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Westrope v. Ringler Associates Incorporated

United States District Court, D. Oregon, Portland Division

February 12, 2015

MARRIE WESTROPE and REGGIE KELLY, individually and on behalf of all others similarly situated, Plaintiffs,
v.
RINGLER ASSOCIATES INCORPORATED, PAUL HOFFMAN, and Does 1-100, Defendants.

OPINION AND ORDER

MICHAEL W. MOSMAN, District Judge.

One June 26, 2014, Defendants filed a Motion to Dismiss [17] arguing that Plaintiffs had failed to state a negligence claim, a violation of ORS 746.310, and a violation of AK Stat. § 21.33.037. On December 5, 2014, Judge Stewart issued her Findings and Recommendation ("F&R") [82] recommending that Defendants' motion be granted as to Defendants' alleged continuing duty to inform plaintiffs that their coverage may be threatened, but otherwise denied.

LEGAL STANDARD

The magistrate judge makes only recommendations to the court, to which any party may file written objections. The court is not bound by the recommendations of the magistrate judge, but retains responsibility for making the final determination. The court is generally required to make a de novo determination regarding those portions of the report or specified findings or recommendation as to which an objection is made. 28 U.S.C. § 636(b)(1)(C). However, the court is not required to review, de novo or under any other standard, the factual or legal conclusions of the magistrate judge as to those portions of the F&R to which no objections are addressed. See Thomas v. Arn, 474 U.S. 140, 149 (1985); United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003). While the level of scrutiny under which I am required to review the F&R depends on whether or not objections have been filed, in either case, I am free to accept, reject, or modify any part of the F&R. 28 U.S.C. § 636(b)(1)(C).

BACKGROUND

In 1983, Plaintiff Kelly, of Alaska, suffered severe injuries from a motorcycle accident. Mr. Kelly filed a personal-injury lawsuit in California, and the case was resolved with a "qualified assignment" structured settlement brokered by Defendants. Compl. [1] at ¶¶ 5, 17, 20. In 1979, when Plaintiff Westrope, of Oregon, was six-years old, she was severely burned over most of her body, disfiguring her and impairing her ability to lead a normal life. Id. at ¶ 18; Compl. [1] Ex. B. Ms. Westrope filed a lawsuit in Oregon ("Westrope Litigation") and the case was resolved with a qualified-assignment structured settlement brokered by Defendants. Compl. [1] at ¶¶ 5, 18, 20.

Structured settlements are designed to benefit both parties in an injury claim. Id. at ¶ 23. The defendant can spread out payments over a long period of time and can take a one-time exclusion from income and deduct the cost of the annuity contract funding the settlement as a business expense. Id. The injured party receives spendthrift protection and guaranteed, tax-free income over an extended period of time. Id.

In a "qualified assignment" structured settlement, the settling defendant or its insurer does not wish to retain the long-term periodic payment obligation on its books. Id. at ¶ 26. The defendant or its insurer can transfer its obligation to a third party through a qualified assignment. Id. The third party, called an "assignment company" or "qualified assignee, " becomes the owner of the annuity that funds the periodic payments due under the settlement agreement. Id. Under a qualified assignment, the settling defendant or its insurer has no further liability to make periodic payments once it funds the annuity and makes the assignment. Id. Accordingly, the solvency of the life-insurance company issuing the annuity is critical. Id.

Ringler is a primary-market structured-settlement broker and brokered Plaintiffs' structured-settlement agreements. Id. at ¶¶ 1, 2. In order to discharge their responsibility as structured-settlement annuity brokers, Defendants perform multiple functions. One is to calculate the injured party's future financial needs and medical costs in order to establish the amount of annuity payments needed over the life of the agreement. Id. at ¶ 3. Another function is to select and procure annuities from healthy life-insurance companies that can fulfill the goals of a structured settlement. Id. The SSA broker then facilitates the annuity payout schedule. Id.

Defendants obtained information from Plaintiffs and completed and submitted an "Application for An Immediate Annuity" to the Executive Life Insurance Company of New York ("ELNY") on behalf of Plaintiffs. Id. at ¶ 20; Compl. [1] Exs. A at 2, B at 2. The applications list the lump-sum and monthly annuity payments that ELNY would be obligated to pay to Plaintiffs, provide a payment schedule, list the Oregon and Alaska addresses where Plaintiffs lived and where payments were to be sent, name Plaintiffs as "annuitants" and "payees, " and contain the signature and address of Paul Hoffman of Ringler Associates as "soliciting agent" and "agent." Id. Defendants received from ELNY an undisclosed commission of 4% of each annuity purchased-payable in full, up front, before Plaintiffs began receiving their periodic payments. Compl. [1] at ¶ 5.

Defendants selected ELNY to fund Plaintiffs' structured-settlement annuities and selected ELNY's parent, the First Executive Corporation ("FEC"), as the assignment company despite risks which Plaintiffs allege ELNY and FEC knew or should have known. Id. at ¶¶ 5-12, 29-37, 38, 42-50. ELNY was one of several life-insurance companies offering SSAs at the time Defendants brokered Plaintiffs' SSAs. Id. at ¶ 53. Plaintiffs allege that there were warning signs indicating that ELNY was in financial trouble at the time Defendants placed Plaintiffs with ELNY. Id. at ¶¶ 5-11, 29-32, 50. Plaintiffs allege that ELNY was over-exposed to junk bonds, managed a significantly riskier asset pool than other competing annuity sellers, was not licensed in Plaintiffs' home states, and faced an increased risk of defaulting on its SSA payment obligations. Id. at ¶¶ 29, 44, 50. By the early 1990s, FEC declared bankruptcy, and ELNY was placed into receivership under the direction of the New York Liquidation Bureau ("NYLB"). Id. at ¶ 32. On April 16, 2012, the New York Supreme Court declared ELNY insolvent and approved a liquidation plan presented by the New York State Superintendent of Financial Services. Id. at ¶ 37. ELNY's liquidation plan cut over $920 million of payments owed to approximately 1, 500 payees nationwide. Id. Ms. Westrope's and Mr. Kelly's benefits have been reduced by 52% and 50%, respectively. Id. at ¶ 69.

DISCUSSION

I. Negligence Claim

Plaintiffs alleged that Defendants, as insurance brokers, owed them a duty to exercise reasonable care when procuring "qualified assignment" annuity contracts from life insurance companies to fund their SSAs, and also owed them a duty to inform them that their coverage may be threatened due to ELNY's financial condition. Compl. [1] at ¶ 67. Judge Stewart determined that Defendants did not have a duty to inform Plaintiffs that their coverage may be threatened due to ELNY's financial condition. F&R [82] at 25. Neither party objected to this conclusion. Judge Stewart also concluded that Plaintiffs had sufficiently pled that Defendants owed them a duty to exercise reasonable care in ...


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