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 DEFENDANT NATIONAL ASSET MANAGEMENT,
INC.'S MOTION FOR JUDGMENT ON THE PLEADINGS
C. Kay Sr. United States District Judge
reasons set forth below, the Court GRANTS Defendant National
Asset Management, Inc.'s Motion for Judgment on the
Pleadings, ECF No. 80, insofar as the Motion seeks dismissal
of all of Plaintiff's claims against Defendant National
Asset Management, Inc. Those claims are dismissed without
prejudice, except the Second and Eighth Causes of Action,
which are dismissed with prejudice as against Defendant NAM.
Court sets forth herein only those facts reasonably pertinent
to the disposition of the instant Motion.
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.
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.
Defendant Salisbury was employed by Defendant National Asset
Management, Inc. (“Defendant NAM”) from June 20,
2011 until April 30, 2013. Id. ¶ 14.
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
No. 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 No. 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, No. 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, No.
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 No. 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.
following Defendant Salisbury's advice and direction,
Plaintiff purchased and invested in the Fidelity Premium
Deferred Fixed Index Annuity, AdvanceMark Ultra 14, No. 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, No.
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 No. 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, No. 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.
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,
Aurora Capital Alliance (“Defendant 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. ¶¶ 119-22.
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.
Federal Rules of Civil Procedure (“Rules”)
12(h)(2)(B), 12(c), and 9(b), Defendant NAM filed the instant
Motion for Judgment on the Pleadings (“Motion”)
on January 25, 2019. ECF No. 80. Plaintiff filed her
Opposition on April 9, 2019. ECF No. 113. Defendant NAM filed
its Reply on April 16, 2019. ECF No. 120. On April 8, 2019,
Defendants ACA and Bellini filed a statement of no position
as to the Motion. ECF No. 111. The Court held a hearing on
the Motion on April 30, 2019. ECF No. 125.
Federal Rule of Civil Procedure (“Rule”) 12(c),
“[a]fter the pleadings are closed-but early enough not
to delay trial-a party may move for judgment on the
pleadings.” The pleadings are closed once a complaint
and an answer have been filed, assuming that there is no
counterclaim or cross-claim. Doe v. United States, 419 F.3d
1058, 1061 (9th Cir.2005).
motion brought under Rule 12(c) is “functionally
identical” to one brought pursuant to Rule 12(b), and
“the same standard of review applicable to a Rule 12(b)
motion applies to its Rule 12(c) analog.” Dworkin
v. Hustler Magazine Inc., 867 F.2d 1188, 1192 (9th Cir.
1989); see also Rutenschroer v. Starr Seigle
Commc'ns, Inc., 484 F.Supp.2d 1144, 1147-48 (D. Haw.
2006) (“If procedural defects are asserted in a Rule
12(c) motion, the district court will apply the same
standards for granting the appropriate relief or denying the
motion as it would have employed had the motion been brought
prior to the defendant's answer under Rules 12(b)(1),
12(b)(6), [or] 12(b)(7)[.]” (citing 5C Charles Alan
Wright & Arthur R. Miller, Federal Practice and Procedure
§ 1367 (3d ed. 2004))).
on the pleadings under Rule 12(c) is limited to material
included in the pleadings, as well documents attached to the
complaint, documents incorporated by reference in the
complaint, and matters of judicial notice, unless the Court
elects to convert the motion into one for summary judgment.
Yakima Valley Mem'l Hosp. v. Dep't of
Health, 654 F.3d 919, 925 n.6 (9th Cir. 2011); United
States v. Ritchie, 342 F.3d 903, 908 (9th Cir. 2003). Rule
12(d) gives the Court “discretion to accept and
consider extrinsic materials offered in connection with these
motions, and to convert the motion to one for summary
judgment when a party has notice that the district court may
look beyond the pleadings.” Hamilton Materials, Inc. v.
Dow Chem. Corp., 494 F.3d 1203, 1207 (9th Cir. 2007).
Court must accept as true the facts as pled by the
non-movant, and will construe the pleadings in the light most
favorable to the nonmoving party. U.S. ex rel. Cafasso v.
Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1053 (9th
Cir. 2011); Doyle v. Raley's Inc., 158 F.3d
1012, 1014 (9th Cir. 1998). Judgment on the pleadings is
properly granted “when, accepting all factual
allegations in the complaint as true, there is no issue of
material fact in dispute, and the moving party is entitled to
judgment as a matter of law.” Chavez v. United States,
683 F.3d 1102, 1108 (9th Cir. 2012) (citation and original
Rule 12(c) does not expressly address partial judgment on the
pleadings, leave to amend, or dismissal, courts regularly
“apply Rule 12(c) to individual causes of action,
” Strigliabotti v. Franklin Res., Inc., 398
F.Supp.2d 1094, 1097 (N.D. Cal. 2005) (citation omitted), and
have discretion to grant a Rule 12(c) motion with leave to
amend, or dismiss the action instead of entering judgment,
see Goens v. Adams & Assocs., Inc., No.
2:16-CV-00960-TLN-KJN, 2017 WL 3981429, at *2 (E.D. Cal.
Sept. 11, 2017) (citing Carmen v. San Francisco Unified Sch.
Dist., 982 F.Supp. 1396, 1401 (N.D. Cal. 1997); Moran v.
Peralta Cmty. Coll. Dist., 825 F.Supp. 891, 893 (N.D.
Failure to State a Claim
12(h)(2)(B) permits a defendant to use Rule 12(c) as a
vehicle to contend that a complaint fails to state a claim
upon which relief can be granted. See Fed.R.Civ.P.
12(h)(2)(B). When Rule 12(c) is used to raise the defense of
failure to state a claim upon which relief can be granted,
analysis under Rule 12(c) is substantially identical to
analysis under Rule 12(b)(6). McGlinchy v. Shell Chemical
Co., 845 F.2d 802, 810 (9th Cir.1988). The Court must
therefore assess whether the complaint “contain[s]
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)); see also Harris v. Cty. of Orange, 682 F.3d
1126, 1131 (9th Cir. 2012) (Iqbal applies to Rule
12(c) motions because Rule 12(b)(6) and Rule 12(c) motions
are functionally equivalent). Mere conclusory statements in a
complaint or “formulaic recitation[s] of the elements
of a cause of action” are not sufficient.
Twombly, 550 U.S. at 555. Thus, the Court discounts
conclusory statements, which are not entitled to a
presumption of truth, before determining whether a claim is
plausible. Iqbal, 556 U.S. at 678. However,
“[d]ismissal with prejudice and without leave to amend
is not appropriate unless it is clear . . . that the
complaint could not be saved by amendment.”
Harris, 682 F.3d 1126, 1131 (9th Cir. 2012)
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 Corp.
USA, 317 F.3d 1097, 1106 (9th Cir.2003). Plaintiffs may
not simply plead neutral facts to identify the transaction,
but rather must also set forth what is false or misleading
about a statement, and why it is false. See GlenFed,
42 F.3d at 1548. Moreover,
Rule 9(b) does not allow a complaint to merely lump multiple
defendants together but require[s] plaintiffs to
differentiate their allegations when suing more than one
defendant . . . and inform each defendant separately of the
allegations surrounding his alleged participation in the
fraud. In the context of a fraud suit involving multiple
defendants, a plaintiff must, at a minimum, identif[y] the
role of [each] defendant[ ] in the alleged fraudulent scheme.
Swartz, 476 F.3d at 764-65 (alterations in original)
(citations omitted). However, Rule 9(b)'s requirements
may be relaxed as to matters that are exclusively within the
opposing party's knowledge. Rubenstein v. Neiman
Marcus Grp. LLC, 687 Fed.Appx. 564, 567 (9th Cir. 2017)
(quoting Moore v. Kayport Package Express,
Inc., 885 F.2d 531, 540 (9th Cir. 1989)).
Rule 9(b) only “requires that plaintiffs specifically
plead those facts surrounding alleged acts of fraud to which
they can reasonably be expected to have access.”
Concha v. London, 62 F.3d 1493, 1503 (9th Cir.
1995). As such, “in cases where fraud is alleged, we
relax pleading requirements where the relevant facts are
known only to the defendant.” Id. In those
cases, a “pleading is sufficient under Rule 9(b) if it
identifies the circumstances constituting fraud so that a
defendant can prepare an adequate answer from the
allegations.” Moore, 885 F.2d at 540.
Rubenstein, 687 Fed.Appx. at 567-68. Where the facts
surrounding fraud are “peculiarly within the opposing
party's knowledge, ” then, “[a]llegations of
fraud based on information and belief may suffice . . . so
long as the allegations are accompanied by a statement of the
facts upon which the belief is founded.” Puri
v. Khalsa, 674 Fed.Appx. 679, 687 (9th Cir. 2017)
(citing Wool v. Tandem Computs. Inc., 818 F.2d 1433,
1439 (9th Cir. 1987), overruled on other grounds as
stated in Flood v. Miller, 35 Fed.Appx. 701, 703 n.3
(9th Cir. 2002)).
motion to dismiss a claim grounded in fraud for failure to
plead with particularly under Rule 9(b) is the functional
equivalent of a motion to dismiss under Rule 12(b)(6).
See Vess, 317 F.3d at 1107. Thus, “[a]s with
Rule 12(b)(6) dismissals, dismissals for failure to comply
with Rule 9(b) should ordinarily be without prejudice. Leave
to amend should be granted if it appears at all possible that
the plaintiff can correct the defect.” Id.
NAM argues that it is entitled to judgment on the pleadings
as to each of Plaintiff's claims against it. The Court
addresses Plaintiff's claims and Defendant NAM's
arguments in turn.
UDAP (First, Second, and Third Causes of Action)
First and Second Causes of Action assert that all defendants
have engaged in deceptive and unfair acts and practices
within the meaning of Hawai`i's unfair and deceptive acts
or practices (“UDAP”) statute (“the UDAP
statute”), HRS §§ 480-1, et seq. Compl.
¶¶ 65, 80. Plaintiff's First Cause of Action
asserts that Defendant NAM (together with the Salisbury
Defendants and Defendant Claraphi) “engaged in unfair
and deceptive acts and practices by the use and employment of
deception, fraud, false pretenses, misrepresentation,
concealment, suppression, and omission of material facts,
” Compl. ¶ 67, through a course of conduct that
included false representation about the value of churning the
annuities, id. ¶¶ 67, 68, and the failure
to provide “full disclosures” regarding the
annuities or “reasonably adequate information”
about various conflicts of interest and the “inherent
risks and minimal benefits of the annuities[, ]”
id. ¶¶ 68, 69.
Second Cause of Action, entitled in part “Suitability,
” alleges simply that “[e]ach of the
Defendants” violated the HRS § 480-2 “by
selling [Plaintiff] the VOYA policy and setting up the
financing arrangement, both of which were unsuitable for her
and The Brody Family Trust's insurance and financial
needs.” Id. ¶ 80. Plaintiff's Third
Cause of Action, asserted against all defendants and entitled
“Elder Abuse, ” alleges that Plaintiff turned
sixty-two years old sometime in 2012 and was therefore an
“elder” under HRS § 480-13.5 when a number
of the alleged events took place. Id. ¶
§ 480-2(a) provides that “[u]nfair methods of
competition and unfair or deceptive acts or practices in the
conduct of any trade or commerce are unlawful.”
“HRS § 480-2 . . . was constructed in broad
language in order to constitute a flexible tool to stop and
prevent fraudulent, unfair or deceptive business practices
for the protection of both honest consumers and honest
business[persons].” Haw. Comm. Fed. Credit U. v.