Southwestern Life Insurance Group v. Fewkes Management Corporation

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 06-1802
SOUTHWESTERN LIFE INSURANCE GROUP,
Plaintiff,
and
JOY MOREHEAD,
Defendant - Appellant,
versus
FEWKES MANAGEMENT CORPORATION,
Defendant - Appellee,
and
ROBIN HOOD GROUP, INCORPORATED,
Third Party Defendant - Appellee.
Appeal from the United States District Court for the Eastern
District of North Carolina, at Raleigh. Malcolm J. Howard, Senior
District Judge. (4:05-cv-00018-H)
Argued: May 22, 2007 Decided: August 16, 2007
Before TRAXLER and DUNCAN, Circuit Judges, and Frank D. WHITNEY,
United States District Judge for the Western District of North
Carolina, sitting by designation.
Affirmed by unpublished opinion. Judge Whitney wrote the opinion,
in which Judge Traxler and Judge Duncan joined.

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Donald S. Higley, II, HOPF & HIGLEY, P.A., Greenville, North
Carolina, for Appellant. Gary J. Rickner, WARD & SMITH, P.A., New
Bern, North Carolina, for Appellees.
Unpublished opinions are not binding precedent in this circuit.

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WHITNEY, District Judge:
Joy Morehead appeals from a final judgment of the district
court, following a bench trial, declaring Fewkes Management
Corporation as the rightful owner of the proceeds of her late
husband’s life insurance policy and denying her claim of unfair and
deceptive trade practices against Robin Hood Group. We review the
district court’s findings of fact for clear error and its
conclusions of law de novo. Williams v. Sandman, 187 F.3d 379, 381
(4th Cir. 1999). Finding no error, we affirm.
I.
Joy Morehead’s late husband, Ralph Morehead, was a participant
in a group life insurance plan that provided him $100,000 in life
insurance benefits. Initially, Mrs. Morehead was designated as the
beneficiary of the life insurance benefits payable under the
policy.
Sometime in or around 1998, Mr. Morehead was diagnosed with a
potentially terminal illness, severe chronic obstructive pulmonary
disease. On the advice of their insurance agent, the Moreheads
converted the policy to an individual policy of insurance so that
it could be sold immediately for cash through a regulated process
that is known as viatication. The monthly premium under this
individual policy was $352.58, which apparently exceeded the
Moreheads’ ability to pay. Rather than allow the policy to lapse,

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the Moreheads, through the Medical Escrow Society, a Florida-based
viatical broker, solicited bids to sell the policy for cash to
viatical investors. Robin Hood Group, an Illinois-based viatical
settlement provider that represents a group of such investors, made
the Moreheads an offer of $21,000 for the sale of the policy. The
offer by Robin Hood was the highest offer made by any viatical
company for the sale of the policy.
On or about October 25, 2005, Ralph Morehead, Joy Morehead,
and Robin Hood executed a Viatical/Life Settlement Agreement
whereby the Moreheads agreed, in exchange for a lump-sum payment of
$21,000, to assign their interest in the policy to a trustee for
the benefit of new beneficiaries named on the policy. The trustee
appointed to take ownership of the policy was Fewkes Management
Corporation. The new beneficiaries were seven individual investors
who invested varying amounts to fund the settlement agreement, pay
the premiums on the policy as long as Mr. Morehead lived, and who,
at Mr. Morehead’s death, were to receive the entire proceeds of the
policy ($100,000) pro rata to their investment.
At all times relevant to the viatical settlement transaction,
neither Robin Hood nor Fewkes Management were licensed to conduct
business in North Carolina as viatical settlement providers
pursuant to N.C. Gen. Stat. § 58-58-210(a) (2002), although Kristan
Fewkes (Vice-President of Robin Hood Group) was personally licensed
in North Carolina as a viatical settlement broker and erroneously

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believed that this was the only license required. Also, Robin Hood
failed to provide Mr. Morehead with a brochure describing the
process of viatical settlements as required by N.C. Gen. Stat.
§ 58-58-245(a)(8), and failed to use contracts in execution of the
viatical settlement that had been approved by the Commissioner of
Insurance, as required by N.C. Gen. Stat. § 58-58-220.
Despite these technical defects, the viatical settlement was
fully and satisfactorily performed as contemplated by all parties.
Neither of the Moreheads complained about the terms of the
transaction prior to the institution of this litigation by the
insurer, Southwestern Life Insurance Group, which filed this
declaratory judgment action seeking a judicial determination of
whether Fewkes or Mrs. Morehead was the proper owner of the policy
proceeds, in light of the fact that Fewkes was not licensed to
engage in viatical settlements within North Carolina at the time of
the Morehead transaction.
II.
This appeal presents the question of whether, under North
Carolina law, a party to a fully executed contract may rescind it
on the basis of the other contracting party’s failure to comply
with licensing and similar regulatory statutes, which statutes do
not expressly create such a private right of action. North
Carolina case law clearly and directly answers the posited question

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in the negative. Hawkins v. Holland, 388 S.E.2d 221, 223 (N.C. Ct.
App. 1990) (citing Annotation, Recovery Back of Money Paid to
Unlicensed Person Required by Law to Have Occupational or Business
License or Permit to Make Contract, 74 A.L.R.3d 637 (1976)).
Morehead mistakenly relies on a line of North Carolina
decisions standing for the proposition that “unlicensed persons who
contract to provide services for which a license is required may
not recover on the contract.” Marker & Assoc., Inc. v. J. Allan
Hall & Assoc., 314 F. Supp. 2d 555, 561 (E.D.N.C. 2004); see also
Hanover Realty v. Flickinger, 362 S.E.2d 173 (N.C. Ct. App. 1987);
Gower v. Strout Realty, Inc., 289 S.E.2d 880 (N.C. Ct. App. 1982).
Those cases are inapposite here, however, because Appellees are not
attempting to recover moneys still owing to them under the tainted
agreement. Rather, Morehead is trying to recover back the
consideration she and her late husband voluntarily parted with as
part of their performance under the Viatical Settlement Agreement,
after receiving the full benefit of their bargain.
The analysis contained in Hawkins squarely disposes of
Morehead’s arguments in favor of an equitable remedy in these
circumstances. Here, as in Hawkins, the relevant regulatory
enactment provides for ample penalties and enforcement mechanisms,
not one of which is a private right of action for annulment and

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*See, e.g., N.C. Gen. Stat. § 58-58-215 (providing for
revocation or suspension of license for violations of the act); id.
§ 58-58-250(j) (providing for avoidance of a concluded viatical
transaction only where consideration has not been timely tendered
to the viator); id. § 58-58-265(a) (providing criminal penalties
for fraud); id. § 58-58-290 (providing for civil remedies
generally, including: prohibitory injunctions, money damages, and
miscellaneous civil penalties).
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avoidance of a concluded transaction. * This counsels us against
recognizing such a remedy by judicial construction. Hawkins, 388
S.E.2d at 223. Furthermore, to undo the life insurance assignment
after full and satisfactory performance by Appellees would result
in a disproportionate forfeiture by Fewkes and its investors (who
paid $21,000 to the Moreheads for the assignment of the policy in
addition to two years’ worth of monthly premiums to Southwestern
between the assignment and Mr. Morehead’s death, in expectation of
a $100,000 return on their investment at Mr. Morehead’s death) and
a corresponding windfall recovery by Morehead. Such a result would
run contrary to established principles of equity. Id. The
district court, then, properly declined to disregard the assignment
of the life insurance policy pursuant to the Viatical/Life
Settlement Agreement and properly awarded Fewkes ownership of the
policy proceeds.
III.
We next consider whether Morehead has a remedy under North
Carolina’s unfair and deceptive trade practices statutes. By

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enacting N.C. Gen. Stat. § 58-58-295, the North Carolina General
Assembly has declared that “[a] violation of [the Viatical
Settlements Act] is an unfair trade practice,” which in turn gives
rise to a private right of action under N.C. Gen. Stat. § 75-1.1 et
seq. entitling a successful plaintiff to certain statutory remedies
such as treble damages and, potentially, attorney’s fees.
Robin Hood conceded throughout the proceeding below that it
was not properly licensed at the time of the viatical transaction
and that this defect constituted a violation of the Viatical
Settlement Act. However, the district court properly rejected
Morehead’s unfair trade practices claim because she was unable to
prove any actual damages resulting from the violation. To the
contrary, the evidence and the findings of the district court
demonstrate that, had the Moreheads not sold the policy to the
Robin Hood investors, the policy would have lapsed (in which case
she would have received northing) or would have been sold to
another group of viatical investors (in which case the Moreheads
would have settled for something less than the $21,000 they
received from Robin Hood, since Robin Hood submitted the highest
bid in response to their solicitation). Because Morehead cannot
show actual injury resulting from Robin Hood’s statutory
infractions, the district court properly granted judgment in favor
of Robin Hood.

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IV.
In sum, we conclude that appellees’ technical violations of
North Carolina’s Viatical Settlement Act neither entitle Morehead
to unwind the viatical transaction after it has been fully executed
and satisfactorily performed, nor give rise to a claim at law where
she can prove no actual injury. Accordingly, we affirm the
judgment of the district court.
AFFIRMED

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