The 44-page memorandum opinion in Gross et al. v. Pacific Life Insurance Company et al., No. 1:25-cv-01278, also granted the plaintiffs leave to file a First Amended Complaint. Judge Barker wrote that "this case presents a close call," but concluded "that certain of Plaintiffs' claims survive dismissal at this stage of the case."
Lead plaintiff Ronald S. Gross, described in the opinion as "an executive and business owner residing in Northeast Ohio," alleges he was pitched on what the complaint calls the "Deal" in December 2019 by defendant John McDonough of Cool Springs Financial Group. The arrangement involved a premium-financed indexed life insurance policy from Pacific Life, funded by a loan from Primis Bank, with a third-party "Collateral Firm" expected to take over collateral obligations after one year and a day.
The court found the plaintiffs had not alleged a plausible direct-liability theory against Pacific Life. "The only misrepresentations that Plaintiffs allege that Pacific Life itself made are the representations in the life insurance policy itself," Judge Barker wrote. "While Plaintiffs have alleged the 'who,' 'what,' and 'when' of the fraud, they have not alleged the 'how' and 'why' with respect to Pacific Life's alleged involvement in the fraud."
On vicarious liability, however, the court concluded the amended complaint was sufficient. Judge Barker cited allegations that McDonough "was conferred with express and apparent authority to solicit insurance applications, prepare Pacific Life illustrations, collect premiums, and deliver policies bearing the Pacific Life name and logo," and that the policies "were underwritten, approved and funded directly" by Pacific Life.
Pacific Life argued McDonough was an independent contractor and pointed to a producer agreement attached to its opposition. The court declined to consider that document. "Because the 'producer agreement' is not referred to in the FAC, the Court is precluded from considering it at this stage in this case," Judge Barker wrote.
The court also rejected Pacific Life's argument that the alleged conduct fell outside any agency relationship because it was "adverse to Pacific Life." Judge Barker wrote that "the scope of employment may be determined as a matter of law where 'reasonable minds can come to but one conclusion,'" but found the allegations "do not clearly demonstrate that McDonough was acting outside of his authority or adversely to the interests of Pacific Life."
Pacific Life's in pari delicto defense, based on Terlecky v. Hurd (In re Dublin Sec.), 133 F.3d 377 (6th Cir. 1997), also failed at the pleading stage. "Plaintiffs may very well have known that the 'Deal' was illegal, but the Amended Complaint alleges a different story," the court wrote, noting that plaintiffs allege Gross did not become aware of the potential illegality until January 2024.
On the claims against Primis and Senior Vice President Steven Gleicher, the court rejected the lender's argument that the parol evidence rule barred the fraud and negligent misrepresentation counts. "Put simply, there is nothing in the loan documents directly contradicting the alleged misrepresentations concerning the third-party collateral aspect of the 'Deal,'" Judge Barker wrote. The court found the letter agreement "is consistent with a third-party pledging additional collateral to support the loan in the future."
The court also held that Federal Rule of Civil Procedure 9(b)'s heightened pleading standard does not apply to negligent misrepresentation claims under Ohio law, applying Rule 8 instead. The opinion cites the plaintiffs' allegation that "Defendant Primis knowingly allowed Defendants Cool Springs to complete its loan documents without verifying the factual basis of the applicant."
According to the complaint, Gross signed a $1,869,496 loan from Primis on July 12, 2022, and received a default notice on January 16, 2024. The policies were later "liquidated in favor of Defendant Primis," and Gross alleges he received "absolutely no benefit in connection with funds he sent to Defendant Primis, totaling approximately $316,981."