IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

THE PRUDENTIAL INSURANCE : 

COMPANY OF AMERICA, :

:

Plaintiff : CIVIL ACTION

:

 v. :

:

PAUL M. PRUSKY and STEVEN G. :

PRUSKY, as Trustees of the :

MFI Associates, Ltd. Profit Sharing : NO. 04-CV-462

Plan :

:

Defendants :

: 

MEMORANDUM

This declaratory judgment action involves a dispute between an insurance

company and its insured regarding the parties’ relative rights and obligations under a life

insurance contract. Steven Prusky purchased a life insurance contract from Prudential

Insurance Company of America (“Prudential”) that provides an opportunity for insureds

to participate in the investment allocation of certain premium payments. He later

assigned the contract to his father, Dr. Paul Prusky. When Prudential changed its policy

regarding the means by which funds could be reallocated, a dispute arose and Prudential

filed this declaratory judgment action. 

Defendants counterclaimed for breach of contract and violation of the Electronic

Signatures in Global and National Commerce Act, 15 U.S.C. §§ 7001-7006, requesting

declaratory relief and monetary damages. Prudential moves to dismiss these claims. For

Case 2:04-cv-00462-LS Document 40 Filed 07/22/05 Page 1 of 12
2

the reasons set forth below, Plaintiff’s motion to dismiss the breach of contract claim and

claim for monetary damages is denied. The motion to dismiss the E-Sign Act claim is

granted.

I. BACKGROUND

In 1997, Steven Prusky purchased a flexible premium survivorship variable

universal life insurance contract (the “Contract”) from Prudential, which insures the lives

of his parents, Dr. Paul and Susan Prusky. He assigned the Contract to his father, Dr.

Paul Prusky, who now owns the Contract on behalf of a profit sharing plan. Pursuant to

the Contract, premium payments in excess of applicable charges become part of a fund

that is invested in one or more of fifteen sub-accounts, the assets of which are invested in

an underlying mutual fund. After the initial allocation of funds among the sub-accounts,

a contract owner may change that allocation by making transfers. The Contract provides

that “[t]o make a transfer, [the contract owner] must ask [Prudential] in a form that meets

[Prudential’s] needs.” 

Steven and Paul Prusky engage in an activity commonly referred to as “markettiming”–making frequent transfers among mutual fund investment options in an attempt

to take advantage of short term changes in the market. Although Prudential permitted the

Pruskys to make daily or near daily transfers by phone or facsimile for the first six years

of the Contract, Prudential adopted new transfer policies in December 2003 which limit a

contract owner’s right to make transfers by phone, fax, or other electronic means to

Case 2:04-cv-00462-LS Document 40 Filed 07/22/05 Page 2 of 12
3

twenty transfers per calendar year. After the twentieth transfer, all other transfers must be

submitted by postal mail on a form that bears an original signature in ink. The stated

purpose for such restrictions is “to discourage market timing in variable life insurance

market.”

In response to a notification regarding the new policies, Dr. Prusky sent a letter on

January 6, 2004 to a Prudential employee challenging Prudential’s authority to restrict

transfers by facsimile. The letter stated: “Should any transfers be rejected, any net gains

that would have been achieved will be considered Prudential’s responsibility, and we will

be resolute in taking any and all actions necessary to recover them.” By February 13,

2004, Prusky had made twenty transfers by facsimile. He continues to submit transfer

instructions on a daily or near-daily basis. Prudential has refused to accept these

transfers. 

The parties were engaged in a prior lawsuit involving the same Contract. In that

case, Prusky challenged Prudential’s decision to change the daily deadline for making

transfers–the “Valuation Time”– from 4:15 PM to 4:00 PM, alleging that this change

violated the Contract. After a bench trial, the Honorable Berle Schiller issued extensive

findings of fact and conclusions of law, ruling in favor of Prudential. Among other

things, Judge Schiller found that the Contract was integrated, consisting only of the policy

and attached copy of an application, and that the Contract itself did not guarantee a 4:15

PM valuation time. Prusky v. Prudential Insurance Co. of America, 2001 U.S. Dist.

Case 2:04-cv-00462-LS Document 40 Filed 07/22/05 Page 3 of 12
4

LEXIS 24080, at *66-70 (E.D. Pa. Nov. 1, 2001). He also considered the Contract

negotiations and expressly found that Prudential specifically refused to guarantee that the

valuation time would remain unchanged or that transfer requests by facsimile or

telephone would be accepted for the life of the Contract. Id. at *70-75. 

The Pruskys filed a Motion for Amendment of Findings of Fact, Conclusions of

Law, and Judgment, advancing a new theory of the case based on Judge Schiller’s finding

that the Contract was integrated and did not provide for a specific valuation time. Prusky

v. Prudential Ins. Co. of America, 2001 U.S. Dist. LEXIS 24189 (E.D. Pa. Dec. 3, 2001). 

The court denied the motion. Id. On appeal, the Pruskys challenged Judge Schiller’s

Findings of Fact and Conclusions of Law, as well as the order denying the Motion for

Amendment. In an unpublished opinion, the Third Circuit affirmed the district court’s

judgment, finding that the Pruskys had waived the right to present a new argument on

appeal. Prusky v. Prudential Ins. Co. of America, 2002 U.S. App. LEXIS 15503 (3d Cir.

Aug. 1, 2002). The court noted:

Because we find that it is and always has been clear under the

express language of the Contract that the Contract consists of

only the policy and any attached copy of an application, we

cannot accept Prusky’s argument. The Contract plainly states,

“This policy and any attached copy of an application,

including an application requesting a change, form the entire

contract.”

Id. at **7.

Prudential seeks declaratory and injunctive relief with respect to the parties’ rights

Case 2:04-cv-00462-LS Document 40 Filed 07/22/05 Page 4 of 12
5

and obligations under the Contract. The Pruskys counterclaimed for breach of contract

and violation of the E-Sign Act. Prudential filed this motion to dismiss both of the

counterclaims.

II. Standard for a Motion to Dismiss

The court may grant a motion to dismiss only where “it appears beyond a

reasonable doubt that the plaintiff can prove no set of facts in support of his claim that

would entitle him to relief.” Carino v. Stefan, 376 F.3d 156, 159 (3d Cir. 2004) (quoting

Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). In deciding a motion to dismiss, the court

must construe the complaint liberally, accept all factual allegations in the complaint as

true, and draw all reasonable inferences in favor of the plaintiff. Id.; see also D.P. Enters.

v. Bucks County Cmty. Coll., 725 F.2d 943, 944 (3d Cir. 1984).

III. The Breach of Contract Claim

Prudential argues that the Prusky’s breach of contract claim must be dismissed

because the Judge Schiller’s decision disposes of the claim. Judge Schiller found that the

Contract was integrated, the Third Circuit upheld this finding, and that issue may not be

re-litigated. However, his fact alone does not dispose of the Pruskys’ claim. Judge

Schiller did not decide whether the specific provision at issue in this case is unambiguous. 

I will therefore deny Prudential’s motion to dismiss the breach of contract claim.

The doctrine of collateral estoppel, or issue preclusion, “forecloses re-litigation in

a later action[] of an issue of fact or law which was actually litigated and which was

Case 2:04-cv-00462-LS Document 40 Filed 07/22/05 Page 5 of 12
6

necessary to the original judgment.” Witowski v. Welch, 173 F.3d 192, 198 (3d Cir.

1999) (citations omitted). The general rule is that “[w]hen an issue of fact or law is

actually litigated and determined by a valid and final judgment, and the determination is

essential to the judgment, the determination is conclusive in a subsequent action between

the parties, whether on the same or a different claim.” Nat’l Railroad Passenger Corp. v.

Pennsylvania Public Utility Commission, 288 F.3d 519 (3d Cir. 2002) (citing Restatement

(Second) of Judgments § 27)). To invoke issue preclusion, it must be established that:

“(1) the identical issue was decided in a prior adjudication; (2) there was a final judgment

on the merits; (3) the party against whom the bar is asserted was a party or in privity with

a party to the prior adjudication; and (4) the party against whom the bar is asserted had a

full and fair opportunity to litigate the issue in question.” Board of Trs. v. Centra, 983

F.2d 495, 505 (3d Cir. 1992). 

The parties do not dispute that the parties in both cases are identical or that there

was a final judgment on the merits. The critical question for purposes of resolving this

motion is whether the issues in this case are identical and essential to the judgment, and

whether the Pruskys had a full and fair opportunity to litigate them. Although the breach

of contract claim in the prior litigation dealt specifically with the valuation time, not the

available methods for submitting transfer requests, Judge Schiller decided many of the

same factual questions that are at raised in this case. Among other things, he concluded

that the Contract is integrated. He also determined that the Contract is unambiguous to

Case 2:04-cv-00462-LS Document 40 Filed 07/22/05 Page 6 of 12
7

the extent that it does not provide a specific valuation time, and therefore, found in favor

of Prudential. In the alternative, Judge Schiller found that even if the Contract is

ambiguous, Prudential specifically refused to guarantee that the valuation time would

remain unchanged or that transfer requests by facsimile or telephone would be accepted

for the life of the Contract during the Contract negotiations. He did not, however,

specifically consider whether the provision which states that the contract owner must

make transfer requests in a “form that meets [Prudential’s] needs” was unambiguous. 

Because Judge Schiller did not decide this question, the Pruskys are not barred by the

doctrine of issue preclusion from litigating it before this court.

The Contract provides in relevant part: “To make a transfer, you must ask us in a

manner that meets our needs.” Complaint, Ex. A, at 14. It does not specify the frequency

with which transfers may be effectuated, nor the available means of transmitting transfer

requests. The Pruskys contend–and Prudential stipulated in the prior litigation–that “[t]he

Contract entitles its owner to transfer amounts between and among the Sub-accounts as

often as daily on any day that the New York Stock Exchange is open for business.” See

Prusky, 2001 U.S. Dist. LEXIS at *16. They further argue that the Contract necessarily

permits use of electronic communications, because electronic communications are the

only means by which daily transfers can be accomplished. As a general rule, “where the

words of [a contract] are unambiguous, the interpretation of the contract must proceed

solely from the writing’s text.” Giampolo v. Somerset Hosp. Ctr. for Health, 1998 U.S.

Case 2:04-cv-00462-LS Document 40 Filed 07/22/05 Page 7 of 12
8

Dist. LEXIS 14388, at *34 (citing Halpin v. LaSalle, 432 Pa. Super. 55, 628 A.2d 37, 39

(Pa. Super. 1994)). On its face, the provision at issue appears to be unambiguous, giving

Prudential complete discretion to define the manner in which transfer requests are to be

submitted. Even when a contract seems unambiguous, however, “[t]he course of

performance of the parties is always relevant in construing a contract.” Prusky, 2001 U.S.

Dist. Lexis 24189, at *4 (E.D. Pa. Dec. 3, 2001); see also Bethlehem Steel Corp. v.

United States, 270 F.3d 135, 139 (3d Cir. 2001) (noting that under federal contract law,

“to decide whether a contract is ambiguous, we do not simply determine whether, from

our point of view, the language is clear....We consider the contract language, the

meanings suggested by counsel, and the extrinsic evidence offered in support of each

interpretation. Extrinsic evidence may include the structure of the contract, the

bargaining history, and the conduct of the parties that reflects their understanding of the

contract’s meaning.” (citations omitted)). A court, therefore, may look to the parties’

course of conduct to determine whether a contract is ambiguous, Atlantic Richfield Co. v.

Razumic, 480 Pa. 366, 390 A.2d 736, 741 n.6 (1978), and/or to resolve an ambiguity. 

Resolution Trust Corp. v. Urban Redevelopment Auth., 638 A.2d 972, 975 (Pa. 1994).

Because the phrase “a form that meets our needs” may be ambiguous, and because at this

early stage in the litigation I must construe all facts in favor of the Pruskys, I will deny

Prudential’s motion to dismiss. 

Case 2:04-cv-00462-LS Document 40 Filed 07/22/05 Page 8 of 12
1

See, e.g., Cable Investments, Inc. v. Woolley, 867 F.2d 151, 154 (3d Cir. 1989) (addressing the

substantive right at issue before considering whether there was a private cause of action).

9

IV. The Electronic Signatures in Global and National Commerce Act

Prusky also contends that Prudential violated and continues to violate the

Electronic Signatures in Global and National Commerce Act, 15 U.S.C. §§ 7001-7006

(“E-Sign Act”), by refusing to accept transfers by fax or electronic means. Because I find

that the E-Sign Act does not apply in this case, I do not reach the question of whether

there is an implied private right of action under the Act.1

In relevant part, the E-Sign Act provides:

(1) a signature, contract, or other record relating to such

transaction may not be denied legal effect, validity, or

enforceability solely because it is in electronic form; and 

(2) a contract relating to such transaction may not be denied

legal effect, validity, or enforceability solely because an

electronic signature or electronic record was used in its

formation.

15 U.S.C. § 7001(a)(1)-(a)(2). The purpose of the Act is to protect transactions from

legal challenges that are solely based on the electronic form of the agreement. As the

statute makes clear, the use or acceptance of electronic signatures is not mandatory. 

Specifically, the E-Sign Act states: “This title does not...require any person to agree to use

or accept electronic records or electronic signatures, other than a governmental agency

with respect to a record other than a contract to which it is a party.” Id. § 7001(b)(2). 

Therefore, because the E-Sign Act does not require Prudential to accept electronic

signatures, Prusky’s counterclaim based on this statute must be dismissed.

Case 2:04-cv-00462-LS Document 40 Filed 07/22/05 Page 9 of 12
2

 There is, however, one important distinction. The contract at issue in Aetna apparently provided for a

“level death benefit,” whereas the policy at issue in this case provides for a “potential death benefit.” In contrast to a

policy that offers a “level death benefit”–which provides for the payment of a fixed insurance amount if the contract

remains in force at the time of death–the “potential death benefit” offered under the policy in this case provides for

the greater of the fixed insurance amount and “the contract fund before deduction of any monthly charges due on that

date, multiplied by the attained age factor.” See Pl.’s Complaint, Ex. A, at 6.

10

V. Claim for Monetary Damages

The Pruskys are seeking both equitable relief and damages for Prudential’s alleged

breach of contract. Prudential moves to dismiss the claim for monetary damages, alleging

that such damages are impermissibly speculative as a matter of law. Prudential cites

Prusky v. Aetna Life Insurance and Annuity Co., 2004 U.S. Dist. LEXIS 21597 (E.D. Pa.

Oct. 25, 2004), a decision in which Judge Bartle held that a claim for damages was

unavailable in a factually similar case. In Aetna, the Pruskys alleged that the defendant

insurance company breached a similar flexible premium life insurance contract2 and

violations of Pennsylvania’s Unfair Trade by prohibiting them from engaging in markettiming. Judge Bartle concluded that although the Pruskys had suffered harm, “whether or

not [they] will suffer any pecuniary damages, and if so how much, is currently a matter of

speculation and conjecture.” Id. at *18. In contrast to Aetna, which was decided on

summary judgment, this case lacks the necessary factual development to support a finding

that the claim for monetary damages is impermissibly speculative at this stage in the

litigation.

VI. Conclusion

Based on Judge Schiller’s determination in the prior lawsuit, and the Third

Case 2:04-cv-00462-LS Document 40 Filed 07/22/05 Page 10 of 12
11

Circuit’s subsequent approval of that determination, I find that the Pruskys are precluded

from re-litigating the question of whether the Contract is integrated. However, I cannot

conclude, given the lack of a factual record at this stage in the litigation, that the specific

contractual provision in this case is unambiguous. For that reason, I will deny

Prudential’s motion to dismiss the Pruskys’ breach of contract claim. Likewise, because

the factual record lacks the necessary development, and in light of the standard for a

motion to dismiss, I will not dismiss the Pruskys’ claim for monetary damages. However,

because Prudential had no affirmative obligation under the E-Sign Act to accept

electronic signatures, Prudential’s motion to dismiss that count of the Pruskys’

counterclaim is granted.

An appropriate order follows. 

Case 2:04-cv-00462-LS Document 40 Filed 07/22/05 Page 11 of 12
IN THE UNITED STATES DISTRICT COURT

FOR THE EASTERN DISTRICT OF PENNSYLVANIA

THE PRUDENTIAL INSURANCE : 

COMPANY OF AMERICA, :

:

Plaintiff : CIVIL ACTION

:

 v. :

:

PAUL M. PRUSKY and STEVEN G. :

PRUSKY, as Trustees of the :

MFI Associates, Ltd. Profit Sharing : NO. 04-CV-462

Plan :

:

Defendants :

ORDER

AND NOW, this day of July, 2005, upon consideration of Plaintiff’s 

Motion to Dismiss the Defendant’s Counterclaim and Defendants’ Response thereto, it is

hereby ORDERED that: 

(1) Plaintiff’s Motion to Dismiss Count I of Defendant’s Counterclaim (Breach

of Contract) is DENIED;

(2) Plaintiff’s Motion to Dismiss Count II of Defendant’s Counterclaim

(Violation of the Electronic Signatures in Global and National Commerce

Act, 15 U.S.C. §§ 7001-7006) is GRANTED; and

(3) Plaintiff’s Motion to Dismiss Defendants’ Claim for Monetary Damages is

DENIED.

______________________________

LAWRENCE F. STENGEL, J.

Case 2:04-cv-00462-LS Document 40 Filed 07/22/05 Page 12 of 12