Opinion
CV 21-03239 TJH (SKx)
2023-03-10
ESTATE OF Joseph H. DAHER, Plaintiff, v. LSH CO., et al., Defendants.
Brian D. Burack, Pro Hac Vice, Gregory J. Star, Pro Hac Vice, Ilya Schwartzburg, Pro Hac Vice, Matthew Bleich, Pro Hac Vice, Cozen O'Connor, Philadelphia, PA, Andrew S. Cowan, Holmes Taylor Cowan Athey Mermelstein and Jones LLP, Los Angeles, CA, David Shimkin, Nathan Dooley, Cozen O'Connor LLP, Los Angeles, CA, Andrew M. Hutchison, Loeb and Loeb LLP, San Francisco, CA, Daniel A. Cohen, Pro Hac Vice, Walden Macht and Haran LLP, New York, NY, for Plaintiff. Tyler Anders, Jonathan Peter Hersey, K and L Gates LLP, Irvine, CA, for Defendant Wells Fargo Bank, N.A.
Brian D. Burack, Pro Hac Vice, Gregory J. Star, Pro Hac Vice, Ilya Schwartzburg, Pro Hac Vice, Matthew Bleich, Pro Hac Vice, Cozen O'Connor, Philadelphia, PA, Andrew S. Cowan, Holmes Taylor Cowan Athey Mermelstein and Jones LLP, Los Angeles, CA, David Shimkin, Nathan Dooley, Cozen O'Connor LLP, Los Angeles, CA, Andrew M. Hutchison, Loeb and Loeb LLP, San Francisco, CA, Daniel A. Cohen, Pro Hac Vice, Walden Macht and Haran LLP, New York, NY, for Plaintiff. Tyler Anders, Jonathan Peter Hersey, K and L Gates LLP, Irvine, CA, for Defendant Wells Fargo Bank, N.A. Order Terry J. Hatter, Jr., Senior United States District Judge
The Court has considered the motion of Defendant LSH Co. ["LSH"] to dismiss for lack of personal jurisdiction [dkt. # 74], together with the moving and opposing papers; and the motion of Plaintiff Estate of Joseph H. Daher ["the Estate"] for leave to file a supplemental opposition to LSH's motion to dismiss [dkt. # 139], together with the moving papers.
The following facts are alleged in the First Amended Complaint ["FAC"] or contained in documents attached to the FAC.
On February 25, 2006, the Trust obtained a $5 million life insurance policy ["the Policy"] from American General Life Insurance Company ["American General"] on the life of Joseph Daher.
On March 20, 2006, the Joseph Daher Insurance Trust ["the Trust"] was created and executed in Delaware as a Delaware Trust. The Trust's settlor was Joseph Daher, who, at the time, was an 80-year-old resident of Los Angeles County. Delaware-based Wilmington Trust Company ["Willmington"] was the trustee of the Trust. Joseph Daher's daughter, Christine Daher, was the co-trustee of the Trust and its beneficial owner. Christine Daher is, also, the personal representative, here, of the Estate.
On March 21, 2006, Joseph Daher, Christine Daher, and Wilmington executed a Supplement to Trust Agreement which, inter alia, confirmed that the Policy was part of the Trust's estate.
Allegedly, a family of business entities, collectively referred to as Coventry, controlled the procurement of the Policy and directed the creation of the Trust.
The Policy's annual premium was approximately $263,000.00. To pay the initial annual premium, Wilmington created a sub-trust under the Trust and, then, the sub-trust obtained a nonrecourse loan.
On September 29, 2008, after the Policy's two-year contestable period lapsed, and one day before the premium loan became due, the Trust sold the Policy to QL Investment Trust Alpha Series ["the QL Trust"], a Delaware trust based in Los Angeles. The QL Trust, then, transferred nominal ownership of the Policy to Defendant Wells Fargo, N.A. ["Wells Fargo"] as the securities intermediary. Accordingly, on January 28, 2010, Wells Fargo submitted a change of ownership request to American General. Going forward, the Policy remained in the name of Wells Fargo as it was bought and sold by various investors.
On February 14, 2012, LSH purchased the Policy, as part of a portfolio of life insurance policies, from FCOF LS L.L.C., a member of a group of Delaware companies known as Fortress. CMG Life Services, Inc. ["CMG"], LSH's Naples, Florida-based policy origination agent, facilitated the purchase. At the time of the purchase, LSH knew that the Policy insured a California resident.
LSH is a Luxembourg public limited liability company with its principal place of business in the Grand Duchy of Luxembourg. LSH is a subsidiary of Alberta Investment Management Corporation ["AIMCo"], a multi-national investment corporation based in Canada. AIMCo created LSH to hold AIMCo's portfolio of life insurance policies. LSH is a shell fund that operates its business almost entirely through a set of agent entities that are based in the United States.
After LSH purchased the Policy, it paid the Policy's annual premiums through its agents, including Wells Fargo and Mills, Potoczak & Company ["Mills"], its Cleveland, Ohio-based policy payment agent.
Beginning in 2012, LSH, through its agents, including Mills, contacted Joseph Daher, or his family, at least four times a year to monitor his health and whereabouts.
Beginning in 2017, Preston Ventures, L.L.C. ["Preston"], based in Aliso Viejo, California, acted as LSH's agent in performing various Policy-related services.
On December 8, 2017, Joseph Daher died. LSH, through its agents, obtained Daher's death certificate from Los Angeles County, and directed Wells Fargo to submit the death certificate to American General. Wells Fargo, with Preston's assistance, submitted the death certificate. Around February 2018, Wells Fargo claimed the Policy's death benefit on behalf of LSH. Shortly thereafter, Wells Fargo credited the death benefit funds to LSH or LSH II Co. ["LSH II"], another Luxembourg-based company that was LSH's predecessor in interest.
On March 13, 2020, the Estate sued LSH and Wells Fargo in the District of Delaware to recover the Policy's death benefit. See Est. of Daher v. LSH CO. ["Est. of Daher I"], No. CV-20-360-LPS-JLH, 2021 WL 184394, at *1 (D. Del. Jan. 19, 2021). The complaint, in Estate of Daher I, alleged that the Policy was an illegal stranger-oriented life insurance policy ["STOLI"].
A STOLI policy is typically obtained by a third party, rather than the insured, for the benefit of an investor who has no insurable interest in the insured. See Est. of Daher I, 2021 WL 184394, at *1. Under Delaware law, a life insurance policy obtained by the insured himself may, nevertheless, be a STOLI policy if the insured served as an instrumentality of a third party. PHL Variable Ins. Co. v. Price Dawe 2006 Ins. Tr., ex rel. Christiana Bank & Tr. Co., 28 A.3d 1059, 1074 (Del. 2011). Further, under Delaware law, STOLI policies are void ab initio, as a matter of public policy, because they are considered to be illegal wagers on human life. Price Dawe, 28 A.3d at 1068, 1070.
On April 20, 2020, the Estate voluntarily dismissed Wells Fargo from Estate of Daher I. On June 16, 2020, LSH moved to dismiss Estate of Daher I for lack of personal jurisdiction. On March 17, 2021, the District of Delaware dismissed the Estate's claims against LSH for lack of personal jurisdiction over LSH because there were no allegations that LSH undertook activities in, or directed at, Delaware. Est. of Daher I, 2021 WL 184394 at *6-*7. Further, Delaware's strong interest in enforcing its ban of STOLI policies was not enough to support the exercise of personal jurisdiction over LSH. Est. of Daher I, 2021 WL 184394 at *8.
On April 14, 2021, the Estate filed this diversity action against LSH and Wells Fargo. The Estate realleged the same claims, here, that it alleged in Estate of Daher I. The Estate's primary claim is based on 18 Del. § 2704(b), which entitles an insured, or his estate, to recover the death benefit paid out by an insurance company for a STOLI policy.
On June 14, 2021, LSH moved to dismiss for lack of personal jurisdiction. On December 15, 2021, the Court granted LSH's motion ["the Dismissal Order"].
On September 9, 2022, the Estate filed its First Amended Complaint ["FAC"], pursuant to a stipulation between the parties, which, inter alia, added new factual allegations regarding LSH. On September 28, 2022, the Estate filed a corrected FAC, pursuant to another stipulation, to correct clerical errors.
LSH, now, moves to dismiss for lack of personal jurisdiction. The Estate, also, moves for leave to file a supplemental opposition to LSH's motion to dismiss.
To withstand a motion to dismiss for lack of personal jurisdiction, the Estate must establish a prima facie case that the Court has personal jurisdiction over LSH. See Dole Food Co., Inc. v. Watts, 303 F.3d 1104, 1108 (9th Cir. 2002). The Court's review is limited to the complaint and any declarations filed with the motion to dismiss. Dole, 303 F.3d at 1108. The Court must accept the FAC's uncontroverted factual allegations as true, may draw reasonable inferences in favor of the Estate, and must resolve all factual conflicts arising from the declarations in favor of the Estate. See Harris Rutsky & Co. Ins. Services, Inc. v. Bell & Clements Ltd., 328 F.3d 1122, 1129 (9th Cir. 2003).
The Court's exercise of personal jurisdiction is subject to California's long-arm statute, which is coextensive with federal due process. Schwarzenegger v. Fred Martin Motor Co., 374 F.3d 797, 800-801 (9th Cir. 2004). Personal jurisdiction may be general or specific. Schwarzenegger, 374 F.3d at 802. In its opposition brief, the Estate argued only that the Court has specific personal jurisdiction over LSH.
Specific jurisdiction exists when a defendant has sufficient minimum contacts with the forum state that are related to the lawsuit such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice. Int'l Shoe Co. v. Wash., 326 U.S. 310, 316, 66 S.Ct. 154, 90 L.Ed. 95 (1945). To satisfy its burden, here, the Estate must make a prima facie showing on two elements: (1) That LSH purposefully directed its activities at the forum state, or, purposefully availed itself of the privilege of doing business in the forum state; and (2) That the case arose out of, or relates to, LSH's forum-related activities. See Schwarzenegger, 374 F.3d at 802. If the Estate meets its burden, the burden will, then, shift to LSH to establish a compelling case that the exercise of personal jurisdiction would not be reasonable. See Schwarzenegger, 374 F.3d at 802.
When considering the first prong, courts apply a purposeful availment analysis in contract cases and a purposeful direction analysis in tort cases. See Axiom Foods, Inc. v. Acerchem Int'l, Inc., 874 F.3d 1064, 1069 (9th Cir. 2017). In the Dismissal Order, the Court applied the purposeful direction analysis. The Estate argued, here, that the Court should apply both the purposeful direction analysis and the purposeful availment analysis.
A case is a contract case when the plaintiff's claims arise out of a contractual relationship between the parties. Sher v. Johnson, 911 F.2d 1357, 1362 (9th Cir. 1990). Here, the Estate's sole claim is based on a statutory right, under § 2704(b), not a contractual right. Indeed, the success of the Estate's § 2704(b) claim would not vindicate a contractual right, but would, in fact, achieve the opposite by rendering the contract at issue, here - the Policy - void ab initio. See Price Dawe, 28 A.3d at 1068. Moreover, the Delaware Supreme Court has applied principles of tort law to § 2704(b) claims. See Wells Fargo Bank, N.A. v. Est. of Malkin, 278 A.3d 53, 67 (Del. 2022). Accordingly, it is more appropriate to treat a § 2704(b) claim as a tort claim. Consequently, the purposeful direction test, applicable to tort cases, is the appropriate test to apply, here.
To determine whether purposeful direction occurred, the Court must apply a three-part effects test: (1) Whether LSH committed an intentional act; (2) Whether that act was expressly aimed at California; and (3) Whether that act caused harm in California that LSH knew was likely to be suffered in California. See Axiom, 874 F.3d at 1069.
The effects test requires the Court to examine the actions taken by LSH. That examination is complicated by the fact that, according to the Estate, LSH acted almost exclusively through various entities that were agents of LSH. Consequently, the Court must first determine whether the Estate has made a prima facie showing that those entities were, indeed, LSH's agents, and whether a plaintiff can establish a defendant's purposeful direction through the jurisdictional contacts of that defendant's agents. However, at this juncture, the Court will assume, arguendo, that CMG, Mills, Preston, and Wells Fargo were, indeed, LSH's agents, and that those agents' contacts can, and should, be imputed to LSH. Consequently, the Estate's motion for leave to file a supplemental opposition to the instant motion is, now, moot.
The Court will, now, turn to the first prong of the effects test - whether LSH committed intentional acts. An intentional act is an act "denoting an external manifestation of the actor's will . . . not includ[ing] any of its results, even the most direct, immediate, and intended." Morrill v. Scott Fin. Corp., 873 F.3d 1136, 1142 (9th Cir. 2017). In its opposition brief, the Estate pointed to several of LSH's alleged actions: (1) That LSH purchased the Policy with knowledge that Joseph Daher lived in California; (2) That LSH continued paying the premium on the Policy and, thereby, extended the Policy's life; (3) That LSH, through Mills, regularly contacted Christine Daher to monitor Joseph Daher's health and obtained Joseph Daher's death certificate; and (4) That LSH hired the California-based Preston to assist in managing the Policy and claiming its proceeds. In the Dismissal Order, the Court found that those actions were sufficient to constitute intentional acts, and there is no reason to alter that conclusion, here.
With regard to the second prong, the Court must determine whether LSH expressly aimed those intentional acts at California so as to create a substantial connection with California. See Axiom, 874 F.3d at 1069. It is not enough that a defendant "engaged in wrongful conduct targeted at a plaintiff whom the defendant knows to be a resident of the forum state." Axiom, 874 F.3d at 1069. Rather, "something more - conduct directly targeting the forum - is required to confer personal jurisdiction." Ayla, L.L.C. v. Alya Skin Pty. Ltd., 11 F.4th 972, 980 (9th Cir. 2021).
In the Dismissal Order, the Court held that the Estate failed to satisfy the express aiming prong because LSH's alleged actions were connected to California simply because Joseph Daher resided in California, and not because LSH specifically targeted the forum. Here, the Court will consider the Estate's new allegations in the FAC and its new evidence submitted with its opposition brief to the instant motion.
In its opposition brief, the Estate argued - for the first time - that Brainerd v. Governors of the University of Alberta, 873 F.2d 1257, 1259 (9th Cir. 1989), controls the outcome, here. In Brainerd, the Ninth Circuit held that independent wrongdoing that occurs outside of a forum state, but that is directed into the forum, satisfies the express aiming prong. Brainerd, 873 F.2d at 1259. Brainerd involved allegedly tortious statements made by a foreign defendant during a telephone call with a person in the forum. Brainerd, 873 F.2d at 1258-60. The Ninth Circuit explained that those comments, alone, constituted express aiming at the forum. Brainerd, 873 F.2d at 1258-60. Conversely, this Court's prior analysis, as set forth in the Dismissal Order, relied on Morrill. In Morrill, the Ninth Circuit held that intentionally tortious conduct that occurs outside of the forum state, but that, due to the plaintiff's residence in the forum state, has incidental effects in the forum state, does not satisfy the express aiming prong. Morrill, 873 F.3d at 1146-48. The plaintiffs in Morrill alleged that the defendants had conducted tortious litigation in Nevada but had traveled to Arizona - the forum state, and the state where the plaintiffs resided - to take actions required by the Nevada litigation, such as filing a companion case to obtain a deposition subpoena, and serving the subpoena. Morrill 873 F.3d at 1142-43. Those Arizona actions did not satisfy express aiming because they did not, themselves, constitute independent wrongdoing. Morrill, 873 F.3d at 1146-48. Rather, those actions were merely incidental to the alleged wrongdoing - the Nevada litigation - and, moreover, had occurred in Arizona only because the plaintiffs happened to reside in Arizona. Morrill, 873 F.3d at 1146-48.
Here, LSH's alleged wrongdoing arose under § 2704(b), which imposes liability on investors who receive STOLI policy benefits. See Est. of Malkin, 278 A.3d at 65. Consequently, the Court must consider whether LSH's alleged actions - that were directed to, or took place in, California - were part of the alleged wrongdoing or only incidental to the alleged wrongdoing. Because the Estate presented new allegations and evidence, the Court will undertake its analysis anew.
The Estate argued that LSH knew that the Policy covered a California insured when it purchased the Policy, and that LSH specifically targeted policies issued to California insureds. Specifically, the Estate argued that LSH purchased the Policy, at least in part, because it was issued in California and California had "lax" STOLI laws. Such targeting of California, if proven, would be integral to LSH's alleged wrongdoing - i.e., its receipt of the Policy's death benefits - and not based on the mere fortuity of Joseph Daher being a California resident. Accordingly, it would satisfy the express aiming prong.
In response, LSH argued that its buying agent, CMG, catalogued the Policy's "state of issue" only to ensure that CMG held the proper license, not because LSH targeted California policies for purchase. LSH pointed to, inter alia, its origination agreement with CMG, which was an exhibit to the FAC. The origination agreement contained a list of the states, including California, where CMG was licensed to operate. However, LSH did not provide a declaration from a person with knowledge to support its argument.
Regardless, when there are contradicting facts or theories presented for a motion to dismiss for lack of personal jurisdiction, the Court must resolve the contradictions in favor of the plaintiff. See Harris Rutsky, 328 F.3d at 1129. Accordingly, the Court must conclude - for purposes of this motion - that LSH did, indeed, target California and expressly aim its allegedly wrongful conduct at California.
Conversely, the Estate's three other alleged intentional acts of LSH were merely incidental to LSH's receipt of the Policy's death benefit. LSH's payment of the Policy's premiums, its obtainment of Joseph Daher's death certificate and medical records, and its monitoring of Joseph Daher and his family were not acts of independent wrongdoing, but necessary, incidental aspects of LSH's maintenance of the Policy. See Morrill, 873 F.3d at 1146-48. Moreover, LSH's hiring of California-based Preston was, also, incidental to LSH's alleged wrongdoing - the Estate neither alleged nor demonstrated that Preston's connection to California was material to LSH's receipt of the Policy's death benefit. See Morrill, 873 F.3d at 1146-48.
Nevertheless, because the Estate made a prima facie showing that LSH targeted California policies - namely, the Policy - for purchase, the Estate satisfied the second prong - express aiming - of the effects test. See Axiom, 874 F.3d at 1069.
Finally, the third prong of the effects test requires the Estate to make a prima facie showing that LSH's actions caused harm in California that LSH knew was likely to be suffered in California. See Morrill, 873 F.3d at 1144. In the Dismissal Order, the Court held that the only harm cognizable under § 2704(b) is harm to Delaware public policy. Because no harm is suffered by an insured or his estate, there was no plausible allegation in the initial Complaint that the Estate suffered, or could have suffered, any harm.
Then, in the FAC, the Estate alleged a slew of new harms suffered by Joseph Daher and his family - namely, that strangers gained a financial interest in his premature death; that he was an unwitting party to an unlawful insurance policy; that LSH invaded his privacy by subjecting him and his family to constant monitoring; and that the existence of the Policy limited his ability to obtain life insurance. Additionally, the Estate presented evidence, here, to illustrate, in general terms, how STOLI policies could cause those, and other, harms. Because LSH did not submit anything in rebuttal, the Court must assume that those allegations and evidence are true.
However, those new allegations and evidence are irrelevant, here, because none of those harms were within the ambit of § 2704(b). See Price Dawe, 28 A.3d at 1074. The purpose of § 2704 is to prevent speculation on human life, not to vindicate harm to an insured or his estate. See Price Dawe, 28 A.3d 1059 at 1074. Indeed, although § 2704(b) allows an estate to claw back the death benefit of a STOLI policy, § 2704 was designed to redress violations of Delaware's constitutional prohibition against gambling and Delaware's public policy against wagering. Est. of Malkin, 278 A.3d at 59, 65. When an insured or an estate prevails on a § 2704(b) claim and receives, as its recovery, the death benefit of a STOLI policy, that recovery is not a measurement of the harm suffered by the insured or his estate, but, rather, is the consequence of Delaware's preference that the death benefit should go to the insured or his estate rather than to a STOLI investor. See Lavastone Cap. L.L.C. v. Est. of Berland, 266 A.3d 964, 974 (Del. 2021).
Consequently, the Estate failed to establish the third prong of the effects test by failing to make a prima facie showing that LSH knew that its alleged actions were likely to cause harm in California. See Morrill, 873 F.3d at 1144.
Because the Estate failed to satisfy the third prong of the effects test, it failed to establish purposeful direction. Consequently, the Estate failed to make a prima facie showing that the Court has specific personal jurisdiction over LSH.
Accordingly,
It is Ordered that the Estate's claim against Defendant LSH Co. be, and hereby is, Dismissed for lack of personal jurisdiction.
It is further Ordered that the Estate's motion for leave to file a supplemental opposition to the motion to dismiss be, and hereby is, Denied as moot.