First Nat'l Bank of Pa. v. Transamerica Life Ins. Co., Civil Action No. 14-1007
| Decision Date | 06 July 2017 |
| Docket Number | Civil Action No. 14-1007 |
| Parties | FIRST NATIONAL BANK OF PENNSYLVANIA, AS SUCCESSOR BY MERGER TO PARK VIEW FEDERAL SAVINGS BANK, Plaintiff, v. TRANSAMERICA LIFE INSURANCE COMPANY & CLARK CONSULTING, INC., Defendants. |
| Court | U.S. District Court — Western District of Pennsylvania |
MEMORANDUM OPINION
Plaintiff First National Bank of Pennsylvania ("FNB") initiated this civil action for breach of contract and insurance bad faith against the insurer of its bank owned life insurance policies, Defendant Transamerica Life Insurance Company ("Transamerica"), and for breach of fiduciary duty against its insurance broker, Defendant Clark Consulting, Inc. ("Clark"); (collectively "Defendants"). The dispute boils down to whether FNB was paid the entire amount it was owed after it surrendered the policies. FNB claims that in addition to the amount it was paid at surrender (approximately $18 million), it was owed an amount known as the "Bank Enhancement Amount" (worth more than $2.5 million) from a third-party, and that Defendants' actions directly prevented FNB from receiving it. Presently pending before the Court isDefendants' motion for summary judgment. After careful consideration of the parties' arguments on the matter and all of the exhibits filed in connection therewith, and for the reasons that follow, the Court will grant Defendants' motion and enter summary judgment in their favor.
As will be explained in greater detail below, FNB acquired the bank owned life insurance policies at issue in this case ("the Policies") in the fall of 2013 when FNB merged with Park View Federal Savings Bank ("Park View").3 By way of background, Park View, a federal savings bank located in Ohio at the time, purchased the Policies seven years earlier from Defendant Transamerica and Transamerica's affiliate for $20 million.4 Defendant Clark, which is also affiliated with Transamerica, acted as the insurance broker in connection with the purchase of the Policies. Thereafter, Clark serviced the Policies and continued acting as the insurance broker after the FNB-Park View merger and through FNB's eventual surrender of the Policies in 2014.
The Policies were "separate account" policies, meaning that there were a number of different investment accounts, known as "subaccounts," to which Park View could choose to allocate its policy values. According to the parties, a bank's decision as to which subaccount(s) to allocate its policy values is informed by the material that it receives from the insurancecompany in a private placement memorandum ("PPM"). The PPM contains detailed disclosures about the attributes of each of the available subaccounts and the terms of any agreements with third parties that may apply if a specific subaccount is selected. The insurance company may later add a new subaccount to the "menu" of available options, at which point the insurance company would send the bank a supplement to the PPM.
When Park View initially purchased the Policies from Transamerica in 2006, it selected the "JP Morgan Core" subaccount. This subaccount was specified in the policy form and was described in multiple PPMs that Park View received prior to selecting it.
On August 7, 2009, Park View, through its Chief Financial Officer, signed a Customer Service Change Form for the Policies (the "2009 Change Form"), which re-allocated 100% of Park View's policy values to a new subaccount offered by Transamerica: the "Stable Value Subaccount." The 2009 Change Form specifically stated that Park View's re-allocation request was "subject to the restrictions of the Stable Value Subaccount." Park View's selection of the Stable Value Subaccount meant that the following additional agreements needed to be executed by parties other than Park View to carry out the subaccount's goal: (1) a Stable Value Agreement between Transamerica and its affiliate Commonwealth General (the "SVA"), and (2) an Enhancement Amortization Agreement between Commonwealth General and JP Morgan (the "EAA").
Parenthetically, Transamerica and Commonwealth General are both subsidiaries of the same parent company. Commonwealth General does not have any employees and was included in the SVA merely for capital and/or accounting purposes. It is undisputed that although Commonwealth General was the signatory to the EAA, Transamerica could also exercise the rights provided to Commonwealth General in the EAA against JP Morgan.
By deciding to re-allocate its policy values into the Stable Value Subaccount, Park View agreed to additional surrender restrictions contained in the SVA and the EAA. Before Park View signed the 2009 Change Form, its CFO, independent auditor, and independent financial accountant all separately reviewed supplements to the original PPMs (which discussed, inter alia, surrender restrictions), as well as forms of the SVA and EAA.5 Based on Park View's decision to re-allocate its policy values into the Stable Value Subaccount, the SVA was executed by Transamerica and Commonwealth General, and the EAA was executed by Commonwealth General and JP Morgan.
The amount owed to the Policyowner at surrender under the Stable Value Subaccount is governed by various provisions in the SVA and the EAA. Under the EAA, JP Morgan promised that, subject to certain limits and conditions which had to be "strictly satisfied," it would pay an amount known as the "Bank Enhancement Amount" to Commonwealth General at surrender.6 Two conditions in the EAA are relevant to this dispute. The first condition was that "[t]he Polices are not, and have not been previously, owned by an entity other than the Policyowner on or prior to the Immunization Termination Date."7 The second condition required that, within a specified time period, the Policyowner deliver "a fully executed and complete Surrender Certificate" that is "substantially in the form of the document attached as Exhibit C" to the EAA.8 Failure to strictly satisfy either of these conditions under the EAA discharged JP Morgan's obligation to pay the Bank Enhancement Amount to Commonwealth General.
Under the SVA, the amount owed to the Policyowner was to be determined after the Policyowner provided notice of surrender.9 The parties offer different views as to how the agreements operate if JP Morgan were to incorrectly withhold the Bank Enhancement Amount.10 In any event, they agree that if JP Morgan correctly refused to pay the Bank Enhancement Amount to Commonwealth General under the EAA, then, ultimately, Transamerica would not be obligated to pay the Bank Enhancement Amount to the Policyowner at surrender.11
A few years after Park View selected the Stable Value Subaccount, in the summer of 2012, FNB's parent company was considering a potential acquisition of Park View's parent company and began conducting due diligence of Park View. On February 19, 2013, FNB's parent and Park View's parent publicly announced that they had entered into an Agreement and Plan of Merger (the "Parent Merger Agreement"). The Parent Merger Agreement provided that Park View's parent would merge with and into FNB's parent, and that FNB's parent would bethe surviving entity.12 It also provided that, as soon as practicable after the execution of the agreement, both parent companies would cause their subsidiaries, FNB and Park View respectively, to enter into a merger agreement of their own (the "Bank Merger Agreement"). A form of the Bank Merger Agreement was attached to the Parent Merger Agreement.
The Bank Merger Agreement provided, subject to the terms and conditions of the Parent Merger Agreement, other terms in the Bank Merger Agreement, and approval from the relevant national bank regulator, the Office of the Comptroller of the Currency ("OCC"), that Park View would merge "with and into" FNB and FNB "shall be the surviving bank."13 Describing the effects of the merger, the Bank Merger Agreement further stated that:
Upon consummation of the Bank Merger, and in addition to the effects set forth at 12 U.S.C. § 215c, the applicable provisions of the regulations of the OCC and other applicable law . . . the Surviving Bank shall be considered the same business and corporate entity as each constituent bank with all the rights, powers and duties of each constituent bank . . . all in accordance with the provisions of The National Bank Act.14
The OCC approved the merger of Park View "with and into" FNB under 12 U.S.C. § 215c "based on a thorough review of all information available, including commitments and representations made in the application, merger agreement, and those of [the] representatives."15 The OCC's approval letter noted that the merger was subject to "applicable OCC regulations and policies."16
Meanwhile, on May 3, 2013, which was approximately two and a half months after Park View and FNB entered into the Bank Merger Agreement but prior to the OCC's approval, ParkView contacted Clark for the first time about the merger. Park View's CFO sent an e-mail to Clark's Senior Consultant, Chris Parker, to notify Mr. Parker that Park View was being acquired by FNB and to inquire whether there was anything that needed to be done "regarding carrier or other notifications" in light of the approaching closing of the merger transaction set for October 12, 2013.17 Mr. Parker responded that the carriers do not need advance notice, but "[o]nce the transaction is complete, there are potentially some changes we would want to make," including making "FNB the owner because when there are future deaths, it makes the process of getting paid somewhat easier for the bank."18
A few months later, on August 29, 2013, an FNB representative sent Mr. Parker an e-mail to coordinate the transition of Park View's Policies to FNB in October 2013.19 Mr. Parker responded by stating that such an acquisition can "create[] some challenges" regarding the payment of...
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