The opinion of the court was delivered by: Martin C. Carlson United States Magistrate Judge
(Magistrate Judge Carlson)
Pending before the Court is First Priority Bank's motion to intervene in this action pursuant to Rule 24 of the Federal Rules of Civil Procedure in order to protect its security interest in the life insurance policy that Plaintiff has claimed is void as a so-called stranger-originated life insurance, or "STOLI," transaction. Defendants have concurred in the request to intervene, but Plaintiff has opposed the motion, arguing that it is untimely and prejudicial to the insurer's interests in this case. For its part, First Priority Bank maintains that its request to intervene -- either as of right or by permission -- is timely and not dilatory, and will not prejudice the rights or interests of any party in this suit. First Priority further argues that recent events demonstrate that Defendants cannot reasonably be expected to protect the bank's security interest sufficiently, and thus it should be permitted to intervene to ensure that these interests are effectively represented and advocated in an action that was brought in an effort to declare the policies (and, therefore, First Priority's security interest) void. Upon consideration of the briefs, we will permit First Priority Bank to intervene and will direct that the bank's answers and affirmative defenses be filed of record in this action.
In this action, which commenced on December 23, 2008, Plaintiff Principal Life Insurance Company is seeking a declaratory judgment that the policies are void; First Priority is now seeking to intervene in order to protect its first lien security interest in the policies that Principal is seeking to set aside through a declaratory judgment. According to First Priority, it did not seek to intervene in this action earlier because, until recently, it had reason to believe that its interests were sufficiently protected by Defendants in this litigation. However, Defendants allegedly defaulted on their obligations under the DeRose Family Trust's loans from First Priority Bank, and failed to satisfy their obligation to pay the premiums owed under three life insurance policies that Plaintiff issued, and in which First Priority enjoys a perfected security interest. In order to protect its security interest in the policies, First Priority Bank now seeks to intervene as a party in this action pursuant to Federal Rule of Civil Procedure 24.
According to the parties' various submissions, First Priority Bank loaned $1,515,000.00 to Defendants that was used to purchase, and which is secured by, three policies of life insurance issued on the life of JoAnn DeRose (the "Policies"). First Priority represents that the DeRose Trust gave the bank three promissory notes -- one for each of the policies -- in conjunction with the loan. The notes obligated the Trust to repay the loan monthly beginning in April 2007, with a final balloon payment due no later than March 27, 2009. (Doc. 76, Ex. A, Notes, p. 1, ¶ 2.) The Trust also assigned the Policies to First Priority as collateral for the loans, and the assignment of the Policies authorizes First Priority to, inter alia, collect from the insurer the net proceeds of the Policies when they may become due as a result of death or maturity. (Id., Ex. B, Assignments, ¶ B.1.) First Priority represents that it perfected its security interest on March 22, 2007. (Id., Ex. C.)
By letter dated March 6, 2009, First Priority notified the Trust that the principal amount of the loan was set to mature within three weeks, and recommended that the Trustees arrange for payment of all amounts due under the notes. Notwithstanding this communication, First Priority contends that the Trust has failed to repay the loan or to otherwise satisfy the requirements of the notes.
Additionally, First Priority avers that the Trust has not fulfilled its obligation to pay the premiums required to keep the policies in force, and , therefore, have jeopardized First Priority's security interest in the policies. First Priority has submitted letters dated February 6, 2010, and February 25, 2010, in which it notified the Trust regarding its alleged defaults, and advised the Trust that the policies would expire unless the premiums were satisfied. (Doc. 76, Ex. E.) According to First Priority, the Trust failed or refused to pay the premiums owed, and as a result, First Priority has taken physical custody of the policies and paid the outstanding premiums in order to protect its security interest in the policies. In order to further protect its security interest in the policies, First Priority Bank has sought leave to intervene as a party in this action. Plaintiff has opposed the motion.
Rule 24 of the Federal Rules of Civil Procedure governs intervention of prospective parties into pending actions. Rule 24(a) governs intervention as of right, where as Rule 24(b) governs permissive intervention. See Fed. R. Civ. P. 24. In this case, First Priority argues in favor of its motion to intervene under either standard, though we find it necessary to consider only First Priority's motion to intervene as of right under Rule 24(a).
The Third Circuit has announced a four-part test that courts should use when determining whether a party may intervene in a lawsuit as of right. This test requires that courts consider whether "(1) the application for intervention is timely; (2) the applicant has a sufficient interest in the litigation; (3) the interest may be affected or impaired, as a practical matter by the disposition of the action; and (4) the interest is not adequately represented by an existing party in the litigation." Brody v. Spang, 957 F.2d 1108, 1115 (3d Cir. 1992) (citing Harris v. Pernsley, 820 F.2d 592, 596 (3d Cir. 1987)). A proposed intervenor must satisfy each of these requirements in order to intervene as of right. Harris, 820 F.2d at 596. Furthermore, the party seeking to intervene bears the burden of establishing all four of the ...