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Berck v. Principal Life Ins. Co.

Supreme Court of New York, New York County

July 2, 2013

Jonathan S. BERCK, as Trustee of the Diane Warhit Insurance Trust, dated January 17, 2007, Plaintiff,
PRINCIPAL LIFE INSURANCE CO., M & M Brokerage Services Inc. and Marvin Meyer, Defendants. No. 150305/10.

Editorial Note:

This decision has been referenced in a table in the New York Supplement.

Rebecca S. Tinio, Esq., Susman Godfrey, LLP, New York, for Plaintiff.

William G. Winget and Anthony Green, Esqs., Winget Spadafora Schwartzberg, LLP, New York, for Defendants.


This case involves a stranger-owned life insurance, or STOLI,[1] arrangement. Effective November 19, 2009, the New York Insurance Law (" NYIL" ) was amended to make STOLI arrangements unlawful. See NYIL 7815(c). However, the events in this action predate that amendment and, therefore, they are not barred thereunder.


On or about January 27, 2007, Principal Life Insurance Company (" Principal" ), issued a life insurance policy, (the " Warhit Policy" or the " Policy" ), in the face amount of $5 million on the life of Diane Warhit (" Warhit" or the " Insured" ). The Policy is owned by the Diane Warhit Insurance Trust (the " Warhit Trust" or the " Trust" ), which was created pursuant to a trust agreement dated January 17, 2007. Plaintiff Jonathan S. Berck (" Berck" ) is Trustee of the Trust. (Complaint, ¶¶ 8-9).

The Policy provides for an " incontestability period," meaning that if the Insured dies within two years of issuance of the Policy, then Principal has the right to investigate a claim for the death benefit due under the Policy, to determine whether or not to pay that death benefit and to alert the beneficiary of its decision. (Warhit Policy, p. 17; Deposition of Steven Lockwood [" Lockwood" ], 410:4-23).

Approximately six weeks following the issuance of the Policy, LPC Holdings I, LP (" LPC" ) became the beneficiary of the Warhit Trust pursuant to a " Beneficial Interest Transfer Agreement" dated as of March 13, 2007, entered into by Warhit, as Seller, and LPC, as Purchaser. Pursuant to this Agreement, LPC obtained the right to collect the Policy death benefit upon Warhit's death.

LPC is a limited partnership managed by its general partner, LPC Holdings G.P. (" LPC GP" ), which in turn is owned by Steven G. Lockwood (" Lockwood" ) and Martin Fleisher (" Fleisher" ).[2] Lockwood is also a limited partner in LPC itself.[3] (Fleisher Deposition, 12:15-13:12). Under its Operating Agreement, LPC could not purchase the beneficial interest in any life insurance policy unless that policy was owned by a trust for which the instant plaintiff, Berck, served as trustee. (Fleisher Deposition, 103:11-104:18).

Defendants emphasize that Berck is a Harvard-educated attorney licensed to sell insurance in New York State and, by the time the Warhit Policy was issued, had served as the trustee of over 60 life insurance trusts. (Plaintiff's Responses to defendant Marvin Meyer's Notices to Admit No. 18). Notably, in his capacity as trustee of other trusts, Berck is or has been a party to numerous lawsuits over investor-oriented insurance policies, which may or may not have been brokered by defendant M & M Brokerage Services Inc. (" M & M" ). (Affirmation of Rebecca S. Tinio [" Tinio" ], ¶ 29).

Diane Warhit died on January 25, 2009. Thereafter, on or about April 9, 2009, plaintiff submitted a claim (the " Death Claim" ) for the death benefits due to the Trust under the terms of the Policy. (Complaint, ¶¶ 11-12). Since Warhit died less than two years after the Policy was issued, Principal performed an investigation into the Death Claim pursuant to the incontestability clause in the Policy. (Deposition of Anita Henry [" Henry" ], 18:15-19:5). Principal ultimately determined that it should not pay the death benefit because of certain alleged misrepresentations by Berck and Warhit made during the application process concerning Warhit's alleged intention to sell the beneficial interest in the Trust immediately after issuance of the Policy. (Amended Answer, Affirm. Defenses to Complaint and Counterclaims of Principal, p. 4 at ¶ 14, pp. 22-23 at ¶¶ 50-53; Third Party Complaint, ¶¶ 52-55).

Plaintiff filed a Summons and Complaint, dated September 24, 2010, asserting causes of action for (1) breach of contract (against Principal); (2) violation of GBL 349 (against all defendants); and (3) estoppel (against Principal). By stipulations of discontinuance dated January 12, 2012 and February 3, 2012, all claims asserted by and against defendant/third-party plaintiff Principal and third-party defendant Lockwood have been discontinued.

In accordance with a decision dictated on the record on March 7, 2011, this Court denied a motion by defendants M & M and Marvin Meyer (" Meyer" ) to dismiss the second cause of action asserted against them for violation of GBL 349. Thereafter, M & M and Meyer filed an Answer, dated March 28, 2011, in which they asserted various affirmative defenses.

Defendants M & M and Meyer now move this Court, pursuant to CPLR 3212, for summary judgment in their favor on the one claim asserted against them.


A party seeking summary judgment " must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case." Winegrad v. New York Univ. Med. Ctr., 64 N.Y.2d 851, 853, 487 N.Y.S.2d 316, 476 N.E.2d 642 (1985) (internal citations omitted). Once this showing is made, the burden shifts to the opposing party to produce evidentiary proof in admissible form sufficient to establish the existence of triable issues of fact. Zuckerman v. City of New York, 49 N.Y.2d 557, 562, 427 N.Y.S.2d 595, 404 N.E.2d 718 (1980). " [M]ere conclusions, expressions of hope or unsubstantiated allegations or assertions are insufficient" to defeat a summary judgment motion. Id.

Section 349(a) of the General Business Law encompasses deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this State. Section 349 governs consumer-oriented conduct and, on its face, applies to virtually all economic activity. Generally, claims under the statute are available to an individual consumer who falls victim to misrepresentations made by a seller of consumer goods through false or misleading advertising.

Small v. Lorillard Tobacco Co., 94 N.Y.2d 43, 55, 698 N.Y.S.2d 615, 720 N.E.2d 892 (1999)(internal citations omitted). To state a claim under GBL 349, a plaintiff must allege that " (1) the challenged transaction was consumer-oriented'; (2) defendant engaged in deceptive or materially misleading acts or practices; and (3) plaintiff was injured by reason of defendant's deceptive or misleading conduct." Denenberg v. Rosen, 71 A.D.3d 187, 194, 897 N.Y.S.2d 391 (1st Dep't 2010). The statute " contemplates actionable conduct that does not necessarily rise to the level of fraud. In contrast to common-law fraud, General Business Law § 349 is a creature of statute based on broad consumer-protection concerns." Gaidon v. Guardian Life Ins. Co. of Am., 94 N.Y.2d 330, 343, 704 N.Y.S.2d 177, 725 N.E.2d 598 (1999). It is " not necessary under the statute that a plaintiff establish the defendant's intent to defraud or mislead." Oswego Laborers' Local 214 Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20, 26, 623 N.Y.S.2d 529, 647 N.E.2d 741 (1995).

In the first instance, defendants argue that plaintiff's GBL 349 cause of action can only be asserted against Principal and not against its then-employee, Meyer. They contend that this dispute is " essentially contractual in nature" and that Meyer was, at all relevant times, an agent for a disclosed principal (i.e., Principal). Thus, defendants assert that plaintiff may not maintain a claim against Meyer for actions taken in his role as an agent with respect to the contract between plaintiff and Principal, or for any alleged nonfeasance. This argument, however, is inapposite because the remaining claim is not contractual or even " essentially contractual" ; it is a statutory claim which, pursuant to the terms of the statute, may be asserted against the remaining defendants individually for their alleged violation thereof.

Defendants further assert that Berck cannot invoke the protections afforded by GBL 349 because he is not a " consumer" as contemplated under the statute. In fact, they claim that he has been identified by courts as a " sophisticated speculator" who has procured and managed millions of dollars by way of his role of establishing and/or serving as the trustee over life insurance trusts.

" As a threshold matter, in order to satisfy General Business Law Section 349, plaintiffs' claims must be predicated on a deceptive act or practice that is consumer oriented." ‘ Gaidon v. Guardian Life Ins. Co. of Am., 94 N.Y.2d at 344, 704 N.Y.S.2d 177, 725 N.E.2d 598, citing Oswego Laborers' Local 214 Pension Fund, 85 N.Y.2d at 24-25, 623 N.Y.S.2d 529, 647 N.E.2d 741.

Consumer-oriented conduct does not require a repetition or pattern of deceptive behavior ... Plaintiff, thus, need not show that the defendant committed the complained-of acts repeatedly-either to the same plaintiff or to other consumers-but instead must demonstrate that the acts or practices have a broader impact on consumers at large. Private contract disputes, unique to the parties, for example, would not fall within the ambit of the statute.

Oswego Laborers' Local 214 Pension Fund, 85 N.Y.2d at 25, 623 N.Y.S.2d 529, 647 N.E.2d 741. In determining whether the alleged conduct is consumer-oriented, " New York courts may consider the sophistication of the parties and the amount of the transaction at issue-in other words, whether the parties need the protection' of the consumer-protection law." Clayton v. Katz, 2012 WL 4378035, *5 (S.D.N.Y. Sept.25, 2012); see e.g., Denenberg v. Rosen, 71 A.D.3d at 195, 897 N.Y.S.2d 391 (finding that a transaction involving a " sophisticated, individual private pension plan" and a " sophisticated" commodities trader " was not the modest type of transaction the statute was primarily intended to reach" [internal quotation marks omitted] ); Kramer v. Lockwood Pension Services, Inc., 653 F.Supp.2d 354, 385 (S.D.N.Y.2009)(dismissing GBL 349 claim because " the parties include sophisticated insurance brokers and not ordinary consumers to whom the statute is directed" ); Phoenix Life Insurance Co. v. Irwin Levinson Insurance Trust II, and Jonathan S. Berck, as Successor Trustee, 2009 N.Y. Misc. LEXIS 4093,2009 WL 8491033 2009 N.Y. Slip Op 30383(U)(Sup Ct, N.Y. Co Feb. 19, 2009) (noting the sophistication of the parties); Freefall Express, Inc. v. Hudson River Park Trust, 16 Misc.3d 1135(A), *3 (Sup Ct, N.Y. Co 2007)(" Where the alleged deceptive practices occur between relatively sophisticated entities with equal bargaining power, such does not give rise to liability under GBL § 349" ); M & T Bank Corp. v. Gemstone CDO VII, Ltd., 23 Misc.3d 1105(A), *17 (Sup Ct, Erie Co 2009)(noting with respect to a claim under GBL 349 that " [a]ll of the parties to this litigation are sophisticated participants in the commercial arena" ).

Defendants rely on the Phoenix Life Insurance case, supra, in which the plaintiff-insurer filed suit to rescind a life insurance policy that was part of a STOLI transaction. Berck, who was the successor trustee in that case, filed a counter-claim asserting that the insurer's attempts to rescind the policy and avoid payment of the death benefit violated GBL § 349. Lockwood was also involved in that case as the insurance broker who set up the trust. The Court in Phoenix Life stated that

[i]t is undisputed that Lockwood, is a sophisticated estate insurance advisor who caters to wealthy individuals, and Berck, in his capacity as insurance trust trustee, are involved in a number of multi-million dollar life insurance transactions currently being litigated in New York and elsewhere. These sophisticated parties-an estate insurance advisor, the Vice President of a Bank, and an attorney specializing in life insurance trusts, have procured and managed millions of dollars of insurance held by life insurance trusts, arguably are not entitled, with respect to such transactions, to the protections that GBL 349 affords to ordinary consumers making modest purchases.

Phoenix Life at *31-32. ( internal citations omitted )

While the Court in Phoenix Life specifically found that the defendants were " relying on a consumer protection statute to defend a practice that the very same statute was intended to guard against," ( id. at *32), it declined to dismiss defendants' GBL 349 claim on the merits on a 3211(a)(7) motion to dismiss without the benefit of discovery, similar to what this Court determined on M & M and Meyer's previous motion to dismiss.

The defendants further rely on Kramer v. Lockwood Pension Services, Inc., supra, which also involved a STOLI arrangement in which Berck served as successor trustee of the trust, and in which Lockwood participated by setting up and later investing (either directly or indirectly) in the trust. In that case, Berck asserted a GBL 349 counterclaim against the insurance company which had issued the life insurance policy, and advanced arguments virtually identical to those asserted in the case at bar: that is, that the insurance company's " representations and omissions were misleading in that policy applicants, holders, purchasers and beneficiaries were led to believe that claims for payment under such policies would be investigated and processed in good faith and in a timely [manner], and that benefits would be paid in accordance with the terms of such policies" and that the insurance company had " failed to process and pay benefits according to the terms of this policy and other similar policies." Id., *385; c.f., Complaint, ¶¶ 28-31. The Court in Kramer dismissed Berck's GBL Section 349 claim, finding that " [a]lthough it is true that [the insurance company] has issued a standard form policy and then resisted paying benefits associated with that policy, such behavior is not properly considered consumer-oriented' where, as here, the parties include sophisticated insurance brokers and not ordinary consumers to whom the statute is directed." Id., 5.

This Court agrees with the findings in the Phoenix Life and Kramer cases regarding the sophistication of Berck who, as the Court noted supra, is an attorney with a license to sell insurance in New York. He has, with the participation of Lockwood and LPC in at least some instances, " procured and managed millions of dollars of insurance held by life insurance trusts." Phoenix Life at *31-32. Further, he is far from being a stranger to the type of sophisticated STOLI arrangement at issue here. On the contrary, in his capacity as trustee of other trusts, Berck is or has been a party to numerous lawsuits over investor-oriented insurance policies both in New York and elsewhere. Id.; Kramer, supra; Lincoln Life and Annuity Co. of N.Y. v. Bernstein, 24 Misc.3d 1121(A)(Sup Ct, Onondaga Co 2009). In light of the foregoing, the Court finds that Berck is not an " ordinary consumer[ ] to whom the statute is directed." Kramer at 385.

Plaintiff, however, argues that no case has held that the sophistication of the plaintiff, standing alone, is grounds to dismiss an otherwise actionable GBL 349 claim. (Memo in Opp., p. 23). Indeed, " [w]hether conduct is consumer-oriented' turns on several factors. Courts evaluating § 349 claims generally focus on: (i) the amounts at stake, (ii) the nature of the contracts at issue, and (iii) the sophistication of the parties. None of these factors alone is dispositive." Fleisher v. Phoenix Life Ins. Co., 858 F.Supp.2d 290, 304 (S.D.N.Y.2012)(internal citations omitted). Here, in addition to the sophistication of plaintiff, as established above, the $5 million value of the Policy and the sophisticated nature of the related STOLI arrangement contribute to the Court's conclusion that plaintiff's GBL 349 claim cannot stand.

Accordingly, defendants M & M and Meyer's motion for summary judgment in their favor on plaintiff's second cause of action is granted, and the action is now dismissed with prejudice and without costs or disbursements. The Clerk is directed to enter judgment in accordance herewith.

This constitutes the decision and order of this Court.

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