Penn Mutual Life Insurance v. Norma Espinosa 2007-1 Insurance Trust

70 F. Supp. 3d 628, 2014 U.S. Dist. LEXIS 137057, 2014 WL 4811879
CourtDistrict Court, D. Delaware
DecidedSeptember 29, 2014
DocketCiv. No. 09-300-LPS
StatusPublished
Cited by5 cases

This text of 70 F. Supp. 3d 628 (Penn Mutual Life Insurance v. Norma Espinosa 2007-1 Insurance Trust) is published on Counsel Stack Legal Research, covering District Court, D. Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Penn Mutual Life Insurance v. Norma Espinosa 2007-1 Insurance Trust, 70 F. Supp. 3d 628, 2014 U.S. Dist. LEXIS 137057, 2014 WL 4811879 (D. Del. 2014).

Opinion

MEMORANDUM OPINION

STARK, U.S. District Judge:

Pending before the Court are five motions: (1) Defendant and Counterclaim-Plaintiff Norma Espinosa 2007-1 Insurance Trust’s (“Espinosa Trust”) Motion to Exclude Rebuttal Expert Opinion of Dr. Harold Skipper (D.I.205); (2) Defendant Kevin Bechtel’s Motion for Summary Judgment (D.I.210); (3) the Espinosa Trust’s Motion for Leave to File Third Party Contribution Complaint (D.I.241); (4) Plaintiff Penn Mutual Life Insurance Company’s (“Penn Mutual” or “Plaintiff’) Request for Leave of Court to Deposit Policy Proceeds Into Court Registry (D.I. 263); and (5) the Espinosa Trust’s Motion for Leave to Amend their Answer and Counterclaims (D.I.265). •

Penn Mutual filed this action for Declaratory Judgment seeking a judgment relative to its rights and obligations under a policy of life insurance issued on the life of Norma Espinosa (“Espinosa policy”). (D.I.l) Plaintiff asserts that the Espinosa policy is void or voidable due to a lack of insurable interest at inception and/or material misrepresentations in the application. (Id. at ¶ 1) Specifically, Plaintiff claims that Norma Espinosa was approached prior to March 26, 2007 by Steven Brasner, Kevin Bechtel, and/or certain other promoters to participate in a “stranger originated life insurance” (“STO-LI”) scheme, whereby investors seek to obtain pecuniary interests in life insurance policies on individuals with whom they have no prior relationship. (Id. at ¶¶ 17, 7) Espinosa was approved for a $7 million insurance policy, with thé Espinosa Trust named as the beneficiary. (Id. at ¶¶ 18, 32) Plaintiff asserts that “shortly after the issuance of the Espinosa Policy and in accordance with the preconceived plan, Ms. Espinosa took all of the steps necessary to effectuate a transfer of the Espino-sa Policy ... to an investor whom Ms. Espinosa did not know prior to completing the Application.” (Id. at ¶ 34)

The Court heard oral argument on the pending motions on June 23, 2014. (See D.I. 275 (“Tr.”) Additional factual and procedural background is provided, as needed, throughout the remainder of this Opinion.

Penn Mutual’s Motion to Deposit Funds

Ms. Espinosa died on April 27, 2014. (D.I.262) On May 22, 2014, the Es-pinosa Trust provided proof of Espinosa’s death to Penn Mutual. (D.I.268) Penn Mutual responded by requesting permission from the Court to deposit the proceeds of the Espinosa policy (approximately $7,000,000) into the Court’s registry. (D.I.263) Penn Mutual seeks to have the Court hold on to these funds until the conclusion of this case, at which time the Court will have determined whether the Espinosa policy is void or voidable or, alternatively, enforceable, which will be decisive in demonstrating to whom the deposited funds should be paid or returned. Penn Mutual does not wish to pay the policy proceeds to the Espinosa Trust dur[632]*632ing the pendency of these proceedings because Penn Mutual believes it has asserted meritorious claims that will result in a declaration that it need never pay these proceeds to the Espinosa Trust; Penn Mutual is concerned that, in the meantime, if it pays the funds to the Espinosa Trust these funds will not be recoverable even after Penn Mutual prevails in this litigation. (D.I. 263 at 2) Penn Mutual anticipates “that the Trust would disperse ány proceeds to the investors who acquired the beneficial interest in the Trust shortly after the issuance of the Espinosa Policy. The Trust therefore would be unable to disgorge the policy proceeds at the conclusion of this litigation.” (Id.)

Pursuant to Federal Rule of Civil Procedure 67:

If any part of the relief sought is a money judgment or the disposition of a sum of money or some other deliverable thing, a party — on notice to every other party and by leave of court — may deposit with the court all or part of the money or thing, whether or not that party claims any of it.

“The issue of whether to allow a Rule 67 deposit lies within the discretion of the Court.”Progressive Cas. Ins. Co. v. Drive Trademark Holdings LP, 680 F.Supp.2d 639, 641 (D.Del.2010). “The purpose of a deposit in court is to relieve the depositor of responsibility for a fund in dispute, while the parties litigate their difference with respect, to the fund.” Id. (citing 13 James Wm. Moore, et al., Moore’s Federal Practice § 67.02 (3d ed.2009)).

The Court will grant Penn Mutual’s request. The Espinosa Trust’s opposition to permitting Penn Mutual to make the deposit is that Perm Mutual is. purportedly “attempting] to use Rule 67 of the Federal Rules of Civil Procedure to insulate itself from the consequences of its breach of contract, and its breach of the duty of good faith and fair dealing, arising from the failure to pay the death benefit upon receipt of ‘due proof of the death of the Insured,’ as required finder the Policy.” (D.I. 269 at 1) The impact, if any, of Penn Mutual’s willingness to pay the proceeds to the Court will be determined at a later stage of this case. For instance, the Espi-nosa Trust may move in limine to keep the fact of the payment to the Court from the jury. Whether or not such a motion would be granted, the Court believes it is an appropriate exercise of its discretion to allow Penn Mutual to pay the disputed funds into the Court’s registry, which will ensure that the proceeds are available to be paid to whichever is the proper party at the conclusion of this case. The Espinosa Trust’s additional argument that there is no pending claim in this case seeking proceeds as money damages is unavailing as the Court is today granting the Espinosa Trust’s motion for leave to amend its counterclaims to assert a claim for precisely those proceeds.

The Espinosa Trust’s Motion for Leave to Amend Answer and Counterclaims

On June 6, 2014, the Espinosa Trust filed a motion for leave to file ah Amended Answer and Counterclaims to the Second Amended Complaint. (D.I.265) The Espinosa Trust seeks leave to assert breach of contract and breach of the duty of good faith claims due to Perm Mutual’s alleged failure to pay the approximately $7 million death benefit after the' death of Norma Espinosa, on or about April 27, 2014. (D.I.266) The proposed amended pleading also asserts claims seeking return of the premiums paid in the event the Espinosa policy is declared void and adds, factual allegations based on facts learned in discovery “concerning Penn Mutual’s real reason for this lawsuit.” (Id. at 1) Penn Mutual opposes the motion, insisting that there has been no breach of contract, [633]*633that litigating the breach of contract and bad faith claims in advance of a determination that the underlying contract is valid and enforceable is inefficient, and that granting the motion will delay the case. (D.I.268)

“The court should freely give leave [to amend] when justice so requires.” Fed. R. Civ. P 15(a)(2). In the Third Circuit, “undue prejudice is ‘the touchstone for the denial of leave to amend.’ ” Justofin v. Metro. Life Ins. Co., 372 F.3d 517, 526 (3d Cir.2004) (quoting Heyl & Patterson Int’l Inc. v. F.D. Rich Hous.

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70 F. Supp. 3d 628, 2014 U.S. Dist. LEXIS 137057, 2014 WL 4811879, Counsel Stack Legal Research, https://law.counselstack.com/opinion/penn-mutual-life-insurance-v-norma-espinosa-2007-1-insurance-trust-ded-2014.