Wuliger v. Cannella Response Television, Inc.

• Decision Date: 06 September 2011
• Docket Number: Case No. 1:05 CV 854.
• Citation: 865 F.Supp.2d 836
• Parties: William T. WULIGER, Receiver, Plaintiff, v. CANNELLA RESPONSE TELEVISION, INC., et al., Defendant.
• Court: U.S. District Court — Northern District of Ohio

865 F.Supp.2d 836

William T. WULIGER, Receiver, Plaintiff,

v.CANNELLA RESPONSE TELEVISION, INC., et al., Defendant.

Case No. 1:05 CV 854.

United States District Court,

N.D. Ohio,

Western Division.

Sept. 6, 2011.

William T. Wuliger, Amy A. Wuliger, Wuliger, Fadel & Beyer, Cleveland, OH, for Plaintiff.

Amelia J. Workman–Farago, Mark Robinson Jacobs, Taft Stettinius & Hollister, Cleveland, OH, for Defendants.

MEMORANDUM OPINION

KATZ, District Judge.

This matter is before the Court on the Motions for Summary Judgement of Defendant Cannella Response Television, Inc. (“Cannella” or “Cannella Television”) (Doc. No. 159) and Defendant Frank Cannella (collectively “Defendants”) (Doc. No. 163) and the Motion for Partial Summary Judgment of the Receiver (Doc. No. 166), as well as the responses and replies to each. The Court notes diversity jurisdiction under 28 U.S.C. § 1332 and proper venue under 28 U.S.C. § 1391. For the reasons stated below, Frank Cannella's Motion will be granted in its entirety and the other two motions will each be granted in part and denied in part.

I. Background

This case is a piece of satellite litigation arising out of viatical receiverships before the Court. Liberte Capital Group v. Capwill, Case No. 5:99 CV 818 (N.D.Ohio). In this case, the Receiver for Alpha Capital Group (“Alpha”) and Capital Resource Group (“CRG”) alleges that Cannella Television participated in Tony Alberti's (“Alberti”) scheme to use CRG's assets to his own benefit and to the derogation of CRG's investors. For its part, Cannella Television maintains that it mislead no one and had a right to the money received.

The viatical industry involves investment through life insurance policies. Insureds, or viators, sell policies on their own lives for a fraction of face value to companies like CRG and Alpha. Those companies solicit investors for funds to purchase such policies and pay the premiums. In return for their funds, investors receive a right to a specific payout from a policy's death benefits when a viator dies. The viatical company typically earns commissions as broker and retains excess premiums. Thus, the viator obtains cash before death and relief from the burden of premiums; the investor bears a part of the longevity risk of the viator for a payout (and assists the viator's end of life planning); and the company bears the balance of the viator's longevity risk and coordinates the transactions for fees and any excess benefits. The viatical industry has been plagued by application fraud, but this case does not involve any such fraud.

In the beginning of 2002, the Receiver had only been appointed to run the Alpha Receivership. CRG was then owned by Thomas LaRussa (“LaRussa”), the husband of the former owner of Alpha. After his wife lost control of Alpha, and went to jail for her behavior, LaRussa decided to extricate himself from the viatical business-he started looking for someone to buy CRG.

Cannella sells television advertising time. Alberti had been a customer, but had run up such a tab that Cannella had to resort to litigation to get paid. In April of 2002 Alberti began negotiating to both purchase CRG from LaRussa and settle his case with Cannella. In fact, the two transactions were linked as he assigned two CRG policies (Columbus Life Insurance Company (“Columbus Life”) policies CM4135957U on James E. Croft (“Croft”) and CM4131646U on Lois Bowie) as security as part of the settlement agreement. The settlement agreement required assignment of policies with a sufficient cash surrender balance.

Shortly after assuming control of the Alpha Receivership, the Receiver noticed that some policies had been intermingled between Alpha and CRG. In other words, some Alpha investors where matched to (invested in) polices held by CRG. He immediately spoke with LaRussa in order to gain control over those policies; LaRussa accommodated him. When the Receiver learned of LaRussa's impending sale to Alberti, he grew concerned. He insisted the two men include an Addendum in the Property Conveyance Agreement that allowed the Receiver some oversight of CRG, even beyond the polices matched to Alpha investors. Alberti and LaRussa signed the Receiver's Addendum.

The Property Conveyance Agreement specifically described the fiduciary duty to the CRG investor Alberti accepted in signing. It also stated the superiority of the investor's rights to policy proceeds. Further, it stated that on danger of policy lapse, the matched investors had the right to decide the course of action. In addition, the Addendum reiterated Alberti's fiduciary duty and granted the Receiver some oversight over his fulfillment of that duty. In other words, the Property Conveyance Agreement and the Addendum, taken together, make it clear that CRG was an investment vehicle for the investors, that Alberti's rights in the policies (what CRG could distribute to him) were limited to policy proceeds left after the investors had been paid and any fees he could charge the investors, and that Alberti did not have the right to unilaterally assign or encumber a policy to the extent it was matched with an investor, without permission.

In negotiating his settlement with Cannella, Alberti disclosed neither the Property Conveyance Agreement, nor the Addendum, showing only a Bill of Sale which did not mention the CRG investors. Thus, Cannella agreed to the use of CRG policies as security for the settlement agreement. That agreement provided that Alberti would have six months to pay Cannella $107,500, plus interest. If payment was timely, Cannella would dismiss its suit. Otherwise, judgment would be entered in that suit for $171,500, plus interest. The original settlement agreement only granted Cannella the right to surrender the assigned policies in the event of Alberti's death before the payment was due (only to the extent of the lower amount). However, as part of the assignments, in May of 2002, Alberti and Cannella executed Releases which specifically enumerated Cannella's rights: the first $107,500 on maturity before Alberti's due date (and the first $171,500 after); release if Alberti pays from external sources; and Cannella's right to take out a loan against the cash balance (or surrender).

NorthEast Escrow Service (“NES”), the escrow agent employed by both the Receiver and CRG, held the policies at that time. As soon as Columbus Life informed NES of the assignment, Virginia Hale (NES's president) passed the news along to the Receiver. At first, the Receiver asked Alberti to reverse the assignment. Alberti repeatedly agreed and failed to do so. In the beginning of July of 2002, the Receiver told Cannella of the limited nature of Alberti's ownership interest in the CRG policies and provided the Addendum. Shortly thereafter, Alberti first showed Cannella the Property Conveyance Agreement.

Cannella refused to reverse the transaction. Frank Cannella later recounted that he doubted the Receiver's right to affect the transaction. The Receiver then petitioned the Court for direction. The Court held a hearing on October 8, 2002 in which the Receiver, Philip Quatrochi (“Quatrochi”), Cannella's lawyer, and Alberti participated. Shortly before that conference, Alberti and Cannella agreed to take out a loan against the cash value of the Croft policy to satisfy the settlement agreement (“loan transaction”). The check passed directly from Columbus Life to Cannella. At the hearing, Quatrochi informed the Court and the Receiver that Cannella would release its assignment as soon as that check (which it had already received and deposited) cleared. The next day, the Court issued an order acknowledging the source of the payment and enjoining Alberti from further diluting or encumbering the CRG policies and policy benefits. Cannella and the Receiver bitterly dispute whether Quatrochi mentioned the source of the payment to Cannella at the hearing. The check cleared, Cannella released the assigned policies, and submitted a status report to that effect.

At the beginning of 2003, the Receiver petitioned the Court to place CRG into receivership in order to protect the CRG investors. He cited transactions involving Cannella as well as other continuing bad behavior by Albert, such as an attempt to convert one of the policies before all investors had been paid and direct solicitation of contributions from the investors to pay his personal legal bills. The Court held a hearing and placed CRG in receivership under the Receiver. The Court noted that Alberti remained personally responsible on the loan from the loan transaction (though the loan remained on the Croft policy from Columbus Life's perspective).

Upon assuming control of the CRG portfolio, the Receiver discovered that the Croft policy was in danger of lapsing. Further, the loan transaction had depleted the Croft policy's cash value, further reducing the pool of funds available for premium payments. The Receiver sold the Croft and Bowie policies for $360,000 (minus the value of the loan) and $346,000, respectively. Later, on April 22, 2003, the Receiver sent Cannella a letter requesting return of the loan transaction proceeds. Cannella did not respond.

On March 31, 2005, the Receiver instituted the present suit against Cannella and Alberti (including Stardust Media, LLC, Alberti's company). Alberti never appeared and the Court entered default judgment against him (and his company). After Cannella and the Receiver exchanged cross motions for summary judgment (and Cannella first objected to the Receiver's conversion claim), the Court allowed the Receiver to amend his complaint to include claims against Frank Cannella. The Court then dismissed the Receiver's conversion and fraudulent misrepresentation against Frank Cannella due to the statute of limitations. The parties have once more exchanged cross motions for summary judgment. The Receiver excluded his punitive damages claim from his motion and Cannella has also asserted laches and...