Minn. Life Ins. Co. v. Fin. Inst. Consulting Corp., 15–cv–2109–SHL-tmp

• Decision Date: 28 November 2017
• Docket Number: No. 15–cv–2109–SHL-tmp,15–cv–2109–SHL-tmp
• Citation: 280 F.Supp.3d 1057
• Parties: MINNESOTA LIFE INSURANCE COMPANY, Plaintiff, v. FINANCIAL INSTITUTION CONSULTING CORPORATION and Larry P. Chinn, Defendants.
• Court: U.S. District Court — Western District of Tennessee

280 F.Supp.3d 1057

MINNESOTA LIFE INSURANCE COMPANY, Plaintiff,

v.FINANCIAL INSTITUTION CONSULTING CORPORATION and Larry P. Chinn, Defendants.

No. 15–cv–2109–SHL-tmp

United States District Court, W.D. Tennessee, Western Division.

Signed November 28, 2017

Kelly D. Simpkins, Kevin A Rogers Wells Marble & Hurst, PLLC, Ridgeland, MS, for Plaintiff.

Michael P. Coury, Jessica Lyn Indingaro, Ryan Michael Skertich, Glankler Brown, PLLC, Memphis, TN, for Defendants.

ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

SHERYL H. LIPMAN, UNITED STATES DISTRICT JUDGE

Larry Chinn and his company, Financial Institution Consulting Corporation, (collectively, "Defendants") entered into two contracts with Minnesota Life Insurance Company ("Minnesota Life" or "Plaintiff"). In those contracts, Defendants agreed to sell Plaintiff's life insurance policies, and Plaintiff agreed to pay Defendants commissions on those sales. Defendants also agreed that they would repay to Plaintiff some percentage of commissions earned on the sale of any policies that were later surrendered by the policyholder. In this lawsuit, Plaintiff claims that Defendants failed to repay commissions on surrendered policies, and Defendants argue that they are entitled to retain some of the commissions, based on Plaintiff's failure to inform Defendants of defects in the insurance products at issue.

Before the Court is Minnesota Life Insurance Company's Motion for Summary Judgment, filed August 22, 2017. (ECF No. 115.) Defendants filed their response September 16, 2017. (ECF No. 124.) Plaintiff filed a reply on October 3, 2017. (ECF No. 129.) For reasons more fully explained below, the Court GRANTS Plaintiff's Motion for Summary Judgment.

FACTS

Based on the parties' filings, there are no genuine disputes as to the following material facts, unless otherwise noted.

I. Mr. Chinn and FICC

Mr. Chinn graduated as salutatorian from both the University of Memphis and the University of Memphis School of Law. (Defendants' Response to Plaintiff's Concise Statement of Material Facts, ECF No. 124–1 at 1.) He practiced insurance defense law in the Memphis area for approximately five years, and was then hired by a banking consulting firm. (Id. at 1.) Around the mid–1980's, he earned his license to sell life insurance and established his own consulting firm, Financial Institution Consulting Corporation ("FICC"), serving as President and CEO. (Id. at 1–2.) As a consultant, Mr. Chinn "provided a full range of consulting services with emphasis on employee benefit and executive compensation planning, as well as a [sic] formulation of bank holding companies, acquisition and merger planning," and capital, tax and estate planning. (Id. at 1.)

As an insurance salesman, Mr. Chinn proved to be prolific, selling insurance for sixteen major life insurance companies. (Id. at 2.) Mr. Chinn was also an innovator, claiming to have developed "the first single premium life insurance policy sold to a financial institution which included design of a rider to waive surrender charges." (Id. ) Mr. Chinn also developed the idea to "use premium financing with high cash value policies," a concept used in the policies at issue here. (Id. at 3.)¹

The parties agree that Mr. Chinn became interested in premium financing, "and began discussions with premium financing companies about using high cash value policies for collateral." (Id. at 3.) Mr. Chinn intended to sell "unique financed life plans," in which a policyholder would purchase a life insurance policy, finance the premium, and make interest payments on the loan "until such time as the cash surrender value would support the interest expense." (Id. ) At that point, the policyholder would "assign the policy as collateral for the loan and then repay the loan through the death benefits." (Id. ) Mr. Chinn described at least one of the life insurance policies included in his "unique financed life plans" as "specially designed," "meaning that they included riders to waive surrender charges and refund substantially all or 100% of the premiums if the policy was surrendered in the early years of the policy." (Id. )

Defendants "sold hundreds of premium finance policies through Pacific Life, Alliance, Phoenix Home Life, and Indianapolis Life before selling the first Minnesota Life policy with premium financing." (Id. at 4.) Defendants knew that lenders required certain financial information to issue premium loans, at least in part through Defendants' discussions with premium finance companies about "the use of high cash value policies as collateral as well as the rates and the design of the case [sic]." (Id. at 5.)

II. The Minnesota Life Policies

Around 2008, "Mr. Chinn concluded that Minnesota Life might have a product that he could use in his business." (Id. at 6.) The parties met at least twice to discuss Minnesota Life's product. (Id. at 6.) At the time of these meetings, Minnesota Life offered an "indexed universal life insurance policy,"² called the "Eclipse Indexed Life Policy" ("Eclipse Policy"). (Id. at 7.) Minnesota Life would subsequently offer an "Early Values Agreement" ("EVA") rider, which "eliminate[d] surrender charges in the early years of the policy." (Id. at 7.) Minnesota Life had also begun work on a "Surrender Value Enhancement Agreement" ("SVEA") rider in 2008, which provided that "if the policy [was] surrendered within the first 3 years, 100% of the premiums [would be] refunded." (Id. at 7–8.) When the parties first met, however, Minnesota Life "did not offer a rider that would refund 100% of premiums if surrendered in the early years of the policy." (Id. at 7.)

The parties executed two contracts, the "Broker Contracts," in January 2009. (Id. at 6.) Under those agreements, Defendants would be paid commissions on products sold, but Defendants would also be obligated to return a percentage of their commissions "on any premiums that [were] subsequently returned or otherwise not received" by Minnesota Life, a sum called a "chargeback." (Id. at 6–7.) Minnesota Life was also empowered to retain commissions to offset any chargebacks. (Id. at 11.)

"As part of Defendants' sales presentation, they would run illustrations on Minnesota Life software ... to illustrate performance of the policy under a given set of assumptions," which included "the insured's age, gender, tobacco use, planned premium outlay, face amount, allocation of premium outlays between fixed and indexed accounts, and credit rating." (Id. at 8.) Defendants dispute that they "had the option to run supplemental illustrations with more detail or run additional illustrations with different assumptions." (Id. at 8–9.) Defendants complain that "[a]ny illustrations that FICC could have run were subject to the limitations of Minnesota Life's software[,] which expressly did not permit running two tiered illustrations³ or illustrations at a 0% credit rating." (Id. at 9 (internal quotation marks omitted).) Mr. Chinn also testified during his deposition that he had "never run an illustration in [his] life," but that FICC analysts would run the illustrations for him. (ECF No. 115–23 at 123.)

Ultimately, "Defendants sold 29 Eclipse Policies with a SVEA Rider," including to policyholders in Tennessee and Minnesota. (Id. at 8.) FICC also purchased an Eclipse Policy that insured Mr. Chinn's life for $18,000,000. (Id. at 10.) "Minnesota Life paid Defendants $10,153,416.26 in commissions for the 29 policies." (Id. at 10.) However, all 29 policies, including Mr. Chinn's, were surrendered within three years. (Id. at 11.) Because all of the policies included a SVEA rider, the Court assumes that 100 percent of the premiums were refunded by Minnesota Life. (See id. at 8.) Solely under the terms of the Broker Contracts, then, Defendants became liable to pay chargebacks to Plaintiff. (See id. at 6–7.)

Defendants do not dispute that, under the Broker Contracts, the appropriate chargeback would be $4,196,995.60; that "[p]ursuant to the Broker Contracts, Minnesota Life has withheld a sum of $763,696.68 in commissions earned by Chinn in order to offset the chargebacks"; that "Chinn has repaid Minnesota Life a sum of $896,000 for the debt owed to Minnesota Life"; and that the remaining chargeback would be $2,537,298.72. (Id. at 11.) "Defendants have stipulated to this amount as the correct calculation," but dispute "that it is owed" (id. ), presumably based on their contentions in the counterclaims where they argue that Plaintiff did not provide adequate information about the policies at issue.

When the policyholders began surrendering their policies in 2010, "FICC entered into a Promissory Note ("Note") with Minnesota Life," which established a payment schedule for the chargebacks owed by Defendants to Minnesota Life. (Id. at 11.) Eventually, this Note encompassed all of the chargebacks associated with all 29 surrendered policies. (See id. at 12.) The balance of the Note came due on January 1, 2014, and Defendants do not dispute that "FICC has not paid the balance of the note." (Id. ) The Note has also accumulated interest, but the parties dispute the calculation of that interest. (Id. ) Finally, Defendants do not dispute that "costs and fees," related to this lawsuit and recoverable under the Note, "are $176,460.03." (Id. )

Concurrent with the Note, Mr. Chinn also executed a Guaranty Agreement ("Guaranty") in 2010, in which he

absolutely, primarily, unconditionally and irrevocably guarantee[d] to Minnesota Life ... (i) the full, prompt and absolute payment, performance, observance and discharge by FICC of all of FICC's obligations and liabilities contained in the [Note and Broker Contracts]; (ii) any cost, expense or liability of any nature which Minnesota Life incurs arising out of or related to the [Note and Broker Contracts]; and (iii) all costs and expenses, including reasonable attorneys [sic] fees, incurred by Minnesota Life in enforcing any of its rights or remedies under [the Note and Broker Contracts].

(Id. at 13.) Mr....