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Ohio Nat'l Life Assur. Corp. v. Davis

United States District Court, N.D. Illinois, Eastern Division

February 7, 2014

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 LIFE INSURANCE TRUST; CHRISTIANA BANK & TRUST COMPANY 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; MAVASH MORADY; PAUL MORADY; SHIRLEE DAVIS; THOMAS M. TICE; AND THEODORE R. FLOYD, Defendants

For Ohio National Life Assurance Corporation, Plaintiff: W. Sebastian von Schleicher, LEAD ATTORNEY, Jacqueline J. Herring, Michael J. Smith, Smith, von Schleicher & Associates, Chicago, IL.

Douglas W. Davis, individually and as Trustee, Defendant, Pro se, Malibu, CA.

For Douglas W. Davis, individually and as Trustee, Defendant: Douglas William Davis, PRO HAC VICE, Douglas W. Davis, P.C., Malibu, CA.

For Christiana Bank & Trust Company, as Successor Trustee also known as, Christiana Bank & Trust Company, as Successor Trustee of the Shirlee Davis Irrevocable Life Insurance Trust, Defendant: Frederic C. Goodwill, SmithAmundsen LLC (Chgo), Chicago, IL; John D Demmy, PRO HAC VICE, Stevens & Lee, P.C., Wilmington, DE.

For Steven Egbert, Defendant: Gregory M. Golino, Michael T. Taurek, LEAD ATTORNEYS, PRO HAC VICE, Green & Hall, Apc, Santa Ana, CA; John P Palumbo, Jensen & Palumbo, Ltd., Chicago, IL.

Shirlee Davis, Defendant, Pro se, Chicago, IL.

For Charles M. Bonaparte, Sr. Irrevocable Life Insurance Trust, Defendant: Gregory M. Golino, Green & Hall, Apc, Santa Ana, CA.

Paul Morady, Defendant, Pro se, Agoura Hills, CA.

Dennis Pearson, Movant, Pro se, Merrillville, IN.

OPINION

Page 877

Memorandum Opinion and Order

Honorable Thomas M. Durkin, United States District Judge.

Ohio National Life Assurance Corporation alleges that Douglas Davis, Paul Morady and Mavash Morady conspired to procure life insurance policies from Ohio National for people in whose lives Davis and the Moradys do not have an insurable interest, i.e., Davis and the Moradys have no interest in the insureds continuing to

Page 878

live. R. 76. Ohio National moves for summary judgment on its claims that Davis and the Moradys are liable for civil conspiracy under Illinois law, and that Mavash Morady is liable for fraud under Illinois law and breach of her agency contract with Ohio National, which is governed by Ohio law. R. 241. Ohio National also moves for summary judgment on its claim for a declaration that the policies were void ab initio --i.e., they never came into existence because Davis and the Moradys procured the polices without an insurable interest in the lives of the insureds--such that Ohio National may keep the premiums paid on the policies. R. 241. Paul Morady has filed a cross-motion for summary judgment arguing that the policies are valid and that he is not liable for civil conspiracy. R. 263. Steven Egbert, who purchased one of the policies from Paul Morady and who Ohio National named as a defendant in order to retain the premiums Egbert has paid on the policy he bought, has also filed a cross-motion for summary judgment arguing that the policy he owns is valid, or, in the alternative, seeking return of the premiums he has paid. R. 248; R. 249. For the following reasons, Ohio National's motion, R. 241, is granted except that Ohio National must return the premiums Egbert paid; Egbert's motion, R. 248; R. 249, is granted to that extent, and otherwise denied; and Paul Morady's motion, R. 263, is denied.

Background

As an initial matter, the Court notes that Paul Morady failed to file a statement of material facts pursuant to Local Rule 56.1, and Davis and Mavash Morady failed to file any papers in opposition to Ohio National's motion. Ohio National asks the Court to deem Davis and the Moradys to have admitted Ohio National's statement of facts, R. 267 at 2-3, because Local Rule 56.1 provides, " All material facts set forth in the statement required of the moving party will be deemed to be admitted unless controverted by the statement of the opposing party." The Court agrees that Davis and the Moradys have admitted Ohio National's factual allegations by failing to properly contest them. See Cracco v. Vitran Exp., Inc., 559 F.3d 625, 632 (7th Cir. 2009). Ohio National's summary judgment motion on the claims against these three defendants is granted on this basis alone. The Court is cognizant of the fact that Paul Morady filed his opposition papers and cross-motion pro se. But, as the Court discusses below, even accepting the facts as Paul Morady states them in his brief, the Court finds that there is no genuine dispute as to any material fact regarding Paul Morady's liability.

I. The " Program"

Davis is an attorney and estate planner who gave estate planning seminars at churches in Chicago to " middle-class and upper-middle-class African-American seniors." R. 242-4 at 16:3-4. Davis testified that beginning in 2004 or 2005, he and Paul Morady--who Davis knew because their children went to school together, R. 242-4 at 14:16-15:1--" worked together" on " a program" in which Davis " worked as a trustee for potential investors" and " Morady agreed that he would assist . . . to the extent that some of the potential insure[d]s needed any assistance in obtaining financing for some of the insurance policies." R. 242-4 at 14:8-14. Paul Morady also testified that he could help the potential insureds " sell their interests if they wish to." R. 242-2 at 17:15-16.

Davis testified that he explained to his seminar attendees that a life insurance policy is an asset that can be sold, and the primary reason people chose to participate in the program he and Paul Morady devised

Page 879

was to sell their life insurance interests. R. 242-4 at 62:18-63:11, 67:16-18. Davis testified that he explained to potential participants in the " program" that he would help them (1) set up a trust to hold the life insurance policy, (2) apply for the insurance policy, (3) sell the beneficial interest in the policy, (4) find a buyer to purchase the beneficial interest, and (5) arrange for completion of the sale. R. 242-4 at 63:24-64:14. Davis testified that only people who required financing to afford the insurance were part of the program, R. 242-4 at 17:21-23, 64:21-65:18, and that a balloon payment on the financing notes would come due after two years, at which point the insured would " probably have to sell" the insured's interest in the policy. R. 242-4 at 65:15-18.

In early 2006, Davis and Paul Morady traveled to Chicago together. R. 242-2 at 14:1-5, 15:15-19. Paul Morady testified that the purpose of that trip was to give him an opportunity to research the possibility of financing insurance premiums in Illinois and for Davis to introduce him to " potentially mutual clients," as Davis is originally from Chicago and has friends and family there. R. 242-2 at 14:4-5, 14:16-18, 16:1-5.

On July 18, 2006, Paul Morady's wife, Mavash Morady, obtained a license to sell life insurance in Illinois. R. 242-5 at 11. She testified that she planned to get business in Illinois from people for whom Davis acted as a trustee. R. 242-1 at 31:2-10, 31:20-32:3. She became an Ohio National agent on October 16, 2006. R. 242-9.

On August 9, 2006, Paul Morady registered an entity called Security Pacific Premium Financing with the Illinois Secretary of State, with himself as the sole owner, chairman, and chief executive officer. R. 242-6 at 2; R. 242-2 at 26:13-23, 52:3-8.

At issue in this case are life insurance policies Ohio National issued for the following five people: (1) Charles M. Bonaparte, Sr., R. 242-29; (2) Theodore R. Floyd, R. 243-14; (3) Shirlee Davis, R. 245-8; (4) Mary Ann Harris, R. 243-29; and (5) Robert S. Harris, R. 244-3. Davis signed and prepared irrevocable life insurance trusts [1] for each of these policies and had all five individuals sign documents permitting Mavash Morady to apply for the policies with Ohio National on their behalf. See R. 242-4 at 75:11-13, 80:15-81:8, 84:2-8, 89:12-91:9; R. 246 ¶ ¶ 31-33, 62-63, 74-77, 89-90. Additionally, all five individuals financed the premiums on their policies through Paul Morady's Security Pacific Premium Financing company. See R. 242-18; R. 243-15, R. 245-3; R. 242-2 at 221:23-222:12; R. 245-5; R. 245-10. For all five individuals, however, Paul Morady never transferred funds directly to any of the five insureds; instead he transferred the funds to Davis as trustee or Mavash Morady's company American Pacific General Agency, who then paid Ohio National's premiums. See R. 242-18; R. 243-15; R. 245-10; R. 245-3; R. 245-5. All five individuals eventually sold the beneficial interests in ...


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