WELLS FARGO BANK, N.A. v. LINCOLN NATIONAL LIFE INSURANCE COMPANY

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF NORTH CAROLINA

WELLS FARGO BANK, N.A., )

)

Plaintiff, )

)

v. ) 1:22cv907

)

LINCOLN NATIONAL LIFE )

INSURANCE COMPANY, )

)

Defendant. )

MEMORANDUM OPINION, ORDER, AND RECOMMENDATION

OF UNITED STATES MAGISTRATE JUDGE

This case comes before the undersigned United States

Magistrate Judge for a recommendation on “Defendant The Lincoln

National Life Insurance Company’s Motion to Dismiss” (Docket Entry

10) (the “Dismissal Motion”), as well as for an order on

“Plaintiff’s Motion for Leave to File an Amended Complaint” (Docket

Entry 22) (the “Amendment Motion”). For the reasons that follow,

the Court should grant the Dismissal Motion and will deny the

Amendment Motion.

BACKGROUND

Wells Fargo Bank, N.A., as Securities Intermediary (the

“Plaintiff” or “Wells Fargo”), initiated this action against The

Lincoln National Life Insurance Company (the “Defendant” or

“Lincoln National”), seeking a declaratory judgment as to the

validity of, and law applicable to, certain flexible premium

adjustable life insurance policies. (See Docket Entry 1 (the

“Complaint”) at 1-24.)1

More specifically, according to the Complaint:

This is an action for declaratory judgment with

respect to four (4) flexible premium adjustable life

insurance policies (collectively, the “Policies”) as

follows: (1) [the] policy bearing certificate number

JF-5585822 (the “Friedman Policy”) issued by

Jefferson-Pilot Life Insurance Company

(“Jefferson-Pilot”), a predecessor of Defendant, to the

Irwin Friedman Trust dated May 1, 2007-Trust (the

“Friedman Trust”) insuring the life of Irwin D. Friedman

(“Friedman”), in the specified amount of $8 million;

(2) [the] policy bearing certificate number JJ-7042644

(the “Roscoe Policy”) issued by Defendant to The Life

Insurance Irrevocable Trust By And Between Corrine Roscoe

and Robert Sand, Esq. Dated September 16, 2008 (the

“Roscoe Trust”) insuring the life of Corinne M. Roscoe

(“Roscoe”), in the specified amount of $3 million;

(3) [the] policy bearing policy number JJ-7066412 (the

“Karmi Policy”) issued by Defendant to David Karmi 2009

ILIT, Dated February 27, 2009 (the “Karmi Trust”)

insuring the life of David Karmi (“Karmi”), in the

specified amount of $20 million; and (4) [the] policy

bearing policy number JJ-7051837 (the “Sagan Policy”)

issued by Defendant to BCH Dundee Childrens Trust Dated

January 2, 2002 (the “Sagan Trust”) insuring the life of

Bruce Sagan (“Sagan”), in the specified amount of $10

million.

(Id., ¶ 1.) The Complaint further explains that:

[Plaintiff] seeks a judgment declaring that:

(a) New York law applies to determining whether the

Friedman Policy is valid and enforceable and the Friedman

Policy is valid and enforceable under New York law;

(b) Wisconsin law applies to determining whether the

Roscoe Policy is valid and enforceable and the Roscoe

Policy is valid and enforceable under Wisconsin law;

(c) New York or Michigan law applies to determining

whether the Karmi Policy is valid and enforceable and the

1 Docket Entry page citations utilize the CM/ECF footer’s

pagination.

2

Karmi Policy is valid and enforceable; and (d) the Sagan

Policy is valid and enforceable under applicable law.

(Id., ¶ 3.)

In support of those positions, the Complaint makes the

following allegations:

“The Friedman Trust was created on or about May 1, 2007 with

a[ New York] address.” (Id., ¶ 10.) “The Friedman Trust Agreement

is governed by New York law” and “listed Friedman’s wife, Julia

Friedman, as sole trustee and beneficiary.” (Id.) “Friedman

stated on the Friedman Policy application of May 20, 2007 that his

net worth at the time was $25 million and that he had two life

insurance policies in the total face amount of $150,000.” (Id.,

¶ 11.) “Friedman stated that neither he nor the proposed owner of

the Friedman Policy had been involved in any discussion about the

possible sale or assignment of the Friedman Policy to a life

settlement, viatical or other secondary market provider.” (Id.,

¶ 12.) “The Friedman Policy application states that it was signed

in New Jersey.” (Id., ¶ 13.) “The Friedman Trust was the Friedman

Policy’s initial owner and beneficiary and the Friedman Policy was

issued to the Friedman Trust on December 28, 2007. The Friedman

Trust had an insurable interest in Friedman’s life because the

beneficiary of the Trust was Friedman’s wife, Julia Friedman.”

(Id., ¶ 14.)

“On or about June 11, 2008, Julia Friedman was replaced as

trustee of the Friedman Trust by Friedman’s nephew, Samuel

3

Friedman. At the time, Samuel Friedman resided in Brooklyn, New

York.” (Id., QF 15.) “Sometime thereafter, the Friedman Trust

beneficiaries agreed to sell their beneficial interest in the

Friedman Policy.” (Id., 16.) “In June 2008, the beneficial

interest in the Friedman Policy was transferred to The Belmont II

2007 Trust, with a situs in Delaware.” (Id., 7 17.) “A series of

ownership and beneficiary changes were processed by Jefferson-Pilot

between 2008 and 2020.” (Id., 7 18.) “On or about January 29,

2020, [Plaintiff] became the owner and beneficiary of the Friedman

Policy on behalf of its customer” (id., 7 19), and “Jefferson-Pilot

confirmed th[at] change” (id., 4 20).

In addition, “[t]he Roscoe Trust was created on or about

September 16, 2008 with a[ New Jersey] address” (id., J 23),

pursuant to a trust agreement “governed by New Jersey law” (id.).

“The stated purpose of the Roscoe Trust is to establish an

irrevocable trust for the benefit of Roscoe’s family.” (Id.)

“Roscoe was a resident of Wisconsin when she applied for the Policy

and stated on her application of September 17, 2008 that her net

worth at the time was $5.7 million.” (Id., @{@ 24.) “Roscoe also

stated that neither she nor the proposed owner of the Roscoe Policy

had been involved in any discussion about the possible sale or

assignment of the Roscoe Policy or a beneficial interest ina

trust, LLC or other entity created or to be created on Roscoe’s

behalf.” (Iid., 7 25.) “The Roscoe Policy application states that

it was signed in New Jersey, but Roscoe signed it in Wisconsin.”

(Id., ¶ 26.) “The Roscoe Trust was the Roscoe Policy’s initial

owner and beneficiary and the Roscoe Policy was issued to the

Roscoe Trust on September 19, 2008.” (Id., ¶ 27.) “The Roscoe

Trust had an insurable interest in Roscoe’s life because the

beneficiaries of the Trust were Roscoe’s husband[ and children].”

(Id., ¶ 28.)

“Shortly after the [Roscoe] Policy was issued, the Roscoe

Trust, as borrower, entered into a Credit Agreement with HM Ruby

Fund, L.P[.] as lender, in connection with a premium finance loan

for the Roscoe Policy. The Credit Agreement is governed by New

York law.” (Id., ¶ 29.) “Roscoe personally guaranteed the premium

finance loan.” (Id.) “In or around July 2011, Roscoe and the

Roscoe Trust sold the Roscoe Policy and Defendant confirmed the

change of ownership and beneficiary to [Plaintiff].” (Id., ¶ 30.)

“The writing agent for the Roscoe Policy was James Kevin

Kergil, one of three individuals prosecuted and convicted of

insurance fraud by the United States government in September 2013.

The prosecution involved participation by Defendant. Michael

Burns, an executive for Defendant who worked in Greensboro,

testified for the government.” (Id., ¶ 33.) “The Roscoe Policy

was admitted at trial, and Defendant sought and was awarded

restitution from the convicted defendants in connection with the

Roscoe Policy and others that the company issued with Kergil or his

5

co-defendants as agents.” (Id.) “Defendant has never provided

[Plaintiff] any information about the trial or any effect the

convictions would have, in Defendant’s view, on the Roscoe Policy.”

(Id.)

Further, “[t]he Karmi Trust was created on or about February

27, 2009 with a[ Michigan] address.” (Id., ¶ 34.) “Karmi’s

children[] . . . were the beneficiaries of the Karmi Trust, and

Bank of America, N.A. was the trustee.” (Id., ¶ 35.) “Karmi

signed the Karmi Policy application on March 4, 2009 in Michigan

and stated that his net worth at the time was $40 million and that

he had a life insurance policy valued at $7 million.” (Id., ¶ 36.)

In addition:

Karmi stated that neither he nor the proposed owner

of the Karmi Policy had been involved in any discussion

about the possible sale or assignment of the Karmi Policy

to an unrelated third party as an inducement to purchase

the Karmi Policy and have [sic] not been involved in any

discussion about the possible sale or assignment of a

beneficial interest in a trust, limited liability company

or other entity created or to be created on Karmi’s

behalf which will have an ownership or beneficial

interest in the Karmi Policy.

(Id., ¶ 37.)

“The Karmi Policy application states that it was signed in

Delaware, but Karmi executed it in Michigan.” (Id., ¶ 38.) “The

Karmi Trust was the Karmi Policy’s initial owner. The Karmi Policy

was issued to the Karmi Trust on March 25, 2009.” (Id., ¶ 39.)

“The Karmi Trust had an insurable interest in Karmi’s life because

his children were the beneficiaries of the Trust.” (Id., ¶ 40.)

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“The Karmi Trust, as borrower, entered into a Loan and Security

Agreement with Concord Capital Funding, LLC, as lender, in

connection with a non-recourse premium finance loan for the Karmi

Policy.” (Id., ¶ 41.) “In or around August 2011, [Plaintiff]

became the owner and beneficiary of the Karmi Policy on behalf of

[Plaintiff’s] customer” (id., ¶ 42), and “Defendant confirmed the

change of ownership and change of beneficiary to [Plaintiff] as of

August 4, 2011” (id., ¶ 43).

Finally, “[t]he Sagan Trust was created on or about January 2,

2002 with an [Illinois] address.” (Id., ¶ 46.) “The Sagan Trust

Agreement lists Sagan’s wife, Bette Cerf Hill, as trustee” (id.,

¶ 47), and its stated purpose “is creation of an irrevocable trust

for the primary benefit of Bette Cerf Hill’s children and the

beneficiaries of the Sagan Trust are Sagan’s wife’s children”

(id.). “The Sagan Trust Agreement is governed by Illinois law.”

(Id.) “Sagan stated on the Sagan Policy application of September

12, 2008 that his net worth at the time was $50 million and that he

had two life insurance policies, with total face amounts of

$110,000.” (Id., ¶ 48.) “Sagan stated that he had not been

involved in any discussion about the possible sale or assignment of

the Sagan Policy or a beneficial interest in a trust, LLC or other

entity created or to be created on Sagan’s behalf.” (Id., ¶ 49.)

“The Sagan Policy application was signed in Illinois.” (Id.,

¶ 50.)

7

“The Sagan Trust was the Sagan Policy’s initial owner and

beneficiary and the Sagan Policy was issued to the Sagan Trust on

October 7, 2008.” (Id., @ 51.) “The Sagan Trust had an insurable

interest in Sagan’s life.” (Id., { 52.) “In or around November

2010, the Sagan Trust sold the Sagan Policy to Coventry First, LLC,

a life settlement provider, pursuant to a Life Insurance Policy

Purchase Agreement.” (Id., 753.) “As a result of the sale to the

life settlement provider, ownership and beneficial interest in the

Sagan Policy was transferred to [Plaintiff] on behalf of its

customer and Defendant confirmed the change of ownership and

beneficiary at the time.” (Id., 54.)

Since its acquisition of the Policies on behalf of its

customers, Plaintiff has “held [each of the Policies] in a

securities account for the benefit of its client and is the current

record owner and beneficiary of [each of the Policies] on behalf of

[the relevant] customer.” (Id., 4 55; accord id., 91 21, 31, 44.)°

“Since [Plaintiff] became the owner and beneficiary of [each of the

Policies] on behalf of its customer, all [of the Policies’ ]

premiums have been duly and timely paid, there are no outstanding

premium payments, and [Plaintiff] on behalf of [the relevant]

2 The Complaint does not clearly indicate whether the same

entity owns all four Policies. (Compare, e.g., id., { 61

(referencing “customers,” plural), with id., 7 63 (indicating that

“customer,” singular, owns “the Policies”)

customer has otherwise performed all obligations under the

[Policies].” (Id., ¶ 56; accord id., ¶¶ 22, 32, 45.)

However,

[i]n the Lincoln National Life Insurance Company v.

Eli Inzlicht-Sprei et al. (16-CV-5171) matter before the

United States District for the Eastern District of New

York, [Defendant] argued among other things that use of

a financing arrangement involving HM Ruby Fund, L.P[.] to

fund premiums on a life insurance policy rendered the

life insurance policy void on the grounds that it was a

stranger-originated life insurance (STOLI) policy.

(Id., ¶ 57.) Moreover, “[o]n or about December 9, 2021, Defendant

filed an action in the United States District Court for the

District of New Jersey entitled The Lincoln National Life Insurance

Company v. Retirement Value LLC (21-cv-20438) (the ‘New Jersey

Action’).” (Id., ¶ 58.) “In the New Jersey Action, Defendant

alleges, among other things, that certain policies issued in 2007

by Jefferson-Pilot are void and unenforceable because they are

illegal human life wagers constituting STOLI procured with the

intent to benefit stranger investors lacking an insurable interest

in the insured’s life.” (Id.)3 “In the New Jersey Action,

Defendant seeks a declaration that such Jefferson-Pilot policies

are void ab initio and Defendant is not obligated to pay the

3 More specifically, the complaint in the New Jersey Action

challenges the validity of two life insurance policies, totaling $8

million, insuring the life of an individual named Haya Majerovic.

See, e.g., The Lincoln Nat’l Life Ins. Co. v. Retirement Value LLC,

No. 3:21cv20438, Docket Entry 1, ¶¶ 11-12, 33-35 (D.N.J. Dec. 9,

2021).

9

policies’ death benefits to the policies’ current owner and

beneficiary.” (Id., ¶ 59.)

In that matter, Defendant also “takes the position that New

Jersey law applies to the dispute regarding the policies’ validity

and enforceability because, among other things, a New Jersey trust

was the initial owner and beneficiary of the policies, and the

policies were delivered to such New Jersey trust in New Jersey.”

(Id., ¶ 60.) As a result,

[Plaintiff’s] customers anticipate that Defendant

will challenge the Policies’ validities and

enforceability, as it has done with other Jefferson-Pilot

and Lincoln National policies in other actions

nationwide, and will seek to apply New Jersey law to both

the Friedman Policy and Roscoe Policy and Delaware law to

the Karmi Policy in order to assert a right to both avoid

its obligation to pay policy benefits and also to refuse

to return premium paid.

(Id., ¶ 61.) “[Plaintiff] contends that New Jersey and Delaware

law do not apply to disputes relating to the Friedman, Roscoe and

Karmi Policies, and that each of these Policies are valid and

enforceable under applicable law.” (Id., ¶ 62.)

Additionally,

[t]he Sagan Policy was purchased by a life

settlement provider that has been accused in multiple

lawsuits of engaging in unlawful transactions by the law

firm that represents [D]efendant and [Plaintiff’s]

customer (the beneficial owner of the Policies) is

concerned that Defendant will seek to have the Sagan

Policy cancelled under Illinois law due to the

involvement of the provider. [Plaintiff] contends that

the Sagan Policy is lawful and valid under applicable

law.

(Id., ¶ 63.)

10

“The Friedman Policy was issued by a North Carolina insurance

company, acting through an agent appointed by the company to

solicit and sell its policies in New York, to a New York insured in

2007.” (Id., ¶ 67.) “New York law applies to the parties’ dispute

with regard to the validity and enforceability of the Friedman

Policy as the Friedman Policy was solicited, sold and/or delivered

in New York.” (Id., ¶ 71.) Nevertheless, “Defendant may assert

that New Jersey law governs the Friedman Policy’s validity and

enforceability on the ground that the Friedman Policy application

indicates that it was signed by some of the signatories in New

Jersey.” (Id., ¶ 72.)

“Under New York law, a policy valid at the time of procurement

may be assigned to one without an insurable interest in the

insured’s life and no insurable interest is required when one holds

a policy on another’s life, so long as the policy was valid at its

inception.” (Id., ¶ 77.) “The crucial time period for determining

the presence of insurable interest is at the inception of the

policy when the policy is issued.” (Id., ¶ 78.) “The Friedman

Policy had insurable interest at the time it was issued.” (Id.,

¶ 81.) However, “Defendant has recently taken the position that

other policies issued by its predecessor, Jefferson-Pilot, are void

as alleged STOLI policies lacking insurable interest.” (Id.,

¶ 83.) “[Plaintiff’S] customer anticipates that Defendant will

11

claim that the Friedman Policy is void under New Jersey law.”

(Id., ¶ 84.)

“The Roscoe Policy was issued by a Greensboro, North Carolina

insurance company, acting through an agent appointed by the company

to solicit and sell its policies in Wisconsin to a Suring,

Wisconsin insured in 2008.” (Id., ¶ 88.) “Wisconsin law applies

to the parties’ dispute with regard to the validity and

enforceability of the Roscoe Policy as the Roscoe Policy was

solicited or sold in Wisconsin and precludes any challenge to the

validity of the Roscoe Policy after two years from its issuance.”

(Id., ¶ 92.) Yet,

Defendant will likely assert that in light of the

fraudulent conduct of the agent Kergil in producing the

Roscoe Policy that its validity and enforceability is

questionable and may contend that because the Roscoe

Policy application indicates that it was signed in New

Jersey by some of the signatories and/or that the Roscoe

Trust had an address in New Jersey, New Jersey law

applies and permits Defendant to challenge the Roscoe

Policy.

[Plaintiff] asserts that Wisconsin law applies to

determining the Roscoe Policy’s validity and

enforceability and that Defendant shared this view at and

after the criminal trial of Kergil, since Defendant took

no action to advise [Plaintiff] of the trial and the

involvement of Defendant and the Roscoe Policy in the

trial.

(Id., ¶¶ 93-94 (internal paragraph numbering omitted).)

“The Roscoe Policy was issued to the Roscoe Trust insuring the

life of Roscoe for $3 million.” (Id., ¶ 98.) “The Roscoe Trust

entered into a Credit Agreement with HM Ruby Fund, L.P[.] in

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connection with securing a non-recourse premium financing loan for

the Roscoe Policy.” (Id., ¶ 100.) “Counsel for the Defendant, in

representing other insurance companies, has previously taken the

position that other policies funded by a loan issued by HM Ruby

Fund, L.P[.] are void as alleged STOLI policies lacking insurable

interest.” (Id., ¶ 102.) Accordingly:

[Plaintiff’s] customer anticipates that Defendant

will claim that the Roscoe Policy is void under New

Jersey law and that Defendant’s failure to act after the

criminal trial was not because Lincoln National

determined that Wisconsin law applied to the Roscoe

Policy but rather because New Jersey law has permitted

carriers to take advantage of policy owners and collect

premium on policies that the carriers have no intention

of honoring, to the detriment of policy owners.

(Id., ¶ 104.)

“The Karmi Policy was issued by a Greensboro, North Carolina

insurance company, acting through an agent appointed by the company

to solicit and sell its policies in New York to a Floral Park, New

York insured in 2009.” (Id., ¶ 108.) “The Karmi Policy was

delivered to the insured either in New York, where the insured

resided, or in Michigan, where the Karmi Trust had its situs.”

(Id., ¶ 112.) “New York or Michigan law applies to the parties’

dispute with regard to the validity and enforceability of the Karmi

Policy as the Karmi Policy was delivered either in New York or

Michigan.” (Id., ¶ 113.) However, “Defendant will likely assert

that Delaware law governs the Karmi Policy’s validity and

enforceability on the ground that the Karmi Policy application

13

indicates that it was signed by some of the signatories in Delaware

and/or that the Karmi Trust is governed by Delaware law.” (Id.,

¶ 114.) Moreover, “[t]he Karmi Trust used a non-recourse premium

finance loan in connection with the Karmi Policy” (id., ¶ 121), and

“Defendant has previously taken the position that life insurance

policies funded by non-recourse premium finance loans are void as

alleged STOLI policies lacking insurable interest (id., ¶ 123).

“[Plaintiff’s] customer anticipates that Defendant will claim that

the Karmi Policy is void under Delaware or other law.” (Id.,

¶ 124.)

“The Sagan Policy was issued to the Sagan Trust insuring the

life of Sagan for $10 million.” (Id., ¶ 128.) “In or around

November 2010, the Sagan Trust sold the Sagan Policy to Coventry

First, LLC” (id., ¶ 130) and “the beneficial interest in the Sagan

Policy was transferred to [Plaintiff] on behalf of its customer”

(id., ¶ 131). “Defendant has previously taken the position that

life insurance policies sold to Coventry First, LLC are void as

alleged STOLI policies lacking insurable interest.” (Id., ¶ 132.)

“[Plaintiff] anticipates that Defendant will claim that the Sagan

Policy is void under applicable law.” (Id., ¶ 133.)

Defendant moved to dismiss the Complaint for, as relevant

here, “lack of subject matter jurisdiction” pursuant to Rule

12(b)(1) of the Federal Rules of Civil Procedure (the “Rules”).

14

(Docket Entry 10 at 1.)4 Plaintiff opposed the Dismissal Motion,

arguing that “this Court has subject matter jurisdiction over [its]

claims for declaratory relief.” (Docket Entry 21 at 1.) However,

Plaintiff “decided to withdraw its claims on th[e Sagan P]olicy”

(id. at 1 n.2) because, “[b]ased on further review of the four

Policies identified in the original Complaint, [Plaintiff]

concluded that [it] agreed” with Defendant’s contention “that there

is no dispute to adjudicate” as to the Sagan Policy “and

accordingly undertook to drop that policy from the case” by

amending its Complaint (Docket Entry 22 at 3). Defendant opposed

the Amendment Motion “because the motion’s goal — the deletion of

allegations pertaining to the Sagan policy, on the ground that

there is no case or controversy as to that policy — can be achieved

more efficiently by simply allowing [Defendant’s] pending Rule

12(b)(6) motion to play out.” (Docket Entry 25 at 1.) Plaintiff

thereafter “agree[d]” with that assertion, explaining that,

[i]f the Court determines that there is a justiciable

controversy with respect to the three remaining policies,

the Court can fashion its Rule 12(b)(6) order in such a

way as to give effect to Wells Fargo’s wish that the

4 Defendant also moved to dismiss pursuant to “[Rule]

12(b)(6) for failure to state a claim” (id.) for the same reasons

it moved to dismiss under Rule 12(b)(1). (See, e.g., Docket Entry

11 at 2 (“On its face, the Complaint fails to identify a live case

and controversy. Accordingly, this Court lacks subject matter

jurisdiction under the Declaratory Judgment Act and Wells Fargo has

failed to state a claim for relief.”).) Given the lack of subject

matter jurisdiction (as discussed below), this Opinion does not

separately address Defendant’s Rule 12(b)(6) argument.

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Sagan policy be removed from this case, by dismissing

without prejudice the claim regarding the Sagan policy.

(Docket Entry 27 at 1 (internal quotation marks omitted) .)

DISCUSSION

I. Dismissal Motion

A. Declaratory Judgment Standards

A federal court may exercise jurisdiction in a declaratory

judgment action only when:

(1) the complaint alleges an “actual controversy” between

the parties “of sufficient immediacy and reality to

warrant issuance of a declaratory judgment;” (2) the

court possesses an independent basis for jurisdiction

over the parties (e.g., federal question or diversity

jurisdiction); and (3) the court does not abuse its

discretion in its exercise of jurisdiction.

Volvo Constr. Equip. N. Am., Inc. v. CLM Equip. Co., Inc., 386 F.3d

581, 592 (4th Cir. 2004).

As relevant here, “[a] case meets the actual controversy

requirement only if it presents a controversy that qualifies as an

actual controversy under Article III of the Constitution.” Id. In

other words, “before an action for a declaratory judgment may

stand, it must involve an actual controversy, a genuine dichotomy

of contention upon which specific relief may be granted.” Hanes

Dye & Finishing Co. v. Caisson Corp., 309 F. Supp. 237, 240

(M.D.N.C. 1970); see also North Jefferson Square Assocs., L.P. v.

Virginia Hous. Dev. Auth., 94 F. Supp. 2d 709, 714 (E.D. Va. 2000)

(“It is fundamental to the exercise of judicial powers that a

genuine case and controversy be before the Court.”), aff’d, 32 F.

16

App’x 684 (4th Cir. 2002). “A ‘controversy’ in this sense must be

one that is appropriate for judicial determination. A justiciable

controversy is thus distinguished from a difference or dispute of

a hypothetical or abstract character; from one that is academic or

moot.” Aetna Life Ins. Co. of Hartford v. Haworth, 300 U.S. 227,

240 (1937) (citation omitted).

As the United States Court of Appeals for the Fourth Circuit

has explained, in the context of a declaratory judgment action:

The test for a “case or controversy,” the constitutional

inquiry, is whether the dispute “is definite and

concrete, touching the legal relations of parties having

adverse legal interests.” [Id. at] 240-41[.] “It must

be a real and substantial controversy admitting of

specific relief through a decree of a conclusive

character, as distinguished from an opinion advising what

the law would be upon a hypothetical state of facts.”

Id. The question is “whether the facts alleged, under

all the circumstances, show that there is a substantial

controversy, between parties having adverse legal

interests, of sufficient immediacy and reality to warrant

the issuance of a declaratory judgment.” Maryland

Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273

(1941).

White v. National Union Fire Ins. Co. of Pittsburgh, 913 F.2d 165,

167-68 (4th Cir. 1990) (parallel citations omitted).

“In the trial court, of course, a party seeking a declaratory

judgment has the burden of establishing the existence of an actual

case or controversy.” Cardinal Chem. Co. v. Morton Int’l, Inc.,

508 U.S. 83, 95 (1993). Further, “[a] case or controversy must

exist at the time the declaratory judgment action is filed.” GTE

17

Directories Publ’g Corp. v. Trimen Am., Inc., 67 F.3d 1563, 1568

(11th Cir. 1995).

B. STOLI Background

A brief overview of STOLI matters provides helpful context for

Plaintiff’s claims. As the United States Supreme Court long ago

explained, life insurance policies require “an insurable

interest[;]” in other words, “an interest of some sort in the

insured life must exist. A man cannot take out insurance on the

life of a total st[r]anger, nor on that of one who is not so

connected with him as to make the continuance of the life a matter

of some real interest to him.” Connecticut Mut. Life Ins. Co. v.

Schaefer, 94 U.S. 457, 460 (1876); see also id. (“The essential

thing is, that the policy shall be obtained in good faith, and not

for the purpose of speculating upon the hazard of a life in which

the insured has no interest.”). Without an insurable interest,

“the contract is a mere wager, by which the party taking the policy

is directly interested in the early death of the assured. Such

policies have a tendency to create a desire for the event. They

are, therefore, independently of any statute on the subject,

condemned, as being against public policy.” Warnock v. Davis, 104

U.S. 775, 779 (1881).

“Although life insurance policies must be payable to a person

with an insurable interest when they are procured, policies can be

sold later on — including to individuals who would not have been

18

able to buy the policy originally because they lacked an insurable

interest.” Sun Life Assurance Co. of Can. v. Wells Fargo Bank,

N.A., 238 N.J. 157, 169, 208 A.3d 839, 846 (2019). Thus, “in

response to the AIDS crisis” of the 1980s, a “viatical settlements

industry was born” in which investors purchased life insurance

policies from AIDS victims. Life Partners, Inc. v. Morrison, 484

F.3d 284, 287 (4th Cir. 2007).° As the Fourth Circuit explained:

In the early years, AIDS was a rapidly fatal disease, and

its victims usually died within months of diagnosis.

Many AIDS sufferers were in great need of cash to pay for

their care after they had become debilitated. Their life

insurance policies were not only expensive to maintain

but could, upon liquidation, provide some of the

desperately needed cash. Moreover, investors were

willing to purchase the life insurance policies of AIDS

sufferers. Inasmuch as AIDS sufferers had predictably

short life expectancies, their policies were reliable

investments.

Id. “[A]ls AIDS became a more treatable disease,” id. at 287-88,

“[t]he viatical settlements market expanded to include other

terminal illnesses,” id. at 287, as well as policies for “elderly

people in need of funds for assisted living,” id. at 288.

“Over time, and as the market expanded, the industry changed

its name and description from ‘viatical settlements’ to ‘life

settlements.’” Sun Life, 238 N.J. at 171, 208 A.3d at 848 (certain

5 “A ‘viaticum’ in ancient Rome was a purse containing money

and provisions for a journey. A viatical settlement, by which a

dying person is able to acquire provisions for the remainder of his

life’s journey by selling his life insurance policy, is thus

thought to provide a viaticum.” Id. “In the language of the

industry, the insured is the ‘viator,’ who sells his policy at a

discount to a ‘provider’ of the viaticum.” Id.

19

internal quotation marks omitted). “STOLI policies — once again,

short for stranger-originated life insurance policies — are a

subset of life settlements.” Id., 208 A.3d at 848.°

“In a traditional life settlement, investors purchase existing

life insurance policies from insureds who no longer need the

insurance to protect their families in the event of their deaths.”

Id., 208 A.3d at 848 (internal quotation marks omitted). “In a

STOLI arrangement, by contrast, a life settlement broker persuades

a senior citizen .. . to take out a life insurance policy — not to

protect the person’s family but for a cash payment or some other

current benefit arranged with a life settlement company.” Id., 208

A.3d at 848 (internal quotation marks omitted) (ellipsis in

original). “A key ‘difference between non-STOLI and STOLI

policies,’ as the [United States Court of Appeals for the] Second

Circuit has explained, ‘is simply one of timing and certainty;

whereas a non-STOLI policy might someday be resold to an investor,

a STOLI policy is intended for resale’ before it is issued.” Id.,

208 A.3d at 848 (quoting United States v. Binday, 804 F.3d 558, 565

6 Additional names for these policies include

“stranger-oriented life insurance” and “investor-originated life

insurance” (“IOLI”), United States v. Binday, 804 F.3d 558, 565 &

n.2 (2d Cir. 2015) (internal quotation marks omitted), abrogated on

other grounds by Ciminelli v. United States, 598 U.S. , 143 □□□

Ct. 1121 (2023), as well as “stranger owned life insurance and

investor owned life insurance,” Lincoln Nat’l Life Ins. Co. v.

Gordon R.A. Fishman Irrevocable Life Tr., 638 F. Supp. 2d 1170,

1172 (C.D. Cal. 2009) (parenthetical omitted).

20

(2d Cir. 2015), abrogated on other grounds by Ciminelli v. United

States, 598 U.S. __, 143 S. Ct. 1121 (2023)).

“STOLI policies became a popular investment in the mid 2000s

for hedge funds and others eager to bet that the value of a

policy’s death benefits would exceed the value of the required

premium payments.” Binday, 804 F.3d at 565. “In response, many

insurance companies . . . adopted rules against issuing STOLI

policies and took steps to detect them.” Id. “But insurance

brokers such as [Kergil and his co]defendants — who received

commissions from insurers for new policies that they brokered — had

a financial incentive to place STOLI policies by disguising them to

the insurer as non-STOLI policies.” Id. at 565-66. “By matching

a potential insured with a STOLI investor, a broker could generate

a commission on a policy that would not have been issued had the

insurer known the policy’s true purpose.” Id. at 566.

“Generally, an investor funds a STOLI policy from the outset,

which makes it possible to obtain a policy with a high face value.

The investor may lend the insured the money to pay the premiums for

the period of incontestability, typically two years.” Sun Life,

238 N.J. at 171-72, 208 A.3d at 848 (internal quotation marks and

citation omitted).7 “It is also common for an insured to buy the

7 “[A]lmost all” life insurance policies contain an

incontestability clause, with the “standard industry practice”

providing for “a two-year period after which policies cannot be

contested except for nonpayment of premiums.” Id. at 168, 208 A.3d

at 846 (internal quotation marks omitted).

21

policy in the name of a trust and name a spouse or other loved one

as the trust beneficiary.” Id. at 172, 208 A.3d at 848 (internal

quotation marks omitted). Of note:

In such arrangements, if the insured dies within the

contestability period, his spouse, as beneficiary of the

insurance trust, will get the death benefit (the free

insurance), pay back the loan plus interest from the

proceeds, and often pay the broker up to fifty percent of

the benefit received. If the insured lives beyond two

years or the contestability period, then the life

settlement company buys the beneficial interest in the

insurance trust, paying the insured a lump sum percent of

the face value of the policy . . . . The life settlement

company or its investors will continue to pay the

premiums on the policy, and when the insured dies, they

will get the death benefit. Clearly, the sooner the

insured dies, the greater the company’s profit.

Id., 208 A.3d at 848 (internal quotation marks and brackets

omitted) (ellipsis in original).

“STOLI arrangements thus present a significant legal problem:

the investors have no insurable interest in the life of the

insured.” Id., 208 A.3d at 848 (internal quotation marks omitted).

Accordingly, by June 2019, “[t]hirty states ha[d] enacted

anti-STOLI legislation.” Id. at 178, 208 A.3d at 852. In

addition, “[t]wo model acts have been designed to stop STOLIs. One

bars any person from entering into any practice or plan which

involves STOLIs. The other generally bars viatical settlement

agreements for five years, instead of two.” Id., 208 A.3d at 852

(internal quotation marks, brackets, and citation omitted).

However, courts have taken divergent approaches to dealing

with existing STOLI policies under various states’ laws. See id.

22

at 180-85, 208 A.3d at 854-56. In so doing, certain courts,

including the Supreme Courts of Delaware and New Jersey, have

applied a fault-based analysis to determine whether to return

premiums paid on a STOLI policy deemed void ab initio. See Geronta

Funding v. Brighthouse Life Ins. Co., 284 A.3d 47, 64-73 (Del.

2022) (discussing authorities and explaining that, “[a]s surveyed

above, most courts have adopted a fault-based approach to this

question as opposed to a general rule that the premiums must be

returned to the investor”); accord Sun Life, 238 N.J. at 187-90,

208 A.3d at 857-59.

As the Delaware Supreme Court observed:

[A]pplying a nuanced fault-based test, instead of

rescission, is more consistent with public policy

considerations. Because insurance policies that are void

as against public policy for lack of an insurable

interest are frauds on the court that are unenforceable,

the [c]ourt should take care to discourage these policies

from coming into existence. The automatic return of

premiums certainly discourages insurance companies from

hiding the invalidity of a policy for as long as possible

in order to continue collecting premiums. But the

automatic return of premiums encourages investors to

continue purchasing life insurance policies without

investigation into whether those policies are

unenforceable policies due to lack of an insurable

interest. After all, under the best-case scenario, the

investor gets paid the death benefits. Under the

worst-case scenario, the investor receives the return of

the premiums — other than the time value of money, the

investor loses nothing in the gamble. This is despite

any role it may have played in procuring the void policy

or ignoring the fraud. A fault-based analysis will

encourage investors to actually investigate all policies

to avoid the risk of losing their premiums — a thorough

investigation of insurance policies will hopefully

uncover those that are void ab initio as against public

policy. This approach should incentivize investors not

23

to procure or purchase these unenforceable policies in

the first instance.

A fault-based analysis also incentivizes insurers to

speak up when the circumstances suggest that a policy is

void for lack of an insurable interest because they will

not be able to retain premiums if they stay silent after

being put on inquiry notice, and they might also be

responsible for interest payments. In other words, our

test incentivizes each player along the chain of these

insurance policies to behave in good faith.

Geronta Funding, 284 A.3d at 72.

C. Analysis

For its part, Defendant asserts that, “[o]n its face, the

Complaint fails to identify a live case and controversy,” and, as

such, “this Court lacks subject matter jurisdiction under the

Declaratory Judgment Act.” (Docket Entry 11 at 2.) Plaintiff

responds that “[Defendant’s] repudiation of similar policies casts

doubt on its intentions with respect to the Policies at issue here

and that doubt rises to the level of a case or controversy.”

(Docket Entry 21 at 2 (footnote omitted).) Defendant’s position

should prevail.

According to Defendant, “no actual controversy exists between

the parties. Wells Fargo admits in its pleading that all of its

causes of action depend per force upon speculative legal arguments

in an unfiled hypothetical lawsuit[] . . . .” (Docket Entry 11 at

3; see also id. at 4 (quoting allegations, including that

“Defendant may assert” or “will likely assert” or “may contend”

24

(emphasis in original) (quoting Docket Entry 1, ¶¶ 61, 63, 72, 84,

93, 104, 114, 124, 133).) Per Defendant:

What is really going on here is purely tactical and

does not create jurisdiction in this Court. To that end,

Wells Fargo is serving as the agent for hidden investors

who have purchased large life insurance policies on the

lives of strangers. Those investors, acting through

Wells Fargo, claim they are “concerned” about the

legitimacy of their investments because, they say, their

policies may have insurable interest issues. But instead

of first contacting Lincoln National with their purported

concerns, and instead of first asking Lincoln National

its position on any of these issues, the first indication

Lincoln National received about any concern or purported

dispute over the Policies was after Wells Fargo filed and

served this lawsuit. Clearly this is not a proper use of

the Declaratory Judgment Act, which is limited to actual

disputes where — before a complaint is filed — the

parties have actually staked out their positions and,

because of a real disagreement, it is necessary to resort

to the courts for resolution of a dispute. Sprint

Commc’ns Co., L.P.[ v. Fairpoint Commc’ns, Inc., No.

3:16-cv-820], 2017 WL 2919015, at *5 [(W.D.N.C. July 7,

2017)] (“[A] controversy is not present where the

defendant has not taken preliminary actions against the

plaintiff nor made any indication that it plans to take

future legal action against the plaintiff.”)[.]

In short, the Complaint constitutes a tactical ploy

to embroil Lincoln National in litigation over Policies

and purported issues that were not even brought to its

attention by Wells Fargo before if filed suit. The

Complaint patently fails on its face to present a live

case or controversy and, therefore, is insufficient to

meet the jurisdictional prerequisites of a declaratory

judgment action and fails to state a claim for relief.

(Id. at 4-5 (penultimate set of brackets in original).)

In response, Plaintiff does not dispute that it failed to

communicate with Defendant about the Policies prior to filing suit.

(See generally Docket Entry 21.) Instead, Plaintiff maintains that

“[Defendant’s] actions in this case demonstrate that there is a

25

justiciable case or controversy” (id. at 2 (emphasis in original))

because, after Plaintiff sued, it gave Defendant “documents and

files related to the four insureds cited in the Complaint” that

Defendant requested “in order ‘to reach a decision on how to

proceed in response to [Plaintiff’s] complaint’” (id. at 2 n.4).

In Plaintiff’s view:

Rather than going to the expense of preparing its

[Dismissal] Motion — the premise of which is that nobody

knows whether [Defendant] might or might not repudiate

the Policies — [Defendant] could have simply written a

letter saying: this case is unnecessary because we

intend to honor these Policies and pay the claims on them

as and when they come due. [Defendant’s] refusal to

write that letter, and to instead file its [Dismissal]

Motion, speaks volumes.

(Id. at 2 (emphasis in original); see also id. at 8-9 (“But after

reviewing those documents, instead [of] giving any answer as to

whether it will challenge any, all or none of the Policies based on

what it reviewed from [Plaintiff’s] files, [Defendant] simply filed

the [Dismissal] Motion. That [Defendant] has not answered these

questions and has instead filed the [Dismissal] Motion further fans

the flames of doubt as to its intentions.”).)

Plaintiff further asserts that the Complaint alleges specific

information regarding three of the Policies that, based on

Defendant’s litigation history, “raises questions as to whether

[Defendant] will disavow those Policies” (id. at 5). (See id. at

4-6.) More specifically, Plaintiff contends:

Here, the Complaint alleges specific information as

to the origination of each Policy, including the sale of

26

the beneficial interest in the Fr[ie]dman Policy six (6)

months after the policy was issued, and use of premium

financing in connection with the Roscoe and Karmi

Policies, all of which raises questions as to whether

[Defendant] will disavow those Policies for lack of

insurable interest. See Compl. ¶¶ 14-17, 29, 41, ECF No.

1. [Defendant] has previously alleged that the use of

premium financing violates insurable interest laws,

us[ing] it as a basis for refusing to pay death benefits

and keeping premiums it was paid. See Steven A.

Sciaretta, as trustee of the Barton Cotton Irrevocable

Tr. a/k/a the Am. and Restated Barton Cotton Irrevocable

Tr. v. The Lincoln Nat’l Life Ins. Co. (No.

[9:]11-cv-80427)[ (S.D. Fla. Apr. 21, 2011)]. Indeed,

[Defendant] has filed its own declaratory judgment

actions to that effect:

• In Lincoln National Life Insurance Company v. Eli

Inzlicht-Sprei (No. 16-cv-05171) (E.D.N.Y.),

[Defendant] alleged that a policy was void because

the insured used the same premium finance program

used on the Roscoe Policy;

• In The Lincoln National Life Insurance Company v.

Bayard J. Snyder as Trustee of the Harry Wisner

Irrevocable Life Insurance Trust (No. 09-cv-00888)

(D. Del.), [Defendant] alleged that a policy was

void because the premiums were financed or funded

by stranger investors;

• In The Lincoln National Life Insurance Company v.

BNC National Bank as Trustee of the Onofrio Biviano

2007 Irrevocable Trust (No. 09-cv-82447) (S.D.

Fla.), [Defendant] alleged that speculators

typically pay most or all of a prospective

insured’s costs including premium payments;

• In The Lincoln National Life Insurance Company v.

Walter R. Calhoun (No. 08-cv-02917) (D.N.J.),

[Defendant] alleged that a stranger investor

provided premium financing; and

• In The Lincoln National Life Insurance Company v.

Retirement Value LLC (No. 21-cv-20438) (D.N.J.),

[Defendant] alleges that the initial premiums paid

for the life insurance policy were not funded by

the insured or any person with an insurable

interest in the insured’s life;

27

[Defendant] has also historically argued that the

law governing a life insurance policy is the law of the

state where the trust-owner is located or where the

policy application was signed, if those states are New

Jersey or Delaware. See Compl. ¶¶ 58, 60, ECF No. 1.

Here, the Roscoe Policy was initially owned by a New

Jersey trust, the Friedman Policy application was

apparently signed in New Jersey while the beneficial

interest in the Friedman Policy was transferred to a

Delaware trust, and the Karmi Policy application was

apparently signed in Delaware. Id. ¶¶ 13, 17, 23, 38.

As [Plaintiff] alleges, [Defendant] will challenge the

Policies’ validities and enforceability, as it has done

with other Lincoln policies in actions nationwide,

seeking to apply New Jersey or Delaware law to the

Friedman, Roscoe and Karmi Policies. See id. ¶ 61.

[Plaintiff] is entitled to ask the Court which state law

applies to the Policies so that [Plaintiff’s] customer

may act accordingly.

(Id. (formatting in original).)

As a preliminary matter, Defendant’s conduct after Plaintiff

filed suit cannot establish the necessary subject matter

jurisdiction for this action. For one, “[a] case or controversy

must exist at the time the declaratory judgment action is filed,”

GTE Directories, 67 F.3d at 1568, so Defendant’s (at best

ambiguous) post-filing litigation strategy does not suffice to

establish jurisdiction, see id. (explaining that post-suit actions

“do not establish that at the time the [c]omplaint was filed an

actual case or controversy existed between [the plaintiff] and [the

defendant]” and that, “[t]o make that determination, [the court]

must look at the facts which existed at the time [the plaintiff]

filed its [c]omplaint”). For another, Defendant’s decision to

pursue the Dismissal Motion rather than “writ[e] a letter saying:

28

this case is unnecessary because we intend to honor these Policies

and pay the claims on them as and when they come due” (Docket Entry

21 at 2 (emphasis in original)) neither “speaks volumes” (id.) nor

“fans the flames of doubt as to its intentions” (id. at 9). Rather

than signaling a nefarious intent “to lay in wait and take no

action — while collecting premium[s] — and when a death claim or

inquiry short of a lawsuit is made, rush to a courthouse of its

choosing to seek a declaration that the policy is void” (id. at 6),

Defendant’s decision to seek dismissal rather than provide

Plaintiff the relief it seeks at least as plausibly signals a

desire to disincentivize future unnecessary litigation. In any

event, Plaintiff cannot rely on the filing of the Dismissal Motion

to establish subject matter jurisdiction.

Moreover, contrary to Plaintiff’s contentions, the Complaint

does not “allege[ that Defendant] will challenge the Policies’

validities and enforceability, as it has done with other Lincoln

[National] policies in actions nationwide, seeking to apply New

Jersey or Delaware law to the Friedman, Roscoe and Karmi Policies.”

(Id. at 6 (emphasis added) (citing Docket Entry 1, ¶ 61).) As the

Background section’s recitation of the Complaint’s allegations

makes clear, Plaintiff’s lawsuit relies entirely upon speculation

as to positions that Defendant may potentially take at some unknown

future date. (See, e.g., Docket Entry 1, ¶ 61 (“[Plaintiff’s]

customers anticipate that Defendant will challenge the Policies’

29

validities and enforceability . . . .” (emphasis added)), 72

(“Defendant may assert... .” (emphasis added)), I 93 (“Defendant

will likely assert . . . and may contend . . . .” (emphasis

added)), @ 114 (“Defendant will likely assert .. . .” (emphasis

added) ).) Plaintiff bases those speculative allegations on the

fact that Defendant has previously challenged as STOLI other life

insurance policies that share certain similarities with the

Policies. (See generally Docket Entries 1, 21.) In so doing,

Plaintiff relies heavily on the Inzlicht-Sprei case (Docket Entry

1, 57; Docket Entry 21 at 5), contending that Defendant, in that

case, “alleged that a policy was void because the insured used the

same premium finance program used on the Roscoe Policy” (Docket

Entry 21 at 5).

That matter involved a $20 million, allegedly STOLI life

insurance policy, financed by H.M. Ruby, L.P., as well as a New

Jersey trust and a life insurance application that indicated “it

was signed in New Jersey,” Lincoln Nat’l Life Ins. Co. v.

Inzlicht-Sprei, No. 1l6cv5171, 2020 WL 1536346, at *2 (E.D.N.Y. Mar.

31, 2020), aff’d, 847 F. App’x 97 (2d Cir. 2021). See id. at *1-3.

Contrary to Plaintiff’s assertions, however, Defendant did not

contest the policy as STOLI; instead, after the insured died,

Defendant (i) filed an interpleader action because of competing

claims from Plaintiff and Inzlicht-Sprei, the insured’s son,

(ii) “deposited the [p]olicy proceeds with the Clerk of Court[,]

30

and [(iii)] was terminated as a party,” id. at *7. See id. at *5-

7. Inzlicht-Sprei argued that he “[wa]s entitled to the [plolicy’s

proceeds because the [p]lolicy is a [STOLI] policy.” Id. at “14;

see id. at *14-16. The court rejected that argument, noting that

it “[wa]s troubled by Inzlicht-Sprei’s assertion” given that

“Lincoln [National] ha[d] already disbursed the [p]olicy proceeds”

and “the only considerations [we]lre how the proceeds, based on

equitable principles, should be distributed between Inzlicht-Sprei

and Wells Fargo.” id. at *16 n.32. “Given that it was

Inzlicht-Sprei’s [a]greement with [another individual] that turned

the [p]lolicy into a STOLI policy in the first place, the [c]ourt

flou]nd[] it hard to believe that New Jersey public policy would

countenance Inzlicht-Sprei, who ha[d] not paid a single cent

towards the [plolicy, being the beneficiary of New Jersey’s

prohibition on STOLI policies.” Id. (citation omitted).

Accordingly, the court awarded Plaintiff the policy proceeds and

directed the disbursement of “all funds, with interest, to Wells

Fargo.” Id. at *20.

Similarly, in Life Prod. Clearing, LLC v. Angel, 530 F. Supp.

2d 646 (S.D.N.Y. 2008), Defendant paid rather than attempted to

repudiate an apparent STOLI policy. In that matter, an individual

took out a $10 million life insurance policy, which he “always

intended to sell . . . to [LPC, an] investor for a large cash

payout,” id. at 650, and which he sold for $300,000 only “a few

31

days,” id., after the policy issued. See id. at 647-50. He died

within one month of the policy’s issuance and, after investigating

the situation, “[ Defendant] paid the death benefit” of

“$10,712,328.77, reflecting the face value of the [p]olicy plus

interest,” id. at 651, rather than suing to invalidate the policy.

See id. at 647-51.°

Thus, in at least two instances, Defendant has declined to

challenge arguably STOLI life insurance policies that display many

of the same allegedly problematic characteristics as the Policies.

Further, despite Plaintiff’s suggestion that Defendant has only

“recently taken the position that other policies issued by its

predecessor, Jefferson-Pilot, are void as alleged STOLI policies

lacking insurable interest” (Docket Entry 1, @ 83), Defendant had

lodged such a challenge even prior to its decision to pay those

policies, see Lincoln Nat’l Life Ins. Co. v. Gordon R.A. Fishman

Irrevocable Life Tr., 638 F. Supp. 2d 1170, 1170-77 (C.D. Cal.

2009). Additionally, refuting any notion that Defendant has

adopted a general practice of challenging problematic Jefferson-

Pilot policies, Defendant has recently affirmed that it either will

not challenge or has no present intent to challenge various

Jefferson-Pilot life insurance policies that raise similar STOLI

8 After Defendant paid the proceeds, LPC and the insured’s

daughter, the personal representative of his estate, sued each

other, each seeking a declaration of entitlement to the more than

$10.7 million from Defendant. See id. at 647-48.

32

concerns. See Retirement Value LLC v. Lincoln Nat’l Ins. Co., No.

3:22cv405, Docket Entry 9, ¶¶ 53-108 (N.D. Tex. May 4, 2022)

(detailing policies); Retirement Value LLC v. Lincoln Nat’l Ins.

Co., No. 3:22cv405, Docket Entry 11 at 5 (N.D. Tex. May 18, 2022)

(“conced[ing] that [Defendant] has no intent of ever challenging

the[] validity” of certain policies); Retirement Value LLC v.

Lincoln Nat’l Ins. Co., No. 3:22cv405, Docket Entry 27 at 1 (N.D.

Tex. July 21, 2022) (dismissing claims as to relevant policies for

“lack of actual controversy”); Retirement Value LLC v. Lincoln

Nat’l Ins. Co., No. 3:22cv405, Docket Entry 34 at 1-3 (N.D. Tex.

Jan. 31, 2023) (dismissing for lack of actual case or controversy

claims involving remaining policies, as to which Defendant

represented it lacked facts establishing that those policies

qualified as STOLI and lacked present intent to challenge such

policies for lack of insurable interest).9

Under the circumstances, the Complaint fails to establish that

Defendant will challenge the Policies.10 Accordingly, the Complaint

does not support the conclusion that Defendant has taken a legal

position adverse to Plaintiff regarding the Policies.

9 Defendant filed a copy of the last-cited order in support

of the Dismissal Motion. (See Docket Entry 26-1.)

10 This conclusion appears particularly true for the Roscoe

Policy, as to which the Complaint asserts that Defendant “shared

[Plaintiff’s] view” regarding the applicability of Wisconsin law

“at and after the criminal trial of Kergil” (Docket Entry 1, ¶ 94)

without offering any basis upon which to conclude that Defendant

has changed its alleged earlier position.

33

In sum, Plaintiff has not met its “burden of establishing the

existence of an actual case or controversy,” Cardinal Chem., 508

U.S. at 95, as required for maintaining a declaratory judgment

action, see White, 913 F.2d at 167-68. Put another way, “[n]ot

only do[es the Complaint] rely on a potential determination that

these Policies are STOLI that may not occur, [the Complaint does

not] indicat[e] that Lincoln [National] is more likely to challenge

these Policies as STOLI than any other life insurance policy it has

issued.” (Docket Entry 26-1 at 4.) “As a result, there is no case

or controversy pending before the Court, and the Court lacks

subject matter jurisdiction.” (Id.) The Court therefore should

grant the Dismissal Motion.

II. Amendment Motion

By the time it filed the Amendment Motion, Plaintiff could

amend the Complaint “only with [Defendant’s] written consent or the

[C]ourt’s leave.” Fed. R. Civ. P. 15(a)(2). Under Rule 15, “the

[C]ourt should freely give leave [to amend] when justice so

requires.” Id. Thus, “leave to amend a pleading should be denied

only when the amendment would be prejudicial to the opposing party,

there has been bad faith on the part of the moving party, or the

amendment would be futile.” Johnson v. Oroweat Foods Co., 785 F.2d

503, 509 (4th Cir. 1986). A proposed amendment qualifies as futile

if it cannot withstand a motion to dismiss. See Perkins v. United

States, 55 F.3d 910, 917 (4th Cir. 1995).

34

Plaintiff seeks to amend its Complaint to drop “its claims on

th[e Sagan P]olicy” (Docket Entry 21 at 1 n.2) because, after

“further review of the four Policies identified in the original

Complaint, [Plaintiff] concluded that [it] agreed” with Defendant’s

contention “that there is no dispute to adjudicate” as to the Sagan

Policy (Docket Entry 22 at 3). (See Docket Entry 23-1 (proposed

amended complaint); see also Docket Entry 23-2 (redline of proposed

changes).) Merely omitting the Sagan Policy allegations from the

Complaint will not cure the lack of subject matter jurisdiction.

Accordingly, Plaintiff’s proposed amended complaint remains subject

to dismissal under Rule 12(b)(1), rendering the proposed amendment

futile. The Court will therefore deny the Amendment Motion. See,

e.g., Carrero v. Farrelly, 310 F. Supp. 3d 542, 545–50 (D. Md.

2018) (denying leave to amend where proposed amendments failed to

confer jurisdiction, rendering proposed pleading subject to Rule

12(b)(1) dismissal and thus futile).

CONCLUSION

Plaintiff failed to establish subject matter jurisdiction, and

its proposed amended complaint does not cure that deficiency.

IT IS THEREFORE RECOMMENDED that the Dismissal Motion (Docket

Entry 10) be granted.

35

IT IS FURTHER ORDERED that the Amendment Motion (Docket Entry

22) is DENIED.

This 28th day of July, 2023.

/s/ L. Patrick Auld

L. Patrick Auld

United States Magistrate Judge

36