(W.D. Okla. Bankruptcy--Case No. 10-13528
The opinion of the court was delivered by: Judge Campbell
Pending before the Court are Plaintiffs' Motion to Remand and Abstain (Docket Entry No. 139), Motion to Sever Claims Against the Millennium Multiple Employer Welfare Benefit Plan ("Millennium" or "the Plan") (Docket No. 141), and Motion for Voluntary Dismissal (Docket No. 164). Also pending is Defendant Aviva Life and Annuity Company's ("Aviva's") Motion to Transfer Venue of Removed Case to Court Administering Debtor's Chapter 11 Bankruptcy Case (Docket No. 136), in which Defendants Scott A. Ridge, Ridge Insurance, Inc., David Cline, David H. Cline, Inc., Republic Bank and Trust ("Republic"), SecurePlan Administrators, LLC ("SecurePlan"), and American General Life Insurance Company ("AGL") have joined (Docket Nos. 143, 144, 148 & 149). The Motions have been exhaustively briefed by the parties (Docket Nos. 137, 140, 142, 146, 150-152, 157-159, 161, 164, 165 & 166-1 ). The Court denies Plaintiffs' Motions to Remand/Abstain and to Sever; declines to rule on Plaintiffs' Motion for Voluntary Dismissal; and grants Aviva's Motion to Transfer and transfers this case to the Western District of Oklahoma for the purpose of referring the matter to the Bankruptcy Court.
I. FACTUAL AND PROCEDURAL BACKGROUND
This is a multi-party, multi-claim action originally filed on January 4, 2010, in the Chancery Court for Davidson County, Tennessee. There are twenty-five Plaintiffs consisting of doctors and dentists and their respective practices, mostly from Tennessee. One of the Defendants is Millennium which provides employees of contributing employers with medical, disability, long term care, severance and death benefits.
The Millennium Plan was purportedly established as a "10 or more" employer plan within the meaning of the Internal Revenue Code. Participation in the Plan is funded through the purchase of life insurance policies by employers on the lives of participants for whom the contributions are made. The purchased life insurance policies are titled in the name of Republic, the Plan trustee. Those policies are the primary assets of Millennium, and it contends that it has full rights to ownership of the policies for the benefit of all Plan participants.
The core of Plaintiffs' lawsuit is that the Millennium Plan is really a ruse into which Plaintiffs were fraudulently induced to invest. Plaintiffs claim they were falsely told that they could make tax-deductible contributions to the Plan and could later withdraw those sums. However, the Plan purportedly did not comply with federal tax regulations and, instead of acting as a true employee welfare benefit plan, the Plan actually used all of Plaintiffs' contributions to buy life insurance policies. Plaintiffs allege they have not been provided the benefits promised under the Plan for the contributions they made to the Plan. In addition, many of the Plaintiffs allegedly have been audited by the Internal Revenue Service ("IRS") and assessed substantial interest and penalties for the contributions they made to the Plan.
Named as Defendants in addition to Millennium are the individual insurance agents who sold Plaintiffs memberships in the Plan; the insurance companies who helped create the Plan and issued the life insurance policies to fund it; the Plan's trustee and third-party administrator; accountants; and attorneys who issued opinion letters verifying the legal validity of the Plan. In their Second Amended Complaint in the Chancery Court, Plaintiffs set forth eight state law causes of action against the Defendants, including fraud and fraudulent inducement; negligent misrepresentation; civil conspiracy; fraudulent insurance acts; violations of the Tennessee Consumer Protection Act; negligence; professional negligence; and breach of fiduciary duty. They seek compensatory, punitive, and treble damages, pre- and post-judgment interest, attorney's fees, and costs.
This is not the first time that the legality of the Plan and/or the method used to solicit its investors has been challenged. Lawsuits have been filed in a number of jurisdictions including, but not limited to, two in state district court in Dallas, Westfall v. Bevan and Young v. Millennium Multiple Employer Welfare Benefit Plan; one in the Chancery Court for Madison County, Tennessee, White v. Aviva Life and Annuity Company; and two in Oklahoma state court, Khetpal v. Aviva Life and Hassoun v. Aviva Life.
Faced with a myriad of claims in a multitude of jurisdictions, Aviva filed two interpleader actions in the Western District of Oklahoma: Aviva Life v. Republic Bank, No. 09-cv-113-F and Aviva Life v. Republic Bank, 09-cv-1023-F. In those actions, Aviva sought to address its potential exposure to inconsistent liability vis-a-vis the claims of various Plan participants, versus the ownership claims of the Plan to millions of dollars of life insurance policies issued by Aviva. Defendants included the Plan trustees, Republic, and certain participants in the Plan whose lives, as individuals, were and/or are insured under life insurance policies issued to the Plan by Aviva. Millennium was added as a third-party defendant by Republic in the interpleader actions. Millennium filed a counterclaim against Aviva in the first interpleader, while in the second interpleader, Republic filed a counterclaim against Aviva.
Another interpleader was filed in the same federal district court by AGL and United States Life Insurance Company. That case, styled American General Life Ins. Co. v. Republic Bank & Trust, 09-cv-01243-F, involves other insurers who issued life insurance policies used to fund the Millennium Plan and are co-defendants with Aviva in some of the pending lawsuits (including this one), as well as defendants in other suits brought by Plan participants. Like Aviva, these insurers face inconsistent demands from the Plan participants and the Plan trustees, exposing them to the potential of dual and inconsistent liabilities. In this interpleader action, a counterclaim has been filed, as well as a third-party complaint against Millennium.
With numerous lawsuits pending, Millennium filed a voluntary Chapter 11 petition in the United States Bankruptcy Court for the Western District of Oklahoma on June 9, 2010.*fn1 Immediately thereafter, Millennium removed the instant action to this Court.
Millennium also removed the other pending state court cases to federal court and filed motions in each to transfer the case to the Western District of Oklahoma. Three cases involving almost 100 plaintiffs and raising state law claims similar to those presented here were transferred to the Oklahoma bankruptcy court: Westfall and Young with the consent of the parties, and White by order of the District Judge.
Millennium's bankruptcy led to Aviva filing an interpleader action as an adversary proceeding in the bankruptcy court, Aviva Life v. Republic Bank, Adv. No. 10-01153, to address additional claims arising after the petition date. Named as Defendants are the Plan, Republic, and all remaining insureds on Aviva policies issued to the Plan (i.e. those that are unrelated to the insured listed in the pre-petition interpleaders).
After this action was removed from Chancery Court to this Court, Plaintiffs filed a Motion to Remand (Docket No. 56), and Millennium filed a Motion to Change Venue which was joined in by many Defendants. (Docket No. 7) . The Court denied both Motions without prejudice because Plaintiffs had filed a Motion to Dismiss the bankruptcy proceedings, and the Bankruptcy Court had scheduled a hearing in relation thereto.
Since that time, Millennium and the Official Committee of Unsecured Creditors (including counsel for Plaintiffs herein) filed a Joint Motion for Approval of Settlement in the Bankruptcy Court. The proposed settlement had Millennium surrendering the policies insuring the lives of Plan participants, and paying a portion of the cash surrender value to Plan participants with lawsuits pending, including the Plaintiffs herein. After a hearing, the proposed settlement was rejected by the Bankruptcy Court.
Upon rejection of the proposed settlement, most Plan participants who were plaintiffs in pending cases, including Plaintiffs herein, filed proofs of claims with the Bankruptcy Court. These proofs of claims seek the return of all Plan contributions, the life and death benefits that were available under the Plan, and unliquidated damages and attorneys' fees.
On February 17, 2011, Millennium filed its proposed Chapter 11 Plan of Liquidation. That Plan of Liquidation was amended on March 10, 2011, and, as amended, would offer Plan participants either a cash payment based upon their contributions and the net assets of the Plan or the option to purchase the policy insuring their lives. However, that same day, ...