Michael D. Lee v. the Rogers Agency, C. Michael Rogers, and New York Life Insurance Company
517 S.W.3d 137
Tex. App.2016Background
- Between 1985–1987 Lee purchased three $1,000,000 whole‑life policies from New York Life with agent Rogers; Lee alleges he paid $238,188.15 in 1989 to fully prepay them.
- In 1991 Lee transferred the policies to the Michael D. Lee Irrevocable Insurance Trust; the trustee was Richard Dial and ownership of the policies passed to the Trust.
- A Willson class action against New York Life (settled 1995) released certain misrepresentation claims; the Trustee (Dial) received class notice and did not opt out, but Lee was not a class member and did not receive notice.
- Two policies lapsed in 2012 for nonpayment; Lee sued in 2014 asserting negligence, breach of contract, DTPA, and Texas Insurance Code claims against New York Life, Rogers, and the Rogers Agency.
- Defendants moved for summary judgment arguing Lee assigned/relinquished claims to the Trust (no standing) and that res judicata (Willson settlement) bars claims; trial court granted summary judgment. Lee appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to assert extra‑contractual (DTPA & Insurance Code) claims after transfer to Trust | Lee: transfer only relinquished incidents of ownership for estate‑tax purposes; he retained personal statutory claims for misrepresentations made to him | Defendants: Trust language broadly relinquished/assigned all rights related to policies, so Lee lacks standing; even if not assigned, res judicata binds him via Trustee’s participation in Willson | Held: Lee lacks standing for contract‑based claims (breach/negligence) but retains standing to bring DTPA and Insurance Code claims — those are personal, not incidents of ownership transferred to the Trust |
| Whether DTPA/Insurance Code claims are "incidents of ownership" under 26 U.S.C. §2042 | Lee: such claims are personal and do not affect disposition of policy proceeds; not incidents of ownership | Defendants: incidents of ownership should be read broadly to include these claims, thus transferred to Trustee | Held: Federal §2042 jurisprudence limits incidents of ownership to powers to control disposition/economic benefits; DTPA/Insurance Code claims are not incidents of ownership and were not relinquished/assigned |
| Whether Willson class settlement (to which Trustee was a party) precludes Lee via privity/virtual representation | Lee: he was not a class member, received no notice, and was not adequately represented by Trustee; no substantive legal relationship that would satisfy due process | Defendants: settlor/trustee, assignor/assignee, and preceding/succeeding owner relationships create privity; Trustee’s participation binds Lee | Held: Under Taylor v. Sturgell and Texas precedent, nonparty preclusion requires a substantive legal relationship or adequate representation; settlor–trustee and predecessor–successor relationships here do not establish that relationship, so res judicata does not bar Lee’s extra‑contractual claims |
| Interpretation of Trust relinquishment language (scope) | Lee: trust language must be read in light of its estate‑tax purpose — only relinquish incidents of ownership necessary to avoid §2042 inclusion | Defendants: broad relinquishment language reaches all rights/powers related to the policies | Held: Court construes Trust in context — limited to powers needed to divest incidents of ownership; thus language did not transfer personal statutory claims |
Key Cases Cited
- PPG Indus., Inc. v. JMB/Houston Ctrs. Partners, Ltd., 146 S.W.3d 79 (Tex. 2004) (DTPA claims are personal and not assignable)
- Taylor v. Sturgell, 553 U.S. 880 (U.S. 2008) (limits nonparty preclusion; rejects virtual‑representation doctrine)
- Estate of Lumpkin v. Comm’r of Internal Revenue, 474 F.2d 1092 (5th Cir. 1973) (§2042 incidents of ownership = substantial control over disposition)
- Connelly’s Estate v. United States, 551 F.2d 545 (3d Cir. 1977) (incidents‑of‑ownership test focuses on whether retention is a substitute for testamentary disposition)
- Estate of O’Daniel v. United States, 6 F.3d 321 (5th Cir. 1993) (defines incidents of ownership as economic benefits and enumerates powers that qualify)
- Amstadt v. United States Brass Corp., 919 S.W.2d 644 (Tex. 1996) (privity for res judicata requires identity of interests; factual basis inquiry)