Columbus Life Insurance Company v. Wilmington Trust Company

IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
COLUMBUS LIFE INSURANCE COMPANY, )
)
Plaintiff, )
)
v. ) C.A. No. N19C-11-175
) PRW CCLD
)
WILMINGTON TRUST COMPANY, )
as Securities Intermediary, )
)
Defendant. )
Submitted: January 21, 2021
Decided: February 15, 2021
MEMORANDUM OPINION AND ORDER
Upon Plaintiff Columbus Life Insurance Company’s Motion to Dismiss
GRANTED IN PART, DENIED IN PART.
Donald L. Gouge, Jr., Esquire, DONALD L. GOUGE, JR., LLC, Wilmington,
Delaware; Michael J. Miller, Esquire, Joseph M. Kelleher, Esquire, Philip J.
Farinella, Esquire, COZEN O’CONNOR, Philadelphia, Pennsylvania, Attorneys for
Plaintiff Columbus Life Insurance Company.
Steven L. Caponi, Esquire, Matthew B. Goeller, Esquire, K&L GATES LLP,
Wilmington, Delaware; Ari Ruben, Esquire, SUSMAN GODFREY LLP, New
York, New York; Steven G. Sklaver, Esquire, SUSMAN GODFREY LLP, Los
Angeles, California, Attorneys for Defendant Wilmington Trust Company.
WALLACE, J.
This dispute arises over a stranger-originated life insurance (“STOLI”) policy.
Plaintiff Columbus Life Insurance Company seeks a declaratory judgment that the
policy is void ab initio as an illegal wager on human life with no insurable interest
thereunder.1 Defendant Wilmington Trust Company filed its answer and
counterclaims seeking declaratory judgment that the policy is enforceable, and
alleging various other counts.2
Before the Court is Columbus Life’s Motion to Dismiss 3 and Motion to
Strike.4 Having considered the record and the parties’ arguments, those Motions are
GRANTED in part and DENIED in part.
I. FACTUAL BACKGROUND
In 2004, Columbus Life issued a $5 million universal life insurance policy to
the Kluener Family Delaware Trust insuring the life of Rita Kluener (the “Policy”).5
Under the Policy, Columbus Life agreed to pay a $5 million benefit upon Kluener’s
death in exchange for the payment of premiums on the Policy until Kluener’s 100th
1
Compl., Nov. 19, 2019 (D.I. 1); Am. Compl., Feb. 11, 2020 (D.I. 24).
2
Def.’s Countercls., May 21, 2020 (D.I. 50).
3
Plf.’s Mot. to Dismiss, June 29, 2020 (D.I. 55).
4
Plf.’s Mot. to Strike, June 29, 2020 (D.I. 54).
5
Def.’s Countercls. ¶ 23.
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birthday.6 Since its creation, the Policy has changed ownership multiple times and
has accumulated $4.4 million in paid premiums.7
The agent of record for the Policy was Ed Leisher.8 In 2005, Columbus Life
began investigating whether the policies for which Leisher was the agent of record
were stranger oriented.9 As a part of that investigation, two Columbus Life
representatives flew to Leisher’s office in Maryland to review policy documents.10
As a result of that investigation, Columbus Life canceled one of the policies brokered
by Leisher, yet decided to keep the Kluener Policy in force.11
Due to changing financial conditions, Kluener sold the Policy. 12 In 2005,
Kluener transferred the Policy to an entity controlled by the Private Equity
Management Group (“PEM”), an investment fund that held hundreds of life
insurance settlements.13 From 2004 to 2009, PEM orchestrated a massive Ponzi
6
Id. ¶ 21.
7
Id. ¶¶ 11, 48, 49 (the portion paid by Wilmington Trust is unalleged).
8
Id. ¶ 3.
9
Id.
10
Id.
11
Id.
12
Id. ¶ 2.
13
Id. ¶ 4.
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scheme, defrauding nine investors out of over $800 million by misrepresenting its
assets under management.14 In 2009, the United States District Court for the Central
District of California appointed a Receiver, Robert Mosier, to serve as Trustee for
the policies in the PEM portfolio, including the Policy.15 This Receivership
authorized Mosier to take control of PEM’s life insurance policies, including the
Policy, for the benefit of PEM’s creditors.16
Columbus Life received notice of the Receivership action on August 19,
2009.17 Columbus Life kept the Policy in force and continued to receive premium
payments on the PEM creditors’ behalf.18 In December 2010, the District Court
authorized Mosier to transfer PEM’s life insurance policies, selling them to the PEM
Victims in March 2011.19 As a result of the sale, the PEM Victims assumed
responsibility for payment of all premiums on the Policy.20
14
Id. ¶¶ 5, 31, 32, 33 (the PEM investors had no involvement in the origination of the life
insurance policies).
15
Id. ¶¶ 7, 34.
16
Id. ¶ 35.
17
Id. ¶¶ 36, 37 (the date Columbus Life confirmed receipt of the notification).
18
Id. ¶ 40.
19
Id. ¶ 44, 47; see id. ¶ 8 n.3 (“The “PEM Victims” refer to the beneficiaries of the “LIP Trust.”
The LIP Trust was created in March 2011 to hold the life insurance policies for seven of the largest
victims of PEM’s fraud. The LIP Trust is the entitlement holder under [Wilmington Trust]’s
account to which the Policy is credited.”).
20
Id. ¶ 48.
-3-
In July 2011, the PEM Victims appointed Wilmington Trust as Securities
Intermediary to maintain the Policy portfolio.21 The PEM Victims authorized
Wilmington Trust to take all actions requested by the PEM Victims regarding the
Policy in its capacity as the Policy’s registered owner.22 This authorization included
Wilmington Trust’s obligation to continue to pay the premiums on the Policy.23
In September 2011, by Columbus Life’s approval, Wilmington Trust became the
Owner and Beneficiary of the Policy.24
From 2011 to 2019, since this transfer of the Policy, Columbus Life continued
to send its annual report to Wilmington Trust.25 The information in the annual
reports named Wilmington Trust as the owner of the Policy, reported that the Policy
was valid and in force, and acknowledged that the “Insured Death Benefit” would
be $5 million if the premiums were paid.26
The same year Kluener celebrated her 99th birthday, on July 19, 2019,
Columbus Life sent Wilmington Trust a notice reserving its right to have the Policy
21
Id. ¶¶ 8 n.3, 49, 50.
22
Id. ¶ 53.
23
Id. ¶¶ 8 n.3, 66, 93, 101.
24
Id. ¶ 55.
25
Id. ¶¶ 58, 60.
26
Id. ¶¶ 56, 58, 59.
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declared void ab initio, relieving its obligation to pay the $5 million Policy.27
Despite this notice, Columbus Life continued to demand and collect payments of the
Policy premiums.28
Four months later, Columbus Life filed its Complaint in this Court against
Wilmington Trust seeking a declaratory judgment that the Policy is void ab initio as
it is an illegal human life wagering contract and it lacks an insurable interest.29
II. PROCEDURAL BACKGROUND
AND PARTIES’ CONTENTIONS
A. WILMINGTON TRUST’S COUNTERCLAIMS.
Wilmington Trust has filed its Answer, Affirmative Defenses, and
Counterclaims.30 Wilmington Trust asserts five counterclaims against Columbus
Life, seeking declaratory judgment that the Policy is enforceable through waiver and
estoppel (Count I),31 and alleging fraud and negligent misrepresentation (Counts II
and III).32 If the Court finds the Policy to be unenforceable, Wilmington Trust seeks,
27
Id. ¶ 70.
28
Id. ¶¶ 70, 72.
29
Compl. ¶¶ 25-29, 30-35; see also Am. Compl. ¶¶ 25-29, 30-35.
30
Def.’s Countercls. (D.I. 50).
31
Def.’s Countercls. ¶¶ 75-85.
32
Id. ¶¶ 86-93, 94-100.
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in the alternative, to enforce the Policy through promissory estoppel (Count IV),33
and a declaration that Columbus Life return all premiums paid on the Policy
(Count V).34
In addition to its counterclaims, Wilmington Trust asserts that the following
affirmative defenses bar Columbus Life’s claims: (i) the First Amended Complaint
fails to state a claim upon which relief can be granted (First Affirmative Defense);
(ii) waiver and estoppel (Second Affirmative Defense); (iii) Columbus Life’s own
misrepresentations and omissions (Third Affirmative Defense); (iv) the principle of
laches (Fourth Affirmative Defense); (v) the statute of limitations (Fifth Affirmative
Defense); (vi) the principle of unclean hands (Sixth Affirmative Defense); (vii) the
doctrine of in pari delicto (Seventh Affirmative Defense); (viii) Wilmington Trust’s
entitlement to an automatic refund of all premium payments if the Policy is declared
void ab initio (Eighth Affirmative Defense); (ix) failure to mitigate damages (Ninth
Affirmative Defense); (x) failure to join necessary parties (Tenth Affirmative
Defense); (xi) the Policy’s contestability clause (Eleventh Affirmative Defense);
(xii) entities other than Wilmington Trust caused Columbus Life’s damages (Twelfth
Affirmative Defense); (xiii) the doctrine of offset (Thirteenth Affirmative Defense);
33
Id. ¶¶ 101-108.
34
Id. ¶¶ 109-119.
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and (xiv) the applicability of the Delaware Uniform Commercial Code (Fourteenth
Affirmative Defense).35
B. COLUMBUS LIFE’S MOTION TO DISMISS AND MOTION TO STRIKE.
Columbus Life has now filed a motion to dismiss Wilmington Trust’s
counterclaims—seeking wholesale dismissal of the counterclaims36—and a motion
to strike Wilmington Trust’s affirmative defenses—seeking to strike Affirmative
Defenses Two through Eight, Eleven, and Fourteen.37
In its dismissal motion, Columbus Life argues that the Court should dismiss
Wilmington Trust’s counterclaims seeking declaratory judgment that the Policy is
enforceable through waiver and estoppel (Count I), and promissory estoppel
(Count IV) for failure to state a claim as a court may never enforce a contract void
ab initio.38 Columbus Life contends that in the STOLI context, the law is clear that
policies procured without an insurable interest are void ab initio as they violate
public policy and “are so egregiously flawed that they amount to a fraud on the
court.”39 Due to the Policy’s status as void ab initio, Columbus Life insists that
35
Def.’s Countercls. at 7-10.
36
Plf.’s Mot. to Dismiss (D.I. 55).
37
Plf.’s Mot. to Strike (D.I. 54).
38
Plf.’s Mot. to Dismiss at 9.
39
Id. (internal quotation marks omitted).
-7-
Wilmington Trust cannot attempt to “breathe life into such an agreement” via claims
of waiver and estoppel.40
Next, Columbus Life argues that the Court should dismiss Wilmington Trust’s
counterclaims alleging fraud (Count II) and negligent misrepresentation (Count III)
as they fail to allege the essential elements of a fraud or misrepresentation claim.41
Columbus Life insists that Wilmington Trust’s claims fail to allege a false
statement.42 Specifically, the three misrepresentations Wilmington Trust asserts
that Columbus Life made in its annual reports are not false.43 With regards to the
annual reports’ representations that the Policy was in force and that Wilmington
Trust was the Policy’s owner, Columbus Life argues that these representations are
undeniably true.44 Additionally, Columbus Life says, Wilmington Trust’s
contention that the annual reports’ representation that Columbus Life would pay
$5 million upon Kluener’s death is not in the documents.45 Instead, according to
Columbus Life, the annual reports stated that “[i]f Planned Premiums are paid on
40
Id.
41
Id. at 16.
42
Id.
43
Id. at 17.
44
Id. at 18.
45
Id. at 19.
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time” the “Insured Death Benefit” is $5 million.46 Columbus Life argues that this is
also a true statement and so none of these representations support a fraud or
misrepresentation claim.47
Further, with regards to Wilmington Trust’s allegation that Columbus Life
fraudulently omitted informing Wilmington Trust of its “secretly harbored . . . plan
to challenge the enforceability of the Policy and to refrain from paying any claim
upon maturity,” Columbus Life argues that this is not an actionable omission.48
Columbus Life contends that Wilmington Trust has not alleged facts to trigger a duty
to speak as it does not allege that a fiduciary duty existed between the parties and
the law does not create such a relationship between an insurer and a policy owner.49
Columbus Life insists that Wilmington Trust fails to allege that it or the LIP Trust
ever asked it whether the Policy had an insurable interest at inception, whether it
suspected or had any reason to believe that the Policy lacked an insurable interest at
inception, or whether it intended to seek judicial intervention as to the validity of the
Policy on this basis or any other basis.50
46
Id.
47
Id.
48
Id.
49
Id. at 19-20.
50
Id. at 23-24.
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Columbus Life says too that Wilmington Trust fails to allege that it knew the
alleged misrepresentations were false or that Wilmington Trust reasonably relied
upon such misrepresentations.51 Columbus Life contends also that Wilmington
Trust fails to allege that it has suffered damages.52 As Wilmington Trust owns the
Policy on behalf of the LIP Trust, it would pass along the Policy’s death benefit
payment to the LIP Trust.53 Thus, Columbus Life argues, Wilmington Trust would
suffer no harm if the Court declares the Policy void ab initio.54
Lastly, Columbus Life contends that Wilmington Trust’s alternative claim for
a refund of the premium payments (Count V) fails to state a claim.55 Columbus Life
argues that the only Delaware state court decision addressing the refund of premiums
paid under a life insurance policy void ab initio rejects a claim for an automatic
refund.56 Further, Columbus Life claims that there is a longstanding rule in
Delaware that a party to an illegal contract has no remedy to any extent against the
other.57 Columbus Life ends its argument on this count by requesting that if the
51
Id. at 25.
52
Id.
53
Id. at 26.
54
Id.
55
Id. at 27.
56
Id. at 28.
57
Id.
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Court does not dismiss this counterclaim, it should limit the counterclaim to the
amount of premium payments paid by Wilmington Trust, and not the full
$4.4 million paid over the Policy’s life.58
In its motion to strike, Columbus Life seeks to excise Wilmington Trust’s
Second through Eighth, Eleventh, and Fourteenth Affirmative Defenses.59
Columbus Life urges that certain Wilmington Trust affirmative defenses—waiver
and estoppel (Second Affirmative Defense), misrepresentation and omissions (Third
Affirmative Defense), laches (Fourth Affirmative Defense), statute of limitations
(Fifth Affirmative Defense), unclean hands (Sixth Affirmative Defense), in pari
delicto (Seventh Affirmative Defense), and contestability clause (Eleventh
Affirmative Defense)—should all be stricken because such equitable defenses
cannot breathe life into an agreement that is void ab initio.60 With regard to
Wilmington Trust’s Eighth Affirmative Defense, seeking a return of all premiums
paid under the policy, Columbus Life insists that it should be stricken as it is legally
insufficient.61 Similar to its dismissal argument, Columbus Life relies on the
Delaware Supreme Court rule that a party to a void ab initio agreement generally
58
Id. at 35.
59
Plf.’s Mot. to Strike, at 1.
60
Id. at 7-8.
61
Id. at 15.
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has “no remedy to any extent.”62 Due to this rule, Columbus Life argues that this
affirmative defense fails to state a claim.63
III. APPLICABLE LEGAL STANDARDS
“Under Superior Court Civil Rule 12(b)(6), the legal issue to be decided is,
whether a plaintiff may recover under any reasonably conceivable set of
circumstances susceptible of proof under the complaint.”64 Under that Rule, the
Court will
(1) accept all well pleaded factual allegations as true, (2) accept
even vague allegations as “well pleaded” if they give the
opposing party notice of the claim, (3) draw all reasonable
inferences in favor of the non-moving party, and (4) not dismiss
the claims unless the plaintiff would not be entitled to recover
under any reasonably conceivable set of circumstances.65
62
Id. at 15.
63
Id. at 18.
64
Vinton v. Grayson, 189 A.3d 695, 700 (Del. Super. Ct. 2018) (quoting Superior Court Civil
Rule 12(b)(6)). This is so, and the analysis engaged is the same, whether the Court is examining
aninitiating plaintiff’s claim, a defendant’s counterclaim, either’s cross-claim, or a third-party
claim. See, e.g., GWO Litig. Trust v. Sprint Solutions, Inc., 2018 WL 5309477, at *4 (Del. Super.
Ct. Oct. 25, 2018) (applying the Rule 12(b)(6) standard to counterclaims); Washington House
Condominium Association of Unit Owners v. Daystar Sills, Inc., 2017 WL 3412079, at *8 (Aug.
8, 2017) (applying the Rule 12(b)(6) standard to cross-claims); Spence v. Cherian, 135 A.3d 1282,
1286-87 (Del. Super. Ct. 2016) (applying the Rule 12(b)(6) standard to third-party claims).
65
Id. (quoting Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 535
(Del. 2011)).
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“If any reasonable conception can be formulated to allow Plaintiffs’ recovery, the
motion must be denied.”66
For Rule 12(b)(6) purposes, the Court must accept all well-pleaded allegations
as true and draw every reasonable factual inference in the non-moving party’s
favor.67 If the claimant may recover under that standard, then the Court must deny
the motion to dismiss.68 This is because “[d]ismissal is warranted [only] where the
[claimant] has failed to plead facts supporting an element of the claim, or that under
no reasonable interpretation of the facts alleged could the complaint state a claim for
which relief might be granted.”69
Delaware law requires those pleading fraud and misrepresentation to do so
with particularity—a heightened pleading standard.70 To satisfy Rule 9(b), a
fraud or misrepresentation claim must allege:
(1) the time, place, and contents of the false representation;
(2) the identity of the person making the representation; and
(3) what the person intended to gain by making the
representations. Essentially, the plaintiff is required to allege the
66
Id. (citing Cent. Mortg. Co., 27 A.3d at 535).
67
Anderson v. Tingle, 2011 WL 3654531, at *2 (Del. Super. Ct. Aug. 15, 2011); Wilmington Sav.
Fund Soc’y, F.S.B. v. Anderson, 2009 WL 597268, at *2 (Del. Super. Ct. Mar. 9, 2009) (citing
Doe v. Cahill, 884 A.2d 451, 458 (Del. 2005)).
68
Spence v. Funk, 396 A.2d 967, 968 (Del. 1978).
69
Hedenberg v. Raber, 2004 WL 2191164, at *1 (Del. Super. Ct. Aug. 20, 2004).
70
Super. Ct. Civ. R. 9(b).
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circumstances of the fraud with detail sufficient to apprise the
defendant of the basis for the claim.71
“When the necessary facts are . . . within the opposing party’s control,”
however, “less particularity is required.”72 Thus, when the allegations upon which
the accuser depends are obscured or possessed by the accused, the claim can survive
dismissal so long as “the circumstances of the fraud” are cut “with detail sufficient
to apprise the [accused] of the basis for the claim.”73
On a motion to strike under Rule 12(f), “the Court may order stricken from
any pleading any insufficient defense or any redundant, immaterial, impertinent, or
scandalous matter.”74 Motions to strike an insufficient defense (or counterclaim)
under Rule 12(f) focus on the form of the pleading and not its substance.75 “When
ruling on a motion to strike, ‘the [c]ourt must construe all facts in favor of the
71
Abry Partners V, L.P. v. F&W Acquisition LLC, 891 A.2d 1032, 1050 (Del. Ch. 2006).
72
Brightstar Corp. v. PCS Wireless, LLC, 2019 WL 3714917, at *9 (Del. Super. Ct. Aug. 7,
2019) (citations omitted).
73
Id. (internal quotation marks omitted).
74
Super. Ct. Civ. R. 12(f).
75
Nichols v. Chrysler Grp. LLC, 2010 WL 5549048, at *5 (Del. Ch. Dec. 29, 2010) (citing Salem
Church (Del.) Assocs. v. New Castle Cty., 2004 WL 1087341, at *2 (Del. Ch. May 6, 2004);
Shactman v. Carey, 1993 WL 393337, at *1 (Del. Ch. Sept. 10, 1993) (“It must be remembered
that a motion to strike is not designed to test the sufficiency of the pleadings, in the same manner
that a motion for summary judgment tests the sufficiency of the pleadings.”); Vets Welding Shop,
Inc. v. Nix, 1988 WL 67703, at *1 (Del. Super. Ct. June 20, 1988) (“In essence, a motion to strike
reaches formal defects only.”).
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nonmoving party and deny the motion if the defense is sufficient under law.’”76
Generally, motions to strike are not favored and are granted sparingly. 77
IV. DISCUSSION
A. COUNTERCLAIM COUNT I - DECLARATORY JUDGMENT.
Wilmington Trust’s first counterclaim seeks a declaratory judgment that the
Policy is enforceable through waiver and estoppel.78 Wilmington Trust argues that
by demanding and accepting premium payments with knowledge that it deems the
Policy void ab initio, Columbus Life has waived any right to challenge, and in the
alternative, is estopped from denying the Policy’s validity.79
It is well-settled Delaware law that “[a] court may never enforce agreements
void ab initio, no matter what the intentions of the parties.”80 Thus, it follows that
76
Nichols, 2010 WL 5549048, at *5 (citing Symbol Techs., Inc. v. Aruba Networks, Inc., 609
F.Supp.2d 353, 356 (D. Del.2009) (“[A] court should not grant a motion to strike a defense unless
the insufficiency of the evidence is ‘clearly apparent.’”); Rhone-Poulenc Surfactants & Specialties,
Inc. v. GAF Chems. Corp., 1993 WL 69525, at *1 (Del. Ch. Mar. 2, 1993) (noting that a motion
to strike “will not be granted unless, assuming the truth of the facts alleged in the answer, it is
‘clearly apparent’ that the defense is legally not sufficient.”); Nix, 1988 WL 67703, at *1 (“A
motion to strike also will be denied where an answer presents a bona fide issue of fact which should
be heard on the merits. . . . If a defense is sufficient as stated, it will withstand a motion to strike
because the facts alleged will be assumed to be admitted for purposes of the motion.”).
77
Nichols, 2010 WL 5549048, at *5 (citing Salem Church (Del.) Assocs., 2004 WL 1087341, at
*2; Stinnes Interoil, Inc. v. Petrokey Corp. & Diamond Indus., Inc., 1983 WL 412258, at *1
(Del. Super. Ct. May 23, 1983)).
78
Def.’s Countercls. ¶¶ 75-85.
79
Def.’s Countercls. ¶ 84.
80
PHL Variable Ins. Co. v. Price Dawe 2006 Ins. Tr., 28 A.3d 1059, 1067 (Del. 2011).
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any policy declared as void ab initio may not be enforced through estoppel.81 This
also applies to attempts to enforce a void ab initio agreement through waiver.82
At this pleadings stage of this proceeding, it is premature for the Court to
determine the validity of the Policy. But if the Policy is determined void ab initio,
it is clear that Delaware law does not allow for waiver and estoppel to revive it. And
if it is determined that this policy is not void, then application of waiver and estoppel
are moot. And so, Columbus Life’s Motion to Dismiss is GRANTED as to this
counterclaim.
B. COUNTERCLAIM COUNT II – FRAUD.
Delaware courts have observed that all fraud claims require proof of the same
or nearly the same elements.83 Put differently, any doctrinal variations in each breed
81
Sun Life Assurance Co. of Canada v. Wilmington Tr., Nat’l. Ass’n., 2018 WL 3805740, at
*2-3 (Del. Super. Ct. Aug. 9, 2018) (analyzing Wilmington Savs. Fund Soc’y., FSB v. PHL
Variable Ins. Co. in holding that “[i]f the contract is instead void ab initio, Dawe prohibits asserting
estoppel as well.”); see also Wilmington Savs. Fund Soc’y., FSB v. PHL Variable Ins. Co., 2014
WL 1389974, at *12 (D. Del. Apr. 9, 2014) (‘“Certain agreements . . . are so egregiously flawed
that they are void at the outset. These arrangements are often referred to as void ab initio. . . . A
court may never enforce agreements void ab initio, no matter what the intentions of the parties.’”
Dawe, 28 A.3d at 1067 (quotation marks omitted). Therefore, as a contract that is void ab initio
may not be enforced equitably through estoppel.”).
82
Fleming v. Perdue Farms, Inc., 2002 WL 31667335, at *3 n. 3 (Del. Super. Ct. Oct. 30, 2002)
(citing 28 Am. Jur.2d Estoppel & Waiver § 210 (2000) (“While a person may waive an advantage
of law intended for his or her benefit, the doctrine of waiver does not apply to transactions that are
forbidden by statute, violate the public's interests, are contrary to public policy, or that infringe
upon the rights of others.”).
83
See, e.g., Maverick Therapeutics, Inc. v. Harpoon Therapeutics, Inc., 2020 WL 1655948, at
*26 (Del. Ch. Apr. 3, 2020) (“The elements of fraud and fraudulent inducement are the same”);
see id. n.339 (acknowledging that it would be “tautological” to repeat an analysis of each fraud
claim because the claims incorporate variations of each other’s elements).
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of fraud lie either with the nature of the alleged fabrication or the motivation for the
alleged deception.84 At bottom, then, a paradigmatic fraud case only requires proof
of:
a. a false representation, usually one of fact, made by the
defendant;
b. the defendant’s knowledge or belief that the representation
was false, or was made with reckless indifference to the
truth;
c. an intent to induce the plaintiff to act or to refrain from
acting;
d. the plaintiff’s action or inaction taken in justifiable reliance
upon the representation; and
e. damages . . . as a result of such reliance.85
Columbus Life miscalculates the effect of PHL Variable Insurance Company
v. Price Dawe 2006 Insurance Trust when arguing for dismissal here.86 Regardless
of whether a contract is void ab initio, “the proper course of action is to evaluate
each claim or counterclaim individually for sufficiency of pleading, without regard
to the opponent’s argument that the contract is void.”87
84
Id.
85
Id.; see E.I. DuPont de Nemours & Co. v. Fla. Evergreen Foliage, 744 A.2d 457, 461-62 (Del.
1999).
86
PHL Variable Ins. Co. v. Price Dawe 2006 Ins. Tr., 28 A.3d 1059 (Del. 2011).
87
Sun Life Assurance Co. of Canada v. Wilmington Tr., Nat’l. Ass’n., 2018 WL 3805740, at *3
(Del. Super. Ct. Aug. 9, 2018).
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A false representation may be “an overt misrepresentation (i.e., a lie), a
deliberate concealment of material facts, or . . . silence in the face of a duty to
speak.”88 And if Columbus Life was aware that a previous representation was
misleading based on new information, then it is reasonably conceivable that
Columbus Life then incurred a duty to disclose this information.89
Wilmington Trust alleges Columbus Life was aware of the Policy’s
connection with the PEM Ponzi scheme.90 Despite this knowledge, Wilmington
Trust pleads, Columbus Life continued to collect premiums on the Policy for years.91
Columbus Life continued to collect premiums even after the initiation of this suit.92
Wilmington Trust bases its fraud claim on Columbus Life’s maintenance of its
position that the Policy was “in force,” and that Wilmington Trust was the rightful
owner of the Policy.93 Columbus Life sent annual reports which acknowledge that
if Wilmington Trust continued to pay its premiums the insured death benefit would
88
Maverick, 2020 WL 1655948, at *26 (quoting Stephenson v. Capano Dev., Inc., 462 A.2d
1069, 1074 (Del. 1983) (internal quotation marks omitted)).
89
Id.90
Def.’s Countercls. ¶¶ 38, 67.
91
Id. ¶ 68.
92
Id. ¶ 72.
93
Id. ¶¶ 88, 89.
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be $5 million.94 The core of Wilmington Trust’s fraud claim is that Columbus Life
made all of these assurances with wrongfully withheld knowledge that it would
eventually seek to void the Policy.95
In PHL Variable Insurance Company v. ESF QIF Trust, the federal district
court, applying Delaware law, held that the defendant’s fraud counterclaim was
adequately pled to survive a motion to dismiss under Rule 9(b).96 There, the
defendant, a trust, counterclaimed against the plaintiff-insurer seeking to challenge
a certain policy as void ab initio.97 When denying the insurer’s attempt to dismiss
the trust’s counterclaim, the court noted that the defendant-trust expressly set forth
in that counterclaim the types of policies subject to the alleged fraud, the names of
agents who issued the policies, and details regarding the paid premiums.98
Similarly, Wilmington Trust has pled its fraud claim that survives the
insurer’s attempt at dismissal. Wilmington Trust pleads that Columbus Life
investigated policies issued by Ed Leisher, including this Policy, to determine
94
Id.
95
Id. ¶ 88.
96
PHL Variable Ins. Co. v. ESF QIF Tr., 2013 WL 6869803, at *7-8 (D. Del. Dec. 30, 2013).
97
Id., at *7.
98
Id.
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whether they were stranger-oriented.99 Despite its investigation, Columbus Life
chose not to cancel the policy.100 As the PEM investigation continued, Columbus
Life received notice of Receivership in August 2009.101 Despite having this
knowledge, in September 2011, Columbus Life approved Wilmington Trust as the
new Owner and Beneficiary of the Policy.102 Similar to ESF QIF Trust, Wilmington
Trust has provided details regarding the premiums that have been paid to date and
attached portions of the annual reports that show Columbus Life’s alleged
misrepresentation regarding their intention to keep the policy in-force.103 Thereafter,
Wilmington Trust relied on these misrepresentations by sending monthly premium
payments to Columbus Life.104 Wilmington Trust has adequately pled this fraud
claim under Rule 9(b), and Columbus Life’s Motion to Dismiss as to this
counterclaim must be DENIED.
99
Def.’s Countercls. ¶ 26.
100
Id.
101
Id. ¶¶ 36, 37.
102
Id. ¶ 55.
103
Id. ¶¶ 58, 59, 61, 72.
104
Id. ¶¶ 66, 72.
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C. COUNTERCLAIM COUNT III – NEGLIGENT MISREPRESENTATION.
Jurisdiction over the subject matter of a claim or counterclaim is an
indispensable element in any judicial proceeding, and so, “a threshold inquiry must
be made to determine whether a Court has proper jurisdiction over the claim
[or counterclaim] before it.”105 The Court may even, when necessary, raise the issue
sua sponte.106 “Whenever a question of subject matter jurisdiction is brought to the
attention of the trial court, the issue must be decided before any further action is
taken, and the issue of jurisdiction must be disposed of regardless of the form of
motion.”107
“It is well-settled that the Court of Chancery has exclusive jurisdiction over a
claim of negligent misrepresentation.”108 Thus, outside of the narrow exception for
actions brought under the Consumer Fraud Act (which is not invoked here), this
Court cannot entertain a negligent misrepresentation claim or counterclaim.109
Nor can this Court merely dismiss such a claim or counterclaim.110 But the Court
105
Texcel v. Commercial Fiberglass, 1987 WL 19717, at *2 (Del. Super. Ct. Nov. 3, 1987).
106
Gea Sys. North America LLC v. Golden State Foods Corp., 2020 WL 3047207, at *6 (Del.
Super. Ct. June 8, 2020).
107
Texcel, 1987 WL 19717, at *2.
108
Bobcat North America, LLC v. Inland Waste Holdings, 2020 WL 5587683, at *9 (Del. Super.
Ct. Sept. 18, 2020) (citing cases).
109
Otto Candies, LLC v. KPMG LLP, 2018 WL 1960344, at *4 (Del. Super. Ct. Apr. 25, 2018).
110
Bobcat North America, LLC, 2020 WL 5587683, at *9.
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will instead do as it has been forced to do before. First, implore parties to be more
conscientious when drafting their pleadings so as to avoid this jurisdictional
predicament. And, second, enter a most unsatisfactory order that neither brings
clarity to, nor advances this litigation in any meaningful way.111 Columbus Life’s
motion is DENIED insofar as it seeks outright dismissal of the negligent
representation counterclaim. Wilmington Trust may seek its transfer to the Court of
Chancery under 10 Del. C. § 1902, or elect to have this Court enter an order of its
dismissal without prejudice. Wilmington Trust’s counsel are to submit, within
10 days: (1) an order on notice; and (2) if transfer is sought, a status report explaining
the practical effect of the remainder of this case here.
D. COUNTERCLAIM COUNT IV – PROMISSORY ESTOPPEL.
Columbus Life argues that the Court should dismiss Wilmington Trust’s
promissory estoppel counterclaim as the Policy is void ab initio.112
This Court, in Sun Life Assurance Co. of Canada v. Wilmington Trust,
National Association, squarely addressed this issue.113 After thoroughly examining
111
See id., at *10 (“The Court can only now lament the fact that [the negligent misrepresentation
claimant] stands with the many other parties that haven’t heeded the Court’s admonitions to stop
putting it in this jurisdictional and judicial resource-wasting pickle, figuratively shrug its
shoulders, and enter an ill-fitting order on that lone count.”).
112
Plf.’s Mot. to Dismiss at 9.
113
Sun Life Assurance Co. of Canada, 2018 WL 3805740.
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Price Dawe and its subsequent cases, the Court found that the Price Dawe rule does
not require dismissal of all counterclaims based on a void ab initio agreement, with
the exception of estoppel claims.114 “Logically, if the contract is found to be valid,
estoppel would no longer be an available claim. If the contract is instead void ab
initio, Dawe prohibits asserting estoppel as well.”115 This is because a void ab initio
agreement can never be enforced.116 Columbus Life’s Motion to Dismiss is
GRANTED as to Wilmington Trust’s promissory estoppel counterclaim.
E. COUNTERCLAIM COUNT V – RETURN OF THE PREMIUMS.
Wilmington Trust’s last counterclaim seeks a declaration that, if the Court
declares the Policy void ab initio, the premiums paid on the Policy should be
returned. Columbus Life seeks to dismiss this counterclaim, arguing that no remedy
is available to the parties of a void ab initio agreement. So, relying on the rulings in
Brighthouse Life Insurance Company v. Geronta Funding, Columbus Life insists
114
Id., at *3.
115
Id.; see SIGA Tech., Inc. v. PharAthene, Inc., 67 A.3d 330, 348 (Del. 2013) (“Promissory
estoppel does not apply, however, where a fully integrated, enforceable contract governs the
promise at issue.”); see also Wilmington Savs. Tr. Fund v. PHL Variable Ins. Co., 2014 WL
1389974, at *12 (D. Del. Apr. 9, 2014) (“A court may never enforce agreements void ab initio, no
matter what the intentions of the parties. Price Dawe 2006 Ins. Tr., 28 A.3d at 1067 (quotation
marks omitted). Therefore, as a contract that is void ab initio may not be enforced equitably
through estoppel, Defendants’ Motion to Dismiss is granted as it pertains to this claim.”) (internal
quotation marks omitted).
116
Price Dawe 2006 Ins. Tr., 28 A.3d at 1067.
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that the presumptive rule in Delaware is that parties to a policy void ab initio are left
where they are found—the insured receives no restitution of the paid premiums.117
“No Delaware state court has ruled that rescission damages are available when
there is a void ab initio insurance policy.”118 And it is well-settled law that where
there is a void ab initio agreement, there is no contract at all.119 Therefore, Columbus
Life says, where there is no contract at all, it would seem there is nothing to recover
thereunder.120
While Columbus Life’s citation to the Brighthouse Life Insurance cases is
understandable, its reliance thereon is slightly misplaced. There, the policy in
question was found to be void ab initio,121 and having declared the policy void ab
initio, the Court decided it would not grant defendant’s motion seeking a full refund
of the premiums previously paid.122 Here, the Court has yet to make a determination
on the validity of the Policy itself. Thus, it would be far too early for the Court to
117
Brighthouse Life Ins. Co. v. Geronta Funding, 2019 WL 8198323, at *2-3 (Del. Super. Ct.
Mar. 4, 2019); 2019 WL 8198324, at *2-3 (Del. Super. Ct. Mar. 14, 2019).
118
Brighthouse Life Ins. Co., 2019 WL 8198324, at *2.
119
Price Dawe 2006 Ins. Tr., 28 A.3d at 1067.
120
See Della Corp. v. Diamond, 8 Storey 465, 469 (Del. May 26, 1965); Brighthouse Life Ins.
Co., 2019 WL 8198323, at *2; 2019 WL 8198324, at *2-3.
121
Brighthouse Life Ins. Co., 2019 WL 8198323, at *1-2; 2019 WL 8198324, at *1.
122
Brighthouse Life Ins. Co., 2019 WL 8198323, at *2; 2019 WL 8198324, at *2.
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rule on Wilmington Trust’s potential entitlement to restitution in lieu of the
insurance proceeds it could no longer collect (even as just intermediary). Columbus
Life’s request for dismissal of this counterclaim is, therefore, DENIED.
F. WILMINGTON TRUST’S AFFIRMATIVE DEFENSES.
Having dismissed Wilmington Trust’s promissory estoppel counterclaim, the
Court must strike its estoppel defense (Second Affirmative Defense) for the same
underlying reason.123
The Third Affirmative Defense of misrepresentation is a simple reconstitution
of Wilmington Trust’s negligent misrepresentation counterclaim. And it must meet
the same fate here. Because the Court of Chancery has exclusive jurisdiction over
claims of negligent misrepresentation this “affirmative defense” is stricken.124
This Court does not have jurisdiction over Wilmington Trust’s Fourth and
Sixth Affirmative defenses. It is well-established that “[l]aches is an equitable
defense that is not available in the Superior Court, which is a court of law.”125
123
See Sun Life Assurance Co., 2018 WL 3805740, at *3 (“[A] contract that is void ab initio may
not be enforced equitably through estoppel . . .”) (citation omitted).
124
Otto Candies, LLC, 2018 WL 1960344, at *4.
125
Mine Safety Appliance Co. v. AIU Ins. Co., 2016 WL 498848, at *12 (Del. Super. Ct. Jan. 22,
2016).
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Similarly, being an equitable claim, this Court cannot consider Wilmington Trust’s
unclean hands defense. 126
Wilmington Trust raises the doctrine of in pari delicto for its Seventh
Affirmative Defense. In pari delicto is an equitable defense “by which a party is
barred from recovering damages if his losses are substantially caused by activities
the law forbade him to engage in[,]” and therefore cannot be heard by this Court.127
In sum, because the equitable defenses Wilmington Trust pursues are not
available in this Court, its Second, Third, Fourth, Sixth, and Seventh Affirmative
Defenses are each STRICKEN. Defenses based on such doctrines in equity are
reserved for actions in Chancery.128 Thus, as pled here, “it is ‘clearly apparent’ that
th[ose] defense[s are] legally not sufficient.”129
As for Wilmington Trust’s Eleventh Affirmative Defense invoking
18 Del. C. § 2908 and claiming incontestability, this affirmative defense too is
126
Sun Life Assurance Co., 2018 WL 3805740, at *3
127
Stewart v. Wilmington Tr. SP Servs., Inc., 112 A.3d 271, 301-03 (Del. Ch. 2015) (outlining the
“[b]asics of the doctrine” of in pari delicto) (internal quotation marks and citations omitted);
Seacord v. Seacord, 139 A. 80, 81 (Del. Super. Ct. 1927).
128
See Sun Life Assurance Co., 2018 WL 3805740, at *3; see also Prospect Street Energy, LLC
v. Bhargava, 2016 WL 446202, at *3 (Del. Super. Ct. Jan. 27, 2016) (“Dismissal is proper where
a claim amounts to a ‘purely equitable cause of action’ because the ‘Superior Court’s jurisdiction
lies in matters of law, as opposed to the Court of Chancery’s jurisdiction, which lies in matters of
equity.’”) (citation omitted); Mine Safety Appliances Co., 2016 WL 498848, at *12 (“Laches is an
equitable defense that is not available in the Superior Court, which is a court of law.”).
129
RhonePoulenc Surfactants & Specialties, Inc., 1993 WL 69525, at *1 (citation omitted).
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legally insufficient. Price Dawe instructs: “the incontestability provision does not
bar an insurer from asserting a claim on the basis of a lack of insurable interest.”130
Our high court found that the contested contract should have never come into effect
at all if it was allegedly lacking an insurable interest.131 And a provision of a
potentially voided contract cannot stand in the way of the insurer’s suit.132 Just so
here. Wilmington Trust’s affirmative defense of incontestability, therefore, is
STRICKEN.
Wilmington Trust raises statute of limitations as its Fifth Affirmative Defense
but then fails to specify therein what that statute of limitations is.133 When pressed
for clarification, Wilmington Trust has contended that Columbus Life’s claim of an
offset of damages against any premium returns must be subjected to the three-year
statute of limitations found in 10 Del. C. § 8120.134 Again, this issue of
premium-return/retention cannot be resolved via this motion to strike. The retention
or return of the premiums, and the proper measure of damages, if any, must be
determined well after the pleading stage, i.e., after the Policy’s validity is resolved.
130
Price Dawe 2006 Ins. Tr., 28 A.3d at 1065.
131
Id.132
Id.133
See Def.’s Countercls. at 9.
134
Def.’s Suppl. Letter, at 1, Jan. 21, 2021 (D.I. 92); see Compl., at ¶ 36(f).
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Accordingly, at this point, Columbus Life’s attempt to strike Wilmington Trust’s
Fifth Affirmative Defense is DENIED.
Wilmington Trust’s Eighth Affirmative Defense reconstitutes its proposal that
if the Policy is determined void ab initio, then it is entitled to a refund of all
premiums paid, plus interest. And here Columbus Life reconstitutes its argument on
the related counterclaim. But again, Columbus Life misplaces its reliance on
Brighthouse Life Insurance. In Brighthouse Life Insurance, the Court had already
determined that the contested policy was indeed void ab initio.135 Here, the Court
has yet to make any such finding. Before the Court can decide whether any or all
premiums should be returned or retained, it must first determine the legality of the
Policy. Thus, as the Court has not yet done so, the Court DENIES Columbus Life’s
Motion to Strike this affirmative defense.
Wilmington Trust’s Fourteenth Affirmative Defense suggests that Delaware’s
Uniform Commercial Code bars Columbus Life’s claims. Columbus Life moves to
strike this affirmative defense. “Motions to strike are ‘not favored and are granted
sparingly . . .’”136 When ruling on a Rule 12(f) motion to strike a defense, the Court
construes all facts in favor of the nonmoving defendant and must deny such motion
135
Brighthouse Life Ins. Co., 2019 WL 8198324, at *1-2.
136
O’Neill v. AFS Holdings, LLC, 2014 WL 626031, at *5 (Del. Super. Ct. Jan. 15, 2014) (citation
omitted).
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if the defense pled is “‘sufficient under law.’”137 Indeed, only when it is “clearly
apparent” that the defense pled provides no legal remedy should the Court strike
it.138 Columbus Life says that because Wilmington Trust does not plead its UCC
defense with particularity, it should be stricken.
Columbus Life relies on one Chancery opinion which is of little aid to its
effort. There the defendant proffered a “rote and entirely uninformative assertion”
in a one-line affirmative defense pled in its answer.139 The defendant then did almost
nothing to develop its assertions (“the doctrines of estoppel, waiver, and laches”)
during discovery or to answer the plaintiff’s discovery requests for the factual basis
for that one-sentence catchall affirmative defense it pled.140 “[I]nstead [defendant]
interject[ed] a new, intensely factual theory of defense after the close of discovery,
in connection with the summary judgment proceedings, and only shortly before the
scheduled trial.”141 It was with the backdrop that the Court of Chancery granted a
“motion to strike”— but really summary judgment in the form of a “decision to
137
Nichols, 2010 WL 5549048, at *5 (citations omitted).
138
Rhone-Poulenc Surfactants & Specialties, Inc., 1993 WL 69525, at *1.
139
Baxter Int’l Inc. v. Rhone-Poulenc Rorer, Inc., 2004 WL 2158051, at *4 (Del. Ch. Sept. 17,
2004).
140
Id.141
Id., at *5.
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preclude this defense”— the one-line affirmative defense under which the defendant
sought to insert his newly-minted defense.142 That’s not what is happening here.
At this stage, it is premature to strike Wilmington Trust’s Fourteenth
Affirmative Defense as it is not yet “clearly apparent” that the defense is legally
insufficient. In turn, Columbus Life’s Motion to Strike Wilmington Trust’s
Fourteenth Affirmative Defense is DENIED.
V. CONCLUSION
For the foregoing reasons, Columbus Life’s Motion to Dismiss is DENIED
as to Wilmington Trust’s Counterclaim Counts II, III, and V, and GRANTED as to
Wilmington Trust’s Counterclaims Counts I and IV. Columbus Life’s Motion to
Strike is DENIED as to Wilmington Trust’s Fifth, Eighth and Fourteenth
Affirmative Defenses, and GRANTED as to its Second, Third, Fourth, Sixth,
Seventh, and Eleventh Affirmative Defenses.
IT IS SO ORDERED.
_______________________
Paul R. Wallace, Judge
Original to Prothonotary,
cc: All Counsel via File and Serve
142
Id., n. 24.
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