John Hancock Life Insurance Co v. Kimberly Clemente ( 2022 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
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Nos. 20-2772 & 20-2931
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JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.)
v.
KIMBERLY CLEMENTE; M.C., a minor; S.C., a minor; I.C.
a minor; G.C., a minor; NEVADA TRUST COMPANY;
BRADLEY CLEMENTE; MICHAEL CLEMENTE; JOHN
CLEMENTE; LINDA CLEMENTE; THE ESTATE OF
JOHN S. CLEMENTE.
Linda Clemente,
Appellant in case 20-2772
Kimberly Clemente, M.C., a minor, S.C., a minor, I.C., a
minor, G.C., a minor,
Appellants in case 20-2931
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On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 3:17-cv-03824)
District Judge: Honorable Anne E. Thompson
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Submitted Under Third Circuit L.A.R. 34.1(a)
on November 17, 2021
Before: CHAGARES, Chief Judge, and BIBAS and FUENTES, Circuit Judges
(Filed: December 17, 2021)
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OPINION*
*
This disposition is not an opinion of the full Court and, under I.O.P. 5.7, is not binding
precedent.
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BIBAS, Circuit Judge.
Much like the chancery cases of Dickensian England, this familial feud has snarled up
into a tangled mess. A rich man died, but not before selling off his life-insurance policy.
Now each of his ex-wives claims a stronger right to the policy than the buyer. Both have
plausible equitable claims. But the buyer paid market value for the policy and had no notice
of the ex-wives’ interests. So it is entitled to the payout.
I. BACKGROUND
A. The insurance sale
John Clemente was a successful cardiologist. But in a cruel twist of fate, he suffered
from terminal heart disease. Knowing that his days were numbered, he sold his $1.5 million
life-insurance policy to enjoy the proceeds while he could.
Clemente sold the policy to Coventry First for . Coventry then assigned the
policy to an affiliate, which sold it to Habersham for . Habersham, in turn, sold it
to Nevada Trust for . From then on, Nevada Trust paid the premiums.
B. The ex-wives
A year and a half later, John died. His ex-wives discovered the sale and were not happy.
Each claimed that a court order during her divorce barred him from selling the policy and
entitled her to the payout. See Travelers Ins. Co. v. Johnson, 579 F. Supp. 1457, 1461–63
(D.N.J. 1984).
John’s first wife, Linda, had filed for divorce in 2003. Though a court ordered that they
distribute their assets equitably, John could not pay up and declared bankruptcy. In 2010,
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the bankruptcy court found that Linda was his biggest creditor, and she recorded that judg-
ment for $2.7 million in New Jersey. Also, the New Jersey Superior Court ordered John to
take out term life insurance for Linda’s benefit. To comply, John named Linda as his life-
insurance beneficiary.
But John’s compliance did not last. In 2014, he took Linda off the policy and substituted
his second wife, Kimberly. Several months later, he took Kimberly off and substituted his
children. Kimberly soon filed for divorce, and a court ordered him not to dispose of any
marital assets, including the life-insurance policy.
C. This lawsuit
To resolve the competing claims, the life insurer filed this interpleader action in federal
court. Linda and Kimberly argue that their divorce proceedings give them better claims to
the life insurance. But the District Court disagreed. Nevada Trust, it reasoned, bought the
policy in good faith for market value. When it bought the policy, Nevada Trust did not
know about the ex-wives’ interests. Even if Coventry knew of their claims, there was “no
basis for imputing any knowledge that Coventry First may have had to Defendant Nevada
Trust.” App. 474. So Nevada Trust, the court ruled, could keep the policy payout.
Now both ex-wives appeal to us. The District Court had jurisdiction under 28 U.S.C.
§ 1332, and we have jurisdiction under § 1291. We review the District Court’s grant of
summary judgment de novo. Tundo v. Cty. of Passaic, 923 F.3d 283, 286 (3d Cir. 2019).
II. LINDA, AT LEAST, HAS AN EQUITABLE INTEREST IN THE INSURANCE PROCEEDS
In New Jersey, if a court orders a divorcé to list his ex-wife as a life-insurance benefi-
ciary and he disobeys, she has an equitable interest in the insurance proceeds. Travelers,
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579 F. Supp. at 1461–63; see Della Terza v. Estate of Della Terza, 647 A.2d 180, 181 (N.J.
Super. Ct. App. Div. 1994).
This rule fits Linda’s case. The Superior Court ordered John to get life insurance for
her benefit. And though he complied at first, he soon removed Linda as a beneficiary. So
Linda has an equitable interest.
Kimberly’s interest is a closer call. She makes a claim on behalf of her minor children,
who were the named beneficiaries when John sold the policy to Coventry. This claim rests
on the divorce court’s 2015 order not to dispose of any marital assets, including the life-
insurance policy. Yet unlike other New Jersey cases recognizing equitable life-insurance
interests, the court here never ordered John to name a particular beneficiary. See Travelers,
579 F. Supp. at 1460–63 (collecting cases).
But we need not decide whether to extend New Jersey law to recognize an equitable
interest here. Even if Kimberly has one, Nevada Trust has the stronger claim.
III. NEITHER EX-WIFE HAS A REMEDY AGAINST NEVADA TRUST
Both Linda and Kimberly ask us to protect their interests by imposing a constructive
trust. We may do so when someone wrongfully transfers property subject to an equitable
interest. See, e.g., Flanigan v. Munson, 818 A.2d 1275, 1281–83 (N.J. 2003). To impose a
constructive trust, we must find both that a party committed a wrongful act and that, as a
result, the recipient was unjustly enriched. Id. at 1281. Here, only one of these requirements
is met. Though John’s sale was wrongful, Nevada Trust was not unjustly enriched.
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A. John was wrong to sell the policy
John acted wrongfully twice over. By taking Linda off the policy, he defied a court
order. And by selling the policy, he ignored a court order not to dispose of the marital assets
he shared with Kimberly. See Flanigan, 818 A.2d at 1281–82. So the first requirement is
satisfied.
B. Nevada Trust was not unjustly enriched
But the second requirement is not. Nevada Trust is a bona fide purchaser. It bought the
policy at market price and had no notice of the ex-wives’ claims. “[A] [b]ona fide purchaser
for value … will prevail over one seeking to impose a constructive trust.” Hirsch v. Trav-
elers Ins. Co., 341 A.2d 691, 693 (N.J. Super Ct. App. Div. 1975).
Nevada Trust paid market value for the policy. True, Kimberly argues that Coventry
paid too little. But we focus rather on the price that Nevada Trust paid. See Venetsky v. W.
Essex Bldg. Supply Co., 100 A.2d 291, 296 (N.J. Super. Ct. App. Div. 1953) (“[A] person
may have the standing of a bona fide purchaser although he acquires title from one who is
not a bona fide purchaser.”). And Kimberly does not dispute that it paid fair market value.
Plus, there is no evidence in the record to the contrary.
Next, Linda and Kimberly argue that when Nevada Trust bought the policy, it had no-
tice of their interests. But both of their notice theories fail.
1. Record Notice. Linda argues first that Nevada Trust had record notice. She points to
the divorce court’s order and the bankruptcy court’s recorded judgment against John. But
she cites no law to support her claim. True, in New Jersey a docketed judgment operates
as a lien on real property and so binds a good-faith buyer. Les Realty Corp. v. Hogan, 714
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A.2d 366, 368–69 (N.J. Super. Ct. Ch. Div. 1998). But that works because real property
has a physical location. The buyer knows where the land is and must search that county’s
records. See id. at 369.
We see no suggestion that this rule also applies to life insurance or other intangible
assets, and the ex-wives cite none. For one, New Jersey courts consistently phrase this
record-notice rule as applying to real property. E.g., New Brunswick Sav. Bank v.
Markouski, 587 A.2d 1265, 1269–70 (N.J. 1991). For another, limiting record notice to
land makes sense. Life insurance has no title registry. Nor does it have a physical location,
which would limit where potential buyers must check county records. Linda’s argument
has no toehold in New Jersey law. We will not extend the records-search requirement to
reach beyond realty.
2. Inquiry Notice. Linda and Kimberly also argue that Nevada Trust had to investigate
whether others had prior claims to the policy. Because it did not, they say, it should be
treated as on notice of their interests. They try to explain why Nevada Trust had to investi-
gate. Yet their arguments do not persuade.
To start, Linda claims that when Nevada Trust bought the policy, it agreed to assume
the risk of existing claims. But the contract of sale just allocates risk between the buyer and
seller, not with third parties like Linda and Kimberly. Even if it did, Linda has no right to
enforce the contract because she is not a party to it. See First Nat’l State Bank of N.J. v.
Carlyle House, Inc., 246 A.2d 22, 34 (N.J. Super. Ct. Ch. Div. 1968).
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Next, Linda argues that Nevada Trust owed a duty to its investors to “verify facts rele-
vant to the investment and management of trust assets.” N.J. Stat. Ann. § 3B:20-11.3(e).
True enough. But because Linda is not an investor in Nevada Trust, it owed her no duty.
Finally, the ex-wives argue that Nevada Trust had to investigate because it knew about
John’s divorces. This theory is plausible: where a “prospective purchaser of … property
subject to an equity, learns of facts … which … would lead an ordinarily prudent man to a
belief that there was a possibility that an equity existed, the purchaser has a duty to make
a reasonable inquiry.” Bogert’s The Law of Trusts and Trustees § 894 (2021) (citing Prall
v. Hamil, 28 N.J. Eq. 66 (N.J. Ch. 1877)).
But there is no evidence that Nevada Trust knew about the divorces. Instead, the ex-
wives invite us to impute Coventry’s knowledge to Nevada Trust. Yet we have no reason
to do so. As undisputed testimony shows, the companies have no common ownership and
never communicated about the policy. So Nevada Trust had no notice of facts that would
give rise to a duty to investigate.
Because Nevada Trust paid fair market value and had no notice of the ex-wives’ inter-
ests, we may not impose a constructive trust on the insurance proceeds.
IV. KIMBERLY’S POLICY ARGUMENT FAILS
Kimberly asks us to set aside Nevada Trust’s claim based on New Jersey’s public policy
to ensure payment of child support. She rests on a court of equity’s “sound discretion,
according to the principles of equity and essential justice in the particular circumstances
and the requirements of positive law and sound public policy.” Kimberly Br. 12–13 (quot-
ing Burke v. Hoffman, 147 A.2d 44, 48 (N.J. 1958)).
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But that doctrine is an equitable one, limited to competing equities. See Burke, 147 A.2d
at 48. Nevada Trust’s claim is not equitable. It is the legal beneficiary of the policy. And
courts have no general equitable power to do justice by setting aside legal rights. Kimberly
tries to get around this rule by describing life insurance as a “chose in action,” which counts
as an “equitable assignment.” Kimberly Br. 12. She is half right. Nevada Trust’s right to
the policy is a chose in action: a right to sue for the money. But not all rights to sue are
rights to sue in equity. And “all choses in action arising on contract shall be assignable at
law.” Sullivan v. Visconti, 53 A. 598, 601 (N.J. 1902) (emphasis added). As the legal as-
signee, Nevada Trust’s claim is legal, not equitable. So even though John’s child-support
obligations are at risk, we may not set aside Nevada Trust’s right to the insurance proceeds.
*****
Linda and Kimberly have plausible equitable claims to John’s life insurance. But the
legal interest of a good-faith buyer takes precedence. Because Nevada Trust paid fair mar-
ket value for the policy and had no notice of the ex-wives’ interests, it is entitled to the
payout. Neither law nor equity makes Nevada Trust pay for John’s wrongs.
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