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Higdon v. Lincoln National Insurance Co.

United States District Court, D. Maryland

December 8, 2014

JEFFREY HIGDON, AS TRUSTEE OF THE LIFE INSURANCE TRUST DATED NOVEMBER 1, 1991, Plaintiff,
v.
LINCOLN NATIONAL INSURANCE CO. ET AL., Defendants.

MEMORANDUM OPINION

ELLEN LIPTON HOLLANDER, District Judge.

Plaintiff Jeffrey F. Higdon, as Trustee of the John J. Germenko Life Insurance Trust Dated November 1, 1991 (the "Trust"), seeks to recover the death benefits of $300, 000 he claims are payable on a life insurance policy issued to John J. Germenko (the "Policy") in 1985, which is the corpus of the Trust. Higdon alleges that defendants Lincoln National Insurance Company ("Lincoln") and ING Life Insurance and Annuity Company ("ING") have breached the Policy by refusing to pay the benefits due as a result of Mr. Germenko's death on June 16, 2010.[1] The issue currently before the Court is whether the Court has subject matter jurisdiction over the case.

The original complaint in this action (ECF 2, "State Complaint") was filed in 2013 in the Circuit Court for Howard County, Maryland by Mr. Germenko's two daughters, Barbara Germenko Wright and Deborah Ann Germenko Tharp, individually and, as to Ms. Tharp, as personal representative of the estate of Winifred M. Germenko (collectively, the "Germenkos"). Lincoln and ING (collectively, the "Insurers" or "defendants") removed the case to this Court, pursuant to 28 U.S.C. § 1441 and 28 U.S.C. § 1332 (diversity of citizenship). ECF 1 ("Notice of Removal"). In so doing, the Insurers certified their belief, based on the face of plaintiffs' State Complaint, that this Court would have had "original jurisdiction" if the State Complaint had been filed in federal court. See ECF 1.

In their Answer (ECF 9), the Insurers denied that the Germenkos were the named beneficiaries under the Policy. Thereafter, Higdon, as Trustee of the Trust, filed an Amended Complaint, naming himself as the sole plaintiff. ECF 10. The Insurers then filed a motion to dismiss for lack of subject matter jurisdiction, pursuant to Fed.R.Civ.P. 12(b)(1). ECF 11 ("First Motion").

In their First Motion, the Insurers argued that the Germenkos lacked standing to sue Lincoln and ING. The Insurers noted that, in the State Complaint, the Germenkos alleged that they were each "named beneficiaries" of the Policy. See ECF 2 ¶¶ 5, 6, 7. Defendants did not dispute that named beneficiaries would have standing to sue. Rather, they asserted that the allegations in the State Complaint are incorrect because, in fact, the Trust is the sole named beneficiary of the Policy. ECF 11. On this basis, the Insurers argued that the Germenkos lacked standing to sue the Insurers at the time they filed the State Complaint.

Claiming that standing is jurisdictional in federal courts, and that jurisdictional defects cannot be cured by post-removal substitution of parties, the Insurers argued that this Court lacks subject matter jurisdiction. Therefore, they asked this Court to dismiss the case. I denied defendants' First Motion, with leave to renew after the parties provided additional briefing, as requested by the Court. See ECF 20 (Memorandum).

Now pending is defendants' renewed motion to dismiss for lack of subject matter jurisdiction, pursuant to Rule 12(b)(1). See ECF 22, "Motion;" ECF 22-1, "Memo." The Insurers make the same basic argument here as was lodged in their First Motion. Plaintiff opposes the Motion (ECF 26), and has submitted a memorandum in support of his opposition. See ECF 26-1, "Opposition"). Defendants have replied. (ECF 27, "Reply").

No hearing is necessary to resolve the Motion. See Local Rule 105.6. For the reasons that follow, I conclude that this court lacks subject matter jurisdiction. Therefore, I shall grant the motion in part, but deny it in part, i.e., I shall deny the request for dismissal. Instead, I shall remand the case to the Circuit Court for Howard County, Maryland, pursuant to 28 U.S.C. § 1447(c).

Factual Background

As noted, the Germenkos filed their State Complaint in 2013. ECF 2. It contained one count, for breach of contract. Id. at 7-9. The contract dispute turns on whether the Policy was in force when Mr. Germenko died on June 16, 2010. Id. ¶ 13. See id. The Germenkos alleged that in January 1985, Mr. Germenko contracted for a "flexible premium adjustable life policy" with "an initial specified amount of $300, 000.00." Id. ¶ 10. They asserted that "[a]t all relevant times, " Mr. Germenko "was the owner of the Policy and the Plaintiffs [the Germenkos] are the named beneficiaries of the Policy." Id. ¶ 10; see also id. ¶¶ 5, 6, 7, 24. In the suit, they did not mention the Trust. ECF 2.

The Insurers removed the case to this federal court on July 25, 2013. ECF 1. In their Notice of Removal, defendants stated that the action was "properly removed under 28 U.S.C. § 1441 (removal jurisdiction) because the Court has original jurisdiction over this matter pursuant to 28 U.S.C. § 1332 (diversity jurisdiction)." Id. ¶ 12. In support, they stated the following: two of the Germenkos are citizens of Florida, id. ¶¶ 4, 5; the third is a citizen of North Carolina, id. ¶ 3; Lincoln is a citizen of New York and Pennsylvania, id. ¶ 7; ING is a citizen of Connecticut, id. ¶ 8; and the amount in controversy ($300, 000) exceeds $75, 000, id. ¶ 10. They also stated that each of the Germenkos was an "alleged beneficiary" of the Policy. ECF ¶¶ 3, 4, 5.

Defendants answered the State Complaint on August 1, 2013. ECF 9, "Answer." In their Answer, defendants denied that the Germenkos "were the named beneficiaries" of the Policy "at the time of" Mr. Germenko's death. Answer ¶ 1. They also asserted, as an affirmative defense, that the Germenkos "lack standing to maintain any of the claims alleged in the complaint because they were not the named beneficiaries of the policy at the time of death of Mr. Germenko." Answer at 6.

On August 22, 2013, as a matter of course under Fed.R.Civ.P. 15(a)(1)(B), [2] the Germenkos filed an Amended Complaint. ECF 10. The Amended Complaint removed the Germenkos as plaintiffs and substituted Jeffrey F. Higdon, Trustee of the Trust, as plaintiff. Id. It also alleged that the Trust "is the beneficiary" of the Policy. Id. ¶¶ 1, 22. According to the allegations, the Germenkos were the named beneficiaries of the Policy when it was originally issued, but "[i]n or about November 1991, the Trust became the sole beneficiary of the Policy." Id. ¶ 8.

On September 9, 2013, defendants filed their First Motion. ECF 11. They asserted that the Amended Complaint constituted an admission that the Germenkos were not the beneficiaries of the Policy "at the time of [Mr. Germenko's] death, at the time the complaint was filed, or at the time of removal." ECF 11-1 (Memo) at 7. Thus, defendants argued that 1) the Germenkos did not have standing to sue the Insurers at the time they filed the State Complaint; 2) therefore, the Court lacked subject matter jurisdiction at the time of removal; 3) jurisdictional defects existing at the time of removal cannot be cured by post-removal substitution of parties; and 4) this Court thus lacks subject matter jurisdiction. ECF 11-1 at 1-2.

Plaintiff opposed the motion (ECF 18), and defendants replied (ECF 19). With his opposition, plaintiff submitted matters outside the pleadings, including a Policy description and application (ECF 18-2, 18-3), the Trust Agreement (ECF 18-4), the "Change of Beneficiary" form (ECF 18-5), and the "Change of Ownership" form (ECF 18-6).

The Change of Beneficiary form appears to have been signed by Mr. Germenko on November 19, 1991. ECF 18-5 at 2. It does not indicate when the insurer (at that time, Aetna) accepted the form. Id. It designated Jeffrey F. Higdon, as Trustee "under trust agreement dated November 1, 1991, John J. Germenko Life Insurance Trust." The Change of Ownership form appears to have been signed by Mr. Germenko on January 8, 1992; it lists the same new owner (Higdon); and it was accepted by the insurer (Aetna) on January 21, 1992. ECF 18-6 at 2. A second Change of Ownership form, signed by Higdon in the name of the Trust on March 6, 2000, and accepted by the insurer on March 16, 2000, appears to reaffirm that the Trust is the owner of the Policy; the box checked simply indicates that "the insured" is "to be owner." ECF 18-6 at 3.

The Trust Agreement establishes a series of contingent interests in the Policy funds.[3] Section 2.02, titled "Protection Against Loss of Marital Deduction for Qualifying Property and Distribution of Assets, " directs the Trustee to disburse funds first to "the Grantor's spouse" and/or her estate, in such amount "as may be necessary" to reduce estate taxes in a specified way. Trust Agreement at 13. The "Grantor's spouse" is not specified in the Trust Agreement, but plaintiff has explained that Mr. Germenko's spouse, at the time of the creation of the Trust and at his death, was Catherine Germenko. ECF 25-1 at 4.[4]

Section 2.02 further instructs the Trustee to "pay over and distribute all of the accumulated and unpaid income and remaining principal of the trust estate, after compliance with [Section 2.02] as provided in Section 2.03." Id. (emphasis added). Section 2.03(a) states, id. at 14:

Upon Grantor's death, and upon compliance with the provisions of Section 2.02 of this Trust Agreement, the Trustee shall distribute to Grantor's former wife, [5] ___________ such amount as is required under the Property Settlement Agreement Grantor executed with her and which agreement was incorporated in the divorce decree entered in Howard County, Maryland. The Trustee shall allocate all of the remaining accumulated and unpaid net income and remaining principal of this Trust into two equal shares to be administered and distributed in the following manner:
(1) One equal share shall be allocated to the BARBARA J. WRIGHT SHARE to be administered and distributed subject to the provisions of paragraph (b) of this Section 2.03, and
(2) The other equal share shall be allocated to the DEBORAH G. THARP SHARE to be administered and distributed subject to the provisions of ...

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