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Sun Life Assurance Co. of Canada v. Conestoga Trust Services, LLC

United States District Court, E.D. Tennessee

July 12, 2017

CONESTOGA TRUST SERVICES, LLC, As Trustee of Conestoga Settlement Trust, Defendant.

          GUYTON, Judge


          REEVES, Judge

         This case concerns a life insurance policy issued by Sun Life Assurance Company of Canada on the life of Erwin Collins. Sun Life filed this action seeking a declaration that the policy is void due to having been procured as a wagering contract on the life of Collins. Sun Life contends the policy is a “stranger originated life insurance (STOLI)” policy, wherein investors utilized Collins' life as a conduit to procure the policy, wager on his life, and profit from his death. Therefore, Sun Life argues Conestoga has no right to recover proceeds from the life insurance policy because the policy is void ab initio.

         Defendant, Conestoga Trust Services, LLC, is the sixth assignee of the ownership rights in the policy. Conestoga responds there is no evidence that “stranger investors” procured the policy, and it is permissible to take out a life insurance policy with the hope of trying to sell the policy on the secondary market. In the event the court declares the Sun Life policy void, Conestoga asserts Sun Life must return to Conestoga the premiums paid to Sun Life.

         For the reasons that follow, the court finds there was a pre-existing agreement for Erwin Collins to obtain the policy and transfer it to a stranger investor. Therefore, the policy constitutes a STOLI scheme, and under Tennessee law, it violates public policy and is void ab initio. As a result, Sun Life does not have to pay the death benefit to Conestoga. However, Sun Life must refund the premiums to Conestoga so that Sun Life does not obtain a windfall.

         Prior to discussing the motions for summary judgment, the court will address Conestoga's motion to amend and Sun Life's motion to strike.

         I. Motion to Amend

         Conestoga moves to amend its answer and counter-complaint to include an alternative claim for bad faith under Tennessee law, and an alternative claim for return of premiums paid by Conestoga to Sun Life [R. 71]. Sun Life opposes the motion as untimely, futile, and delaying the proceedings [R. 82].

         Pursuant to Federal Rule of Civil Procedure 15(a)(2), a party may amend its pleading only with the opposing party's written consent or the court's leave. Although the decision to permit amendment of pleadings is committed to the discretion of the court, the court's discretion is limited by Rule 15(a)'s liberal policy of permitting amendments to ensure the determination of claims on their merits. Marks v. Shell Oil Co., 830 F.2d 68, 69 (6th Cir. 1987). Because Rule 15(a) envisions liberal allowance of amendments to pleadings, there must be some substantial reason justifying denial of the motion. Smith v. Garden Way, Inc., 821 F.Supp. 1486, 1488 n. 2 (N.D.Ga. 1993). In evaluating the interests of justice, courts typically consider whether the amendment is brought in bad faith or for dilatory purposes, would result in undue delay or prejudice to the opposing party, or would be futile. Graham v. Luttrell, 191 F.3d 452 (6th Cir. 1999).

         Here, Conestoga's motion to amend is timely under the court's order extending the trial date and all associated pretrial deadlines. See R. 37. Further, the court finds the proposed amendments will cause Sun Life no prejudice or delay because the parties' summary judgment filings already address the claims for bad faith penalty and for return of premiums. Accordingly, in the interests of justice and pursuant to Rule 15(a), Conestoga's motion to file an amended answer and counter-complaint [R. 71] is


         II. Motion to Strike

         Following the close of briefing on the parties' cross-motions for summary judgment, Sun Life filed a notice of supplemental authority to apprise the court of a development in one of the cases cited in Sun Life's brief [R. 107]. Conestoga filed its own notice of supplemental authority that included argument regarding the relevance of Sun Life's supplemental authority and Conestoga's supplemental authority [R. 108]. Sun Life, in turn, filed a motion to strike Conestoga's notice of supplemental authority on the grounds Conestoga was attempting to expand on its previous arguments [R. 109]. Conestoga filed a response to Sun Life's motion to strike arguing that Conestoga merely responded to Sun Life's characterization of the supplemental authority [R. 110].

         The court appreciates the parties providing notice of supplemental authority decided since the close of briefing. However, the court will decide for itself whether the cited authority is relevant to the issues in this case. Accordingly, the court finds no merit to Sun Life's motion to strike [R. 109], and the motion is DENIED.

         The court will now address the parties' motions for summary judgment.

         III. Motions for Summary Judgment A. Standard of Review

         Summary judgment under Rule 56 of the Federal Rules of Civil Procedure is proper “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). The moving party bears the burden of establishing that no genuine issues of material fact exist. Celotex Corp. v. Cattrett, 477 U.S. 317, 330 n. 2 (1986); Moore v. Philip Morris Co., Inc., 8 F.3d 335, 339 (6th Cir. 1993). All facts and inferences to be drawn therefrom must be viewed in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Burchett v. Keifer, 301 F.3d 937, 942 (6th Cir. 2002).

         Once the moving party presents evidence sufficient to support a motion under Rule 56, the nonmoving party is not entitled to a trial merely on the basis of allegations. Celotex, 477 U.S. at 317. To establish a genuine issue as to the existence of a particular element, the nonmoving party must point to evidence in the record upon which a reasonable finder of fact could find in its favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The genuine issue must also be material; that is, it must involve facts that might affect the outcome of the suit under the governing law. Id.

         The Court's function at the point of summary judgment is limited to determining whether sufficient evidence has been presented to make the issue of fact a proper question for the factfinder. Id. at 250. The Court does not weigh the evidence or determine the truth of the matter. Id. at 249. Nor does the Court search the record “to establish that it is bereft of a genuine issue of fact.” Street v. J.C. Bradford & Co., 886 F.2d 1472, 1479 (6th Cir. 1989). Thus, “the inquiry performed is the threshold inquiry of determining whether there is a need for a trial - whether, in other words, there are any genuine ...

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