Fifth Third Lawsuit Answer

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF OHIO WESTERN DIVISION FIFTH THIRD BANK, et al., Plaintiffs, vs. TRANSAMERICA LIFE INSURANCE COMPANY and CLARK CONSULTING, INC.

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CASE NO. 1:08 CV 269 Judge Beckwith Magistrate Judge Hogan DEFENDANTS TRANSAMERICA LIFE INSURANCE COMPANY and CLARK CONSULTING, INC.’S ANSWER TO PLAINTIFFS’ COMPLAINT

Defendants.

JURY DEMAND ENDORSED HEREON

Come now defendants Transamerica Life Insurance Company (“Transamerica”) and Clark Consulting, Inc. (“Clark”), and for their Answer to the Complaint filed against them by plaintiffs Fifth Third Bank, an Ohio banking corporation, (“Fifth Third Ohio”) and Fifth Third Bank, a Michigan banking corporation, (“Fifth Third Michigan” and, together with Fifth Third Ohio, “Fifth Third”), state as follows: NATURE OF THE ACTION 1.

The defendants admit that paragraph 1describes the claims that the plaintiffs have

asserted against the defendants, but defendants deny that they are liable to plaintiffs and therefore deny all remaining allegations in paragraph 1 of the Complaint. 2.

The defendants admit that the plaintiffs invested approximately $612 million in Bank

Owned Life Insurance (“BOLI”) products, that Transamerica issued the relevant variable life 1

insurance policies, and that Clark acted as an insurance broker in connection with the transactions. Defendants state that the plaintiffs’ rights and obligations are governed by the various contracts entered into in connection with the transactions. Further answer, defendants deny all remaining allegations in paragraph 2 of the Complaint. 3.

The defendants deny the allegations in paragraph 3 of the Complaint.

4.

The deefendants admit that the value of the plaintiffs’ investment has declined, but

they state that this is the result of investment risks that the plaintiffs knowingly assumed and the plaintiffs’ own investment decisions. The defendants deny the remaining allegations in paragraph 4 of the Complaint. JURISDICTION AND VENUE 5.

The defendants admit the allegations in paragraph 5 of the Complaint.

6.

The defendants admit the allegations in paragraph 6 of the Complaint. THE PARTIES

7.

The defendants are without knowledge or information sufficient to ascertain the truth

of the allegations in paragraph 7 of the Complaint and therefore deny them. 8.

The defendants are without knowledge or information sufficient to ascertain the truth

of the allegations in paragraph 8 of the Complaint and therefore deny them. 9.

The defendants admit the allegations in paragraph 9 of the Complaint.

10.

The defendants admit the allegations in paragraph 10 of the Complaint. THE FACTS

11.

The defendants admit that, in general, the first four sentences of paragraph 11 2

accurately describe the operation of BOLI products, but they deny the allegations in paragraph 11 to the extent that they purport to describe the respective roles and responsibilities of the BOLI policyholder, the insurer and the broker. Fifth Third’s losses in this case were the result of allocation and re-allocation decisions that it made and for which it was responsible. Further answering, the defendants deny the remaining allegations in paragraph 11 of the Complaint. 12.

The defendants admit that, in general, the first sentence of paragraph 12 accurately

describes the treatment of cash surrender value. In response to the second sentence of paragraph 12, they state that the cash surrender value available to Fifth Third at any given time was governed by the precise terms of the written agreements applicable to the insurance policy and stable value subaccount that Fifth Third had elected at that time. The defendants deny the allegations in paragraph 12 to the extent that they are inconsistent with those precise terms. The defendants admit that contractual terms required by state law are set forth in the insurance policy filed with the state. Further, answering the defendants deny the remaining allegations in paragraph 12 of the Complaint. 13.

The defendants admit that, in general, paragraph 13 accurately describes the

relationship that should exist between the investment manager of a sub-account and the owner of a separate account/variable BOLI policy. To the extent, however, that paragraph 13 is meant to imply that Fifth Third received performance reports on only a quarterly basis, the allegations are denied. In fact, Fifth Third received performance reports more frequently than quarterly. 14.

The defendants admit that, in general, paragraph 14 accurately describes the operation

of stable value agreements, but they state that the stable value protection available to Fifth Third at any given time was governed by the precise terms of the Stable Value Agreement underlying the 3

stable value sub-account that Fifth Third had elected at that time. Further answering, The defendants deny the allegations in paragraph 14 to the extent that they are inconsistent with those precise terms. 15.

The defendants admit that, in general, paragraph 15 accurately describes the operation

of automatic re-allocation provisions, but they deny the allegations in paragraph 15 to the extent that they imply that any of Fifth Third’s loss was caused by a failure to recognize that an automatic reallocation event had occurred or a failure to fulfill any duty to notify the policyholder or investment manager. 16.

The defendants admit that Fifth Third had the ability to elect to make re-allocations.

The defendants deny the remaining allegations in paragraph 16 of the Complaint. Fifth Third’s losses in this case were the result of allocation and re-allocation decisions that it made and for which it was responsible. 17.

The defendants are without knowledge or information sufficient to ascertain the truth

of the allegations in paragraph 17 about Fifth Third’s state of mind and therefore deny them. The defendants admit that, in approximately 2004, Clark and Fifth Third began to discuss the possibility of Fifth Third making a BOLI investment, that Clark was one of several brokers invited by Fifth Third to submit a BOLI proposal, that Clark and Fifth Third had an existing business relationship, that Clark often recommended Transamerica insurance products to prospective investors, and that, in 2007, Clark and Transamerica became corporate affiliates. Further, answering, the defendants deny the remaining allegations in paragraph 17 of the Complaint. 18.

The defendants admit that paragraph 18 summarizes some of the contents of the

offering memorandum. The defendants deny the allegations of paragraph 18 to the extent that they 4

are incomplete or inconsistent with the complete contents of the documents presented to Fifth Third. The sub-account initially elected by Fifth Third was the Stable Value Sub-account with Falcon Strategies LLC as the underlying portfolio. 19.

The defendants admit that paragraph 19 summarizes some of the information that was

provided to Fifth Third concerning the sub-account that it elected. The defendants deny the allegations of paragraph 19 to the extent that they are incomplete or inconsistent with the complete contents of the documents presented to Fifth Third. 20.

The defendants admit the allegations in paragraph 20 of the Complaint.

21.

The defendants admit the allegations in the first sentence of paragraph 21, and deny

the allegations in the second sentence of paragraph 21 of the Complaint. 22.

The defendants admit the allegations in paragraph 22 of the Complaint.

23.

The defendants admit that paragraph 23quotes one passage from the documents

provided to Fifth Third. The defendants admit that Transamerica had certain contractual obligations to Fifth Third as set forth in the pertinent documents. The allegation that the defendants owed fiduciary duties to Fifth Third is a legal conclusion to which no response is required. To the extent a response is required, the defendants deny that allegation. The defendants deny the remaining allegations in this paragraph. Decisions to allocate and re-allocate assets between sub-accounts are the responsibility of the BOLI purchaser. Fifth Third’s losses in this case were the result of allocation and re-allocation decisions that it made and for which it was responsible. 24.

The stable value protection applicable at any given time was specified by the terms

of the written Stable Value Agreement underlying the stable value sub-account that Fifth Third had 5

elected at that time. The defendants deny the allegations in paragraph 24 of the Complaint to the extent that they are inconsistent with those specific contractual terms. 25.

In response to the first sentence of paragraph 25, the defendants admit that

Transamerica entered into the Stable Value Agreement to which reference is made. In response to the remainder of this paragraph, the defendants state that the stable value protection applicable at any given time was specified by the terms of the written Stable Value Agreement underlying the stable value sub-account that Fifth Third had elected at that time. Further answering, the defendants deny the allegations of paragraph 25 to the extent that they are inconsistent with those specific contractual terms. 26.

The defendants deny the allegations in paragraph 26 of the Complaint. If Fifth Third

had chosen to withdraw assets from the sub-account in which its assets were invested in the Summer of 2006, it is impossible to know how Fifth Third would have chosen to re-invest those assets or how that other investment would have performed over the full period Fifth Third held such investment and thus whether Fifth Third would have recovered the full amount of its investment. 27.

The defendants deny the allegations in paragraph 27.In the Summer of 2006, Fifth

Third, a sophisticated financial institution, made its own decision to continue to hold assets in a subaccount that had Falcon Strategies LLC as the underlying portfolio. Fifth Third elected to reallocate assets from the Stable Value Sub-account with Falcon Strategies LLC as the underlying portfolio into Stable Value Sub-account B with Falcon Strategies LLC as the underlying portfolio. The stable value protection applicable to Fifth Third’s investment at any given time was specified by the terms of the written Stable Value Agreement underlying the sub-account that Fifth Third had elected. The 6

defendants deny the allegations of paragraph 27 to the extent that they are inconsistent with those specific contractual terms. 28.

The defendants deny the allegations in paragraph 28 of the Complaint.

29.

The defendants deny the allegations in paragraph 29 of the Complaint.

30.

The defendants deny the allegations in paragraph 30 of the Complaint. This is not a

complete or accurate quotation of the relevant language. 31.

The defendants deny the allegations in paragraph 31 of the Complaint.

32.

The defendants deny the allegations in paragraph 32. If Fifth Third had chosen to

withdraw assets from the sub-account in which its assets were invested in the Summer of 2007, it is impossible to know how Fifth Third would have chosen to re-invest those assets or how that other investment would have performed over the full period Fifth Third held such investment and thus whether Fifth Third would have recovered the full amount of its investment. 33.

The defendants deny the allegations in paragraph 33. In the Summer of 2007, Fifth

Third, a sophisticated financial institution, made its own decision to continue to hold assets in a subaccount that had Falcon Strategies LLC as the underlying portfolio. Fifth Third elected to reallocate assets from the Stable Value Sub-account B with Falcon Strategies LLC as the underlying portfolio into Stable Value Sub-account C with Falcon Strategies LLC as the underlying portfolio. The stable value protection applicable to Fifth Third’s investment at any given time was specified by the terms of the written Stable Value Agreement underlying the sub-account that Fifth Third had elected. The defendants deny the allegations in paragraph 33 to the extent that they are inconsistent with those specific contractual terms. 7

34.

The defendants admit that, in September 2007, as they had done on prior occasions,

the parties discussed the terms of the Stable Value Agreement underlying the sub-account that Fifth Third had elected. The defendants deny the remaining allegations in paragraph 34 of the Complaint. 35.

The defendants deny the allegations in paragraph 35 of the Complaint.

36.

The defendants deny the allegations in paragraph 36 of the Complaint.

37.

The defendants admit that the value of Fifth Third’s BOLI investment has declined

and that Fifth Third has written down its BOLI investment on its balance sheet. Fifth Third’s losses were the result of allocation and re-allocation decisions that it made and for which it was responsible. Further answering, the defendants deny the remaining allegations in paragraph 37 of the Complaint. 38.

The defendants deny the allegations in paragraph 38 of the Complaint.

39.

The defendants deny the allegations in paragraph 39 of the Complaint.

40.

The defendants deny the allegations in paragraph 40 of the Complaint.

41.

The defendants deny the allegations in paragraph 41 of the Complaint.

42.

The defendants deny the allegations in paragraph 42 of the Complaint. The defendants

performed all of their obligations, and there was no guarantee that Fifth Third’s own investment decisions would not result in a loss. 43.

The defendants deny the allegations in paragraph 43 of the Complaint.

44.

The defendants deny the allegations in paragraph 44 of the Complaint. ANSWER TO COUNT I - BREACH OF CONTRACT DEFENDANT TRANSAMERICA

45.

The defendants repeat their responses to paragraphs 1 through 44 as though fully

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rewritten herein. 46.

The defendants admit the allegations in the first sentence of paragraph 46 and deny

the allegations in the second sentence of paragraph 46 of the Complaint. 47.

The defendants are without knowledge or information sufficient to ascertain the truth

of the allegations in paragraph 47 and therefore deny them. 48.

The defendants deny the allegations in paragraph 48 of the Complaint. This is not a

complete or accurate paraphrase of the relevant language. 49.

The defendants deny the allegations in paragraph 49 of the Complaint.

50.

The defendants deny that this is a complete or accurate summary of the parties’

agreement. The stable value protection applicable at any given time was specified by the terms of the written Stable Value Agreement underlying the stable value sub-accounts that Fifth Third had elected at that time. The defendants deny the allegations in paragraph 50 to the extent that they are inconsistent with those specific contractual terms. 51.

The defendants deny the allegations in paragraph 51 of the Complaint.

52.

The defendants deny the allegations in paragraph 52 of the Complaint.

53.

The defendants deny the allegations in paragraph 53 of the Complaint.

54.

The defendants deny the allegations in paragraph 54 of the Complaint. ANSWER TO COUNT II - BREACH OF FIDUCIARY DUTY DEFENDANTS TRANSAMERICA AND CLARK

55.

The defendants repeat their responses to paragraphs 1 through 54 as though fully

rewritten herein.

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56.

The defendants deny the allegations in paragraph 56 of the Complaint.

57.

The defendants deny the allegations in paragraph 57 of the Complaint.

58.

The defendants deny the allegations in paragraph 58 of the Complaint.

59.

The defendants deny the allegations in paragraph 59 of the Complaint.

60.

The defendants deny the allegations in paragraph 60 of the Complaint. ANSWER TO COUNT III - PROFESSIONAL NEGLIGENCE DEFENDANTS TRANSAMERICA AND CLARK

61.

The defendants repeat their responses to paragraphs 1 through 60 as though fully

rewritten herein. 62.

The defendants deny the allegations in paragraph 62 of the Complaint.

63.

The defendants deny the allegations in paragraph 63 of the Complaint.

64.

The defendants deny the allegations in paragraph 64 of the Complaint.

65.

The defendants deny the allegations in paragraph 65 of the Complaint. ANSWER TO COUNT IV - FRAUD DEFENDANTS TRANSAMERICA AND CLARK

66.

The defendants repeat their responses to paragraphs 1 through 65 as though fully

rewritten herein. 67.

The defendants are without knowledge or information sufficient to ascertain the truth

of the allegations in paragraph 67 and therefore deny them. 68.

The defendants deny the allegations in paragraph 68 of the Complaint.

69.

The defendants deny the allegations in paragraph 69 of the Complaint.

70.

The defendants deny the allegations in paragraph 70 of the Complaint. 10

71.

The defendants deny the allegations in paragraph 71 of the Complaint.

72.

The defendants deny the allegations in paragraph 72 of the Complaint.

73.

The defendants deny the allegations in paragraph 73 of the Complaint. ANSWER TO COUNT V - NEGLIGENT MISREPRESENTATION DEFENDANTS TRANSAMERICA AND CLARK

74.

The defendants repeat their responses to paragraphs 1 through 73 as though fully

rewritten herein. 75.

The defendants are without knowledge or information sufficient to ascertain the truth

of the allegations in paragraph 75 and therefore deny them. 76.

The defendants deny the allegations in paragraph 76 of the Complaint.

77.

The defendants deny the allegations in paragraph 77 of the Complaint.

78.

The defendants deny the allegations in paragraph 78 of the Complaint.

79.

The defendants deny the allegations in paragraph 79 of the Complaint.

80.

The defendants deny the allegations in paragraph 80 of the Complaint. ANSWER TO COUNT VI - INSURANCE BAD FAITH DEFENDANT TRANSAMERICA

81.

The defendants repeat their responses to paragraphs 1 through 80 as though fully

rewritten herein. 82.

This paragraph states a legal conclusion to which no response is required. To the

extent that a response is required, the allegations in paragraph 82 are denied. 83.

This paragraph states a legal conclusion to which no response is required. To the

extent that a response is required, the allegations in paragraph 83 are denied. 11

84.

The defendants deny the allegations in paragraph 84 of the Complaint.

85.

The defendants deny the allegations in paragraph 85 of the Complaint.

86.

The defendants deny the allegations in paragraph 86 of the Complaint.

87.

The defendants deny any and all allegations in the Complaint not specifically

admitted herein to be true. AFFIRMATIVE DEFENSES 88.

The plaintiffs’ Complaint fails to state a claim upon which relief can be granted.

89.

The plaintiffs’ claims are barred by their own contributory negligence.

90.

The plaintiffs’ claims are barred by their own assumption of the risk.

91.

The plaintiffs’ claims are barred by the doctrine of waiver.

92.

The plaintiffs’ claims are barred by the doctrine of estoppel.

93.

The plaintiffs’ claims are barred by laches.

94.

The plaintiffs have failed to state a claim upon which relief can be granted.

95.

The plaintiffs’ alleged damages were caused by an unforeseeable, superseding or

intervening cause for which the defendants are not responsible. 96.

The plaintiffs’ alleged damages were the direct and proximate result of the actions

or inactions of some other person, not employed by nor under the control of the defendants, and for whose actions or inactions the defendants are not responsible. 98.

The plaintiffs failed to mitigate their alleged damages.

100.

At all times, the defendants’ actions were in good faith, reasonable and justified under

the circumstances. 12

101.

Any award of punitive damages in this case would be violative of the United States

Constitution and the applicable state constitution. 102.

Defendants hereby give notice that they intend to rely upon and utilize any such other

affirmative defenses as may become available or apparent during the course of discovery and therefore reserves the right pursuant to Civil Rule 15 to amend their Answer to assert and include any other such defenses or to withdraw any such defense. WHEREFORE, the defendants deny that the plaintiffs are entitled to any relief and request that the Court enter a judgment in the defendants’ favor and award them their costs and any other relief the Court deems appropriate.

Respectfully submitted,

/s/ Felix J. Gora Felix J. Gora (Bar #0009970) Peter L. Ney (Bar #0039284) RENDIGS, FRY, KIELY & DENNIS, LLP 1 West Fourth Street, Suite 900 Cincinnati, OH 45202 Ph: (513) 381-9200 Fx: (513) 381-9206 [email protected] [email protected] Attorneys for the Defendants

OF COUNSEL: Robert J. Mathias David Clarke, Jr. DLA PIPER US LLP 13

6225 Smith Avenue Baltimore, MD 21209 (410) 580-3000

JURY DEMAND Defendants hereby demand a trial by jury pursuant to Civil Rule 38. /s/ Felix J. Gora Felix J. Gora

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CERTIFICATE OF SERVICE I hereby certify that on the 16th day of June 2008, a copy of the foregoing Answer was filed electronically. Notice of this filing will be sent to all parties by operation of the Court's electronic filing system. I further certify that copies of the foregoing Answer were served upon the following by ordinary US mail: Vincent A. Walton, Jr. Vorys, Sater, Seymour and Pease LLP Suite 2100, Atrium Two 221 East Fourth Street Cincinnati, Ohio 45202 Peter E. Calamari Quinn Emanuel Urquhart Oliver & Hedges, LLP 51 Madison Avenue, 22nd Floor New York, New York 10010

/s/ Felix J. Gora Felix J. Gora

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