In a decision dated 12/5/14 in US District of Oregon, in the case of Marie Westrope and Reggie Kelly v Ringler Associates Inc, Paul Hoffman, and DOES 1-100, for the first time in my professional life I saw a court dismiss the arguments of defense brokers regarding no statutory or fiduciary duty of care to plaintiffs and instead determine that, under Oregon law, the defense structured settlement brokers owed plaintiffs a special duty of care under a third party beneficiary theory.
A full copy of the the decision is available here, or you can search under Case No. 3:14-cv-00604-ST, USDC, Oregon, Portland Division, Magistrate Judge Janice M. Stewart.
What does this all mean for plaintiffs in the Executive Life of New York litigation, a case which seeks' class status in 26 states and where it is alleged that Ringler Associates brokers sold ELNY contracts using qualified assignments, which exposed plaintiffs to excessive financial risk and which relieved defendants of liability to fund payments in the event of an insolvency, a situation which in fact is occurred in 2013?
What is stunning about this to me is that for the first time in decades we had a major annuity brokerage firm arguing passionately that when they are working on a structured settlement, they are in fact working specifically on behalf of the defendants and "that defendants (Ringler) owed no fiduciary duty to plaintiffs as their broker", a finding the court agreed with factually and which should be a reminder to trial lawyers all over the country that just because a defense broker says he is working for you, when pressed in court they will vehemently deny that they have ANY duty to you or your injured client what so ever.
Instead of fiduciary standards of care, the Court this time found that Oregon law provided a level of care responsibility for the broker to be held to. The annuity, while purchased and funded by the defendants, was an " annuity intended to benefit plaintiffs and the broker signed both applications". ( emphasis added by the court). This status as benefits intended for plaintiffs thus demanded a heightened duty of care from defendants and the exercise reasonable care in the procuring of structured settlement annuities. As such, the negligence claim asserted by the plaintiffs survived under Oregon law due to their status as third party beneficiaries. Again, what this means is that a standard of care was recognized by the court in this decision that prevented the standard industry defense that their client is the defendant and they have no duty to the plaintiff. This is an argument plaintiff experts have been pointing out to trial lawyers for decades as to why they must engage their own experts to protect their clients in a structured settlement negotiation.
Not all the news was bad for the defense, as the court found that Ringler did NOT have a continuing duty to inform plaintiffs over time of ELNY's declining financial condition, as there was no way the contracts could be surrendered or replaced after issuance. However, I do find it interesting that no one raised the issue that a robust secondary market for the sale of ELNY contracts existed for much of the later part of the 1990's and early 2000's based on the fact it was protected income under the supervision of the NYLB at that time. Possibly that will be pled again at a future date, or more likely, the plain language prohibiting surrender and commutation will be sufficient to win this argument every time for defense brokers.
Also, another clear win was on the statutory issue of whether or not brokers have liability for contracts written on behalf of beneficiaries in states where Executive Life of NY was not approved for sale. The court found clearly that was a violation of statutory law and allowed it to go forward as part of the case and complaint as well.
I will cover this case again later this week in a video commentary, but suffice it to say that ELNY class action litigation was not killed in motions to dismiss and now will move to a district judge, with objections due Monday, December 22, 2014, and with responses due with in 14 days after that.
The bottom line here is that the mythology that defense brokers working for defendants will be able to safely hide behind the "no fiduciary duty" argument in perpetuity, has for the first time been exposed. Whether the magistrate judge's ruling and thinking on this carries forward to US District Court and to trial remains to be seen. However, I will state again the key point for trial lawyers, and that is you need to get your own advisor and stop using defense brokers if you want to make sure that if something like this ever occurs again, that they don't immediately dive for cover behind the kind of arguments which were made in this case so far.
Our profession has come a long, long way since the early to mid 1980's when these contracts were sold, but one area we need to further bolster is greater clarity on who actually has a duty to protect the future of the plaintiff as it is abundantly clear that defense broker argue that they have no such duty in cases such as this.