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Lincoln Benefit Life Co. v. Wilmington Trust, N.A.

Superior Court of Delaware

March 21, 2019

LINCOLN BENEFIT LIFE COMPANY, Plaintiff/ Counterclaim-Defendant,
v.
WILMINGTON TRUST, N.A., as Securities Intermediary, Defendant/ Counterclaim-Plaintiff.

          Submitted: January 17, 2019

         Upon Defendant's Motionto Stay GRANTED.

          Joseph C. Schoell, Esq., Drinker Biddle & Reath LLP, Wilmington, Delaware, Jason P. Gosselin, Esq., Katherine L. Villaneuva, Esq., Christopher F. Petrillo, Esq., Drinker Biddle & Reath LLP, Philadelphia, Pennsylvania, Attorneys for Plaintiff.

          Steven L. Caponi, Esq. K&L Gates LLP, Wilmington, DE, Attorney for Defendant.

          MEMORANDUM OPINION

          Honorable Andrea L. Rocanelli, J.

         Defendant Wilmington Trust, N.A., as Securities Intermediary, has moved to stay this action in favor of a pending action in a Mississippi federal court between the same parties and involving the same issues. Plaintiff Lincoln Benefit Life Company opposes the motion to stay. Previously, this Court declined to dismiss this action on the basis of forum non conveniens finding Wilmington Trust did not meet the high burden required to deprive a plaintiff of its choice of forum.[1]

         FACTUAL AND PROCEDURAL BACKGROUND

         In October 2007, Lincoln Benefit, a Nebraska life insurance company, issued a life insurance policy on the life of Adele Frankel ("Policy") to a Mississippi trust. Upon the death of Ms. Frankel in August 2016, Wilmington Trust, which holds the Policy as Securities Intermediary, made a demand to Lincoln Benefit for the Policy proceeds to be paid ("Claim"). While the Claim was under review-in other words, before responding to Wilmington Trust-Lincoln Benefit filed this declaratory judgment action on August 23, 2017, seeking a declaration that the Policy is void ab initio under Mississippi insurable interest laws ("Delaware Declaratory Judgment Action"). According to Lincoln Benefit, the Policy was fraudulently procured as part of a stranger-originated life insurance ("STOLI") scheme contrary to Mississippi law. Shortly thereafter, on September 22, 2017, Lincoln Benefit filed a lawsuit in the United States District Court for the Northern District of Mississippi, Oxford Division ("Mississippi Federal Court") asserting claims for breach of contract, bad faith, and fraud, and seeking payment of the Claim or, in the alternative, the return of the Policy premiums ("Mississippi Action").[2]

         The two lawsuits have proceeded on parallel tracks with competing pretrial motions and coordinated discovery.[3] On October 20, 2017, Wilmington Trust moved to dismiss the Delaware Declaratory Judgment Action in favor of its second-filed suit in the Mississippi Federal Court, asking this Court to exercise its discretion on the basis of forum non conveniens. Soon thereafter, on October 30, 2017, Lincoln Benefit moved to dismiss the Mississippi Action, arguing that the Mississippi Federal Court lacks personal jurisdiction over Lincoln Benefit and also asking that the Mississippi Federal Court refrain from hearing the case under the Colorado River abstention doctrine.[4]

         Thus, motions were pending in both courts with each plaintiff asking each court to defer to the other litigation. This Court denied the motion to dismiss the Delaware Declaratory Judgment Action by Memorandum Opinion and Order dated April 5, 2018. Just a few months later, [5] on September 18, 2018, the Mississippi Federal Court denied Lincoln Benefit's motion to dismiss, finding, among other things, that the exercise of personal jurisdiction over Lincoln Benefit was appropriate.[6]

         Parallel challenges continued in both jurisdictions. Upon motion by Lincoln Benefit, the Mississippi Federal Court declined to stay the Mississippi Action by Order dated December 3, 2018.[7] Wilmington Trust filed a motion for judgment on the pleadings, decision on which is stayed in the Delaware Declaratory Judgment Action. Wilmington Trust now seeks to stay the Delaware Declaratory Judgment Action in favor of the Mississippi Action. In the meantime, a motion for summary judgment was filed on behalf of Wilmington Trust in the Mississippi Action on February 27, 2019.

         The Delaware Declaratory Judgment Action is scheduled for a 5-day trial on September 9, 2019. The Mississippi Action is scheduled for trial in December of 2019. Accordingly, not only has the Mississippi Federal Court asserted jurisdiction and expressed a preference to resolve this dispute, but the Court has set a trial date which is nearly contemporaneous to the trial date in Delaware.

         LEGAL STANDARD

         The granting of a stay in favor of a foreign action is not a matter of right, but rests within the sound discretion of the trial court.[8] In considering a motion to stay, the threshold inquiry of determining the applicable standard is dependent upon the circumstances surrounding the filing of the actions.[9]

         Where one of two "competing" actions is filed before the other, the McWane standard controls and the first-filed action is generally entitled to preference.[10] The Court's discretion should be exercised freely in favor of a stay when there is a prior action involving the same parties and issues that are pending elsewhere in a court that is capable of doing prompt and complete justice.[11]

         In contrast, where two or more actions are contemporaneously filed, the Court examines a motion to stay under the traditional forum non conveniens framework without regard to a McWane-type preference of one action over the other.[12] To justify a stay where the actions are contemporaneously filed, generally "the movant need only demonstrate that the preponderance of applicable forum factors 'tips in favor' of litigating the dispute in the non-Delaware forum."[13] However, when granting a stay of a contemporaneously filed action on forum non conveniens grounds would likely have the same ultimate effect as dismissal, the movant must demonstrate that litigating in Delaware would cause overwhelming hardship and inconvenience.[14]

         When parties are simultaneously engaged in the adjudication of the same cause of action in two courts, regardless of which action is considered first-filed, the Court's discretion must always be informed by principles of comity and necessities of an orderly and efficient administration of justice.[15] The unseemly race by each party to judgment in the forum of its choice and the possibility of inconsistent rulings is to be avoided.[16]

         DISCUSSION

         Simultaneous litigation of the dispute in both Delaware and Mississippi poses a risk of inconsistent rulings and militates in favor of a stay. Under the circumstances presented here, the motion to stay is not subject to the same "overwhelming hardship" standard that governed the motion to dismiss previously denied by this Court. The relative hardships to the parties and concerns for judicial economy have changed since denying the motion to dismiss. In the interest of judicial economy and given the unacceptable possibility of inconsistent verdicts, the Delaware Declaratory Judgment Action should be stayed as set forth in the following discussion.

         I. The Delaware Declaratory Judgment Action is Not Entitled to Great Deference as First-Filed.

         As a preliminary matter, the Court must first consider the circumstances surrounding the filing of the actions to determine whether the Delaware Declaratory Judgment Action is entitled to deference as the first-filed action or if the actions should be considered contemporaneously filed for purposes of this motion. This is a question of fact determined by reference to the underlying procedural history.[17] The Court's analysis is informed by its "complementary objectives of discouraging both forum shopping and contrived races to the courthouse."[18] When determining if deference is appropriate, the Court looks at the natural alignment of the parties and may consider if the suits were filed within the same general time frame or in anticipation of litigation.[19] "Where the actions were filed within the same general time frame, the Court considers the actions simultaneously filed so as to avoid a 'race to the courthouse.'" [20] Moreover, a first-filed declaratory judgment action brought in an anticipatory nature is not entitled to the deference generally afforded to a plaintiff's choice of forum.[21]

         In Playtex, Inc. v. Columbia Cas. Co., a foreign action seeking a declaration of rights and obligations under an insurance policy was filed in anticipation of an action for damages filed by the natural plaintiff.[22] Although the foreign action was first filed in Playtex, the Court did not attribute this choice of forum the deference typically afforded.[23] The Court found that it was "reasonable to ...


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