Opinion
CV 21-09916 TJH (PDx)
2022-08-08
Harley FRANK, Plaintiff, v. WELLS FARGO BANK, N.A., et al., Defendants.
Matthew Evan Lewitz, Cozen O'Connor, Santa Monica, CA, Gregory J. Star, Pro Hac Vice, Victoria G. Mazzola, Pro Hac Vice, Isaac A. Binkovitz, Pro Hac Vice, Cozen O'Connor PC, Philadelphia, PA, for Plaintiff. Jonathan Peter Hersey, Tyler Anders, K and L Gates LLP, Irvine, CA, Khai LeQuang, Aaron Michael Rubin, Janista Lee, Orrick Herrington and Sutcliffe LLP, Irvine, CA, for Defendant Wells Fargo Bank, N.A. Aaron Michael Rubin, Janista Lee, Khai LeQuang, Orrick Herrington and Sutcliffe LLP, Irvine, CA, for Defendant Portigon AG.
Matthew Evan Lewitz, Cozen O'Connor, Santa Monica, CA, Gregory J. Star, Pro Hac Vice, Victoria G. Mazzola, Pro Hac Vice, Isaac A. Binkovitz, Pro Hac Vice, Cozen O'Connor PC, Philadelphia, PA, for Plaintiff. Jonathan Peter Hersey, Tyler Anders, K and L Gates LLP, Irvine, CA, Khai LeQuang, Aaron Michael Rubin, Janista Lee, Orrick Herrington and Sutcliffe LLP, Irvine, CA, for Defendant Wells Fargo Bank, N.A. Aaron Michael Rubin, Janista Lee, Khai LeQuang, Orrick Herrington and Sutcliffe LLP, Irvine, CA, for Defendant Portigon AG.
Order
Terry J. Hatter, Jr., Senior United States District Judge
The Court has considered Defendant Wells Fargo Bank, N.A.'s ["Wells Fargo"] motion to dismiss for failure to state a claim upon which relief can be granted [dkt. # 45], and Defendant Portigon AG's ["Portigon"] motion to dismiss for failure to state a claim and for lack of personal jurisdiction [dkt. # 89], together with the moving and opposing papers.
Plaintiff Harley Frank filed this case to recover life insurance benefits paid on policies that insured the life of his father, Norman Frank, a resident of Los Angeles County. The following facts are alleged in the First Amended Complaint ["FAC"].
Around 2005, Coventry, a family of interrelated Delaware entities that procured life insurance policies on behalf of investors, procured a $5 Million policy on Norman's life ["the Policy"]. Coventry could not purchase the Policy, itself, because it lacked an insurable interest in Norman's life. To facilitate the purchase, Coventry created the Norman Frank Insurance Trust ["the Trust"], which purchased the Policy. Coventry, acting through LaSalle Bank, N.A., loaned money to the Trust so that the Trust had capital to pay the Policy's premiums. The Policy was the collateral for the loan.
On December 24, 2018, Norman died. Thereafter, the Defendants claimed the Policy's death benefit. Because Harley was uncertain as to which specific actions were undertaken by which Defendants, he collectively referred to all Defendants in the FAC.
On December 23, 2021, Harley filed this case alleging that the Policy was a stranger-originated life insurance ["STOLI"] policy, which Delaware deems void ab initio as a matter of public policy. The case was assigned to Judge André Birotte, Jr. On January 24, 2022, Harley filed his FAC, alleging claims for: (1) Recovery of insurance proceeds due to lack of an insurable interest, pursuant to 18 Del. C. § 2704; and (2) Unjust enrichment. In the FAC, Harley stated that he was undertaking probate proceedings to be appointed the executor of the Estate of Norman Frank ["the Estate"] and, thereafter, would amend the FAC to substitute the Estate as a plaintiff.
On March 31, 2022, the case was assigned to this Court.
Defendant Wells Fargo, now, moves to dismiss for failure to state a claim. In his opposition, Harley acquiesced to the dismissal of his unjust enrichment claim.
Portigon, a German bank registered in New York, also, moves to dismiss for lack of personal jurisdiction and failure to state a claim.
Lack of Standing
Wells Fargo argued that Harley's claims should be dismissed pursuant to Fed. R. Civ. P. 12(b)(6) because he lacks statutory standing under 18 Del. C. § 2704(b). However, when a standing challenge implicates not only a plaintiff's right to sue under a statute, but, also, the plaintiff's constitutional standing, the challenge implicates the Court's subject matter jurisdiction, and is, therefore, properly considered under Fed. R. Civ. P. 12(b)(1), not Fed. R. Civ. P. 12(b)(6). See Chandler v. State Farm Mut. Auto. Ins. Co., 598 F.3d 1115, 1122 (9th Cir. 2010).
To establish that he has constitutional standing, Harley bears the burden to show that: (1) He suffered an injury in fact that is concrete and particularized, actual or imminent, and not hypothetical or conjectural; (2) There is a causal connection between the injury and the defendant's conduct or omissions; and (3) There is a likelihood that the injury will be redressed by a favorable court decision. See Lujan v. Defs. of Wildlife, 504 U.S. 555, 560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992). The constitutional standing doctrine, also, prohibits a litigant from asserting another person's legal rights. City of Rialto v. W. Coast Loading Corp., 581 F.3d 865, 877 (9th Cir. 2009).
Here, Harley seeks insurance policy benefits on behalf of Norman pursuant to 18 Del. C. § 2704(b), which allows only an insured or his estate to bring an action to recover the proceeds from an insurance policy created without an insurable interest. See Lavastone Cap. LLC v. Est. of Berland, 266 A.3d 964, 969 (Del. 2021). Because Norman is, now, deceased, only his estate has standing to bring this action. See 18 Del. C. § 2704(b). However, a probate estate, itself, cannot sue or be sued. Smith v. Cimmet, 199 Cal. App. 4th 1381, 1390-91, 132 Cal.Rptr.3d 276 (2011). Rather, the suit must be prosecuted by, or against, the executor of the estate. Smith, 199 Cal. App. 4th at 1390-91, 132 Cal. Rptr.3d 276 (citing Galdjie v. Darwish, 113 Cal. App. 4th 1331, 1344, 7 Cal.Rptr.3d 178 (2003)).
Harley admitted, in his initial complaint and in his FAC, that he has not been appointed executor of the Estate by the probate court. However, he argued that he should, nevertheless, be allowed to represent the Estate, here, because he was named in Norman's will as the Estate's executor. To support that argument, Harley proffered a copy of the will with his request for the Court to take judicial notice of it. While the Court can take judicial notice of the will's existence because it was filed in the probate action, the Court cannot take judicial notice of its contents, including whether it named Harley as the Estate's executor. See Lee v. City of Los Angeles, 250 F.3d 668, 690 (9th Cir. 2001). Regardless, because the Court is considering Wells Fargo's motion under Rule 12(b)(1), the Court "may look beyond the complaint and consider extrinsic evidence." See Lacano Invs., LLC v. Balash, 765 F.3d 1068, 1071 (9th Cir. 2014). However, because the proffered copy of Norman's will was not authenticated, the Court cannot consider it. See Orr v. Bank of Am., NT & SA, 285 F.3d 764, 773 (9th Cir. 2002).
Moreover, even if Harley was named in Norman's will as its executor, that would not empower him to represent the Estate, here. Harley placed great weight on Cal. Prob. Code § 8400(b), which allows a person who is named in a will as its executor, but not yet appointed by the probate court, to "take necessary measures for the maintenance and preservation of the estate." Cal. Prob. Code § 8400(b). While § 8400(b) provides an emergency stopgap to maintain and preserve an estate, only the probate court can transform an executor-in-waiting into a duly appointed executor. See Smith, 199 Cal. App. 4th at 1391, n.3, 132 Cal.Rptr.3d 276. In emergency circumstances, the probate court, on petition, may appoint a special administrator with the power to litigate. Cal. Prob. Code §§ 8540(a), 8544(a)(3).
Consequently, Harley lacks statutory standing to prosecute this action, and he, also, lacks constitutional standing because he did not allege that he suffered a redressable injury of his own. See Rialto, 581 F.3d at 877. Fed. R. Civ. P. 17(a)(3)
Harley argued, in his opposition brief, that he should be given an opportunity, pursuant to Fed. R. Civ. P. 15(a)(2) or 17(a)(3), to file a further amended complaint, after he is appointed executor, to substitute the Estate in place of himself if the Court finds that he lacks standing. However, generally, a party cannot seek affirmative relief through an opposition brief. See Fed. R. Civ. P. 7(b)(1). Consequently, Harley's request for leave to amend pursuant to Rule 15(a)(2) is not properly before the Court.
Nevertheless, Rule 17(a)(3) allows for the substitution of a plaintiff, in limited situations, in the absence of a procedurally proper motion. See Jones v. Las Vegas Metro. Police Dep't, 873 F.3d 1123, 1129 (9th Cir. 2017). Rule 17(a)(3) provides that the Court "may not dismiss an action for failure to prosecute in the name of the real party in interest until, after an objection, a reasonable time has been allowed for the real party in interest to ratify, join, or be substituted into the action." Fed. R. Civ. P. 17(a)(3). "The purpose of [that] rule is 'to prevent forfeiture of a claim when an honest mistake was made.' " Jones, 873 F.3d at 1128 (quoting Goodman v. United States, 298 F.3d 1048, 1054 (9th Cir. 2002)). Rule 17(a)(3), also, applies when it is difficult to determine which party is the correct party entitled to bring an action. U.S. for Use & Benefit of Wulff v. CMA, Inc., 890 F.2d 1070, 1074 (9th Cir. 1989). When considering a Rule 17(a)(3) substitution, the Court must, also, weigh any prejudice that could be suffered by the Defendants. See Hassanati ex rel. Said v. Int'l Lease Fin. Corp., 643 F. App'x 620, 622 (9th Cir. 2016) (citing Wulff, 890 F.2d at 1073-75).
In Jones, a decedent's estate and the decedent's father, in his individual capacity, filed a 42 U.S.C. § 1983 claim, on behalf of the decedent, against the Las Vegas Metropolitan Police Department. Jones, 873 F.3d at 1128. Because Nevada law requires representative suits to be filed by an estate's administrator, both plaintiffs lacked standing. Jones. Consequently, the District of Nevada granted summary judgment to the police department. Jones. Thereafter, the Ninth Circuit reversed, holding that the District of Nevada should have granted the plaintiffs an opportunity, under Rule 17(a)(3), to substitute the father, as the administrator of his deceased son's estate, into the case. Jones, 873 F.3d at 1128. The Circuit held that the plaintiffs' mistake - naming the correct plaintiff, but in the wrong capacity - was understandable because the District of Nevada had approved the stipulated amended complaint which added the estate as a plaintiff. Jones. While the Circuit concluded that it was "hardly the best excuse," it held that it was reasonable for the plaintiffs to rely on the District of Nevada's approval of the stipulation to assume that they had named the proper plaintiffs. Jones. Further, while the operative complaint had explicitly alleged that the decedent's father had not, yet, been appointed executor, there was no dispute that he had been appointed by the time that the District of Nevada considered the summary judgment motion. Jones, 873 F.3d at 1129, n.2. Thus, the father, actually, had standing to bring the suit in his capacity as the estate's administrator. Jones, 873 F.3d at 1129, n.2.
Here, unlike in Jones, Harley's problem is not that he made a fixable error. Harley has not been appointed executor. Further, it is not clear when, or even if, he will be. Accordingly, he lacks standing to bring this suit.
The Court delayed its decision on this motion to allow time for Harley to be appointed, in light of the strong policy favoring determination of claims on the merits. See Eitel v. McCool, 782 F.2d 1470, 1472 (9th Cir. 1986). However, the Court cannot wait indefinitely, particularly in light of the information provided to the Court. On May 18, 2022, the Los Angeles County probate court denied Harley's petition to be appointed executor for the Estate. Apparently, Harley's petition was not sufficient, and he failed to appear at the hearing. On May 31, 2022, in a request for judicial notice, the Court learned that the probate court set a further hearing for June 17, 2022. Then, the Court was informed, in a stipulation to file a Second Amended Complaint that the Court has not yet acted upon, that the probate court hearing has been continued again to September 27, 2022. Interestingly, the proposed Second Amended Complaint, like the other complaints filed in this action, named Harley, in his personal capacity, as the sole plaintiff.
Rule 17(a)(3) requires the Court to allow a substitution only when substitution can be made within a reasonable time. It has been more than seven months since Harley filed this suit, and it is still not clear when, or if, he will be appointed executor. It is prejudicial to the Defendants to make them defend a case brought by a plaintiff who, clearly, lacks standing. See Hassanati, 643 F. App'x at 622. Moreover, the Court is entitled to efficiently manage its docket. See Dietz v. Bouldin, 579 U.S. 40, 47, 136 S.Ct. 1885, 195 L.Ed.2d 161 (2016).
Further, there is no indication that Harley's decision to file this action in his personal capacity was an honest mistake. See Jones, 873 F.3d at 1128. Section 2704(b) is abundantly clear as to who has standing. Further, Harley's counsel has filed numerous STOLI cases for duly appointed executors, including a case involving a California estate that is, also, before this Court, Estate of Daher v. LSH Co., No. CV 21-03239 TJH (SKx). Unlike in Jones, the Court did not review either of Harley's complaints before they were filed.
Finally, Harley did not argue, let alone establish, that additional time is necessary to avoid the forfeiture of the Estate's § 2704 claim, a Rule 17(a)(3) prerequisite. See Jones, 873 F.3d at 1128. Even if he had, the possibility that the claim might now be time barred, alone, without satisfaction of the other requirements of Rule 17(a)(3), is not enough to justify relief. See Wulff, 890 F.2d at 1075.
Consequently, Harley is not entitled to relief under Fed. R. Civ. P. 17(a)(3).
Accordingly,
It is Ordered that this case be, and hereby is, Dismissed for lack of standing.