Benevento v. Life USA Holding, Inc., CIVIL ACTION No. 97-CV-7827 (E.D. Pa. 9/__/1999)

• Decision Date: 01 September 1999
• Docket Number: CIVIL ACTION No. 97-CV-7827.
• Parties: Joseph BENEVENTO, Drew W. Krapf, Esther Rosenblum, Bruce C. Compaine, Edward Maze and Rita Baskin, Plaintiffs for themselves and all other similarlysituated annuity purchasers, v. LIFE USA HOLDING, INC., Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

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Joseph BENEVENTO, Drew W. Krapf, Esther Rosenblum, Bruce C. Compaine, Edward Maze and Rita Baskin, Plaintiffs for themselves and all other similarlysituated annuity purchasers, v. LIFE USA HOLDING, INC., Defendant.

CIVIL ACTION No. 97-CV-7827.

United States District Court, E.D. Pennsylvania.

September __, 1999.

John M. Elliott, Thomas J. Elliott, Timothy T. Myers, Mark A. Kearney, Brian J. McCormick, Jr., Elliott, Reihner, Siedzikowski & Egan, P.C., Blue Bell, PA, for Plaintiffs.

William T. Hangley, Daniel Segal, Hangley, Aronchick, Segal & Pudlin, Philadelphia, PA, James F. Jorden, Waldemar J. Pflepsen, Jr., Paul A. Fischer, Richard Karpinski, Jorden, Burt, Boros, Chicchetti, Berenson & Johnson, LLP, Washington, DC, for Defendant.

MEMORANDUM AND ORDER

JOYNER, District Judge.

This case is now before the Court upon motion of the defendant, LifeUSA Holding, Inc. for the entry of summary judgment in its favor as to all counts of the plaintiffs' complaint. For the reasons which follow, the motion is denied.

History of the Case

This case, which was instituted in December 1997, arose out of the plaintiffs' purchase of "Accumulator"¹ annuity products from defendant LifeUSA Holding, Inc. and its subsidiaries and divisions.² Essentially, it is the plaintiffs' contention that the manner in which the defendant marketed, promoted and sold the accumulator annuities to them was fraudulent in that they were not properly apprised of, inter alia, the terms and conditions governing the manner in which their funds would earn interest, how they could withdraw their funds, what would happen in the event of withdrawal, or the annuities' true interest rates and yields. According to the plaintiffs, "LifeUSA created and implemented a purposeful scheme to deceive and mislead them and the class of LifeUSA annuity purchasers through:

(a) inducing agents to sell LifeUSA annuities, as opposed to other annuity policies, with representations of the highest commissions, equity ownership in LifeUSA, producer perks and wire transfer of commissions within twenty-four hours of obtaining the purchaser's funds and before the purchasers received their LifeUSA "fine print" contract;

(b) training agents through standardized and uniform misrepresentations and nondisclosures that, inter alia, the agents' clients, through LifeUSA, would be paid substantial interest bonuses, "current" interest rates, and obtain "fully insured" and "safe" economic gain greater than the gains offered in the stock market or Certificates of Deposit;

(c) concealing and failing to disclose the true terms of the LifeUSA Accumulator annuity from the purchasers, who are given no written materials from LifeUSA and provided with only an application and the uniform representations of LifeUSA agents based upon LifeUSA's standardized misrepresentations and material omissions taught to the agents;

(d) immediately rewarding the agents with "producer perks" within 24 hours of sale and then later sending fine print annuity contracts which are misleading and ambiguous;

(e) disguising the interest rates paid to LifeUSA purchasers in quarterly accountings by comparing the Accumulator annuity favorably with Bank Certificates of Deposit and then misrepresenting the "yield" as the "interest rate," thus purposefully creating a false impression that the represented "compounded daily" interest rate is much higher, when in fact, the interest rate is less than the represented "interest rate" and then,

(f) eliminating any ability for the purchaser to gain the misrepresented benefits of their annuity policy upon withdrawal because when a purchaser attempts to obtain the benefits they must accept . . . a lump sum of principal and interest with a "penalty" . . . of approximately 5% . . . ., periodic principal and interest payments over a minimum of five years with the balance being paid a "compounded daily" interest rate of less than three percent . .., periodic interest only payments for a minimum of five years with the entire principal remaining with LifeUSA earning a current interest rate unilaterally defined by LifeUSA. . . . or death benefits to the purchaser's estate which . . . must select from the aforementioned three options."

Plaintiffs here fall into two categories: (1) those who, like Drew Krapf and Esther Rosenblum, purchased Accumulator annuity policies between August 1, 1989 and October 1, 1997 ("the class period") and have not, to date, withdrawn any funds such that their principal and interest remains with the defendant company; and (2) those like Joseph Benevento, Rita Baskin, Edward Maze and Bruce Compaine who also purchased their Accumulator annuities during the class period but elected to withdraw their funds through the minimum five-year payout period.

By way of the pending motion, Defendant contends that it is entitled to judgment in its favor as a matter of law as to all of the plaintiffs and all of their claims for relief. Specifically, Defendant urges this Court to find that (1) the plaintiffs have insufficient evidence to sustain their causes of action for negligent and fraudulent misrepresentation, unjust enrichment, injunctive relief, negligence and breach of the duty of good faith and fair dealing and, (2) the plaintiffs' claims are barred by the applicable statutes of limitations and, in the case of plaintiffs Baskin, Maze and Compaine, barred by Florida's and New Jersey's Economic Loss Rules. Alternatively, Defendant contends that the negligence and negligent misrepresentation claims of Messrs. Benevento, Krapf, Maze and Compaine and Mrs. Rosenblum are barred by the doctrine of contributory negligence and, in the case of Plaintiffs Benevento, Krapf and Rosenblum, by their failure to have sustained any out-of-pocket losses. We shall address each of these arguments in turn.

Standards Governing Motions for Summary Judgment

The standards for determining whether summary judgment is properly entered in cases pending before the district courts are governed by Fed.R.Civ.P. 56. Subsection (c) of that rule states, in pertinent part,.. . The judgment sought shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. A summary judgment, interlocutory in character, may be rendered on the issue of liability alone although there is a genuine issue as to the amount of damages.

In this way, a motion for summary judgment requires the court to look beyond the bare allegations of the pleadings to determine if they have sufficient factual support to warrant their consideration at trial. Liberty Lobby, Inc. v. Dow Jones & Co., 838 F.2d 1287 (D.C.Cir. 1988), cert. denied, 488 U.S. 825, 109 S.Ct. 75, 102 L.Ed.2d 51 (1988). See Also: Aries Realty, Inc. v. AGS Columbia Associates, 751 F. Supp. 444 (S.D.N.Y. 1990).

As a general rule, the party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion and identifying those portions of the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In considering a summary judgment motion, the court must view the facts in the light most favorable to the party opposing the motion and all reasonable inferences from the facts must be drawn in favor of that party as well. U.S. v. Kensington Hospital, 760 F. Supp. 1120 (E.D.Pa. 1991); Schillachi v. Flying Dutchman Motorcycle Club, 751 F. Supp. 1169 (E.D.Pa. 1990).

When, however, "a motion for summary judgment is made and supported [by affidavits or otherwise], an adverse party may not rest upon the mere allegations or denials of the adverse party's pleading, but the adverse party's response . . . must set forth specific facts showing that there is a genuine issue for trial.' If the adverse party does not so respond, summary judgment, if appropriate may be entered against [it]." Fed.R.Civ.P. 56(e).

A material fact has been defined as one which might affect the outcome of the suit under relevant substantive law. Boykin v. Bloomsburg University of Pennsylvania, 893 F. Supp. 378, 393 (M.D.Pa. 1995) citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute about a material fact is "genuine" if "the evidence is such that a reasonable jury could return a verdict for the non-moving party." Id., citing Anderson, 477 U.S. at 248, 106 S.Ct. at 2510.

Discussion

A. Which state's law governs?

At the outset, we are presented with the question of which state's law should be applied to this case. Defendant asserts that this case must be evaluated in the context of the laws of the plaintiffs' respective home jurisdictions. Plaintiffs Benevento, Krapf and Rosenblum are residents of Pennsylvania. Plaintiffs Compaine and Maze, in turn, are residents of New Jersey and Plaintiff Baskin is a Florida resident. Defendant would therefore have this Court consider the plaintiffs' claims under Pennsylvania, New Jersey and Florida law. Plaintiffs, on the other hand, argue that the law of the Defendant's home state, Minnesota, should be applied.

It is now well-settled that in diversity actions, a federal court must apply the choice of law rules of the state in which it sits. Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941); United Services Automobile Ass'n. v. Evangelista, 698 F. Supp. 85, 86 (E.D.Pa. 1988). Pennsylvania has adopted a choice of law/conflicts methodology which combines the approaches of both the Second Restatement (contacts establishing significant relationships) and "interest" analysis ...