Mayo v. Hartford Life Ins. Co.
| Decision Date | 05 March 2002 |
| Docket Number | No. H-01-2139.,H-01-2139. |
| Parties | Scott MAYO, et al., Plaintiffs, v. HARTFORD LIFE INSURANCE CO., et al., Defendants. |
| Court | U.S. District Court — Southern District of Texas |
Scott Monroe Clearman, Michael D. Myers, Robert H. Espey, II, Dwaine Massey, McClanahan & Clearman, LLP, Houston, TX, for Plaintiffs.
Barry A. Chasnoff, Akin Gump Siraus Hauer & Feld LLP, San Antonio, TX, Michael M. Wilson, Clements O'Neill Pierce Nickens & Wilson LLP, Houston, TX, Howard Kleinhendler, Myron Kirschbaum, Kaye Scholer Fierman Hays & Handler LLP, New York City, Daniel M. McClure, Fulbright & Jaworski, Thomas Francis Hetherington, Bracewell & Patterson, Houston, TX, Paul A. Fischer, Jorden Burt LLP, James F. Jorden, Attorney at Law, Washington, DC, for Defendants.
The parties in this case dispute the validity of corporate-owned life insurance policies purchased by employers on the lives of their employees and former employees. Plaintiffs are Texas citizens suing as representatives of a putative class of individuals, and estates of individuals, who worked for Defendant Camelot Music, Inc. ("Camelot") and Trans World Entertainment Corporation ("Trans World") (collectively, the "Camelot Defendants") and Wal-Mart Stores, Inc. ("Wal-Mart"). These companies, collectively referred to as the "Employer Defendants," are named in this action as representatives of a putative class of employers who purchased corporate-owned life insurance policies ("COLI policies") insuring the lives of Texas citizens. The Employer Defendants purchased these life insurance policies from various insurance companies, including Hartford Life Insurance Company ("Hartford") and AIG Life Insurance Company ("AIG").
The Court has before it several pending motions. The Camelot Defendants move to dismiss Plaintiffs' claims in their entirety.1 The Camelot Defendants also move for summary judgment.2 Plaintiffs have cross-moved for partial summary judgment against the Camelot Defendants.3 Defendant Wal-Mart moves for summary judgment on the claims against it.4 The Wachovia Bank of Georgia, N.A. ("Wachovia"), as trustee for Defendant Wal-Mart Stores, Inc. Corporation Grantor Trust ("Wal-Mart Trust"), seeks summary judgment in its favor.5 Defendant Hartford also moves for summary judgment,6 and Defendant AIG moves to dismiss and for summary judgment.7 Finally, Wal-Mart objected to evidence submitted by Plaintiffs.8 All motions are ripe for adjudication. The Court heard argument on these motions on September 7, 2001 and January 11, 2002.9 The parties submitted supplemental materials after the January 11 Hearing.10
Having considered the parties' submissions, the record, and the applicable authorities, the Court grants some of the motions and denies others, as set forth specifically below.
This case is an uncertified class action that involves a dispute over the rights to benefits from company-owned life insurance policies. Plaintiffs Scott Mayo, Toribio Rochas, Jr., Tomas Pena, Daniel Garza, and Charles W. Holmes, Jr. are Texas citizens who were employees of Defendant Camelot (collectively, sometimes referred to as the "Camelot Plaintiffs"). Another Plaintiff is the Estate of Douglas Sims ("Sims Estate"), which is represented in this action by Deborah Sims, the independent executrix of the Sims Estate and a Texas citizen. Douglas Sims was a Texas citizen who worked for Defendant Wal-Mart until his death on December 1, 1998.
Defendant Camelot was a Pennsylvania corporation. It was acquired in December 1997 by Defendant Trans World, a New York corporation with its principal place of business in New York. Defendant Wal-Mart is a Delaware corporation with its principal place of business in Arkansas. Defendant Wal-Mart Trust was established by Wal-Mart in Georgia and is represented in this action by its trustee, Defendant Wachovia, a bank apparently "located" in Georgia.11 Defendant Hartford is a Connecticut insurance company with its principal place of business in Connecticut. Defendant AIG is a Delaware insurance company with its principal place of business in Delaware.
Camelot employed the Camelot Plaintiffs during the 1980s and 1990s. All Camelot Plaintiffs ceased their employment with Camelot by 1998. Wal-Mart employed Douglas Sims from 1987 until his death in December 1998.
The subject of this case is the validity of COLI policies, insurance policies purchased and owned by the Employer Defendants on the lives of their employees. These policies list the employers as the sole beneficiaries. As explained by Hartford, the employers borrowed money from the insurers to pay the COLI policy premiums.12 The employers claimed the interest paid on these loans as tax deductions. The employer also earned non-taxable interest through the COLI policies. Upon the death of an employee, the employer would use the death benefit from the policy to repay the premium loans. The Internal Revenue Service ("IRS") disputes Defendants Camelot and Wal-Mart's deductions and the tax implications of the COLI policies.13
On February 16, 1990, Camelot purchased from Mutual Benefit Life Insurance Company ("Mutual")14 COLI policies on the lives of all of its employees who worked more than twenty hours per week.15 Camelot and/or Trans World is the beneficiary of these policies. Plaintiffs allege that Camelot purchased the policies in secret and did not request permission from its employees. The policies remain in effect.16 Counsel for Camelot, however, represented to the Court that there was a "very real" possibility that Camelot would surrender the policies. This decision was contingent on the resolution of a tax case concerning the policies.17
On or about December 28, 1993, Wal-Mart bought COLI policies from Hartford and AIG on the lives of its employees, including Douglas Sims.18 Like Camelot, Wal-Mart was to receive the proceeds of the policies.19 Plaintiffs allege that Wal-Mart purchased these policies in secret and that Douglas Sims never consented to the purchase.20 Wal-Mart asserts that it paid a portion, between $5,000 and $10,000 for current employees, of the proceeds of the COLI policies to the estates of its deceased employees as a Special Death Benefit.21 The Special Death Benefit was never paid to the Sims Estate because Wal-Mart discontinued that benefit before Sims's death.22 Wal-Mart represented to the Court that it had surrendered all its COLI policies in January 2000.23
It is undisputed that the Insurer Defendants developed and marketed the COLI policies to employers.24 Plaintiffs contend that the COLI policies were a tax avoidance scheme that was challenged by IRS.25 On the other hand, Defendants contend that the COLI policies were used to fund employee benefit plans.26
Plaintiffs' essential contention is that the COLI policies are contrary to Texas public policy because the Employer Defendants do not have an "insurable interest" in their lives.
Plaintiffs seek to certify two classes. First, they request certification of a plaintiff class that consists of:
All Texas citizens (or if deceased, the Texas citizen's estate) whose lives are or were insured under a COLI policy issued by AIG Life Insurance Company, Mutual Benefit Life Insurance Company or Hartford Life Insurance Company that purportedly named an employer or former employer as the policy's beneficiary or owner, excluding those who are current officers of the named policy beneficiary or owner (or if deceased, those who were officers of the policy beneficiary at their death) and those who designated the policy's beneficiary.
Complaint, at 11. Second, Plaintiffs request certification of a Employer Defendant class of:
[C]ompanies that bought insurance policies written by AIG Life Insurance Company, Mutual Benefit Life Insurance Company or Hartford Life Insurance Company, that insure or insured the lives of Texas employees other than corporate officers and name the company as beneficiary or owner.
Id. Plaintiffs have not yet moved for class certification.
Plaintiffs seek the benefits of the COLI policies. Specifically, Plaintiffs request a declaration, under 28 U.S.C. § 2201, that (i) the Employer Defendants do not now have and never have had an "insurable interest" in the lives of their employees, as insurable interests are defined by Texas law, (ii) that the Employer Defendants are not the lawful owners of the COLI polices, and (iii) that Plaintiff employees are the "lawful owners" of the COLI policies, with all rights of the "owner" as defined in the policies. Plaintiffs seek a final judgment "providing remedies necessary to give the declarations force and effect," which Plaintiffs define as a final judgment (i) placing the polices and all benefits from the policies in a constructive trust for the benefit of Plaintiffs, (ii) awarding "money identifying the amount held in constructive trust by members of the defendant-employer class for the benefit of the plaintiffs and members of the plaintiff-insured person class"; and (iii) disgorging the "money unjustly had and received by members of the defendant-employer class through the [COLI] policies in issue." Complaint, at 12-13.
Defendants assert numerous defenses to Plaintiffs' claims. First, Defendants contend that Plaintiffs' claims are founded upon Texas law, but Georgia law governs this case and Plaintiffs cannot state a cause of action under Georgia law. Defendant Wal-Mart contends that Plaintiffs' claims are preempted by Employee Retirement Income Security Act, 29 U.S.C. § 1001 et seq. ("ERISA"). Defendant AIG contends that the claims of Plaintiff Sims Estate are time-barred since the COLI policy sold to Wal-Mart on Sims's life was created in December 1993 and Wal-Mart gave Sims notice of the existence of the insurance at about that time. Defendant AIG also argues that the Sims Estate has failed to state a...
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...259 F.3d 344 (5th Cir.2001), he was less successful. Undeterred, he has gone on to bigger things. See Mayo v. Hartford Life Ins. Co., 193 F.Supp.2d 927 (S.D.Tex. 2002) (considering Tamez in an uncertified class action for benefits of policies covering employees of Wal-Mart Stores and Camelo......
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Certain Underwriters at Lloyd's v. Smith
...259 F.3d 344 (5th Cir.2001), he was less successful. Undeterred, he has gone on to bigger things. See Mayo v. Hartford Life Ins. Co., 193 F.Supp.2d 927 (S.D.Tex. 2002) (considering Tamez in an uncertified class action for benefits of policies covering employees of Wal-Mart Stores and Camelo......