United States District Court, N.D. Illinois, Eastern Division
THE THOMAS D. PHILIPSBORN IRREVOCABLE INSURANCE TRUST, dated July 10, 2005, and ANDREW I. PHILIPSBORN, as Trustee on Behalf of THE THOMAS D. PHILIPSBORN IRREVOCABLE INSURANCE TRUST, dated July 10, 2005, Plaintiffs,
AVON CAPITAL, LLC and DONALD TRUDEAU, BENISTAR, LTD., and BENISTAR ADMIN SERVICES, INC., Defendants. and AVON CAPITAL, LLC. Third-Party Plaintiff,
FINANCIAL LIFE SERVICES, LLC, Third-Party Defendant. and FINANCIAL LIFE SERVICES, LLC, Fourth-Party Plaintiff,
AVON CAPITAL, LLC, THOMAS PHILIPSBORN and ANDREW PHILIPSBORN, Fourth-Party Defendants.
MEMORANDUM OPINION AND ORDER
HARRY D. LEINENWEBER, District Judge.
In 2005, as part of his estate planning, Thomas Philipsborn created the Thomas Philipsborn Irrevocable Insurance Trust (the "Trust"), with Andrew Philipsborn as the Trustee. The idea was for the Trust to purchase policies of insurance on Thomas' life with borrowed funds and after holding them for the minimum period of time, which was then two years, sell them to third parties, hopefully, at more than their cash value. The process is known as a "Life Settlement."
In pursuance of this idea, in 2005, the Trust purchased three insurance policies: one from American General Insurance Co. in the amount of $5 million; a second from Transamerica Occidental Life Insurance Company in the amount of $10 million; and a third from AXA Equitable Life Insurance Company in the amount of $5 million (the "Policies"). The Policies had been purchased with funds borrowed from Coventry Capital ("Coventry"), a firm specializing in life settlements.
In 2007, as the loans with Coventry were coming due, the Trustee sought offers from third parties to purchase the policies. He received an offer from defendant Avon Capital, LLC, ("Avon") to purchase the three policies for the sum of $4, 550, 000, of which $3, 044, 838 was needed to pay off the loans from Coventry, which would have netted the Trust the sum of $1, 505, 162. Avon, who considers itself a broker, was represented in the negotiations by the Defendant, Donald Trudeau ("Trudeau"). While no specific agreement between the parties was executed, the parties considered that they had an agreement to that effect.
As it turned out, the American General policy had insufficient equity to justify its maintenance so that Avon elected to allow the policy to be foreclosed by Coventry. Avon had obtained an agreement on the part of Financial Life Services, LLC ("FLS") to purchase the remaining two policies. FLS is a licensed life settlement provider that specializes in the acquisition of life insurance policies encumbered with loans. Avon was not so licensed so it could have had trouble reselling the policies in some states that required licensing for life settlements. Avon paid the net owed on the American General policy and directed the Trustee to execute the appropriate documents to transfer the other two policies to Financial Life. The two policies were then transferred to Financial Life.
There apparently were no problems associated with the transfer of the Transamerica policy, but the documents that were sent to the Trustee with respect to the AXA policy showed a purchase price of only $600, 000 rather than the approximate $1, 600, 000 that was due under the Agreement with Avon. Financial Life paid off the policy loan to Coventry, and paid the balance left to the Trustee, which left approximately $820, 000 still due the Trustee from Avon under the agreement. FLS subsequently transferred the AXA policy to Life Trading, a FLS subsidiary, who subsequently transferred the policy to Life Partners for $950, 000.
When the Trustee received the transfer papers indicating that the purchase price of the AXA policy to Financial Life was only $600, 000, an inquiry was made to Avon and Trudeau about the purchase price. Trudeau stated that this price to FLS was agreed upon in order to get the loan to Coventry paid, and that FLS had agreed with Avon that FLS would transfer the policy to Avon for the price of $660, 000 (110% of the purchase price) and then Avon would resell the policy to a third party in order to compensate the Trust in accordance with their Agreement. However, FLS either welshed on the deal or Avon was not timely in exercising its repurchase rights or, as FLS contended, the right to repurchase rested solely with the Trust, which did not exercise the right to repurchase.
As a result of the foregoing, Philipsborn has sued Avon and has also sued Trudeau and two other companies, Benistar, Ltd., and Benistar Admin Services, Inc., as undisclosed principals. Avon has, in turn, sued FLS and FLS has turned around and sued Avon, Thomas Philipsborn and Andrew Philipsborn, the Trustee. Each party has filed Motions for Summary Judgment.
A. The Trust's Motion Against Avon
The Trust's Motion against Avon is pretty straightforward: Avon agreed to pay $4, 500, 000 for the three policies and the payments came up almost $819, 609 short. Trudeau's testimony does not dispute this. So the Motion for Summary Judgment is granted in favor of the Trust and against Avon.
B. The Avon, Trudeau and Benistar Motions Against the Trust
Avon's Motion is denied for the previously stated reasons. The Motions, however, for Trudeau and the two Benistars against the Trust require more discussion. The Trust's claim that Trudeau and the two Benistars are undisclosed principals is based mainly on the testimony of William Liu ("Liu"), a joint venturer with one of the Benistars, who claimed that he was to join with Benistar in purchasing the policies from Avon. Lui wrote in an e-mail that Benistar was to be a purchaser based on information he obtained from Trudeau. He later softened this in his deposition testimony but the jury is entitled to ...