Estate of Carmel v. The GIII Accumulation Tr.
| Decision Date | 19 January 2023 |
| Docket Number | C. A. 21-658-MN-JLH |
| Parties | ESTATE OF JACK CARMEL, by its Personal Representative, Gary Warlen, Plaintiff, v. THE GIII ACCUMULATION TRUST and WELLS FARGO BANK, N.A., as Securities Intermediary, Defendants. |
| Court | U.S. District Court — District of Delaware |
REPORT AND RECOMMENDATION
Pending before the Court is Defendants' Renewed Motion to Compel Arbitration. (D.I. 46.) The motion is fully briefed (D.I. 47 48, 49, 50), and I heard oral argument on November 10, 2022. (Tr.__.) For the reasons set forth below, I recommend that Defendants' Motion be GRANTED and the case stayed pending arbitration.
Jack Carmel died in 2018. During his life, he was a successful businessman. He was the founder and CEO of an aluminum business that he later sold, and then the co-founder and CEO of a lucrative accounts receivable factoring business. (D.I. 48, Ex. 3 at 31-34.)
In April 2006, Carmel applied for and received a $7 million life insurance policy with Massachusetts Mutual Life Insurance Company (the “Policy”). (Id., Ex. 5.) In the policy application, Carmel represented that his “Annual Earned Income” was $2.875 million and that his “Financial Net Worth” was over $45 million. (Id.) He listed the “Jack Carmel 2006-1 Insurance Trust” as the owner and beneficiary of the Policy. (Id.) Carmel also represented that he was not applying for the Policy to benefit a life settlement company0F[1] and that he did not have any plans to sell the Policy. (Id.)
Carmel sold the Policy a few months later. In July 2006, he executed an “Exclusive Rights Agreement” with a life settlement company called Simba Life Plans, LLC (“Simba”) to market the Policy for sale.1F[2] (Id., Ex. 6.) Simba's efforts resulted in a Beneficial Interest Purchase Agreement (“BIPA”), pursuant to which the beneficial interest in the Jack Carmel 2006-1 Insurance Trust (the Policy's beneficiary) was sold to Defendant The GIII Accumulation Trust (“GIII”) for $543,542. (Id., Ex. 1 at 1.)
The copy of the BIPA in the record presently before the Court was in the possession of GIII. (Id. ¶ 4, Ex. 1.) It is a lengthy document, containing six Articles, including purchase, sale, and closing details, the parties' representations, warranties, acknowledgements, and covenants, indemnification and damages provisions, and a variety of miscellaneous provisions, including an arbitration provision. (Id., Ex. 1.) The cover page states that the BIPA is “DATED AS OF October 19, 2006,” but the date fields were not completed in the preamble and several other places. Carmel's undated signature appears on an unnumbered page towards the end of the document, and his signature appears again on the next page, which is dated October 12, 2006.2F[3] The Trust Officer for the Jack Carmel Family Trust and a Wells Fargo Delaware Trust Company Vice President also signed that page on behalf of GIII. (Id.)
Section 6.10 of the BIPA is an arbitration provision. It provides, in its entirety, as follows:
Arbitration. THE PARTIES HEREBY AGREE THAT ANY QUESTIONS OR CONTROVERSIES ARISING UNDER THIS AGREEMENT SHALL BE SUBMITTED TO ARBITRATION CONDUCTED BEFORE THE AMERICAN ARBITRATION ASSOCIATION (THE “AAA”). SUCH ARBITRATION WILL BE CONDUCTED UNDER THE RULES OF THE AAA AND THE LAWS OF THE STATE OF DELAWARE. EACH PARTY HERETO UNDERSTANDS THAT CLAIMS SUBMITTED TO ARBITRATION ARE NOT HEARD BY A JURY AND ARE NOT SUBJECT TO THE NORMAL RULES GOVERNING THE COURTS. EACH PARTY HERETO FURTHER AGREES THAT NO CLAIM MAY BE BROUGHT AS A CLASS ACTION, AND THAT NO PARTY HERETO SHALL HAVE THE RIGHT TO ACT, NOR SHALL THEY ATTEMPT TO ACT, AS A CLASS REPRESENTATIVE OR PARTICIPATE AS A MEMBER OF A CLASS OF CLAIMANTS WITH RESPECT TO ANY CLAIM ARISING UNDER THIS AGREEMENT.
(Id., Ex. 1 at 15-16.) Section 6.7 provides that the BIPA is “binding upon and will inure to the benefit of the parties and their respective successors and permitted assigns.” (Id. at 15.)
The BIPA has a table of contents that lists an additional ten exhibits and one schedule.Several of the listed exhibits are attached to the copy of the BIPA in the record, and they are filled out with Carmel's information. (Id., Ex. 1.) For example, Exhibit C contains “Backup Contact Sheet[s]” for Carmel, his family members, doctor, and attorney. (Id.) Other exhibits listed in the table of contents are incomplete, and some are missing entirely. However, the record separately contains a “Form of Verification Provider Certificate,” dated October 19, 2006, in which a Wells Fargo Assistant Vice President verified that “all Eligible Participant Closing Documents and Service Provider Closing Documents required to be delivered prior to the Acquisition date are in the possession of the Verification Provider[.]” (Id., Ex. 11.) Accompanying that document are many of the completed exhibits missing from the BIPA, such as an Authorization for Disclosure of Protected Health Information and an Irrevocable Durable Limited Power of Attorney. (Id., Ex. 12-17.) Those documents appear to have been completed and signed by Carmel, and they were notarized by Carmel's longtime personal attorney, Lawrence Weiner. (Id.; id., Ex. 3 at 29, 3839.) All are dated September 12, 2006. (Id., Ex. 12-17.)
In October 2006, GIII sent a check in the amount of $539,542 to Jack Carmel, which he deposited.3F[4] (Id., Ex. 21; id., Ex. 9 at 5.) Later that year, Carmel reported as income on his tax returns a short-term gain of $543,542. (Id., Ex. 23; id., Ex. 3 at 115-118.)
After Carmel died in May 2018, the $7 million death benefit was paid to Defendant Wells Fargo, N.A. (“Wells Fargo”), the securities intermediary for the Policy. The record does not reflect who currently has the funds.
On May 6, 2021, Carmel's estate-acting through its personal representative, Gary Warlen (the “Estate”)-initiated this action against Defendants GIII and Wells Fargo. The Estate seeks to recover the $7 million death benefit payment under 18 Del. C. § 2704(b), which, as explained below, permits an individual's executor to maintain an action to recover death benefit payments made under an insurance policy that lacks an insurable interest.
On July 23, 2021, Defendants moved to compel arbitration pursuant to the arbitration provision in the BIPA. (D.I. 16.) The Estate opposed. It argued, among other things, that Carmel had never agreed to the BIPA. In accordance with the Third Circuit's guidance in Guidotti v. Legal Helpers Debt Resolution, L.L.C., 716 F.3d 764 (3d Cir. 2013), the Court denied Defendants' motion to compel arbitration without prejudice to renew after the parties had an opportunity to conduct limited discovery on the narrow factual issue of whether Carmel agreed to arbitrate with GIII. (D.I. 33; see also D.I. 27; D.I. 32.)
On June 30, 2022, Defendants filed a renewed motion to compel arbitration. (D.I. 46.)
“The Federal Arbitration Act reflects the ‘national policy favoring arbitration and places arbitration agreements on equal footing with all other contracts.'” In re Remicade (Direct Purchaser) Antitrust Litig., 938 F.3d 515, 519 (3d Cir. 2019) (quoting Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S. 440, 443 (2006)). Its primary substantive provision says that “[a] written provision in . . . a contract evidencing a transaction involving commerce to settle by arbitration a controversy . . . arising out of such contract . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. It requires that the Court, “upon being satisfied that [an] issue involved in [a] suit or proceeding is referable to arbitration” under an arbitration agreement, “shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement ....” 9 U.S.C. § 3. It also authorizes courts to issue orders compelling arbitration when one party has failed to comply with an arbitration agreement. 9 U.S.C. § 4; Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 (1967).
To determine whether an issue in a suit or proceeding is “referable to arbitration” within the meaning of § 2, courts “must consider two ‘gateway' questions: (1) ‘whether the parties have a valid arbitration agreement at all' (i.e., its enforceability), and (2) ‘whether a concededly binding arbitration clause applies to a certain type of controversy' (i.e., its scope).” Remicade, 938 F.3d at 519 (quoting Lamps Plus, Inc. v. Varela, 139 S.Ct. 1407, 1416-17 (2019)). Even where an arbitration provision contains a clause delegating the issue of arbitrability to the arbitrators, “courts retain the primary power to decide questions of whether the parties mutually assented to a contract containing or incorporating a delegation provision.” MZM Constr. Co., Inc. v. New Jersey Building Laborers Statewide Benefit Funds, 974 F.3d 386, 402 (3d Cir. 2020).
The Third Circuit has explained the procedure for determining whether the parties formed an agreement to arbitrate as follows:
Under our decision in Guidotti, when it is clear on the face of the complaint that a validly formed and enforceable arbitration agreement exists and a party's claim is subject to that agreement, a district court must compel arbitration under a Rule 12(b)(6) pleading standard “without discovery's delay.” 716 F.3d at 776 (quotation marks and citation omitted). But if the complaint states a claim or the parties come forward with facts that put the formation of the arbitration agreement in issue, the court may authorize “limited discovery” to resolve that narrow issue for purposes of deciding whether to submit the matter to arbitration. Id....
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