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Ryan v. Salisbury

United States District Court, D. Hawaii

May 14, 2019



          Alan C. Kay United States District Judge

         For the reasons set forth below, the Court GRANTS Defendants Aurora Capital Alliance and Alejandro Alberto Bellini's Motion to Dismiss, ECF No. 49.


         The Brody Family Trust (“the Trust”) was created on February 9, 1993, with Plaintiff Kathy Ryan (then Kathy Brody) (“Plaintiff”)[1] serving as its trustee. Compl., ECF No. 1 ¶ 23. The Trust was organized under the laws of California. Id. Sometime in 2002 or thereafter, the estate planning company that first established the Trust referred Plaintiff to Defendant Christopher S. Salisbury (“Defendant Salisbury”) for her investment and financial planning needs. Id. ¶ 24.

         Early on in his tenure as Plaintiff's financial advisor, Defendant Salisbury began investing Plaintiff's money and/or that of the Trust into annuities, among other investments. Id. ¶ 25. Defendant Salisbury, together with Defendant C. Salisbury, LLC and Accelerated Estate Planning, LLC (together, “the Salisbury Entities”) caused Plaintiff to surrender certain annuities and move the money to different annuities with the promise that any surrender fees would be offset either by bonus monies or greater earnings of the new product (a process the Complaint calls “churning”). Id. ¶ 26. Defendant Salisbury understood that Plaintiff did not have sophisticated knowledge of investment, financial, and insurance-related matters. Id. ¶ 29. The Salisbury Entities made verbal representations about the products Defendant Salisbury was directing Plaintiff to invest in or purchase, and Defendant Salisbury routinely presented Plaintiff with signature pages, rather than complete documents, which he instructed her to sign but not date. Id. ¶ 30. Defendant Salisbury, a licensed notary, often notarized documents Plaintiff had signed, including those signed outside his presence. Id.

         I. The Annuities

         Among the many annuities involved in Defendant Salisbury's “churning” process were annuities issued by Allianz, at least two of which were surrendered at a sizeable loss. See id. ¶ 31. First, on or about December 29, 2009, Plaintiff was caused to surrender Allianz Flexible Premium Deferred Annuity Policy (Index Benefit bearing policy number XXX 3635, policy date September 1, 2006)-which was then valued at approximately $902, 000-at a loss of approximately $200, 077. Id. ¶ 32. Second, on or about November 21, 2014, following Defendant Salisbury's advice and direction, Plaintiff surrendered an Allianz annuity with a policy number XXX 7754, which was issued on December 18, 2006.

         Again acting on Defendant Salisbury's advice and direction, Plaintiff also surrendered four Phoenix Personal Income Annuities. On or about October 19, 2017, Plaintiff surrendered two such annuities. One, number XXX 5109, was issued with a single premium of $24, 795.55 on December 9, 2014, and its surrender cost Plaintiff approximately $3, 790.04 in surrender charges, id. ¶ 34a; the other, number XXX 5355, was issued with a single premium of $24, 800.42 on December 11, 2014, and its surrender cost Plaintiff approximately $3, 939.86 in surrender charges, id. ¶ 34b. On or about November 7, 2017, Plaintiff surrendered Phoenix Personal Income Annuity number XXX 8769, which had been issued with a single premium of $700, 000 on May 4, 2015, and incurred approximately $110, 220.74 in surrender charges. Id. ¶ 34d. And on or about November 8, 2017, Plaintiff incurred approximately $25, 983.85 in surrender charges by surrendering Phoenix Personal Income Annuity XXX 4609, which was issued on December 18, 2014 with a single premium of $160, 319.48. Id. ¶ 34c. As to these four annuities, Plaintiff lost approximately $143, 931.49. Id. ¶ 34.

         Again following Defendant Salisbury's advice and direction, Plaintiff purchased and invested in the Fidelity Premium Deferred Fixed Index Annuity, AdvanceMark Ultra 14, number XXX 5051, which was issued on February 8, 2015. Id. ¶ 35. As of the most recent annual statement, it had an account value of approximately $453, 282.52. Id. Plaintiff surrendered it in or around October 2017, and the surrender charge was $52, 382.80. Id.

         Similarly, Defendant Salisbury allowed an American National annuity, number XXX 0431, to run just over a year before he caused Plaintiff to surrender it in or around April 2015. Id. ¶ 36. The surrender of this annuity, which had been issued on March 14, 2014 with an initial premium payment of $737, 450.85, incurred approximately $61, 028 in surrender charges. Id.

         Plaintiff was also issued a ForeThought Single Premium Deferred Annuity Contract number XXX 8001 on February 11, 2009, with an initial premium payment of $166, 949.80. Id. ¶ 37. At Defendant Salisbury's direction, Plaintiff made several withdrawals from this annuity while it was in force. Id. At the time of surrender on or about November 17, 2014, the annuity was valued at $146, 486.39, and the surrender fee was $7, 324.32. Id. ¶ 37.

         And on November 26, 2007, Plaintiff was issued a North American Company Individual Flexible Premium Deferred Annuity, number XXX 2105, with an initial premium payment of $276, 745.13. Id. ¶ 38. Plaintiff paid an additional premium of $598, 595.71 on or about April 27, 2012. Id. On or about January 29, 2014, the annuity was surrendered at a net loss of $88, 205.94. Id.

         These transactions-which Plaintiff alleges are a representative list of Defendant Salisbury's “churning” activities rather than an exhaustive one, see id. ¶ 39-cost Plaintiff approximately $576, 207.28 in surrender charges, id. With respect to each transaction, and over the course of them all, Defendant Salisbury told Plaintiff that the surrenders were in her best interest and explained that any surrender charge incurred was worth incurring to better position the funds in the replacement annuity. Id. ¶ 40.

         II. The Insurance Policies

         Acting on Defendant Salisbury's advice, Plaintiff obtained a Lincoln Benefit Flexible Premium Variable Life Insurance Policy on October 6, 2004. Id. ¶ 44. This policy carried a death benefit of $5, 066, 782, and its planned annual payment was $279, 731. Id. In or around 2008, Defendant Salisbury reduced the death benefit to $500, 000, and the policy was surrendered on October 7, 2013. Id.

         Again acting on Defendant Salisbury's advice, Plaintiff procured a one million dollar Flexible Premium Universal Life Insurance Policy from Columbus Life Insurance Company. See id. ¶ 43. The policy had an effective date of May 20, 2004, and the planned premiums were $16, 881.12 annually. Id. This policy was cancelled in or around April 2016 and replaced with a $2, 500, 000 VOYA IUL-Global Choice Policy (“the VOYA Policy” or “the Policy”) issued by Defendant Security Life of Denver (“Defendant SLD”) and subject to a financing arrangement conceived of and carried out by Defendants Salisbury, Claraphi Advisory Network, LLC (“Defendant Claraphi”), Michael Diyanni (“Defendant Diyanni”), Aurora Capital Alliance (“Defendant ACA”), Lake Forest Bank & Trust Company, N.A. (“Defendant Lake Forest”), Wintrust Life Finance (“Defendant Wintrust”), and Alejandro Alberto Bellini (“Defendant Bellini”). Id. ¶ 45. Defendant Bellini was the writing agent of the VOYA Policy and participated in selling the Policy to Plaintiff. Id. ¶ 20.

         Defendant Salisbury advised Plaintiff that the VOYA Policy would fund itself-that she would never have to make premium payments on it due to the design of the premium financing arrangement orchestrated by Defendants Salisbury, Claraphi, Diyanni, ACA, Lake Forest, Wintrust, and Bellini. Id. ¶ 46. Plaintiff expressed concern to Defendant Salisbury about the value of the VOYA Policy, but Defendant Salisbury told Plaintiff that the Policy was designed to assist her children in paying taxes after Plaintiff's decease. Id. ¶ 48. But Defendant Salisbury did not inform Plaintiff at the time the Policy was purchased that very little, if any, of her net worth would be subject to estate taxes. Id. Defendant Salisbury misrepresented Plaintiff's net worth on the application for the VOYA Policy. Id. ¶ 49.

         Plaintiff did not need the VOYA Policy's life insurance, and in any case she lacked the liquid assets to properly fund it. Id. ¶ 50. Despite knowing this, Defendants Salisbury, Claraphi, Diyanni, ACA, Lake Forest, Wintrust, and Bellini induced Plaintiff to enter into transactions they knew would be to her detriment. Id.

         A trust agreement was created on March 26, 2016, by Defendant Diyanni, an attorney chosen by Defendant Salisbury whom Plaintiff had never met. Id. ¶ 51. Defendant Diyanni handles some tax matters, but specializes primarily in personal injury and DUI/DWI cases. Id. Defendant Diyanni was hired by Defendant ACA to draft “an Irrevocable Trust that would meet both the standards for the financial institution and life insurance carrier.” Id. ¶ 52. Defendant Diyanni, and The Law Office of Michael Diyanni, would serve as Trustee of the Kathy Ryan Irrevocable Trust. Id.

         Defendant SLD issued the VOYA Policy on April 5, 2016. Id. ¶ 53. The annual scheduled premium was $160, 000, and the minimum monthly premium to maintain the policy was $3, 072.22. Id. Defendant ACA arranged for First Insurance Funding (now Defendant Lake Forest; hereafter “Defendant Lake Forest”) and/or Wintrust to finance the VOYA premiums. Id. ¶ 18. On April 12, 2016, Defendant Lake Forest issued its proposal of a $172, 000 initial loan amount, which included a $12, 000 broker's fee that was paid to Defendant Diyanni. Id. ¶ 54. Plaintiff alleges that this $12, 000 fee is substantially in excess of the commissions normally paid to brokers, agents, or attorneys for similar services. Id.

         Defendant Diyanni then assigned the VOYA Policy as collateral to Defendant Lake Forest. Id. ¶ 55. Plaintiff was also required to assign an annuity, Allianz Annual Fixed Index Annuity number XXX 9437, as collateral. Id. ¶ 56. Defendants Diyanni and Salisbury told Plaintiff that the assignment would be released after seven years. Id. But this assignment was fraudulently procured by Defendants Diyanni and Salisbury, as it is dated and notarized in Orange County, California, on a date when Plaintiff was not on the mainland and could not have signed the document. Id. ¶ 57.

         Plaintiff alleges that, during and after the sale of the Policy, Defendant Diyanni as Trustee of the Kathy Ryan Irrevocable Trust (the “ILIT”) failed to perform his fiduciary duties to determine the appropriateness of replacing the Columbus Life policy or the suitability of the VOYA Policy. See id. ¶ 58. Plaintiff further alleges that Defendant Diyanni did not properly assess the negative consequences of the premium financing arrangement, the selection and assignment of collateral, and/or the funding of premiums outside of the premium financing arrangement. Id. “In short, ” Plaintiff alleges, “the VOYA [P]olicy should have never been purchased.” Id.

         A year later, Plaintiff and Defendant Diyanni were advised that the Note issued by Defendant Lake Forest was in default for failure to make the interest payment of $8, 642.25, and to make the premium payment of $163, 500, as well as to provide the requested collateral. Id. ¶ 59. Plaintiff contacted VOYA, a representative of which told her that the company could only speak with Defendant Diyanni because he was the “owner” of the Policy. Id. ¶ 60. When Plaintiff contacted Defendant Salisbury, he told her that Defendant Lake Forest was mistaken, but he later reversed course and instructed Plaintiff to wire $37, 000 to Defendant Lake Forest in order to secure the loan. See id. Plaintiff did so, but never received a receipt for the transaction. Id.

         Despite having been advised by Defendant Salisbury that she should never have to personally pay premiums on the VOYA Policy and that the policy would fund itself, Plaintiff was advised by Defendant ACT, in or around March 2018, that the action items on her life insurance premium finance arrangement included an outstanding interest payment of $24, 545.82 and a signed, dated Guarantors Acknowledgment and Certification Additional Collateral of $60, 639.55. Id. ¶ 61.

         Those defendants who initiated and/or approved the purchase of the VOYA Policy and the associated premium financing arrangements-i.e., Defendants Salisbury, Claraphi, Diyanni, ACA, Lake Forest, Wintrust, SLD, and Bellini, see id. ¶ 45, 53-knew at the time they did so that the VOYA Policy was an unsuitable financial product for Plaintiff in light of the excessive death benefit and the fact that its premiums exceeded her ability to pay. Id. ¶ 62; but see id. ¶ 72.c (alleging that “Defendant Salisbury misrepresent[ed Plaintiff]'s net worth on the application for the VOYA life insurance policy”). Plaintiff alleges that the sale of the policy and premium financing arrangement were part of a fraudulent and deceptive scheme carried out by all defendants working in concert with one another. Id. ¶ 25.


         Plaintiff, proceeding both individually and in her capacity as trustee of the Brody Family Trust, filed her Complaint on October 23, 2018. Compl. Therein, she asserted twelve causes of action:

1. Violation of the Unfair and Deceptive Acts or Trade Practices Act (“UDAP”), Hawai`i Revised Statutes (“HRS”) §§ 480-1 et seq., as to all defendants. Compl. ¶¶ 64-78.
2. UDAP, Violation of HRS § 480-2 (“Suitability”) as to all defendants. Compl. ¶¶ 79-82.
3. UDAP, “Elder Abuse”, as to all defendants. Id. ¶¶ 83-90.
4. Fraudulent suppression as to the Salisbury Defendants and Defendants NAM and Claraphi. Id. ¶¶ 91-97.
5. Fraudulent misrepresentation as to the Salisbury Defendants and Defendants NAM, Claraphi, and Diyanni. Id. ¶¶ 98-103.
6. Breach of fiduciary duty as to the Salisbury Defendants and Defendants NAM, Claraphi, and Diyanni. Id. ¶¶ 104- 13.
7. Vicarious liability/respondeat superior as to the Salisbury Defendants and Defendants NAM, Claraphi, Diyanni, ACA, Lake Forest, Wintrust, SLD, and Bellini. Id. ¶¶ 114-18.
8. Violation of the Hawai`i Securities Act (HRS §§ 485A-502, 485A-509) as to the Salisbury Defendants, Defendant NAM, and Defendant Claraphi. Compl. ¶¶ 119-22.
9. Controlling Person Liability, under HRS § 485A-509(g), as to Defendants NAM and Claraphi. Compl. ¶¶ 123-26.
10. Violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1962(c), as to all defendants. Compl. ¶¶ 127-51.
11. Violation of RICO, 18 U.S.C. § 1962(d), as to all defendants. Compl. ¶¶ 152-59.
12. Violation of HRS § 842-2(3), as to all defendants. Compl. ¶¶ 160-71.

         On December 27, 2018, Defendants ACA and Bellini (collectively, “the ACA Defendants”) filed a motion to dismiss (“Motion”), arguing for dismissal of the Complaint, and various claims therein, under Federal Rules of Civil Procedure (“Rules”) 12(b)(1), 12(b)(6), and 9(b). ECF No. 49; see also Mem. in Supp. (“MTD”), ECF No. 49-1. Plaintiff filed an Opposition (“Opp.”) on March 25, 2019. ECF No. 106. Defendants ACA and Bellini filed a Reply (“Reply”) on March 29, 2019. ECF No. 108. On March 25, 2019, Defendant NAM filed a statement of no position as to the Motion. ECF No. 103. The Court held a hearing on the Motion on Monday, April 15, 2019. ECF No. 118.


         I. Rule 12(b)(1)

         A court's subject-matter jurisdiction may be challenged under Rule 12(b)(1). Such challenges may be either “facial” or “factual.” Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir. 2004).

         In a facial attack, “the challenger asserts that the allegations contained in a complaint are insufficient on their face to invoke federal jurisdiction.” Id. (quoting Safe Air for Everyone v. Meyer, 373 F.3d 1035, 1039 (9th Cir. 2004)). When opposing a facial attack on subject-matter jurisdiction, the nonmoving party is not required to provide evidence outside the pleadings. Wolfe, 392 F.3d at 362; see Doe v. Holy See, 557 F.3d 1066, 1073 (9th Cir. 2009) (treating defendant's challenge to subject-matter jurisdiction as facial because defendant “introduced no evidence contesting any of the allegations” of the complaint). In deciding a facial Rule 12(b)(1) motion, the court must assume the allegations in the complaint are true and draw all reasonable inferences in the plaintiff's favor. Wolfe, 392 F.3d at 362 (citations omitted).

         By contrast, in a factual attack, “the challenger disputes the truth of the allegations that, by themselves, would otherwise invoke federal jurisdiction.” Wolfe, 392 F.3d at 362 (quoting Safe Air, 373 F.3d at 1039). The moving party may bring a factual challenge to the court's subject-matter jurisdiction by submitting affidavits or any other evidence properly before the court. The nonmoving party must then “present affidavits or any other evidence necessary to satisfy its burden of establishing that the court, in fact, possesses subject-matter jurisdiction.” Colwell v. Dep't of Health & Human Servs., 558 F.3d 1112, 1121 (9th Cir. 2009) (citation omitted). In these circumstances, the court may look beyond the complaint without having to convert the motion into one for summary judgment. U.S. ex rel. Meyer v. Horizon Health Corp., 565 F.3d 1195, 1200 n.2 (9th Cir. 2009). When deciding a factual challenge to the court's subject-matter jurisdiction, the court “need not presume the truthfulness of the plaintiffs' allegations.” Id.

         II. Rule 12(b)(6)

         Rule 12(b)(6) authorizes the Court to dismiss a complaint that fails “to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). Rule 12(b)(6) is read in conjunction with Rule 8(a), which requires only “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). The Court may dismiss a complaint either because it lacks a cognizable legal theory or because it lacks sufficient factual allegations to support a cognizable legal theory. Balistreri v. Pacifica Police Dep't, 901 F.2d 696, 699 (9th Cir. 1988).

         In resolving a Rule 12(b)(6) motion, the Court must accept all well-pleaded factual allegations as true and construe them in the light most favorable to the plaintiff. Sateriale v. R.J. Reynolds Tobacco Co., 697 F.3d 777, 783 (9th Cir. 2012). The complaint “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “If there are two alternative explanations, one advanced by defendant and the other advanced by plaintiff, both of which are plausible, plaintiff's complaint survives a motion to dismiss under Rule 12(b)(6).” Starr v. Baca, 652 F.3d 1202, 1216 (9th Cir. 2011). But “[t]he plausibility standard . . . asks for more than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678. “Where a complaint pleads facts that are ‘merely consistent with' a defendant's liability, it ‘stops short of the line between possibility and plausibility of entitlement to relief.'” Id. (quoting Twombly, 550 U.S. at 557). “[L]abels and conclusions” or “a formulaic recitation of the elements of a cause of action” do not suffice. Twombly, 550 U.S. at 555.

         When a court dismisses a complaint pursuant to Rule 12(b)(6), it should grant leave to amend unless the pleading cannot be cured by new factual allegations. OSU Student All. v. Ray, 699 F.3d 1053, 1079 (9th Cir. 2012).

         III. Rule 9(b)

         Rule 9(b) requires that, “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.” Fed.R.Civ.P. 9(b). “Rule 9(b) requires particularized allegations of the circumstances constituting fraud.” In re GlenFed, Inc. Securities Litigation, 42 F.3d 1541, 1547-48 (9th Cir.1994) (en banc) (superseded by statute on other grounds as recognized in Ronconi v. Larkin, 253 F.3d 423, 429 n.6 (9th Cir. 2001)). Rule 9(b) requires the pleading to provide an “account of the time, place, and specific content of the false representations as well as the identities of the parties to the misrepresentations.” Swartz v. KPMG LLP, 476 F.3d 756, 764 (9th Cir.2007) (internal quotations omitted). “Averments of fraud must be accompanied by the who, what, when, where, and how of the misconduct charged.” Vess v. Ciba-Geigy ...

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