Carton v. B & B EQUITIES GROUP, LLC
827 F. Supp. 2d 1235
D. Nev.2011Background
- STOLI scheme where Cartons financed premiums for seven policies on six insureds; premiums funded via LLCs and ILITs with collateral assignments to Cartons; policies through American General, Aviva, and Americo; premiums due and loans structured at 20% interest for two-year period; policies allegedly void ab initio due to lack of insurable interest; litigation includes fourteen claims against insurers and related parties; district court granted motions to dismiss and for related relief; Diggle moved to dismiss for lack of jurisdiction.
- Insureds and related entities used trusts/LLCs to mask true ownership and investors; some policies lapsed; Cartons allege they were misled about legality and public policy; Insurers argue lack of standing and that policies were terminated; Cartons seek declaratory relief, rescission, refunds, and other remedies.
- Cartons filed FAC May 10, 2011, asserting multiple federal and state claims; Insurers moved to dismiss under Rule 12(b)(1) and 12(b)(6); Cartons moved to dismiss/strike/default against several defendants; Diggle challenged federal jurisdiction.
- Court held STOLI arrangement violated public policy across Nevada, Iowa, California, and South Carolina; Policies void ab initio; Cartons had standing to challenge premiums and seek recovery; however unjust enrichment claim against Insurers failed; some Cartons’ motions granted in part and denied in part; Diggle’s jurisdiction challenge denied.
- Final rulings: American General and Aviva motions to dismiss granted without prejudice; Cartons may reassert if they show insurers had inquiry knowledge; Cartons’ motion to dismiss/strike/default granted in part; certain defendants ordered to amend unsigned pleadings or face striking; Diggle’s motion to dismiss denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| STOLI validity and public policy | Cartons allege STOLI violates public policy, rendering policies void ab initio | Insurers contend policies valid until terminated; no insurable interest | STOLI void ab initio; policies void under public policy |
| Standing to sue insurers | Policies pledged as collateral; premiums paid on void policies; injury in fact | No insurable interest; policies void; no standing | Cartons have standing to challenge premiums despite void policies |
| Unjust enrichment claim against insurers | Insurers retain premiums without providing coverage; inequitable enrichment | Insurers acted as victims of STOLI; lack of knowledge; no unjust enrichment | Unjust enrichment claim dismissed; dismissal without prejudice |
| Rule 11/unsigned pleadings; default | Counterclaims unsigned; consider default | Defendants appeared unsigned; need counsel | Strike unsigned pleadings unless corrected; ten days to amend; default not entered against all entities yet |
| Subject matter jurisdiction over Diggle | Case related to federal claims; Diggle party to STOLI scheme | State claims unrelated to federal claims; lack of jurisdiction | Diggle's motion to dismiss denied; supplemental jurisdiction exists |
Key Cases Cited
- Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992) (standing requires injury, causation, redressability; core Article III)
- Thornhill Publ’g Co. v. Gen. Tel. & Elec. Corp., 594 F.2d 1039 (9th Cir. 1979) (facial vs. factual jurisdiction on Rule 12(b)(1))
- Clemens v. DaimlerChrysler Corp., 534 F.3d 1017 (9th Cir. 2008) (plausibility standard for claims under Twombly/Iqbal)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleading; not mere conclusory statements)