Opinion
CV-00-1075-ST
May 17, 2001
FINDINGS AND RECOMMENDATION
INTRODUCTION
Plaintiff, José Luis Ochoa ("Ochoa"), filed this action on August 4, 2000, against defendants Accelerated Benefits Corporation ("ABC") and C. Keith LaMonda ("LaMonda"). ABC is in the business of identifying, qualifying, and purchasing the beneficial interest in life insurance policies and related death benefits of the terminally ill ("viaticals") for the purpose of matching the viaticals to investors, such as Ochoa. LaMonda is associated with ABC.
The Amended Complaint filed August 8, 2000, alleges four claims against ABC for breach of contract, money had and received, breach of fiduciary duty and violation of Oregon Unlawful Trade Practices Act, ORS 646.605-652 ("UTPA") and two claims against LaMonda for breach of contract and violation of the UTPA. All claims arise out of defendants' purchase of several viaticals for Ochoa in 1997.
The Amended Complaint alleges that despite defendants' representations that these investments would pay off in a short time, they have yet to mature. It also alleges that ABC was contractually obligated to provide Ochoa with proof of his beneficial interest in the life insurance policies in question, but has failed to do so despite repeated requests. When Ochoa complained to ABC about the lack of information and general failure of the viaticals to perform as represented, LaMonda promised orally and in writing to repurchase the viaticals, providing Ochoa a return of 12% on the original purchase price. However, LaMonda has not repurchased the viaticals as promised.
Ochoa is a citizen of Oregon. ABC is a corporation organized under the laws of the State of Florida with its corporate headquarters located in Florida. LaMonda is a citizen of the State of Florida. The amount in controversy exceeds the sum of $75,000.00, exclusive of interest and costs. This court has diversity jurisdiction pursuant to 28 U.S.C. § 1332. Ochoa's Motion for Summary Judgment (docket #34) is now before this court. For the reasons stated below, that motion should be granted in part and denied in part.
The parties agree that Ochoa is a "resident" of the State of Oregon and that LaMonda is a "resident" of the state of Florida. Amended Complaint, ¶¶ 1, 3 (admitted in Answer, ¶ 1). An allegation of residency is insufficient to allege diversity jurisdiction under 28 U.S.C. § 1332. However, the parties also agree that this controversy is between "citizens" of different states and that this court has subject matter jurisdiction under 28 U.S.C. § 1332. Id, ¶ 4 (admitted in Answer, ¶ 1). Thus, this court assumes that the parties agree that Ochoa is a "citizen" of Oregon and LaMonda is a "citizen" of Florida.
FACTS
When granting Ochoa's Motion for Sanctions, this court ruled that the following facts are conclusively established:
(1) LaMonda is affiliated with ABC and, when necessary, the nature of that relationship shall be construed against LaMonda;
(2) Representations made by B. Allen Heeke, former counsel for ABC, are binding on LaMonda;
(3) LaMonda is bound by representations made by ABC concerning viaticals allegedly owned by Ochoa; and
(4) No later than December 22, 1999, LaMonda agreed to repurchase all of Ochoa's viaticals for the original purchase price, plus 12% interest from the date of Ochoa's original purchase until the date of LaMonda's purchase.
Findings and Recommendation dated January 26, 2001 (docket #27), adopted by Order dated February 28, 2001 (docket #30) by District Court Judge Robert E. Jones.
The following additional facts are taken from those facts admitted in defendants' Answer and Affirmative Defenses, filed on September 8, 2000 (docket #6), and from Plaintiff's Concise Statement of Material Facts (docket #36).
Defendants have failed to respond to Ochoa's Motion for Summary Judgment, and in particular, have failed to respond to Plaintiff's Concise Statement of Material Facts, filed on March 23, 2000 (docket #36). Pursuant to Local Rule 56.1(f), all facts set forth in that document are therefore admitted for purposes of the pending Motion for Summary Judgment.
On or about January 28, 1997, and April 28, 1997, Ochoa and ABC entered into two substantively identical agreements wherein ABC agreed to purchase for the benefit of Ochoa life insurance policies, including direct death benefits, secured by terminally ill policyholders (the "Agreements"). Amended Complaint, Exhibits A and B.
Under the terms of the Agreements, ABC agreed to act as an agent of Ochoa for the purpose of purchasing viaticals. ABC promised to name Ochoa as the "absolute, irrevocable, non-transferable and direct beneficiary on all policies purchased" for Ochoa. Additionally, ABC agreed to send Ochoa certified copies of the "policies, reassignments of beneficiary terms, independent medical examinations and other closing documents."
Pursuant to the terms of the Agreements, Ochoa provided, and ABC received, approximately $232,855.13 which ABC used to purchase viaticals for the benefit of Ochoa. Affidavit of Rebecca C. Heintz ("Heintz Aff"), Exhibit 6 ("ABC Funds Matching and Deposit/Purchase Reconciliation statement dated September 1, 2000").
Pursuant to the terms of the Agreements, during July, August and September of 1997, ABC claimed to have purchased the following viaticals for the following amounts for Ochoa's benefit ("Viaticals"):
Name Face Value Purchase Insurance Policy No. Purchase Price Company Date
Stanley $100,000 $45,000 Farmers 0315469 08/18/97 Domingo Traders Life
Stanley $ 80,000 $36,000 Commercial PT369867 08/18/97 Domingo Union
Stanley $ 35,000 $15,750 Pioneer Life PL9663652 08/18/97 Domingo
Henry $100,000 $40,000 Farmers 315115 08/18/97 Garcia Traders Life
Len $ 45,000 $17,582.61 Met Life 972902149A 09/17/97 Melendez $ 2,667.39 10/30/97
George $44,664.78 $20,099.15 Garden State 005285561 07/28/97 Negrete Life
Henry $13,831.49 $ 8,644.68 Met Life 956706526A 04/16/97 Scott
Al $44,568.51 $27,855.32 North 6278249487 04/16/97 James American
Id, Exhibits 1 through 8.
The total amount of funds applied by ABC to the purchase of these Viaticals is $213,599.15. Id, Exhibit 9 (amended).
Pursuant to the terms of the Agreements, Ochoa appointed ABC, and ABC accepted appointment, to act as Ochoa's attorney-in-fact with authority to act for Ochoa in any capacity associated with, ancillary to, or necessary for, maintenance of any policy of life insurance purchased through any Viatical Settlement (as defined by the Agreements). As a result of ABC's appointment as Ochoa's attorney-in-fact, ABC was at all material times acting as Ochoa's fiduciary with respect to the Viaticals and the use of the funds provided to ABC by Ochoa.
Prior to the filing of this lawsuit, ABC failed to provide Ochoa with any documentation establishing that he is a named irrevocable beneficiary for the Viaticals allegedly purchased by ABC for Ochoa's benefit. Affidavit of José Luis Ochoa ("Ochoa Aff"), ¶ 3. Without such proof, Ochoa cannot claim any death benefits or obtain information about the status of the Viaticals from the issuing insurance companies or the appropriate regulatory bodies.
Ochoa obtained documents concerning the Viaticals after filing this lawsuit, but none of those documents establish that Ochoa was the named beneficiary on the Melendez, Negrete, Scott or James policies. Heintz Aff, ¶ 14.
In 1997 ABC did send Ochoa several Purchase Funds Reconciliation Ledgers stating that the estimated life expectancy of the policyholders securing the Viaticals ranged from 19 to 48 months. Heintz Aff, Exhibit 1, p. 2; Exhibit 2, p. 2; Exhibit 3, p. 2; Exhibit 4, p. 2; Exhibit 5, pp. 2, 4-5; Exhibit 6; Exhibit 7, p. 2; and Exhibit 8, p. 2. However, ABC has never provided Ochoa or his attorneys with any written independent medical assessments of the viators' health, life expectancy or terminally ill status or with any of the life insurance policies. Ochoa Aff, ¶ 7; Heintz Aff, ¶¶ 13 15. ABC also has failed to provide any documents establishing that ABC performed an investigation concerning why various insurance policies were viaticated to ABC within only a few months after being purchased from the insurers. Id, ¶¶ 17-25.
ABC's documents produced before or during this litigation relating to the Viatical transactions for Ochoa are incomplete and inconsistent concerning how Ochoa's funds were applied. Heintz Aff, ¶ 3; Ochoa Aff, ¶ 5. Furthermore, ABC has provided no documents indicating that Ochoa no longer owns any of the Viaticals. Id, ¶ 6. To Ochoa's knowledge, none of the Viaticals have matured as yet, indicating that the viators' life expectancies have greatly exceeded ABC's estimate. Id, ¶ 9.
Alternatively, the Viaticals may have matured, but Ochoa may have received no payment because he was not the named irrevocable beneficiary.
On December 22, 1999, B. Allen Heeke, Jr., counsel for ABC and LaMonda, orally and by letter stated that LaMonda "is willing to repurchase" the Viaticals from Ochoa for the original purchase price, plus 12% interest from the date of Ochoa's original purchase until the date of LaMonda's purchase. Heintz Aff, Exhibit 23. To date, neither ABC nor LaMonda have repurchased the Viaticals. Ochoa Aff, ¶ 3.
On February 5, 2001, the Insurance Commissioner of the State of Florida revoked ABC's license and its eligibility for licensure as a viatical settlement provider in the State of Florida based on repeated instances where ABC effectuated viatical settlement agreements in the presence of circumstances showing fraud without reporting those circumstances to the Department of Insurance. Heintz Aff, Exhibit 10. The circumstances of fraud appear to be based on representations by policyholders to insurers of their good health in order to obtain a life insurance policy and contrary representations by the same policyholders to ABC of their terminal illness in order to obtain a viatical settlement agreement.
ANALYSIS
Ochoa seeks summary judgment on three of the four claims against ABC: breach of contract, breach of fiduciary duties, and violation of the Oregon UTPA. He also seeks summary judgment on both claims against LaMonda for violation of the Oregon UTPA and breach of contract.
I. Breach of Contract Claim against ABC
Ochoa moves for summary judgment on his First Claim for Relief for breach of contract against ABC. That claim alleges that pursuant to the Agreements, ABC agreed to act as Ochoa's agent for the purchase of purchasing viaticals and promised to name Ochoa as the "absolute, irrevocable, non-transferable and direct beneficiary on all Policies Purchased hereunder." Agreements, p. 3. ABC has admitted this allegation. Answer, ¶ 4 (admitting Amended Complaint, ¶ 9).
ABC has never provided Ochoa with documents showing that he is named as the beneficiary on four viaticals, namely the Melendez, Negrete, Scott, and James policies. Although requested through discovery, ABC has produced no evidence that might show that Ochoa was in fact named as the beneficiary on those policies. Without proof of his rights to a beneficial interest in the policies, Ochoa has a limited ability to enforce those rights. Absent acknowledgment of the issuing insurance companies of his rights under the policy, if the viator dies, Ochoa cannot seek to enforce his interest in the death benefits. Furthermore, lack of proof of his beneficial interest severely limits his ability to obtain information about the status of the policies, such as whether the premiums are paid or whether the policy has been canceled.
Thus, Ochoa is entitled to summary judgment against ABC for breach of contract, at least with respect to the purchase of those four Viaticals. The total purchase price for those four Viaticals is $76,849.15. Heintz Aff, Exhibit 9. Therefore, provided that Ochoa releases any interest he may have in these policies, he is entitled to recover damages of $76,849.15 on his First Claim for Relief plus interest from the dates of his original purchases of the four Viaticals. Defendants initially calculated the interest due as 9% based on Oregon law. However, Section Six of the Agreements states that they "shall be interpreted, enforced and governed by the laws of the State of Florida." Agreements, p 3. The applicable interest rate under Florida law is 10% for the years 1997 through 2000 and 11% for the year 2001. Fla Stat §§ 687.01 55.03; 26 FAW 5715 (December 8, 2000).
In addition, Ochoa is entitled to recover his attorney fees from ABC. Section Six of the Agreements provides that "[i]n any dispute, the prevailing party, in addition to any other recovery, award or settlement, shall be reimbursed for its reasonable attorneys fees and costs, whether suit is brought or not." Id. Thus, as the prevailing party, Ochoa should be awarded his reasonable attorney fees and costs.
II. Breach of Fiduciary Duties Claim against ABC
Ochoa also moves for summary judgment on his Third Claim for Relief against ABC for breach of its fiduciary duties. Ochoa alleges that ABC breached its fiduciary duties as his attorney-in-fact by failing to provide him with proof of his designation as beneficiary of the Viaticals and failing to provide him with other vital paper work and account information.
As discussed above, ABC failed to obtain for Ochoa an irrevocable beneficial interest in the death benefits of the Viaticals for four policies as required by the Agreements. In addition, Section Five of the Agreements provides that the insured(s) "must be diagnosed terminally ill with an estimated life expectancy term of" 48 months or less "and said diagnosis must be from an independent medical reviewing physician or team of physicians." Agreements, p. 3. No medical information has ever been produced by ABC for any viator. Ochoa Aff, ¶ 7. ABC also failed to send to Ochoa certified copies of the subject life insurance policies and all of the necessary documents associated with the purchase of the Viaticals, as required by the Agreements.
However, each of these failures of ABC is a breach of a contractual provision and therefore will not support a breach of fiduciary duty claim. According to Section Six of the Agreements, Florida law applies. Under Florida law, a cause of action for breach of fiduciary duty will not lie where the claim of breach is dependent upon the existence of a contractual relationship between the parties. See Greenfield v. Manor Care, Inc., 705 So.2d 926, 932 (Fla 4th DCA 1997), rev denied, 717 So.2d 534 (Fla 1998).
Florida ascribes to the economic loss doctrine which draws a "fundamental boundary between contract law, which is designed to enforce the expectancy interests of the parties, and tort law, which imposes a duty of reasonable care and thereby encourages citizens to avoid causing physical harm to others." Casa Clara Condominium Ass'n., Inc. v. Charley Toppino and Sons, Inc., 620 So.2d 1244, 1246 (Fla 1993). In other words, economic losses are "disappointed economic expectations," which are protected by contract law, rather than tort law. Id; see also AFM Corp. v. Southern Bell Tel. and Tel. Co., 515 So.2d 180 (Fla 1987) (holding that without some conduct resulting in personal injury or property damage, plaintiffs cannot sustain an independent tort claim to recover economic damages arising out of a breach of contract). When misrepresentations are related to the breaching party's performance of the contract, they do not give rise to an independent cause of action in tort. HTP, Ltd. v. Lineas Aereas Costarricenses, S.A., 661 So.2d 1221, 1240 (Fla 3d DCA 1995), approved, 685 So.2d 1238 (Fla 1996); see also Hotels of Key Largo, Inc. v. RHI Hotels, Inc., 694 So.2d 74, 78 (Fla 3d DCA 1997) (affirming dismissal of complaint where economic loss rule barred plaintiffs' claim of fraudulent misrepresentation which was inseparable from the essence of the parties' contract); McCutcheon v. Kidder, Peabody Co., Inc., 938 F. Supp. 820 (S.D. Fla1996) (affirming dismissal of a complaint by an investor against his investment manager because the latter's fiduciary duty to recommend only suitable securities for purchase arose only as a consequence of the contract between the parties concerning the trade of securities).
Stated another way, if a plaintiff is not able to allege that a duty exists between the parties which is distinct from the obligations set forth in the parties' contract, then the plaintiff cannot maintain an action for breach of fiduciary duty based on the same allegations contained in his claim for breach of contract. Here, Ochoa does not allege any facts regarding a relationship between himself and ABC that created a fiduciary duty separate from the relationship established by the terms of the parties' contract. Accordingly, the economic loss rule limits Ochoa to pursuing his rights in contract, and he is not entitled to prevail on his Third Claim for Relief for breach of fiduciary duty.
III. Oregon Unlawful Trade Practices Act (UTPA) Claims
Ochoa also moves for summary judgment on his Fourth Claim for Relief against both ABC and LaMonda for violation of the UTPA. In support of this claim, Ochoa alleges that "ABC and LaMonda, and each of them, willfully represented that the Viaticals had characteristics, benefits and qualities when they, in fact, did not have." Amended Complaint, ¶ 28. Ochoa thus appears to claim that defendants violated ORS 646.608(e), which makes it an unlawful trade practice to "[r]epresent that . . . goods or services have . . . characteristics, . . . benefits, quantities or qualities that they do not have."
Ochoa asserts that ABC breached the Agreements by failing to investigate or confirm the terminally ill status of the viators and by failing to provide such information to him. He argues that these breaches constitute a misrepresentation as to the "quality of the viators as terminally ill with limited life expectancies." In other words, Ochoa alleges that the breach of the Agreements constitutes the predicate "misrepresentation" under the UTPA.
However, nothing indicates a "misrepresentation" by words or conduct by either ABC or LaMonda. In fact, the court has no information at all indicating how Ochoa came to enter into the Agreements or whether Ochoa had any communications whatsoever with ABC or LaMonda following execution of the Agreements. Instead, the facts reveal only that Ochoa entered into the Agreements, sent money to ABC, and then received either no confirmation about the purchases ABC made on his behalf and/or conflicting information about his account. While ABC's and/or LaMonda's failure to investigate to ensure that the viators had certain life expectancies might be a breach of the Agreements, it is not also a "misrepresentation." Otherwise, every breach of an agreement would become a "misrepresentation" claim based upon the notion that the agreement constitutes a "representation" and the subsequent failure to follow through exactly as the contract specifies therefore is a "misrepresentation."
Also, Section Eight of the Agreements specifically provides that: "This Agreement contains the entire agreement of the parties hereto and there are no other promises or conditions in any other agreement whether oral or written. No other representations, agreements, or covenants, whether written or oral, shall govern this relationship." Agreement, p. 3. This provision directly undercuts any UTPA claim based upon a "misrepresentation" by ABC and/or LaMonda.
Thus, Ochoa is not entitled to summary judgment on his Fourth Claim for Relief for a violation of the UTPA.
IV. Breach of Contract Claim Against LaMonda
Ochoa moves for summary judgment on his breach of contract claim against LaMonda or, in the alternative, for partial summary judgment only as to liability. Ochoa's breach of contract claim against LaMonda is based upon a December 1999 conversation between B. Allen Heeke, Jr. (former counsel for ABC) and Ochoa's attorney. In that conversation, Ochoa alleges that Heeke promised that LaMonda would repurchase the Viaticals for the original purchase price, plus 12% interest from the date of Ochoa's original purchase until the date of LaMonda's purchase. A letter dated December 22, 1999 from Heeke summarizes the conversation as follows:
[On December 21, 1999], I stated that Mr. LaMonda is willing to repurchase Dr. Ochoa's interests in the viaticals at the price Mr. Ochoa paid plus a 12% interest from the date Dr. Ochoa funded the policies until the date of repurchase by Mr. LaMonda which will be January 15, 2000.
Heintz Aff, Exhibit 23.
This court has previously ruled that representations made by Heeke are binding on LaMonda and that and no later than December 22, 1999, LaMonda agreed to repurchase all of Ochoa's Viaticals for the original purchase price, plus 12% interest from the date of Ochoa's original purchase until the date of LaMonda's purchase. Despite the agreement, LaMonda has not yet repurchased the Viaticals.
Based on the above, and on LaMonda's complete failure to respond to Ochoa's Motion for Summary Judgment, Ochoa should be granted summary judgment against LaMonda on his breach of contract claim. Accordingly, Ochoa is entitled to recover the sum of $213,599.15 plus 12% interest from the dates of his original purchases of the Viaticals.
RECOMMENDATION
Based on the reasons set forth above, Ochoa's Motion for Summary Judgment (docket #34) should be GRANTED IN PART and DENIED IN PART as follows:
1. Granted as to the First Claim for Relief for breach of contract against ABC and the Fifth Claim for Relief for breach of contract against LaMonda; and
2. Denied as to the Third Claim for Relief for breach of fiduciary duty against ABC and the Fourth Claim for Relief for violation of the UTPA against both ABC and LaMonda.
Accordingly, provided that Ochoa releases any and all interest he may have in the Viaticals, he is entitled to a judgment:
Ochoa has submitted a proposed Judgment that permits him to obtain to retain his interest in the Viaticals until he receives payment of the Judgment. As the Judgment is paid, he then releases his interest in various Viaticals in a sequence of the least to most valuable Viaticals. However, he cannot both retain his interest in the Viaticals while executing a Judgment to obtain full repayment of his investment. He must first release his interest in the Viaticals before he can execute on a Judgment covering those Viaticals.
1. Against ABC in the sum of $76,849.15, plus interest thereon at the rate of 12% from the dates of his original purchases of four Viaticals (Scott, James, Melendez, and Negrete), plus his costs and reasonable attorney fees, and
2. Against LaMonda in the sum of $213,599.15 plus interest thereon at the rate of 10% for the years 1997 through 200 and 11% for the year 2001 from the dates of his original purchases of all the Viaticals (Scott, James, Domingo, Garcia, Melendez, and Negrete), plus his costs.
Final Judgment may be entered in Ochoa's favor after he dismisses his Second Claim for Relief for money had and received against ABC. A proposed form of Judgment is attached.
SCHEDULING ORDER
Objections to the Findings and Recommendation, if any, are due June 5, 2001. If no objections are filed, then the Findings and Recommendation will be referred to a district court judge and go under advisement on that date.
If objections are filed, the response is due no later than June 22, 2001. When the response is due or filed, whichever date is earlier, the Findings and Recommendation will be referred to a district court judge and go under advisement.