Turnbow v. Life Partners, Inc.
| Decision Date | 09 July 2013 |
| Docket Number | Civil Action No. 3:11-cv-1030-M |
| Parties | SEAN TURNBOW, WILLIAM RICE, MARY RICE, ROBERT YOSKOWITZ, FREDERICK VIEIRA, and ANTHONY TAYLOR, Plaintiffs, v. LIFE PARTNERS, INC., LIFE PARTNERS HOLDINGS, INC., BRIAN D. PARDO, and R. SCOTT PEDEN, Defendants. |
| Court | U.S. District Court — Northern District of Texas |
Before the Court is the Motion for Class Certification filed by Plaintiffs Sean Turnbow, William Rice, Mary Rice, Robert Yoskowitz, Frederick Vieira, and Anthony Taylor ("Plaintiffs") [Docket Entry #68]. On February 4, 2013, the Court heard oral argument on this Motion, and then allowed Plaintiffs to supplement their Motion and Defendants to respond. Having carefully considered the briefs, oral arguments, and applicable law, the Court DENIES the Motion and declines to certify a class.
Defendant Life Partners Holdings, Inc. ("LPHI"), through its wholly-owned operating subsidiary, Life Partners, Inc. ("LPI"), does business in the secondary market for life insurance known as life settlement transactions. Pls.' Am. Compl. at ¶¶ 1-2, 23-24. Such a transaction involves the sale of a previously-issued life insurance policy to a purchaser who takes anownership interest in the policy, assumes the obligation to pay premiums, and receives payment of the policy's death benefit when the policy matures; that is, when the insured dies. Pls.' App. at Ex. A (LPHI 2010 Form 10-K).
Plaintiffs are investors of life settlement investments made through LPI. LPI's primary function was to act as a facilitator of life settlement investments. The investment process began with LPI and investors entering into a standard "Agency Agreement."1 Pls.' Am. Compl. at ¶¶ 68-69. LPI agreed to act as a purchasing agent to identify, examine, and purchase suitable, attractively-priced life insurance policies on behalf of investors. Pls.' App. at Ex. C (Dep. Tr. of Scott Peden) at 39:10-12. In doing so, LPI obtained a life expectancy estimate and a confidential case history of an insured to disclose to investors. Id. at 39:21-24. The estimated life expectancy of the insured was a key factor for calculating the expected rate of return on the investment.
After LPI assisted investors in identifying life insurance policies suitable for purchase, LPI and the investor would enter into a second standard contract entitled "Policy Funding Agreement." Id. at 40:24-25; 41:1-7. By that agreement, the investor purchased a fractional interest in the death benefits of a specified insurance policy for an acquisition price set by LPI. LPI used the acquisition payment to pay the seller of the policy and fees to third-parties and to escrow expected future premiums on the policy. In the Policy Funding Agreement, LPI did not guarantee a specific return on the investment, nor a specific date of death of the insured. Defs.' App. in Supp. of Sur-Reply at Ex. 14 (Sean Turnbow Policy Funding Agreement). The investor signed the Policy Funding Agreement, acknowledging that before signing either he or someonewith his power of attorney had reviewed the confidential case history of the insured.2 Id.
The life expectancy estimate was the primary factor for determining (a) the size of the fractional interests the investor acquired in a policy (i.e., a longer life expectancy generally meant a greater fractional ownership in the policy) and (b) the acquisition cost for the policy (i.e., a longer life expectancy meant a lower acquisition cost). Pls.' App. at Ex. A (Affidavit of David N. Fuller) at 4; Ex. D (Dep. Tr. of Kurt Carr) at 25:8-13. Between 1999 and March 2011, LPI engaged a practicing oncologist, Dr. Donald Cassidy ("Dr. Cassidy"), to review and provide life expectancy estimates for life insurance policies considered by LPI for purchase from policy owners. Pls.' App. at Ex. C (Dep. Tr. of Scott Peden) at 31:7-13. Pursuant to a written employment contract, LPI compensated Dr. Cassidy on a retainer basis—$15,000 per month—and paid him an additional $500.00 for each insurance policy for which LPI facilitated the sale of fractional interests. Id at 126:19-24. Dr. Cassidy calculated life expectancies for insureds by first determining the average life span of a person like the insured based on a mortality table—which changed over the years—that used the categories of gender, race, and age. Defs.' App. in Supp. of Mot. to Exclude (Decl. of Donald Cassidy) at 49-50. After determining the life span of a person of the gender, race, and age of the insured, Dr. Cassidy adjusted that life expectancy by accounting for the insured's medical history, such as whether the insured had a smoking history or prior illnesses. Id.
On or about March 2011, after a Wall Street Journal article accused LPI of substantially underestimating life expectancies, LPI engaged a new life expectancy provider, 21st Services, LLC, for the purpose of obtaining a second opinion on life expectancy estimates. During thistime, LPI continued to engage the services of Dr. Cassidy. Pls.' App. at Ex. C (Dep. Tr. of Scott Peden) at 49:20-25. After the Wall Street Journal article and a piece in The Life Settlements Report, various retail customers of LPI, including Plaintiffs, filed this putative class action lawsuit against Defendants.
The six named Plaintiffs purchased fractional interests in life insurance policies for which Dr. Cassidy provided life expectancy estimates. Plaintiffs assert in their Complaint that LPI breached its fiduciary duty and its implied contractual duty of care to Plaintiffs by retaining Dr. Cassidy to provide life expectancy assessments, by overcompensating him and incentivizing his poor performance, by failing to monitor his performance or provide quality control, by creating conflicts of interest and engaging in self-dealing transactions that were unfair,3 by failing to pay reasonable attention or provide reasonable care in obtaining and providing life expectancy estimates, by failing to use its expertise diligently, and by otherwise failing to exercise the requisite care that an agent, fiduciary, or expert in life settlements should have exercised. In addition to their claims against LPI for breach of fiduciary duty and breach of contract, Plaintiffs assert claims against Defendants LPHI, Brian D. Pardo ("Pardo"), and R. Scott Peden ("Peden") for aiding and abetting breach of fiduciary duty, and against Defendants LPI, Pardo, and Peden for unfair business practices under California's Unfair Competition Law ("UCL").4
The named Plaintiffs bring this action on behalf of a putative class, composed of "all persons in the United States who purchased or otherwise acquired fractional interests in life settlements, from or through LPI or LPHI, for which Dr. Cassidy provided life expectancy assessments." Pls.' Mot. for Class Cert. at 8. Plaintiffs also move to certify two subclasses: the"California Subclass," represented by Plaintiffs Vieira and Yoskowitz, comprising those members of the putative class who are residents of California, suing for violations of the UCL, and a "Seller Subclass," represented by Plaintiff Vieira, comprising those members of the putative class who, after December 21, 2010, sold some or all of the life settlement investments they acquired through LPI. The proposed class period runs from 2004 to March 2011, when LPI stopped using Dr. Cassidy as its single life expectancy expert. The putative class is composed of approximately 13,000 investors who purchased fractional interests in approximately 757 life insurance policies.5
A class action is "an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only." Califano v. Yamasaki, 442 U.S. 682, 700-01 (1979). Class certification is only appropriate if the court is satisfied that the party seeking class certification has met its evidentiary burden of demonstrating that (1) all four class action prerequisites of Federal Rule of Civil Procedure 23(a) are met, and (2) that the action is maintainable under one of the three categories set forth in Rule 23(b). Comcast Corp. v. Behrend, 133 S. Ct. 1426, 1428 (2013); In re Rodriguez, 695 F.3d 360, 365 (5th Cir. 2012).
A district court has wide discretion in determining whether or not to certify a class, but it "must rigorously analyze Rule 23's prerequisites before certifying a class." Funeral Consumers Alliance, Inc. v. Serv. Corp. Int'l, 695 F.3d 330, 345 (5th Cir. 2012) (internal citation omitted) (emphasis added). The Supreme Court has recently emphasized that "Rule 23 does not set forth a mere pleading standard" and that a party seeking class certification must affirmatively demonstrate that the case satisfies the particular requirements of Rule 23. Wal-Mart Stores, Inc.v. Dukes, 131 S. Ct. 2541, 2551-52 (2011). This requires an understanding of the relevant claims, defenses, facts, and substantive law presented in the case," Funeral Consumers Alliance, 695 F.3d at 345, and "often entail[s] some overlap with the merits of the plaintiff's underlying claim." Dukes, 131 S. Ct. at 2551-52. This is so because a "class determination involves considerations that are enmeshed in the factual and legal issues comprising the plaintiff's cause of action." Comcast Corp, 133 S. Ct. at 1432 (internal quotations omitted). The Supreme Court has repeatedly emphasized that it "may be necessary for the [trial] court to probe behind the pleadings before coming to rest on the certification question," and certification is proper only if after the rigorous analysis, the court confirms the presence of Rule 23's prerequisites. Comcast, 133 S. Ct. at 1432 (internal quotations omitted).
Although the Supreme Court has cautioned that "Rule 23 grants courts no license to engage in free-ranging merits inquiries at the certification stage," merits questions may be considered to the extent they are "relevant to determining whether the ...
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