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Sun Life Assurance Co. of Canada v. Paulson: US District Court : INSURANCE | CONTRACT - no evidence that policy void ab initio; law of case that unilateral intent not sufficent

Civil No. 07-3877(DSD/JJG)
Sun Life Assurance Company
of Canada,
John R. Paulson, The Atticus
Fund, LP, Coventry First, LLC,
Erwin B. Johnson, LLP as
Trustee of the Orca Finance Trust,
Michael J. Antonello, and
Thomas M. Petracek,
John Harper III, Esq., Terrance J. Wagener, Esq. and
Krass Monroe, PA, 8000 Norman Center Drive, Suite 1000,
Minneapolis, MN 55437, and James S. Bainbridge, Esq. and
Drinker, Biddle & Reath, LLP, One Logan Square, 18th &
Cherry Streets, Philadelphia, PA 19103, counsel for
Thomas E. Brever, Esq. and Foster & Brever, 2855 Anthony
Lane, Suite 200, St. Anthony, MN 55418, counsel for
defendant Paulson.
Rick E. Kubler, Esq. and Gray, Plant, Mooty, Mooty &
Bennett, 80 South Eighth Street, Suite 500, Minneapolis,
MN 55402, counsel for defendant Atticus Fund.
Brent A. Lorentz, Esq., Brooks F. Poley, Esq. and
Winthrop & Weinstine, 225 South Sixth Street, Suite 3500,
Minneapolis, MN 55402, counsel for defendants Antonello,
Johnson and Petracek.
This matter is before the court on plaintiffs appeal of
Magistrate Judge Susan R. Nelsons September 3, 2008, order,
plaintiffs motion to certify a question of law to the Minnesota
1 The complaint allegedly incorrectly refers to Attilanus Fund
I, L.P. as The Atticus Fund. The court continues to refer to The
Atticus Fund until receiving a motion or stipulation to change the
2 Sun Lifes ten-count complaint also seeks damages and
declaratory relief.
Supreme Court and defendants The Atticus Fund, LP1 (Atticus) and
Erwin & Johnson, LLP as Trustee of the Orca Finance Trusts
(Orca) separate motions for judgment on the pleadings.
On August 31, 2007, plaintiff Sun Life Assurance Company of
Canada (Sun Life) filed a complaint seeking rescission of seven
life insurance policies obtained by defendant John R. Paulson
(Paulson).2 Sun Life issued a million policy to Paulson on
October 11, 2002, and on October 6, 2004, issued six more policies
with million in total benefits. As required by Minnesota
Statutes 61A.03, subdivision 1(c), the policies contained
incontestability clauses precluding Sun Life from challenging their
validity two years after the date of issuance. Dismissed defendant
Coventry First, LLC (Coventry) obtained the October 11, 2002,
policy on an unspecified date. On December 7, 2006, Atticus
obtained three of the October 6, 2004, policies valuing million,
and in January 2007 Orca obtained the remaining policies. The
complaint alleges that Paulson, with the assistance of his
insurance agents, defendants Michael J. Antonello (Antonello) and
Thomas M. Petracek (Petracek), fraudulently obtained the policies
with the intent to sell them at the conclusion of their
contestability periods.
Coventry moved to dismiss for failure to state a claim on
October 15, 2007, arguing that the incontestability clause
prevented Sun Life from seeking rescission of its policy. Sun Life
responded that the policy was void ab initio for lack of an
insurable interest and thus the incontestability clause was
unenforceable. The courts February 15, 2008, order ruling on
Coventrys motion recognized that Minnesota courts have not
expressly addressed whether an individual lacks an insurable
interest if, at the time he procured a life insurance policy, he
intended to transfer it to a third party without an insurable
interest. Sun Life Assurance Co. v. Paulson, Civ. No. 07-3877,
2008 U.S. Dist. LEXIS 11719, at *4-5 (D. Minn. Feb. 15, 2008).
Predicting how the Minnesota Supreme Court would address the issue,
the court stated that:
[A] life insurance policy [is] void as against
public policy if the policy was procured under
a scheme, purpose, or agreement to transfer or
assign the policy to a person without an
insurable interest in order to evade the law
against wagering contracts. Moreover, the
mutual intent of the insured and the third
party to avoid the prohibition on wagering
contracts determines the existence of such a
scheme, purpose, or agreement. The most
important factor in determining the parties
intent is whether or not the assignment from
the insured to the third party was done in
pursuance of a preconceived agreement.
3 Sun Life attached a copy of the proposed amended complaint
to an April 14, 2008, amended motion.
Id. at *5-7 (citations and quotations omitted). Because Sun Life
had not alleged that a third party intended to purchase Paulsons
policy at the time he obtained it, the court granted Coventrys
motion. Id. at *8.
On March 25, 2008, more than three weeks after the scheduling
orders deadline, Sun Life moved to amend its complaint to conform
to the February 15 order. Sun Lifes proposed amended complaint3
describes the emergence of a secondary market for life insurance
policies. Specifically, the proposed amended complaint identifies
schemes in which life settlement providers approach individuals
over the age of seventy with net worths exceeding million to
take out life insurance policies. (Prop. Am. Compl. 17.) The
life settlement providers pay the prospective insureds costs,
including premium payments, and acquire the policy soon after it is
issued or after expiration of the contestability period. (Id.
18, 22.) These transactions are oftentimes facilitated by third
party brokers. (Id. 12.)
The proposed amended complaint alleges that beginning in 2002,
Paulson, at the age of eighty, obtained thirty life insurance
policies with an aggregate face value of million as part of an
agreement, scheme, purpose and/or plan to transfer or assign those
policies to Coventry, Orca, Atticus or other entities after
expiration of the contestability period. (Id. 24, 26, 45, 56,
67, 78, 89, 100, 111.) Antonello and Petracek allegedly helped
Paulson apply for the Sun Life policies and brokered the
transactions with the life settlement providers. (Id. 33.)
Moreover, the proposed amended complaint alleges that Coventry,
Orca, Atticus or another entity paid the premiums on the Sun Life
policies. (Id. 46, 57, 68, 79, 90, 101, 112.)
Sun Life postponed a hearing on its motion to amend until
August 18, 2008, to discover evidence of a third party with no
insurable interest who, at the time Paulson procured the disputed
insurance policies, intended to later obtain those policies. After
taking several depositions, including those of Antonello and
Petracek, and receiving thousands of pages of documents, Sun Life
discovered no such evidence. On September 3, 2008, the magistrate
judge denied without prejudice Sun Lifes motion to amend, holding
that the motion was futile, made in bad faith and frivolous. (Mag.
Order at 5-10.) Sun Life appealed the magistrate judges order on
September 17, 2008. On October 3, 2008, Sun Life moved to certify
the following question to the Minnesota Supreme Court:
Does Minnesota law require evidence of an
agreement between the insured/policyholder and
an entity lacking an insurable interest at the
time the life insurance policy is procured in
order to establish that a policy is void ab
initio for lack of an insurable interest?
(Doc. No. 94.) On October 7, 2008, Orca and Atticus separately
moved to dismiss pursuant to Federal Rule of Civil Procedure 12(c).
I. Appeal of Magistrate Judges Order
A district court ordinarily reviews a magistrate judges
denial of a motion to amend under a clearly erroneous or contrary
to law standard. See 28 U.S.C. 636(b)(1)(A); Fed. R. Civ. P.
72(a); D. Minn. L.R. 72.2(a). However, a motion to amend denied as
futile is subject to de novo review. Cf. United States ex rel.
Gaudineer & Comito, L.L.P. v. Iowa, 269 F.3d 932, 936 (8th Cir.
2001) (district courts denial of leave to amend based on futility
reviewed de novo on appeal).
Federal Rule of Civil Procedure 15(a)(1) provides for
amendment of a pleading as a matter of course if no responsive
pleading has been filed or within 20 days after serving the
pleading if a responsive pleading is not allowed and the action is
not yet on the trial calendar. A court may also permit a party to
amend its pleading when justice so requires. Fed. R. Civ. P.
15(a)(2). Denial of a motion to amend is appropriate upon a
showing of undue delay, bad faith, or dilatory motive, repeated
failure to cure deficiencies by amendments previously allowed,
undue prejudice to the non-moving party, or futility of the
amendment. Becker v. Univ. of Neb., 191 F.3d 904, 907-08 (8th
Cir. 1999) (citations and quotations omitted). Denial of a motion
to amend as futile is appropriate if the proposed amended complaint
cannot survive a motion to dismiss for failure to state a claim.
In re Senior Cottages of Am., LLC, 482 F.3d 997, 1001 (8th Cir.
2007). A court will dismiss a complaint for failure to state a
claim if, after taking all facts alleged in the complaint as true,
those facts fail to raise a right to relief above the speculative
level. Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1965 (2007).
As noted in the courts February 15, 2008, order, the mutual
intent of the parties to avoid the prohibition on wagering
contracts determines whether a policy is void ab initio for lack of
an insurable interest. Sun Life Assurance Co., 2008 U.S. Dist.
LEXIS 11719, at *5-7. The proposed amended complaints rescission
claim alleges that at the time Paulson procured the disputed
policies, he intended and agreed to convey them to Coventry,
Atticus, Orca or an unidentified third party lacking an insurable
interest in his life and that one of those parties intended and
agreed to purchase the policies at the time Sun Life issued them
and paid all of the premiums thereafter. (Id. 46, 57, 68, 79,
90, 101, 112, 123, 124.) These allegations leave open the
possibility that the intent of an unidentified third party rendered
the policies void ab initio. Nevertheless, the court determines
that the proposed amended complaints factual allegations with
respect to Paulson and the three identified parties would satisfy
Federal Rule of Civil Procedure 8(a)'s liberal pleading
requirement. Therefore, amendment of Sun Lifes complaint would
not be futile.
The magistrate judge also concluded that Sun Lifes motion to
amend was frivolous and made in bad faith because Sun Life had no
evidence to support its allegations. (Mag. Order at 5-8.) A court
should deny a motion to amend on the merits only if it asserts
clearly frivolous claims or defenses. Becker, 191 F.3d at 908
(quoting Gamma-10 Plastics, Inc. v. Am. President Lines, Ltd., 32
F.3d 1244, 1255 (8th Cir. 1994)). Likelihood of success on the
new claim or defenses is not a consideration for denying leave to
amend unless the claim is clearly frivolous. Id. (citation
After several months of discovery, Sun Life has no evidence
that Coventry, Atticus or Orca communicated with Paulson prior to
or contemporaneous with his procurement of the disputed policies or
that any of the companies paid the policies premiums. Further,
Sun Life has not identified another party with an intent to evade
the law against wagering contracts. Nevertheless, Sun Life argues
that the identity of a third party buyer is unnecessary to
establish mutual intent because evidence of Paulsons intent to
sell the policies permits an inference that another party intended
to buy the policies at the time they were issued. Stated
differently, Sun Life argues that Paulsons unilateral intent to
transfer the disputed policies at the time of their procurement
renders the policies void ab initio. The law of this case,
however, requires evidence of the intent of a third party to buy
the policies at the time they were procured, which necessarily
requires identification of that party. See Sun Life Assurance Co.,
2008 U.S. Dist. LEXIS 11719, at *6-8; see also Gander Mountain Co.
v. Cabelas, Inc., 540 F.3d 827, 830 (8th Cir. 2008) (The law-ofthe-
case doctrine ... posits that when a court decides upon a rule
of law, that decision should continue to govern the same issues in
subsequent stages in the same case. (citations and quotations
omitted)). Therefore, as stated in the courts earlier order,
Paulsons intent is irrelevant without facts ... suggesting that
a third party lacking an insurable interest intended, at the time
Paulson procured the [policies], to acquire the[m] upon expiration
of the contestability period. Sun Life Assurance Co., 2008 U.S.
Dist. LEXIS 11719, at *7-8.
Sun Life also argues that evidence of Paulsons agreement with
Antonello and Petracek to help Paulson obtain and transfer the
disputed policies satisfies the mutual intent requirement. The
relevant third parties, however, are those with whom Paulson
allegedly agreed to assign the policies. No evidence supports such
an agreement with Antonello and Petracek. Therefore, the court
4 The court notes that if Sun Life brings another motion to
amend after further discovery it must show cause to modify the
scheduling order. See Popoalii v. Corr. Med. Servs., 512 F.3d 488,
497 (8th Cir. 2008).
determines that the magistrate judge correctly denied without
prejudice defendants motion to amend as frivolous.4 Accordingly,
the magistrate judges order is affirmed.
II. Motion to Certify
Minnesota Statutes 480.065 permits a federal court to
certify a question of law to the Supreme Court of Minnesota if the
answer to that question may be determinative of an issue in
pending litigation in the certifying court and there is no
controlling [Minnesota] appellate decision, constitutional
provision, or statute. In assessing a certification motion, a
court considers whether: (1) the legal question is an extremely
close one; (2) Minnesota courts have provided guidance on the
question; (3) the case is primarily a federal case; and (4) the
question is likely to recur. Hatfield v. Bishop Clarkson Mem.
Hosp., 701 F.2d 1266, 1268 (8th Cir. 1983) (citation omitted). The
most important consideration is whether a court is genuinely
uncertain about a question of state law. Johnson v. John Deere
Co., 935 F.2d 151, 153 (8th Cir. 1991) (quoting Tidler v. Eli Lilly
& Co., 851 F.2d 418, 426 (D.C. Cir. 1988) (citation omitted)).
However, certification is not a procedure by which federal courts
may abdicate their responsibility to decide a legal issue when the
relevant sources of state law available to it provide a discernible
path for the court to follow. Tidler, 851 F.2d at 426. Moreover,
after a question is submitted for decision in the district court,
the parties should be bound by the outcome unless other grounds for
reversal are present. Perkins v. Clark Equip. Co., 823 F.2d 207,
210 (8th Cir. 1987). A court considers a request to certify by the
party originally seeking federal jurisdiction with particular
skepticism. See Marvin Lumber & Cedar Co. v. PPG Indus., 34 F.
Supp. 2d 738, 752 (D. Minn. 1999), revd on other grounds, 223 F.3d
873 (8th Cir. 2000).
In this case, Sun Life chose a federal forum to litigate this
state law matter and sought certification only after the courts
February 15 order and several months of failed discovery. These
facts alone warrant denial of Sun Lifes motion. Nevertheless, the
court also determines that certification is inappropriate because
the court is not genuinely uncertain about the legal question that
Sun Life seeks to certify.
As noted in the courts February 15 order, under Minnesota law
a life insurance policy is void ab initio as a wagering contract if
the insured lacked an insurable interest in the insured life at the
time of procuring the policy. See Sun Life Assurance Co., 2008
U.S. Dist. LEXIS 11719, at *3-4 (citations omitted). Ordinarily,
an insured has an interest in his own life that sustains the
policy. Christenson v. Madson, 149 N.W. 288, 289 (Minn. 1914).
Moreover, one who obtains insurance on his own life may name a
beneficiary without an insurable interest or later assign the
policy to one without an insurable interest. See id.
(beneficiary); Peel v. Reibel, 286 N.W. 345, 346 (Minn. 1939)
(assign). The essential thing is that the policy shall be
obtained in good faith, and not for the purpose of speculating upon
the hazards of a life in which the insured has no interest.
Rahders, Merritt & Hagler v. Peoples Bank of Minneapolis, 130 N.W.
16, 17 (Minn. 1911); see also Peel, 286 N.W. at 346 (assignment
valid if made in good faith and not as a mere cover for taking out
insurance in the beginning in favor of one without insurable
interest. (quotation omitted)); accord Grigsby v. Russell, 222
U.S. 149, 154-56 (1911).
In light of this law, the court determined in its February 15
order that the Minnesota Supreme Court would consider a life
insurance policy void as against public policy if the policy was
procured under a scheme, purpose, or agreement to transfer or
assign the policy to a person without an insurable interest in
order to evade the law against wagering contracts. Sun Life
Assurance Co., 2008 U.S. Dist. LEXIS 11719, at *5-6 (quotations
omitted). Sun Life now seeks to challenge through certification
the courts additional determination that the mutual intent of the
5 Sun Life frames the issue as whether evidence of an
agreement is required. The February 15 order, however, makes clear
that an agreement is relevant insofar as it reflects the mutual
intent of the parties. Therefore, the court addresses the mutual
intent requirement.
insured and the third party to avoid the prohibition on wagering
contracts determines the existence of such a scheme, purpose, or
agreement.5 Id.
Sun Life has identified no cases in which a life insurance
policy was declared void ab initio because the insured intended at
the time he procured the policy to assign it to an unidentified
individual on an unspecified date. Rather, the cases Sun Life
cites hold that the disputed policy was not void, or the identity
and intent of a third party purchaser was not an issue. See
Bankers Reserve Life Co. v. Matthews, 39 F.2d 528, 529-30 (8th
Cir. 1930) (policy not void and identity of alleged third party
known); Life Prod. Clearing LLC v. Angel, 530 F. Supp. 2d 646, 647-
50 (S.D.N.Y. 2008) (third party purchasers identity and intent
known); Wuliger v. Mfrs. Life Ins. Co., Civ. No. 3:03-7457, 2008
U.S. Dist. LEXIS 9809, at *22-27 (N.D. Ohio Feb. 11, 2008) (same);
First Penn-Pac. Life Ins. Co. v. William R. Evans, Chartered, Civ.
No. 05-444, 2007 U.S. Dist. LEXIS 45112, at *12 n.7 (D. Md. June
21, 2007) (policy not void based on insureds unilateral intent).
The mutual intent requirement, however, is supported by case law.
See, e.g., Travelers Ins. Co. v. Reiziz, 13 F. Supp. 819, 820
(E.D.N.Y. 1935) (assignee must participate in some manner in policy
6 Sun Life requested a stay of Orcas and Atticuss motions
pending resolution of Sun Lifes appeal of the magistrate judges
denial of its motion to amend and its motion for certification.
The motions for judgment on the pleadings, however, have been fully
procurement); Lawrence v. Travelers Ins. Co., 6 F. Supp. 428, 430
(E.D. Pa. 1934) (unilateral intent of insured to transfer policy
insufficient to establish wagering contract); Fyffe v. Mason, 268
S.W.2d 29, 31-32 (Ky. 1954) (insufficient evidence to show
beneficiary induced procurement of insurance policy); Davis v. Gulf
States Ins. Co., 151 So. 167, 169 (Miss. 1933) (policy invalid if
beneficiary induced procurement by insured to evade law against
wagering contracts); 44 C.J.S. Insurance 355 (2007); 44 Am. Jur.
2d Insurance 1001 (2003). Therefore, the court determines that
the Minnesota Supreme Court would find that the mutual intent
requirement strikes the appropriate balance between prohibiting
wagering contracts and giving life insurance policies the ordinary
characteristics of property, including free alienability. See
Grigsby, 222 U.S. at 154-56; Hiller v. County of Anoka, 529 N.W.2d
426, 429 (Minn. Ct. App. 1995) (free alienability a contemporary
principle of property ownership). Accordingly, Sun Lifes motion
for certification is denied.
III. Motions for Judgment on the Pleadings
Orca and Atticus argue that they are entitled to judgment on
the pleadings for the same reasons that Coventrys motion to
dismiss was granted.6 Federal Rule of Civil Procedure 12(c)
briefed and in consideration of the courts resolution of the other
outstanding motions, Sun Lifes request is denied.
provides that [a]fter the pleadings are closed - but early enough
not to delay trial - a party may move for judgment on the
pleadings. A court will grant judgment on the pleadings where
no material issue of fact remains to be resolved and the movant is
entitled to judgment as a matter of law. Poehl v. Countrywide
Home Loans, Inc., 528 F.3d 1093, 1096 (8th Cir. 2008) (quoting
Faibisch v. Univ. of Minn., 304 F.3d 797, 803 (8th Cir. 2002)). A
court views all facts pleaded by the nonmoving party as true and
grant[s] all reasonable inferences in favor of that party. Id.
(citation omitted). When deciding a motion for judgment on the
pleadings, a court generally may not consider materials outside
the pleadings. Noble Sys. Corp. v. Alorica Cent., LLC, 543 F.3d
978, 982 (8th Cir. 2008) (citation omitted).
Sun Life makes two arguments in opposition to the motions of
Atticus and Orca. First, based on Paulsons deposition testimony,
Sun Life argues that all of the disputed policies are void because
they were obtained without Paulsons knowledge and consent.
Second, Sun Life argues that one of the policies obtained by Orca
is void ab initio because it was procured by John R. Paulson &
Associates, LLC, an entity in which Antonello, Petracek and Timothy
Condoluci owned an eighty-four percent interest at the time of the
policys procurement. Both of these arguments, however, would
require the court to improperly consider facts and allegations not
raised in the complaint. Therefore, because the complaints
allegations against Atticus and Orca are legally indistinguishable
from those against Coventry, the court grants the motions of
Atticus and Orca for judgment on the pleadings for the reasons
provided in the courts February 15, 2008, order dismissing
Accordingly, based upon the file, record and proceedings
herein, IT IS HEREBY ORDERED that:
1. Sun Lifes appeal of the magistrate judges order [Doc.
No. 83] is denied;
2. Sun Lifes motion to certify a question of law to the
Minnesota Supreme Court [Doc. No. 94] is denied;
3. Defendant Erwin & Johnson LLP as Trustee of the Orca
Finance Trusts motion to dismiss [Doc. No. 99] is granted; and
4. Defendant The Atticus Fund, L.P.s motion to dismiss
[Doc. No 104] is granted.
Dated: December 3, 2008
s/David S. Doty
David S. Doty, Judge
United States District Court


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