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Carton v. B & B Equities Group, LLC

United States District Court, D. Nevada

September 9, 2014

EDWIN B. CARTON et al., Plaintiffs,
v.
B & B EQUITIES GROUP, LLC et al., Defendants.

CHRISTENSEN JAMES & MARTIN, Wesley J. Smith, Esq., Attorneys for Plaintiffs.

[PROPOSED] DEFAULT JUDGMENT

ROBET C. JONES, District Judge.

DEFAULT JUDGMENT

I. BACKGROUND ON STOLI

Stranger-originated life insurance ("STOLI") arrangements have become increasingly common over the past decade. See Sun Life Assurance Co. of Canada v. Berck, 770 F.Supp.2d 728, 729-30 (D. Del. 2011). In a typical STOLI scheme, a speculator collaborates with an elderly individual who has a high net worth in obtaining a life insurance policy against the life of the wealthy individual. See generally 3 Leo Martinez et al., New Appleman Insurance Law Practice Guide § 34.09[3] (2011). The wealthy individual is often promised cash upon the future sale of the policy or enticed to enter the arrangement through the promise of two years of free life insurance. The speculator provides non-recourse financing to purchase the policy- secured by the policy-which comes due after the two-year contestability period during which the insurer has to challenge the policy. If the insured dies within the two-year contestability period, the speculator is repaid, with interest, out of the proceeds of the policy. If the insured survives the two-year contestability period, there are two ways he or she may repay the speculator. First, the insured may pay the outstanding debt and accrued interest and retain the policy. This option is generally less attractive because the interest rates are often high or because the insured was promised a portion of the proceeds upon the sale of the policy. Second, the insured may transfer the policy to the speculator to satisfy the debt, and the speculator may then sell the policy on the secondary market. These arrangements ultimately amount to unlawful wagering and have generally been disfavored by courts. See Berck, 770 F.Supp.2d at 730.

II. FINDINGS OF FACT & PROCEDURAL HISTORY

On March 31, 2014, this Court entered Default against Defendants Thomas E. Colbert ("Colbert"), Thomas Colbert Irrevocable Life Insurance Trust ("Colbert ILIT"), Global Equity Preservation, Inc. ("GEP"), and Eagle Investment Corporation of America ("EICOA") (collectively "Defaulted Defendants"). By operation of entry of default against Defaulted Defendants, the factual allegations asserted against them are taken as true. Geddes v. United Financial Group, 559 F.2d 557, 560 (9th Cir. 1977) ("The general rule of law is that upon default the factual allegations of the complaint, except those relating to the amount of damages, will be taken as true.") ( citing Pope v. United States, 323 U.S. 1, 12 (1944); see also Televideo Sys., Inc. v. Heidenthal, 826 F.2d 915, 917-18 (9th Cir. 1987); Fed.R.Civ.P. 8(b)(6). Therefore, in accordance with the general rule of law, the Court makes the following findings of fact[1]:

B&B Equities Group, LLC was a Nevada limited liability company whose managing members are Defendants Robert Koppel and Robert Eberle. B&B is interrelated with Defendants Global Equity Resources, LLC ("GER"), Global Equity Preservation, Inc. ("GEP"), Eagle Investment Corporation of America ("EICA") and Pro Financial Group, Inc. ("PFG") (collectively "B&B Entities") through common ownership, financial control and an interrelationship of operations, such that they constitute a single business in fact. The B&B Entities are entities that R. Koppel and Eberle used to operate the fraudulent scheme described herein. R. Koppel and Eberle were shareholders, managers, members, directors, officers, principals, fiduciaries, agents and/or key employees of these entities. Their duties included solicitation of the Plaintiffs to engage in the investment, payment of money towards insurance premiums, preservation of the insurance policies and/or sale of the Policies on the secondary market, provision of timely and material information to the Plaintiffs and Insurers regarding the Insureds, insurance policies and investment therein and failure to object to the B&B Entities' improper business practices. (Second Amended Complaint ("SAC") at ¶¶ 8-20, Doc. 188).

Plaintiffs Edwin and Lonnie Carton (the "Cartons") were first introduced to STOLI transactions by Defendant Bruce Plotnick, whom they met at a financial planning seminar in the early to mid 2000's. ( Id. at ¶¶ 32-35). Plotnick was the featured lecturer at the seminar and is the principal employee and owner of Defendant Estate Planning Solution Network ("EPSN"), his financial services firm. ( Id. at ¶ 32). Plotnick suggested the Cartons invest their retirement funds in a concept called "premium financing" through Defendant Robert Koppel ("R. Koppel") and his company B&B Equities Group, LLC ("B&B"). ( Id. at ¶¶ 32-35).

R. Koppel and Plotnick, acting through EPSN as agent of R. Koppel, Eberle and the B&B Entities, told the Cartons that B&B would organize limited liability companies which would be assigned the rights to the life insurance policies of the insured third-parties and would assume the liabilities in funding the policies. ( Id. at ¶ 44). The Cartons were then informed they would receive an ownership interest in these limited liability companies and were guaranteed a return of 20% on their investment. ( Id. at ¶¶ 38-48). The Cartons were also told that the insurance premiums would be paid by the limited liability companies for a two year period, after which they would be repaid in one of two ways: (1) the insured would keep the policy and pay off the loan with interest, or (2) the insured would sell the policy on the secondary market. ( Id. ). The Cartons were under the impression that this type of transaction was legal and that the insurance company would have full knowledge of the arrangement. ( Id .; see also Opp'n to Mot. to Dismiss at 9, ECF No. 113).

Koppel and Plotnick made material representations to the Cartons regarding this investment, such as:

• "there is NO Market Risk." (SAC at ¶ 37).
• "Unlike the Stock Market... this gives you security knowing that your principle is protected from Market fluctuations and your gains are sure." ( Id. ).
• "the very heart of this program is just a simple loan document where you collect... interest on the money you lend the insured at the end of the... term." ( Id. ).
• "This is a non-traditional financing method for insurance premiums, which finds itself right in line with industry standards." ( Id. ).
• "You can be assured that your money is as safe, if not safer, than being in your local bank. And compared to the Stock Market, your money is infinitely safer because your principle is protected and your money is not attached to its dangerous fluctuations." ( Id. ).

Further, Plotnick and Koppel failed to state, misrepresented or concealed the following material facts:

• The investments offered were not registered as securities with any federal or state agency or properly noticed as securities to the Plaintiffs. ( Id. at ¶ 169).
• The B&B Entities, Plotnick, Eberle and Koppel were not licensed securities agents/brokers/dealers with any ...

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