Minnesota Life Insurance Company v. Wilmington Trust Company et al (TV1)
Filing
47
MEMORANDUM OPINION granting 28 Motion to Dismiss; denying 35 Motion for Sanctions. The Court DISMISSES cross-plaintiffs' claims against cross-defendants. Signed by Chief District Judge Thomas A Varlan on 3/04/2016. (KMK, )
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF TENNESSEE
MINNESOTA LIFE INSURANCE COMPANY, )
)
Plaintiff,
)
)
v.
)
)
WILMINGTON TRUST COMPANY, as
)
Securities Intermediary; FUND HOUSE
)
FCP-SIF-INTERNATIONAL LIFE
)
SETTLEMENTS FUND; GENESIS
)
MERCHANT PARTNERS, LP;
)
SMARTBANK; and J. RANDALL HOOPER
)
AND RICHARD J. GETTELFINGER,
)
Co-Executors of the Estate of HERMAN
)
GETTELFINGER,
)
)
Defendants.
)
No.: 3:14-CV-443-TAV-CCS
MEMORANDUM OPINION
This civil action is before the Court on cross-defendants Fund House FCP-SIF
International Life Settlements Fund and Wilmington Trust Company’s Motion to Dismiss
[Doc. 28] and Motion for Sanctions Pursuant to Fed. R. Civ. P. 11 [Doc. 35]. Crossplaintiffs J. Randall Hooper and Richard J. Gettelfinger, Co-Executors of the Estate of
Herman Gettelfinger, responded in opposition to each motion [Docs. 32, 38] and crossdefendants replied [Docs. 34, 39]. For the reasons set forth herein, the Court will grant
cross-defendants’ motion to dismiss for failure to state a claim upon which relief may be
granted, and deny cross-defendants’ motion for sanctions.
I.
Background1
Minnesota Life Insurance Company (“Minnesota Life”) filed a complaint in
interpleader in this case against Wilmington Trust Company (“Wilmington Trust”); Fund
House FCP-SIF-International Life Settlements Fund (“ILSF”); Genesis Merchant
Partners, LP (“Genesis”); SmartBank; and J. Randall Hooper and Richard J. Gettelfinger
(“cross-plaintiffs”), co-executors of the Estate of Herman Edward Gettelfinger (“the
Estate”) [Doc. 1].
Thereafter, the Estate filed an answer to Minnesota Life’s complaint in
interpleader, which raised certain affirmative defenses and included a cross-claim against
Wilmington Trust, ILSF, and Genesis (“cross-complaint”) [Doc. 16]. In their crosscomplaint, cross-plaintiffs allege that sale of the policies to cross-defendants, individually
or through a contract with Progressive Capital Solutions, LLC, was ineffective because
the sale was unconscionable, lacked consideration, and was the result of constructive
fraud [Id. ¶¶ 2–10].
They also allege that cross-defendants violated the Tennessee
Consumer Protection Act, the Tennessee Viatical Settlement Act, the Tennessee
Securities Act, and federal securities laws [Id. ¶¶ 11–27].
Cross-plaintiffs did not include their own factual statement in their cross-claim
against cross-defendants, but rather incorporated their answers and affirmative defenses
1
For the purposes of a motion to dismiss, the Court takes cross-plaintiffs’ factual
allegations as true. See Erickson v. Pardus, 551 U.S. 89, 94 (2007) (noting that “when ruling on
a defendant’s motion to dismiss, a judge must accept as true all factual allegations contained in
the complaint.” (citations omitted)).
2
to Minnesota Life’s complaint into each count [Doc. 16 ¶¶ 1, 2, 5, 8, 11, 15, 19, 23].
Looking to cross-plaintiffs’ answer and affirmative defenses, the Court finds the pertinent
facts to which cross-plaintiffs admitted to be as follows:
Cross-plaintiffs are the co-executors of the Estate, which is currently pending in
Harrison County, Mississippi [Docs. 1 ¶ 6; 16 ¶ 6].
Minnesota Life had issued two Adjustable Life Summit Policies on the life of
Nancy H. Gettelfinger (“Mrs. Gettelfinger”), which bear policy numbers 2-350-013N
(“Policy 013N”) and 2-348-015N (“Policy 015N”) [Docs. 1 ¶ 11; 16 ¶ 11]. Each policy
has a face amount of $1.5 million dollars, totaling $3 million dollars [Id.]. Herman
Edward Gettelfinger (“Mr. Gettelfinger”), who was married to Mrs. Gettelfinger, was the
initial owner and beneficiary of both policies [Docs. 1 ¶ 12; 16 ¶ 12].
Minnesota Life attached two documents to its complaint that it refers to as
Exhibits A and B [Docs. 1-8; 1-9], which it describes as a letter from December 11, 2009,
that it received from SmartBank that included “a ‘Collateral Assignment of Life
Insurance Policy’ from Mr. Gettelfinger, as the assignor, to SmartBank, as the assignee”
[Docs. 1 ¶ 13, 1-8, 1-9]. Cross-plaintiffs admit that “Exhibits A and B were attached to
the [c]omplaint and state[ ] that those documents speak for themselves” [Doc. 16 ¶ 13].
Minnesota Life also attached other forms that allegedly effectuate a change to the
ownership and beneficiary of both policies from Mr. Gettelfinger to “Wilmington Trust
Company as Securities Intermediary” [Doc. 1 ¶ 14], but cross-plaintiffs only admit that
3
Minnesota Life “may have received certain documents attached to its Complaint” [Doc.
16 ¶ 14]. Moreover, cross-plaintiffs “den[y] that anyone other than [Mr.] Gettelfinger
should have had ownership of Policy 013N and Policy 015N, or be listed as beneficiary
of same” [Id. ¶¶ 17, 21, 22, 25].
After Mrs. Gettelfinger died, Minnesota Life “began having telephone
conversations with Mr. Gettelfinger, or individuals acting on Mr. Gettelfinger’s behalf,
about the two Minnesota Life insurance policies naming Mrs. Gettelfinger as the
insured.” At that time, Mr. Gettelfinger or his representatives “questioned the assignment
to SmartBank of $200,000.00 of Policy 015N and the sale of the policies to Progressive
Capital and/or Wilmington Trust” [Docs. 1 ¶ 26; 16 ¶ 26].
Thereafter, Mr. Gettelfinger died [Docs. 1 ¶ 27; 16 ¶ 27].
Since his death,
members of the Gettelfinger family or their representatives have continued to raise
questions relating to the alleged assignment of the insurance policies, and to Mr.
Gettelfinger’s competency to enter into such transactions [Docs. 1 ¶ 28; 16 ¶ 28]. They
also have discussed possible “undue influence issues with respect to the $200,000.00
SmartBank assignment” [Id.].
Throughout their answer to Minnesota Life’s complaint, cross-plaintiffs assert that
Mr. Gettelfinger is the true owner and beneficiary of the policies at issue, and that the
Estate is entitled to all of the benefits from those policies [Doc. 16 ¶¶ 30, 31, 33, 34, 36,
37]. As part of their affirmative defenses, cross-plaintiffs state, among other things, that
Mr. Gettelfinger was “subjected to undue influence by a third party with significant
4
financial and emotional influence,” who “induced” him to enter into “certain contracts”
[Id. ¶¶ 5, 6]. They also state that the “broker and purchaser in the viatical transactions
clothed themselves with a mantle of legitimacy to facilitate an unconscionable transaction
with [Mr.] Gettelfinger for which the brother received an unconscionably large
‘commission’” [Id. ¶ 14].
II.
Motion to Dismiss for Failure to State a Claim
ILSF and Wilmington Trust (“cross-defendants”) have moved to dismiss cross-
plaintiffs’ cross-complaint [Doc. 28]. In their motion, cross-defendants allege that crossplaintiffs fail to state a cause of action against cross-defendants as to each of their claims,
their causes of action are time barred or barred by the doctrine of laches, and that ILSF is
a bona fide purchaser of the policies at issue [Id.].
Cross-plaintiffs responded in opposition to cross-defendants’ motion, alleging that
they have pled sufficient factual content to satisfy the “plausibility” standard of Federal
Rule of Civil Procedure 12(b)(6) [Doc. 32]. In the alternative, cross-plaintiffs state that
cross-defendants’ motion should be converted into a motion for summary judgment
because it improperly relies on extrinsic evidence, and it should be denied so as to permit
the parties to conduct further discovery [Id.]. They also allege that cross-defendants have
not demonstrated why cross-plaintiffs’ claims are time barred, or how ILSF is a bona fide
purchaser [Id.]. Upon review of cross-plaintiffs’ complaint, and answers and affirmative
5
defenses to the complaint, the Court agrees with cross-defendants and will dismiss crossplaintiffs’ claims.2
As the Court finds that cross-plaintiffs fail to state a claim for each of their claims
against cross-defendants, the Court need not address whether the claims barred under the
statute of limitations or the doctrine of laches, or whether ILSF is a bona fide purchaser.
A.
Standard
Rule 8(a)(2) of the Federal Rules of Civil Procedure sets forth a liberal pleading
standard. Smith v. City of Salem, 378 F.3d 566, 576 n.1 (6th Cir. 2004). It requires only
“‘a short and plain statement of the claim showing that the pleader is entitled to relief,’ in
order to ‘give the defendant fair notice of what the . . . claim is and the grounds upon
which it rests.’” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (alteration in
original) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). Detailed factual allegations
are not required, but a party’s “obligation to provide the ‘grounds’ of his ‘entitle[ment] to
relief’ requires more than labels and conclusions, and a formulaic recitation of the
elements of a cause of action will not do.” Twombly, 550 U.S. at 555 (alteration in
original) (quoting Papasan v. Allain, 478 U.S. 265, 286 (1986)). “Nor does a complaint
suffice if it tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement.’”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (alteration in original) (quoting Twombly,
550 U.S. at 557)).
2
In ruling on this motion, the Court considered only cross-plaintiffs’ cross-complaint,
answers to the complaint, and affirmative defenses [Doc. 16]. As a result, the Court will not
convert cross-defendants’ motion into a motion for summary judgment, or address crossplaintiffs’ request for additional discovery.
6
In deciding a Rule 12(b)(6) motion to dismiss, the Court must determine whether
the complaint contains “enough facts to state a claim to relief that is plausible on its
face.” Twombly, 550 U.S. at 570. In doing so, the Court “construe[s] the complaint in
the light most favorable to the plaintiff, accept[s] its allegations as true, and draw[s] all
reasonable inferences in favor of the plaintiff.” Directv, Inc. v. Treesh, 487 F.3d 471, 476
(6th Cir. 2007) (citation omitted). “A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678 (citing Twombly,
550 U.S. at 556). “Determining whether a complaint states a plausible claim for relief
will . . . be a context-specific task that requires the reviewing court to draw on its judicial
experience and common sense.” Id. at 679 (citation omitted).
Rule 9(b) of the Federal Rules of Civil Procedure requires that allegations of fraud
be stated with particularity. Coffey v. Foamex L.P., 2 F.3d 157, 161 (6th Cir. 1993). The
rule is meant to ensure that the complaint provides sufficient notice of the alleged
misrepresentation, “allowing the defendants to ‘answer, addressing in an informed way
plaintiffs [sic] claim of fraud.’” Id. at 862 (alteration in original) (quoting Brewer v.
Monsanto Corp., 644 F. Supp. 1267, 1273 (M.D. Tenn. 1986)). Therefore, the rule
requires “a plaintiff, at a minimum, to ‘allege the time, place, and content of the alleged
misrepresentation on which he or she relied; the fraudulent scheme; the fraudulent intent
of the defendants; and the injury resulting from the fraud.’” Id. at 161–62 (quoting
Ballan v. Upjohn Co., 814 F. Supp. 1375, 1385 (W.D. Mich. 1992)). Additionally,
7
“allegations of fraudulent misrepresentation must be made with sufficient particularity
and with a sufficient factual basis to support an inference that they were knowingly
made.” Id. at 162 (internal quotation marks omitted) (quoting Ballan, 814 F. Supp. at
1385). The pleading requirements of Rule 9(b) should be read in harmony with those of
Rule 8. Michaels Bldg. Co. v. Ameritrust Co., N.A., 848 F.2d 674, 679 (6th Cir. 1988).
B.
Analysis
1.
Unconscionability
Cross-plaintiffs submit that the sale of the policies at issue to cross-defendants was
“ineffective due to the transaction being unconscionable” [Doc. 16 p. 9]. A contract is
unconscionable when the provisions “are so one-sided . . . that the contracting party is
denied any opportunity for meaningful choice.” Reno v. SunTrust, Inc., No. E200601641-COA-R3CV, 2007 WL 907256, at *6 (Tenn. Ct. App. Mar. 26, 2007) (citation
omitted). In such a contract, the inequality of the bargain “is so manifest as to shock the
judgment of a person of common sense.” Id. (citing Huan v. King, 690 S.W.2d 869, 872
(Tenn. Ct. App. 1984)). The contract may either be procedurally unconscionable, arising
from one party’s lack of reasonable choice, or substantively unconscionable, due to a
contract having “unreasonably harsh” terms. Trinity Indus., Inc. v. McKinnon Bridge
Co., 77 S.W.3d 159, 170–71 (Tenn. Ct. App. 2001) (citation omitted). Under Tennessee
law, which tends to lump together procedural and substantive unconscionability, “the
question of whether a given contract is unconscionable depends on ‘all the facts and
circumstances of a particular case.’” Id.; Berent v. CMH Homes, Inc., 466 S.W.3d 740,
8
750 (Tenn. 2015) (citing Owens v. Nat’l Health Corp., 263 S.W.3d 876, 889 (Tenn.
2007)).
Cross-plaintiffs state that Mr. Gettelfinger “was denied the opportunity for a
meaningful choice during contract negotiations, and the contracts for the sale of the
policies were so one-sided that they would shock the conscience of a reasonable person”
[Id.]. Cross-defendants allege that cross-plaintiffs’ claim should be dismissed because it
does not put cross-defendants on notice as to the grounds upon which cross-plaintiffs’
claim rests [Doc. 29 p. 6]. Specifically, cross-defendants state that cross-plaintiffs “do
not allege any details about what is claimed to have been shocking to a reasonable
person, who participated in that process, [ ] the ‘choices’ that were posed [, or even] the
terms of the contract” [Id.].
Upon review of all of facts and circumstances alleged in the cross-complaint that
pertain to the two policies at issue, the Court agrees with cross-defendants. Crossplaintiffs’ complaint does not explain why the sale of the two policies at issue was
unconscionable. The cross-complaint does not explain how Mr. Gettelfinger was denied
the opportunity for a meaningful choice, or why the policies were “so one-sided” to
shock the conscience of a reasonable person. The cross-complaint does not identify any
of the terms of the two policies, and does not explain any of the circumstances that
surrounded the sale of the two policies.
9
The allegations in the cross-complaint do not allow the Court to determine
whether the contract is procedurally unconscionable, as cross-plaintiffs have not
explained any of the circumstances surrounding the sale of the two policies. Similarly,
the allegations do not allow the Court to determine whether the contract is substantively
unconscionable, as cross-plaintiffs have not alleged any of the terms of the policies. See
Gebhardt v. GMAC Mortgage, LLC, No. 3:09-CV-425, 2010 WL 2901823, at *4 (E.D.
Tenn. July 21, 2010) (finding that plaintiff was unable to explain why the loan agreement
at issue was unconscionable because she did not detail what about it was “grossly unfair
and “offensive,” detail any of the contract’s terms, or explain the circumstances
surrounding its creation).
Cross-plaintiffs’ claim that the sale of the two policies at issue was unconscionable
does not give cross-defendants fair notice of what their claim is and the grounds upon
which it rests. Twombly, 550 U.S. at 555. Rather, it simply makes “‘naked assertion[s]’
devoid of ‘further factual enhancement.’” Iqbal, 556 U.S. at 678 (citing Twombly, 550
U.S. at 557). Accordingly, cross-plaintiffs’ claim that the sale of the two policies at issue
was unconscionable is dismissed.
2.
Lack of Adequate Consideration
Cross-plaintiffs claim that the sale of the policies at issue was ineffective due to a
lack of adequate consideration [Doc. 16 p. 10]. As the Tennessee Supreme Court has
stated, “there is a plain distinction . . . between mere inadequacy of consideration and a
total or partial want of consideration.” Griffin v. Simmons, 61 Tenn. 19, 21 (1872).
10
While every contract must be supported by consideration, “it is not essential that the
consideration should be adequate in point of actual value.” Id. Moreover, “[i]t is not
necessary that the benefit conferred . . . shall be equal to the responsibility assumed. Any
consideration, however small, will support a promise.” Danheiser v. Germania Sav.
Bank & Trust Co., 194 S.W. 1094, 1096 (1917). So long as there is some consideration,
courts “will not undertake to regulate the amount of the consideration.” Id.
In their cross-complaint, cross-plaintiffs allege that Mr. Gettelfinger “received
only a fraction of the true value of the insurance policies,” making the sales of the
policies ineffective due to a lack of consideration [Doc. 16 p. 10]. As part of their crosscomplaint, cross-plaintiffs incorporated their answer to Minnesota Life Insurance
Company’s complaint and their affirmative defenses raised therein [Id.]. In paragraph 13
of Minnesota Life Insurance Company’s complaint, Minnesota Life states that it
“received from SmartBank a ‘Collateral Assignment of Life Insurance Policy’ from Mr.
Gettelfinger, as the assignor, to SmartBank, as the assignee,” and goes on to detail that
those documents illustrate how the assignment was given in exchange for $200,000.00
[Doc. 1 ¶ 13]. In their answer to that complaint, cross-plaintiffs admit that “Exhibits A
and B,”—a letter sent to Minnesota Life enclosing a document entitled “Collateral
Assignment of Life Insurance Policy,” attached to the complaint as Documents 1-8 and 19—were attached to Minnesota Life’s complaint, and state that “those documents speak
for themselves,” but deny the remaining allegations contained in paragraph 13 [Doc. 16
p. 2].
11
In response to cross-defendants’s motion—and despite cross-plaintiffs’ earlier
allegation that there was a lack of consideration—cross-plaintiffs state that for the sale of
the policies at issue to be valid, there must be a “meeting of the minds,” supported by
“sufficient consideration, free from fraud or undue influence, not against public
policy[,] and sufficiently definite to be enforced” [Doc. 32 p. 6 (emphasis in original)
(citing ICG Link, Inc. v. Steen, 363 S.W.3d 533, 543 (Tenn. Ct. App. 2011))]. Crossplaintiffs appear to allege that the assignment of the policies at issue did not contain
sufficient consideration, rather than a lack of consideration.
In considering cross-plaintiffs’ allegations, the Court finds that cross-plaintiffs’
claim fails for two reasons: (1) cross-plaintiffs have acknowledged that there was some
consideration given in exchange for assignment of the policies; and (2) cross-plaintiffs’
complaint does not contain sufficient factual detail to put cross-defendants on notice of
cross-plaintiff’s claim.
First, cross-plaintiffs are correct that contracts require a meeting of the minds,
consideration, a lack of fraud or undue influence, and that they must be sufficiently
definite and not against public policy. ICG Link, Inc., 363 S.W.3d at 543. While crossplaintiffs allege that the policies have a “lack of consideration,” they also acknowledge in
their complaint that Mr. Gettelfinger “received . . . a fraction of the true value of the
12
insurance policies” [Doc. 16 p. 10].3 This implies that Mr. Gettelfinger did receive some
value in exchange for his alleged sale of the insurance policies at issue.
To the extent cross-plaintiffs allege that there was not sufficient consideration, the
Tennessee Supreme Court was clear that “sufficient” consideration need not be “adequate
in point of actual value.” Griffin, 61 Tenn. at 21; see also Holt v. Wilmoth, 336 S.W.3d
234, 240 (Tenn. Ct. App. 2010) (distinguishing between a “complete lack of
consideration” from merely “inadequate consideration”).
Cross-plaintiffs’ allegation,
therefore, is more akin to one regarding the adequacy of the consideration that Mr.
Gettelfinger received in exchange for the insurance policies, rather than one regarding a
complete lack of consideration.
The Court, however, will not inquire into the
adequateness of that consideration. Danheiser, 194 S.W. at 1096 (stating that “courts
will not undertake to regulate the amount of the consideration”). Thus, taking crossplaintiffs’ allegations in the cross-complaint as true and drawing all reasonable inferences
in cross-plaintiffs’ favor, the Court finds that cross-plaintiffs cannot make out a cause of
action for a lack of consideration.
Second, the Court finds that cross-plaintiffs claim for lack of consideration is
devoid of any factual support that could provide the Court and cross-defendants with
what amount of consideration was actually given in exchange for the insurance policies.
3
In its response to cross-defendants’s motion to dismiss, cross-plaintiffs agree with
cross-defendants that Holt v. Wilmoth, 336 S.W.3d 234 (Tenn. Ct. App. 2010), provides that “a
small amount of consideration could be a potential defense” to a claim for lack of consideration,
but that such a defense is not tenable when the cause of action is for lack of consideration [Doc.
32 p. 5].
13
Cross-plaintiffs have simply asserted that Mr. Gettelfinger received “a fraction” of the
value of the insurance policies, and that Documents 1-8 and 1-9 “speak for themselves”
[Doc. 16 p. 2]. The Court finds that cross-plaintiffs’ claim fails because it does not put
cross-defendant on notice as to what cross-plaintiffs’ claim is and the grounds upon
which it rests. Cross-plaintiffs do not detail how there was a lack of consideration [Doc.
16 p. 10], or sufficient consideration [Doc. 32 p. 6]. Accordingly, cross-plaintiffs’ claim
that the sale of the two policies at issue was unconscionable is dismissed.
3.
Constructive Fraud
Cross-plaintiffs next claim that the sale of the policies at issue was ineffective due
to constructive fraud [Doc. 16 p. 10]. “Constructive fraud is a breach of a legal or
equitable duty which is deemed fraudulent because of its tendency to deceive others, to
violate public or private confidence, or to injure public interests.” Kincaid v. SouthTrust
Bank, 221 S.W.3d 32, 39 (Tenn. Ct. App. 2006) (citing Cornwell v. Hodge, C.A. No. 44,
1986 WL 5890, at *3 (Tenn. Ct. App. May 23, 1986)). It is “essentially fraud without the
element of intent.” Id. at 39–40.
In cross-plaintiffs’ complaint, they submit that “there was a legal and/or equitable
duty” owed to Mr. Gettelfinger in this sale, “these duties were breached,” “the sale was
deceptive,” and “deceptive sales of insurance policies are against public interests” [Doc.
16 p. 10]. In response to cross-defendants’ motion, cross-plaintiffs further detailed that
there was “a clear duty in the relationship between [Mr.] Gettelfinger and the broker and
all purchasers involved in the sale of the life insurance policies. The parties involved had
14
knowledge of the medical and financial conditions of both Mr. and Mrs. Gettelfinger, and
took advantage of same” [Doc. 32 p. 7].
Looking to the cross-complaint, the Court finds it does not provide crossdefendants with sufficient notice of what the alleged misrepresentation was. Coffey, 2
F.3d at 161. Cross-plaintiffs have not alleged the time, place, or content of the alleged
misrepresentation. Id. They have not stated who specifically owed Mr. Gettelfinger a
duty, or what was deceptive about that person’s interactions with Mr. Gettelfinger.
Even if the Court were to look to cross-plaintiffs’ response to the motion to
dismiss, cross-plaintiffs simply allege that “the broker and all purchasers involved” owed
Mr. Gettelfinger a “clear duty,” but does not name or specify who those brokers were, or
what acts or omissions those brokers did that were deceptive. See id. (finding that
plaintiff could not make out a claim for fraudulent misrepresentation when plaintiff
alleged that defendants, “through their agents,” were guilty, without naming or specifying
who those agents were; and while being “vague at best as to which specific acts or
omissions of the defendants amounted to fraudulent misrepresentation”). Finally, crossplaintiffs’ complaint does not allege any details regarding Mr. Gettelfinger’s reliance on
cross-defendants’s alleged deceptive act or omission. Id. at 162.
In sum, the Court finds that cross-plaintiffs’ constructive fraud claim has not been
alleged with particularity, in violation of Rule 9(b) of the Federal Rules of Civil
Procedure. Accordingly, this claim is dismissed.
15
4.
Violation of Tennessee Consumer Protection Act
Cross-plaintiffs allege that cross-defendants violated the Tennessee Consumer
Protection Act (“TCPA”), Tenn. Code Ann. § 47-18-101, et seq. “In order to recover
under the TCPA, the plaintiff must prove: (1) that the defendant engaged in an unfair or
deceptive act or practice declared unlawful by the TCPA and (2) that the defendant’s
conduct caused an ‘ascertainable loss of money or property, real, personal, or mixed, or
any other article, commodity, or thing of value wherever situated . . . .” Tucker v. Sierra
Builders, 180 S.W.3d 109, 115 (Tenn. Ct. App. 2005) (quoting Tenn. Code Ann. § 47–
18–109(a)(3)).
Cross-plaintiffs allege in the complaint that the sale of the policies to crossdefendants violated the Tennessee Consumer Protection Act, and “rendered the sale of
the policies ineffective, by unfairly and deceptively inducing [Mr.] Gettelfinger to sell his
policies at an unfair price,” thereby causing cross-plaintiffs to suffer damages and incur
expenses [Doc. 16 p. 11]. Cross-plaintiffs do not, however, specify what provision of the
TCPA they believe cross-defendants violated through their deception. Nor does the
complaint provide sufficient detail to put cross-defendants on notice of what was the
deceptive act that induced Mr. Gettelfinger to sell his insurance policies.
Cross-
plaintiffs’ complaint merely contains a “formulaic recitation of the elements” of a TCPA
violation, and is entirely “devoid” of factual enhancement. Iqbal, 556 U.S. at 678;
Twombly, 550 U.S. at 555. Accordingly, cross-plaintiffs’ claim under the TCPA is
dismissed.
16
5.
Violation of the Tennessee Viatical Settlement Act
Cross-plaintiffs allege that cross-defendants violated the Tennessee Viatical
Settlement Act (“TVSA”), Tenn. Code. Ann. § 56-50-101, et seq.4 Under the TVSA,
upon a violation, “the viatical settlement purchase agreement [is] voidable and subject to
rescission by the viatical settlement purchaser.” Tenn. Code Ann. § 56-50-115. A
“viatical settlement purchaser” is “a person who provides a sum of money as
consideration for a life insurance policy or an interest in the death benefits of a life
insurance policy.” Tenn. Code Ann. § 56-50-102.
Cross-plaintiffs submit that the sale of the policies at issue violated the TVSA, and
“rendered the sale of the policies ineffective, by proceeding with a viatical transaction
with [Mr.] Gettelfinger despite being unlicensed” in Tennessee, causing cross-plaintiffs
to suffer damages and incur expenses as a result [Doc. 16 p. 11]. The complaint,
however, does not allege how the sale of the policies at issue qualifies as a viatical
transaction, how Mr. Gettlefinger could be described as a viatical settlement purchaser—
the party who has the ability to void the contract under the TVSA—or who was required
to be licensed. The Court thus finds that cross-plaintiffs’ claim to be devoid of factual
enhancement as it does not provide cross-defendants with notice as to the alleged TVSA
violation, and should be dismissed.
4
In an unrelated case, the Tennessee Supreme Court has stated that a former examiner at
the Securities Division of the Tennessee Department of Commerce and Insurance described
viatical settlements as contracts where “third-party investors purchase either an entire life
insurance policy or stake in a life insurance policy that has been sold by the policyholder prior to
his or her death; when the original policyholder dies, the investor, as the legal beneficiary,
receives the death benefit from the policy.” State v. Casper, 297 S.W.3d 676, 694 (Tenn. 2009).
17
6.
Violation of the Tennessee Securities Act and Federal Securities
Laws
Cross-plaintiffs allege that the sale of the policies at issue to cross-defendants
violated the Tennessee Securities Act and federal securities laws, thereby rendering the
sale of the policies ineffective, “by transacting business involving a security with [Mr.]
Gettelfinger despite not being registered” in either Tennessee or under federal securities
laws, causing them to suffer damages and incur expenses as a result [Doc. 16 pp. 12–13].
The complaint fails to specify which provision of the Tennessee Securities Act or
the federal securities laws defendants purportedly violated, who was required to be
registered in Tennessee or under the federal laws, and under which civil cause of action
in the Act or under federal securities laws cross-plaintiffs are proceeding.
While cross-plaintiffs allege that the allegations contained in the cross-complaint
provide cross-defendants with fair notice, particularly when read in conjunction with their
answer to plaintiff’s complaint [Doc. 16], the Court does not agree. In their answer to
plaintiff’s complaint, the majority of the substantive facts to which the cross-plaintiffs
admit include that Mr. Gettelfinger “was and remained the owner and beneficiary of the
policies,” [Doc. 16 ¶ 30] and that the Gettelfinger family and its representatives have
“continued to raise questions about the assignment to SmartBank of $200,000.00 of
Policy 015N and the sale of both policies to Progressive Capital and/or Wilmington
Trust” [Doc. 1 ¶ 28]. Cross-plaintiffs also admit that the Gettelfinger family has “raised
possible competency issues relating to Mr. Getterlfinger’s ability to enter into
18
transactions with SmartBank, Wilmington Trust, and Progressive Capital[,] and undue
influence issues with respect to the $200,000 SmartBank assignment” [Id.].
When reviewing cross-plaintiffs’ complaint in conjunction with these answers to
plaintiff’s complaint, the Court finds that cross-plaintiffs have not alleged sufficient facts
to put cross-defendants on notice as to what statute under the Tennessee Securities Act or
federal securities laws cross-defendant actually violated, in what transaction, and who
was required to be registered. Furthermore, cross-plaintiffs do not submit how the
alleged act is subject to federal securities laws. The Court finds that the cross-complaint
and answer—which simply contain “naked assertions” that lack further factual
enhancement—cannot state plausible claims to relief.
Ashcroft, 556 U.S. at 678.
Accordingly, cross-plaintiffs’ claims under the Tennessee Securities Act and federal
securities laws are dismissed.
III.
Motion for Sanctions
Cross-defendants also move the Court for sanctions against cross-plaintiffs,
pursuant to Federal Rule of Civil Procedure 11 [Doc. 35]. Cross-defendants submit that
cross-plaintiffs have admitted that they have not complied with the requirements of
Federal Rule of Civil Procedure 11(b)(3) because they did not conduct a reasonable
inquiry into their claims prior to filing the cross-complaint [Doc. 36 p. 4]. In this motion,
cross-defendants request the Court to enter an order striking cross-plaintiffs’ answer,
affirmative defenses, and counterclaim [Doc.16], and requiring cross-plaintiffs bear the
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cross-defendants’ costs, including attorneys’ fees, that they have incurred in defending
this action [Doc. 35].
In support, cross-defendants note that in the Affidavit of Richard J. Gettelfinger
[Doc. 32-1], which was filed along with cross-plaintiffs’ opposition to cross-defendants’
motion to dismiss, Richard Gettelfinger states: “The Gettelfinger Estate is unable to show
all facts necessary to the relevant defenses and claims unless discovery is conducted, nor
can the Gettelfinger Estate adequately investigate the ‘facts’ and documents presented
until discovery is complete” [Doc. 36 p. 2 (citing Doc. 32-1 ¶ 5)]. They allege that this
demonstrates that cross-plaintiffs’ counsel did not conduct a reasonable inquiry into its
claims prior to filing the cross-complaint, in violation of Rule 11 [Id.]. Cross-defendants
also allege that cross-plaintiffs brought their claims for an improper purpose [Id. p. 7].
Cross-plaintiffs responded in opposition to cross-defendants’ motion, noting that
they filed the cross-complaint only after conducting “an objectively reasonable inquiry
into the facts known at the time of filing” [Doc. 38]. Thereafter, cross-defendants replied
[Doc. 39].
Rule 11(b)(3) of the Federal Rules of Civil Procedure provides:
By presenting to the court a pleading, written motion, or other paper
. . . an attorney or unrepresented party certifies that to the best of the
person’s knowledge, information, and belief, formed after an inquiry
reasonable under the circumstances . . . (3) the factual contentions
have evidentiary support or, if specifically so identified, will likely
have evidentiary support after a reasonable opportunity for further
investigation or discovery[.]
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Fed. R. Civ. P. 11(b)(3). This rule “imposes a duty on attorneys to certify that they have
conducted a reasonable inquiry and have determined that any papers filed with the court
are well-grounded in fact, legally tenable, and not interposed for any improper purpose.”
McGhee v. Sanilac Cty., 934 F.2d 89, 92–93 (6th Cir. 1991) (citing Cooter & Gell v.
Hartmarx Corp., 110 S. Ct. 2447, 2454 (1990)). The rule “imposes upon litigants a
continuing obligation to refrain from pursuing meritless or frivolous claims during the
course of proceedings.” Dearborn St. Bldg. Assocs., LLC v. Huntington Nat. Bank, 411
F. App’x 847, 850 (6th Cir. 2011). The Supreme Court has described that Rule 11(b)(3)
provides “flexibility” by “allowing pleadings based on evidence reasonably anticipated
after further investigation or discovery.” Rotella v. Wood, 528 U.S. 549 (2000).
Rule 11(c) provides that if, after notice and an opportunity to respond, the Court
determines that 11(b) has been violated, it may impose an appropriate sanction on any
attorney, law firm, or party who violated the rule. Fed. R. Civ. P. 11(c). “[I]n this
circuit, the test for the imposition of Rule 11 sanctions is whether the individual
attorney’s conduct was reasonable under the circumstances.” McGhee v. Sanilac Cty.,
934 F.2d at 92–93 (citing Mann v. G & G Mfg., Inc., 900 F.2d 953,958 (6th Cir. 1990)).
In this case, the Court concludes that cross-defendants have not shown that crossplaintiffs’ actions were frivolous, done for improper purpose, without evidentiary
support, or otherwise unreasonable so as to warrant relief under Rule 11. While crossdefendants allege that cross-plaintiffs did not conduct a reasonable inquiry into their
claims prior to filing the cross-complaint, the Court notes that cross-plaintiffs have
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alleged that they began questioning the assignment of the policies after Mrs. Gettelfinger
died, and they continued to do so after Mr. Gettelfinger’s death [Docs. 1 ¶ 26, 28; 16 ¶
26, 28]. The claims included in the cross-complaint relate to cross-plaintiffs’ beliefs
regarding the invalidity of those assignments.
While cross-plaintiffs admit they are unable at the present time to show “all facts
necessary” to their claim, the Court notes that cross-plaintiffs are only required to
conduct a reasonable inquiry into their pleadings. The Court may allow cross-plaintiffs’
pleadings so long as the cross-plaintiffs reasonably anticipate obtaining additional
discoverable evidence that would pertain to their claims. The Court finds that crossplaintiffs have met this burden. While the Court finds that cross-plaintiffs fail to state a
claim under Rule 12(b)(6), the Court does not find that cross-plaintiffs’ claims are
frivolous, dilatory, unreasonable, or were claimed without reasonable inquiry, so as to
warrant relief under Rule 11. Accordingly, cross-defendants’ motion [Doc. 35] is denied.
IV.
Conclusion
For these reasons, cross-defendants’ motion to dismiss [Doc. 28] is GRANTED.
The Court DISMISSES cross-plaintiffs’ claims against cross-defendants.
defendants’ motion for sanctions [Doc. 35] is DENIED.
ORDER ACCORDINGLY.
s/ Thomas A. Varlan
CHIEF UNITED STATES DISTRICT JUDGE
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Cross-
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