Fleisher v. Phx. Life Ins. Co.

• Decision Date: 02 May 2012
• Docket Number: No. 11 Civ. 8405(CM).,11 Civ. 8405(CM).
• Citation: 858 F.Supp.2d 290
• Parties: Martin FLEISHER, as trustee of the Michael Moss Irrevocable Life Insurance Trust II, and Jonathan Berck, as trustee of the John L. Loeb, Jr. Insurance Trust, on behalf of themselves and others similarly situated, Plaintiffs, v. PHOENIX LIFE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Southern District of New York

858 F.Supp.2d 290

Martin FLEISHER, as trustee of the Michael Moss Irrevocable Life Insurance Trust II, and Jonathan Berck, as trustee of the John L. Loeb, Jr. Insurance Trust, on behalf of themselves and others similarly situated, Plaintiffs,

v.PHOENIX LIFE INSURANCE COMPANY, Defendant.

No. 11 Civ. 8405(CM).

United States District Court, S.D. New York.

May 2, 2012.

Jacob W. Buchdahl, Shawn J. Rabin, Susman Godfrey LLP, Rebecca Sol Tinio, U.S. Attorney's Office, SDNY, New York, NY, Ryan Christopher Kirkpatrick, Steven Gerald Sklaver, Susman Godfrey LLP, Los Angeles, CA, for Plaintiffs.

Brian Patrick Perryman, Jason H. Gould, Waldemar J. Pflepsen, Jorden Burt LLP, Washington, DC, Patrick J. Feeley, Dorsey & Whitney LLP, New York, NY, Stephen J. Jorden, Jorden Burt LLP, Simsbury, CT, for Defendant.

DECISION AND ORDER GRANTING DEFENDANT'S MOTION FOR PARTIAL DISMISSAL OF THE CLASS ACTION COMPLAINT

McMAHON, J.:

INTRODUCTION

Plaintiffs Martin Fleisher, as Trustee of the Michael Moss Irrevocable Life Insurance Trust II (“Fleisher”), and Jonathan Berck, as Trustee of the John L. Loeb, Jr. Insurance Trust (“Berck,” and, together with Fleisher, “Plaintiffs”) initiated this action on November 18, 2011, by filing a complaint (ECF No. 1, the “Complaint”) against Phoenix Life Insurance Company (“Defendant” or “Phoenix”). The Complaint alleges, on behalf of Plaintiffs and a putative class of others similarly situated, that Phoenix breached the express terms of certain insurance policies owned by Plaintiffs and putative class members (“Count One”), breached the implied covenant of good faith and fair dealing contained in such policies (“Count Two”), and violated New York General Business Law § 349 (“Count Three”). Plaintiffs also seek a declaratory judgment concerning the alleged wrongfulness of Phoenix's conduct (“Count Four”).

Phoenix has moved to dismiss Counts Two, Three, and Four (ECF No. 16). For the reasons discussed below, Phoenix's motion is GRANTED in its entirety. Counts Two, Three, and Four are DISMISSED.

I. Background

a. Materials the Court May Consider

“In considering a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), a district court may consider the facts alleged in the complaint, documents attached to the complaint as exhibits, and documents incorporated by reference in the complaint.” Rogers v. Blacksmith Brands, Inc., No. 11 Civ.1940(VB), 2011 WL 6293764, at *4 (S.D.N.Y. Dec. 13, 2011) (quoting DiFolco v. MSNBC Cable L.L.C., 622 F.3d 104, 111 (2d Cir.2010)). A district court may also consider a document that is not incorporated by reference, where the complaint “ ‘relies heavily upon its terms and effect,’ thereby rendering the document ‘integral’ to the complaint.” Rogers, 2011 WL 6293764, at *4 (quoting Mangiafico v. Blumenthal, 471 F.3d 391, 398 (2d Cir.2006)); see also ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir.2007) (citing Rothman v. Gregor, 220 F.3d 81, 88 (2d Cir.2000)). “However, ‘even if a document is “integral” to the complaint, it must be clear on the record that no dispute exists regarding the authenticity or accuracy of the document.’ ” DiFolco, 622 F.3d at 111 (quoting Faulkner v. Beer, 463 F.3d 130, 134 (2d Cir.2006)). “It must also be clear that there exist no material disputed issues of fact regarding the relevance of the document.” Id.

The parties dispute whether the Court may consider the contents of “a recent GAO report,” which is referenced once but not heavily relied upon in the Complaint, (Compl. ¶ 5) (the “GAO Report”), and Berck's website (the “Website”). While not disputing the authenticity of either source, Plaintiffs “object to Phoenix's introduction of website pages and other documents outside the Complaint” as “not properly subject to judicial notice.” (Plaintiffs' Opposition to Defendant's Motion for Partial Dismissal (ECF No. 19) (“Opp'n”) at 23.) Phoenix, for its part, argues that the Court may take notice of the GAO Report because Plaintiffs “relied upon” it in the Complaint and because it is a “public document issued by [a] federal agenc[y],” (Memorandum of Law in Support of Defendant's Motion for Partial Dismissal (ECF No. 17) (“Motion”) at 7 n. 3), and of the Website as a party's public website, easily accessed, and the authenticity of which is undisputed, ( id. at n. 2; Reply Memorandum of Law in Support of Defendant's Motion for Partial Dismissal (ECF No. 21) (“Reply”) at 6 n. 2). However, the arguments with respect to which Phoenix seeks to introduce the GAO Report and the Website relate only to the consumer-orientation prong of Count Three. Because, as discussed below, I need not reach that prong in order to decide this motion, there is no need to answer this preliminary question.

b. Factual and Procedural History

The following summary is drawn from the Complaint, the factual allegations of which are presumed true for purposes of this motion.

Plaintiff Berck is the trustee of the John L. Loeb, Jr. Insurance Trust (the “Loeb Trust”). Plaintiff Fleisher is the trustee of the Michael Moss Irrevocable Life Insurance Trust II (the “Moss Trust,” and, together with the Loeb Trust, the “Trusts”). Each Trust is an insurance trust organized and existing under the laws of New York. Each plaintiff's principal place of business is in New York.

Defendant Phoenix is a New York corporation with its principal place of business in New York. Phoenix sells insurance policies in New York.

This dispute relates to a certain type of insurance policy, known as a premium-adjustable, universal life policy (a “PAUL” policy).¹ PAUL policies differ from standard whole life insurance policies in that PAUL policies require financial contributions only in amounts sufficient to cover the issuer's periodic cost of insurance (“COI”) obligations and certain other expenses. The owner of a PAUL policy may pay premiums in excess of this amount. After such costs are deducted from the premium amounts paid, any funds left over are then added to the policy's “accumulated policy value,” and earn some interest. However, owners of PAUL policies tend to pay little, if any, above the amounts required to cover the costs; indeed, they often elect to purchase PAUL policies because the structure enables them to minimize the amount invested (in other words, by keeping the accumulated policy value low, they can obtain the same coverage at a lower premium cost than other policies). PAUL policies generally permit the insurer to adjust the COI rates periodically in keeping with changes in certain other factors, such as personal characteristics, economic conditions and mortality estimates, within contractual caps listed in the policies.

The Trusts own PAUL policies issued by Phoenix (the “Loeb Policy,” and the “Moss Policy,” respectively, and together, the “Policies”). Plaintiffs allege that putative class members are similarly situated owners of Phoenix PAUL policies with terms sufficiently similar to those of the Policies that their claims can be adjudicated together. The Loeb Policy is dated November 1, 2005, has a face value of $10 million, and calls for an initial premium payment of $340,808, with subsequent quarterly premiums of $135,000. (Compl. Ex. A.) The Moss Policy is dated October 12, 2007, has a face value of $6 million, and calls for an initial premium and annual premiums of $299,526. ( id. Ex. B.) Both Policies have remained in force at all times relevant to this litigation.

Each of the Policies contains language stating that Phoenix may only change COI rates based on factors related to the personal qualities of the insured, such as age, risk, and similar characteristics, or economic conditions in the insurance industry. They also provide that Phoenix may only change COI rates if it does so uniformly for, and without discriminating within, any class of insureds, and that COI rate changes may only be prospective.

In March 2010, Phoenix informed a subset of PAUL policyholders that it was increasing COI rates for each of such holders' policies “unless [each such policy's] accumulated policy value is maintained at a sufficient level.” (Compl. ¶ 26.) This increase (the “First COI Increase”) affected the Loeb Policy and approximately 700 other policies. For a policy such as the Loeb Policy with a $10 million face value, the First COI Increase amounts to increased premium payments of $76,800 the first year, $46,700 the second year, $35,500 the third year, $30,300 the fourth year, and smaller but not insignificant amounts each year thereafter. ( Id. ¶ 28.) Plaintiffs allege that Phoenix at the same time instituted a decrease in the interest rate earned by the cash accumulated by this subset of policies. ( Id. ¶ 31.)

In October 2011, Phoenix announced a similar COI rate increase, again affecting only a subset of PAUL policies, this time including the Moss Policy and approximately 1,400 others. Phoenix informed policyholders of this increase via letters which stated, in relevant part, that the increase was spurred by Phoenix's “actuarial and financial expectations,” and due to take effect on each affected policy's “next policy anniversary on or after November 1, 2011,” ( id. ¶ 32) (the “Second COI Increase,” and, together with the First COI Increase, the “COI Increases”). The Second COI Increase, according to the foregoing, has taken effect for some, but not all, of the policies it impacts. The Moss Policy, which was issued in October, becomes subject to the Second COI Increase in October 2012.

Plaintiffs do not allege that either COI Increase brought the COI rates for the Policies above the maximum COI rates specified therein.

Plaintiffs allege that the conduct at issue constitutes “the latest round of Phoenix's long-running assault on life settlement investors,” ( id. ¶ 3), and Phoenix's “latest efforts to depress the life settlement market, [and] discriminate against life settlement investors,” ( id. ¶ 7). The life settlement market is a secondary...