A David Ostrem, Sr., v. PrideCo Secure Loan Fund, LP. Iowa personal jurisdiction, contacts imputed from assignment. Life insurance attorneys.
A. David Ostrem, Sr., resides in both Iowa and Florida, but in 2006, he resided in Iowa. He learned about a product called no-cost life insurance. Under this arrangement, a third-party lender finances the premiums for the policy, the insured bears no responsibility, and the loan is paid back from the death benefit. His son, A. David Ostrem, Jr., was an insurance agent with AIP Group-IA, LLC, and he asked the son to get him such a policy. The son consulted with another AIP broker, Richard Kobernusz, to get the policy.
The elder Ostrem made clear to both insurance men that he didn't want to pay any premiums or assume any responsibility for a loan. The two insurance men contacted Finance for Life, LLC, in Tennessee, to help set up a lender.
Meanwhile, they submitted life insurance applications, one of which went to Indianapolis Life Insurance Company, which was later acquired by Aviva USA Corporation. In March 2007, Aviva gave a preliminary approval to the application, and Finance for Life arranged with a Florida company, Imperial Premium Finance, LLC, to finance the premiums. But Aviva didn't approve of the financing arrangements and rejected the application.
Without the elder Ostrem's knowledge, the son and Kobernusz falsely represented to Aviva that the father would personally pay the premiums. Imperial assured the two insurance men that it would keep its involvement a secret from Aviva. Based upon the representations, Aviva then issued a $10 million life insurance policy.
In September of that year, the elder Ostrem set up a trust in Georgia for the purposes of owning the policy and paying the premiums. Imperial loaned the money to this trust, and the trust used that money to pay the premiums. They used the Iowa address of Mrs. Ostrem, and she was a co-trustee. The other trustee was James R. Kelley, a Georgia CPA, who had been recommended by Imperial. Kobernusz approved Kelley's appointment without Ostrem's approval.
Kelley and Mrs. Ostrem completed all of the documents, and Ostem executed a personal guarantee to benefit Imperial. Under this guarantee, he took full responsibility in case the trust defaulted. He later acknowledged that he might have signed this document, but didn't recall having done so, nor had he read it. That document stated that Georgia would be a nonexclusive forum for hearing any disputes about the guaranty.
All went well for three years. Imperial paid the money to the trust, and the trust paid the premiums. In October, 2010, Imperial assigned its interests to PrideCo Secure Loan Fund, LP. PrideCo had been working behind the scenes since 2007, and had begun lending the money to Imperial in 2009.
PrideCo is based in California, and has no contacts with Iowa.
Ostrem first caught wind of the personal guaranty when PrideCo sent him some documents in 2011. In June of that year, an employee of PrideCo called Aviva with some questions about the policy. In order to keep Aviva in the dark about the loan arrangements, this employee falsely told Aviva that he was calling from Kelley's office in Georgia.
In December 2011, PrideCo informed Ostrem that if the trust defaulted on its payment obligations, then PrideCo would go after Ostrem personally. This prompted Ostem to file a petition for declaratory judgment regarding the personal guaranty. He filed this petition with the Iowa District Court in Polk County. He alleged that the personal guaranty was invalid because it refers to nonexistent documents. He also claimed that if the contract is valid, then PrideCo should not be able to enforce it under the doctrine of in pari delicto.
In January 2012, PrideCo decided to go to court itself, but it filed a complaint in Georgia state court. The Georgia case covered essentially the same issues as the Iowa case. PrideCo then asked the Iowa court to dismiss the case for lack of personal jurisdiction. It argued to the Iowa court that PrideCo lacked sufficient contacts with the Hawkeye State.
The Iowa district court agreed with PrideCo. In particular, it held that the only contacts that mattered were those of PrideCo. Even though Imperial might have had contacts with Iowa, those were not relevant. Only PrideCo's contacts with Iowa were applicable. The district court did look at PrideCo's knowledge of the transactions prior to 2009, but it held that these were not directed at Iowa in particular.
The Iowa court also looked at the guaranty, which specified that lawsuits could be brought in Georgia. Under this, the court reasoned, PrideCo would anticipate that any litigation would take place in Georgia, and not in Iowa.
The district court found that PrideCo had virtually no contacts with Iowa, and that the case did not arise from any of those contacts.
The elder Ostrem appealed the case, and the case was retained by the Iowa Supreme Court.
The Supreme Court first reiterated that the question of personal jurisdiction is of constitutional dimension. A defendant must have sufficient contacts with the forum state so as not to offend traditional notions of fair play and substantial justice. This case presented an issue that had never been decided in Iowa--whether the contacts of an assignor should be imputed to the assignee in making this determination.
The court held that the situation was different from that of a successor corporation. Here, there was a mere assignment of the contract, and the court held that cases involving successors in interest were distinguishable. Therefore, the mere fact of the assignment was insufficient to confer jurisdiction.
But this case went further. In this case, there was considerable negotiation, and the Court noted that many e-mails were exchanged. The Court examined these negotiations, and concluded that under the facts of this case, PrideCo assumed many of the obligations of the assignment. Therefore, it held that PrideCo had sufficient contacts in this case. The Supreme Court also held that the other factors favored an assertion of jurisdiction by Iowa.
Since the lower court had held that it lacked jurisdiction, the Supreme Court reversed that ruling and remanded the case to be reinstated in Iowa. Ostrem was represented during the case by Iowa attorneys William B. Ortman, Mark E. Weinhardt, Danielle M. Shelton, P. Gail Brashers-Krug, and Todd M. Lantz of Weinhardt & Logan, P.C., Des Moines. The defendants were represented during the case by Iowa attorneys Todd A. Strother and Bradley M. Beaman of Bradshaw, Fowler, Proctor & Fairgrave, P.C., Des Moines.
No. No. 12-1708(Iowa Jan 10, 2014).
Please see the original opinion for the court's exact language.
Richard P. Clem is an attorney and continuing legal education (CLE) provider in Minnesota. He has been in private practice in the Twin Cities for 25 years. He has a J.D., cum laude, from Hamline University School of Law in St. Paul and a B.A. in History from the University of Minnesota. His reported cases include: Asociacion Nacional de Pescadores a Pequena Escala o Artesanales de Colombia v. Dow Quimica de Colombia, 988 F.2d 559, rehearing denied, 5 F.3d 530 (5th Cir. 1993), cert. denied, 510 U.S. 1041 (1994); LaMott v. Apple Valley Health Care Center, 465 N.W.2d 585 (Minn. Ct. App. 1991); Abo el Ela v. State, 468 N.W.2d 580 (Minn. Ct. App. 1991).
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