762 F.3d 264 (3rd Cir. 2014), 13-1879, Griswold v. Coventry First LLC

Docket Nº:13-1879
Citation:762 F.3d 264
Opinion Judge:HARDIMAN, Circuit Judge.
Party Name:LINCOLN T. GRISWOLD; LINCOLN T. GRISWOLD FAMILY LLP v. COVENTRY FIRST LLC; THE COVENTRY GROUP, INC.; MONTGOMERY CAPITAL, INC.; COVENTRY FINANCIAL LLC; REID S. BUERGER, Appellants
Attorney:Ronald J. Mann [ARGUED], Gerard M. McCabe, Mitts Law, Philadelphia, PA; Daniel P. Goetz, R. Eric Kennedy, Weisman, Kennedy & Berris, Cleveland, OH; Mark D. Griffin, Thorman Petrov Griffin, Cleveland, OH; Peter Hardin Levine, J. Matthew Linehan, Daniel P. Petrov, Christopher P. Thorman, Thorman & ...
Judge Panel:Before: AMBRO, HARDIMAN and GREENAWAY, JR., Circuit Judges.
Case Date:August 11, 2014
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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762 F.3d 264 (3rd Cir. 2014)

LINCOLN T. GRISWOLD; LINCOLN T. GRISWOLD FAMILY LLP

v.

COVENTRY FIRST LLC; THE COVENTRY GROUP, INC.; MONTGOMERY CAPITAL, INC.; COVENTRY FINANCIAL LLC; REID S. BUERGER, Appellants

No. 13-1879

United States Court of Appeals, Third Circuit

August 11, 2014

Argued January 14, 2014

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On Appeal from the United States District Court for the Eastern District of Pennsylvania. (D.C. No. 10-cv-05964). District Judge: Honorable C. Darnell Jones, II.

Ronald J. Mann [ARGUED], Gerard M. McCabe, Mitts Law, Philadelphia, PA; Daniel P. Goetz, R. Eric Kennedy, Weisman, Kennedy & Berris, Cleveland, OH; Mark D. Griffin, Thorman Petrov Griffin, Cleveland, OH; Peter Hardin Levine, J. Matthew Linehan, Daniel P. Petrov, Christopher P. Thorman, Thorman & Hardin-Levine, Cleveland, OH, Attorneys for Lincoln T. Griswold and Lincoln Griswold Family LLP, Plaintiffs-Appellees.

Kannon K. Shanmugam [ARGUED], Stephen D. Andrews, Kenneth J. Brown, Sarah K. Campbell, David Forkner, Marcie R. Ziegler, Williams & Connolly, Washington, DC; F. Warren Jacoby, Jennifer M. McHugh, Cozen O'Connor, Philadelphia, PA, Attorneys for Coventry First, LLC, Coventry Group, Inc., Montgomery Capital, Inc., Coventry Financial LLC, and Reid S. Buerger, Defendants - Appellants.

Before: AMBRO, HARDIMAN and GREENAWAY, JR., Circuit Judges.

OPINION

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HARDIMAN, Circuit Judge.

Appellee Lincoln T. Griswold purchased a life insurance policy that was later sold to Appellant Coventry First LLC (Coventry) for an allegedly inflated price that included undisclosed kickbacks to the broker. Griswold sued, and Coventry moved to dismiss the case for lack of standing or, in the alternative, to compel arbitration. The District Court denied the motion and Coventry appealed. Two questions are presented: (1) whether we have appellate jurisdiction to review the District Court's denial of a motion to dismiss for lack of standing; and (2) whether the District Court erred when it denied a motion to compel arbitration.

I

This appeal arises from an alleged fraud in connection with a " life settlement," which involves the sale of a life insurance policy for more than its cash-surrender value but less than the net death benefit. The purchaser of the policy pays the premiums until the original policy owner's death, at which time the purchaser collects the death benefit.

In January 2006, Griswold purchased an $8.4 million life insurance policy. He then established the Lincoln T. Griswold Irrevocable Trust (the Trust) under Georgia law for the " sole and exclusive purpose" of owning the policy and he disclaimed any personal " right, title or interest in or power, privilege or incident of ownership" in the trust property. He appointed Wells Fargo Bank to serve as Trustee.

Two weeks after the Trust was formed,

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Griswold named Griswold LLP1 as its sole beneficiary.2 According to the terms of the partnership agreement, Griswold LLP would dissolve once it fulfilled its limited purpose of receiving the proceeds of the life insurance policy. At that point, it would enter into a " winding-up period," during which the trustee was tasked with " liquidating its property, satisfying the claims of its creditors, and distributing any remaining property or the proceeds therefrom to the Partners." JA 382 (§ 9.3). Upon completion of the winding up period, the liquidating trustee would file a " Cancellation of the Election to Become a Limited Liability Partnership" to terminate the partnership. JA 384 (§ 9.8).

In January 2006, the Trust appointed Mid-Atlantic Financial as its exclusive agent to " identify, select and appoint" a life-settlement broker who would help the Trust sell Griswold's life insurance policy. JA 326 (§ 1.1). Mid-Atlantic selected Kevin McGarrey, who had previously assisted Griswold in procuring the policy, to be the settlement broker. In March 2008, McGarrey reached out to Appellant Coventry First LLC (Coventry), a Pennsylvania-based insurer and significant player in the life settlement industry, indicating that Griswold's life insurance policy was for sale and that Mid-Atlantic had authorized him to broker a life settlement for a commission of $84,000. In his complaint, Griswold alleges that Coventry rigged the bidding process by having McGarrey sign a written producer agreement--the " Secret McGarrey Agreement" --promising to refrain from seeking any further bids and to report any competing offers and their material terms to Coventry. In exchange, Coventry allegedly allowed McGarrey to " self-determine" his commission to the tune of $145,000, which was $61,000 more than what he was entitled to. Accordingly, McGarrey did not put the policy on the competitive market and did not pursue any other potential buyers.

Coventry offered $1.675 million for the Griswold policy--$1.53 million for the policy and $145,000 for McGarrey's commission. Coventry and McGarrey did not disclose the amount of broker compensation to the Trust or to Griswold.3 On March 31, 2008, the Trust sold its policy to Coventry without having received a competing offer. The written purchase agreement contained the following arbitration clause:

All disputes and controversies of every kind and nature between the Parties arising out of or in connection with this Agreement including, but not limited to, its existence, construction, validity, interpretation or meaning, performance, non-performance, enforcement, operation, breach, continuance, or termination thereof shall be submitted and settled by arbitration in accordance with the

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rules of the American Arbitration Association.

JA 648 (§ 8.8). Once Coventry acquired the life insurance policy, the Trust dissolved, having fulfilled its sole purpose. The Trustee, Wells Fargo, then transferred the proceeds of the sale to Griswold LLP, the sole beneficiary. In December 2008, the partners of Griswold LLP filed a " Cancellation of Limited Liability Partnership Election" in Georgia state court pursuant to the LLP's partnership agreement.

In September 2010, after learning of Coventry's alleged fraud, Griswold sued Coventry, Coventry Group, Montgomery Capital, Coventry Financial, and Reid S. Buerger, Coventry's Executive Vice President, in Pennsylvania state court on behalf of himself--both in his individual capacity and as the former majority partner of Griswold LLP--and on behalf of a class of persons who had sold their life insurance policies to these Defendants. Griswold alleged that Coventry's collusion with McGarrey to conceal his self-determined commission and rig the bidding process constituted common law fraud, fraudulent concealment, conversion, aiding and abetting the breach of fiduciary duties, unjust enrichment, and also violated state life settlement acts, the Sherman Act, and the Racketeer Influenced and Corrupt Organizations Act (RICO).

Because the class action sought over $5 million in damages, Coventry removed the case to the United States District Court for the Eastern District of Pennsylvania. In recognition of the fact that Griswold had not signed the purchase agreement, Coventry filed a motion to dismiss for lack of standing, or in the alternative, to compel arbitration pursuant to the purchase agreement.4 In response, Griswold filed an " Election to Revive and Reinstate and Otherwise Become a Limited Liability Partnership," followed by an Amended Complaint adding Griswold LLP as a Plaintiff. JA 480. Coventry moved to dismiss the Amended Complaint.

The District Court denied Coventry's motion to dismiss, finding that because " Griswold possesses a proprietary interest in the property of Griswold LLP that was injured, both Lincoln T. Griswold and the LLP have Article III standing." JA 4. The District Court then denied Coventry's alternative motion to compel arbitration, holding that the arbitration clause was " unenforceable as to Plaintiffs who are non-signatories." Id. Coventry timely appealed.

II

The District Court had jurisdiction pursuant to 28 U.S.C. § 1332(d). We have appellate jurisdiction over the District Court's denial of defendants' motion to compel arbitration pursuant to 28 U.S.C. § 1291 and the Federal Arbitration Act (FAA), 9 U.S.C. § 16(a)(1)(B), which provides that " [a]n appeal may be taken" from an order denying a petition to compel arbitration. See E.I. Dupont de Nemours & Co. v. Rhone Poulenc Fiber and Resin Intermediates S.A.S., 269 F.3d 187, 204 (3d Cir. 2001).

The parties dispute whether we have appellate jurisdiction to review the District Court's denial of...

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