Bresler v. Wilmington Trust Co.

• Decision Date: 20 April 2017
• Docket Number: No. 15-2086,15-2086
• Citation: 855 F.3d 178
• Parties: Fleur S. BRESLER, as the Co-Personal Representative of the Estate of Charles S. Bresler; Sidney Bresler, Individually, as a Beneficiary of the Charles S. Bresler Irrevocable Insurance Trust; Sidney M. Bresler, as the Co-Personal Representative of the Estate of Charles S. Bresler, Plaintiffs–Appellees, v. WILMINGTON TRUST COMPANY, Defendant–Appellant, and Wilmington Brokerage Services Company, a/k/a Wilmington Trust Brokerage; Highland Capital Brokerage, Inc., a/k/a Highland Capital Brokerage; Edmond Ianni; Ralph Wileczek; Matthew Waschull; Richard Biborosch, Defendants.
• Court: U.S. Court of Appeals — Fourth Circuit

855 F.3d 178

Fleur S. BRESLER, as the Co-Personal Representative of the Estate of Charles S. Bresler; Sidney Bresler, Individually, as a Beneficiary of the Charles S. Bresler Irrevocable Insurance Trust; Sidney M. Bresler, as the Co-Personal Representative of the Estate of Charles S. Bresler, Plaintiffs–Appellees,

v. WILMINGTON TRUST COMPANY, Defendant–Appellant,andWilmington Brokerage Services Company, a/k/a Wilmington Trust Brokerage; Highland Capital Brokerage, Inc., a/k/a Highland Capital Brokerage; Edmond Ianni; Ralph Wileczek; Matthew Waschull; Richard Biborosch, Defendants.

No. 15-2086

United States Court of Appeals, Fourth Circuit.

Argued: December 8, 2016

Decided: April 20, 2017

ARGUED: James Lindsay Shea, VENABLE LLP, Baltimore, Maryland, for Appellant. Philip M. Musolino, MUSOLINO & DESSEL PLLC, Washington, D.C., for Appellees. ON BRIEF: Mitchell Y. Mirviss, Christopher S. Gunderson, VENABLE LLP, Baltimore, Maryland; David T. Case, Stavroula E. Lambrakopoulos, R. James Mitchell, K&L GATES LLP, Washington, D.C., for Appellant. Mark T. Stancil, Alan D. Strasser, ROBBINS, RUSSELL, ENGLERT, ORSECK, UNTEREINER & SAUBER LLP, Washington, D.C., for Appellees.

Before KEENAN, WYNN, and HARRIS, Circuit Judges.

Affirmed by published opinion. Judge Keenan wrote the opinion, in which Judge Harris joined. Judge Wynn wrote a separate opinion concurring in part and dissenting in part.

BARBARA MILANO KEENAN, Circuit Judge:

In this appeal, we consider breach of contract claims brought by Fleur Bresler (Fleur) and her son, Sidney Bresler (Sidney) (collectively, the plaintiffs), as Co-Personal Representatives of the Estate of Charles S. Bresler (the Estate). A jury determined that defendants Wilmington Trust Company and Wilmington Brokerage Services Company (collectively, Wilmington) breached an agreement to lend money for the acquisition, maintenance, and certain investments relating to life insurance policies obtained for Charles S. Bresler (Charlie)¹ and his wife, Fleur. The jury awarded the plaintiffs around $23 million in damages. The district court determined post-trial that Wilmington also had breached an agreement to return certain funds to the Estate upon Charlie's death, and ordered Wilmington to return those funds in accordance with the parties' agreement.

Wilmington appeals, arguing that: (1) the district court erred in admitting testimony from the plaintiffs' expert witness; (2) the jury verdict, including the jury's award of damages, was not supported by the evidence; and (3) additional terms of the district court's order also were not supported by the evidence. Upon our review, we affirm the district court's judgment.

I.

A.

We state the evidence in the light most favorable to the plaintiffs, the prevailing parties at trial. See King v. McMillan , 594 F.3d 301, 306 (4th Cir. 2010). The evidence at trial showed that the parties' dispute involved an estate-planning strategy known as "premium financing." In the particular type of premium financing at issue here, an individual establishes an Irrevocable Life Insurance Trust (ILIT), which acquires one or more life insurance policies and pays the insurance premiums with loans obtained from a third-party lender. Each insurance policy consists of two components: (1) the face value of the policy, and (2) an investment component whereby the death benefit, or the amount that is paid to the insurance beneficiaries when the insured dies, increases if the policies retain excess funds above those required to cover the cost of the insurance and related expenses.

The process of investing in the insurance policies by making payments exceeding the minimum required amount is known as "overfunding." Through this technique, the policy funds grow because the insurance company pays interest on the policies acquired by the ILIT at a specified crediting rate. The goal of overfunding is to borrow from the third-party lender at an interest rate that is lower than the crediting rate, which causes the value of the policies to grow more quickly than the amount of the debt incurred.

During this process of overfunding, the funds in the policies accrue without being subject to taxation.² After the insured dies, the insurance company pays a portion of the death benefit from the policies to the third-party lender to repay the ILIT's outstanding loans, and thereafter pays the remainder of the death benefit to the ILIT, also without being subject to taxation. After the loans are repaid, the funds remaining in the ILIT, known as the "net-in-trust," pass tax-free to the ILIT's beneficiaries.

B.

Charlie was a successful entrepreneur in the Washington, D.C. area, and was a co-founder and Chairman of the Board of Directors of Bresler & Reiner, Inc. (B&R), a publicly traded company engaged in real estate development and commercial property management.³ By 2003, Charlie was 75 years old and had established a net worth of $150 million.

In 2002, Wilmington began development of a premium financing product. Wilmington and B&R had a prior business relationship, and in 2003, a Wilmington employee who had been managing Wilmington's relationship with B&R introduced Edmond Ianni, a Wilmington corporate vice president, to Charlie's attorney, Larry Shaiman. In March 2003, aware of Charlie's significant assets, Ianni and another Wilmington account executive approached Shaiman to discuss the possibility of Wilmington developing for Charlie and Fleur a "tax-saving wealth creation and preservation strategy."

Throughout Shaiman's and Charlie's discussions with Ianni, Charlie expressed reservations about entering into an arrangement that would require him to post a significant amount of collateral. During the course of their conversations, Ianni sent Charlie and Shaiman spreadsheets detailing net-in-trust projections to be derived from a premium financing arrangement. Unlike the spreadsheets Wilmington frequently used with other customers, the spreadsheets Ianni sent to Charlie omitted a column identifying payments of collateral. On November 10, 2003, Ianni sent Shaiman an email stating that any collateral Wilmington required from Charlie would be "minimal," because "the value of the ... trust's ... main asset (namely, the significant, growing cash value of the policy, as well as the increasing death benefit) is substantial; that, as you know, will serve as the significant source for satisfaction of the trust's outstanding loan to [Wilmington]."

Eleven days later, on November 21, 2003, Ianni sent Charlie a letter (the November 21 letter) detailing a proposed premium financing arrangement, in which Wilmington would lend to an ILIT established by the Breslers (the Trust) "the annual premium plus allowable overfunding ($5.5 million) to acquire and maintain" several "second-to-die" life insurance policies⁴ for Fleur and Charlie with a combined face value of $50 million. The November 21 letter proposed a "blended fixed" crediting rate of 5.675 percent, and a "favorable" interest rate of 1.5 percent above LIBOR⁵ "on terms required by the lender." Wilmington projected that after Fleur and Charlie both died, the net-in-trust would be between "$40.6 million to over $45.5 million," with tax savings of between "$24.5 million to over $115 million."

In the November 21 letter, Ianni also attempted to clarify "any misunderstanding of the collateral pledge aspect" of the arrangement. According to Ianni, Wilmington would require from Charlie a collateral pledge amount of between $2.9 and $4.2 million in the first year. Ianni indicated that "[t]he amount of the needed collateral going forward obviously will depend in part on the aggregate cash surrender value of the trust's assets (namely, of the insurance) and will be reviewed periodically." Charlie rejected the requirements for collateral stated in the November 21 letter, based on his understanding that the parties already had agreed that ongoing payments of collateral would not be required.

After further negotiations, in January 2004, Wilmington and Charlie executed three written agreements: (1) an irrevocable life insurance trust agreement (Trust Agreement) establishing the Trust; (2) an investment management agreement establishing an investment management account; and (3) a collateral pledge agreement. The Trust Agreement named Wilmington as trustee and the five children of Fleur and Charlie, including Sidney, as the Trust's beneficiaries.

The parties dispute whether Charlie and Ianni ultimately agreed that Charlie would make ongoing collateral payments. However, Charlie made an initial collateral payment to Wilmington in the amount of $3.7 million, for deposit into the investment management account. Wilmington later loaned funds to the Trust to acquire three "second-to-die" life insurance policies for Charlie and Fleur, with a combined face value of $50 million, and overfunded the policies in 2004.

C.

The events culminating in the present litigation occurred in 2005, after the first year of overfunding had concluded.⁶ At that time, Wilmington informed Charlie that he was required to post additional collateral before Wilmington would provide another $5.5 million loan to the Trust to cover the cost of the insurance premiums and overfunding contributions. Charlie rejected Wilmington's demand, and maintained that the parties' agreement required only that he provide the initial $3.7 million payment of collateral. Because the parties could not resolve their differences concerning the posting of collateral, Charlie provided an additional $1.3 million in collateral to prevent the policies from lapsing. Those funds were placed in the investment management account.

Accordingly, in 2005, Wilmington lent the Trust $702,338 to cover only the cost of the life insurance premiums, and did not overfund the policies after 2004. However, the parties continued in their efforts to resolve the issue regarding additional collateral payments until 2007, when Wilmington stopped making any payments for the policies. At that...