Lincoln Nat'l Life Ins. Co. v. Inzlicht-Sprei

• Decision Date: 31 March 2020
• Docket Number: 16-CV-5171 (PKC) (RML)
• Parties: THE LINCOLN NATIONAL LIFE INSURANCE COMPANY, Plaintiff, v. ELI INZLICHT-SPREI, individually, as trustee and/or beneficiary of the Sara Sprei Family Trust, and as Executor of the Estate of Sara Sprei; WELLS FARGO BANK, N.A.; and LSH CO, as intervenor, Defendants.
• Court: U.S. District Court — Eastern District of New York

THE LINCOLN NATIONAL LIFE INSURANCE COMPANY, Plaintiff, v. ELI INZLICHT-SPREI, individually, as trustee and/or beneficiary of the Sara Sprei Family Trust,and as Executor of the Estate of Sara Sprei; WELLS FARGO BANK, N.A.;and LSH CO, as intervenor, Defendants.

16-CV-5171 (PKC) (RML)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

March 31, 2020

MEMORANDUM & ORDER

PAMELA K. CHEN, United States District Judge:

This interpleader action involves competing claims for a $20 million life insurance policy (the "Policy") issued by Plaintiff The Lincoln National Life Insurance Company on the life of Sara Sprei. Current interpleader defendants are Eli Inzlicht-Sprei, in his personal capacity, as current Trustee of the Sara Sprei Family Trust (the "Trust"), and as executor of Sara Sprei's estate; Wells Fargo Bank N.A; and LSH CO.¹ Defendants Wells Fargo and Inzlicht-Sprei now each move for summary judgment asserting that they are entitled to all the Policy proceeds. Inzlicht-Sprei also seeks summary judgment on LSH CO's breach of contract and indemnification claims against him. Finally, LSH CO seeks summary judgment on Inzlicht-Sprei's cross-claim against it for inducing and aiding and abetting a breach of fiduciary duty. For the reasons stated below, Wells Fargo's and LSH CO's motions are granted in their entirety, and Inzlicht-Sprei's motion is denied.

BACKGROUND

I. Relevant Facts²

In 2008, Sara Sprei, who was 84-years-old at the time, and her son, Dr. Eli Inzlicht-Sprei³, working with various employees and associates of Signature Capital, procured the Policy, a $20 million life insurance policy on Sara Sprei's life.⁴ (See Wells Fargo Bank N.A. 56.1 Statement ("Wells Fargo 56.1"), Dkt. 119-2, ¶¶ 26-27, 84.) Signature Capital was founded by Herman Segal for the primary purpose of writing insurance policies. (Id. ¶¶ 16, 18.) His son, William Segal, was an insurance agent for Signature Capital. (See id. ¶¶ 14, 16.) Brothers Steven and Alan Spiegel frequently collaborated with Signature Capital on various endeavors including the purchase, maintenance, and sale of insurance policies. (Id. ¶ 26.) Signature Capital had a reputation for writing high-value insurance policies for elderly clients. (Id. ¶ 19.) Their business model ensured that the insured and his or her family would not be responsible for paying the premiums on thesehigh-value policies. (Id. ¶ 22.) Instead, Signature Capital would be responsible for the premiums themselves, typically arranging for premium financing with H.M. Ruby, L.P., with the aim of selling the policy after the two-year contestability period expired.⁵ (Id. ¶¶ 21, 24.) As part of this scheme, the insurance policy was typically owned by a trust in the name of the insured, with a member of the insured's family listed as the beneficiary of the trust. (Id. ¶ 23; see also Deposition of Herman Segal ("Herman Segal Dep."), Dkt. 120-2, at 32:3-17.) Most of the time, these types of agreements between Signature Capital, on the one hand, and the insured and his/her family, on the other hand, were "done just by handshake." (Wells Fargo 56.1, Dkt. 119-2, ¶ 25.)

A. The Scheme

Here, though Inzlicht-Sprei entered into a handwritten (versus a hand-shake) agreement (the "Agreement") with Signature Capital, the terms of that Agreement largely followed Signature's typical practices. For example, the Agreement, dated April 28, 2008, provided that Signature Capital would pay all of the premiums for the Policy either directly or through third parties. (The Agreement, Dkt. 120-33.) The Agreement also gave Signature Capital the right to sell the Policy at any time. (Id.) Finally, it provided that, in the event of the sale of the Policy or Sara Sprei's death, Inzlicht-Sprei would receive 5% of the Policy's gross proceeds.⁶ (Id.) The Agreement also noted that Signature Capital was under no obligation to maintain the Policy and that if the Policy lapsed, Inzlicht-Sprei would be paid $50,000 "as compensation." (Id.) Inzlicht-Sprei does not dispute that he signed the Agreement, but asserts that he had a verbal agreementwith Herman Segal that superseded the Agreement. (Inzlicht-Sprei 56.1 Response, Dkt. 139-1, ¶ 29.) Specifically, Inzlicht-Sprei asserts that, pursuant to this oral agreement, he was entitled to 10%, rather than 5%, of the Policy proceeds in the event of sale of the Policy or Sara Sprei's death, and that he also would have the first right to buy the Policy before Signature Capital sold it to a third party. (Id.)

The Sprei Family and Signature Capital established the Trust to own the Policy on March 28, 2008. (Wells Fargo 56.1, Dkt. 119-2, ¶¶ 23, 52; see also Herman Segal Dep., Dkt. 120-2, at 182:14-20.) The Trust Agreement was executed in New York. (Wells Fargo 56.1, Dkt. 119-2, ¶ 53.) The Trust Agreement was drafted by Avi Rosenfeld, a lawyer licensed in New York, who was designated as the Trustee. (Id. ¶¶ 42-43, 47.) Though Rosenfeld initially specified New York as the location of the Trust, he changed the location to New Jersey at the behest of Signature Capital, which informed Rosenfeld that "they [Signature Capital] need[ed] a New Jersey trust." (Id. ¶¶ 48-49; see also Dkt. 120-87.) However, despite the Trust's stated location, Rosenfeld did not know if any activity related to the Trust occurred in New Jersey. (Wells Fargo 56.1, Dkt. 119-2, ¶ 57.) The Trust Agreement permitted the designation of more than one Trustee (see Trust Agreement, Dkt. 120-75, at 7) and gave the Trustee numerous powers, including the power "[t]o sell . . . or otherwise dispose of such [Trust] property at public or private sale, for cash or on credit, and upon such terms and agreements as they may see fit" (id. at 8). The Trustee was also authorized to "borrow money and to pledge or mortgage any such property upon such terms and arrangements as they deem proper." (Id.) Finally, the Trust Agreement noted that the Trustee "shall have full and complete discretion in the exercise of the powers given to them, and their determination as to matters left to their judgment or decision shall, to the extent permitted by law, be final and conclusive on all persons . . . ." (Id. at 10.) Inzlicht-Sprei was listed as the solebeneficiary of the Trust. (Wells Fargo 56.1, Dkt. 119-2, ¶ 8.) Despite being listed as the beneficiary, Inzlicht-Sprei never asked for information about the Trust, and disputes that he was aware that there was a Trustee. (Inzlicht-Sprei 56.1 Response, Dkt. 139-1, ¶¶ 40-41.)

On or about March 25, 2008, around the same time the Trust was created, an application for life insurance was submitted to Lincoln (the "Application"), listing Sara Sprei as the proposed life insured and the Trust as the proposed owner and beneficiary of the Policy. (Id. ¶ 58.) In support of the Application, Sara Sprei underwent a medical examination in New York. (Id. ¶ 65.) The Application represented that Sprei had a total net worth of $48,450,000. (Id. ¶ 60; see also The Application, Dkt. 120-69, at 1a.) Inzlicht-Sprei disputes that Sara Sprei had anything to do with providing the information about her and her family's net worth to Lincoln, asserting that Sara Sprei signed the Application before any information was filled in. (Inzlicht-Sprei 56.1 Response, Dkt. 139-1, ¶¶ 60, 62-63.) The Application also asked whether the "proposed insured," i.e., Sara Sprei, would (1) receive any compensation if the insurance policy was issued; (2) had discussed selling or assigning the policy to another entity, such as a trust; and (3) whether the insurance policy would be funded via a premium funding loan or other third-party funds. (Wells Fargo 56.1, Dkt. 119-2, ¶ 59; see also The Application, Dkt. 120-69, at 1a.) The Application responded "no" to all three questions. (Wells Fargo 56.1, Dkt. 119-2, ¶ 59; see also The Application, Dkt. 120-69, at 1a.) Though the Application states that it was signed in New Jersey (The Application, Dkt. 120-69, at 8), there is no evidence that any of the signatories to the Application, i.e., Sara Sprei, Avi Rosenfeld, or William Segel, signed the Application or other relevant documents in New Jersey. Inzlicht-Sprei, for example, stated that he has no knowledge of Sara Sprei traveling to New Jersey around the time the Application was signed. (Wells Fargo 56.1, Dkt. 119-2, ¶ 82.) Rosenfeld testified that he had not signed any of the Application documents in New Jersey, wasnot aware of any meetings related to the Application occurring in New Jersey, and did not recognize the handwriting on a form that noted that the Application was executed in New Jersey. (Id. ¶ 81.) Likewise, though William Segal did not remember whether he was in New Jersey when the Application was signed (id. ¶ 77), he testified that he met with Inzlicht-Sprei to discuss the Application at Signature Capital's New York Office (id. ¶ 69-70; see also Deposition of William Segal ("William Segal Dep."), Dkt. 120-10, at 54:13-19.)⁷

Lincoln issued the Policy on April 29, 2008. (Wells Fargo 56.1, Dkt. 119-2, ¶ 84.) Signature Capital, consistent with the terms of the Agreement, provided the funds to pay the first premium payment, and thereafter worked to find third-party funders for the insurance premiums. (Id. ¶¶ 88, 90-94, 98-99.) In August 2008, Signature Capital entered into a financing arrangement with H.M. Ruby to secure a loan to pay the premiums in exchange for H.M. Ruby receiving a security interest in the Policy. (Id. ¶¶ 100-02.) Sara Sprei signed two forms in connection with the H.M. Ruby premium financing transaction.⁸ (Id. ¶ 103.) In April and July 2010, the Policy was at risk of lapsing for failure to make the premium payments. (Id. ¶¶ 116, 123.) In April 2010, Signature Capital secured additional funding from H.M. Ruby to make the overdue premiumpayments. (Id. ¶¶ 119-121.) As was Signature Capital's practice, all of the premium payments to Lincoln were made through the Trust account relying on funding from third parties, like H.M. Ruby. (Id. ¶¶ 24, 99,...