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Life Settlement Agreements Lose Money When People Insured Live Long

Life Settlement Organization Fails to Pay Investors

Post number 5350

In Luis Ramiro Aviles, et al., Fraida Kahan, Saul Raznoszczyk v. Wells Fargo Bank, N.A., Wells Fargo Delaware Trust Company, N.A., Wells Fargo Bank Northwest, N.A., Atc Realty Fifteen, Inc., et al, No. 25-312-cv, United States Court of Appeals, Second Circuit (May 8, 2026)

FACTS

Plaintiffs are investors in Lifetrade funds that invested in “life settlements” (purchasing life insurance policies, paying premiums, and collecting death benefits). In 2008 Lifetrade obtained a one-year, up to $500 million credit facility from Wachovia, later assumed by Wells Fargo after its acquisition of Wachovia.

Lifetrade failed to meet payment obligations, triggering a “Termination Event” and giving Wells Fargo UCC secured-party default remedies. After default, the parties negotiated a consensual strict foreclosure settlement under which Wells Fargo retained the collateral in full satisfaction of the debt; the Settlement Agreement was executed August 14, 2012 after negotiations by Lifetrade executives and counsel and approval by independent directors.

PROCEDURAL HISTORY

In 2017 investors filed multiple actions asserting derivative and individual claims against Lifetrade, Wells Fargo, and others. On a Rule 12(b)(6) motion (2019), the district court dismissed claims including breach of contract, fraudulent conveyance, and unjust enrichment, but allowed unconscionability and aiding-and-abetting breach of fiduciary duty to proceed. The district court granted summary judgment to Wells Fargo.

ISSUES PRESENTED

1. Whether Plaintiffs adequately pleaded a claim for breach of the implied covenant of good faith and fair dealing (having abandoned any express breach theory).
2. Whether the fraudulent conveyance claims were governed by Delaware law (not New York) and therefore time-barred.
3. Whether unjust enrichment was properly dismissed as duplicative of contract/tort theories where a valid settlement agreement governed the subject matter.
4. Whether, on summary judgment, the Settlement Agreement was unconscionable under New York law (procedurally and/or substantively).
5. Whether Wells Fargo could be liable for aiding and abetting Smith and Marcum’s alleged breaches of fiduciary duty.

HOLDINGS & RULES OF LAW

Implied covenant / pleading:

A claim must identify the contractual benefit allegedly denied and tether alleged bad faith to an implied promise “so interwoven” in the contract as necessary to effectuate its purpose; conclusory “loan-to-own” allegations are insufficient on a Rule 12(b)(6) record.

Choice-of-law scope:

Under New York law, a provision stating an agreement is “governed by, and construed in accordance with” New York law generally covers contract claims only, not tort claims.

Fraudulent conveyance as tort & conflicts:

Fraudulent conveyance is treated as a tort and the locus of the tort and the jurisdiction with the greatest interest will generally control.
Unjust enrichment:

Unjust enrichment is unavailable where it duplicates contract or tort claims.
Unconscionability (NY):

Typically requires both procedural and substantive unconscionability.
Aiding and abetting fiduciary breach:

Requires (1) an underlying fiduciary breach, (2) knowing participation, and (3) damages; without evidence of an underlying breach, aiding-and-abetting liability fails.

DISCUSSION / ANALYSIS

Rule 12(b)(6) (Motion to Dismiss)

Implied Covenant / Contract.

Plaintiffs’ complaint alleged “various agreements” and a list of grievances but did not identify which contractual terms were breached or how any specific contractual benefit was denied.

Fraudulent Conveyance / Choice Of Law & Timeliness.

The Settlement Agreement’s New York choice-of-law clause (“governed by, and construed in accordance with”) was not broad enough to reach tort claims like fraudulent conveyance.

Unjust Enrichment.

New York law treats unjust enrichment as an extraordinary equitable remedy, unavailable where a valid contract governs the subject matter.
Aiding and abetting fiduciary breach.

To recover under a theory of unjust enrichment, a litigant must show that (1) the other party was enriched, (2) at that party’s expense, and (3) that it is against equity and good conscience to permit the other party to retain what is sought to be recovered.

CONCLUSION / DISPOSITION

The Second Circuit affirmed the district court’s dismissal of the motion-to-dismiss claims and its summary judgment for Wells Fargo.

In short, the Settlement Agreement governs the subject matter of this case and therefore prevents Plaintiffs from pursuing a duplicative claim for unjust enrichment.

ZALMA OPINION

Buying life insurance policies, paying premium and waiting for the death of the person whose life is insured, is speculative, especially when people live longer. Unless early death can be guaranteed, exposing the life insured to an enforced early death, often leads to early bankruptcy. Lifetrade entered into loan contracts it could not pay back because the people whose policies they bought lived longer than expected and it defaulted on the loans. No one was happy before and after the rulings.

(c) 2026 Barry Zalma & ClaimSchool, Inc.

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