Miriam Kaller Family Irrevocable Trust v. Lincoln Benefit Life Co.

• Decision Date: 06 February 2017
• Citation: Miriam Kaller Family Irrevocable Trust v. Lincoln Benefit Life Co., 56 Misc.3d 395, 56 N.Y.S.3d 417 (N.Y. Sup. Ct. 2017)
• Parties: The MIRIAM KALLER FAMILY IRREVOCABLE TRUST, by and through its trustee Moshe FREUND, Plaintiff, v. LINCOLN BENEFIT LIFE COMPANY, Defendant.
• Court: New York Supreme Court

56 Misc.3d 395

56 N.Y.S.3d 417

The MIRIAM KALLER FAMILY IRREVOCABLE TRUST, by and through its trustee Moshe FREUND, Plaintiff,

v.LINCOLN BENEFIT LIFE COMPANY, Defendant.

Supreme Court, Kings County, New York.

Feb. 6, 2017.

Katherine L. Villanueva, Drinker Biddle & Reath LLP.

Jason Gosselin, Drinker Biddle & Reath LLP.

Michael Paneth, Treff & Lowy PLLC.

Paul Youkili, Treff & Lowy PLLC.

ELLEN M. SPODEK, J.

Introduction

In motion sequence number 1, defendantLincoln Benefit Life Company(Lincoln or the Insurer) moves for an order, pursuant to CPLR 3211(a), dismissing all claims interposed by plaintiff, The Miriam Kaller Family Irrevocable Trust (the Trust), by and through its TrusteeMoshe Freund, with prejudice.Plaintiff opposed the motion.

Facts

Plaintiff commenced this action on April 2, 2014 seeking to recover damages for breach of contract premised upon defendant's refusal to pay a death benefit of ten million dollars ($10,000,000) or unjust enrichment seeking the return of premiums in the amount of approximately five hundred thousand dollars ($500,000) paid on a life insurance policy.The subject policy was issued on December 10, 2007(the Policy) insuring the life of Miriam Kaller(the Insured).At the time of issuance, the Trustee was Abraham Kaller, the Insured's grandson.Plaintiff contends that Mr. Kaller resigned as Trustee and on November 10, 2008, Mr. Freund was appointed to replace him.

The Trust paid all the premiums on the Policy as they became due.On October 12, 2009, during the period when the Policy was in full force and effect, the Insured died.To date, the Insurer refuses to pay the death benefit or to refund the premiums paid.

On February 6, 2013, the Insurer filed a complaint in the Federal District Court in New Jersey (the District Court) seeking a declaratory judgment holding that the policy was void due to material misrepresentations in the application concerning the Insured's financial condition and/or that there was a lack of an insurable interest at the inception (Lincoln Benefit Life Company v. Abraham Kaller, as Trustee of The Miriam Kaller Family Irrevocable Trust dated October 4, 2007, United States District Court, District of New Jersey, Civil ActionNo. 3:13–CV–00767)(the Federal Action).More specifically, Lincoln alleges that the Policy was issued as the result of fraud and deceit and was intended to benefit strangers with no interest in the continuing life of the Insured.

On February 13, 2013, a summons and complaint commencing the Federal Action was personally served on Mr. Kaller by serving his wife at his home in Brooklyn and mailing a copy to him.When Mr. Kaller failed to appear, Lincoln filed and served a request for entry of a default.The Clerk entered the requested default on March 11, 2013.On June 24, 2013, having heard nothing further from the Trust, Lincoln moved for a default judgment; that motion was returnable August 5, 2013.The motion was granted by Order and Judgment dated July 16, 2013 which provided that the Policy was void, that no death benefits are or shall ever become due and payable under the Policy and that the Insurer was not obligated to return the premiums paid to the Trust (the Default Judgment).

Defendant's Contentions

In support of its motion, defendant argues that the Trust is precluded from maintaining the instant action pursuant to the doctrine of res judicata, i.e., by the time the Trust commenced the instant action, the Policy had already been declared void in the Federal Action.Defendant further asserts that the District Court had subject matter jurisdiction over the instant dispute pursuant to the court's diversity jurisdiction since the Insurer has its principal place of business in Lincoln, Nebraska; Mr. Kaller is a resident of New York State; and the amount of money in controversy exceeds seventy five thousand dollars ($75,000)(28 U.S.C. § 1332 [a][1] ).Defendant goes on to argue that the District Court had personal jurisdiction over Mr. Kaller under New Jersey's long arm statute.Lincoln further notes that pursuant to its terms, the Policy is governed by law of the state in which the application is signed; the application indicates that it was signed in Lakewood, New Jersey.¹Defendant also argues that plaintiff fails to offer any proof that Mr. Kaller resigned as Trustee prior to the commencement of the Federal Action.

Plaintiff's Contentions

In opposition, the Trust alleges that: (1)the District Court did not have personal jurisdiction over the Trust or its sole Trustee, Mr. Freund, because Lincoln did not serve Mr. Freund in that action, either in his individual capacity or as Trustee; (2) there is no legal support for Lincoln's contention that the due process requirements of the United States Constitution are to be disregarded in this case because Lincoln named and served an individual who had resigned as Trustee more than four years before the action was commenced; (3) neither the current Trustee, Mr. Freund, or the former Trustee, Mr. Kaller, appeared in the Federal Action; and (4)the District Court disregarded its own procedural rules when it entered the default judgment.

More specifically, plaintiff argues that at all times, the owner and beneficiary of the Policy was the Trust, as provided in the application and the Policy.Plaintiff also asserts that the Policy provided addresses in Brooklyn for the Insured, Mr. Kaller and the Trust.Plaintiff therefore concludes that the District Court could not properly premise jurisdiction over Mr. Kaller or the Trust in reliance upon the long arm statute, since Mr. Kaller had no contact with New Jersey.

Moreover, plaintiff claims that the District Court did not have jurisdiction over the Trust, since Lincoln served Mr. Kaller, who had resigned as the Trustee four years earlier.Thus, since the Federal Court did not have personal jurisdiction over the

Trust, which did not appear in the action, the Default Judgment is null and void.From this it follows that the Judgment is not entitled to full faith and credit, so that the doctrine of res judicata is inapplicable.

Plaintiff further alleges that the Default Judgment should not be given res judicata effect because the District Court did not follow its own rules in issuing the judgment.More specifically, the civil docket for the case indicates that on July 3, 2013, the court held an ex parte telephone conference with Lincoln.Thereafter, a Default Judgment was signed on July 16, 2013, 20 days before the motion was returnable, six days before Mr. Kaller's deadline to respond to the motion expired and without having received an affidavit or certificate attesting to the fact that Mr. Kaller had even been served with that motion.

In this regard, the Trust points out that the affidavit of service for the motion states that Mr. Kaller will be served; there is no affidavit stating that he was served.

Finally, the Trust argues that there is no merit to Lincoln's assertion that Mr. Freund does not have the capacity to sue on behalf of the Trust, based upon its contention that a substitution of trustees requires a formal request to change ownership.In this regard, plaintiff claims that the Trust was always the real party in interest, since it has always been the owner of the Policy.

Motion to Dismiss

It is well settled that:

"On a motion to dismiss pursuant to CPLR 3211, the pleading is to be afforded a liberal construction (see,CPLR 3026 ).We accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory (Morone v. Morone,50 N.Y.2d 481, 484, 429 N.Y.S.2d 592, 413 N.E.2d 1154[1980];Rovello v. Orofino Realty Co.,40 N.Y.2d 633, 634, 389 N.Y.S.2d 314, 357 N.E.2d 970[1976] ).Under CPLR 3211(a)(1), a dismissal is warranted only if the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law (see, e.g., Heaney v. Purdy,29 N.Y.2d 157, 324 N.Y.S.2d 47, 272 N.E.2d 550[1971] ).In assessing a motion under CPLR 3211(a)(7), however, a court may freely consider affidavits submitted by the plaintiff to remedy any defects in the complaint (Rovello v. Orofino Realty Co., supra, at 635, 389 N.Y.S.2d 314, 357 N.E.2d 970 ) and ‘the criterion (sic)

is whether the proponent of the pleading has a cause of action, not whether he has stated one’ (Guggenheimer v. Ginzburg,43 N.Y.2d 268, 275, 401 N.Y.S.2d 182, 372 N.E.2d 17[1977];Rovello v. Orofino Realty Co., supra, at 636, 389 N.Y.S.2d 314, 357 N.E.2d 970 )."(Leon v. Martinez,84 N.Y.2d 83, 87–88, 614 N.Y.S.2d 972, 638 N.E.2d 511[1994] ).

As is also relevant herein, pursuant to CPLR 3211(a)(5), a party may seek dismissal of a cause of action based on the doctrine of res judicata.

Res Judicata

It is well settled that the "doctrine of res judicata ... holds that, as to the parties in a litigation and those in privity with them, a judgment on the merits by a court of competent jurisdiction is conclusive of the issues of fact and questions of law necessarily decided therein in any subsequent action"(Gramatan Home Investors v. Lopez,46 N.Y.2d 481, 485, 414 N.Y.S.2d 308, 386 N.E.2d 1328[1979][citations omitted] )."Under New York's transactional approach to the rule, ‘once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy’ "(Matter of Josey v. Goord, 9 N.Y.3d 386, 389–390, 849 N.Y.S.2d 497, 880 N.E.2d 18[2007], quotingO'Brien v. City of Syracuse,54 N.Y.2d 353, 357, 445 N.Y.S.2d 687, 429 N.E.2d 1158[1981] )."Considerations of judicial economy as well as fairness to the parties mandate, at some point, an end to litigation"(Matter of Reilly v. Reid, 45 N.Y.2d 24, 28, 407 N.Y.S.2d 645, 379 N.E.2d 172[1978] )."The rationale underlying [the principle of res judicata]...