Liberte Capital Group, LLC v. Capwill
| Decision Date | 19 August 2005 |
| Docket Number | No. 04-3101.,04-3101. |
| Citation | 421 F.3d 377 |
| Parties | LIBERTE CAPITAL GROUP, LLC, et al., Plaintiffs, Alpha Capital Group, LLC, Plaintiff-Appellee, v. James A. CAPWILL, et al., Defendants, Janet E. Mohnkern, Intervenor-Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
Charles A. Bowers, Taft, Stettinius & Hollister, Cleveland, Ohio, for Appellant. Amy A. Wuliger-Knee, Montgomery Village, Maryland, for Appellee.
ON BRIEF:
Charles A. Bowers, Bruce J.L. Lowe, Taft, Stettinius & Hollister, Cleveland, Ohio, C. Richard Brubaker, Patrick J. Daughety, Driggs, Lucas, Brubaker & Hogg, Willoughby Hills, Ohio, for Appellant. William T. Wuliger, Wuliger, Fadel & Beyer, Cleveland, Ohio, for Appellee.
Before: BATCHELDER and COLE, Circuit Judges; OBERDORFER, District Judge.*
This case is one of many spawned by the so-called "viatical settlement industry." Plaintiff Liberte Capital Group, LLC ("Liberte") and Intervening-Plaintiffs Alpha Capital Management Group, LLC, and Integrity Management Partners, LLC (collectively, "Alpha") were separately engaged in managing viatical settlements. Typically, each solicited investors whose investment funds would purchase, at a discount, the life insurance policy of a terminally-ill insured, with the expectation that the investor would be entitled to the policy proceeds upon the death of the insured. In the interim between receipt of investment funds from an individual investor and the purchase of one or more life insurance policies for the investor, the managers placed the investor's funds in escrow. The escrowee would draw from the escrow account the purchase price of an insurance policy when one came available and use the remaining investment funds to pay the premiums on the insurance policy until the death of the insured. That system broke down when an escrowee absconded with the investment funds entrusted to it by the Plaintiffs. This case is a fall-out from such an escrowee defalcation.
On November 3, 1998, Intervening-Plaintiff Janet E. Mohnkern invested $100,000 with Alpha, with the understanding that it would place the funds in escrow until it located one or more terminally ill policyholders who would, at a discounted price, surrender to Mohnkern all of his rights, title, and interest in the policy on his life. In due course, Alpha acquired for Mohnkern a policy on the life of Broderick J. Blacknell issued by the Professional Insurance Company. Blacknell was terminally ill at the time. On March 9, 1999, for the discounted price of $49,995.00, Blacknell assigned his policy to Mohnkern on the following terms:
[f]or Benefit Received the undersigned hereby assign, transfer and set over to Janet E. Mohnkern ... Policy No. 2063622M issued by the Professional Insurance Corporation ... upon the life of Broderick J. Blacknell ... and all claims, options, privileges, rights, title and interest therein and thereunder... subject to all the terms and conditions of the policy and to all superior liens, if any, which the insurer may have against the policy.
JA 443. The assignment further provided that Mohnkern shall have "[t]he sole right to collect from the insurer the net proceeds of the Policy when it becomes a claim by death or maturity." Id. By an April 9, 1999 letter of "Approval of Absolute Assignment with Janet E. Mohnkern," the Professional Insurance Company recognized Mohnkern's interest in the Policy. JA 444. Thereafter, until Blacknell's death, Alpha's escrow agent paid the premiums on the Blacknell Policy, purportedly from a portion of Mohnkern's investment funds.1
In April 1999, after the assignment of the Blacknell Policy to Mohnkern but before Blacknell's death, Liberte and Alpha commenced an action in district court against their escrow agent James A. Capwill and his companies, Viatical Escrow Services, LLC and Capital Fund Leasing [hereinafter Capwill].2 The suit alleged that Capwill misappropriated funds it held in escrow for Liberte and Alpha, including Mohnkern's investment. Shortly thereafter, the district court appointed a Receiver [hereinafter Receiver # 1]. See Liberte Capital Group, LLC v. Capwill, 229 F.Supp.2d 799, 799 (N.D.Ohio 2002). The order of appointment instructed Receiver # 1 "to satisfy the claim of creditors, including investors and other parties, in the order of legal priority...."3 See Liberte Capital Group, LLC v. Capwill, 99 Fed.Appx. 627, 628 -29 (6th Cir.2004). Accordingly, between February 2000 and November 8, 2000, Receiver # 1 disbursed proceeds of life insurance policies of deceased insured to matched investor-beneficiaries. Id at *628-32.
Blacknell died on November 14, 2000. Experiencing difficulty in determining Blacknell's place of death and in obtaining the required death certificate, it was not until October 1, 2001, that the escrow agent4 located and sent to Mohnkern Blacknell's death certificate together with directions to complete the claim forms and return them, along with the death certificate, to the Professional Insurance Company in order to receive the Blacknell Policy proceeds. Accordingly, on October 12, 2001, Mohnkern sent the required paperwork to the insurance company.
On October 29, 2001, the district court appointed a second Receiver specifically to protect the interests of the Alpha investors [hereinafter Receiver # 2]. JA 239-40. Upon learning of the Blacknell Policy, the proceeds of which had not yet been paid to Mohnkern, Receiver # 2 filed a motion requesting direction from the court regarding disbursement of the Blacknell Policy proceeds. JA 241. The motion acknowledged that Mohnkern was "entitled to the benefits of the Broderick J. Blacknell life insurance policy." Receiver # 2 requested, however, that the court terminate Mohnkern's rights in the policy and "replace them with an equitable claim to the residual amounts left in the [ ] Receivership at the conclusion of the case." Id.
Three days later, on January 10, 2002, without affording Mohnkern a hearing or any opportunity to reply, the district court granted Receiver # 2's motion and ordered that the Blacknell Policy proceeds be paid to the escrow agent for the benefit of the Alpha receivership estate. JA 244. The order made no mention of the March 9, 1999 document which transferred the Blacknell Policy to Mohnkern. Nor was there any mention of the circumstances, apparently beyond her control, which delayed her realization of the proceeds for over a year.
On September 10, 2002, Mohnkern filed a motion to intervene in the litigation and requested a hearing to determine the rightful owner of the Blacknell Policy proceeds. JA 399. The district court granted Mohnkern's motion to intervene but only with regard to the "methodology of disbursement." JA 424. The court denied her motion for a hearing to determine ownership of the Blacknell Policy proceeds. Id. The district court further ordered sua sponte that Mohnkern dismiss the suit she had filed against the insurer in April 2002 seeking the proceeds of the Blacknell Policy. Id.
On November 22, 2002, Mohnkern filed a motion for "release and distribution" of the Blacknell death proceeds, arguing that she had a contractual right to the proceeds as of the date of Blacknell's death, subject to no other claim. JA 426. On December 6, 2002, before the district court ruled on Mohnkern's motion, Receiver # 2 filed and served on the interested parties, including Mohnkern, a motion for an order requiring pro rata distribution of the receivership estate. JA 461, 463. The district court held a fairness hearing on December 22, 2003, to afford all Alpha investors the opportunity to present any objections to the distribution methods proposed by Receiver # 2. JA 518-19. Mohnkern received notice of this hearing and filed an objection to the proposed pro rata distribution, claiming once again that she owned the Blacknell Policy and, as a matter of law, was entitled to the proceeds therefrom in full. JA 520-21. Mohnkern did not appear at the December 22, 2003 hearing.
The district court heard arguments both for and against adopting the pro rata approach. In the end, however, the court ordered a pro rata distribution of the receivership estate which included the Blacknell Policy proceeds. According to the court,
[t]he balancing of interests between those fortunate enough — and I use that term advisedly — to have been matched as contrasted to those not matched to a particular policy sold to Alpha by a viator is a delicate act, indeed. It's a balancing act which we, as judges, are required to undertake.
* * * * * *
In this case to allow investors to elevate their claims by standing on the backs of other Alpha investors, ... would be tantamount to injustice, in my opinion. It would not be doing equity.
I've considered all of the various methods, ladies and gentlemen. I've considered, and I think I know unfortunately more than anybody else, with the possible exception of the U.S. Attorney sitting in this room concerning these cases. It is my conclusion... that this Court acting in equity, cognizant of the fact that I am under a duty to fashion a methodology of disbursement which will do equity and comport with what are generally notions of fairness and justice, will adopt a pro rata approach with regards to the Alpha investors.
JA 711-14. The court dismissed Mohnkern's claim for release of the Blacknell Policy proceeds without further comment. JA 200. In its February 14, 2004 Order, the court certified its ruling for appeal pursuant to Federal Rule of Civil Procedure 54(b). JA 198-204. This timely appeal followed.
On appeal, Mohnkern claims: (1) that Receiver # 2, under the direction of the district court, exceeded his authority by asserting control over the Blacknell Policy proceeds because she has sole legal title to them; (2) that, in seizing the proceeds, Receiver # 2 failed to comply with the provisions of 28 U.S.C. § 754, governing...
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