Estate of Malkin v. Wells Fargo Bank, N.A.

• Decision Date: 29 March 2019
• Docket Number: Case No. 17-23136-Civ-COOKE/LOUIS
• Court: U.S. District Court — Southern District of Florida
• Parties: ESTATE OF Phyllis M. MALKIN, by Its Personal Representative, Toni Ellen Guarnero, Plaintiff, v. WELLS FARGO BANK, N.A., as Securities Intermediary, and Berkshire Hathaway Life Insurance Company of Nebraska, Defendants.

379 F.Supp.3d 1263

ESTATE OF Phyllis M. MALKIN, by Its Personal Representative, Toni Ellen Guarnero, Plaintiff,

v.WELLS FARGO BANK, N.A., as Securities Intermediary, and Berkshire Hathaway Life Insurance Company of Nebraska, Defendants.

Case No. 17-23136-Civ-COOKE/LOUIS

United States District Court, S.D. Florida.

Signed March 29, 2019

Daniel Oswaldo Mena, Martha Rosa Mora, Avila Rodriguez Hernandez Mena & Ferri LLP, Coral Gables, FL, Gregory J. Star, Joseph M. Kelleher, Cozen O'Connor, Philadelphia, PA, for Plaintiff.

Jay Brian Shapiro, Samuel Olds Patmore, Albert D. Lichy, Stearns Weaver Miller Weissler Alhadeff & Sitterson, Barry L. Davis, Clyde & Co. US LLP, Eric Daniel Ruben, Thornton Davis & Fein, Miami, FL, for Defendant Wells Fargo Bank, N.A.

Scott Daniel Ponce, J. Raul Cosio, Monica Vila, Rebecca Jo Canamero, Holland & Knight, Miami, FL, Philip E. Rothschild, Holland & Knight, Fort Lauderdale, FL, for Defendant Berkshire Hathaway Life Insurance Company of Nebraska.

ORDER ON MOTIONS FOR SUMMARY JUDGMENT

MARCIA G. COOKE, United States District Judge

THIS MATTER is before me on the Motions for Summary Judgment filed by Defendant Wells Fargo Bank, N.A. ("Wells Fargo") (ECF Nos. 77, 136); the Motion for Summary Judgment filed by Defendant Berkshire Hathaway Life Insurance Company of Nebraska ("Berkshire") (ECF No. 133 ); and the Motion for Summary Judgment filed by Plaintiff Estate of Phyllis M. Malkin ("the Estate") (ECF No. 138 ). All of the motions are fully briefed and ripe for the Court's review.

I. BACKGROUND

I have previously noted that the factual background of this case overlaps with that of another case from the Southern District of Florida. Order Denying Mot. to Dismiss , ECF No. 174, at p. 1. That case was Sun Life Assurance Co. of Canada v. U.S. Bank Nat'l Ass'n , 2016 WL 161598, 2016 U.S. Dist. LEXIS 4732 (S.D. Fla. Jan. 13, 2016) (" Sun Life "). Like the instant case, Sun Life centered around one of three insurance policies taken out on the life of Phyllis Malkin. 2016 WL 161598, at *3, 2016 U.S. Dist. LEXIS 4732, at *13–14. In Sun Life , Judge Beth Bloom determined that the policy before her was a stranger-originated life insurance ("STOLI") policy, and that it was consequently void ab initio under Delaware law. Id. at *18, 2016 U.S. Dist. LEXIS 4732, at *65–66.

As Judge Bloom wrote in Sun Life , a STOLI policy is one that "lacks an insurable interest at inception and is procured for the purpose of re-sale to investors on the secondary market[.]" Id. at *1, 2016 U.S. Dist. LEXIS 4732, at *2–3. While the instant case involves a different policy from the one in Sun Life , I refer to Judge Bloom's decision for the broader factual context of both cases, including her discussion of the STOLI market and the businesses involved in it. See id. at *1–3, 2016 U.S. Dist. LEXIS 4732, at *2–12. For purposes of this Order, it is sufficient to note that one of the businesses involved in the STOLI market in South Florida was Simba, founded by Larry Bryan. Id. at *1–3, 2016 U.S. Dist. LEXIS 4732, at *4–11; see also Estate's Stmt. of Facts ("ESOF "), ECF No. 135, at ¶¶ 10–57. Also involved were certain entities that the Estate refers to collectively as "Coventry." ESOF at ¶¶ 1–2.¹

Furthermore, as will be clear from the summary that follows, even the more specific facts of this case are virtually indistinguishable from those in Sun Life . The policies in the two cases were issued only one month apart from each other in early 2006. ESOF at ¶¶ 115–18. The applications for both policies, and their financing, were "overwhelmingly arranged and governed" by "Coventry, along with its right hand, Simba." Sun Life , 2016 WL 161598, at *17, 2016 U.S. Dist. LEXIS 4732, at *63–64. And both policies were ultimately transferred to Coventry, which then sold them to third-party investors. ESOF at ¶¶ 121–45.

The only significant difference between this case and Sun Life lies in what happened after Ms. Malkin passed away. In Sun Life , the insurer refused to pay the policy's death benefit and filed suit against the investor, seeking a declaration that the policy was a STOLI policy and therefore void under Delaware's insurable interest law. Sun Life , 2016 WL 161598, at *8–9, 2016 U.S. Dist. LEXIS 4732, at *33–34. Here, by contrast, the insurer paid out the policy's $ 4-million death benefit to Wells Fargo, which was acting as a securities intermediary for Berkshire. Thus, it is Ms. Malkin's Estate that brings this suit against Berkshire and Wells Fargo, seeking to recover the policy's death benefit under a separate provision of the same Delaware law. See Del. Code Ann. tit. 18, § 2704(b).

In short, while the facts here are the largely the same as in Sun Life , the nature of the Estate's claim is different, as are the defenses that Berkshire and Wells Fargo assert.

A. Phyllis Malkin's entry into the life insurance market

In 2005, Phyllis Malkin and her husband Paul were retired and living in Aventura, Florida, when an acquaintance referred them to Simba. ESOF at ¶ 58; Amend. Compl. , ECF No. 88, at ¶ 68. The evidence indicates that Ms. Malkin "did not need" and "did not want" life insurance prior to meeting with Simba. ESOF at ¶¶ 59–60. Neither did she express any interest in paying for such insurance. Id. at ¶ 63. Rather, Ms. Malkin and her husband were told that Simba could offer them a "risk free opportunity to make money." Id. at ¶ 61.

On August 19, 2005, Ms. Malkin provided Simba with a release form allowing it access to her medical records. Id. at ¶¶ 64–65. Coventry then used those records to generate a life expectancy report for Ms. Malkin, which, in turn, it used to determine how valuable any policies on her life might be. Id. at ¶¶ 67–68.

After receiving approval from American General Life Insurance Company ("AIG") and Sun Life, stating that they would issue policies on Ms. Malkin's life, Simba confirmed that Coventry was interested in the policies. Id. at ¶ 69. Eventually, three separate policies were taken out on Ms. Malkin's life: the $ 4-million AIG policy at issue here ("the Policy"); the $ 5-million policy at issue in Sun Life ("the Sun Life Policy"); and another $ 4-million policy procured through a separate entity called Sail Funding Trust II. Id. at ¶ 70; Amend. Compl. , ECF No. 88, at ¶ 74. Ms. Malkin, who until 2005 had not been in the market for life insurance, thus obtained a total of $ 13 million in coverage.

B. Ms. Malkin's applications for the policies, the financing of the policies and the creation of the Trust

Coventry acted as the program administrator and servicing agent of a life insurance premium financing program known as Premium Finance Plus ("PFP"), in connection with LaSalle Bank. ESOF at ¶ 73. In that capacity, on or about February 16, 2006, Coventry approved a non-recourse premium finance loan for the Sun Life Policy. Id. at ¶ 74.

To move the process forward, Coventry required Ms. Malkin to fill out various forms. Id. at ¶ 77. These documents were "not negotiable." Id. at ¶ 78. On or about March 2, 2006, Ms. Malkin executed a document in which she appointed Coventry as her attorney-in-fact, with full authority to originate, service or liquidate "any life insurance policies on [her] life[.]" Id. at ¶ 79. Ms. Malkin's husband also executed a form granting Coventry similar powers to act in his stead. Id. at ¶ 80.

Also on March 2, 2006, Ms. Malkin executed a PFP loan application form with LaSalle Bank, and with Coventry as the program administrator for LaSalle Bank. Id. at ¶ 83. The Malkins also executed a form providing that a trust was going to be established to hold insurance policies on Ms. Malkin's life. Id. at ¶ 84.

In early March 2006, Coventry noted internally that it was "hoping to add" another policy on top of the Sun Life Policy, and that this would be a $ 4-million policy from AIG—the Policy at issue in this case. Id. at ¶ 85.

On March 15, 2006, the Malkins entered into an agreement with Wilmington Trust Company to create a Delaware statutory trust with an initial trust estate of $ 1, for the express purpose of applying for and holding insurance policies on Ms. Malkin's life ("the Trust"). Id. at ¶ 87. Ms. Malkin was designated the settlor, Wilmington Trust Company the trustee, and Mr. Malkin the beneficial owner and co-trustee. Id.

Also on March 15, 2006, Ms. Malkin signed applications for both the Sun Life Policy and the Policy at issue here. Id. at ¶ 92. Both applications listed the Trust as the proposed owner, beneficiary and premium payor of the policies. Id. at ¶ 93. Larry Bryan, Simba's founder, has stated that Ms. Malkin did not make the decision to apply for coverage from either Sun Life or AIG. Id. at ¶ 94.

The evidence indicates that Coventry's initial plan was for the Sun Life Policy and the Policy to be funded under a single PFP loan, which would be entered into by a single sub-trust to the Trust. Id. at ¶ 97. On or around March 16, 2006, Ms. Malkin signed an agreement to create such a sub-trust ("the Sub-Trust"), which would enter into a note and security agreement with Coventry and LaSalle Bank, pursuant to which the Sub-Trust would borrow money to pay premiums and hold any life insurance policy until the loan was repaid or the policy was relinquished. Id. at ¶ 98.

However, by April 6 or 7, 2006, Coventry changed its plan of funding both policies under a single loan, and ultimately each policy was funded under a separate but identical loan. Id. at ¶ 99. In order to create a second loan transaction, the Malkins and Wilmington Trust entered into another agreement instructing Wilmington Trust to establish a second sub-trust ("the Sun Life Sub-Trust"). Id. at ¶ 100. The Sub-Trust was used to enter the PFP loan for the Policy, and the Sun Life Sub-Trust was used to enter the PFP loan for the Sun Life Policy. Id. at ¶ 101.

Around this time, Ms. Malkin and LaSalle Bank entered into a "Settlor Non-Recourse Security Agreement" that was applicable to the Sub-Trust, and a separate but identical...