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; MICHAEL DIYANNI; AURORA CAPITAL ALLIANCE; SECURITY LIFE OF DENVER INSURANCE COMPANY; and ALEJANDRO ALBERTO BELLINI, Defendants.
ORDER GRANTING DEFENDANT SECURITY LIFE OF DENVER
INSURANCE COMPANY'S MOTION FOR JUDGMENT ON THE
C. KAY SR. UNITED STATES DISTRICT JUDGE
case involves allegations of a fraudulent and unlawful scheme
through which Defendant Chris Salisbury (“Defendant
Salisbury”) and-to varied extents-the other Defendants
caused Plaintiff to sustain financial losses in connection
with her investments in several annuities and life insurance
policies. For its role, Security Life of Denver Insurance
Company (“Security Life”) is alleged to have
issued a life insurance policy, which was purchased through a
complex “premium financing arrangement”
orchestrated by Defendant Salisbury and certain other
Court previously dismissed Plaintiff's claims against
Security Life, after which Plaintiff amended her lawsuit to
allege a single cause of action against Security Life under
Hawai'i‘s Unfair and Deceptive Acts or Trade
Practices Act (“UDAP”), Haw. Rev. Stat.
(“HRS”) §§ 480-1 et seq. Now before the
Court is Security Life's second Motion for Judgment on
the Pleadings (“Motion”), ECF No. 169. For the
reasons set forth below, the Court GRANTS Defendant Security
Life's Motion insofar as it seeks dismissal of the sole
claim against Security Life.
proceeding both individually and in her capacity as trustee
of the Brody Family Trust, filed a complaint (the
“Original Complaint”) on October 23, 2018, ECF
No. 1. As against Security Life, Plaintiff asserted seven
causes of action, all of which were dismissed without
prejudice in this Court's May 14, 2019 Order Granting
Defendant Security Life of Denver's Motion for Judgment
on the Pleadings (“Order”), ECF No. 146.
Plaintiff amended her complaint (the “Amended
Complaint”), ECF No. 158, to assert a single cause of
action against Security Life under UDAP. Am. Compl.
¶¶ 61-79. Security Life filed an answer, ECF No.
160, on July 12, 2019, and then filed the instant Motion on
August 13, 2019. Plaintiff filed her Opposition on September
24, ECF No. 185, and Security Life filed its Reply on October
1, ECF No. 186. The Court heard oral arguments on the Motion
on October 15, 2019.
detailed discussion of the factual allegations in this case
may be found in the Court's May 14, 2019 Order dismissing
the Original Complaint. Now before the Court is Security
Life's second Motion, which seeks dismissal of the
Amended Complaint on many of the same grounds. The Amended
Complaint contains largely the same factual allegations
previously alleged in the Original Complaint, with some
additions. The Court will address those additions here, and
it otherwise incorporates the factual background set forth in
the prior Order to the extent that the facts are likewise
alleged in the Amended Complaint.
Overview of Factual Allegations
Amended Complaint involves two distinct sets of allegedly
unlawful activity. Because Security Life is alleged to have
participated in just one, it is helpful to begin by
separating the allegations accordingly.
the Amended Complaint alleges that Defendant Salisbury,
Plaintiff's financial advisor of many years, orchestrated
a “churning scheme” designed to increase his own
commissions while Plaintiff sustained significant losses. Am.
Compl. ¶¶ 2, 21-39. Plaintiff alleges that
Defendant Salisbury invested Plaintiff's money and/or
that of The Brody Family Trust into various annuities and then
had Plaintiff surrender the annuities and move the money, all
with the promise of equal or greater earnings. Id.
¶¶ 21-22. The Amended Complaint includes a
non-exhaustive list of at least ten examples of annuity
transactions involved in the annuity churning scheme.
Id. ¶¶ 28-35. The Amended Complaint
expressly does not implicate Security Life in the
“annuity scheme.” In fact, it clarifies that
Security Life is not responsible for “Salisbury's
conduct related to the annuity churning scheme.”
See id. ¶ 15 n.3.
brings us to the second category of conduct, relevant to
Security Life. Separate from the annuity churning, the
Amended Complaint alleges wrongdoing in connection with the
brokering and sale of a life insurance policy. See Am.
Compl. ¶¶ 40-60. Specifically, Defendants
allegedly defrauded Plaintiff by encouraging her to purchase
“unsuitable” insurance that she did not need and
could not afford, through an associated premium financing
arrangement with negative financial consequences. See
id. ¶¶ 55, 45-47, 59-60.
Life is alleged to have issued a $2.5 million life insurance
policy (the “VOYA Policy”) to the Kathy Ryan
Irrevocable Trust (the “Ryan
Trust”). Am. Compl. ¶¶ 42, 50. The annual
scheduled premium was $160, 000, which, according to
Plaintiff, was “well over the minimum monthly premium
of $3, 072.22 to maintain the policy.” Id. The
VOYA Policy was issued with an “excessive death
benefit” that was allegedly inconsistent with
Plaintiff's net worth and which she could not afford.
Id. ¶¶ 45, 71. Security Life-and to some
degree the Amended Complaint-attributes the value and
structure of the Policy to an apparent misrepresentation in
the Application as to Plaintiff's net worth. Id.
¶ 46; see also ECF No. 72-3.
alleges that she expressed concerns to Defendant Salisbury
about the VOYA Policy's value, but that Defendant
Salisbury advised her that the Policy would assist her
children with payment of estate taxes after she passed away.
Am. Compl. ¶ 45. According to Plaintiff, however,
Defendant Salisbury failed to advise her that “very
little, if any, of her net worth would be subject to estate
taxes.” Id. To finance the VOYA Policy,
Defendant Salisbury-with the assistance of Defendants Michael
Diyanni, Aurora Capital Alliance (“Aurora
Capital”), Claraphi Advisory Network, LLC
(“Claraphi”), and Bellini-arranged a
“complex financing arrangement” under which
Plaintiff was told she would never need to personally make
payments on the Policy. Id. ¶¶ 42-43. The
Ryan Trust was created instead, and Plaintiff assigned the
VOYA Policy and another annuity as collateral for a loan
funded by lender First Insurance Funding (now Lake
Forest). Id. ¶¶ 3-4, 49, 51-53.
was later advised that the note was in default. Am. Compl.
¶ 56. Plaintiff contacted VOYA, which advised her that
it could not speak to her as she was not the owner of the
Policy. Id. ¶ 57. To cure the
default, Defendant Salisbury allegedly instructed Plaintiff
to wire $37, 000 to First Insurance Funding and Lake Forest
to secure the loan and avoid default, which she did.
Id. Plaintiff now alleges that this payment was
inconsistent with Defendant Salisbury's representation
that she would not need to make personal payments on the VOYA
Policy. Id. ¶ 59.
summarize, the lawsuit alleges three primary allegations
against Security Life: (1) that Security Life issued the VOYA
Policy, Am. Compl. ¶¶ 42, 50, 76; (2) that Security
Life was misled by Defendant Salisbury about Plaintiff's
net worth, id. ¶ 46; and (3) that a
representative of Security Life told Plaintiff that it could
not speak with her about the Policy because Mr. Diyanni-as
trustee of the Ryan Trust-was the Policy's owner, not
Plaintiff, id. ¶ 57. To support her UDAP
theory, Plaintiff asserts that “[l]ike annuities, high
dollar or ‘large case' life insurance policies
should only be sold to consumers when they are
‘suitable' for the consumer's financial needs,
situation, and goals.” Id. ¶ 44; see
also id. ¶ 59 (alleging that Plaintiff was harmed
by the VOYA Policy and financing agreement because the Policy
was “an unsuitable financial product in light of the
excessive death benefit and premiums exceeding her ability to
pay, which was known to Defendants at the time they initiated
and/or approved the transaction”).
Additional Allegations Raised in Amended Complaint
annuity churning scheme and the circumstances surrounding the
issuance of the VOYA Policy and associated financing
arrangement are alleged in the Amended Complaint in largely
the same way they were framed in the Original Complaint. The
only additional allegations specifically mentioning Security
Life are various agency allegations, through which Plaintiff
attempts to implicate Security Life for the actions of other
individual Defendants. As the Court sees it, the Amended
Complaint differs from the Original Complaint in four ways:
the Amended Complaint alleges that the Allianz Annual Fixed
Index Annuity #XXX 9437, which Plaintiff assigned as
collateral for financing, has been surrendered since the
Original Complaint was filed. Am. Compl. ¶ 53. Second,
the Amended Complaint is restructured to allege one cause of
action under UDAP, which incorporates the allegations of
“unsuitability” and “Elder” status
that previously made up three separate causes of action in
the Original Complaint. Compare Am. Compl.
¶¶ 61-79 (first cause of action), with
Orig. Compl. ¶¶ 64-90 (first, second, and third
causes of action). Next, more substantively, the Amended
Complaint adds two paragraphs attempting to clarify the
scheme, associated misrepresentations, and legal theory
related to the annuity churning scheme. Am. Compl.
¶¶ 37, 66.
finally, most relevant to Security Life, the Amended
Complaint adds further allegations as to Security Life's
purported liability for the actions of other Defendants.
See, e.g., Am. Compl. ¶¶ 10, 16, 39, 64.
In the Original Complaint, Plaintiff had broadly alleged that
“Security Life of Denver is liable for its own acts and
the acts and omissions of Defendants Salisbury, Diyanni,
Alejandro Alberto Bellini, and/or its appointed agents who
participated in the sale of the policy.” Orig. Compl.
¶ 19; see also id. ¶ 15.
takes this theory and repeats it several times throughout the
Amended Complaint in an apparent attempt to clarify the
agency relationship between Security Life and Defendants
Salisbury and Bellini. For example, the Amended Complaint
references “VOYA's financing disclosure and
acknowledgment form, ” ECF No. 72-1 (the
“Acknowledgment”), and the VOYA Policy's
application (the “Application”), ECF No. 72-3, on
which Defendant Salisbury apparently signed as an
“agent” or “writing
agent.” Am. Compl. ¶ 10 n.1.
the Amended Complaint asserts that Defendant Salisbury acted
“under the direction and control of Security Life of
Denver” and that Defendant Bellini acted “within
the scope of, and in the course of his employment with, or
under the direction and control of Security Life Denver
and/or Aurora Capital.” Am. Compl. ¶ 16. According
to the Amended Complaint, Security life “retained the
right to control, direct, and/or manage” these
Defendants and “knew of and authorized”
Salisbury's and Bellini's positions as “life
insurance sales agent[s] with the ability and authority to
sell the life insurance policy in question, and to engage in
the premium financing arrangement.” Id.
¶¶ 10, 16; see also id. ¶ 39.
Accordingly, the Amended Complaint asserts that, “under
the doctrines of vicarious liability and respondeat superior,
Defendant Security Life of Denver is liable for the wrongful
acts committed by those under its control, direction, or
management.” Id. ¶¶ 10, 16; see
also id. ¶ 39.
Amended Complaint also assigns certain actions by Salisbury
to Security Life. For example, while Salisbury's conduct
of concealing “substantial information” from
Plaintiff about the transactions at issue had been alleged in
the Original Complaint, Orig. Compl. ¶ 67, the Amended
Complaint clarifies that Salisbury was acting “[i]n his
capacity as [Plaintiff]'s investment advisor and
financial planner and/or as an agent for Security Life of
Denver, ” Am. Compl. ¶ 64.
than these few additions, the Amended Complaint is largely
identical in substance to the Original Complaint.
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 pleaded 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).
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).
Courts also have discretion to grant a Rule 12(c) motion with
leave to amend, or to dismiss causes of action instead of
entering judgment. Moran v. Peralta Cmty. Coll.
Dist., 825 F.Supp. 891, 893 (N.D. Cal. 1993)); see
also 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)).
motion for judgment on the pleadings that asserts the absence
of subject-matter jurisdiction is assessed in the same manner
as a motion brought under Rule 12(b)(1). See
Rutenschroer, 484 F.Supp.2d at 1147-48. A challenge to a
court's subject-matter jurisdiction may be either
“facial” or “factual.” Wolfe v.
Strankman, 392 F.3d 358, 362 (9th Cir. 2004).
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 also
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).
contrast, in a factual attack, “the challenger disputes
the truth of the allegations that, by themselves, would
otherwise invoke federal jurisdiction.” Id.
(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),
overruled on other grounds as stated in U.S. ex. Rel.
Hartpence v. Kinetic Concepts, Inc., 792 F.3d 1121, 1128
n.6 (9th Cir. 2015). When deciding a factual challenge to the
court's subject-matter jurisdiction, the court
“need not presume the truthfulness of the
plaintiffs' allegations.” Id.
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