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Kushnir v. Aviva Life and Annuity Co.

United States District Court, Third Circuit

August 21, 2013

VLADIMIR KUSHNIR, Individually and as Trustee of the V-4 Management LLC Defined Defined Benefit Pension Plan & Trust, and V-4 MANAGEMENT, LLC, Plaintiffs,
v.
AVIVA LIFE & ANNUITY COMPANY, Defendant/Third Party Plaintiff,
v.
JEFFREY CUNNING; ROGER FULLER; SCOTT RIDGE; and T.J AGRESTI, Third Party Defendants.

MEMORANDUM

DuBois, Judge.

I. INTRODUCTION

Plaintiffs Vladimir Kushnir and V-4 Management, LLC brought suit against defendant Aviva Life & Annuity Company in connection with a life insurance policy purchased from defendant. Presently before the Court is defendant’s partial motion to dismiss the Amended Complaint. For the reasons set forth below, the Court grants in part and denies in part defendant’s motion.

II. BACKGROUND

In their Amended Complaint, plaintiffs Vladimir Kushnir and V-4 Management, LLC, allege, inter alia, that defendant Aviva Life & Annuity Company and certain authorized agents marketed and sold Kushnir a life insurance policy (“the Policy”) which he used to fund a defined benefit pension plan established by V-4. This type of benefit plan, created under 26 U.S.C. § 412(i)[1] of the Internal Revenue Code, generally provides participating employees with certain retirement and death benefits and “must be funded by assets sufficient to fund those future benefits, ” such as insurance or annuity policies. (Am. Compl. at ¶16.)

Plaintiffs allege that defendant and its agents “consistently represented that the Policy would require only five out-of-pocket premium payments of $190, 119.10 each in years one through five of the Policy, with the annual premiums in at least each of the next six years . . . being paid from the Policy’s accumulated cash value or loans against the same.” (Id. at ¶61.) The Policy was issued on February 3, 2003, and plaintiffs paid annual premiums of $190, 118.10 for five years, from 2003 to 2007. (Id. at ¶80.)

“Defendant claims to have placed the Kushnir Policy on ‘reduced paid up’ . . . status, as of March 27, 2008, for alleged failure of Kushnir to pay the annual premium due on February 3, 2008 . . . . ” (Id. at ¶89.) Plaintiffs allege that as a consequence of the “reduced paid up status, ” the death benefit under the Policy was reduced by $3.8 million, and the “surrender charges” of the Policy were increased, which in turn caused the cash surrender value of the Policy to decrease. (Id. at ¶90.)

In 2007 the IRS initiated an audit concerning “Plaintiffs’ use of the Kushnir Policy to fund the V-4 Plan.” (Id. at ¶84.) The IRS subsequently determined that “Plaintiffs’ use of the Kushnir Policy to fund the V-4 Plan was abusive and unlawful, resulting in the denial of tax exemptions and deductions claimed by Kushnir and V-4 on the $950, 75.42 in premium contributions, and the assessment of excise taxes and other penalties . . . . ” (Id. at ¶85.)

The Amended Complaint contains five counts: (1) Violation of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law (“UTPCPL”), (2) Common Law Fraud, (3) Equitable Rescission/Unjust Enrichment, (4) Breach of Contract, and (5) Bad Faith.

Defendant moves to dismiss plaintiffs’ “fraud-based” claims in Counts I and II of the Amended Complaint. The gravamen of plaintiffs’ claims in Counts I and II is that defendant misrepresented both (1) the legality and effectiveness of using the Policy to fund a § 412(i) plan, and (2) the payment schedule for the Policy. Defendant seeks dismissal only of those fraud-based claims in Counts I and II which address the legality and effectiveness of the § 412(i) plan. Defendant also moves to dismiss Count III of the Amended Complaint.[2] The Court addresses defendant’s arguments in turn.

III. DISCUSSION

A. Count I- Violation of UTPCPL

Defendant first argues that plaintiff lacks standing to bring a claim under the UTPCPL because the product at issue was purchased for business purposes. The UTPCPL permits a private right of action where a plaintiff experiences a loss from certain unlawful business practices, so long as the “goods or services” at issue are “primarily for personal, family or household purposes . . . . ” 73 Pa. Stat. Ann. § 201-9.2. “Whether a purchase is primarily for household purposes and a cause of action under the UTPCPL is available depends on the purpose of the purchase, not the type of product purchased.” Coleman v. Commonwealth Land Title Ins. Co., 684 F.Supp.2d 595, 618 (E.D. Pa. 2010). Defendant argues that the § 412(i) plan at issue was created for Kushnir’s business purposes and, as such, his claims under the UTPCPL should be dismissed.

In response, plaintiffs state that the product at issue is not the § 412(i) plan, but rather the Policy that was marketed and sold by defendant and its agents. Plaintiffs allege that the Policy was in fact purchased by Kushnir “for his individual, personal use and benefit, to be funded by tax exempt contributions of a portion of his ...


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