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Ohio National Life Assurance Corporation v. Douglas W. Davis

July 6, 2011

OHIO NATIONAL LIFE ASSURANCE CORPORATION, PLAINTIFF,
v.
DOUGLAS W. DAVIS, INDIVIDUALLY AND AS TRUSTEE OF THE SHIRLEE DAVIS IRREVOCABLE LIFE INSURANCE TRUST, THEODORE R. FLOYD IRREVOCABLE LIFE INSURANCE TRUST, ROBERT S. HARRIS IRREVOCABLE LIFE INSURANCE TRUST, MARY ANN HARRIS IRREVOCABLE LIFE
INSURANCE TRUST, AND CHARLES M. BONAPARTE, SR. IRREVOCABLE TRUST; MAVASH MORADY; CHRISTINA BANK & TRUST, AS SUCCESSOR TRUSTEE OF THE SHIRLEE DAVIS IRREVOCABLE LIFE INSURANCE TRUST; STEVEN EGBERT, AS SUCCESSOR TRUSTEE OF THE CHARLES M. BONAPARTE, SR. IRREVOCABLE LIFE INSURANCE TRUST; SHIRLEE DAVIS; PAUL MORADY; THOMAS M. TICE; AND THEODORE R. FLOYD, DEFENDANTS.



The opinion of the court was delivered by: Judge Virginia M. Kendall

MEMORANDUM OPINION AND ORDER

Plaintiff Ohio National ("Ohio National") brought suit against individual defendants and the trusts associated with a stranger originated life insurance ("STOLI") scheme perpetuated by Douglas Davis ("Davis"), Mavash Morady ("Mavash"), and Paul Morady "(Paul") (collectively "Defendants"). As part of the scheme Defendants obtained life insurance policies using the identities of senior citizens, transferred the policies to themselves through trusts, then sold the policies to investors. Ohio National seeks damages and a declaration that the life insurance policies obtained to jump-start the scheme were void at their inception. Steven Egbert ("Egbert"), an investor who had a beneficial interest in one of the nine insurance policies, moves to dismiss the Amended Complaint under Rule 12(b)(6) for failing to state a claim upon which relief can be granted.*fn1 For the following reasons, the Court denies Egbert's Motion to Dismiss.

STATEMENT OF FACTS

At this initial stage, the Court takes the allegations asserted in the Complaint as true. See Murphy v. Walker, 51 F.3d 714, 717 (7th Cir. 1995).

I. General Nature of the Scheme

Defendants, as promoters for STOLI policies, convinced senior citizens to sign life insurance policies by promising that they would pay them money once the policies were issued. (Am. Compl. ¶ 11.) By applying for the insurance policies, however, the senior citizens signed documents creating irrevocable trusts naming Defendants as the owners and beneficiaries of the life insurance policies. (Id. ¶ 13.) Once Defendants acquired a financial interest in these policies, they sold them to investors for a profit. (Id.)

Specifically, Davis and Paul attended meetings at churches in the Chicago area to solicit senior citizens to apply for life insurance policies from Ohio National, an Ohio corporation authorized to issue life insurance policies in Illinois. (Id. ¶¶ 1, 11, 14.) Davis and Paul enticed the senior citizens to apply for the policies by promising either "free insurance" or payment of money upon issuance of the policies.*fn2 (Id. ¶¶ 11, 14.) Davis and Paul targeted the senior citizens despite knowing from the beginning that they did not need life insurance, were unable to pay the premiums, and would have no freedom to designate the owners and beneficiaries of the policies. (Id. ¶ 14.)

The application for the insurance policy would designate a certain trust as the beneficiary and owner of the policy, and appoint Davis as Trustee. (Id.) Mavash signed the insurance applications and misrepresented to Ohio National material facts upon which Ohio National relied in issuing the policies. (Id. ¶ 15, 16.) She falsely vouched that she knew the senior citizen applicants, that she examined the applicants' financial records, and that each applicant had a net worth of at least one million dollars. (Id. ¶ 16.) As a result of this deception, Mavash received commissions of $118,849.40 from Ohio National. (Id.) Once they transferred the policies from the trusts to themselves, Defendants would turn around and sell them to investors such as Egbert. (Id. ¶¶ 35, 36.)

Had Ohio National known what it knows now, it would not have issued the nine life insurance policies, with a collective value of $5,200,000. (Id. ¶¶ 12, 17.) Ohio National therefore seeks a declaration that the procured policies were void since the beginning, damages, and equitable relief from detrimental reliance. (Id. ¶ 18.)

II. Charles Bonaparte Policy

Only the policy issued to Charles Bonaparte ("Bonaparte Policy") is relevant to this motion to dismiss.*fn3 (Id. ¶ 19.) On about April 26, 2007, Bonaparte, then 74 years old, learned about an "insurance program" through a presentation at his church, the Prayer Tower Church of God and Christ, in Chicago, Illinois. (Id. ¶ 20.) After the presentation, Davis reached out to Bonaparte and asked him to sign applications for life insurance policies with Ohio National and AXA Equitable.

(Id.) Davis promised Bonaparte payment of $40,000 upon issuance of the policies. (Id.) Davis told Bonaparte that he "did not have to pay any premiums, that the only benefit to Charles Bonaparte was the cash inducement, and that the life insurance policies would be sold to investors." (Id.)

A. Life Insurance Application

Davis's promise of $40,000 persuaded Bonaparte. On April 26, 2007, Bonaparte signed an application for $400,000 in life insurance coverage from Ohio National ("Application"). (Id. ΒΆ 22.) The Application created a trust, the Charles M. Bonaparte Sr. Irrevocable Life Insurance Trust ("Bonaparte Trust"), as the owner and beneficiary of the Bonaparte Policy. (Id.) The Application also named Davis as Trustee of the Bonaparte Trust. (Id.) Although he ultimately signed the Agreement, Defendants chose the Bonaparte Trust as the beneficiary of the policy, not ...


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