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Dukes Bridge LLC v. Beinhocker

United States Court of Appeals, First Circuit

May 8, 2017

DUKES BRIDGE LLC, Plaintiff, Appellant,
GILBERT D. BEINHOCKER, Defendant, Appellee, STANLEY MILLER, Trustee of the TPCS Corporation Irrevocable Life Insurance Sub-Trust, Plaintiff, LEONARD PHILLIPS, Individually and as Trustee of the TPCS Corporation Irrevocable Life Insurance Trust, Defendant.


          Shawn R. Farrell, with whom Cohen Seglias Pallas Greenhall & Furman, P.C., was on brief, for Dukes Bridge LLC.

          John P. Connelly, with whom Robert T. Ferguson, Jr., and Hinckley, Allen & Snyder LLP were on brief, for Gilbert D. Beinhocker.

          Before Barron, Circuit Judge, Souter, Associate Justice, [*] and Selya, Circuit Judge.

          Souter, J.

         Dukes Bridge LLC, a plaintiff in this action for breach of contract, appeals the district court's grant of summary judgment to defendant Gilbert D. Beinhocker. We reverse and remand.


         The maze of detail in this transaction is lucidly organized in the district court's opinion, but a limited recitation of facts suffices for purposes of the appeal. Beinhocker entered into the contract in question as one element of a transaction to raise capital for his flailing business and income for himself. The dealings among the parties involved Beinhocker's purchase of a multi-million dollar life insurance policy on his own life, to be held in trust for the two years during which the insurer could contest the representation in his policy application, then sold by the insurance broker to a third party for a profit to Beinhocker, among others. As he lacked the wherewithal to pay the policy premiums prior to the anticipated sale, he obtained financing from a lender, Aqua Blue Wealth Management, LLC, Dukes Bridge's predecessor in interest.

         The several documents structuring the transaction included a "Specialty Finance Loan Agreement, " providing that the lender would pay two years of the life insurance policy's premiums. A trust was formed with Beinhocker's business partner, Leonard Phillips, as trustee, and a sub-trust, whose trustee was the plaintiff Stanley Miller. The actual borrower under the Loan Agreement was the sub-trust, which held the life policy as collateral for the lender's protection.

         As it concerns this appeal, the Loan Agreement included a non-recourse provision, that in case of default the obligations to the lender under the agreement could be satisfied only from the collateral policy.[1] It expressly protected Beinhocker:

Notwithstanding any other provision of this Specialty Finance Loan Agreement or any other Loan Documents, Lender agrees that under these Loan Documents there are not any circumstances, including but not limited to the recourse obligations of the Borrower [Sub-Trust], under which . . . Beinhocker will personally be responsible for any obligations owed to the Lender . . . or the Insured's [Beinhocker's] assets will be subject to any claims, liens or judgments of the Lender or any affiliates of the Lender.

         The same day the Loan Agreement was executed, Beinhocker, Phillips, and Miller entered into a "Non-Contravention Agreement, " with the stated purpose of "induc[ing]" the lender to "enter into the Loan Agreement." The Non-Contravention Agreement provided that Beinhocker would not "contravene or take any action that will cause an event of default under the Specialty Finance Loan Agreement or any other contract, understanding, or commitment described in the Loan Documents." Beinhocker would not "pledge, assign . . ., or otherwise dispose of, or encumber with any Lien, the [life insurance policy] without the prior, written consent of [Miller]." Nor would Beinhocker "make any withdrawals from or obtain any policy loans against the" policy without Miller's consent. Beinhocker agreed to hold the lender "harmless" against, and to "reimburse" it for, "any and all loss, liability, or damage resulting from any breach or nonfulfillment" of the Non-Contravention Agreement by Beinhocker, and for any "assessments, judgments, out-of-pocket costs and expenses, including without limitation, legal fees and expenses incident to" such breach.

         With these agreements in place, the original lender paid the first-year premium on the life insurance policy, as well as part of the second year's. Before the lender completed the second-year payments, however, Beinhocker became nervous. He worried that his insurance broker would have difficulty finding a buyer for the policy, and would end up selling it to "any anonymous party in Russia or Asia" who "would have a $10 million incentive to have [him] anonymously assassinated." To assuage his fears, Beinhocker decided to sabotage the scheme. Unbeknownst to Miller, he requested Phillips to take out a $200, 000 loan against the life insurance policy, the amount they had hoped to realize on its eventual sale. Phillips did so, with the ultimate effect of causing the policy to lapse, dismantling the entire arrangement.

         Dukes Bridge (which by this time had succeeded to Aqua Blue's position under the loan contract) then brought this action against Beinhocker, alleging that in causing the $200, 000 loan to be taken out against the life insurance policy, he had violated the Non-Contravention Agreement, resulting in damages to the lender.[2] Each side moved for summary judgment. The district court found there was no question about Beinhocker's breach of the Non-Contravention Agreement but that he was immune from liability under the quoted non-recourse provision in the Loan Agreement. Accordingly, it entered ...

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