The opinion of the court was delivered by: Honorable Barry Ted MoskowitzUnited States District Judge
ORDER DENYING MOTIONS TO DISMISS
The Abrams Family Irrevocable Life Insurance Trust ("Trust") and Mayfair Strategies, LLC ("Mayfair") (collectively "Defendants") have filed motions to dismiss Plaintiff's Second Amended Complaint ("SAC"). For the reasons discussed below, Defendants' motions to dismiss are DENIED.
This action concerns a $10 million life insurance policy ("Policy") insuring the life of Howard Abrams. The Policy was issued by PHL Variable Insurance Company ("Phoenix") to the Trust on March 15, 2008.
Phoenix claims that Mayfair, Abrams, and the Trust made material representations to Phoenix during the application process regarding Abrams's net worth, Abrams's annual income, the purpose for the policy, the payor of the premiums on the Policy, and whether there was any intention for a third party to obtain an interest in the Policy. According to Phoenix, the Policy was not being purchased for estate planning purposes, as represented by Defendants, but, rather, was procured for the benefit of a third-party investor that lacked an insurable interest in Abrams's life. Phoenix alleges that the Trust was established to act as a "straw-man" in a fraudulent STOLI (stranger originated life insurance) scheme.
Phoenix commenced this action on March 10, 2010. Phoenix's First Amended Complaint ("FAC") asserted a single claim against the Trust for declaratory judgment that the Policy was null, void, and rescinded ab initio due to the fraudulent and/or material misrepresentations and omissions made on the application for the Policy. The Trust brought a motion to dismiss the FAC, which the Court granted in an order filed on November 5, 2010. The Court ruled that Phoenix had not pled sufficient facts supporting its assertions that the Trust had misstated Abrams's net worth and annual income. Although Phoenix had alleged that its own "independent investigation did not reveal any basis on which a person could reasonably conclude that Abrams had a net worth of $23,652,000 or annual earned income of $150,000 on the date of the application," Phoenix did not provide any details as to what the "independent investigation" entailed and what it uncovered. The Court also ruled that the complaint lacked sufficient details supporting Phoenix's allegation that the Policy was procured as part of a fraudulent STOLI scheme to benefit a third-party investor. Accordingly, the Court dismissed the FAC but granted Plaintiff leave to file a Second Amended Complaint ("SAC").
On November 23, 2010, Phoenix filed its SAC. The SAC names as defendants Abrams, the Trust, and Mayfair. The SAC asserts claims for (1) declaratory judgment -rescission due to material misrepresentation (against the Trust only); (2) declaratory judgment - rescission due to lack of insurable interest (against the Trust only); (3) fraud; (4) negligent misrepresentation; (5) civil conspiracy; and (6) breach of contract (as to Mayfair only).
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) should be granted only where a plaintiff's complaint lacks a "cognizable legal theory" or sufficient facts to support a cognizable legal theory. Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir. 1988). When reviewing a motion to dismiss, the allegations of material fact in plaintiff's complaint are taken as true and construed in the light most favorable to the plaintiff. See Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). Although detailed factual allegations are not required, factual allegations "must be enough to raise a right to relief above the speculative level." Bell Atlantic v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 1965 (2007). "A plaintiff's obligation to prove the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. "[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not show[n] that the pleader is entitled to relief." Ashcroft v. Iqbal, __ U.S. __, 129 S,Ct. 1937, 1950 (2009) (internal quotation marks omitted).
The Trust and Mayfair move to dismiss the SAC for failure to state a claim and failure to comply with the heightened pleading requirements of Fed. R. Civ. P. 9(b). As discussed below, the Court concludes that the allegations of the SAC are sufficient to survive a motion to dismiss.
Defendants argue that Phoenix's fraud-based claims (Counts I-IV) fail because Phoenix has failed to plead fraud with the requisite specificity. Defendants further argue that Phoenix has failed to comply with the Court's November 5, 2010 Order, which explained that the SAC should establish that Phoenix discovered facts that would justify rescission prior to the expiration of the two-year contestability period. The Court does not find these arguments persuasive.
A court may dismiss a claim of fraud when its allegations fail to satisfy Rule 9(b) 's heightened pleading requirements. Vess v. Ciba-Geigy Corp. U.S.A., 317 F.3d 1097, 1107 (9th Cir. 2003). Averments of fraud must be accompanied by the "who, what, when, where, and how" of the misconduct charged. Cooper v. Pickett, 137 F.3d 616, 627 (9th Cir. 1997).
The Court believes that Phoenix has satisfied Rule 9(b)'s pleading requirements. In its November 5, 2010 Order, the Court dismissed Phoenix's declaratory judgment claim because Phoenix had failed to provide any details regarding its "independent investigation" or any facts supporting its conclusion that the Policy was purchased in furtherance of a fraudulent STOLI scheme. In the SAC, Phoenix clarifies that it discovered the following information as part of its own investigation: (1) Abrams filed for Chapter 7 bankruptcy protection in 1995; (2) Abrams has had seven different creditors turn over accounts to collection agencies, and four credit accounts charged off between September 2001 and April 2006; (3) a $3,387.78 judgment was taken against Abrams by Barnes Financial Services in November of 2003; (4) Abrams's landlord filed suit to evict him from a rental house in April of 2009; (5) a Dun and Bradstreet Report on Modular Concepts indicates that the company employs only two people and generates estimated annual revenues of on $170,000; (6) Modular Concepts' corporate charter was revoked by the Nevada Secretary of State in November of 2009 after ...