United States District Court, N.D. California
E. BERTITA TRABERT GRAEBNER, individually and as Trustee of the El Nora L. Trabert Irrevocable Trust, TALLIE R. TRABERT, individually and as Trustee of the El Nora L. Trabert Irrevocable Trust, T. VERNON TRABERT, individually and as Trustee of the El Nora L. Trabert Irrevocable Trust, Plaintiffs,
MICHAEL E. JAMES, an individual, MNM PROPERTIES, LLC, a foreign limited liability company, WM. PAGE & ASSOCIATES, INC., a foreign corporation, WILLIAM SCOTT PAGE, an individual, and DOES 1-50, inclusive, Defendants
For E. Bertita Trabert Graebner, and as Trustee of the El Nora L. Trabert Irrevocable Trust, Tallie R. Trabert, and as Trustee of the El Nora L. Trabert Irrevocable Trust, T. Vernon Trabert, and as Trustee of the El Nora L. Trabert Irrevocable Trust, Plaintiffs: Melinda Jane Steuer, LEAD ATTORNEY, Sacramento, CA.
For Michael E. James, MNM Properties, LLC, Defendants: Michael E James, LEAD ATTORNEY, New Buffalo, MI.
For WM Page & Associates, Inc., William Scott Page, Defendants: Thomas N FitzGibbon, LEAD ATTORNEY, Pfeiffer Thigpen FitzGibbon and Ziontz LLP, Santa Monica, CA; Brady James Cobb, Cobb Eddy Mijares, PLLC, Fort Lauderdale, FL.
ORDER GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT
WILLIAM ALSUP, UNITED STATES DISTRICT JUDGE.
In this action involving alleged fraud in the sale of " viatical life settlement contracts," a number of defendants move for summary judgment. As set forth below, because the undisputed facts establish that plaintiffs were on notice of the alleged fraud over three years before the filing of this action, defendants' motion for summary judgment is Granted.
Defendants William Scott Page and Wm. Page & Associates, Inc. move for summary judgment as to plaintiffs' claims against them. The motion does not seek summary judgment as to defendants Michael E. James and MNM Properties, LLC. Plaintiffs are the adult children and co-trustees of a family trust. In 2002, plaintiffs' lawyer, defendant Michael James, convinced plaintiffs to purchase benefits under three life insurance policies. Attorney James " was the longtime estate-planning attorney and advisor to plaintiffs and their parents" (First Amd. Compl. ¶ 24). On behalf of plaintiffs and their parents, Attorney James set up the El Nora Trabert Irrevocable Trust No. 2 and a limited partnership called Trabert Partners, L.P. In 2002, acting in their capacity as trustees of the El Nora Trust or as advisors to Trabert Partners, plaintiffs purchased three so-called " viatical life settlement contracts." A viatical contract is an agreement whereby an individual (the viator) sells his or her life insurance policy to a third party at a discount in exchange for immediate cash. " The third party investor becomes the beneficiary of the policy and is thereby entitled to a death benefit equal to the face value of the policy upon the viator's demise, if the policy is valid and kept in force" ( id. at ¶ 28).
On behalf of plaintiffs, Attorney James made arrangements with defendant Wm. Page & Associates, doing business as The Lifeline. Plaintiffs purchased three viatical contracts from Lifeline in 2002. Plaintiffs allege that Lifeline and Attorney
James made numerous misrepresentations, upon which plaintiffs relied in deciding to purchase the viatical contracts. The gravamen of the allegations are that defendants misrepresented the risks of the viatical contracts, provided inaccurate life expectancy estimates, and failed to disclose that plaintiffs might be required to pay expensive premiums to keep the contracts current. Plaintiffs also allege that Attorney James was an agent and representative of Lifeline and that James received a commission for the transactions. While plaintiffs acknowledge that they were aware that Attorney James would receive a commission on the contracts, they state that they were not aware of the amount of the commission, which was seven percent of the amount plaintiffs invested in Lifeline policies (Steuer Decl. Exh. 15).
To put it more bluntly, this was (and remains) an industry seeking to profit from the misfortune of AIDS by allowing AIDS victims to obtain badly needed cash by selling (at a discount) their benefits under life insurance policies to " investors" expecting the victims to die on time, all arranged via brokers like defendants here. The problem here arose when the AIDS victims managed to live longer than expected (due to breakthroughs in medicine), leading to the need for the investors to continue premium payments longer than expected and in turn leading them to claim they were misled.
1. Plaintiffs purchased three viatical contracts in 2002.
In May 2002, Attorney James entered into a " representative agreement" with Viati Com (Steuer Decl. Exh. 15). The agreement states that Viati Com " is a company acting as a Marketing Manager for Page & Associates, Inc. (d.b.a.) The Lifeline Program." Pursuant to the agreement, James agreed to serve as a representative of Viati Com to " locate purchasers who are interested in purchasing Policies of Lifeline Clients," for which he would receive a commission of 7% from Viati Com. According to the agreement, " Viati Com entered into this Agreement solely as principal and not as agent for Lifeline" ( id. at ¶ 4.2). Attorney James worked with Viati Com and Charles Mattox, an insurance broker from Viati Com, to select appropriate viatical contracts for plaintiffs to invest in (James Decl. ¶ 24). At times, Mattox sent contracts directly to plaintiffs to consider (Defendants' Dep. Exh. 36).
On May 15, 2002, plaintiffs (through Trabert Partners) invested approximately $282,000 into purchasing benefits under a life insurance policy issued through Aetna. The viator for the Aetna viatical contract had been diagnosed with AIDS ( id., Exh. 12). According to American Viatical Services's life expectancy report, the Aetna viator had a projected life expectancy of 72 months ( ibid. ). Thus, plaintiffs expected the policy to pay out in March 2008 (First Amd. Compl. ¶ 62; Steuer Decl. Exh. 12).
On August 21, 2002, plaintiffs (through the Trust) invested approximately $78,000 into purchasing benefits under a policy issued through Union Bankers Insurance Company. The viator for the Union Bankers viatical contract had also been diagnosed with AIDS; AVS's life expectancy report stated that the viator had a projected life expectancy of 24 months ( id., Exh 28). Plaintiffs expected the policy to pay out in August 2004 (First Amd. Compl. ¶ 57; Steuer Decl. Exhs. 26 and 28). Lastly, plaintiffs (through the Trust) invested approximately $115,700 into purchasing benefits under a policy issued by Principal Financial.
2. Plaintiffs did not receive payments for two of the viatical contracts.
In 2005, plaintiffs received death benefits from the Principal Financial policy
when the viator passed away.  Plaintiffs received a profit of approximately $35,000 (James Decl. ¶ 31). Plaintiffs did not, however, receive death benefits from the other two contracts inasmuch as the viators have lived longer than expected due to great improvements in AIDS medication. The viators' projected demise dates -- and plaintiffs' expected payoff dates -- for the Union Bankers and Aetna contracts were in 2004 and 2008, respectively. In order to keep the underlying insurance policy in force, plaintiffs were required to start paying premiums in 2006 on the Union Bankers viatical contract (Defendants' Dep. Exhs. 68 and 69). Plaintiffs contend that the amount of premium payments they would be required to pay was never disclosed to them prior to purchase (Page Dep. 46; T. Trabert Decl. ¶ 23). As to the Aetna viatical contract, the viator's projected demise date was in March 2008, but because the viator had not expired by that time, plaintiffs did not (and still have not) received any payment on the contract.
3. Plaintiffs expressed concerns to Attorney James.
In early 2008, plaintiff Tallie Trabert contacted Attorney James with concerns about the viatical contracts. Ms. Trabert sent Attorney James an email and letter in January and February 2008 expressing concerns with Lifeline's disclosures regarding the status of the viatical contracts. Ms. Trabert stated that they should contact the Attorney General of the State of Florida, where Lifeline was located, regarding any ongoing litigation against Lifeline (Steuer Decl. Exh. 33; Defendants' Dep. Exh. 155). Attorney James conducted some investigation on behalf on plaintiffs in 2008 but advised against filing any ...