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BENEVENTO v. LIFE USA HOLDING
September 29, 1999
JOSEPH BENEVENTO, DREW W. KRAPF, ESTHER ROSENBLUM, BRUCE C. COMPAINE, EDWARD MAZE AND RITA BASKIN, PLAINTIFFS FOR THEMSELVES AND ALL OTHER SIMILARLYSITUATED ANNUITY PURCHASERS,
LIFE USA HOLDING, INC., DEFENDANT.
The opinion of the court was delivered by: Joyner, District Judge.
This case is now before the Court upon motion of the defendant,
LifeUSA Holding, Inc. for the entry of summary judgment in its
favor as to all counts of the plaintiffs' complaint. For the
reasons which follow, the motion is denied.
This case, which was instituted in December 1997, arose out of
purchase of "Accumulator"*fn1 annuity products from defendant
LifeUSA Holding, Inc. and its subsidiaries and divisions.*fn2
Essentially, it is the plaintiffs' contention that the manner in
which the defendant marketed, promoted and sold the accumulator
annuities to them was fraudulent in that they were not properly
apprised of, inter alia, the terms and conditions governing the
manner in which their funds would earn interest, how they could
withdraw their funds, what would happen in the event of
withdrawal, or the annuities' true interest rates and yields.
According to the plaintiffs, "LifeUSA created and implemented a
purposeful scheme to deceive and mislead them and the class of
LifeUSA annuity purchasers through:
(a) inducing agents to sell LifeUSA annuities, as
opposed to other annuity policies, with
representations of the highest commissions, equity
ownership in LifeUSA, producer perks and wire
transfer of commissions within twenty-four hours of
obtaining the purchaser's funds and before the
purchasers received their LifeUSA "fine print"
(b) training agents through standardized and uniform
misrepresentations and nondisclosures that, inter
alia, the agents' clients, through LifeUSA, would be
paid substantial interest bonuses, "current" interest
rates, and obtain "fully insured" and "safe" economic
gain greater than the gains offered in the stock
market or Certificates of Deposit;
(c) concealing and failing to disclose the true terms
of the LifeUSA Accumulator annuity from the
purchasers, who are given no written materials from
LifeUSA and provided with only an application and the
uniform representations of LifeUSA agents based upon
LifeUSA's standardized misrepresentations and
material omissions taught to the agents;
(d) immediately rewarding the agents with "producer
perks" within 24 hours of sale and then later sending
fine print annuity contracts which are misleading and
(e) disguising the interest rates paid to LifeUSA
purchasers in quarterly accountings by comparing the
Accumulator annuity favorably with Bank Certificates
of Deposit and then misrepresenting the "yield" as
the "interest rate," thus purposefully creating a
false impression that the represented "compounded
daily" interest rate is much higher, when in fact,
the interest rate is less than the represented
"interest rate" and then,
Plaintiffs here fall into two categories: (1) those who, like
Drew Krapf and Esther Rosenblum, purchased Accumulator annuity
policies between August 1, 1989 and October 1, 1997 ("the class
period") and have not, to date, withdrawn any funds such that
their principal and interest remains with the defendant company;
and (2) those like Joseph Benevento, Rita Baskin, Edward Maze and
Bruce Compaine who also purchased their Accumulator annuities
during the class period but elected to withdraw their funds
through the minimum five-year payout period.
By way of the pending motion, Defendant contends that it is
entitled to judgment in its favor as a matter of law as to all of
the plaintiffs and all of their claims for relief. Specifically,
Defendant urges this Court to find that (1) the plaintiffs have
insufficient evidence to sustain their causes of action for
negligent and fraudulent misrepresentation, unjust enrichment,
injunctive relief, negligence and breach of the duty of good
faith and fair dealing and, (2) the plaintiffs' claims are barred
by the applicable statutes of limitations and, in the case of
plaintiffs Baskin, Maze and Compaine, barred by Florida's and New
Jersey's Economic Loss Rules. Alternatively, Defendant contends
that the negligence and negligent misrepresentation claims of
Messrs. Benevento, Krapf, Maze and Compaine and Mrs. Rosenblum
are barred by the doctrine of contributory negligence and, in the
case of Plaintiffs Benevento, Krapf and Rosenblum, by their
failure to have sustained any out-of-pocket losses. We shall
address each of these arguments in turn.
Standards Governing Motions for Summary Judgment
The standards for determining whether summary judgment is
properly entered in cases pending before the district courts are
governed by Fed.R.Civ.P. 56. Subsection (c) of that rule states,
in pertinent part,
. . The judgment sought shall be rendered
forthwith if the pleadings, depositions, answers to
interrogatories, and admissions on file, together
with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the
moving party is entitled to a judgment as a matter of
law. A summary judgment, interlocutory in character,
may be rendered on the issue of liability alone
although there is a genuine issue as to the amount of
In this way, a motion for summary judgment requires the court to
look beyond the bare allegations of the pleadings to determine if
they have sufficient factual support to warrant their
consideration at trial. Liberty Lobby, Inc. v. Dow Jones & Co.,
838 F.2d 1287 (D.C.Cir. 1988), cert. denied, 488 U.S. 825, 109
S.Ct. 75, 102 L.Ed.2d 51 (1988). See Also: Aries Realty, Inc. v.
AGS Columbia Associates, 751 F. Supp. 444 (S.D.N.Y. 1990).
As a general rule, the party seeking summary judgment always
bears the initial responsibility of informing the district court
of the basis for its motion and identifying those portions of the
pleadings, depositions, answers to interrogatories and admissions
on file, together with the affidavits, if any, which it believes
demonstrate the absence of a genuine issue of material fact.
Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91
L.Ed.2d 265 (1986). In considering a summary judgment motion, the
court must view the facts in the light most favorable to the
party opposing the motion and all reasonable inferences
from the facts must be drawn in favor of that party as well.
U.S. v. Kensington Hospital, 760 F. Supp. 1120 (E.D.Pa. 1991);
Schillachi v. Flying Dutchman Motorcycle Club, 751 F. Supp. 1169
When, however, "a motion for summary judgment is made and
supported [by affidavits or otherwise], an adverse party may not
rest upon the mere allegations or denials of the adverse party's
pleading, but the adverse party's response . . . must set forth
specific facts showing that there is a genuine issue for trial.'
If the adverse party does not so respond, summary judgment, if
appropriate may be entered against [it]." Fed.R.Civ.P. 56(e).
A material fact has been defined as one which might affect the
outcome of the suit under relevant substantive law. Boykin v.
Bloomsburg University of Pennsylvania, 893 F. Supp. 378, 393
(M.D.Pa. 1995) citing Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). A dispute about a
material fact is "genuine" if "the evidence is such that a
reasonable jury could return a verdict for the non-moving party."
Id., citing Anderson, 477 U.S. at 248, 106 S.Ct. at 2510.
A. Which state's law governs?
At the outset, we are presented with the question of which
state's law should be applied to this case. Defendant asserts
that this case must be evaluated in the context of the laws of
the plaintiffs' respective home jurisdictions. Plaintiffs
Benevento, Krapf and Rosenblum are residents of Pennsylvania.
Plaintiffs Compaine and Maze, in turn, are residents of New
Jersey and Plaintiff Baskin is a Florida resident. Defendant
would therefore have this Court consider the plaintiffs' claims
under Pennsylvania, New Jersey and Florida law. Plaintiffs, on
the other hand, argue that the law of the Defendant's home state,
Minnesota, should be applied.
It is now well-settled that in diversity actions, a federal
court must apply the choice of law rules of the state in which it
sits. Klaxon Co. v. Stentor Electric Manufacturing Co.,
313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941); United
Services Automobile Ass'n. v. Evangelista, 698 F. Supp. 85, 86
(E.D.Pa. 1988). Pennsylvania has adopted a choice of
law/conflicts methodology which combines the approaches of both
the Second Restatement (contacts establishing significant
relationships) and "interest" analysis (qualitative appraisal of
the relevant state's policies with respect to the controversy).
Carrick v. Zurich-American Insurance Group, 14 F.3d 907, 909
(3rd Cir. 1994) quoting Lacey v. Cessna Aircraft Co.,
932 F.2d 170, 187 (3rd Cir. 1991); Griffith v. United Air Lines, Inc.,
416 Pa. 1, 203 A.2d 796 (1964). Pennsylvania's choice of law
analysis has therefore been said to entail two steps: first, the
court must look to see whether a false conflict exists. LeJeune
v. BlissSalem, Inc., 85 F.3d 1069, 1071 (3rd Cir. 1996). See
Also: Hughes v. Prudential Lines, Inc., 425 Pa. Super. 262,
624 A.2d 1063, 1066, n. 2 (1993). Then, if there is no false
conflict, the court must determine which state has the greater
interest in the application of its law. Id., citing, inter
alia, Cipolla v. Shaposka, 439 Pa. 563, 565, 267 A.2d 854
(1970). A false conflict exists when two jurisdictions have
applicable law but applying the law of one jurisdiction would not
result in impairing the governmental interests of the other.
Teti v. Huron Insurance Co., 914 F. Supp. 1132, 1134 (E.D.Pa.
Here, both Plaintiffs and Defendant evidently agree that no
false conflict is present as neither party makes any argument
whatsoever as to whether the interests of Pennsylvania,
Minnesota, New Jersey or Florida would be impaired by application
of the law of any of the other jurisdictions. Accordingly, we
shall assume that the conflict is genuine and turn now to examine
the contacts and interests of the competing jurisdictions.
In accord with Restatement (Second) Conflict of Laws § 188, the
have recommended that resolution of a choice of law question
involving a contract dispute be based upon consideration of the
following factors: (a) the place of contracting; (b) the place of
negotiation of the contract; (c) the place of performance; (d)
the location of the subject matter of the contract; and (e) the
domicile, residence, nationality, place of incorporation and
place of business of the parties. Compagnie des Bauxites de
Guinee v. Argonaut-Midwest Insurance Company, 880 F.2d 685, 689
(3rd Cir. 1989); Gould v. Continental Casualty Co., 822 F. Supp. 1172,
1175 (E.D.Pa. 1993). See Also: Doe v. Provident Life and
Accident Insurance Co., 936 F. Supp. 302, 306, n. 3 (E.D.Pa.
1996). Pennsylvania courts have determined that contracts are
"made" at the place of delivery. USAA v. Evangelista, supra,
698 F. Supp. at 86-87.
In this case, the evidence shows that while the defendant is
licensed to do business in other states, including Pennsylvania,
it was incorporated and maintains its principal place of business
in Minnesota. Plaintiffs argue that the annuity and the
advertising and marketing materials used to sell the policies,
were designed in Minnesota but that they received their
Accumulator Annuity policies in their home states of
Pennsylvania, New Jersey and Florida. The sales agents who sold
the annuities to the plaintiffs operated, and from all
appearances, themselves reside within the plaintiffs' home
states. Viewing these facts in the context of the
above-referenced factors, we therefore find that the contracting,
negotiation and performance of the contract all took place in the
state(s) in which the plaintiffs reside and that it is therefore
the states in which the plaintiffs are domiciled which have the
greater interest(s) in the outcome of this lawsuit. Compagnie
des Bauxites de Guinee v. Argonaut-Midwest Insurance Company,
880 F.2d 685, 689 (3rd Cir. 1989). We therefore conclude that the
laws of Pennsylvania, New Jersey and Florida should be applied to
evaluate the plaintiffs' claims here.
B. The "Independence" of LifeUSA's Agents.
LifeUSA next asserts that it cannot be held liable for the
misrepresentations and non-disclosures allegedly made by the
agents who sold the plaintiffs their annuity policies because
those sales people were acting as the ...