Plaintiffs, both residents of Pierce County, Washington, are the parents of Richard Scott Shaw, who was born on July 4, 1979, at Madigan Army Medical Center in Takoma, Washington.1 Compl. ¶¶ 2.1, 2.3, 2.6. During his birth, Richard suffered massive injuries,which his parents attributed to medical malpractice. Id. ¶ 2.7. Following Richard's birth, plaintiffs filed an FTCA claim for damages with the United States Army. Id. ¶ 2.8. Thereafter, on March 1, 1982, plaintiffs filed suit against the United States in the United States District Court for the Western District of Washington. Id. After a bench trial, judgment was entered against the United States for $11.7 million. Id. On August 31, 1984, following an appeal to the United States Court of Appeals for the Ninth Circuit, judgment was reversed and the case was remanded to the trial court. Id. While the case was on remand, the parties reached a settlement agreement, which was approved by the trial judge on January 24, 1985. Id. ¶ 3.1. The settlement agreement provided, in pertinent part:
3. The plaintiffs agree to accept the compromise and settlement set forth below in full settlement and satisfaction of any and all claims and demands which they, their heirs, executors, administrators or assigns may have or hereafter acquire against the United States of America, its agencies, agents, servants or employees, on account of the events, circumstances or incidents giving rise to this lawsuit and claims incident thereto.
4. The payment by the United States of America of the cash sums set forth below in paragraph 5 and the purchase of annuities which will to [sic] provide certain future periodic payments as set forth below in paragraph 6 shall constitute a complete release and bar to any and all causes of action, claims, liens, rights, or subrogated interests under the Federal Tort Claims Act, or otherwise, known or unknown to the Plaintiffs or their attorneys, by reason of, or arising from, the events, circumstances or incidents giving rise to this lawsuit. Said annuities will be owned solely and exclusively by the United States of America and will be purchased as soon as practicable following the execution of this Stipulation. In addition, the United States of America will establish an Irrevocable Reversionary Medical Care Trust for use and benefit of Richard Scott Shaw. Upon the death of Richard Scott Shaw the Trust Estate shall revert to the United States. Plaintiffs further agree to reimburse, indemnify and hold harmless the United States of America, its agents, servants, or employees from any and all such causes of action, claims, liens, rights or subrogated interests and, further, to reimburse or advance, at the option of counsel for the United States, any expense or cost which may be incurred incident to or resulting from further litigation or the prosecution of claims by the Plaintiffs against any third party.
5. The Defendant, United States of America, will make the following payments:
(a) To Raymond A. Shaw and Karen L. Shaw, jointly, the sum of $500,000.00.
(b) To the Trustee of the Richard Scott Shaw Irrevocable Reversionary Medical Care Trust the sum of $500,000.00.
(c) To counsel for the plaintiffs, as attorneys' fees, the following:
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(d) To Merrill Lynch Settlement Services, Inc. [("MLSS")], for the purchase of annuities that will provide the periodic or other payments set forth in paragraph 6, below, the sum of $2,950,000.00.
6. The annuities purchased by the United States of America shall make the following payments:
(a) To Raymond A. Shaw, the sum of $4,166.00 each month, continuing for the life of Raymond A. Shaw. These monthly payments are guaranteed for a period of twenty (20) years . . . .
(b) To Karen L. Shaw, the sum of $4,166.00 each month continuing for the life of Karen L. Shaw. These payments are guaranteed for a period of twenty (20) years . . . .
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(d) To Richard Scott Shaw, through his guardians ad litem or other appointed representative(s), the sum of $10,000.00 each month, increasing at four percent (4%), compounded annually, continuing for the life of Richard Scott Shaw.
(e) To the Trustee of the Richard Scott Shaw Irrevocable Reversionary Medical Care Trust, the sum of $10,000.00 each month, increasing at four percent (4%), compounded annually, continuing for the life of Richard Scott Shaw. In addition,commencing at the end of the twenty-fifth (25th) year, the annuity will provide the sum of $26,658 each month, increasing at four percent (4%) compounded annually, for the life of Richard Scott Shaw, and the following lump sums: . . . the sum of $785,000.00 at the end of thirty (30) years; the sum of $1,250,000.00 at the end of thirty[-]five (35) years; and the sum of $2,000,000.00 at the end of forty (40) years.
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7. In exchange for payment of the sums set forth in paragraph 5 and contemporaneous with the delivery of the checks therefor, plaintiffs shall file with the Clerk of the Court, a dismissal of this action with prejudice and without costs, expenses or interest. . . . This compromise settlement is contingent on a total, final cost of $4,800,000.00.
Pls.' Mot., Ex. 5 ("Settlement Agreement") 64-68.
On January 11, 1985, MLSS, acting on behalf of the United States as its broker, purchased four annuities from Executive Life of New York ("ELNY") at a cost of $2,846,095. Def.'s Resp. & Cross-Mot. 6. Each of the annuity applications listed MLSS as the owner of the annuity, contrary to the terms of the settlement agreement. Id.
On February 7, 1985, the United States executed the Richard Scott Shaw Irrevocable Reversionary Medical Care Trust Agreement with First Interstate Bank of Washington (now Wells Fargo Bank). Compl. ¶ 3.7. The trust agreement provided, in pertinent part:
RECITALS
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Pursuant to the terms of the Stipulation for Compromise Settlement, the defendant, United States of America has agreed to create and establish a Trust for the use and benefit of Richard Scott Shaw, a minor and incompetent, subject to certain limitations and conditions; namely, that the Trust is intended to provide reasonable and necessary medical, institutional and related care and services to the Beneficiary, Richard Scott Shaw, during his lifetime, and that upon the death of Richard Scott Shaw, the Trust Estate (including all accrued or unexpended income) shall revert to the Trustor, United States of America.
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ARTICLE IV
TRUSTEE MANAGEMENT PROVISIONS
The Trustee of the Trust created hereunder shall have and exercise the exclusive management and control of such Trust, and shall have the power and authority necessary for the proper administration and distribution thereof. In addition to the powers granted to the Trustee by applicable state and Federal law and the several powers granted to the Trustee by other provisions hereof, and not in limitation thereof, the Trustee shall have the following rights and powers in the administration of any Trust created hereunder during the term of such Trust and for division and distribution after its termination:
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(e) To collect, receive, and receipt for any principal or income and to enforce, defend against, compromise or settle any claims by or against the Trust.
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(i) The Trustee shall pay out of the Trust all taxes, assessments, charges, fees, the Trustee's compensation, and other reasonable and necessary expenses incurred in the administration, management and protection of this Trust.
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ARTICLE V
GENERAL ADMINISTRATION PROVISIONS
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2. This Trust Agreement is accepted by the Trustee in the State of Washington and the laws of the State of Washington shall govern the validity, construction and interpretation of the provisions of this instrument, the validity of the Trust created herein, and the administration of the accounting for such trusts and all other questions of law relative thereto.
Pls.' Mot., Ex. 4 ("Trust Agreement") 50-60.
On August 12, 1985, officials from the United States Department of Justice and MLSS executed owner and beneficiary designation forms with ELNY. Compl. ¶ 3.4. In September ofthat year, the forms were amended to reflect a change in ownership from MLSS to the United States, exclusively. Id. ¶ 3.5. In 1991, the New York Department of Insurance placed ELNY into rehabilitation because its parent company had been placed in conservation. Id. ¶ 4.1. On April 23, 1991, the New York Superintendent of Insurance obtained a court order that gave him control of ELNY and froze surrenders. Id.
On December 14, 2011, plaintiffs were advised in a letter from Merrill Lynch Life Agency ("MLLA") that due to the proposed plan to liquidate ELNY, MLLA would, as the owner of the ELNY annuities, make supplemental payments to plaintiffs so that they would continue to receive the amount specified in their structured settlement agreement.2 Pls.' Mot., Ex. 10. Eight months later, on August 24,...
