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PHL Variable Insurance Co. v. ESF QIF Trust

United States District Court, Third Circuit

December 30, 2013

PHL VARIABLE INSURANCE COMPANY, Plaintiff/Counterclaim Defendant,
v.
ESF QIF TRUST, by and through its trustee, DEUTSCHE BANK TRUST COMPANY, Defendant/Counterclaim Plaintiff.

Keith A Walter, Jr., Esquire, NOVAK DRUCE CONNOLLY BOVE QUIGG LLP, Wilmington, DE.

Thomas F.A. Hetherington, Esquire and Jarret E. Ganer, Esquire, EDISON, MCDOWELL & HETHERINGTON LLP, Houston, TX. Attorneys for Plaintiff/Counterclaim Defendant.

Joseph J. Farnan, Jr., Esquire and Brian E. Farnan Esquire, FARNAN LLP, Wilmington, DE.

Steven G. Sklaver, Esquire, Matthew R. Berry, Esquire, and Brian M. Gillett, Esquire, SUSMAN GODFREY L.L.P., Los Angeles, CA, Seattle, WA, and Houston, TX. Attorneys for Defendant/Counterclaim Plaintiff.

MEMORANDUM OPINION

STARK, U.S. District Judge:

Before the Court is a motion by Plaintiff/Counterclaim Defendant PHL Variable Insurance Company ("Phoenix") to dismiss the counterclaims of Defendant/Counterclaim Plaintiff ESF QIF Trust ("ESF Trust" or "the Trust"). (D.I. 12) The Court heard oral argument on November 8, 2012. (See Motion Hr'g Tr., November 8, 2012 (D.I. 24) (hereinafter "Tr.") The Court will grant in part and deny in part Phoenix's motion to dismiss the counterclaims.

I. BACKGROUND[1]

Phoenix is a Connecticut insurance company with a principal place of business in Hartford Connecticut. (D.I. 1 at 2) ESF Trust is a Delaware statutory trust formed pursuant to the Delaware Statutory Trust Act, 12 Del. C. §§ 3801, et seq. (Id.)

On March 15, 2012, Phoenix filed a declaratory judgment action against ESF Trust pursuant to 28 U.S.C. § 2201 and Federal Rule of Civil Procedure 57. (Id.) In its complaint, Phoenix asks the Court to declare as void ab initio a $10 million life insurance policy - number 97519439 ("the Szalay Policy") - insuring the life of John Szalay ("Mr. Szalay").

Phoenix's complaint alleges that ESF Trust acquired the Szalay Policy as part of a stranger originated life insurance ("STOLI") arrangement. (Id. at 1-2) In a "STOLI" arrangement, speculators collaborate with an individual or individuals to purchase expensive life insurance polices and then sell some or all of the death benefit to investors on a secondary market. (Id. at 2-5) In order to "maximize rates of return on investments, " STOLI speculators engage financially qualified, elderly individuals - with limited expected life spans - to obtain multi-million dollar life insurance policies in the individual's name. (Id. at 5) The insured may then designate as the beneficiary of the policy some type of third-party entity, which may then transfer the policy to speculators. (Id.)

In addition to filing an Answer to Phoenix's complaint, the Trust filed six counterclaims. (D.I. 8) Specifically, the Trust sets forth the following counterclaims:

(1) a declaratory judgment claim that the Szalay Policy is valid, seeking in particular "a judicial declaration that (a) Phoenix is liable to pay a claim thereunder on the Szalay Policy upon the occurrence of the Szalay Policy's maturity event, and that (b) Phoenix is estopped from challenging the Szalay Policy as void ab initio and/or that Phoenix has waived its right to challenge the Szalay Policy as void ab initio" (D.I. 8 \ 44);
(2) violation of the Delaware Consumer Fraud Act, 6 Del. C. ยง 2513 et ...

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