Candor Urged in Dispute Over $20M Policy Sale

     (CN) – Arbitration may be possible for an investment-management firm facing claims that it failed to pay up on the purchase of a wealthy Chicago finance executive’s $20 million life insurance policy, a federal judge ruled, but both sides have to lay their cards on the table.



     In 2007, Thomas D. Philipsborn, founder and chairman of the eponymous Chicago-based commercial mortgage banking firm, agreed to sell three life insurance policies to investment-management firm Avon Capital.
     Each policy insured Philipsborn’s life for a total of approximately $20 million. The parties agreed to a purchase price of $4.55 million.
     But the Philipsborn Insurance Trust claimed in a May 2011 lawsuit that Avon had shorted it $818,513 on the sale of one of the three policies.
     Avon filed a motion to dismiss, or in the alternative, to compel arbitration.
     Though U.S. District Judge Harry Leinenweber denied both maneuvers, he said Avon can refile its arbitration demand.
     The 10-page ruling reminds counsel of “their duty of candor,” saying that “parties have revealed the relevant information in such a convoluted and deficient manner that it cannot reach a decision as to the arbitrability of the plaintiff’s claims.”
     Earlier in the proceedings, the trust had pursued arbitration, but Avon refused.
     Now, those situations are reversed. Avon recently pointed to the trust’s initial arbitration demand to support its motion to compel arbitration. The trust countered that it filed suit because Avon had refused to pay arbitration fees.
     Missing documentation only complicates the dispute. Avon submitted three nearly identical purchase agreements to the trust during the sale process, but the trust returned only two of them. The third governed the policy now in dispute and “remains unaccounted for,” according to the court.
     Although the other two agreements include arbitration clauses, the trust argued that the “series of written and oral promises” governing the third sale did not include an arbitration agreement.
     “Both parties began this case with a baffling disinclination to familiarize the court with the relevant facts and procedural history,” Leinenweber wrote on Oct. 31.
     “Although they may have preferred to keep the true circumstances to themselves, awaiting an opportunity to deploy them as ‘smoking guns’ against the other party, such an approach is an active hindrance to this court and the pursuit of truth,” he added.

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