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The Penn Mutual Life Ins. Co. v. Norma Espinosa 2007-1 Ins. Trust

United States District Court, D. Delaware

September 29, 2014

THE PENN MUTUAL LIFE INSURANCE COMPANY, Plaintiff,
v.
NORMA ESPINOSA 2007-1 INSURANCE TRUST, CHRISTIANA BANK & TRUST COMPANY, as trustee of the NORMA ESPINOSA 2007-1 INSURANCE TRUST, KEVIN BECHTEL, and INFINITY WEALTH ADVISORS, LLC, Defendants

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[Copyrighted Material Omitted]

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For The Penn Mutual Life Insurance Company, Plaintiff: Joseph C. Schoell, Katherine Villanueva, DRINKER BIDDLE & REATH LLP, Wilmington DE.

For The Norma Espinosa 2007-1 Insurance Trust and Wilmington Savings Fund Society, FSB (as successor-in-interest to Christiana Bank & Trust Company, as Trustee, Defendant: David J. Baldwin, Michael B. Rush, POTTER ANDERSON & CORROON LLP, Wilmington, DE; John E Failla, Elise A. Yablonski, Nathan Lander, PROSKAUER ROSE LLP, New York, NY.

For Kevin Bechtel, Defendant: George T. Lees, Kaan Ekiner, RAWLE & HENDERSON LLP, Wilmington, DE; Charles Geitner, HINSHAW & CULBERTSON LLP, Tampa, FL.

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MEMORANDUM OPINION

LEONARD P. STARK, United States 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. 1) 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" (" STOLI" ) 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 the 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 Espinosa 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 Espinosa 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 during

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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 any 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 Penn Mutual is purportedly " attempt[ing] 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 under 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 Espinosa 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 ...


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