non-ministerial, post-purchase services for investors. The Court of Appeals also determined that the ministerial functions performed by LPI did not have a material impact upon the profits of the investors. Rather, the Court of Appeals indicated that the length of the insured's life was of overwhelming importance to the value of the viatical settlement marketed by LPI.
Presently, the SEC has filed a motion to amend its original complaint in light of new facts that the Commission has allegedly uncovered pertaining to the post-purchase services offered by LPI. The SEC contends that these new facts reveal that the investment contracts offered by LPI are indeed securities and thereby subject to the requirements of the 1933 and 1934 Acts. For the reasons stated below, this court concludes that the SEC has failed to present new facts demonstrating that the viatical settlements distributed by LPI are securities consistent with the prior interpretation of Howey by the Court of Appeals in this case. Thus, amendment of the SEC's initial complaint is not warranted and must be denied as futile. Furthermore, because the SEC has failed to present any genuine issue of material fact with respect to this or any other issue before the court, LPI is entitled to summary judgment in this case.
A. SEC's Motion to Amend the Initial Complaint
Rule 15(a) of the Federal Rules of Civil Procedure states in relevant part that "a party may amend the party's pleading only by leave of court or by written consent of the adverse party . . . and leave shall be freely given when justice so requires." Fed. R. Civ. P. 15(a). In Foman v. Davis, 371 U.S. 178, 9 L. Ed. 2d 222, 83 S. Ct. 227 (1962), the Supreme Court defined the term "when justice so requires" and explained that "in the absence of any apparent or declared reason--such as undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party . . . futility of amendment, etc.--the leave sought should, as the rules require, be 'freely given.'" Id. at 182. Accordingly, "within these bounds, a district court has discretion to grant or deny leave to amend under Rule 15(a)." Atchinson v. District of Columbia, 315 U.S. App. D.C. 318, 73 F.3d 418, 426 (D.C. Cir. 1996). See also Foman, 371 U.S. at 182 ("The grant or denial of an opportunity to amend is within the discretion of the District Court, but outright refusal to grant the leave without any justifying reason . . . is not an exercise of discretion."); Firestone v. Firestone, 316 U.S. App. D.C. 152, 76 F.3d 1205, 1208 (D.C. Cir. 1996) (indicating that the granting or denial of leave to amend is committed to the district court's discretion).
As the Supreme Court stated in Foman, a motion to amend a complaint should be denied when such an amendment would be futile. "It has been repeatedly held that an amended complaint is 'futile' if the complaint as amended would not survive a motion to dismiss." Monroe v. Williams, 705 F. Supp. 621, 623 (D.D.C. 1988) (citing Massarsky v. General Motors Corp., 706 F.2d 111, 125 (3d Cir. 1983)). See also Graves v. United States, 961 F. Supp. 314, 317 (D.D.C. 1997) ("A motion to amend the Complaint should be denied as 'futile' if the complaint as amended could not withstand a motion to dismiss.").
In the instant case, the SEC has alleged that new facts have come to light that support the allegation that the viatical settlements marketed by LPI are securities. In its motion, the SEC states that "in March 1997, [the SEC] learned of new developments that belie the factual predicate on which the Court of Appeals decision is based and show that the investments offered and sold by the defendants 'must be managed on a continuing basis.'" Brief in Supp. of SEC's Mot. to Amend Comp. at 5. The new facts alleged by the SEC deal primarily with the post-transaction services undertaken by LPI. Specifically, the SEC contends that a portion of the purchase money paid by investors for their fractional interests in a given policy is held in a trust account for the payment of premiums for a specified period of time. The transaction documents offered by LPI in conjunction with the sale of the interests to investors apparently fail to provide for situations in which the money held in trust for premium payments is exhausted before the insured has died. According to the SEC, situations have begun to arise where the insured is living beyond the period for which the premiums were reserved or in other cases, where the reserves for the premiums have been exhausted before the end of the period for which these premiums had supposedly been reserved.
The SEC asserts that in order to keep these policies in force when reserved premiums have been exhausted and to prevent the investor's interests from becoming worthless, LPI has been advancing premium payments to the issuers of the policies. After making these advancements, LPI has then demanded reimbursement from investors for the money that LPI has advanced to pay the premiums and has required investors to continue to pay their pro rata share of future payments. Apparently, these demands for reimbursement directly contradict express statements included in LPI's transaction forms which provide that the purchaser will not incur costs of any type beyond the amount tendered as the policy purchase deposit. However, the SEC alleges that where investors have refused to make these additional premium payments, LPI has threatened to appropriate the investor's interest and sell this interest to another party. Furthermore, the SEC believes that LPI has sought to mislead investors into complying with their demands by falsely telling them that they will be liable to other investors in the same policy if they do not pay their pro rata share of the premiums.
Instructed by the Court of Appeals' interpretation of Howey as set forth in SEC v. Life Partners, Inc., 318 U.S. App. D.C. 320, 87 F.3d 536 (D.C. Cir. 1996), it is this court's conclusion that the SEC's motion to amend its original complaint must be considered futile. The SEC has failed to present any new facts that would permit this court to conclude that the viatical settlements offered by LPI should be labeled as securities and thereby subject to regulation by the SEC. The facts offered by the SEC remain insufficient to demonstrate that the investor's expectations of profits predominantly depend upon "the efforts of others." Thus, according to the Supreme Court's holding Howey as construed by the Court of Appeals, the SEC's amended complaint is properly characterized as futile.
In its July 1996 opinion, the Court of Appeals examined the final prong of the Howey test in great detail. The Court concluded that each of the three versions of LPI's investment program failed to meet the standard set forth in the final prong of Howey --that the expectation of profits depended upon the efforts of others. Of particular relevance is the fact that the Court of Appeals considered facts that are nearly identical to the those presented by the SEC in its present motion to amend its initial complaint.
In Version I, LPI and not the investor appeared as the owner of record of the insurance policy. The Court of Appeals recognized that LPI's ownership gave it the ability to change the party designated as the beneficiary and even to substitute itself as the beneficiary. Despite the fact that this record ownership closely tied the fortunes of the investors to those of LPI, the Court of Appeals concluded that these facts failed to establish an association between the profits of the investors and the "efforts" of LPI. In the instant case, the SEC asserts that LPI has threatened to appropriate and subsequently sell the investor's interest to another party if the investors fail to make certain pro rata premium payments. Moreover, the SEC contends that by requiring the investors to make these premium payments, LPI has contradicted the express terms of its transaction forms. These facts fail to carry the day for the SEC. A consideration of the language included in the Court of Appeals' opinion demonstrates this point. In rejecting the SEC's argument that LPI's actions in Version I constituted "efforts of others" for purposes of Howey, the Court of Appeals commented:
Only if LPI misappropriated the investors' funds, or failed to perform its post-purchase ministerial functions, would it affect the investors' profits. Such a possibility provides no basis upon which to distinguish securities from non-securities. The promoter's "efforts" not to engage in criminal or tortious behavior, or not to breach its contract are not the sort of entrepreneurial exertions that the Howey Court had in mind when it referred to profits arising from "the efforts of others."
Life Partners, 87 F.3d at 545.
The SEC's motion also appears to present the argument that the paying of premiums by LPI in the manner described above constitutes "the efforts of others" under Howey. However, in its consideration of Version II offered by LPI, the Court of Appeals rejected the argument that the payment of premiums by a promoter could satisfy the third prong of Howey. The Court noted that LPI offered various post-purchase services including "holding the policy, monitoring insured's health, paying premiums, converting a group policy into an individual policy where required, filing the death claim, collecting and distributing the death benefit (if requested), and assisting an investor who might wish to resell his interest." Life Partners, 87 F.3d at 545 (emphasis added). Over the objections of the SEC, the Court of Appeals characterized these post-purchase services, including the paying of premiums, as ministerial in nature, and this court is not free to revisit this determination.
Additional language in the opinion of the Court of Appeals provides further support for denying the SEC's motion. After fully examining each of the three versions presented by LPI, the Court of Appeals reached the following conclusion:
In sum, the SEC has not identified any significant non-ministerial services that LPI  performs for investors once they have purchased their fractional interests in a viatical settlement. Nor do we find that any of the ministerial functions have a material impact upon the profits of the investors.