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Ryan v. Salisbury

United States District Court, D. Hawaii

May 14, 2019



          Alan C. Kay Sr. United States District Judge

         For the 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.


         The Court sets forth herein only those facts reasonably pertinent to the disposition of the instant Motion.

         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. Defendant Salisbury was employed by Defendant National Asset Management, Inc. (“Defendant NAM”) from June 20, 2011 until April 30, 2013. Id. ¶ 14.

         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 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.

         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, 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.

         Again 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.

         Similarly, 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.

         And on 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.

         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.


         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, Aurora Capital Alliance (“Defendant 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.

         Citing 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.


         I. Rule 12(c)

         Under 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).

         A 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))).

         Judgment 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).

         The 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 alteration omitted).

         Although 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. Cal. 1993)).

         II. Failure to State a Claim

         Rule 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) (citation omitted).

         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 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)).

         A 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.


         Defendant 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.

         I. UDAP (First, Second, and Third Causes of Action)

         Plaintiff's 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.[2]

         Plaintiff's 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.[3] Id. ¶ 84-90.

         HRS § 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. ...

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