The 2002 Lawrence R. Buchalter Alaska Trust et al v. Philadelphia Financial Life Assurance Company

Filing 123

OPINION & ORDER: Because Plaintiffs' claims are time-barred, the Court declines to consider the merits of the claims or address the Motions seeking to exclude expert testimony. For the foregoing reasons, Defendant's Motion for Summary Judgment is granted. The Parties' respective Motions seeking to exclude expert testimony are denied as moot. The Clerk of Court is respectfully requested to terminate the pending Motions, (Dkt. Nos. 99, 102, 110), enter judgment for Defendants, and close the case. SO ORDERED. (Signed by Judge Kenneth M. Karas on 2/5/2017) (lnl)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

THE 2002 LAWRENCE R. BUCHALTER
ALASKA TRUST, ALASKA TRUST
COMPANY, and STEPHEN C. HARRIS,
Trustees,
Plaintiffs,

No. 12-CV-6808 (KMK)
OPINION & ORDER

v.
PHILADELPHIA FINANCIAL LIFE
ASSURANCE COMPANY, f/k/a AGL Life
Assurance Company,
Defendant.

Appearances:
Jonathan Thomas Shepard, Esq.
Eric Donovan Dowell, Esq.
Pryor Cashman LLP
New York, NY
Counsel for Plaintiffs
Kendall Johan Burr, Esq.
Thomas F.A. Hetherington, Esq.
Hutson Brit Smelley, Esq.
Edison, McDowell & Hetherington LLP
Houston, TX
Counsel for Defendant
KENNETH M. KARAS, District Judge:
Plaintiffs The 2002 Lawrence R. Buchalter Alaska Trust (the “Trust”), Alaska Trust
Company, and Stephen C. Harris (“Harris”) filed the instant Complaint, Amended Complaint,
and Second Amended Complaint against Defendant Philadelphia Financial Life Assurance
Company alleging several claims related to the Trust’s purchase from Defendant of a variable
life insurance policy and subsequent investment decisions. At this stage in the proceeding, the

remaining claims relate to Defendant’s alleged failure to properly vet a fund that Defendant
offered as an investment in connection with the policy. Defendant moves for summary judgment
on these claims. Plaintiffs and Defendant have both also moved to disqualify the expert offered
by the opposing Party. For the reasons to follow, Defendant’s Motion for Summary Judgment is
granted. The Motions To Exclude Expert Testimony are denied as moot.
I. Background
A. Factual Background
The following facts are taken from the Parties’ statements of undisputed material facts
and the documents submitted by the Parties in connection with the pending Motions.
1. The Trust
The Trust is an irrevocable trust created by Lawrence Buchalter (“Buchalter”) on
November 1, 2002. (See Decl. of Hutson B. Smelley (“Smelley Decl.”) Ex. 1 (“Trust
Agreement”) (Dkt. No. 104); see also Def. Philadelphia Financial Life Assurance Company’s
Consolidated Reply to Pls.’ Resp. to Def.’s Local Rule 56.1 Statement of Uncontroverted Facts
& Statement of Additional Material Disputed Facts ¶ 1 (Dkt. No. 119).)1 The agreement creating
the Trust (the “Trust Agreement”) provides for an independent Trustee, a role which Buchalter
may not fill. (See Trust Agreement II-11; see also Def.’s Consolidated 56.1 ¶ 3.) Plaintiff
Alaska Trust Company was the sole Trustee until June 2012, when Harris was added as a
Trustee. (See Second Am. Compl. ¶¶ 23, 24, 31 (Dkt. No. 42); see also Def.’s Consolidated 56.1
¶ 4.) The Trust Agreement grants the Trustee the authority to make investments, including the

1

For ease of reference, the Court cites to the consolidated statement of undisputed facts
offered by Defendant. Citations to the consolidated reply to Plaintiffs’ response to Defendant’s
56.1 statement will be cited as “Def.’s Consolidated 56.1 ¶ __,” and citations to Defendant’s
response to Plaintiffs’ statement of additional material undisputed facts will be cited as “Def.’s
Resp. 56.1 ¶ __.”
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purchase of life insurance. (See Trust Agreement II-1, II-14; see also Def.’s Consolidated 56.1
¶ 5.) Notwithstanding the Trustee’s authority regarding investment decisions, the Trust
Agreement also provides for an Investment Advisor, whose stated duties are to “direct the
investments and reinvestments of the property of such trust.” (Trust Agreement II-26–II-27; see
also Def.’s Consolidated 56.1 ¶ 8.) At all relevant times, Jeffrey Brown was the appointed
Investment Advisor. (See Def.’s Consolidated 56.1 ¶ 9.) Although the representative for Alaska
Trust Company, one of the Trustees, testified that he received investment instructions from only
Brown, (see Smelley Decl. Ex. 2, at 13–14), Brown indicated that he received instructions from
Buchalter regarding investment decisions for the Trust, (see Smelley Decl. Ex. 25, at 9; see also
Def.’s Consolidated 56.1 ¶ 9).
2. The Policy
In 2002, Buchalter and his legal counsel, William Lipkind, approached Defendant about
purchasing a life insurance policy through the Trust. (See Smelley Decl. Ex. 3; see also Def.’s
Consolidated 56.1 ¶ 10.) As a result of those conversations, Lipkind obtained and sent to
Buchalter a Private Placement Memorandum (the “2002 PPM”) from Defendant outlining the
terms of a flexible premium variable life insurance policy (the “Policy”) offered by Defendant.
(See Smelley Decl. Ex. 5, at BUCH00000214–15; see also Def.’s Consolidated 56.1 ¶ 12.) The
2002 PPM provided that “THE POLICY OWNER BEARS THE ENTIRE INVESTMENT RISK
FOR ALL AMOUNTS INVESTED IN THE POLICY, INCLUDING THE RISK OF LOSS OF
PRINCIPAL. THERE IS NO GUARANTEED MINIMUM ACCOUNT VALUE.” (See
Smelley Decl. Ex. 5, at BUCH00000216; see also Def.’s Consolidated 56.1 ¶ 13.) The 2002
PPM also provided that “PURCHASE OF THE POLICY IS SUITABLE ONLY FOR
PERSONS OF SUBSTANTIAL ECONOMIC MEANS AND FINANCIAL

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SOPHISTICATION,” and “EACH POLICY OWNER WILL BE REQUIRED TO REPRESENT
THAT HE OR SHE MEETS CERTAIN MINIMUM FINANCIAL AND OTHER
SUITABILITY STANDARDS.” (See Smelley Decl. Ex. 5, at BUCH00000217; see also Def.’s
Consolidated 56.1 ¶ 14.)
On December 18, 2002, the Trust executed an application for the Policy insuring the lives
of Lawrence and Robin Buchalter with a $55,000,000 death benefit. (See Smelley Decl. Ex. 6, at
PFLAC 001091, PFLAC 001124; see also Def.’s Consolidated 56.1 ¶ 15.) The Trust also
executed an accredited investor form affirming ownership of over $5 million in investments,
attesting that “I AM ABLE TO BEAR THE ECONOMIC RISK OF AN INVESTMENT IN A
POLICY FOR AN INDEFINITE PERIOD OF TIME,” that “I UNDERSTAND AND ACCEPT
THE FULL NATURE AND RISK OF AN INVESTMENT IN A POLICY,” that “I received,
carefully reviewed, understand and am familiar with the [2002 PPM], . . . the Policy and the
Investment Account(s) available to me,” and that “I have had the opportunity to ask [Defendant]
questions and to receive answers concerning the purchase of the Policy and to obtain any
additional information . . . that is necessary to verify the information provided regarding the
Policy.” (Smelley Decl. Ex. 8, at PFLAC 001012–15; see also Def.’s Consolidated 56.1 ¶ 17.)
The Policy was issued to the Trust on December 20, 2002. (See Smelley Decl. Ex. 6; see also
Def.’s Consolidated 56.1 ¶ 18.)
The feature of the Policy at issue here is the allocation of premium payments to a variable
account. (See Smelley Decl. Ex. 5, at BUCH00000229–30.) The variable account allows the
policyholder to allocate premium payments to various investment funds offered by Defendant.
(See id. at BUCH00000251.) For example, the 2002 PPM offered the Trust the opportunity to
allocate premium payments to Millennium Global Estate, L.P. (See id. at BUCH00000252.)

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Family Management Corporation was initially designated to “provide asset allocation services
for the [i]nvestment [a]ccounts.” (Id. at BUCH00000216.)
A policyholder can select its preferred investment funds from a platform of insurancededicated funds provided by Defendant. (See Smelley Decl. Ex. 20; see also Def.’s Resp. 56.1
¶ 3.) Before adding a fund to the platform, Defendant conducts due diligence. (See Decl. of
Jonathan T. Shepard in Opp’n to Def.’s Mot. for Summ. J. (“Shepard Decl.”) Ex. U, at 27–28
(Dkt. No. 105); see also Def.’s Resp. 56.1 ¶ 69.) A committee of senior managers, including,
from 2002 through approximately 2010, John Hillman (Defendant’s CEO), Joe Fillip
(Defendant’s General Counsel), and John Fischer (a research supervisor), would review the due
diligence report for a fund, (see Shepard Decl. Ex. U, at 28; see also Def.’s Resp. 56.1 ¶ 68), and
the members of the committee would then come to an agreement to either unanimously place the
fund on the platform or to not move forward with the fund, (see Shepard Decl. Ex. X, at 17–18;
see also Def.’s Resp. 56.1 ¶ 71).
The 2002 PPM provided additional detail regarding the tax implications of the Policy.
Specifically, the 2002 PPM indicated that favorable “tax treatment will only apply, however, if
the investments of each Investment Account of the Variable Account are (1) ‘adequately
diversified’ in accordance with Treasury Department regulations, and (2) the Company, rather
than the Policy Owner, is considered the owner of the assets of the Variable Account for federal
income tax purposes.” (Smelley Decl. Ex. 5, at BUCH00000246; see also Def.’s Consolidated
56.1 ¶ 19.) The 2002 PPM also provided that “no published ruling of the IRS or any other
precedential authority has addressed the tax treatment of a variable life insurance contract issued
in a private placement transaction,” and went on to state that “[f]or this reason, no Policy
Owner should ever attempt to contact an investment advisor. Rather, any and all

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questions, comments, or instructions regarding the Policy should be addressed only to the
Company.” (Smelley Decl. Ex. 5, at BUCH00000247; see also Def.’s Consolidated 56.1 ¶¶ 20–
21.)
On December 20, 2002, Defendant sent two letters to the Trust. The first letter indicated
that “[a]s an inducement for and as a precondition to the execution and delivery of the
Application,” Defendant offered its assurance “that the proposed structure for investing the
Assets will not cause the Policyowner to be deemed to control the investment of the Assets and
result in the Policy’s failure to qualify as life insurance for federal income tax purposes.”
(Smelley Decl. Ex. 10, at PFLAC 000996; see also Def.’s Consolidated 56.1 ¶¶ 23–24.) The
letter also included a provision indemnifying the Trust should a court or agency determine that
the assets are held by the Trust. (See Smelley Decl. Ex. 10, at PFLAC 000998; see also Def.’s
Consolidated 56.1 ¶ 25.)
The second letter provided:
You have requested various assurances from Insurer with respect to Family
Management Corporation (“FMC”). On behalf of the Insurer, this is to certify that
. . . [t]he Insurer has conducted due diligence with respect to FMC, and as a result
of such due diligence, Insurer has satisfied itself that FMC is a suitable party to
allocate, on behalf of the Insurer, Assets that are invested in the Asset Allocation
Account and/or the Discretionary Account. However, the Insurer in no way
guarantees or otherwise warrants to the Policyowner or to any other person the
future performance of FMC . . . .
(Smelley Decl. Ex. 11, at PFLAC 001002; see also Def.’s Consolidated 56.1 ¶ 26.)
3. Strategic Stable Return Fund (ID), LP
On or about October 18, 2004, Sandy Geyelin, Defendant’s Director of Research, and
Jeff Diercks, the head of the consulting firm InTrust Advisors, traveled to Dallas to meet the
managers of Strategic Stable Return (“SSR”) Fund (ID) to conduct due diligence on SSR and
determine whether it was suitable for inclusion on Defendant’s platform. (See Smelley Decl. Ex.
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16 (“Diligence Report”), at InTrust 000010; see also Def.’s Consolidated 56.1 ¶ 27; Def.’s Resp.
56.1 ¶ 26.) The managers of SSR were Steve Helland and Tim Law. (See Diligence Report, at
InTrust 000010; see also Def.’s Resp. 56.1 ¶ 26.) The same day as the meeting, Geyelin sent an
email to Helland and Law asking them to provide some additional information and to complete a
due diligence questionnaire. (See Shepard Decl. Ex. N; see also Def.’s Resp. 56.1 ¶ 29.) The
questionnaire asked SSR to provide information relating to ownership structure, manager
experience, assets under management, manager capital at risk, staffing, historical performance,
service providers, investment strategy, and risk management. (See Shepard Decl. Ex. N; see also
Def.’s Resp. 56.1 ¶ 30.) Geyelin and Diercks thereafter spoke with individuals at SSR at least
three more times. (See Shepard Decl. Ex. O; see also Def.’s Resp. 56.1 ¶ 31.) In the notes
Diercks made during those meetings, one page included the notations: “Review for while? See
monthly reporting? See for a while,” and “Wade in over time?” (Shepard Decl. Ex. P, at
PFLAC 000390; see also Def.’s Resp. 56.1 ¶ 33.) Geyelin and Diercks also spoke with various
references for Helland and Law and memorialized those conversations in their notes. (See
Shepard Decl. Ex. R.)
In December 2004, Geyelin and Diercks put together a due diligence report entitled
“Manager Due Diligence Package.” (See Diligence Report; see also Def.’s Consolidated 56.1
¶ 29.) The report relayed a number of foundational facts about SSR, including: (1) SSR had
launched in July 2003 and did not launch its first fund until September 2003; (2) the SSR ID
Fund (the “ID Fund”), in which the Trust was considering investing, was launched in July 2004
and had approximately $20 million in assets under management; (3) SSR was then running at a
break-even profitability; and (4) Helland and Law were the only employees of SSR. (See
Diligence Report, at InTrust 000010; see also Def.’s Resp. 56.1 ¶¶ 39–42.) The report indicated

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that SSR was owned in equal parts by Helland, Law, and Founding Partners Equity Fund, LP, an
entity owned by “silent partner” William Lee Gunlicks. (See Diligence Report, at InTrust
000011; see also Def.’s Resp. 56.1 ¶ 46.)
The report stated that the “largest” risk posed by SSR and the ID Fund was the fact that
44% of the assets of the ID Fund were invested in the Stable Value Fund, a fund run by
Gunlicks. (See Diligence Report, at InTrust 000011.) The report noted that the Stable Value
Fund invested in a single industry, and thus the Stable Value Fund, and the ID Fund in turn,
could be negatively affected by changes in that industry. (See id.) The report also questioned
the managerial skills of Helland and Law given that the ID Fund’s returns were consistently
lower than that of the Stable Value Fund. (See id.) The report concluded this section by noting
that “[t]he concentration risk makes adding this fund to the . . . platform a risk without
appropriate disclosure of the concentrated nature of the fund’s investments. Without such
disclosure, we would be unable to recommend this fund for inclusion on [the] platform.”
(Id.)
The report went on to note that the ID Fund had “delivered on its stated goals,” and that it
was “currently the top performing Fund of Fund” for the year on Defendant’s investment
platform. (Id. at InTrust 000012–13.) With respect to operations, the report warned that
managing the firm was “an overwhelming task for four people let alone two who are married
with children. One of the areas is most likely not being attended to as much as necessary.”
(Id.) The report added, however, that SSR was planning on hiring an analyst and possibly a
marketing employee once it reached $40 or $50 million in assets under management. (See id.)
In discussing the risk associated with the ID Fund’s portfolio, the report again pointed to
the allocation of 44% of the ID Fund’s assets with the Stable Value Fund, and noted that given

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this concentration, it was a “stretch to claim that diversification mitigate[d] a lot of risk.” (Id.)
The report noted that SSR claimed to have commitments for at least $20 million more in assets
under management, and that if it obtained such assets, it would be able to hire the support staff it
needed. (See id. at InTrust 000015.) The report also indicated that background checks were run
on the firm, Helland, and Law. (See id.) There is no indication that a background check was run
on Gunlicks.
The report concluded with the following observations:
SSR needs to increase its assets under management. Although they are
currently at break-even point financially, [Helland] and [Law] will soon be at a
breaking point emotionally and physically, if additional support staff is not added.
We feel confident that their assets under management will rise to the necessary
level to ensure the sustainability of the business, given their performance track
record and alleged commitments for new assets.
SSR investments are heavily concentrated in one fund in one strategy.
Although this meets the diversification requirements of Rule 817, it hardly qualifies
as diversified from an[] investment position. This information should be more
prominently displayed in materials related to them, so policyholders are aware of
this attribute.
The concentration risk in one single fund and strategy (Stable Value
Fund—44%) makes adding this fund to the . . . platform a risk without
appropriate disclosure of the concentrated nature of the fund’s investments.
Without such disclosure, we would be unable to recommend this fund for
inclusion on [the] platform.
(Id. at InTrust 000016.) The due diligence report was never provided to Buchalter. (See Shepard
Decl. Ex. T, at 150–51; see also Def.’s Resp. 56.1 ¶ 67.)
On January 17, 2005, Diercks sent an email to Fillip asking whether SSR had been added
to Defendant’s platform, noting that he had “advised [Defendant] not to add them without a
disclosure about their single fund concentration.” (Shepard Decl. Ex. Y; see also Def.’s Resp.
56.1 ¶ 72–73.) There is no evidence of a response. (See Def.’s Resp. 56.1 ¶ 74.) On February 3,
2005, Defendant’s Chief Operating Officer David Peters emailed Fillip advising him that the due
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diligence report had recommended that Defendant disclose “SSR’s concentrated investment
(44%) in the Stable Value Fund.” (Shepard Decl. Ex. Z; see also Def.’s Resp. 56.1 ¶ 75.)
Around March 2005, SSR’s ID Fund was added to Defendant’s investment platform. (See
Shepard Decl. Ex. U, at 162; see also Def.’s Consolidated 56.1 ¶ 32; Def.’s Resp. 56.1 ¶ 76.)
4. The Trust’s Addition of SSR
On March 17, 2005, the 2002 PPM was replaced with a new PPM (the “March 2005
PPM”). (See Smelley Decl. Ex. 19; see also Def.’s Consolidated 56.1 ¶ 33.) Like the 2002
PPM, the March 2005 PPM provided that “THE POLICY OWNER BEARS THE ENTIRE
INVESTMENT RISK FOR ALL AMOUNTS INVESTED IN THE POLICY, INCLUDING
THE RISK OF LOSS OF PRINCIPAL.” (Smelley Decl. Ex. 19, at PFLAC 002706; see also
Def.’s Consolidated 56.1 ¶ 35.)
The change most pertinent to this case in the March 2005 PPM was the modification of
language relating to how the IRS would analyze ownership of the assets in the variable account.
Specifically, the March 2005 PPM noted that “[t]he IRS ha[d] stated in published rulings that a
variable contract owner will be considered the owner of the assets of a segregated asset account
if the owner possesses incidents of ownership in those assets, such as the ability to exercise
investment control over the assets,” and added that the IRS had issued “two Revenue Rulings
that provide guidance on certain circumstances in which investor control of investments of a
segregated asset account within a variable annuity or insurance policy . . . cause the investor . . .
to be treated as the owner . . . .” (Smelley Decl. Ex. 19, at PFLAC 002736.) After summarizing
the pertinent revenue rulings, the March 2005 PPM instructed that a “Policy Owner should avoid
contact with the manager of or investment adviser to any of the Investment Accounts regarding
actual or proposed investments in such Investment Accounts,” and advised that “[i]n view of the

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uncertainties involved in the ownership treatment of the Policy, it is important for a prospective
purchaser to consult a qualified tax adviser.” (Id. at PFLAC 002738.)
In August 2005, Buchalter requested information from Defendant about the funds
available on the platform. (See Smelley Decl. Ex. 20; see also Def.’s Consolidated 56.1 ¶ 38.)
Defendant provided “tear sheets” for several available funds, including SSR’s ID Fund. The tear
sheet for SSR indicated that
INVESTORS ARE ENCOURAGED TO CAREFULLY AND THOROUGHLY
REVIEW THE FUND’S PRIVATE PLACEMENT MEMORANDUM AND
RELATED GOVERNING DOCUMENTS WITH THEIR FINANCIAL, LEGAL
AND TAX ADVISORS TO DETERMINE WHETHER THE INVESTMENT IS
APPROPRIATE AND SUITABLE FOR THEM. INVESTMENT IN THE FUND
AND ALLOCATION OF ASSETS TO AN INSURANCE COMPANY SUBACCOUNT THAT INVESTS IN THE FUND IS NOT APPROPRIATE OR
SUITABLE FOR ALL INVESTORS.
(Smelley Decl. Ex. 21, at PFLAC 002660; see also Def.’s Consolidated 56.1 ¶ 39.) The tear
sheet further indicated that the ID Fund was “speculative and involve[d] a high degree of risk”
and that “[a]n investor could lose all or a substantial amount of his or her investment.” (Smelley
Decl. Ex. 21, at PFLAC 002660; see also Def.’s Consolidated 56.1 ¶ 39.) Shortly thereafter, on
November 9, 2005, Buchalter emailed Defendant asking for updated return numbers on a number
of funds, including SSR. (See Supplemental Decl. of Hutson B. Smelley in Supp. of Summ. J.
(“Supplemental Smelley Decl.”) Ex. 56 (Dkt. No. 114); see also Def.’s Consolidated 56.1 ¶ 40.)
Defendant responded with the updated numbers. (See Supplemental Smelley Decl. Ex. 56.)
After Buchalter, purporting to act on behalf of the Trust, requested that the ID Fund be
added as an available investment account, Defendant issued a December 15, 2005 supplement
(the “December Supplement”) to the March 2005 PPM reflecting the addition of SSR’s ID Fund.
(See Smelley Decl. Ex. 26, at PFLAC 002090; see also Def.’s Consolidated 56.1 ¶ 44.) The
December Supplement provided that with respect to the SSR offering documents, Defendant
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“ha[d] not confirmed the completeness, genuineness, or accuracy of such information or
data.” (Smelley Decl. Ex. 26, at PFLAC 002091; see also Def.’s Consolidated 56.1 ¶ 45.)
Attached to the December Supplement was a Confidential Private Placement
Memorandum regarding the ID Fund (the “SSR PPM”), dated November 2003. (See Smelley
Decl. Ex. 26, at PFLAC 002094.) The SSR PPM disclosed that Founding Partners Equity Fund,
LP was a limited partner in SSR, and that “[t]he general partner of [Founding Partners Equity
Fund, LP] is also the general partner of one or more of the Investment Vehicles in which [the ID
Fund] may invest. Although [Founding Partners Equity Fund, LP] has no control over the
management of [SSR], such affiliation may give [SSR] additional incentive to invest in such
Investment Vehicle(s).” (Smelley Decl. Ex. 26, at PFLAC 002113; see also Def.’s Consolidated
56.1 ¶ 47.) Helland similarly testified that neither Founding Partners Equity Fund, LP nor
Gunlicks had any management role at SSR. (See Smelley Decl. Ex. 27, at 27; see also Def.’s
Consolidated 56.1 ¶ 48.) The SSR PPM went on to state that “the [ID Fund’s] portfolio will not
necessarily be widely diversified,” and that “the investment portfolio of the [ID Fund] may be
subject to more rapid changes in value than would be the case if the [ID Fund] were required to
maintain a wide diversification among companies, securities and types of securities.” (Smelley
Decl. Ex. 26, at PFLAC 002110; see also Def.’s Consolidated 56.1 ¶ 49.) The SSR PPM
specifically disclosed that the ID Fund “may invest a substantial portion of its assets in one or a
small number of Investment Vehicles, e.g., up to 55% of the [ID Fund’s] assets may be invested
in one Investment Vehicle.” (Smelley Decl. Ex. 26, at PFLAC 002110 (italics omitted); see also
Def.’s Consolidated 56.1 ¶ 50.) Buchalter testified that he understood from the SSR PPM that
the ID Fund could invest up to 55% of its assets in an affiliate of Founding Partners Equity Fund,
LP. (See Supplemental Smelley Decl. Ex. 55, at 109–10; see also Def.’s Consolidated 56.1 ¶

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51.) The SSR PPM additionally stated that SSR “anticipate[d] that [the ID Fund] assets [would]
be allocated among a relatively small group of Investment Vehicles (6–15), some of which may
be affiliated with [SSR].” (Smelley Decl. Ex. 26, at PFLAC 002104; see also Def.’s
Consolidated 56.1 ¶ 52.) The SSR PPM listed Ernst & Young as the auditors for the ID Fund.
(See Smelley Decl. Ex. 26, at PFLAC 002123.)
The Trust thereafter directed premium allocations to the ID Fund over several months:
$88,000 on December 30, 2005; $2,781,000 on January 31, 2006; $317,000 on March 1, 2006;
and $29,000 on April 28, 2006. (See Smelley Decl. Ex. 28; see also Def.’s Consolidated 56.1
¶ 53.) Buchalter testified that although the allocations were made in four separate payments, he
made a legal subscription and commitment of the funds to the ID Fund all at once in December
2005. (See Decl. of Lawrence R. Buchalter in Opp’n to Def.’s Mot. for Summ. J. (“Buchalter
Decl.”) ¶ 7 (Dkt. No. 106).)
When asked why Defendant did not specifically disclose that the ID Fund had invested
44% of its assets into a fund managed by Gunlicks, Fillip explained that disclosure of that
information “would have caused the fund to blow up from an investor control perspective”
because IRS revenue rulings indicated that “calling out specific underlying publicly available
investments held by an insurance dedicated fund” could cause the insurance assets to be
considered owned by the policyholder. (Shepard Decl. Ex. U, at 147–49; see also Def.’s Resp.
56.1 ¶ 79.) Fillip additionally testified that when considering whether to add a new fund to
Defendant’s investment platform, the committee considered only (1) whether the fund existed;
(2) whether the manager(s) existed; and (3) whether the fund complied with technical regulatory
requirements. (See Supplemental Decl. of Jonathan T. Shepard in Opp’n to Def.’s Mot. for
Summ. J. (“Supplemental Shepard Decl.”) Ex. U, at 124 (Dkt. No. 122); see also Def.’s Resp.

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56.1 ¶ 80.) In the same vein, Fillip testified that in evaluating whether to put a fund on its
platform, Defendant was typically not concerned with whether lack of diversification by the fund
increased its risk of loss. (See Supplemental Shepard Decl. Ex. U, at 128.) Hillman similarly
testified that Defendant did not evaluate whether a fund was more or less likely to succeed (or
fail). (See Shepard Decl. Ex. X, at 18–19.) Geyelin also testified that he was not concerned
about a fund’s risk strategy or risk profile. (See Supplemental Shepard Decl. Ex. T, at 69–70,
74–75; see also Def.’s Resp. 56.1 ¶ 83.) Fischer, by contrast, testified that investment risk and
suspicion of fraud were material considerations for Defendant when selecting funds to place on
its platform. (See Shepard Decl. Ex. W, at 129–31; see also Def.’s Resp. 56.1 ¶ 84.)
5. Developments After the Trust’s Investment
On or about January 6, 2006, Defendant provided the Trust with the January 1, 2006
PPM Supplement (the “January Supplement”). (See Smelley Decl. Ex. 32; see also Def.’s
Consolidated 56.1 ¶ 54.) The January Supplement listed Rothstein, Kass & Company as the ID
Fund’s auditors, a change from the original SSR PPM, which listed Ernst & Young. (See
Smelley Decl. Ex. 32, at PFLAC 001630; see also Def.’s Consolidated 56.1 ¶ 55.) The January
Supplement additionally provided that the ID Fund “currently invests” in a fund managed by the
general partner of Founding Partners Equity Fund, LP. (Smelley Decl. Ex. 32, at PFLAC
001619; see also Def.’s Consolidated 56.1 ¶ 56.) In a May 1, 2006 PPM Supplement, Defendant
forwarded to the Trust information about the ID Fund’s new leverage strategy and program,
which included the statement: “if you do not wish to remain invested in the [ID Fund] under the
Second Amended Agreement you may withdraw your Interest as of June 30, 2006.” (Smelley
Decl. Ex. 34, at PFLAC 001938; see also Def.’s Consolidated 56.1 ¶ 58.)

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By 2007, Buchalter was concerned about SSR because he “wasn’t getting the information
[he] should have as an investor.” (Smelley Decl. Ex. 24, at 122–23; see also Def.’s Consolidated
56.1 ¶ 59.) In the summer of 2008, the Trust put in a request to redeem the Policy investment in
the ID Fund, (see Def.’s Consolidated 56.1 ¶ 73), but before that request was processed, SSR
exercised its right to suspend all pending investor redemption requests, (see Shepard Decl. Ex.
G; Buchalter Decl. ¶ 9; see also Def.’s Resp. 56.1 ¶ 12). At the time the redemption request was
made, the value of the Trust’s SSR investment account was approximately $3.9 million. (See
Buchalter Decl. ¶ 8; see also Def.’s Resp. 56.1 ¶ 11.)
SSR’s decision to suspend redemption requests was presumably related to an October 10,
2008 letter SSR sent to its investors alerting them that the ID Fund had exposure to fraudulent
financing transactions with inventory broker Tom Petters. (See Smelley Decl. Ex. 37; see also
Def.’s Consolidated 56.1 ¶ 62.) Buchalter, who received the correspondence, testified that it was
his understanding from this letter that there could “potentially [be] a permanent loss of capital
here.” (Smelley Decl. Ex. 24, at 211–12; see also Def.’s Consolidated 56.1 ¶ 63.) On October
29, 2008, Defendant sent the Trust a letter regarding SSR’s proposal to create a “side pocket”
account to hold assets related to the Petters fraud and attached a letter from SSR indicating that
the “side pocket” would represent approximately 25% of SSR’s equity. (See Smelley Decl. Ex.
47, at BUCH00002250–52; see also Def.’s Consolidated 56.1 ¶ 65.) On November 21, 2008,
Defendant sent the Trust a letter from SSR dated November 19, 2008, detailing the ID Fund’s
exposure to the Petters fraud and the recovery efforts and warning that there was no assurance of
“any recovery” from investments related to the Petters fraud. (See Smelley Decl. Ex. 48; see
also Def.’s Consolidated 56.1 ¶ 66.) The same letter indicated that “given the current market
environment and liquidity constraints with [the ID Fund’s] other underlying managers, it could

15

take 12–18 months or more to fully pay out the December 31 withdrawals.” (Smelley Decl. Ex.
48, at BUCH00002309; see also Def.’s Resp. 56.1 ¶ 14.) Sometime in November 2008, the
Trust’s counsel inquired into whether Defendant had initiated legal action against any of the
underlying fund managers, and Defendant responded that it was evaluating legal options. (See
Second Am. Compl. Ex. J.)2 In December 2008, Buchalter emailed the Trust’s counsel asking
about the possibility that the Trust’s losses attributable to the Petters fraud could be tax
deductible. (See Smelley Decl. Ex. 52; see also Def.’s Consolidated 56.1 ¶ 71.) The Trust’s
counsel forwarded the email to Defendant, who responded that it was unlikely the losses would
be deductible for the Trust. (See Smelley Decl. Ex. 52.) By the end of 2008, the Trust’s
investment in SSR had decreased in value by approximately $950,000. (See Smelley Decl. Ex.
54; see also Def.’s Consolidated 56.1 ¶ 63.)
On April 24, 2009, Defendant forwarded to the Trust a letter from SSR dated April 21,
2009, reflecting a 27.66% loss of equity in 2008 for the ID Fund and noting that SSR assumed “a
full write-down” of any Petters-related investments. (Smelley Decl. Ex. 49, at BUCH00000533;
see also Def.’s Consolidated 56.1 ¶ 67.) The letter also acknowledged that the 2007 audit had
not yet been issued, and that the 2008 K-1 statements would not be issued until the fall. (See
Smelley Decl. Ex. 49, at BUCH00000535–36; see also Def.’s Consolidated 56.1 ¶ 67.) On July

2

Defendant references this correspondence in its brief in support of its Motion for
Summary Judgment and cites to ¶ 66 of its 56.1 Statement in support. (See Def. Philadelphia
Financial Life Assurance Company’s Brief in Supp. of Mot. for Summ. J. 4 (Dkt. No. 103).)
Paragraph 66, however, makes no reference to the correspondence in question; the only
indication of the correspondence is in Exhibit J of the Second Amended Complaint.
Nevertheless, because the exhibit was attached to Plaintiff’s Second Amended Complaint,
neither Party has objected to its consideration in these proceedings, and when asked about the
correspondence at oral argument, Plaintiff’s counsel made no suggestion that the Court could not
consider the correspondence at summary judgment, the Court finds it appropriate to consider the
correspondence in deciding the pending Motions.
16

27, 2009, SSR wrote a letter to investors, saying: “Assuming the accuracy of [its] projections,
and, most importantly, assuming a successful refinancing this year or next . . . , distribution to ID
Fund investors could begin in the first part of 2011.” (Shepard Decl. Ex. J, at INT 00529; see
also Def.’s Resp. 56.1 ¶ 15.) On June 2, 2010, SSR wrote another letter to investors, saying:
“While you may already appreciate our position, we want to reiterate that we placed 100%
redemption requests with ALL underlying manager positions and as such, as liquidity returns, we
first pay down leverage and once leverage is paid in full, we expect to begin making full
distributions to all investors.” (Shepard Decl. Ex. K, at BUCH00000562; see also Def.’s Resp.
56.1 ¶ 16.) Finally, on March 18, 2011, SSR wrote another letter: “While 2010 has been an
extremely difficult year, we remain committed to seeking liquidity to pay down the leverage line
and return capital to investors as quickly as possible.” (Shepard Decl. Ex. L, at
BUCH00000015; see also Def.’s Resp. 56.1 ¶ 17.) Buchalter alleges that these letters offered
him reassurance that the Trust would have its redemption requests fulfilled and its capital
returned. (See Buchalter Decl. ¶ 10; see also Def.’s Resp. 56.1 ¶ 18.)
On May 6, 2009, Defendant sent to the Trust a letter from SSR disclosing that the SEC
had filed a civil complaint against Gunlicks and several of the funds he controlled, including the
Stable Value Fund in which the ID Fund had invested and the fund which was a limited partner
in SSR, on April 20, 2009, and that a federal district judge had frozen Gunlicks’s and the funds’
assets and appointed a receiver. (See Smelley Decl. Ex. 51; see also Def.’s Consolidated 56.1
¶ 70.) The letter included the complaint filed against Gunlicks and the funds. (See Smelley
Decl. Ex. 51, at WDL 00087; see also Def.’s Consolidated 56.1 ¶ 70.) On May 7, 2009, SSR
sent Defendant another notice referencing the pending SEC action against Gunlicks and his
funds. (See Smelley Decl. Ex. 50; see also Def.’s Consolidated 56.1 ¶ 68.) The notice also

17

disclosed that because of the size of the ID Fund’s investment in the Stable Value Fund, SSR’s
audit could not be completed without an underlying audited financial statement for the Stable
Value Fund, and such a statement was unlikely to be produced. (See Smelley Decl. Ex. 50.)
Buchalter suggested that he received the same notice on or about May 7, 2009. (See Smelley
Decl. Ex. 24, at 220.) The receiver who took control of Gunlicks’s funds, including the Stable
Value Fund, rolled them up into a new holding company for all of the receivership assets. (See
Shepard Decl. Ex. V, at 117–18; see also Def.’s Resp. 56.1 ¶ 88.) SSR thereafter sold all of its
assets to an independent party. (See Shepard Decl. Ex. V, at 117–18; see also Def.’s Resp. 56.1
¶ 88.) By June 2009, the value of the Trust’s SSR investment had dropped from approximately
$3.9 million at the time of the redemption request to approximately $2.5 million. (See Smelley
Decl. Ex. 54, at PFLAC 001443; Buchalter Decl. ¶ 8.)
In the 11 months ending November 30, 2011, the Trust’s investment in SSR was marked
down over 50%, down to $746,971 of the $3,215,000 originally invested. (See Shepard Decl.
Ex. NN, at 4; see also Def.’s Resp. 56.1 ¶ 20.) Buchalter alleges that in 2012, after he
commenced his “investigation” during which Defendant refused to speak with Buchalter about
SSR or allow Buchalter to speak directly to SSR, (see Def.’s Resp. 56.1 ¶ 22), “the Trust’s SSR
investment effectively zeroed out,” (Buchalter Decl. ¶ 13; see also Def.’s Resp. 56.1 ¶ 24).
Plaintiffs allege in their Second Amended Complaint that as of November 30, 2012, the balance
of the Trust’s SSR account was $356,900. (See Second Am. Compl. ¶ 97.) As of the filing of
the Motions, none of the Trust’s SSR capital has been returned. (See Buchalter Decl. ¶ 13; see
also Def.’s Resp. 56.1 ¶ 89.)

18

B. Procedural History
Plaintiffs filed their Complaint on September 7, 2012, alleging claims for
negligence/negligent misrepresentation, breach of contract, breach of duty of good faith and fair
dealing, professional malpractice, and unjust enrichment. (See Dkt. No. 1.) After Defendant
received leave to file a Motion To Dismiss, (see Order (Dkt. No. 14)), Plaintiffs sought and were
granted leave to amend, (see Endorsed Letter (Dkt. No. 19)). Plaintiffs filed the Amended
Complaint on February 15, 2013. (See Dkt. No. 20.) After a new briefing schedule was entered,
(see Order (Dkt. No. 25)), Defendant filed a Motion To Dismiss, (see Dkt. No. 26). After oral
argument, the Parties agreed that the Court should deny Defendant’s Motion without prejudice
and allow Plaintiffs to file a Second Amended Complaint. (See Order (Dkt. No. 35).) On March
31, 2014, Plaintiffs filed their Second Amended Complaint. (See Dkt. No. 42.) The Second
Amended Complaint, which is the operative pleading, alleges claims for (1) negligence, (2)
negligent misrepresentation, (3) breach of fiduciary duty, (4) professional malpractice, (5) breach
of contract, (6) breach of the covenant of good faith and fair dealing, and (7) unjust enrichment.
(See id.) Defendant filed a Motion To Dismiss on June 2, 2014. (See Dkt. No. 44.)
On March 31, 2015, the Court granted Defendant’s Motion in part. Specifically, the
Court dismissed all claims except the portions of the claims for negligence, negligent
misrepresentation, and professional malpractice relating to Defendant’s alleged failure to
properly vet SSR and the ID Fund before placing the ID Fund on its investment platform and
making it available to policyholders. (See Op. & Order 84 (Dkt. No. 52).) Defendant thereafter
filed an Answer to the Second Amended Complaint. (See Dkt. No. 55.) On April 29, 2015, the
Court entered a case management and scheduling order. (See Dkt. No. 60.)

19

On May 26, 2016, after the close of discovery, the Court granted Defendant leave to file a
Motion for Summary Judgment and a Motion To Exclude Testimony of Plaintiffs’ expert, and
granted Plaintiffs leave to file a Motion To Exclude Testimony of Defendant’s expert. (See Mot.
Scheduling Order (Dkt. No. 97).) Defendant filed its Motions and accompanying papers on July
1, 2016. (See Dkt. Nos. 99–104.) Plaintiffs filed their opposition papers and their Motion on
August 19, 2016. (See Dkt. Nos. 105–112.) Defendant filed its reply papers and its response to
Plaintiffs’ Motion on September 16, 2016. (See Dkt. Nos. 113–119.) On September 30, 2016,
Plaintiffs filed their reply in support of their Motion. (See Dkt. No. 120.) The Court held oral
argument on January 19, 2017. (See Dkt. (minute entry for Jan. 19, 2017).)
II. Discussion
Because Defendant’s Motion for Summary Judgment may moot the remaining Motions,
the Court will first address summary judgment.
A. Standard of Review
Summary judgment is appropriate where the movant shows that “there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.
R. Civ. P. 56(a); see also Psihoyos v. John Wiley & Sons, Inc., 748 F.3d 120, 123–24 (2d Cir.
2014) (same). “In determining whether summary judgment is appropriate,” a court must
“construe the facts in the light most favorable to the non-moving party and . . . resolve all
ambiguities and draw all reasonable inferences against the movant.” Brod v. Omya, Inc., 653
F.3d 156, 164 (2d Cir. 2011) (internal quotation marks omitted); see also Borough of Upper
Saddle River v. Rockland Cty. Sewer Dist. No. 1, 16 F. Supp. 3d 294, 314 (S.D.N.Y. 2014)
(same). “It is the movant’s burden to show that no genuine factual dispute exists.” Vt. Teddy

20

Bear Co. v. 1-800 Beargram Co., 373 F.3d 241, 244 (2d Cir. 2004); see also Berry v.
Marchinkowski, 137 F. Supp. 3d 495, 521 (S.D.N.Y. 2015) (same).
“However, when the burden of proof at trial would fall on the nonmoving party, it
ordinarily is sufficient for the movant to point to a lack of evidence to go to the trier of fact on an
essential element of the nonmovant’s claim,” in which case “the nonmoving party must come
forward with admissible evidence sufficient to raise a genuine issue of fact for trial in order to
avoid summary judgment.” CILP Assocs., L.P. v. Pricewaterhouse Coopers LLP, 735 F.3d 114,
123 (2d Cir. 2013) (alteration and internal quotation marks omitted). Further, “[t]o survive a
[summary judgment] motion . . . , [a nonmovant] need[s] to create more than a ‘metaphysical’
possibility that his allegations were correct; he need[s] to ‘come forward with specific facts
showing that there is a genuine issue for trial,’” Wrobel v. County of Erie, 692 F.3d 22, 30 (2d
Cir. 2012) (emphasis omitted) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475
U.S. 574, 586–87 (1986)), “and cannot rely on the mere allegations or denials contained in the
pleadings,” Guardian Life Ins. Co. v. Gilmore, 45 F. Supp. 3d 310, 322 (S.D.N.Y. 2014)
(internal quotation marks omitted); see also Wright v. Goord, 554 F.3d 255, 266 (2d Cir. 2009)
(“When a motion for summary judgment is properly supported by documents or other
evidentiary materials, the party opposing summary judgment may not merely rest on the
allegations or denials of his pleading . . . .”).
“On a motion for summary judgment, a fact is material if it might affect the outcome of
the suit under the governing law.” Royal Crown Day Care LLC v. Dep’t of Health & Mental
Hygiene, 746 F.3d 538, 544 (2d Cir. 2014) (internal quotation marks omitted). At this stage,
“[t]he role of the court is not to resolve disputed issues of fact but to assess whether there are any
factual issues to be tried.” Brod, 653 F.3d at 164 (internal quotation marks omitted). Thus, a

21

court’s goal should be “to isolate and dispose of factually unsupported claims.” Geneva Pharm.
Tech. Corp. v. Barr Labs. Inc., 386 F.3d 485, 495 (2d Cir. 2004) (internal quotation marks
omitted) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323–24 (1986)).
When ruling on a motion for summary judgment, a district court should consider only
evidence that would be admissible at trial. See Nora Beverages, Inc. v. Perrier Group of Am.,
Inc., 164 F.3d 736, 746 (2d Cir. 1998). “[W]here a party relies on affidavits . . . to establish
facts, the statements ‘must be made on personal knowledge, set out facts that would be
admissible in evidence, and show that the affiant . . . is competent to testify on the matters
stated.’” DiStiso v. Cook, 691 F.3d 226, 230 (2d Cir. 2012) (quoting Fed. R. Civ. P. 56(c)(4));
see also Sellers v. M.C. Floor Crafters, Inc., 842 F.2d 639, 643 (2d Cir. 1988) (“Rule 56 requires
a motion for summary judgment to be supported with affidavits based on personal knowledge
. . . .”); Baity v. Kralik, 51 F. Supp. 3d 414, 419 (S.D.N.Y. 2014) (disregarding “statements not
based on [the] [p]laintiff’s personal knowledge”); Flaherty v. Filardi, No. 03-CV-2167, 2007
WL 163112, at *5 (S.D.N.Y. Jan. 24, 2007) (“The test for admissibility is whether a reasonable
trier of fact could believe the witness had personal knowledge.” (internal quotation marks
omitted)).
B. Analysis
Defendant argues that Plaintiffs’ claims are all time barred because Plaintiffs were on
notice prior to 2011 or 2012 that Defendant had not vetted SSR and that the Trust had incurred
substantial financial injury.
The Court has already determined that Alaska law controls the question of whether
Plaintiffs’ claims are timely. (See Op. & Order 23.) Under Alaska law, Plaintiffs’ negligence
and negligent misrepresentation claims are subject to a two-year statute of limitations. See

22

Alaska Stat. § 09.10.070(a). Professional malpractice claims arising out of an economic injury
are subject to a three-year statute of limitations. See Alaska Stat. § 09.10.053; see also
Christianson v. Conrad-Houston Ins., 318 P.3d 390, 396 (Alaska 2014). Because the Complaint
was filed on September 7, 2012, the negligence and negligent misrepresentations claims are
untimely if the statute of limitations began to run before September 7, 2010, and the professional
malpractice claim is untimely if the statute of limitations began to run on September 7, 2009.
In Alaska, “[t]he general rule is that ‘accrual of a cause of action is established at the time
of the injury.’” Gefre v. Davis Wright Tremaine, LLP, 306 P.3d 1264, 1273 (Alaska 2013)
(quoting Cameron v. State, 822 P.2d 1362, 1365 (Alaska 1991)). Alaska, however, has adopted
the discovery rule, which stipulates that “a cause of action accrues when the plaintiff has
‘information sufficient to alert a reasonable person to the fact that he has a potential cause of
action.’” Christianson, 318 P.3d at 396–97 (quoting Preblich v. Zorea, 996 P.2d 730, 734
(Alaska 2000)). Under this rule, the Court should look to “the date when ‘a reasonable person in
like circumstances would have enough information to alert that person that he or she has a
potential cause of action or should begin an inquiry to protect his or her rights.’” Id. at 397
(quoting Lee Houston & Assocs., Ltd. v. Racine, 806 P.2d 848, 851 (Alaska 1991)). The
Supreme Court of Alaska has articulated the discovery rule as follows:
(1) a cause of action accrues when a person discovers, or reasonably should
have discovered, the existence of all elements essential to the cause of action;
(2) a person reasonably should know of his cause of action when he has
sufficient information to prompt an inquiry into the cause of action, if all of the
essential elements of the cause of action may reasonably be discovered within the
statutory period at a point when a reasonable time remains within which to file suit.
Cameron, 822 P.2d at 1366. The “third part” of the discovery rule provides that “where a person
makes a reasonable inquiry which does not reveal the elements of the cause of action within the

23

statutory period at a point where there remains a reasonable time within which to file suit,” then
“the limitations period is tolled until a reasonable person discovers actual knowledge of, or
would again be prompted to inquire into, the cause of action.” John’s Heating Serv. v. Lamb,
129 P.3d 919, 924 (Alaska 2006) (italics and internal quotation marks omitted).
It is not necessary that the plaintiff “know the precise cause at the time of the injury,”
rather, the plaintiff must simply “begin an inquiry as to the cause of injury promptly and
diligently once it is apparent that an injury has occurred due to the possible negligence of
another.” Palmer v. Borg-Warner Corp., 818 P.2d 632, 634 n.4 (Alaska 1990). In other words,
“it is irrelevant if the full scope of injury is not known immediately.” Sopko v. Dowell
Schlumberger, Inc., 21 P.3d 1265, 1272 (Alaska 2001).
Under this rule, “[w]hen a cause of action accrues ordinarily presents a question of fact.”
Egner v. Talbot’s, Inc., 214 P.3d 272, 278 (Alaska 2009). Accordingly, “[r]esolution of the issue
on summary judgment is appropriate only if the . . . court has before it uncontroverted facts
regarding when the statute of limitations began running.” Id.
In its prior Opinion, the Court noted:
Plaintiffs’ allegations that SSR suspended investor redemption requests in 2008 and
that the Trust’s SSR investment account “steadily declined in stated value” since
that point, as well as Plaintiff’s [sic] attachment of an email dated November 20,
2008 discussing the possibility of Defendant bringing legal action against SSR,
raises the question of whether Plaintiffs were on inquiry notice as early as 2008 of
Defendant’s alleged failure to vet SSR.
(Op. & Order 26–27.) Nonetheless, the Court concluded that “[t]aking as true the facts alleged
in the [Second Amended Complaint], the Court cannot conclude as a matter of law that Plaintiffs
had inquiry notice and that a reasonable inquiry would have produced knowledge of the cause of
action in 2008.” (Id. at 27.) Now, however, with the benefit of discovery, the Court is fully
apprised of the pertinent undisputed facts, and the record indicates that Plaintiffs were on notice
24

of more than merely a precipitous decline in the value of the SSR investment. Accordingly, the
Court will consider the arguments raised by Defendant to determine whether the record at this
stage requires the conclusion that a reasonably diligent person would have been on inquiry notice
of Defendant’s alleged negligence and professional malpractice prior to September 7, 2009, three
years before the Complaint was filed.
Defendant argues that Plaintiffs were aware as far back as 2005 that Defendant was not
vetting the funds placed on the platform. Defendant points to the disclosure in the December
Supplement (issued in 2005) that Defendant “ha[d] not confirmed the completeness,
genuiness, or accuracy of such information or data [contained in the SSR PPM].” (Smelley
Decl. Ex. 26, at PFLAC 002091.) This argument falls short of showing that Plaintiffs were on
inquiry notice in 2005 of Defendant’s alleged negligence. The disclosure establishes only that
Defendant had relied on the representations made by SSR without independent verification, not
that Defendant had never considered whether those representations justified the ID Fund’s
inclusion on the platform. Indeed, Defendant’s counsel admitted as much at oral argument.
There is nothing in the December Supplement that put Plaintiffs on notice of Defendant’s alleged
negligence.
Defendant next points to the January Supplement, issued in 2006, that revealed that the
ID Fund had changed auditors from Ernst & Young to Rothstein, Kass & Company. (See
Smelley Decl. Ex. 32, at PFLAC 001630.) But Plaintiffs have not suggested that a mere change
in auditors was a telltale sign that the ID Fund was inappropriate for placement on the platform,
only that a change in auditors is a material event that should have been (and, in fact, was)
reported to them. (See Second Am. Compl. ¶ 16.) That Plaintiffs were aware in 2006 that SSR
had changed auditors does not inform whether Plaintiffs were aware that in 2005, Defendant had

25

not properly vetted the ID Fund. The same is also true of Defendant’s argument that Plaintiffs
knew by May of 2006 that SSR was beginning to leverage its investments. (See Smelley Decl.
Ex. 34, at PFLAC 001938.) While these facts may have been yellow flags, they did not put
Plaintiffs on notice that Defendant had performed its duties negligently or that SSR was doomed.
Defendant additionally points out that Buchalter admitted that by 2007, the ID Fund was
on his redemption watch list because he “wasn’t getting the information [he] should have as an
investor.” (Smelley Decl. Ex. 24, at 122–23.) Defendant also highlights Buchalter’s statement
in a letter he wrote to Defendant in 2012 that SSR’s reported investment performance “clearly
pointed to SSR itself as a fraud” as evidence that Plaintiffs were on notice that Defendant had not
adequately vetted SSR or the ID Fund. (See Smelley Decl. Ex. 35, at 6.) But Defendant does not
explain how these facts, which gave rise to general concerns about the quality of SSR, would
have put Plaintiffs on notice that Defendant had not adequately vetted SSR. And even assuming
these statements show that Buchalter was on inquiry notice that Defendant had not properly
vetted SSR or the ID Fund, Plaintiffs had not yet suffered any injury, and thus could not have
been on notice that Defendant’s alleged negligence had injured them. See Palmer, 818 P.2d at
634 n.4 (“[W]e conclude that a claimant must begin an inquiry as to the cause of injury promptly
and diligently once it is apparent that an injury has occurred due to the possible negligence of
another.”).
More difficult is whether Plaintiffs were on inquiry notice of Defendant’s alleged
negligence in 2008 and 2009, when Plaintiffs learned that SSR placed a hold on redemptions, the
Trust’s investment dropped over $1 million in value, the ID Fund had significant exposure to the
Petters fraud, and the SEC had filed civil actions against Gunlicks and his funds for securities
fraud, resulting in a freeze of Gunlicks’s and the funds’ assets.

26

Plaintiffs first point out a host of other facts they were unaware of in 2008 and 2009,
including the lack of sufficient staffing or funding at SSR, the magnitude and nature of
Gunlicks’s interest in SSR and the ID Fund, the lack of diversification of the ID Fund, the
conclusions of the due diligence report, and the decision of Defendant to not disclose the specific
nature of Gunlicks’ interest in SSR and the ID Fund. (See Mem. of Law in Opp’n to Def.’s Mot.
for Summ. J. (“Pls.’ Summ. J. Mem.”) 13–16 (Dkt. No. 107).) But this argument proves too
much. As Plaintiffs concede, these are all facts they learned through discovery in this litigation,
not facts that gave them cause to file this suit in the first place. (See Buchalter Decl. ¶¶ 11–12.)
Plaintiffs’ argument thus begs the question of what facts they learned between 2009 and the
commencement of this suit that led them to believe Defendant acted negligently. Moreover, the
fact that Plaintiffs were unaware of the scope of Defendant’s alleged negligence does not delay
the accrual of the claim, see Brannon v. Continental Cas. Co., 137 P.3d 280, 285 (Alaska 2006)
(“[I]n Alaska it is irrelevant if the full scope of the injury is known . . . .”), because the pertinent
question is whether “it is apparent that an injury has occurred due to the possible negligence of
another,” Palmer, 818 P.2d at 634 n.4 (emphasis added). The information gleaned in discovery,
gathered in order to prove the allegations, not merely to form a reasonable belief as to their truth,
cannot be invoked as evidence that Plaintiffs were not on notice of the possibility of Defendant’s
alleged negligence. To suggest otherwise would imply that prior to obtaining discovery in this
matter, Plaintiffs lacked a good-faith basis for filing their Complaint. As the sufficiency of the
Second Amended Complaint has already been tested, the Court is satisfied that Plaintiffs had
sufficient information prior to obtaining discovery in this matter to at least put them on inquiry
notice of Defendant’s alleged negligence.

27

Moreover, Plaintiffs’ reference to Buchalter’s 2012 “investigation,” of which no details
are provided, is of no help. Because Alaska recognizes that the statute of limitations begins to
run once a plaintiff has inquiry notice, not when a plaintiff has actual notice of all of the
elements of a cause of action, see Christianson, 318 P.3d at 396–97, citing to the facts that
Plaintiffs learned once they commenced that investigation is insufficient. The Court must
inquire at what point Plaintiffs were put on notice that they should investigate potential claims
against Defendant—not at what point they actually did commence the investigation and discover
the factual basis for the claims set forth in the Complaint. The Court must therefore probe what
facts arose prior to 2012 that caused Plaintiffs to commence their investigation, or whether facts
that arose earlier would have put a reasonably diligent plaintiff on inquiry notice.
Plaintiffs next argue that “paper” losses do not constitute an injury for purposes of
determining claim accrual, and that the claims did not accrue until the losses “appeared” to be
“irreversible” at the end of 2011. (Pls.’ Summ. J. Mem. 19.) In support, Plaintiffs cite Jarvill v.
Porky’s Equipment, Inc., 189 P.3d 335 (Alaska 2008). In that case, the purchaser of a boat was
aware at the time he purchased it that the maker had not adequately reinforced the hull. See id. at
336–37. When the boat sank a few years later, the defendants claimed that the plaintiff’s product
defect and negligence claims were time-barred because his cause of action accrued at the time he
purchased the boat and was aware that the hull was not adequately reinforced, and not at the time
the boat sank. See id. at 337. The Supreme Court of Alaska disagreed, saying that at the time
the plaintiff purchased the defective boat, “any tortious injury to [the plaintiff] remained a matter
of speculation.” Id. at 339. The court noted that to hold otherwise would “lead [the court] to
‘the anomalous and grossly unfair result of the statute being held to have run and the bar
becoming completed even before the hapless plaintiff suffered injury or damage.’” Id. at 340–41

28

(quoting 1A Stuart M. Speiser et al., The American Law of Torts § 5:35 (1983)). The court thus
concluded that the statute of limitations on the tort claims did not begin to run until the boat
sank. See id. at 341.
Jarvill does not stand for the proposition that “paper” losses are not actionable. On its
face, Jarvill does not even discuss the issue here—whether the precipitous and suspicious loss in
value of an investment instrument is actionable only when the plaintiff becomes aware that the
loss is “irreversible.” In Jarvill, the issue was merely whether a cause of action for negligence
accrued when the defect was discovered or when the injury from the defect was actually realized.
Importantly, the court acknowledged that any breach of contract claim likely accrued at the time
the defect was discovered, not when the boat ultimately sank. See id. at 339. The court held
only that the specific injury upon which the negligence claim was based—the sinking of the
boat—formed the basis of the accrual date.
Plaintiffs’ argument here is unpersuasive. First, notwithstanding Plaintiffs’ conclusory
assertion that the investment in the ID Fund has “effectively zeroed out,” (Buchalter Decl.
¶ 13)—whatever that cryptic term may mean—it is unclear what changed with respect to
Plaintiffs’ claim between 2008 and 2012, when the suit was brought. It is no answer to say that
the value of the investment “effectively zeroed out” in late 2011 and 2012; Plaintiffs offer no
explanation for why the claim did not accrue until the account value reached zero. If Plaintiffs’
position were taken seriously, that would mean no aggrieved investor could sue for negligence or
negligent misrepresentation so long as the investment retained some nominal value. There is no
law cited by any Party, and none uncovered by the Court, suggesting that an aggrieved investor
must wait until the value of his or her investment reaches $0 before suing, and the Court is not
persuaded that it should infer such a rule from Jarvill, particularly in light of the Supreme Court

29

of Alaska’s admonition against “anomalous and grossly unfair result[s].” Jarvill, 189 P.3d at
340 (internal quotation marks omitted). And such a proposition is, in any event, at odds with the
Supreme Court of Alaska’s holding that “it is irrelevant if the full scope of injury is not known
immediately.” Sopko, 21 P.3d at 1272. Notably, no such “paper losses” rule applies in the
securities fraud context. See GVA Market Neutral Master Ltd. v. Veras Capital Partners
Offshore Fund, Ltd., 580 F. Supp. 2d 321, 332 (S.D.N.Y. 2008) (“[I]n a securities fraud action,
the injury occurs ‘at the time an investor enters a transaction as a result of material
misrepresentations.’” (alteration omitted) (quoting Lenz v. Associated Inns & Rests. Co. of Am.,
833 F. Supp. 362, 370 (S.D.N.Y. 1993)); CSI Inv. Partners II, L.P. v. Cendant Corp., 180 F.
Supp. 2d 444, 458 (S.D.N.Y. 2001) (“[The] [p]laintiffs are incorrect in asserting that they
received no injury until [the defendant] failed to make the first Contingent Payment.”).
Second, despite insisting that the account “effectively zeroed out” in 2012, (Buchalter
Decl. ¶ 13), Plaintiffs allege in their Second Amended Complaint that the value of the Trust’s
investment in SSR was approximately $356,900 as of November 30, 2012, (see Second Am.
Compl. ¶ 97). Under Plaintiffs’ theory of “paper losses,” there is still some theoretical, if not
practical, possibility of recovery, and Plaintiffs’ claims would therefore not yet be ripe. In light
of this information, Plaintiffs have not explained why it is their belief that their losses became
“irreversible” in 2011 or 2012, but not in 2008 or 2009. But as there is no dispute that Plaintiffs’
claims are ripe, the more likely explanation is that Plaintiffs’ losses were as concrete and
irreversible in 2009 as they were in 2012, or still are today. At a minimum, in May 2009,
Plaintiffs were on notice of the possibility of substantial losses, and of the possibility that
Defendant’s negligence and/or malpractice was the cause of Plaintiffs’ injuries.

30

Plaintiffs offer, however, another argument as to why it was not until 2011 or 2012 that
they were on inquiry notice that Defendant may have acted negligently. Plaintiffs argue that in
2008, the entire financial industry was facing a systematic collapse, and SSR was one of many
hedge funds that suffered severe financial losses and suspended account redemptions. (See Pls.’
Summ. J. Mem. 18–19.) Plaintiffs point to the assurances by SSR from 2008 to the beginning of
2011 that investors’ capital would be returned, (see id. at 19; see also Smelley Decl. Exs. 48, 49;
Shepard Decl. Exs. J, K, L), and Buchalter’s testimony that these letters gave him confidence
that the Trust’s redemption request would be honored, (see Buchalter Decl. ¶ 10). According to
Buchalter, it was not until 2011, when SSR’s monthly account balances continued to decline
while “broader market indices were stabilizing,” that he became suspicious and commenced his
investigation into SSR and the ID Fund. (See Shepard Decl. Ex. II, at 131–35; Buchalter Decl.
¶ 11.)
Plaintiffs’ argument, while viable in some respects, ultimately fails. The optimism
expressed by SSR that the suspended redemption requests would eventually be honored does not
speak to whether Plaintiffs were on notice that Defendant had not adequately vetted SSR or the
ID Fund. By May 2009, Plaintiffs were on notice that SSR had switched auditors at the
beginning of 2007; the 2007 and 2008 audits and the 2008 K-1 statement had not yet been
issued; SSR had suspended redemptions; the ID Fund had significant exposure to the Petters
fraud; and Gunlicks and the funds he controlled, including one that was a limited partner in SSR
and one in which the ID Fund had made a significant investment, had been sued by the SEC and
had had their assets frozen by a federal district court. While Plaintiffs could not be certain that
these failures were attributable to deficiencies that could have been identified through adequate
due diligence, they were at least on notice of that possibility, which is sufficient to begin running

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the statute of limitations. See Jones v. Westbrook, 379 P.3d 963, 967 (Alaska 2016) (noting that
the discovery rule “tolls the statute of limitations until ‘the plaintiff has information sufficient to
alert a reasonable person to the fact that he has a potential cause of action’ or should begin to
inquire about that possibility” (emphasis added) (quoting Preblich, 996 P.2d at 734). Tellingly,
despite Buchalter’s testimony that SSR’s representations gave him confidence that his
redemption request would be honored, he wrote an email to his attorney in December 2008
asking whether the Trust’s losses attributable to the Petters fraud could be tax deductible, (see
Smelley Decl. Ex. 52), suggesting that Buchalter was preparing for the very real possibility that
his redemption request would never be honored and that the Trust could incur substantial losses.
Moreover, the Trust’s counsel asked Defendant in November 2008 whether it had any intention
of pursuing legal action against the underlying managers of the funds in which SSR had invested,
further indicating an awareness that there was at least the possibility of unrecoverable losses.
Although Plaintiffs point out that other firms also suspended redemptions and were
facing financial distress as a result of the Petters fraud, (see Def.’s Resp. 56.1 ¶¶ 13, 20), the fact
that other funds suffered mismanagement or risk oversight issues does not inform whether
Plaintiffs were aware of the possibility that this particular fund was ill-equipped to manage
Plaintiffs’ assets or that Defendant had not conducted adequate due diligence. Moreover,
Plaintiffs were also aware of a civil action facing one of SSR’s founding partners and one of the
ID Fund’s biggest investments, a circumstance unique to SSR. Although at oral argument,
Plaintiffs’ counsel pointed to SSR’s language in its notice to investors that the civil action
consisted of only “allegations” at that point, (see Smelley Decl. Ex. 51, at WDL00086), the
SEC’s allegations were at least substantiated enough to warrant an asset freeze, which surely put
Plaintiffs on notice that the allegations were not baseless. And the fact that other funds

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recovered in 2011 and 2012 while SSR and the ID Fund continued to struggle is also unavailing;
Plaintiffs do not suggest that they believed at any point in time that the ID Fund’s decline was
attributable solely to the financial crisis and not to the various issues of which they became
aware in 2008 and 2009. Moreover, it would work a perverse justice on defendants offering
financial products to hold that the statute of limitations for all causes of actions alleging
negligence was tolled for three years while the markets recovered. That SSR expressed
optimism about eventually being able to honor the Trust’s redemption request says nothing about
the quality of the fund or Defendant’s diligence in vetting the fund in the first place. Plaintiffs
were on notice in 2008, when the Petters fraud was first disclosed, that there could be a
“permanent loss of capital.” (Smelley Decl. Ex. 24, at 211–12; see also Smelley Decl. Ex. 48.)
And while Plaintiffs were perhaps entitled to hold out hope that their losses would be mitigated
or compensated, they were not entitled to sit on their claims in reliance on such hope. See
Christianson, 318 P.3d at 400 (“Nor does the theoretical possibility his out-of-pocket defense
expenses might be reimbursed in the future obviate the fact [the plaintiff] was then suffering an
actual injury that triggered the duty of inquiry as a matter of law.”).
Fatal to Plaintiffs’ case is the fact that no new information about the quality of the
management of the ID Fund or the level of diligence exercised by Defendant was revealed
between May 2009 and the time at which Buchalter commenced his investigation (i.e., was
undoubtedly on inquiry notice) in late 2011 and 2012. Plaintiffs’ argument is that the mere
passage of time and the compounding of their losses, which by 2009 were already substantial,
jolted Buchalter and Plaintiffs into action. Tellingly, Plaintiffs are unable to identify any
moment or date upon which they were put on inquiry notice, alluding only to a general range late

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in 2011 and 2012. The amorphous timeframe of this argument is itself evidence that Plaintiffs’
claim stands on thin ice.
Plaintiffs also assert, in a footnote, that other investors were also exposed to the Petters
fraud, and that accordingly, the fact that a significant portion of the ID Fund’s equity was
exposed to the fraud was not a red flag that put them on notice of wrongdoing by SSR or
Defendant. (See Pls.’ Summ. J. Mem. 19 n.16.) But the fact that other investors also fell prey to
the Petters fraud does not inform whether SSR’s misguided investment was a consequence of
mismanagement that should have been detected by Defendant. And while the Court agrees that
this fact, on its own, would not have put a reasonably diligent plaintiff on inquiry notice of
Defendant’s alleged negligence, it was far from the only red flag that should have alerted
Plaintiffs to a potential cause of action.
Finally, Plaintiffs argue that even if they were on notice of some injury stemming from a
party’s negligence by 2009 (or earlier), they were not on notice until 2011 or 2012 that
Defendant had acted negligently. (See Pls.’ Summ. J. Mem. 13.) Notwithstanding that, for the
reasons noted above, the accuracy of this assertion is belied by the record, Plaintiffs’ argument
misapprehends the law. The Supreme Court of Alaska has held that the statute of limitations
begins running “once it is apparent that an injury has occurred due to the possible negligence of
another.” Palmer, 818 P.2d at 634 n.4. The plaintiff need not “actually know the precise cause
at the time of the injury.” Id. Thus, it is insufficient for Plaintiffs to argue that they did not
know which entity—Defendant, SSR, or the underlying funds—had acted negligently. In
Palmer, the court held that the estate of a victim of a plane crash was on inquiry notice of its
negligence claim against the manufacturer at the time of the plane crash, even though the estate
did not know which entity’s negligence caused the crash. Id. at 634 (“[T]he [decedent’s] estate

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reasonably should have known from the date of being informed of the crash that potential claims
existed against the pilot, the carrier, or the manufacturers.”). The court so held notwithstanding
that the National Transportation Safety Board had made a determination that it was the pilot, not
the manufacturer, who was responsible for the crash. See id. at 633. Here, by May 2009,
Plaintiffs were on notice—by way of, among other things, the exposure to the Petters fraud, the
SEC action against Gunlicks and his funds, and the drastic and consistent decline in the Trust’s
value—that they had suffered injury that could be attributable to the negligence of another, and
that an inquiry into the actions of all involved parties was warranted. That they did not know the
precise cause of the injury, or even the identity of the responsible party, does not serve to toll the
statute of limitations.
Admittedly, courts in Alaska “look[] upon the defense of statute of limitations with
disfavor and will strain neither the law nor the facts in its aid.” Solomon v. Interior Reg’l Hous.
Auth., 140 P.3d 882, 883 (Alaska 2006) (internal quotation marks omitted); see also Lee Houston
& Assocs., Ltd., 806 P.2d at 854 (“[A]lthough the defense of the statute of limitations is a
legitimate one, it is generally disfavored by the courts.”). Moreover, because “the question [of
the date on which the statute of limitations begins to run] is fact dependent, summary judgment
ordinarily should not be used to resolve when a statute of limitations commences.” John’s
Heating Serv. v. Lamb, 46 P.3d 1024, 1031 (Alaska 2002). The Court is satisfied, however, that
the undisputed evidence establishes that by May 2009, there was “information [that] would be
sufficient to alert a reasonably diligent plaintiff to the existence and scope” of the cause of
action, and that “[o]n this point[,] reasonable minds could not differ.” Gudenau & Co. v.
Sweeney Ins., Inc., 736 P.2d 763, 767 (Alaska 1987). Plaintiffs knew that Gunlicks was the
owner of Founding Partners Equity Fund, LP, a limited partner in SSR, (see Smelley Decl. Ex.

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26, at PFLAC 002113; Smelley Decl. Ex. 51, at WDL00086); knew that Gunlicks, Founding
Partners Equity Fund, LP, and Stable Value Fund had been sued by the SEC, (see Smelley Decl.
Ex. 51, at WDL00086); knew that as a result of that lawsuit, the assets of Gunlicks and the funds
he controlled were frozen and a receiver appointed, (see id.); knew that the ID Fund’s investment
in the Stable Value Fund was significant enough to postpone, perhaps indefinitely, audits of the
ID Fund, (see Smelley Decl. Ex. 50, at BUCH00000538–39); knew that approximately 25% of
the ID Fund’s limited partner equity had been exposed to the Petters fraud, (see Smelley Decl.
Ex. 37, at BUCH00002323); and knew that the value of the Trust’s SSR investment had dropped
from approximately $3.9 million at the time of the redemption request to $2.5 million by June
2009, and was continuing to drop, (see Smelley Decl. Ex. 54, at PFLAC 001443; Buchalter Decl.
¶ 8). From these facts, Plaintiffs had sufficient notice that the systematic failure of SSR and the
ID Fund could have been attributable to deficiencies identifiable through adequate due diligence.
The only thing that changed between May 2009 and late 2011 was that the value of the
investment continued to drop.
Before concluding, however, the Court must assure itself that Plaintiffs could have
actually discovered the elements of the cause of action within two (or three) years had they
conducted a reasonably diligent investigation in May of 2009. See Cameron, 822 P.2d at 1366.
When Buchalter attempted his “investigation” in 2011 and 2012, he was stonewalled by both
Defendant and SSR. (See Shepard Decl. Exs. JJ, KK.) There is no reason to believe, on the
record before the Court, that the response of Defendant and SSR would have been any different
had Buchalter asked these same questions in 2009. However, notwithstanding the fact that
neither Defendant nor SSR was willing to answer the questions of Buchalter, Plaintiffs were able
to gather enough information to file their Complaint in September 2012. Plaintiffs have not

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offered any details about the investigation or what sources Buchalter tapped, but there is no basis
upon which to infer that the information Buchalter obtained in 2012 that led him to advise
Plaintiffs to file this lawsuit was unobtainable in 2009.
The Court therefore concludes that Plaintiffs were on inquiry notice as of May 2009 of
their potential cause of action against Defendant. Because the Complaint was not filed until
more than three years later, on September 7, 2012 , (see Dkt. No. I), Plaintiffs' claims are timebarred.
III. Conclusion
Because Plaintiffs' claims are time-barred, the Court declines to consider the merits of
the claims or address the Motions seeking to exclude expert testimony.
For the foregoing reasons, Defendant' s Motion for Summary Judgment is granted. The
Parties ' respective Motions seeking to exclude expert testimony are denied as moot. The Clerk
of Court is respectfully requested to terminate the pending Motions, (Dkt. Nos. 99, I 02, II 0),
enter judgment for Defendants, and close the case.
SO ORDERED.
DATED :

February$ , 2017
White Plains, New York

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