnd overruled Warnock. Warnock,in recognizing an opposite
view to its holding, acknowledged that the New York Court of Appeals held that a policy of

insurance is assignable like an ordinary chose in action. In Grigsby, Dr. Grigsby bought the policy
and had no interest in the life ofthe assured. The assured's estate sued and Justice Holmes writing

for the Supreme Court held against the estate. There was no discussion of whether the $100 paid
plus the undertaking to pay the premiums due or to become due was inadequate so as to preclude Dr.

Grigsby's claim to policy proceeds. The Grigsby court noted that the Tennessee Supreme Court,
where the assignment was made,came to the same conclusion. No ten percent(10%)or any percent

rule comes from those Supreme Court cases. In any event,this question is a matter of state law and
the legislature and the courts of New York have provided the answer.

As this Court previously held in its April 14,2016 opinion the controlling case is Kramer v.

Phoenix Life Ins. Co., 15 N.Y.3d 539 (N.Y. 2010) where that court explained that NYIL

§ 3205(b)(1) permits "any person oflawful age who has procured a contract of insurance upon his
or her own life to immediately transfer or assign the contract, and does not require the assignee to
have an insurable interest." Kramer at 541. The Kramer court also held at 540 that:

This freedom of assignment is not limited by section 3205(b)(2), which addresses

procurement of an insurance policy on another's life, either "directly or by
assignment," because section 3205(b)(2) requires an insurable interest only "at the
time when such contract is made,"that is, when such insurance is initially procured."

Whether allowing STOLIs was good public policy was for the New York legislature to

decide. The New York legislature did prohibit STOLIs in 2009, NYIL § 7815, but that is too late
to have application to this case.

The Estate also urges that a manifest injustice should be prevented by the application ofFed.

R. Civ. p.60(b)(6). The discovery in this case has simply not shown circumstances so unusual or

compelling that extraordinary reliefis warranted,or where it offendsjustice to deny such relief. The
case was filed on June 13,2014,and the Third-Party Defendants including the Estate were added on
June 17,2014. Summary judgment against the claims ofthe Estate was entered on April 14, 2016.

Upon motion, discovery by all parties was allowed to proceed until September 16, 2016 with that
deadline being extended for the taking of Nachman Bergman's deposition.

Subsequent discovery did add detail to the sordid series ofevents that resulted in the issuance
ofthe five(5)life insurance policies with a face value of$37,000,000. Discovery also revealed that
Nancy Bergman received about $50,000 for her participation while at the same time she never paid

any ofthe hundreds ofthousands ofdollars in premium paid, nor is there any showing that she ever
believed she would have to pay any premiums even if she could have. The evidence shows that

Nancy Bergman did not come up with this scheme but the evidence also shows that as a "sharp" and
independent 82 year old former school teacher, even though not knowledgeable on insurance, but
knowing that she was getting life insurance,and that she was getting paid up front for getting the life
insurance. There is no manifest injustice which would warrant setting aside the summaryjudgment

previously entered. Instead, as a whole, subsequent discovery only confirms that under the thenexisting New York law, summary judgment on the Estate claims is appropriate.

The Estate also argues that the New Jersey decision of Sun Life Assurance Company of

Canada v. Wells Fargo Bank, N.A., Civil Action No. 14-5789(D.N.J. 2016)should be considered.
In that case under New Jersey law the District Court considered a $5,000,000 policy on the life of

Nancy Bergman that was obtained in this same scheme. There the insurer sued to retain the policy
proceeds,claiming the policy to be void ab initio. The court applied New Jersey law and found the
obtaining ofthe policy to be contrary to public policy and the insurance contract to be void ab initio.
The New York legislature and courts under law applicable at the time show otherwise so the Sun
Life holdings are not applicable to the present case.

The Estate also urges thatjudicial estoppel precludes any recovery by SPY as SPY knew of

the funding ofthe premiums by other investors in 2010,and on that and other bases SPY and related
entities brought an action in the Eastern District of New York. It is true that SPY knew that this
transaction was a STOLI, but that was allowed under New York law at the time that SPY related

interests purchased the Transamerica Life Insurance policy. There has been no showing ofjudicial
estoppel.

For all of the above reasons, the Motion of the Estate for Reconsideration is denied. The

Summary Judgment stands in favor ofSPY dismissing the claims to the policy proceeds asserted by
Third-Party Defendant Representative of the Estate of Nancy Bergman.

IT IS ORDERED:

1.

That the Motion for Reconsideration on Motion for Summary Judgment of

Third-Party Defendant Representative ofthe Estate ofNancy Bergman,Doc.
245, is denied.

Dated this

day of December, 2016.
BY THE COURT:

CPiascu—.
Lawrence L. Piersol

United States District Judge

ATTEST:

JOSEPH HAAS,CLERK

Deputy