West Virginia Business Litigation : West Virginia Business Litigation Lawyer & Attorney : Law Office of Jeffrey V. Mehalic : Charleston, Huntington, Parkersburg

I'm finishing up a post about an interesting decision last week from the Third Circuit Court of Appeals regarding trade secrets, but in the meantime, I wanted to note this item from today's Insurance Law 360 (subscription required) that New York State Attorney General Andrew Cuomo has expanded his investigation into retained-asset accounts and subpoenaed records from six other insurance companies, including Genworth Financial, Inc., Guardian Life of America, and Axa SA's Mony Life Insurance Company.

David Evans, whose story last week exposed MetLife and Prudential's use of retained-asset accounts, has identified the other companies receiving subpoenas as Unum Group, New York Life Insurance Company, and Northwestern Mutual Life Insurance Company.

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That didn't take long. In my post yesterday about the retained-asset accounts maintained by MetLife and Prudential, I predicted that a class action would be filed against the insurers based on their allegedly deceptive practices, such as not adequately disclosing that the accounts are not insured by the Federal Deposit Insurance Corporation and are invested in the insurance companies' general corporate accounts, and that the rate of return paid to the beneficiaries is far less than what the insurance companies earn for themselves, which means that the difference is profit to the insurance companies.

Yesterday, in the United District Court for the District of Massachusetts, plaintiffs filed a putative class action against Prudential Insurance Company of America. Lucey v. Prudential Ins. Co. of America, 3:10-CV-30163 (W.D. Mass.)

Here is the complaint, which is filed on behalf of a class defined as "All persons who were/are beneficiaries of SGLI [Servicemembers Group Life Insurance Program] , VGLI [Veterans’ Group Life Insurance Program] and/or TSGLI [Traumatic Injury Protection] benefits dating back to six years from the date of filing on this Complaint."

The suit alleges that Prudential failed to pay "monies generated by the benefit owed to Plaintiffs and the Class between the time of accrual of the benefit upon the death or traumatic injury of the insured and the time at which the full value of the benefit was eventually paid to Plaintiffs and the Class." The complaint alleges claims for breach of contract, breach of fiduciary duty, and breach of the implied duty of good faith and fair dealing, and seeks compensatory damages for the income earned by Prudential on its investment of the beneficiaries' proceeds, establishment of a constructive trust, and attorney's fees and expenses.

The representative plaintiffs include Kevin and Joyce Lucey, the parents of Jeffrey Lucey, who died on June 22, 2004. The complaint alleges that the Luceys received $53,000 (out of a benefit of $250,000) in July of 2004, and the balance of $197,000 by March 2009. Prudential paid interest of approximately 1% per year to the unpaid balance of the policy at the time of distribution of the funds.

The other representative plaintiff is Tracy Eiswert, the widow of Scott Eiswert, who died on May 16 , 2008. According to the complaint, Ms. Eiswert received the entire benefit of $400,000 on February 26, 2009, plus interest of approximately 1% for the period Prudential held the funds.

The complaint provides a detailed history of the laws that entitle service members and their families to benefits, as well as the types and amounts of available coverage. The complaint also provides some actual numbers to support the plaintiffs' allegations that the insurance companies -- in this case, Prudential -- have profited handsomely on the difference between the rate of return paid to beneficiaries and the companies' own rate of return:

37. For the year 2009 alone, the US Department of Veterans Affairs (“VA”) reports that [Prudential], as Administrator of the SGLI and VGLI programs, collected $982,811,925 in premiums, $213,241,777 in contributions from the various service branches, and $144,088,273 in investment income, and that it held reserves amounting to $2,529,652,423, indicating earnings exceeding $5.69% per year. [Prudential], in turn, paid to beneficiaries on the accrued claims only 1% interest on the accrued monies as of the day of death or traumatic injury of the insured.

38. For the year 2009 alone, the VA reports that [Prudential], as Administrator of the SGLI and VGLI programs, paid 1,125,569,521 in death claims for members and their families, and added $191,423,248 to [Prudential]’s reserves.

And not surprisingly, there are millions of potential class members: 

42. The number of persons in the class makes joiner of all members impracticable. The VA reports that, in 2009 alone, there were 2,371,000 members covered by SGLI as well as 3,133,000 spouses and children and that [Prudential] paid, on death claims under SGLI, $921,967,073. VA reports that in 2009 alone there were 432,000 insureds and that [Prudential] paid, through VGLI, death claims totaling $206, 602,448. VA finally reports that [Prudential] paid $86,625,000 in 2009 under the TSDGLI program.

Stay tuned.

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I have written previously about corporate-owned life insurance policies -- so-called “dead peasant” policies -- and stranger-owned life insurance policies, which involve employers and investors insuring the lives of their employees or even strangers, then collecting the proceeds when the insureds die.

But according to an article entitled "Duping the Families of Fallen Soldiers" by senior writer David Evans in Bloomberg Markets Magazine  and picked up by various outlets, including the Daily Beast, NPR, and MSNBC,  even the families of deceased service men and women are not immune to the creative practices of insurance companies. The article explains that insurance companies are making hundreds of millions of dollars per year  from retained-asset accounts issued to government employees and soldiers.

With a retained-asset account, the insurance company does not pay the proceeds to the beneficiary in a lump-sum, but instead issues a checkbook that ostensibly enables the beneficiary to write checks from an account that contains the proceeds, much like a money-market account. But based on the experience of Cindy Lohman, the mother of serviceman Ryan Lohman, who was killed by a bomb in Afghanistan in August 2008, Prudential Financial Inc. put the $400,000 death benefit in an Alliance Account, which was not guaranteed by the Federal Deposit Insurance Corporation. And although Prudential paid Lohman interest at a rate of about 1% in 2008, Prudential kept Lohman's funds in its general corporate account, which earned Prudential a rate of return of 4.8%. This month, MetLife, the nation's largest insurance company, and Prudential, the second-largest, are paying an interest rate of .5% on the benefits they hold.

UNLV law professor Jeffrey Stempel, who is quoted in Evans' article, describes the "checkbook" system as "institutionalized bad faith," because it's "a scheme to defraud by inducing the policyholder’s beneficiary to let the life insurance company retain assets they’re not entitled to. It’s turning death claims into a profit center.”

Evans writes that there are one million death-benefit accounts worth $28 billion, but, as with Lohman's, the benefits aren't kept in financial institutions and don't have FDIC coverage. The benefits are backed up only by the financial stability of the respective insurance companies, which, according to Duke University law professor Lawrence Baxter, could lead to a run triggered by an insurance company's inability to honor its obligations.

Obviously, the insurers' motivation for using retained-asset policies is to make money, and they make a lot of it. Gerry Goldsholle, a former president of MetLife Marketing Corp. who created the accounts in 1984, says MetLife makes $100 million to $300 million a year from returns on the benefits it holds:

Goldsholle says he pondered the billions of dollars of death-benefit proceeds the company paid out each year.

“I looked at this and said this is crazy,” says Goldsholle, who left the firm in 1991. “What are we doing to retain some of this money? It’s very expensive to bring money in the front door of an insurance company. You’re paying very large commissions and sales expenses.”

So he came up with a way for MetLife to hold onto death benefits.

“The company would win because we would make a nice spread on the money,” Goldsholle says, while customers would earn interest on their accounts. MetLife, he says, can earn 1 to 3 percentage points more from its investment income -- mostly from bonds -- than it pays out to survivors.

Based on the coverage the article has attracted already, there will be considerable pressure on MetLife (which handles insurance for nonmilitary federal employees) and Prudential to change their practices. Obviously, the easiest solution is for the insurance companies to pay the policy proceeds to the beneficiaries as soon as the claim is approved. That would dispense with the entire pseudo-money-market account scheme, which is, at best, misleading, and, at worst, illegal, as the insurance companies function as banks without the corresponding legal protections.

And despite MetLife and Prudential's assertion that they provide adequate disclosures to the beneficiaries about the nature of the accounts, expect a class action against the insurers based on their allegedly deceptive practices, such as the disparity in rates of return and the lack of federal insurance for the benefits.

UPDATE: After I wrote this post, I came across this story announcing that New York Attorney General Andrew Cuomo has started an investigation into retained-asset accounts and issued subpoenas to MetLife and Prudential.

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I came across a very informative article by Elaine McArdle about a negotiation workshop at Harvard Law School last year where Washington, D.C. lawyer Robert B. Barnett spoke as a guest lecturer.

Barnett is a partner in Williams & Connolly LLP, where, in addition to his representation of Fortune 100 corporations, he represents approximately 350 television correspondents and anchors (he’s married to CBS News’ Rita Braver) and is probably the nation's pre-eminent author’s representative. (Barnett’s appeal to big-time authors – those who can command six- or seven-figure advances – is that he doesn’t charge an agent’s customary commission of 15%, but bills at his hourly rate, which is currently $950.) Kim Eisler wrote an excellent profile of Barnett in the December 2008 issue of Washingtonian magazine, entitled "Bob Barnett: Master of the Game." And if you want even more information about Barnett, Eisler's book, Masters of the Game -- about Williams & Connolly and several of its more prominent partners, including Barnett -- was published last month.

Barnett shared some lessons about negotiation with the HLS students. I linked to the whole article above, but here is Barnett’s advice:

• Know more about your case than anyone. “Know more even than your own client knows,” said Barnett, noting that Williams, before trial, would “hibernate” for two or three months, “learning every case, fact, every counter-argument. He’d go into court knowing more than anyone: judge, client, the adversary.”

• Put yourself in the other side’s shoes. “Try to understand where they’re coming from, what their arguments are,” said Barnett. “Try to realize they have bosses, self-esteem, careers. Try to treat your adversary fairly, and pride yourself on always treating them the same way you hope they’d treat you. That goes a long way toward getting a good result.”

• Assess your leverage. “Everybody is expendable although everyone seems to think they are indispensable,” said Barnett. “I try to figure out how important what I’m selling is to the buyer, or what I’m buying is to the seller.”

• Present your best story first. Put forth the facts of your side or the situation as you see it before the other side does the same. “I want to be able to influence the first offer, not to just receive it,” said Barnett.

• Negotiations are best done in person. “I think the first meeting has to be in person,” he said. “You want to watch their reaction, see the nuance of how they’re reacting,” he said.

• And a corollary: Avoid negotiating by email. It’s impersonal, subject to misinterpretation, and creates a record you may not want, Barnett said. “The more you can do in person or orally on the phone, the better. Email, in most ways, has made our lives much worse. It’s certainly made the practice of law much worse.”

• Four invaluable phrases: “‘Please correct me if I’m wrong’ means you’re asserting your position but you’re appearing humble and you’re leaving the other side open to correct you in a way that might inform you or get you something you want,” said Barnett. “I also like to say, ‘I appreciate your offer, but…’ It shows gratitude and respect but is not obsequious.” Another useful phrase: “Say, ‘Let me see if I understand,’ then repeat what they said.” And his fourth: “Don’t take a position but say, ‘One solution might be …’ You haven’t offered anything, aren’t stuck with it, and it hasn’t been approved by your client yet. But it furthers the dialogue.”

• “Don’t be afraid to say, ‘Let me get back to you,’ or ‘I have to consult with my client,’” said Barnett. “A continuance is as good as an acquittal, it just doesn’t last as long, Edward Bennett Williams used to say.”

• Always be the drafter of the agreement. “Williams used to say, ‘He who drafts, wins,’” Barnett said. Even though any contract is likely to go back and forth between the parties, working off of your first draft is a strategic advantage.

• At the end, give the other side credit. “I know my adversaries’ bosses. It makes me happy to say, ‘Your counsel did a great job on this.’”

• Give your client credit, too. “If the client got a great deal, it’s because the client is smart or a good writer or a good athlete,” Barnett said. “Never forget that you’re a fiduciary, a functionary.”

• Never lie. “It isn’t worth it, it isn’t ethical, it’s grounds for disbarment,” Barnett warned. “In the end, you’ll always get caught.”

• Cut the Valley-speak. “’You know’ and ‘like’ are the two worse phrases you can use. They make you sound like a teenage girl. They make you sound less smart than the Harvard geniuses you are.”

Although all of Barnett's advice makes sense, my two favorites are not to negotiate by email (which I have done on occasion) and always be the drafter of the agreement.

What advice of Barnett’s do you like best?

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I hope everyone has enjoyed a safe and happy Fourth of July weekend.

Let me try and ease you back into the work week with a discussion about a Fourth Circuit decision issued a few months ago, which addressed the timeliness of a removal petition involving multiple defendants, and which fellow West Virginia blogger Brian Peterson discussed on his West Virginia Legal Weblog.

As you probably know, removal is the procedure by which one or more defendants transfer an action filed in state court to federal court, based on diversity jurisdiction, federal question jurisdiction, or federal preemption.   

The removal statute, 28 U.S.C. § 1446, provides that:

The notice of removal of a civil action or proceeding shall be filed within thirty days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based, or within thirty days after the service of summons upon the defendant if such initial pleading has then been filed in court and is not required to be served on the defendant, whichever period is shorter.

But how do you determine when a removal petition is timely if there are multiple defendants, who will rarely be served simultaneously? Do you calculate the 30-day limit based on when the first defendant was served, when the last defendant served, or something in between? 

In Barbour v. International Union, 594 F.3d 315 (4th Cir. 2010), the Fourth Circuit answered the question by going with the last-served defendant, although the opinion is a little convoluted (and includes a detailed discussion of what constitutes dicta in a decision. So for those of you who have been waiting for a detailed discussion of dicta,  your wait is over.

In Barbour, the plaintiffs sued three defendants, an international union and two of its local unions. The international union was served on March 20, 2008 and one of the locals was served on March 29, 2008. On April 30, 2008, all three defendants filed a joint notice of removal, even though the other local union had not been served.

The plaintiffs moved to remand on the grounds that the removal was not timely. (They also challenged the basis for federal jurisdiction, which I will not address, although that ended up being the basis for the circuit court's decision that remand was appropriate.) The district court denied the motion to remand and the motion for reconsideration and expressed its belief that the case represented an "excellent opportunity for the Fourth Circuit to clarify whether the 'first-filed' 'dictum' in McKinney v. Bd. of Tr. of Mayland Cmty. Coll., 955 F.2d 924 (4th Cir. 1992), means what it actually seems to say."

The "first-filed" "dictum" in McKinney referred to this language in footnote 3:

[W]here B is served more than 30 days after A is served, two timing issues can arise, and the law is settled as to each. First, if A petitions for removal within 30 days, the case may be removed, and B can either join in the petition or move for remand. See 28 U.S.C.§ 1448. Second, if A does not petition for removal within 30 days, the case may not be removed.

(Emphasis in original.)

So according to McKinney, the removal petition filed by the Barbour defendants would not be timely because the international union, as the first-served defendant, did not petition for removal within 30 days.

But the Barbour court regarded the McKinney language as non-binding dicta, and that since McKinney, the United States Supreme Court had decided Murphy Bros., Inc. v. Michetti Pipe Stringing, Inc., 526 U.S. 344 (1999). Plus, the defendants served first in McKinney had timely filed their notice of removal within 30 days of being served, so the issue there was whether the defendants who were served later could join in the removal to make it unanimous, even if their agreement came more than 30 days after the first defendants were served, but within 30 days of service on the later-served defendants.

The Barbour court was also persuaded by decisions from the Sixth, Eighth, and Eleventh Circuits, all of which had held that the last-served defendant was preferable.

The court was also concerned that:

Under either the pure first-served defendant rule or the McKinney rule, Local 1212's [the later-served local] right of removal would have been waived by the International Union's failure to file a notice of removal within 30 days of being served even though it was not yet within the court's jurisdiction. Such prejudice to Local 1212's rights would violate the spirit, if not the letter, of the "bedrock principle" that "a defendant is not obliged to engage in litigation unless notified of the action and brought under a court's authority, by formal process."

Consequently, the court adopted the last-served defendant rule and held that "in cases involving multiple defendants, each defendant, once served with formal process, has thirty days to file a notice of removal pursuant to 28 U.S.C. §1446(b) in which earlier-served defendants may join regardless of whether they have previously filed a notice of removal.

In a footnote to the excerpt above, the court addressed the concern that a plaintiff may have that multiple defendants are receiving an unfair number of opportunities to remove an action:

In our view, this rule does not work an injustice on a plaintiff who, by serving the defendants as contemporaneously as possible, can minimize any significant disruption, either to their case or proceedings in the state court. Thus, while any such burden is minimal, all defendants have their opportunity to remove the case protected. See Stravitz, supra, at 210 ("[T]he only rule that balances plaintiff-oriented policies of unanimity and timelessness with a defendant's procedural right to remove is the true last-served defendant rule ....").

Emphasis in original.

I think the operative words in the footnote are "by serving the defendants as contemporaneously as possible," which seems to imply that an injustice may occur if a plaintiff doesn't serve the defendants contemporaneously. Sometimes, it may not be desirable or possible to serve all the defendants contemporaneously, in which case the later-served defendant rule enables a defendant that may have wanted to remove the action, but didn't to have another chance to do so. 

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As promised (or maybe threatened), today I want to discuss one of the two new decisions from the United States Supreme Court dealing with arbitration. Although I had intended to address both, I think that Granite Rock Co. v. International Broth. of Teamsters, 2010 WL 2518518 (June 24, 2010), which deals with arbitration in a collective-bargaining agreement, deserves more attention than I'm prepared to give it at this point. 

And if you missed it, yesterday I wrote about two recent decisions from the Supreme Court of Appeals of West Virginia that focus on the trial court's scope of review of an arbitration agreement.

While arbitration provisions have long been incorporated in, for instance, brokerage contracts and mobile phone contracts, the provisions are found increasingly in other documents, such as employment agreements. As the following decision makes clear, regardless of your area(s) of specialization and whether you represents plaintiffs or defendants, you need to know about arbitration.

In Rent-A-Center, West, Inc. v. Jackson, 2010 WL 2471058 (June 21, 2010), the agreement to arbitrate was separate from the employment agreement and required the plaintiff, Jackson, to agree to its terms as a condition of employment. It also provided that the arbitrator, and not any court or agency, "shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement, including, but not limited to any claim that all or any part of this Agreement is void or voidable."

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I want to close out the month by discussing two decisions from the Supreme Court of Appeals that address the scope of the trial court's review of an arbitration agreement. Tomorrow I'll write about two new decisions from the United States Supreme Court that also deal with arbitration.

In State ex rel TD Ameritrade, Inc. v. Kaufman, 692 S.E.2d 293 (W. Va. 2010), TD Ameritrade claimed that Dan Salamie was required to arbitrate his claim that Ameritrade was vicariously liable for losses Salamie sustained when his broker, Bruce Conrad, disregarded his instructions regarding various investments.  Ameritrade moved to compel arbitration and to dismiss Salamie's lawsuit and/or to stay the litigation pending the outcome of arbitration.

Salamie did not oppose arbitration so long as Ameritrade stipulated that Conrad was within its "control," as defined by federal securities law, so that Salamie could establish that Ameritrade was vicariously liable for Conrad's actions. Ameritrade refused the stipulation, so Salamie responded to Ameritrade's motion to compel and moved for partial summary judgment on whether Conrad was a "controlled person."

The circuit court granted Ameritrade's motion to compel arbitration, but also granted Salamie's motion for partial summary judgment, and made findings of fact and conclusions of law regarding Conrad's status, and ordered the arbitrator to adopt those findings and conclusions. Ameritrade sought a writ of prohibition against the circuit court's ruling on the grounds that the court exceeded its authority by ruling on the merits of the dispute even though it had compelled arbitration.

Ameritrade argued that the circuit court was limited to deciding whether the underlying dispute was subject to arbitration and could not address the merits of the dispute. Unlike most cases involving arbitration, where the parties are fighting over whether arbitration is required or whether the Federal Arbitration Act is applicable, the parties' disagreement here was "whether the trial court had the authority to address any matters in addition to the threshold issue of arbitrability."

In a unanimous opinion written by Justice Thomas McHugh, the Court agreed with Ameritrade's position and rejected Salamie's reliance on the severability doctrine, which provides that a trial court can address a challenge to an arbitration clause, but that only an arbitrator can consider a challenge to the contract as a whole:

Seeking to forestall an arbitral ruling that the contracts executed between Mr. Salamie and TD Waterhouse were not binding on successor Ameritrade and also seeking to prevent the arbitrator from concluding that Mr. Conrad was not a "controlled person" under federal law, Mr. Salamie persuaded the trial court to rule on issues that involve the merits of the underlying dispute. This foray into matters reserved for arbitral resolution was clearly improper. When a trial court is required to rule upon a motion to compel arbitration pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1-307 (2006), the authority of the trial court is limited to determining the  threshold issues of (1) whether a valid arbitration agreement exists between the parties; and (2) whether the claims averred by the plaintiff fall within the substantive scope of that arbitration agreement.

(Emphasis added).

The excerpt in bold represents new syllabus point part 2 of the opinion. 

Finally, the Court also found that the circuit court erred in ruling on Salamie's motion for partial summary judgment, as the ruling was improper under the severability doctrine, and also because "unresolved factual issues" combined with the lack of discovery made the ruling improper.

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In March, the Supreme Court of Appeals issued its decision in Perrine v. E.I. du Pont de Nemours and Co., 2010 WL 1170661 (W. Va., March 26, 2010), which, among other things, reduced the punitive damages award of nearly $200 million by 40 percent on the grounds that punitive damages were not recoverable in a claim for damages for medical monitoring. Here is my post discussing the decision.

DuPont filed a petition for rehearing in April, in which it sought to have the amount of punitive damages allocated to medical monitoring increased to 70 percent on the grounds that first, the Court should not have considered statements made during oral argument regarding the allocation of 40 percent of the punitive damages to medical monitoring, and second, that evidence showed that 70 percent of the punitive damages should have been awarded for medical monitoring.

Earlier this month, the Court denied the petition, which is not unusual. But what is unusual is that the Court issued this unanimous per curiam opinion addressing DuPont's arguments, which was not a good sign for DuPont. Perrine v. E.I. duPont de Nemours and Co., 2010 WL 2243936 (W. Va., June 2, 2010).

During oral argument, the Court had asked plaintiffs' counsel if the trial court had allocated the punitive damages between the medical monitoring claims and the property damage claims. Counsel said the trial court had allocated 40 percent of the punitive damages to medical monitoring. During his argument, DuPont's counsel did not address the plaintiffs' counsel's representations. But in its petition for rehearing, DuPont contended that the trial court made no allocation of punitive damages, and so the Supreme Court should allocate 70 percent of the damages to medical monitoring claims.

The Court first explained that principles of appellate procedure prevented a party from moving for rehearing to address issues that could have been raised before the appeal was concluded. The Court refers to this principle later in the opinion as the "raise or waive" rule. The Court determined that, "as a result of DuPont's silence during oral argument, it has waived its right to contest the issue of an allocation of punitive damages by the circuit court."

DuPont also argued that the Court could not consider the plaintiffs' counsel's statements (regarding the allocation) during oral argument because "'statements by counsel during argument do not constitute evidence.'" The Court disagreed, and stated that "This contention by DuPont shows a lack of understanding of the purpose of appellate oral argument and the discretionary weight that is given to argument of counsel."

The Court explained that the purpose of oral argument was to assist the court in understanding the parties' arguments, and that the Court had even ruled on cases based on representations made during oral argument where the record was silent. Thus, the Court affirmed that it "may rely on representations made by counsel during oral oral argument regarding an issue that is not addressed in the record on appeal."

The other issue that DuPont raised was that while the parties' appeals were pending and prior to oral argument, the parties had conducted proceedings before a special master to address the allocation of punitive damages. DuPont referred to a letter dated August 29, 2008 from plaintiffs' counsel suggesting that 70 percent of the punitive damages should be allocated to medical monitoring claims, and that in a report issued on November 25, 2008, the special master had adopted that recommendation.

Initially, the Court characterized the special master's report as nonbinding because DuPont had not alleged that the circuit court had adopted the report's recommendations, and, in fact, the report itself asked that no action be taken regarding its recommendations until all appeals were resolved or the parties settled the case.

With that characterization in mind, the Court concluded that the evidence was untimely, as DuPont apparently was aware of the report, which was submitted to the circuit court on November 25, 2008, from that date until oral arguments on April 7, 2009, but failed to file a motion with the Court to supplement the record with the report.

The Court reiterated that DuPont had failed to challenge the plaintiffs' allocation of punitive damages during oral argument, and had not informed the Court that no allocation had been made and that the special master had adopted the plaintiffs' counsel's suggestion that 70 percent of the damages be allocated to medical monitoring claims.

The Court did not explicitly accuse DuPont's counsel of acting improperly, but cited multiple cases that held that a party could suffer the consequences of its counsel's decision to remain silent, and concluded its analysis by identifying two reasons for the "raise or waive" rule. The first is: 

"to prevent a party from obtaining an unfair advantage by failing to give [a] court an opportunity  to rule on the objection and thereby correct potential error[,]"

and the second is to:

"prevent[] a party from making a tactical decision to refrain from objecting and, subsequently, should the case turn sour, assigning error (or even worse, planting an error and nurturing the seed as a guarantee against a bad result."

The raise or waive rule "has equal force and application at the appellate level," so if your opponent says something during oral argument that you disagree with or believe is not supported in the record, you need to register your disagreement at the time or risk having your silence constitute a waiver.

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A few months ago, I wrote about corporate-owned life insurance policies, also known as "dead-peasant" insurance policies, which involve an employer insuring an employee, usually without the employee's knowledge, and naming itself as the policy's beneficiary. Then when the employee dies, the employer collects the proceeds. As I explained, the policies are less attractive than they used to be, if for no other reason than changes in the law that require insured employees to be notified when the policies are issued.

Now, according to a story by Mark Maremont and Leslie Scism in last Friday's Wall Street Journal, another type of policy has become popular. Known as stranger-originated (or -owned) life insurance (STOLI) -- that acronym should be easy to remember -- or investor-owned insurance policies, they work much as their name suggests: an insurance investor approaches an elderly person, and offers to buy a policy that names the investor as the beneficiary of the policy; hence, the "stranger-originated" description. The insured receives some cash up front as the inducement to take out the policy. Or the insured initiates the process and sells the policy to investors, who receive the proceeds when the insured dies.

Except that it's not turning out that way in the case that Maremont and Scism write about, which is currently before the New York Court of Appeals and involves $56.2 million worth of life-insurance coverage obtained by the late Arthur Kramer, name partner and co-founder of Kramer Levin Naftalis and Frankel LLP, a 375-lawyer firm headquartered in New York City. 

According to the Journal, Kramer took out seven policies, then sold the policies to investors, who would collect on his death, which occurred unexpectedly in January 2009 when he was 81 years old.

But his widow refused to provide a death certificate to the investors, then filed suit in federal court alleging that the sales violated New York's "insurable interest" law, which requires a connection or relationship between the person obtaining insurance and the insured.

After Kramer's widow sued, two of the three insurance companies involved refused to pay the proceeds, apparently because of  the dispute between Kramer's estate and the investors. (But because the two-year contestability period has passed, the insurance companies are going to have to pay someone, whether it's the estate or the investors, aren't they? This seems even more likely in view of New York law, which provides that the insured's estate may file an action to recover the policy proceeds, rather than simply seek to void the policy and obtain a refund of the premiums.)

At this point, all of the litigation is on hold pending a ruling from the Court of Appeals on this issue, as described in the article (which I think is actually a certified question, at least according to an update from Bricker & Eckler): "Does state law prohibit taking out a policy on your own life and immediately transferring the rights to an investor, never intending the policy as protection for your loved ones?"

The article also mentions a lawsuit in federal court in New York decided shortly before Kramer's death, in which a butcher-store owner had obtained a policy for $10 million on himself, then sold it to investors for $300,000, and died a month later. His daughter claimed the benefits on the grounds that the investors were improperly gambling on her father's life. The federal court ruled that the issue had to be decided in a trial, and that an insured could sell a policy only if it had been taken out in good faith with no prior intent or agreement to transfer it to an investor. Soon after the court ruled, the parties settled.

The name of the case isn't mentioned, but I think it is Life Product Clearing LLC v. Linda Angel, Personal Representative of the Estate of Leon Lobel, Civil Action No. 07-CV-0475 (S.D.N.Y. 2007). (Interestingly, Life Product Clearing LLC is also involved in the Kramer case.)

Here is Judge Denny Chin's order denying LPC's motion for judgment on the pleadings, with its holding that Maremont and Scism referred to in their article, which apparently prompted the settlement:

Finally, as previously noted, cases that turn on the issue of intent are generally not appropriate for summary disposition. Because Lobel's pre-assignment intent is central to LPC's claim, and Angel's claim -- that Lobel never intended to obtain life insurance but always intended, for a $300,000 fee, to transfer his beneficial interest in the Policy to an investor -- is more than plausible, LPC cannot prevail as a matter of law at this stage in the litigation.

There's a lot at stake with the outcome in the Kramer case, as Maremont and Scism describe:

The Kramer case is among the most significant of several hundred wending their way through courts nationwide as families, insurers and investors sort out the legal wreckage from a now-collapsed boom in the market for life-insurance policies purchased by investors.

From 2004 to 2008, tens of thousands of older people sought to make some fast cash by taking out multimillion-dollar policies on their own lives and flipping these to brokers, who resold them to investors like hedge funds and investment banks. The initiative often came from commission-hungry insurance agents, who in some cases paid older people to take out the policies and then misrepresented the seniors' health or wealth to insurance companies. The boom ended for reasons including new state laws, revised actuarial tables and fading investor interest after the 2008 financial crisis.

Human drama and litigation are generally a powerful combination, and I expect that the Kramer case will continue to attract publicity. I'll report on how the Court of Appeals answers the certified question, and any other developments.

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