Court Opinion

ID: 3203987
Source: CourtListenerOpinion
Date Created: 2016-05-17 15:00:58.264935+00
Date Added: 2024-06-11T14:29:08.299072
License: Public Domain

In the

      United States Court of Appeals
                     For the Seventh Circuit
                          ____________________  

No.  15-­‐‑3446  
SAMARON  CORP.,  doing  business  as  Troyer  Products,  
                                              Plaintiff-­‐‑Appellant,  
                                         v.  

UNITED  OF  OMAHA  LIFE  INSURANCE  COMPANY,  
                                         Defendant-­‐‑Appellee.  
                          ____________________  

            Appeal  from  the  United  States  District  Court  for  the  
            Northern  District  of  Indiana,  South  Bend  Division.  
                No.  3:12-­‐‑CV-­‐‑397  —  Rudy  Lozano,  Judge.  
                          ____________________  

         ARGUED  APRIL  1,  2016  —  DECIDED  MAY  17,  2016  
                   ____________________  

   Before   POSNER,   EASTERBROOK,   and   WILLIAMS,   Circuit  
Judges.  
     EASTERBROOK,   Circuit   Judge.   In   2003   Troyer   Products  
(formally   Samaron   Corp.),   a   closely   held   corporation,   pur-­‐‑
chased  a  policy  of  insurance  on  the  life  of  Ron  Clark,  then  its  
President.   Dave   Buck,   its   COO,   was   the   beneficiary.   Clark,  
who  approved  the  transaction,  thought  that  the  death  benefit  
of  $1  million  would  enable  Buck  to  buy  out  his  stock,  so  that  
the   money   would   end   up   in   the   hands   of   Clark’s   family  
2                                                                 No.  15-­‐‑3446  

while   Buck   would   come   to   control   the   company.   United   of  
Omaha   Life   Insurance   Company   initially   wrote   the   policy  
that  way,  but  it  was  soon  amended  so  that  the  death  benefit  
would  go  to  Troyer.  (One  side  says  that  United’s  underwrit-­‐‑
ing   department   insisted   on   this   change,   the   other   that   tax  
considerations  dominated;  the  reason  does  not  matter  now.)  
Troyer  did  not  undertake  by  contract  to  turn  the  death  bene-­‐‑
fit  over  to  Buck,  but  both  Buck  and  Ron  Clark’s  wife  Darlene  
recall  that  this  was  the  plan.  
      In   2005   Clark   retired   and   sold   a   controlling   interest   to  
Dan   Holtz,   who   became   the   firm’s   new   President.   Buck   re-­‐‑
mained  as  COO.  After  this  transaction  Holtz  owned  61%  of  
the   stock   and   Buck   the   rest.   As   part   of   his   purchase,   Holtz  
received   a   copy   of   the   policy,   including   the   amendment  
naming   Troyer   as   the   beneficiary.   Another   copy   was   in  
Troyer’s  files.  Clark  died  in  November  2011.  Buck  told  Holtz  
that  Troyer  was  the  beneficiary,  but  when  Holtz  called  Unit-­‐‑
ed  he  was  told  that  the  money  would  be  paid  to  Buck—and  
it   was.   When   Buck   tried   to   use   the   proceeds   to   buy   Holtz’s  
stock,   he   was   removed   from   the   board   and   soon   quit   as  
COO.   Troyer   filed   this   suit   under   the   diversity   jurisdiction,  
contending   that   the   benefits   should   have   been   paid   to   it.  
United,  not  wanting  to  pay  $2  million  on  a  $1  million  policy,  
has   resisted   despite   conceding   that   Troyer   was   indeed   the  
policy’s  beneficiary.  
     What  had  gone  wrong  came  out  during  discovery.  Unit-­‐‑
ed  makes  electronic  copies  of  its  policies.  Once  policies  have  
been  issued,  its  staff  normally  works  from  the  electronic  file.  
Each  document  receives  a  code,  making  it  easier  for  the  staff  
to   know   what   to   look   for.   As   we   have   mentioned,   the   first  
version  of  the  policy  named  Buck  as  the  beneficiary,  but  that  
No.  15-­‐‑3446                                                                   3  

was   changed   by   amendment.   Whoever   added   the   amend-­‐‑
ment   to   the   electronic   file   misclassified   it   as   a   “Post-­‐‑Issue  
Requirement”   rather   than   as   a   change   of   beneficiary.   When  
Holtz   called   after   Clark’s   death,   one   of   United’s   employees  
looked  at  the  electronic  copy  of  the  policy,  saw  Buck  as  the  
beneficiary,  and  looked  for  the  code  denoting  an  amendment  
changing  the  beneficiary.  Not  finding  one,  he  told  Holtz  that  
the   death   benefit   would   be   paid   to   Buck.   In   discovery,   this  
employee  testified  that  it  had  not  occurred  to  him  to  look  at  
a   document   tagged   as   a   “Post-­‐‑Issue   Requirement.”   But  
someone  eventually  went  through  the  whole  file  and  found  
the  amendment,  which  led  to  this  suit.  
      United   acknowledges   its   error   in   paying   Buck.   But   it  
does   not   acknowledge   liability.   It   maintains   that   Troyer  
knew  the  truth  and  allowed  Buck  to  claim  the  money,  carry-­‐‑
ing   out   the   plan   that   Clark   and   Buck   had   devised   in   2003.  
United  observes  that  Troyer’s  corporate  files  contain  a  copy  
of  the  amendment,  and  Holtz’s  personal  files  contain  anoth-­‐‑
er.   It’s   their   own   fault   for   not   looking,   United   maintains.  
And   United   adds   that,   at   a   meeting   of   Troyer’s   board   soon  
after  Clark’s  death,  the  company  chose  to  allow  Buck  to  re-­‐‑
ceive   the   death   benefit.   After   naming   new   members   to   the  
board,  however,  Holtz  caused  it  to  adopt  new  minutes  recit-­‐‑
ing  that  no  such  decision  had  been  made.  
    Believing  the  recording  of  the  meeting  to  have  been  lost,  
the   district   court   denied   United’s   motion   for   summary  
judgment   and   set   the   case   for   trial.   2014   U.S.   Dist.   LEXIS  
137656   (N.D.   Ind.   Sept.   29,   2014).   Shortly   after   the   court   is-­‐‑
sued   this   opinion,   however,   Troyer   admitted   that   it   had  
found   the   recording   a   month   earlier   and   turned   it   over   to  
United’s   lawyers.   The   judge   listened   to   the   recording   and  
4                                                              No.  15-­‐‑3446  

found   it   dispositive.   At   the   meeting   Buck   repeatedly   told  
Holtz  that  Troyer  was  the  policy’s  beneficiary,  yet  with  this  
knowledge   the   board   unanimously   opted   to   allow   Buck   to  
receive  the  money.  The  judge  found  that  the  minutes  of  this  
meeting   had   been   falsified   by   Holtz’s   new   appointees   and  
that   Holtz’s   fervent   denial   that   he   knew   the   policy’s   true  
beneficiary   is   conclusively   refuted   by   the   recording.   The  
judge   granted   United’s   motion   to   reconsider   and   entered  
summary  judgment  in  its  favor.  
    Troyer’s   appellate   brief   insists   that   Holtz   was   misled   by  
United’s   error   and   had   no   reason   to   think   that   Troyer   was  
the  policy’s  beneficiary.  We  agree  with  the  district  court  that  
this  proposition  is  untenable  in  light  of  the  statements  Buck  
made  at  the  board  meeting.  Buck  told  Holtz  to  his  face  that  
Troyer   was   the   policy’s   beneficiary.   He   even   pulled   out   a  
copy  of  the  policy:  “Um,  beneficiary  is  on  page  8.  [Flipping  
through   papers.]   Um,   let   me   oh,   right   here.   [Reading]   ‘This  
policy   is   issued   with   the   owner   and   primary   beneficiary   as  
Troyer  Products,  employer.’”  
    And   if   that   were   not   enough,   Troyer’s   files   contained   a  
copy,  as  did  Holtz’s  personal  files.  Let  us  suppose,  as  Holtz  
asserts,  that  he  refused  to  believe  what  Buck  was  saying  and  
thought  it  unnecessary  to  look  at  the  policy,  in  light  of  what  
United’s   staff   had   said.   Still   Troyer   (the   corporation)   knew  
the   truth,   because   its   principal   officers   in   2003   (Clark   and  
Buck)   had   negotiated   the   policy   and   were   well   aware   of   its  
contents.  What  the  President  and  COO  knew,  Troyer  knew.  
There   is   no   such   thing   as   corporate   amnesia.   Prime   Eagle  
Group  Ltd.  v.  Steel  Dynamics,  Inc.,  614  F.3d  375  (7th  Cir.  2010).  
Turnover  in  a  corporation’s  management  does  not  wipe  out  
the   corporation’s   fund   of   knowledge.   That   Holtz   did   not  
No.  15-­‐‑3446                                                                   5  

know  something  does  not  mean  that  Troyer  the  corporation  
was  ignorant.  
    The  fact  remains  that  United  paid  the  death  benefit  to  the  
wrong  party.  United  contends  that  Troyer  waived  its  right  to  
the   money,   and   the   district   judge   agreed.   There   are   at   least  
two   potential   ways   to   contest   that   conclusion—and   Troyer  
does  not  pursue  either  of  them.  
    The  first  would  be  to  emphasize  that,  although  the  board  
discussed  the  issue,  it  did  not  adopt  a  resolution.  In  Indiana,  
whose   law   controls   this   litigation,   boards   act   by   majority  
vote.  Ind.  Code  §23-­‐‑1-­‐‑34-­‐‑5(c)  (vote  at  meeting);  cf.  Ind.  Code  
§23-­‐‑1-­‐‑34-­‐‑2   (decision   without   a   meeting   based   on   written  
consent  of  all  directors).  Apparently  Troyer  conducted  busi-­‐‑
ness   informally;   it   operated   by   consensus   (at   least   until  
Holtz   used   his   61%   interest   to   get   rid   of   Buck).   The   district  
judge   wrote   that   Indiana   allows   corporate   boards   to   make  
binding   decisions   by   consensus,   without   voting   on   resolu-­‐‑
tions.   The   judge   did   not   cite   anything   for   this   proposition,  
and   our   own   search   did   not   turn   anything   up.   But   Troyer  
does   not   contest   this   aspect   of   the   district   court’s   analysis.  
Pages   27–28   of   Troyer’s   brief   mention   in   passing   that   the  
board  did  not  adopt  a  resolution  waiving  the  firm’s  right  to  
the  money,  but  the  brief  does  not  contain  any  legal  argument  
about   the   subject.   Any   potential   challenge   to   this   aspect   of  
the  district  court’s  disposition  has  been  forfeited.  
     The   second   way   would   start   with   the   observation   that  
the  board  did  not  choose  between  allowing  the  money  to  go  
directly   to   Buck   and   having   it   paid   to   the   firm   and   then  
passed  on  to  Buck  (provided  that  it  stayed  off  the  books  and  
did  not  cause  heartburn  for  the  firm’s  accountant).  But  Troy-­‐‑
er  does  not  make  anything  of  this  either.  It  does  not  contend  
6                                                          No.  15-­‐‑3446  

that   direct   payment   to   Buck   had   adverse   tax   consequences  
for  the  firm.  Nor  has  a  tax  collector  or  creditor  appeared  to  
argue  that,  had  the  money  passed  through  the  firm’s  coffers,  
it  would  have  had  first  dibs.  So  the  board’s  failure  to  decide  
exactly  how  the  money  would  end  up  in  Buck’s  hands  does  
not  matter.  
     From  beginning  to  end,  Troyer’s  brief  rests  on  the  asser-­‐‑
tions  that  Holtz  was  misled  by  United  and  did  not  know  that  
Troyer  was  the  policy’s  beneficiary.  That  approach  commits  
the  legal  error  of  confusing  Holtz  with  Troyer;  the  corpora-­‐‑
tion’s  knowledge,  not  Holtz’s,  is  what  matters.  And  it  com-­‐‑
mits   the   factual   error   of   ignoring   what   happened   at   the  
board  meeting,  where  Buck  made  sure  that  everyone  present  
knew  that  Troyer  was  legally  entitled  to  the  proceeds.  If  this  
left  Troyer  the  corporation,  or  Holtz  personally,  in  a  state  of  
confusion,   either   could   have   had   a   lawyer   investigate   and  
clear  things  up.  Instead  the  board  elected  to  let  the  money  go  
to  Buck,  and  we  have  explained  why  the  route  it  took  to  get  
there  does  not  matter.  
                                                              AFFIRMED