Berent v. Kemper Corp.

• Decision Date: 31 July 1991
• Docket Number: No. 90-CV-70040-DT.,90-CV-70040-DT.
• Citation: 780 F. Supp. 431
• Parties: David R. BERENT, Robert R. Bonner, Gary F. Jacobs, Jania M. Jacobs, and Joel N. Levine, individually as representatives of a class composed of policyholders who purchased single premium deposit life insurance policies from Defendants in the years 1984 to date, Plaintiffs, v. KEMPER CORPORATION and Federal Kemper Life Assurance Company, Illinois corporations, jointly and severally, Defendants.
• Court: U.S. District Court — Western District of Michigan

780 F. Supp. 431

David R. BERENT, Robert R. Bonner, Gary F. Jacobs, Jania M. Jacobs, and Joel N. Levine, individually as representatives of a class composed of policyholders who purchased single premium deposit life insurance policies from Defendants in the years 1984 to date, Plaintiffs, v. KEMPER CORPORATION and Federal Kemper Life Assurance Company, Illinois corporations, jointly and severally, Defendants.

No. 90-CV-70040-DT.

United States District Court, E.D. Michigan, S.D.

July 31, 1991.

Leonard Lemberg, Richard Patrich, Southfield, Mich., James Thorburn, Birmingham, Mich., Charles Porter, Bloomfield Hills, Mich., for plaintiffs.

Barbara Goldman, Susan Artinian, Detroit, Mich., Dennis Egan, Chicago, Ill., for defendants.

MEMORANDUM OPINION AND ORDER REGARDING DEFENDANTS' TWO MOTIONS TO DISMISS PLAINTIFFS' FIRST AMENDED COMPLAINT AND DEFENDANTS' MOTION TO STRIKE EXHIBITS

ROSEN, District Judge.

I. INTRODUCTION

Plaintiffs instituted this action in federal court on January 5, 1990 by filing a six-count federal securities fraud/RICO/Michigan common law fraud Complaint based upon the Defendants involvement in an allegedly fraudulent scheme involving sales of two Federal Kemper Life Assurance Company single-premium life insurance policies. The case was originally assigned to U.S. District Judge Lawrence Zatkoff, and re-assigned to this Court on July 13, 1990.

This matter is presently before the Court on two Fed.R.Civ.Pro. 12(b)(6) Motions to Dismiss Plaintiffs' First Amended Complaint, which were separately-filed by the two Defendants — Kemper Corporation and Federal Kemper Life Assurance Company ("FKLA"). Plaintiffs have filed Briefs in Opposition to both of the Motions, to which opposition Briefs Defendants have replied. Plaintiffs also filed a Supplemental Opposition Brief on July 23, 1991.

Having reviewed and considered Defendants' Motions, the parties' respective Briefs and the Affidavits and other documents annexed thereto, and having heard the oral arguments of the parties' attorneys at the July 25, 1991 hearing on this matter, the Court is now prepared to rule on Defendants' Motions. This Memorandum Opinion and Order sets forth that ruling.

II. PROCEDURAL HISTORY

PLAINTIFFS' ORIGINAL COMPLAINT

Plaintiffs' original January 5, 1990 Complaint in this action contained six counts, captioned as follows:

Count I: "RICO Action under 18 U.S.C. Section 1962(c) — Mail and Wire Fraud";

Count II: "RICO Action under 18 U.S.C. Section 1962(a) — Mail and Wire Fraud";

Count III: "Action under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5";

Count IV: "RICO Action under 18 U.S.C. Section 1962(c) — Securities Fraud";

Count V: "RICO Action under 18 U.S.C. Section 1962(a) — Securities Fraud"; and

Count VI: "Pendent Michigan Common Law Claim for Fraud".

All of these Counts were predicated upon Plaintiffs' claim that Defendants misrepresented in their promotion, marketing, advertisement and sales of Defendant FKLA's "RL-3" and "RL-3SP" single premium life insurance policies that the interest rate paid in connection with these policies would be directly related to FKLA's investment results. Plaintiffs claimed that Defendants allegedly lowered the interest rates paid on the policies after they were purchased to a rate below that which FKLA itself was receiving on its investments, and that Defendants have kept the surplus interest income instead of paying more to Plaintiffs.

Plaintiffs' subsequently amended their complaint by filing a "First Amended Complaint". The First Amended Complaint — which is presently at issue — was filed in response to Defendants' previous motions to dismiss Plaintiffs' original Complaint.

Judge Zatkoff ruled on Defendants' initial motions for dismissal, and on May 7, 1990, entered a Memorandum Opinion and Order, and a Judgment dismissing Plaintiffs' Complaint in its entirety, 1990 WL 120653.

JUDGE ZATKOFF'S RULINGS ON DEFENDANTS' INITIAL MOTIONS TO DISMISS PLAINTIFFS' ORIGINAL COMPLAINT

Judge Zatkoff found that Plaintiffs' federal securities fraud claim in Count III of their original Complaint failed to state a legally cognizable claim for violation of the Federal securities laws because he determined that "plaintiffs have failed to factually support their allegation that the insurance policies are investment contracts and securities" and "that to the extent that the specific policies in this suit are securities, they are exempted from the scope of the Federal Securities laws pursuant to Section 3(a)(8) of the Securities Act of 1933 and SEC Rule 151." See p. 6 of May 7, 1990 Memorandum Opinion and Order.

Further, because Judge Zatkoff determined that Plaintiffs had not stated any legally cognizable federal securities fraud claim, he determined that Counts IV and V of Plaintiffs' original complaint — which alleged RICO violations predicated upon securities law violations — failed as a matter of law, as well, because, having found that there were no securities law violations, Judge Zatkoff determined that there were no RICO securities fraud "predicate acts" to support those two counts. See 5/7/90 Opinion and Order, p. 8. With respect to Count I (and Count II, as well) — which were RICO counts predicated on allegations of wire and mail fraud — Judge Zatkoff determined that since plaintiffs claims of securities fraud had no legal merit, the RICO mail and wire fraud counts also failed because use of the mails or wires is not, in and of itself, a crime without any underlying illegal fraudulent activity. 5/7/90 Opinion and Order, p. 9.

Judge Zatkoff further determined that Count II (as well as Count V) — which alleged actions under Section 1962(a) of the RICO statute — also failed as a matter of law because that section is only applicable to injuries resulting from the use of racketeering funds, and not from the racketeering activity itself. 5/7/90 Opinion and Order, p. 8.

Further, with respect to Plaintiffs' entire original complaint as a whole, Judge Zatkoff held that Plaintiffs' allegations of fraud were only conclusory and failed to satisfy the requirements of Fed.R.Civ.Pro. 9(b), which requires that fraud claims be pled with specificity. Judge Zatkoff determined that Plaintiffs failed to specifically assert whether the alleged fraud was the act of the named Defendants or one of the non-defendant agents who actually sold the policies involved, and failed to specify the time, place or context of the alleged misrepresentations. Accordingly, he dismissed all of Plaintiffs' federal law claims (Counts I-V), and dismissed Plaintiffs' pendent state-law fraud claim (Count VI) for lack of federal court jurisdiction, as well.

Lastly, Judge Zatkoff held that Plaintiffs had failed to plead any facts in their original complaint that would support any claim against Defendant Kemper Corporation, nor did they plead sufficient facts to support "piercing the corporate veil" to render Kemper Corporation liable for the acts of its subsidiary, Defendant FKLA.

PLAINTIFFS' FIRST AMENDED COMPLAINT

Judge Zatkoff subsequently vacated his May 7, 1990 Memorandum Opinion and Order and Judgment of Dismissal because, while Plaintiffs' original complaint and the Defendants' initial motions to dismiss were being considered by the Court, Plaintiffs filed a request for leave to file an amended Complaint and submitted their proposed "First Amended Complaint" therewith. Because Judge Zatkoff had not considered Plaintiffs' proposed First Amended Complaint when he issued his May 7, 1990 rulings, Judge Zatkoff vacated the May 7 Opinion and Order and Judgment of Dismissal, and granted Plaintiffs leave to file their First Amended Complaint.

It is this "First Amended Complaint" that is at issue now.

The allegations in Plaintiffs' First Amended Complaint are not materially different from the allegations set forth in Plaintiffs' original complaint. Other than the addition of a Count VII, captioned "Pendent Claim for Mandatory Injunction," the only substantive changes/additions to the original complaint set forth in the First Amended Complaint are as follows:

(1) Plaintiffs have attached to their First Amended Complaint two exhibits. These two Exhibits are sales brochures for the Federal Kemper Life Assurance Company's "RL-3" and the "RL-3SP" single-premium life insurance policies, which are the insurance policies at issue in this case.

(2) To the introductory section of the Complaint captioned "Class Action Allegations", Plaintiffs have added two new paragraphs (paragraphs 13 and 14).¹

(3) To the introductory section of the Complaint captioned, "The Defendants' Fraudulent `Bait and Switch' Scheme", Plaintiffs have added five new paragraphs.

They have added paragraph 20, in which they allege:

The Defendants' fraudulent misrepresentations and concealment of material facts were transmitted to the named Plaintiffs and to the Plaintiff class through Defendants' own written promotional literature (Exhibit 1) and through Defendants' general agents, who were innocent and unwitting dupes, and parroted the false and fraudulent representations of Defendants.

Paragraphs 25-28 are also new. (These four new paragraphs are apparently intended to cure the lack of allegations tying Defendant Kemper Corporation to the actions of Defendant FKLA which were noted by Judge Zatkoff with reference to their original complaint.) In these new paragraphs, the new facts that Plaintiffs allege are as follows: (1) Yearly interest rates on single premium life insurance products are declared by the board of directors of Defendant FKLA; (2) Nine of the 11 members of the FKLA board of directors in 1988 were also members and a majority of the board of directors of Defendant Kemper Corporation; (3) In 1988, the secretary and treasurer of FKLA were also officers of Defendant Kemper Corporation; (4) Overall investment policy for Defendant FKLA is directed and controlled by the Finance Committee of Defendant Kemper Corporation; and (

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