United States District Court, D. Hawaii
KATHY RYAN, INDIVIDUALLY, AND IN HER CAPACITY AS TRUSTEE OF THE BRODY FAMILY TRUST; Plaintiff,
CHRISTOPHER S. SALISBURY; C. SALISBURY, LLC; CLARAPHI ADVISORY NETWORK, LLC; NATIONAL ASSET MANAGEMENT, INC.; MICHAEL DIYANNI; LAKE FOREST BANK & TRUST COMPANY, N.A.; WINTRUST LIFE FINANCE; AURORA CAPITAL ALLIANCE; SECURITY LIFE OF DENVER INSURANCE COMPANY; and ALEJANDRO ALBERTO BELLINI, Defendants.
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT
MICHAEL DIYANNI'S MOTION TO DISMISS
C. Kay, Sr. United States District Judge.
reasons set forth below, the Court GRANTS IN PART and DENIES
IN PART Defendant Michael Diyanni's Motion to Dismiss,
ECF No. 52, as follows:
1. As to the First Cause of Action (UDAP), the Motion is
2. As to the Second Cause of Action (UDAP- Unsuitability),
the Motion is GRANTED.
3. As to the Third Cause of Action (UDAP-Elder Abuse), the
Motion is GRANTED.
4. As to the Fifth Cause of Action (Fraudulent
Misrepresentation), the Motion is DENIED.
5. As to the Sixth Cause of Action (Breach of Fiduciary
Duty), the Motion is DENIED.
6. As to the Seventh Cause of Action (Vicarious
Liability/Respondeat Superior), the Motion is GRANTED.
7. As to the Tenth Cause of Action (RICO Violation), the
Motion is GRANTED.
8. As to the Eleventh Cause of Action (Conspiracy to Violate
RICO), the Motion is GRANTED.
9. As to the Twelfth Cause of Action (Hawai'i RICO), the
Motion is GRANTED.
Brody Family Trust (“the Trust”) was created on
February 9, 1993, with Plaintiff Kathy Ryan (then Kathy
Brody) (“Plaintiff”) 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.
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.
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.
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.
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.
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.
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.
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.
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.
The Insurance Policies
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
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.
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.
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.
8. Violation of the Hawai'i Securities Act (HRS
§§ 485A-502, 485A-509) as to the Salisbury
Defendants, Defendant NAM, and Defendant Claraphi. Compl.
9. Controlling Person Liability, under HRS §
485A-509(g), as to Defendants NAM and Claraphi. Compl.
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.
December 31, 2018, Defendant Diyanni, proceeding pro se,
filed a succinct, three-page motion to dismiss
(“Motion”), without a separate memorandum in
support, citing Federal Rules of Civil Procedure
(“Rules”) 12(b)(1), 12(b)(6), and 9(b). ECF No.
52. Plaintiff filed an Opposition on March 25, 2019.
See ECF No. 107. Defendant Diyanni filed no Reply.
Statements of no position as to the Motion were filed by the
ACA Defendants, ECF No. 105, and Defendant NAM, ECF No. 102.
Court scheduled the Motion for hearing on April 15, 2019. ECF
No. 62. Defendant Diyanni did not appear at the hearing. ECF
No. 118. The Court, upon reaching Defendant Diyanni by
telephone, instructed him to file an explanation for his
absence. ECF No. 119. To date, no such filing has been
April 29, 2019, the Court issued a minute order offering both
Plaintiff and Defendant Diyanni the opportunity to argue on
Defendant Diyanni's Motion at the hearing scheduled for
April 30, 2019 regarding three other motions in this matter.
ECF No. 123. The Court attempted repeatedly to reach
Defendant Diyanni by telephone to inform him of the minute
order's contents and inquire if he wished to appear by
telephone, but ...