### T E X A S C O U R T O F A P P E A L S , T H I R D D I S T R I C T , A T A U S T I N

NO. 03-13-00195- CV

The State of Texas, App ellant

v. Lif e P artner s Hold ings, In c.; Life P artner s, Inc.; Brian D. P ardo; R. Scott P eden; Advance Trust & Life Escrow S ervic es, LTA; P urchase Escrow Service s, LLC;

P ardo F am ily Hold ings, L td.; Dr. D onald T. Cassid y; and Am eric an Stock Trans fer & Trust Com pany, Ap pellees

F ROM TH E DISTRI CT COURT O F TRAVIS CO UNTY, 345 TH JUDICI AL DISTRICT NO. D-1 -GV-1 2-0 0112 8, H ONO RAB LE STEP HEN Y ELENOSK Y , JUDGE P RESIDING

M E M O R A N D U M O P I N I O N

The State of Texas filed suit ag ainst L ife Partners Holdings, I nc.; L ife Partners, I nc.;
Br ian D. Pardo; and R. Scott Peden (cumulatively L ife Partners) for alleg edly eng ag ing in fra udulent
activities in connec tion with the sale of secur ities. The State also asser ted that the following people
h a d p o s s e s s io n o f mo n e y o r a s s e ts b e lo n g in g to L if e Pa r tn e r s : A d v a n c e T r u s t & L if e E s c r o w Se r

v ic e s , L TA; Purchase Escrow Service s, L L C; Pardo Family Ho ldings, L td.; Dr. Donald T. Cassidy ; and
Americ an Stock Transf

er & Trust Company

. I n its suit , t h e S t at e s oug ht, among other things, 1

Advanc e Trust & L ife Esc row Servic es, L TA, and Purc hase Esc row Servic es, L L C filed 1 a brief in this mat t er
. I n their brief, they explain that they wer e added to the lawsuit as relief defe ndants. SEC v. George , 426 F.3d 786, 798 (6th Cir. 2005) (stating that relief defe ndant may be added to case for purpose of aiding rec overy of relief but has no owner ship interest in proper ty that is subject of litigation). Fur ther, they state that there was no evidenc e or finding that either of them “held or reta ined” any proper ty of L ife Partners. Acc ording ly , they contend that they are not proper parties to the suit and that the district court’s j u dg ment should be aff irmed in their favor

. Those asser tions are better suited for the district court’s consideration on rema nd pursuant to this opinion.injunctive relief ag ainst L ife Partners. The district court denied the relief reque sted by the State, and

in its judgme nt, the district court deter mined that the State “fa iled to e stablish that the transac tions

a t is s u e a r e s e c u r it ie s u n d e r ” th e T e xa s Se c u

r it ie s A c t. T h e St a

te a p p e a ls th e d is tr ic t c o u

r t’ s ju d g me n t.
On appea l, the State arg ues that the products sold are secur ities under the Securities
Act beca use they are investment contra cts, notes, bonds, or other evidenc e of indebted n ess. See
Tex. Rev. Civ. Stat. art. 581-4(A) (def ining “sec urity ”). I n supporting the district court’s judgme nt,
L ife Partners contends that the evidenc e prese nted to the district court established that its produc ts do not qualify as secur ities. Alterna tively , L ife Partners insists t h at i t s p roducts are exempt from
reg ulation under the Securities Act beca use they are contra cts rela ting to insurance policies. See id.
I n addition, L ife P ar t ners contends that a contra ry ruling by the district court would have been
inconsistent with prior state and fede ral ca s es
. Specifica lly , L ife Partners ref ers to SEC v. Life Partners, Inc. , 87 F.3d 536 (D.C. Cir. 1996), and Griffit ts v. Life Partners, Inc. , No. 10-01-00271- CV, 2004 Tex. App. L EXI S 4844 (Tex. App.—Waco May 26, 2004, no pet.) (mem. op.). Relatedly , L ife Partners insists that a contra ry ruling would also have violated the Full Fa ith and Credit Clause
beca use the court in SEC v. Life Partners, Inc. had previously deter mined that the products offe red
b y L if e Pa r tn e r s w e r e n o t s e c u

r it ie s
. I n a d d it io n , L if

e Pa r tn e r s u r g e s th a t a r u li n g in c o n s is te n t w it

h th e

case s mention ed above would have resulted in a depriva tion of its proper ty rig hts without due
p r o c e s s o f la

w b e c a u s e it h a s e n te r e d in

to th o u s a n d s o f c o n tr a c ts b a s e d o n th e h o ld in g s o f th o s e c a s e s
. Rece ntly , the Dallas Court of Appea ls was asked to deter mine whether the l i fe
settlements offe red by

L ife Partners w ere secur ities. See A rnold v. Life Partners, Inc. , No. 05-12- 00092-CV, 2013 Tex. App. L EXI S 10928 (Tex. App.—Dallas Aug

. 28, 2013 , n o p et. h.). I n that

2case , L ife Partners also arg ued that the issue had been settled by the case s listed above, but the court

deter mined that “neither the D.C. Circuit nor the Waco Court of Appea ls is binding authority on this

c o u r t. ” I d

. a t * 1 7

. M o r e o v e r , th e c o u

r t d is c u s s e d h o w ma

ny c o u r ts f r o m o th e r s ta

te s h a v e d e te r mi n e d that these ty

pes of pr oducts constitute secur ities and that more r ece nt f eder al case s have disa g ree d
with the holding in SEC v

. Life Partners, Inc. Id. at *18 n.3, 20. After summarizing rele vant case law, the court deter

mined that the products offe red by L ife Partners are “investment contra cts” and,
there fore , “mee t the definition of ‘sec urity .’” Id. at *27 (quoting Tex. Rev. Civ. Stat. art. 581-4(A) ).

I n addition, the court also disag ree d with L ife Partners’ sug g estion that the products

wer e excluded from reg ulation under the Securities Act provision that explains that the Act does not apply to insurance policies or any contra cts rela ting to insuranc e policies “ ‘issued by an insuranc e
company subject to the super

vision or control of the B oard of I nsuranc e Commissi oners whe n the
form of suc h policy

or contra ct has be en duly filed with the Boa rd as now or

here afte r re quired by
law.’” Id. at *27-28 (quoting Tex. Rev. Civ. Stat. art. 581-4(A) ). Essentially , the court conclude d
that the ex clusion did not apply beca use L ife P artne rs i s not “subjec t to the s upervision or c ontrol
of the Boa

rd of I nsuranc e Commi ssioners.” Id. at * 2 8 ; s ee also Employe rs Reinsurance Corp. v. Threlkeld & Co. Ins. Agency , 152 S.W .3d 595, 599 (Tex. Ap p.—Ty ler 2003, pet. denied) (stating that selling pr oducts is not part of insuranc e business).

We ag ree with the conclusions rea ched by the Dallas Court and fully incorpora te its analy sis. Acc ording ly , we conclude that the life settlements offe red by L ife Partners are investment

contra cts and, there fore , qualify as sec u ri t ies subject to reg ulation under the Securities Act. Reg arding L ife Partne rs’ assertions that a conclusion that its products ar e sec urities would violate

3its due proce ss rig hts and is contra ry to the Full Fa ith and Credit Clause, we have been unable to find
any leg al support for either of those propositions. This case cons i d er s whether L ife Partners’
business prac tices constit ute t he sale of securities un d er Texas law, and no binding determination
on that matter ha s previously been ma de.
For all of these rea sons, we sustain the State’s first issue on appea l. Acc ording ly , we

reve rse the judgme nt of the district court and rema nd this case for further p ro ce ed ings consistent with this opi nion.

__________________________________________ David Pury ear , J ustice
Be fore J ustices Pury ear , Rose, and Goodwin
Reverse d and Remande d
Filed: F ebrua

ry 6, 2014

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