Transamerica Life Insurance Company v. Caramadre et al
Filing
132
OPINION AND ORDER granting in part and denying in part (60) Motion to Dismiss; granting in part and denying in part (62) Motion to Dismiss; granting in part and denying in part (94) Motion to Dismiss; granting (95) Motion to Dismiss; granting in part and denying in part (96) Motion to Dismiss in case 1:09-cv-00470-S-DLM; granting in part and denying in part (59) Motion to Dismiss; granting in part and denying in part (95) Motion to Dismiss; granting (97) Motion to Dismiss; granting in part and denying in part (98) Motion to Dismiss in case 1:09-cv-00472-S-DLM; granting in part and denying in part (61) Motion to Dismiss; granting in part and denying in part (62) Motion to Dismiss; granting in part and denying in part (92) Motion to Dismiss; granting (93) Motion to Dismiss; granting in part and denying in part (94) Motion to Dismiss in case 1:09-cv-00471-S-DLM; finding as moot (61) Motion for Judgment on the Pleadings; granting in part and denying in part (65) Motion to Dismiss; finding as moot (67) Motion to Dismiss; granting in part and denying in part (118) Motion to Dismiss; granting (121) Motion to Dismiss; granting in part and denying in part (122) Motion to Dismiss in case 1:09-cv-00473-S-DLM; granting in part and denying in part (45) Motion to Dismiss; granting in part and denying in part (81) Motion to Dismiss; granting (83) Motion to Dismiss; granting in part and denying in part (84) Motion to Dismiss in case 1:09-cv-00502-S-DLM; granting in part and denying in part (37) Motion to Dismiss; granting in part and denying in part (38) Motion to Dismiss; granting in part and denying in part (68) Motion to Dismiss; granting (69) Motion to Dismiss; granting in part and denying in part (70) Motion to Dismiss in case 1:09-cv-00549-S-DLM; granting in part and denying in part (29) Motion to Dismiss; granting in part and denying in part (30) Motion to Dismiss; granting in part and denying in part (62) Motion to Dismiss; granting (63) Motion to Dismiss; granting in part and denying in part (64) Motion to Dismiss in case 1:09-cv-00564-S-DLM. So Ordered by Judge William E. Smith on 2/7/12. Associated Cases: 1:09-cv-00470-S-DLM et al.(Jackson, Ryan)
UNITED STATES DISTRICT COURT
DISTRICT OF RHODE ISLAND
___________________________________
)
WESTERN RESERVE LIFE ASSURANCE
)
CO. OF OHIO,
)
Plaintiff,
)
)
v.
) C.A. No. 09-470 S
)
JOSEPH CARAMADRE; RAYMOUR
)
RADHAKRISHNAN; ESTATE PLANNING
)
RESOURCES, INC.; HARRISON CONDIT; )
and FORTUNE FINANCIAL
)
SERVICES, INC.,
)
)
Defendants;
)
___________________________________)
)
TRANSAMERICA LIFE INSURANCE
)
COMPANY,
)
Plaintiff,
)
)
v.
) C.A. No. 09-471 S
)
JOSEPH CARAMADRE; RAYMOUR
)
RADHAKRISHNAN; ESTATE PLANNING
)
RESOURCES, INC.; ESTELLA RODRIGUES;)
EDWARD MAGGIACOMO, JR.; LIFEMARK
)
SECURITIES CORP.; and
)
PATRICK GARVEY,
)
Defendants;
)
___________________________________)
)
WESTERN RESERVE LIFE ASSURANCE
)
CO. OF OHIO,
)
Plaintiff,
)
)
v.
) C.A. No. 09-472 S
)
JOSEPH CARAMADRE; RAYMOUR
)
RADHAKRISHNAN; ESTATE PLANNING
)
RESOURCES, INC.; ADM ASSOCIATES,
)
LLC; EDWARD HANRAHAN; THE LEADERS )
GROUP, INC.; and CHARLES BUCKMAN, )
Defendants;
)
___________________________________)
___________________________________
)
WESTERN RESERVE LIFE ASSURANCE
)
CO. OF OHIO,
)
Plaintiff,
)
)
v.
) C.A. No. 09-473 S
)
JOSEPH CARAMADRE; RAYMOUR
)
RADHAKRISHNAN; ESTATE PLANNING
)
RESOURCES, INC.; DK LLC; EDWARD
)
HANRAHAN; THE LEADERS GROUP, INC.; )
and JASON VEVEIROS,
)
Defendants;
)
___________________________________)
)
WESTERN RESERVE LIFE ASSURANCE
)
CO. OF OHIO,
)
Plaintiff,
)
)
v.
) C.A. No. 09-502 S
)
JOSEPH CARAMADRE; RAYMOUR
)
RADHAKRISHNAN; ESTATE PLANNING
)
RESOURCES, INC.; NATCO
)
PRODUCTS CORP.; EDWARD HANRAHAN;
)
and THE LEADERS GROUP, INC.,
)
Defendants;
)
)
___________________________________)
)
)
TRANSAMERICA LIFE INSURANCE
)
COMPANY,
)
Plaintiff,
)
)
v.
) C.A. No. 09-549 S
)
LIFEMARK SECURITIES CORP.;
)
JOSEPH CARAMADRE; RAYMOUR
)
RADHAKRISHNAN; ESTATE PLANNING
)
RESOURCES, INC.; and EDWARD
)
MAGGIACOMO, JR.,
)
Defendants;
)
)
___________________________________)
2
___________________________________
)
WESTERN RESERVE LIFE ASSURANCE
)
CO. OF OHIO,
)
Plaintiff,
)
)
v.
) C.A. No. 09-564 S
)
JOSEPH CARAMADRE; RAYMOUR
)
RADHAKRISHNAN; ESTATE PLANNING
)
RESOURCES, INC.; HARRISON CONDIT; )
and FORTUNE FINANCIAL
)
SERVICES, INC.,
)
Defendants.
)
___________________________________)
OPINION AND ORDER
WILLIAM E. SMITH, United States District Judge.
Plaintiffs
(“Western
Western
Reserve”)
Reserve
and
Life
Transamerica
Assurance
Life
(“Transamerica”) (collectively, “Plaintiffs”)1
suits
against
various
defendants,
who
are
Co.
of
Insurance
Ohio
Company
filed these seven
identified
below,
alleging that the defendants improperly engaged in “strangerinitiated annuity transactions” or STAT schemes.2
Before the
1
While there is only a single plaintiff in each action,
Western Reserve or Transamerica, the Court refers to Plaintiffs
(plural) except where it is necessary to distinguish between the
two.
Plaintiffs are represented by the same counsel and have
filed consolidated briefs. The Court also understands that they
are both part of the “Aegon Americas” companies.
2
On February 18, 2011, the Court “linked” these cases for
purposes of pretrial electronic filing only. (See Consolidation
Order, C.A. No. 09-470, ECF No. 86.) As a result, all filings
made after February 18, 2011 in each of the seven cases, with
the exception of amended complaints, can be found on the
electronic docket of case 09-470.
The cases are not otherwise
consolidated.
3
Court are Defendants Joseph Caramadre, Raymour Radhakrishnan,
Estella Rodrigues, Harrison Condit, Estate Planning Resources,
Inc., and ADM Associates, LLC’s Motion to Dismiss the Newly
Amended
Complaints
and
Request
for
Reconsideration,
filed
in
cases 09-470, 09-471, 09-472, 09-473, 09-502, 09-549, and 09564; Defendant Edward Hanrahan’s Motion to Dismiss and Request
for Reconsideration, or, in the Alternative, for a More Definite
Statement, filed in cases 09-472, 09-473, and 09-502; DK LLC’s
Motion for Dismissal of Third Amended Complaint, filed in case
09-473; and Fortune Financial’s Motion to Dismiss Plaintiff’s
Second Amended Complaint, filed in cases 09-470 and 09-564.3
The
movant-Defendants
move
to
dismiss
the
newly
amended
complaints and for reconsideration of the Court’s June 2, 2010
Opinion and Order (hereinafter “June 2 Order”), in which the
Court granted in part and denied in part Defendants’ previouslyfiled motions to dismiss.
For the reasons set forth below, DK
3
Plaintiffs note that Fortune Financial’s motion to dismiss
the second amended complaint is moot in light of Plaintiffs’
third round of amendments, but, in the interest of efficiency,
Plaintiffs do not object to the Court taking up the arguments
presented in the context of the Third Amended Complaint.
The
Court, therefore, considers the arguments presented therein.
Moreover, by stipulation, Edward Maggiacomo joined his codefendants’ memoranda in support of their motions to dismiss.
(See Stipulation, Apr. 18, 2011, C.A. No. 09-470, ECF No. 101.)
The Court also considers the arguments set forth in Maggiacomo’s
motion to dismiss and request for reconsideration, which was
filed after the Court’s June 2, 2010 Opinion and Order and
Plaintiffs’ subsequent amendments.
(See Mot. to Dismiss and
Request for Recons. of Def. Edward L. Maggiacomo, Jr., C.A. No.
09-471, ECF No. 62.)
4
LLC’s
motion
to
dismiss
is
granted,
and
the
other
movant-
Defendants’ motions are granted in part and denied in part.
I.
Background4
The following background information is reprised from the
Court’s June 2 Order (with updates and alterations indicated by
brackets):
The
genesis
investments
that
of
these
Plaintiffs
transactions,” or STATs.
alleged
facts
pursuant
to
as
Rule
cases
true
dub
is
a
scheme
for
annuity
“stranger-initiated
annuity
Because the Court must accept the
for
12(b)(6)
purposes
of
the
of
Defendants’
Federal
Rules
of
motions
Civil
Procedure, it here provides an overview of the STATs drawn from
the Complaints.
Defendant Joseph Caramadre is an attorney who specializes
in reading the fine print of insurance and annuity products and
4
On November 17, 2011, a grand jury returned a sixty-six
count indictment against two of the defendants in this case,
Joseph Caramadre and Raymour Radhakrishnan.
(See generally
Indictment, filed Nov. 17, 2011, D.R.I., Cr. No. 11-186 S.) The
Indictment charges Caramadre and Radhakrishnan with wire fraud,
mail fraud, conspiracy, identity fraud, aggravated identity
theft, and money laundering. Caramadre is also charged with one
count of witness tampering.
While the Indictment and instant
civil cases do share some overlap in the facts and scheme
alleged, the Indictment is much broader and paints a picture of
a scheme that, over a number of years, defrauded many insurance
companies, as well as many terminally ill individuals and their
families, and employed death-put bonds, corporate bonds, and
variable annuities to do so.
Of course, at this stage, these
are only allegations, and for the Court’s purposes, the criminal
allegations have no bearing on the allegations set forth in
these Complaints.
5
finding “loopholes.”
focused
on
two
Plaintiffs.
premiums
The one he discovered in these actions
components
of
certain
paid
to
obtain
the
policy
by
of
premiums
upon
the
could
be
invested
in
Two, the annuities allowed
the owner to elect a “death benefit.”
return
sold
One, the annuities were variable, which means that
securities on behalf of the owner.
the
annuities
This option guaranteed
death
of
the
annuitant,
no
matter what the market value of the policy was at that time.
Caramadre’s
features
insight
invited
was
riskless
that
policies
securities
with
those
speculation.
annuitants would of course die at some point.
two
The
If one could
safely bet that would happen quickly, the annuities could be
used to turn fast profits.
Investors could make aggressive
short-term trades without worrying about losses.
Thus, the key
to the strategy was finding terminally ill individuals, with a
correspondingly short life expectancy, willing to be annuitants.
To
find
such
individuals,
Caramadre
and
his
associates,
including Defendant Raymour Radhakrishnan, began publicizing a
“Program
for
workers.
Resources,”
the
Flyers
a
Terminally
bearing
company
the
Ill”
to
business
allegedly
hospice
name
patients
“Estate
controlled
by
and
Planning
Caramadre,
promised cash payments to dying patients willing to do business
with
the
identified
company.
both
a
Once
either
terminally-ill
6
Caramadre
annuitant
or
Radhakrishnan
candidate
and
an
investor, they arranged for a licensed agent of an annuities
broker to provide the annuity application.
They then paid the
sick patient to sign the application as the annuitant.
In some
instances, Plaintiffs claim, Caramadre, Radhakrishnan, or the
agent actually forged the annuitant’s signature.
would
be
designated
as
the
owner
and
The investor
beneficiary
on
the
application, and would pony up the cost of the policy.
Once completed, the insurer accepted the application and
issued an annuity in which the owner had no relationship to the
annuitant, other than through the alleged STAT itself.
this
broad
framework,
all
Defendants
fit
into
one
Within
of
the
following categories:
• “Sponsors” of the STAT scheme, a term the Court uses to
refer to Caramadre and Radhakrishnan, who solicited the
transactions, as well as their alleged company Estate
Planning Resources (“EPR”). [They are named Defendants in
each of the actions.5]
• Annuity brokerage companies[, or the “Brokers”], who sell
Plaintiffs’ annuities.
The broker in case numbers 09–470
and 09–564 is Fortune Financial Services, Inc. (“Fortune”);
in 09–471 and 09–549, it is Lifemark Securities Corporation
(“Lifemark”); and in 09–472, 09–473, and 09–502, it is The
Leaders Group (“Leaders”).
• Agents of the brokers: the individuals who are licensed
to sell annuities and provided the policies at issue at the
request of Caramadre and/or Radhakrishnan.
Fortune’s
agent, named as a Defendant in cases 09–470 and 09–564, is
[5]
[Caramadre and Radhakrishnan were not
in the Complaint initially filed in C.A. No.
Plaintiff Western Reserve added Caramadre and
defendants in that case in the Second Amended
on September 7, 2010.]
7
named defendants
09-470; however,
Radhakrishnan as
Complaint, filed
Harrison Condit; Lifemark’s agent, named in 09–471 and 09–
549, is Edward Maggiacomo; Leaders’s agent, named in 09–
472, 09–473, and 09–502, is Edward Hanrahan.
• Owners of annuities in the four actions in which the
annuitant is still living, cases 09–470 through 09–473.[6]
These are the people or corporations who paid premiums for
the policies, and stand to redeem the proceeds because they
are also designated as the beneficiaries.
In case number
09–470, the owner is Conreal LLC (“Conreal”); in 09–471, it
is Estella Rodrigues; in 09–472, it is ADM Associates, LLC
(“ADM”); and in 09–473, it is DK LLC (“DK”). In the other
three cases, the annuitants are deceased, and the owners
are not named as Defendants.
[Since the June 2 Order,
Owners Conreal and DK have both agreed to the rescission of
their contracts, Conreal is no longer listed as a defendant
in 09-471, and Natco Service Corp., the owner of the
annuity at issue in 09-502, has been named as a defendant
in that case.
Western Reserve does not assert any claims
or seek damages against Natco Service Corp.]
• Annuitants: the terminally ill individuals who serve as
measuring lives for the annuities in cases 09–470 through
09–473.
In 09–470, the annuitant is Anthony Pitocco; in
09–471, it is Patrick Garvey; in 09–472, it is Charles
Buckman; and in 09–473, it is Jason Veveiros. [Plaintiffs
no longer bring claims against any of the Annuitants, but
they remain named in the captions of cases 09-471, 09-472,
and 09-473.]
W. Reserve Life Assur. Co. of Ohio v. Conreal LLC, 715 F. Supp.
2d 270, 273-75 (D.R.I. 2010) (internal citations to the record
omitted).
In the June 2 Order, the Court dismissed the following
counts for failure to state a claim: all counts for rescission,
declaratory
judgment
that
the
contracts
are
void,
civil
liability for insurance fraud, and negligence; the fraud and
[6]
[This statement is current through the June 2 Order, but
the Court cannot say with certainty whether these annuitants are
still living as of the date of this Opinion and Order.]
8
civil conspiracy counts against owners ADM and DK in cases 09472 and 09-473, respectively; and the counts against Lifemark
for breach of the duty of good faith and fair dealing in cases
09-471 and 09-549.
Id. at 290.
Since the June 2 Order, Plaintiffs have filed at least one
round of amended complaints in each case, adding claims of:
civil liability for forgery (in cases 09-470, 09-549, 09-564);
fraud in the factum (in all cases except 09-472 and 09-5027); and
claims of breach of contract and breach of the duty of good
faith and fair dealing against Agents Condit and Hanrahan (in
cases
09-470,
09-472,
09-473,
09-502,
and
09-564).8
The
operative Complaints are now the Amended Complaint in 09-502
(“502 Complaint”); the Second Amended Complaints in cases 09-472
(“472 Complaint”), 09-549 (“549 Complaint”), and 09-564 (“564
Complaint”); and the Third Amended Complaints in cases 09-470
(“470 Complaint”), 09-471 (“471 Complaint”), and 09-473 (“473
Complaint”).
Combined, the Complaints assert against some or
7
According to Plaintiffs, they did not add a fraud in the
factum count to the Complaints in 09-472 and 09-502 because the
Annuitants in those cases appear to have known about the
circumstances surrounding their participation in the STAT
scheme.
8
Plaintiffs note that similar claims were not
against
Maggiacomo
in
cases
09-471
and
09-549
Transamerica has not established that it had a
contractual relationship with Maggiacomo. Plaintiffs do
however, that Maggiacomo worked for a broker (Lifemark)
a contractual relationship with Plaintiffs.
9
brought
because
direct
allege,
who had
all Defendants the following claims for relief: (1) fraud in the
factum; (2) fraudulent inducement; (3) declaratory judgment; (4)
rescission; (5) breach of contract; (6) breach of the duty of
good faith and fair dealing; (7) civil liability for crimes and
offenses; (8) unjust enrichment; and (9) civil conspiracy.9
Defendants10 move for reconsideration of the June 2 Order as
to the claims of fraudulent inducement, unjust enrichment, and
civil conspiracy, and they move for dismissal of the Complaints
pursuant to Rule 12(b)(6) for failure to state a claim upon
which relief may be granted as to the claims of fraud in the
factum; declaratory judgment; rescission; breach of contract;
breach of the duty of good faith and fair dealing; and civil
liability for crimes and offenses.
II.
Discussion
A.
The Legal Standard
In reviewing a motion to dismiss, the Court must “accept
the well-pleaded facts as true, viewing factual allegations in
the light most favorable to the plaintiff.”
Rederford v. U.S.
9
The Court lists here only claims that survived the June 2
Order, newly pleaded claims, and claims that Plaintiffs attempt
to revive in the amended complaints.
Plaintiffs re-allege in
their amended complaints the dismissed counts in order to
preserve them for appellate review, but they are not discussed
in this decision, except where Plaintiffs argue that they have
been revived.
10
For purposes of this discussion, the Court does not
differentiate between the arguments of the various factions of
Defendants, except where relevant.
10
Airways, Inc., 589 F.3d 30, 35 (1st Cir. 2009).
To meet the
general pleading requirements of Rule 8 of the Federal Rules of
Civil Procedure, each Complaint “must contain sufficient factual
matter . . . to ‘state a claim to relief that is plausible on
its face.’”
Ashcroft v. Iqbal, 556 U.S. 662, 129 S. Ct. 1937,
1949 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570 (2007)).
that
raise
This means it must present “factual allegations
a
right
to
relief
above
the
speculative
level.”
Simmons v. Galvin, 575 F.3d 24, 30 (1st Cir. 2009) (citation and
internal
quotation
standard
is
marks
satisfied,
omitted).
the
Court
In
may
judging
consider
whether
not
only
this
the
Complaints, but “facts extractable from documentation annexed to
or incorporated by reference in the [C]omplaint[s] and matters
susceptible to judicial notice.”
Jorge v. Rumsfeld, 404 F.3d
556, 559 (1st Cir. 2005).
In
addition,
Plaintiffs’
fraud
claims
must
meet
the
heightened pleading requirements of Rule 9(b), which “applies to
state
law
fraud
claims
asserted
in
federal
court.”
N.
Am.
Catholic Educ. Programming Found., Inc. v. Cardinale, 567 F.3d
8, 13 (1st Cir. 2009).
what,
where,
and
representation.”
when
These claims must “specify the who,
of
the
allegedly
false
or
fraudulent
Alternative Sys. Concepts, Inc. v. Synopsys,
Inc., 374 F.3d 23, 29 (1st Cir. 2004).
Rule 9(b) also requires
“identifying the basis for inferring scienter,” which refers to
11
the
culpable
mental
committing fraud.
state
of
knowingly
or
intentionally
N. Am. Catholic Educ., 567 F.3d at 13.
A motion for reconsideration is properly granted where the
moving
party
demonstrates
“a
manifest
error
of
law,”
there
exists newly discovered evidence, or a court has misunderstood a
party’s argument.
Ruiz Rivera v. Pfizer Pharm., LLC, 521 F.3d
76, 81-82 (1st Cir. 2008).
Moreover, “[i]nterlocutory orders,
including denials of motions to dismiss, remain open to trial
court reconsideration, and do not constitute the law of the
case.”
Perez-Ruiz v. Crespo-Guillen, 25 F.3d 40, 42 (1st Cir.
1994) (quoting Union Mut. Life Ins. Co. v. Chrysler Corp., 793
F.2d 1, 15 (1st Cir. 1986)).
B.
Fraudulent Inducement
In their motions for reconsideration, Defendants ask the
Court to revisit the June 2 Order with respect to the viability
of the fraudulent inducement claims against the Agents and the
Sponsors.
Defendants
undisclosed
information
argue
that,
(namely,
even
that
assuming
the
that
Annuitants
the
were
terminally ill individuals with no relationship to the Owners or
the
Agents
and
the
Annuitants
were
paid
to
sign
the
applications) was material, the Agents and the Sponsors had no
duty to disclose the information in the absence of Plaintiffs’
inquiry, and therefore, according to Defendants, the fraudulent
inducement claims must fail.
In the June 2 Order, the Court did
12
not explicitly address the Agents’ and the Sponsors’ duty to
disclose
vel
non,
apart
from
the
issue
of
materiality,
but
rather, the Court determined that the duty to disclose turned
exclusively on materiality.
See W. Reserve, 715 F. Supp. 2d at
285 (“Whether or not the duty arises -- in other words, whether
a fact is material, such that it must be disclosed -- depends on
the ‘circumstances of [the] case.’” (quoting Home Loan & Inv.
Ass’n v. Paterra, 255 A.2d 165, 168 (R.I. 1969))); see also id.
at 286 n.14 (“[B]ut for fraud, the relevant duty is the duty to
disclose, which turns only on the materiality of the omissions
identified
above.”).
owner/applicant’s
Moreover,
duty
to
the
disclose
Court
material
held
that
information
an
may
arise even where the insurer has not requested the information.
Id. at 284.
The Court has carefully examined and considered the
parties’ arguments and will use the opportunity to clarify the
June 2 Order.
1. The Agents
To establish a claim for fraudulent inducement, under Rhode
Island law, a plaintiff must demonstrate “that the defendant
made
a
false
representation
intending
thereby
to
induce
plaintiff to rely thereon, and that the plaintiff justifiably
relied thereon to his or her damage.”
Zaino v. Zaino, 818 A.2d
630, 638 (R.I. 2003) (quoting Women’s Dev. Corp. v. City of
Central
Falls,
764
A.2d
151,
13
160
(R.I.
2001))
(internal
quotation
marks
omitted).
Fraudulent
inducement
grounded on either affirmative acts or concealment.”
can
“be
Guilbeault
v. R.J. Reynolds Tobacco Co., 84 F. Supp. 2d 263, 268-69 (D.R.I.
2000).
But
concealment,
a
claim
as
of
opposed
to
fraudulent
an
inducement
affirmative
“will not lie absent a duty to speak.”
grounded
on
misrepresentation,
Id. (citing Home Loan,
255 A.2d at 168); see also McGinn v. McGinn, 50 R.I. 236, 240
(1929) (“[M]ere silence in the absence of a duty to speak is not
fraudulent
and
.
.
.
even
meditated
silence
fraudulent.”) (internal citations omitted).
may
not
be
Whether a person
has a duty to disclose turns on the specific circumstances of
the case.
Home Loan, 255 A.2d at 168.
This is a flexible
inquiry; one that examines the facts of each case to determine
whether they give rise to a duty to disclose.
Nisenzon
(examining
disclose).
v.
Sadowski,
facts
to
689
A.2d
determine
1037,
whether
See id.; see also
1045-47 (R.I.
there
was
1997)
duty
to
The Restatement articulates the inquiry this way:
one party to a business transaction has a duty to disclose to
another party, among other things,
facts basic to the transaction, if he knows that the
other is about to enter into it under a mistake as to
them, and that the other, because of the relationship
between them, the customs of the trade or other
objective circumstances, would reasonably expect a
disclosure of those facts.
14
Restatement (Second) of Torts § 551(2)(e).
As noted in the June
2 Order, the Complaints adequately plead the materiality of the
undisclosed information, see W. Reserve, 715 F. Supp. 2d at 283,
and
thus,
that
information
may
be
considered
“basic
to
the
transaction.”
More difficult is the second prong of the inquiry, whether
Plaintiffs could reasonably expect the Agents to disclose the
pertinent
information
in
light
of
their
relationship
with
Plaintiffs and “the customs of the trade or other objective
circumstances,”
even
information
the
on
in
the
absence
application.
of
The
any
inquiry
parties
make
for
the
much
of
whether the Agents were “soliciting agents,” as Plaintiffs would
have it, or “independent contractors,” as Defendants would have
it.
But the Court need not determine the exact nature of the
agency relationship between the Agents and Plaintiffs on these
motions to dismiss.
It is enough that the Agents signed the
annuity
as
applications
“Registered
Representative[s]/Licensed
Agent[s]” and held direct or indirect contractual relationships
with
Plaintiffs.
Thus,
even
if
they
were
independent
contractors,11 they may still arguably owe a duty to disclose
11
According to the Complaints, Condit submitted a “Producer
Appointment
Application”
and
Hanrahan
submitted
a
“Representative
Licensing
Application”
to
Western
Reserve
(collectively, “Appointment Applications”) “to sell certain
investment products offered by Western Reserve, including the
type of annuity at issue in th[ese] case[s], through [their]
15
material
information
financial
when
instrument,
submitting
where
a
an
application
reasonable
for
a
representative/
independent contractor would have known that an insurer armed
with the information would have rejected the application.
See
Burlington Ins. Co. v. Okie Dokie, Inc., 329 F. Supp. 2d 45,
49 (D.D.C. 2004) (holding that broker may be held liable to
insurer
where
broker
submits
application
bearing
misrepresentations); Century Sur. Co. v. Crosby Ins., Inc., 21
Cal. Rptr. 3d 115, 120 (Cal. Ct. App. 2004) (holding broker
liable
to
insurer
information
on
disclosure
would
it
where
and
have
he
he
submitted
knew
resulted
in
or
application
should
rejection
have
of
with
false
known
that
application);
Liberty Surplus Ins. Corp. v. First Indem. Ins. Servs., Inc., 31
affiliation[s] with” their brokerage companies, and Western
Reserve accepted those Appointment Applications.
(See 470
Compl. ¶¶ 81-82; 472 Compl. ¶¶ 87-88; 473 Compl. ¶¶ 98-99; 502
Compl. ¶¶ 78-79; 564 Compl. ¶¶ 121-22.) While the Complaints in
cases 09-471 and 09-549 also allege that Maggiacomo submitted a
“Producer Appointment Application” to Transamerica, Plaintiffs
concede that Maggiacomo, in fact, never had a direct contractual
relationship with Transamerica.
In addition to the direct
contractual privity that Agents Condit and Hanrahan maintained
with Plaintiffs, Western Reserve had agreements with both
Leaders (Condit’s brokerage company) and Fortune (Hanrahan’s
brokerage
company),
stating
that
the
Agents
acted
as
“independent contractors, and not as agents or employees” of
Western Reserve. (See Ex. 2 to Mot. to Dismiss and Request for
Recons., or, in the Alternative, For a More Definite Statement ¶
10, C.A. No. 09-470, ECF No. 96-2; Ex. C to Defs.’ Mot. to
Dismiss ¶ 10, C.A. No. 09-470, ECF No. 22-4.)
Maggiacomo also
had a relationship with Transamerica by way of the contract
between Lifemark (his brokerage company) and Transamerica. (See
Ex A to Pl.’s Obj. to Defs.’ Mots. to Dismiss, C.A. No. 09-471,
ECF No. 37-1.)
16
So. 3d 852, 857 (Fla. Dist. Ct. App. 2010) (holding insurance
broker
liable
submitted
for
negligent
application
on
misrepresentation
which
it
listed
where
three
of
broker
fourteen
pending claims against applicant and failed to disclose others);
St. Paul Surplus Lines Ins. Co. v. Feingold & Feingold Ins.
Agency, Inc., 693 N.E.2d 669, 672 (Mass. 1998) (holding broker
liable for negligent misrepresentation for submitting insurance
application containing false statement).
Defendants
urge
that
these
cases
involve
affirmative
misstatements not concealment; in each, the representative or
broker-dealer, in response to an inquiry, either made a false
statement, an incomplete statement, or a disclosure that was
misleading when viewed in context.
Defendants argue that, if no
false or misleading information was provided, there is no fraud;
rather the representative or broker-dealer simply out-smarted
the insurers.
question
on
Put another way, if an insurer does not ask the
the
application
in
an
arms-length
transaction,
failure to provide the answer cannot be the basis for a fraud
claim.
But as the Court noted in the June 2 Order, there are
circumstances
in
which
courts
have
held
that
an
insured
or
applicant must disclose information, even in the absence of an
inquiry by the insurer.
(“[f]raudulent
See W. Reserve, 715 F. Supp. 2d at 284
concealment
[can
17
make
an
insurance
policy
voidable] even without inquiry concerning the concealed material
facts by the insurer” (quoting Putnam Res. v. Pateman, 757 F.
Supp. 157, 162 n.1 (D.R.I. 1991))); Harrison State Bank v. U.S.
Fid. & Guar. Co., 22 P.2d 1061, 1064 (Mont. 1933) (stating that
“any concealment of a material fact known to a party, increasing
the
ordinary
risk,
would
be
deemed
.
.
.
fraudulent,”
and
explaining that applicant for bank insurance knew of planned
robbery that law enforcement intended to allow in an attempt to
catch the criminals); Sun Ins. Co. of N.Y. v. Hercules Sec.
Unlimited,
Inc.,
195
A.D.2d
24,
30
(N.Y.
App.
Div.
1993)
(affirming judgment on claim for fraudulent concealment where
insured
did
not
disclose
that
he
planned
to
steal
insured
assets, where insurer had not inquired); Lighton v. MadisonOnondaga Mut. Fire Ins. Co., 106 A.D.2d 892, 892-93 (N.Y. App.
Div. 1984) (allowing claim for fraudulent concealment based on
omission of fact that fires had occurred in plaintiffs’ basement
several
months
before
applying
for
insurance,
even
though
plaintiffs were not asked about prior fires).
Although these
cases
applicants
involve
nondisclosure
by
insureds
and
for
insurance, there is no reason why the same rule should not hold
true for independent contractors of the insurer, who are in
contractual relationships with the insurer, are knowledgeable of
the material, undisclosed facts, and submit an application on
behalf of an applicant.
Here, the Complaints charge the Agents
18
with knowledge of the STAT scheme, including knowledge that the
Annuitants were paid for their participation, and in some cases,
that
the
fraud.
Annuitants’
signatures
were
forged
or
procured
by
These facts, as alleged, are sufficient to establish
objective circumstances that give rise to a duty to disclose.
Accordingly,
reconsideration
Defendants’
are
denied
motions
with
to
respect
dismiss
to
the
and
for
fraudulent
inducement claims against the Agents.12
12
In addition to pleading fraudulent inducement based on
concealment, some of the Complaints also succeed in setting
forth
a
claim
for
fraudulent
inducement
based
on
the
affirmations appearing on the annuity applications.
Each
application contains the following affirmation, under which the
respective Agent placed his signature:
I HAVE MADE REASONABLE EFFORTS TO OBTAIN INFORMATION
CONCERNING
THE
CONSUMER’S
FINANCIAL
STATUS,
TAX
STATUS,
INVESTMENT
OBJECTIVES
AND
SUCH
OTHER
INFORMATION USED OR CONSIDERED TO BE REASONABLE IN
MAKING THE ANNUITY RECOMMENDATION AND FIND THE ANNUITY
BEING APPLIED FOR APPROPRIATE FOR HIS/HER NEEDS.
(E.g., Ex. G to Compl. 8, C.A. No. 09-549, ECF No. 1-7; Ex. C to
Compl. 10, C.A. No. 09-502, ECF No. 1-4.)
The Complaints in
cases
09-471,
09-472,
09-502,
09-549,
and
09-564,
each
adequately plead a cause of action against the respective agent
for fraudulent inducement based on these attestations and the
allegations that the Agents either failed to have any
substantive involvement in selling the annuities or that they
failed to review or verify any of the information on the
applications. (See 471 Compl. ¶ 45; 472 Compl. ¶ 43; 502 Compl.
¶ 44; 549 Compl. ¶¶ 31-32, 41, 47, 63; 564 Compl. ¶ 32.)
Because similar allegations were not made against the
Agents in cases 09-470 and 09-473, Plaintiffs fail to make out a
claim
of
fraudulent
inducement
grounded
in
affirmative
statements against the Agents in those cases.
However,
regardless of these inadequacies, all counts of fraudulent
inducement against the Agents survive because Plaintiffs have
19
2. The Sponsors
With respect to the Sponsors’ duty to disclose, the thrust
of Defendants’ argument is that the Sponsors cannot be held
liable for fraudulent nondisclosure because, in the absence of
any relationship, dealings, or communications with Plaintiffs,
they had no duty to disclose information to them.
part,
Plaintiffs
Sponsors’
rest
“active
the
role
duty
in
to
disclose
the
squarely
conspiracy
Plaintiff[s],” as alleged in the Complaints.
For their
to
on
the
defraud
(Omnibus Obj. to
Defs.’ Mots. to Dismiss and for Recon. 24, C.A. No. 09-470, ECF
No. 67.)
While it may be possible for circumstances to give rise to
a
duty
to
disclose
where
parties
do
not
have
an
underlying
contractual or business relationship, the circumstances pleaded
pleaded a cause of action for fraudulent concealment, as
discussed above.
The Court retracts the language in the June 2 Order
suggesting that the affirmations state that the Agents sold the
annuities. See W. Reserve, 715 F. Supp. 2d at 285. While this
is alleged in some of the Complaints, the applications
themselves
reflect
that
the
Agents
made
no
express
representation to that effect.
On a motion to dismiss, the
Court may consider documents beyond, but integral to, the
Complaint.
Trans-Spec Truck Serv., Inc. v. Caterpillar Inc.,
524 F.3d 315, 321 (1st Cir. 2008); see also Diva’s Inc. v. City
of Bangor, 411 F.3d 30, 38 (1st Cir. 2005).
And where the
allegations set forth in the Complaint are inconsistent with a
writing attached as an exhibit, “the terms of the latter, fairly
construed, must prevail over any averments differing therefrom.”
5 Charles Alan Wright and Arthur R. Miller, Federal Practice &
Procedure § 1235 (citing Ott v. Home Savs. & Loan Ass’n, 265
F.2d 643, 646 (9th Cir. 1958)).
20
in these cases as to the Sponsors -- where the Sponsors and
Plaintiffs had no contractual relationship, no communications,
no business dealings, and no direct dealings -- do not give rise
to such a duty.
See Moore v. Fenex, Inc., 809 F.2d 297, 303 n.2
(6th Cir. 1987) (stating that fraudulent nondisclosure “applies
between parties to a business transaction.
We are aware of no
case, nor has any been cited, where a party has been held liable
for fraudulent nondisclosure that had no direct dealings with
the
plaintiff”);
see
also
Magna
Bank
of
Madison
County
v.
Jameson, 604 N.E. 2d 541, 544 (Ill. App. Ct. 1992) (“There is no
duty to speak absent a fiduciary or other legal relationship
between the parties.”); cf. Chiarella v. United States, 445 U.S.
222, 227-28 (1980) (“At common law, . . . one who fails to
disclose material information prior to the consummation of a
transaction commits fraud only when he is under a duty to do so.
And the duty to disclose arises when one party has information
that
the
fiduciary
between
other
or
[party]
other
them.”)
is
similar
(alteration
entitled
relation
in
to
of
know
trust
original)
because
and
(internal
of
a
confidence
quotation
marks and citation omitted); Cardiovascular & Thoracic Assoc.,
Inc. v. Fingleton, C.A. No. 95-1322, 1995 WL 941470, at *3 (R.I.
Super.
Ct.
Aug.
23,
1995)
(“[F]raud
can
be
established
by
silence where the business relationship of the parties is such
21
as to create a duty to disclose certain facts.” (citing KennettMurray Corp v. Bone, 622 F.2d 887, 892 n.4 (5th Cir. 1980))).
Plaintiffs are correct that the Sponsors’ orchestration of
the fraudulent scheme may support a claim for civil conspiracy.
However, in order to state a claim for fraudulent concealment
against the Sponsors, Plaintiffs must plead each element of the
tort, including a duty to disclose; pleading conspiracy is not a
substitute for this requirement.
See Beck v. Prupis, 529 U.S.
494, 502 (2000) (“[The plaintiff] must allege all the elements
of a cause of action for the tort the same as would be required
if there were no allegation of a conspiracy.” (quoting J. & C.
Ornamental
Iron
Co.
v.
1966))).
Accordingly,
Watkins,
the
152
fraudulent
S.E.2d
613,
inducement
615
(Ga.
counts
are
dismissed with respect to the Sponsors.13
13
Though the fraudulent inducement counts against the
Sponsors do not go forward in the absence of a duty to disclose,
this result may have no practical effect in most of the instant
cases. As discussed below, the civil conspiracy counts against
the Sponsors survive these motions, and if proven, the Sponsors
may be held jointly liable for the Agents’ fraud.
See
Guilbeault v. R.J. Reynolds Tobacco Co., 84 F. Supp. 2d 263,
268 (D.R.I. 2000) (noting that civil conspiracy imposes joint
liability on co-conspirators).
Case 09-470, however, does not
allege civil conspiracy against any Defendants.
22
3. Waiver
Relying on a decision out of this Court decided shortly
after the Court’s June 2 Order, Nationwide Life Ins. Co. v.
Steiner, 722 F. Supp. 2d 179 (D.R.I. 2010), Defendants argue
that Plaintiffs, by failing to ask questions designed to elicit
the
information
at
issue,
have
waived
their
opportunity
to
complain of nondisclosure.
In
Steiner,
the
insurer,
on
its
annuity
application,
inquired as to the relationship between the beneficiary and the
annuitant.
Id. at 180.
The applicants left the question blank,
but the company accepted the application and premium and issued
the
annuity,
never
following
up
on
the
blank
answer.
Id.
Thereafter, the annuitant died and the applicants sought payment
under the annuity.
Id.
The company learned that the annuitant
had been terminally ill when the application was submitted, and
with
this
contract.
knowledge
in
Id. at 181.
hand,
it
tried
to
back
out
of
the
On those facts, the Court held that
Nationwide “waived the right to rely on the blank application
question as a basis” to terminate the annuity contract under the
applicable contractual termination provision, because in Rhode
Island,
“an
insurer
waives
the
right
to
deny
coverage
by
accepting a premium payment ‘with full knowledge’ of grounds for
not fulfilling its obligations under the policy.”
Id. at 185
(quoting Imperial Cas. & Indem. Co. v. Bellini, 888 A.2d 957,
23
963-64 (R.I. 2005)).
The Court further noted that the First
Circuit has recognized that “an insurer may lose its right to
rescind the coverage of an insurance contract if it knows of the
facts that may warrant rescission and fails to disclaim within a
reasonable time, or if it acts in any way inconsistent with an
intention to disclaim.”
Id. (quoting Gen. Star Indem. Co. v.
Duffy, 191 F.3d 55, 59 (1st Cir. 1999)).
The
Steiner.
instant
cases,
however,
are
distinguishable
from
Plaintiffs here did not pose any questions on the
applications directed to elicit the information they now contend
should
have
incomplete
been
disclosed;
applications.
therefore,
The
answer
they
left
did
not
blank
accept
on
the
application was critical to the Court’s reasoning in Steiner,
because it placed the insurer on notice of omitted information,
thereby giving the insurer the opportunity to follow up.
Here,
there were unanswered questions on the applications, and so,
there was no signal to Plaintiffs to investigate.
Accordingly,
Defendants get no traction with their waiver argument.
Apart from what has been reconsidered and clarified above,
the
Court
reaffirms
the
June
2
Order
with
respect
to
the
fraudulent inducement claims.
C. Fraud in the Factum and Related Counts
Plaintiffs have pleaded claims of fraud in the factum in
cases 09-470, 09-471, 09-473, 09-549, and 09-564, against the
24
Sponsors, Brokers, and Agents in each case, and the Owner, DK,
in 09-473.
In cases 09-470, 09-549, and 09-564, the Complaints
allege that “[a]ll Defendants committed fraud in the factum by
either
forging
[the
Annuitant’s]
signature
to
the
annuity
application and submitting it to [Plaintiffs], or by concealing
the existence, nature and essential terms of the annuity from
[the Annuitant] in order to get him to sign the application
under which he purportedly agreed to serve as an annuitant.”
(470 Compl. ¶ 41; accord 549 Compl. ¶ 130; 564 Compl. ¶ 85.)
In
cases 09-471 and 09-473, the Complaints do not allege forgery,
but
only
that
Defendants
committed
fraud
in
the
factum
by
“concealing the existence, nature and essential terms of the
annuity from [the Annuitant].”
51.)
(471 Compl. ¶ 50; 473 Compl. ¶
The Complaints allege that Defendants thereafter submitted
the applications to Plaintiffs, giving Plaintiffs “the false or
misleading
impression
that
[the
voluntarily signed the application.”
Because
of
this,
Plaintiffs
claim
Annuitant]
knowingly
and
(E.g., 470 Compl. ¶ 43.)
they
“entered
the
annuity
contract without knowledge of the true nature or character of
the terms of the agreement” and without a reasonable opportunity
to discover its true nature.
(See, e.g., 470 Compl. ¶¶ 44-45.)
Defendants move to dismiss all of the fraud in the factum counts
against the Sponsors, the Agents, DK, and Fortune.
25
Under
Rhode
Island
law,
fraud
in
the
factum
“concerns
‘[m]isrepresentation as to the nature of a writing that a person
signs
with
neither
knowledge
nor
reasonable
opportunity
obtain knowledge of its character or essential terms.”
to
Rhode
Island Depositors Econ. Prot. Corp. v. Duguay, 715 A.2d 1278,
1280 (R.I. 1998) (quoting Black’s Law Dictionary 661 (6th ed.
1990)); see also Bennion Ins. Co. v. 1st OK Corp., 571 P.2d
1339, 1341 (Utah 1977) (“[F]raud in factum is found only where
forgery is proved, or where the fraud is tantamount to forgery,
such as where an incompetent person is induced to sign a deed,
or where the deed is surreptitiously substituted for another
instrument the grantor believes he is signing . . . .”).
In
contrast to fraud in the factum, fraudulent inducement is a
“[m]isrepresentation as to the terms, quality or other aspects
of a contractual relation . . . that leads a person to agree to
enter
into
the
transaction
the
risks,
with
duties
a
or
false
impression
obligations
she
or
understanding
of
has
undertaken.”
Duguay, 715 A.2d at 1280 (quoting Bourdon’s, Inc.
v. Ecin Indus., Inc., 704 A.2d 747, 753 (R.I. 1997)).
All of Plaintiffs’ fraud in the factum claims fail because,
in actuality, they are nothing more than fraudulent inducement
claims dressed up as fraud in the factum allegations.
The crux
of Plaintiffs’ claims is that the Defendants, either by forging
signatures on the applications or concealing the nature of the
26
applications
Plaintiffs
from
into
the
issuing
Annuitants,
the
annuity
fraudulently
contracts.
induced
Essentially,
Plaintiffs say they were tricked into agreeing to the annuity
contracts, but not that they believed they were entering into
contracts of a different nature or that they did not have an
opportunity to learn the essential terms of the contracts.
See
Duguay, 715 A.2d at 1280 (stating that to establish fraud in the
factum, a party must demonstrate that he had “neither knowledge
nor reasonable opportunity to obtain knowledge of its character
or
essential
omitted).
terms”)
(internal
quotation
marks
and
citation
Indeed, it is a bit ironic for Plaintiffs to suggest
that they did not know the true nature of contracts that they
themselves drafted.
The fact is, Plaintiffs intended to sell
variable life annuities, they believed they sold variable life
annuities, and they did, in fact, sell variable life annuities.
Therefore,
they
cannot
seriously
argue
that
they
have
misapprehended the nature of their own contracts.
Plaintiffs’ claims of fraud in the factum on behalf of the
Annuitants
fail.
void
with
respect
to
the
annuity
applications
likewise
The doctrine of fraud in the factum renders a contract
ab
initio
only
where
a
contracting
understand the nature of the contract.
party
does
not
Here, the Annuitants
were not parties to any contract; they were not bound in any way
by the annuity applications, let alone the annuity contracts.
27
(See, e.g., Ex. B-1 to Compl., C.A. No. 09-470, ECF No. 1-4; Ex.
D-1 to Compl., C.A. No. 09-502, ECF No. 1-5 (stating that, the
annuity contract “is a legal contract between the policyowner
and the Company [Plaintiffs]”).)
Plaintiffs cannot evade their
contractual obligations under the annuity contracts by alleging
forgery or concealment of essential terms with respect to the
Annuitants vis-à-vis the annuity applications.
Plaintiffs’
9(b).
While
forgery
state
allegations
law
governs
also
the
run
elements
afoul
of
necessary
Rule
to
establish a fraud claim, “the procedure for pleading fraud in
federal
court
in
a
diversity
requirements of Rule 9(b).”
69.
party
suit
is
governed
by
the
Guilbeault, 84 F. Supp. 2d at 268-
Rule 9(b) requires that, “[i]n alleging fraud or mistake, a
must
state
with
particularity
constituting fraud or mistake.”
the
circumstances
Fed. R. Civ. P. 9(b).
In this
Circuit, a plaintiff is required to specify in his pleadings
“the time, place, and content of the alleged false or fraudulent
representations.”
Powers v. Boston Cooper Corp., 926 F.2d 109,
111 (1st Cir. 1991).
Moreover, it is well established that
“[w]here multiple defendants are involved, each person’s role in
the alleged fraud must be particularized in order to satisfy
Rule 9(b).”
Loan v. Fed. Deposit Ins. Corp., 717 F. Supp. 964,
968 (D. Mass. 1989) (citing Margaret Hall Found. v. Atl. Fin.
Mgmt., Inc., 572 F. Supp. 1475, 1481 (D. Mass. 1983)); accord
28
DiVittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242,
1247 (2d Cir. 1987); In re Compact Disc Minimum Advertised Price
Antitrust Litigation, 456 F. Supp. 2d 131, 151 n.27 (D. Me.
2006); In re Maroun, 427 B.R. 200, 206 (Bankr. D.N.H. 2010).
Therefore, to adequately plead fraud in the factum grounded in
forgery,
Plaintiffs
may
not
allege
wholesale
(or
“group”)
forgery by Defendants without more particularized allegations of
each Defendant’s role, including which one of the Defendants put
pen to paper and executed the forgeries.
Accordingly, the fraud in the factum counts in each of the
cases in which it is alleged (cases 09-470, 09-471, 09-473, 09549, and 09-564), against the Agents, the Sponsors, DK, and
Fortune are dismissed.14
Insofar as Plaintiffs have attempted to
revive their counts for rescission and declaratory judgment in
case 09-471 on the basis that the annuities were void ab initio
due to fraud in the factum, those counts also are dismissed.15
14
In addition to the infirmities addressed here, Defendants
advance other arguments for dismissal of the fraud in the factum
counts.
While the Court does not reach those arguments, they
may also be fatal to Plaintiffs’ claims.
15
Plaintiffs also included fraud in the factum as a basis
for rescinding the annuity contract or declaring it void in case
09-473. However, DK and Plaintiffs have agreed that the annuity
is rescinded and so, those counts are moot.
(See Omnibus Obj.
to Defs.’ Mots. to Dismiss and for Recon. 9, C.A. No. 09-470,
ECF No. 67.)
29
D. Breach of Contract against the Agents
Agents Condit and Hanrahan move to dismiss the breach of
contract claims against them in cases 09-470, 09-472, 09-473,
09-502, and 09-564.16
The Complaints allege that Western Reserve
accepted Condit’s and Hanrahan’s Appointment Applications.
Appointment
Applications,
which
are
appended
to
the
The
Agents’
filings, reflect that Condit and Hanrahan signed a declaration
stating:
I shall comply with the rules and regulations of the
Company as they may be established from time to time,
and the laws of the states in which I am licensed and
the regulations of the Department of Insurance of each
such state, including, but not limited to, keeping in
force all licenses and permits for the solicitation of
insurance.
(Ex. B to Consolidated Mot. to Dismiss the Newly Am. Compls. and
Req. for Recons. 2, C.A. No. 09-470, ECF No. 94-3; Ex. 1 to Mot.
to Dismiss and Req. for Recons. Or, in the Alternative, For a
More Definite Statement 2, C.A. No. 09-470, ECF No. 96-1.)
They
further affirmed that they “shall comply with the concepts in
the Company’s Code of Professional Conduct . . . .”
The
Complaints
also
allege
the
(Id.)
following:
on
the
Appointment Applications, Condit and Hanrahan “agreed that if
Western Reserve consented to the appointment, then [they] would
16
Plaintiffs do not assert breach of contract claims
against Maggiacomo, who is the Agent named in the other two
Complaints, presumably because he is not alleged to have had a
direct contractual relationship with Transamerica.
30
comply with Western Reserve’s rules and regulations, applicable
state laws and the Ethics Code identified herein.”
(E.g., 470
Compl.
Hanrahan’s
¶
81;
participation
obligation
472
in
under
Compl.
the
¶
STAT
the
87.)
Condit’s
scheme
Ethics
“was
Code
and
contrary
to
conduct
to
[their]
[themselves]
‘according to the high standards of honesty and fairness,’ to
use ‘appropriate fact finding tools’ to assist customers [in]
determin[ing] their ‘insurable needs and financial objectives,’
and to sell products that meet customers’ ‘insurable needs or
financial
objectives’
and
constituted
a
breach
contractual obligations owed to Western Reserve.”
of
[their]
(E.g., 470
Compl. ¶ 83; 472 Compl. ¶ 89 (emphasis in original)).
Moreover,
the Complaints allege that their participation was “contrary to
state
law
and
therefore,
Western
Reserve’s
constituted
obligations.
a
rules
breach
and
of
regulations,”
their
and
contractual
(E.g., 470 Compl. ¶ 84; 472 Compl. ¶ 90.)
In sum, Plaintiffs allege that the Agents breached their
contracts with Western Reserve by (1) violating the Ethics Code;
(2)
failing
to
comply
with
Western
Reserve’s
regulations; and (3) violating state law.
rules
and
The Court concludes
that, in cases 09-470 and 09-564, Plaintiffs plead a cognizable
breach
of
contract
claim
based
violations.
31
on
the
alleged
state
law
In cases 09-470 and 09-564, the forgery allegations are
sufficient to serve as the underpinning for a breach of contract
claim grounded in the violation of state law.
wholesale
forgery
particularized
to
allegations
plead
a
cause
were
of
action
not
for
Although the
sufficiently
fraud
in
the
factum, the relaxed pleading standard of Rule 8 governs breach
of contract claims, see 5 Charles Alan Wright and Arthur R.
Miller, Federal Practice & Procedure § 1235 (3d ed. 2011), and
Plaintiffs’
allegations
satisfy
this
standard.17
Taking
the
allegations in the Complaints as true, it is plausible that
17
For purposes of this claim, the Court also disregards all
allegations
in
the
Complaint
inconsistent
with
forgery.
Plaintiffs were free to plead alternative factual predicates
(viz., forging the Annuitants’ signatures and misleading the
Annuitants to procure their signatures) to support their claims.
See BMC-The Benchmark Mgmt. Co. v. Ceebraid-Signal Corp., No.
1:05-cv-1149-WSD, 2007 WL 4200198, at *6 (N.D. Ga. Nov. 23,
2007) (noting that generally, a plaintiff “is not always
required to elect a single theory of the factual situation where
fraud is claimed, and, at least, where each of two alternative
statements independently satisfies the particularity requirement
of Rule 9(b), the pleading does not violate that rule solely
because the alternatives are stated” (quoting Hirshfield v.
Briskin, 447 F.2d 694, 697 (7th Cir. 1971))), aff’d BMC-The
Benchmark Mgmt. Co. v. Ceebraid-Signal Corp., 292 Fed. App’x
784 (11th Cir. 2008); Holveck v. Ameriquest Mortg. Co., No. 02 C
1154, 2003 WL 21149085, at *2 (N.D. Ill. May 19, 2003) (denying
a motion to dismiss where the complaint pleaded “incomplete,
alternative factual scenarios”). But see Vladimir v. Deloitte &
Touche LLP, No. 95 CIV 10319 (RPP), 1997 WL 151330, at *7
(S.D.N.Y. Mar. 31, 1997) (holding that “[a]lternative fact
pleading is insufficient to satisfy the requirements of Fed. R.
Civ. P. 9(b)” where “plaintiffs’ counsel [had] been in
possession of defendant’s work papers for three years and [had]
conducted extensive discovery”).
32
Agent Condit forged the signatures on the annuity applications
in cases 09-470 and 09-564, thereby violating the state law
criminalizing forgery.18
With respect to the allegations concerning violations of
Western Reserve’s rules and regulations, Plaintiffs point to a
document entitled “Insurance Compliance Bulletin,” which appears
to originate from its Florida office and states that Western
Reserve “will not accept annuity applications where the contract
owner/applicant does not have an appropriate insurable interest
in the life of the annuitant.”
09-470, ECF No. 67-4.)
(Ex. D to Omnibus Obj., C.A. No.
On closer inspection, this flyer places
the onus on Western Reserve to scrutinize incoming applications
for potential deficiencies related to insurable interests and to
reject non-complying applications.
(See id.)
Nowhere does the
bulletin state that agents may not submit such applications;
and, while this may be a reasonable implication of the document,
the bulletin does not specifically direct agents to refrain from
submitting such applications.
Therefore, even if the Court,
viewing
the
the
facts
pleaded
in
light
most
favorable
to
Plaintiffs, assumes that the instant Agents received this flyer
18
Of course, it is doubtful that a contract can be read to
impose upon the Agents a contractual obligation to comply with
all state laws, regardless of how unrelated they may be to the
contract; rather, the sensible reading of this language is that
it is intended to require agents to comply with those state laws
governing insurance brokers or otherwise related to selling
financial instruments, such as the prohibition on forgery.
33
and that the flyer is a “rule or regulation,” the allegations
set forth in the Complaints do not state a breach of contract
claim
based
on
the
Agents’
failure
to
comply
with
Western
Reserve’s rules and regulations.
As for the alleged breach grounded in the Agents’ violation
of the Ethics Code, while the Agents’ contractual duties arise
from
their
therein
signed
consists
applications,
only
of
the
Ethics
aspirational
and
Code
referenced
precatory
language
about how agents should act in relation to their customers.
Under Iowa law,19 contract interpretation and construction
are questions of law to be decided by the Court.
v.
Wells
Dairy,
Inc.,
752
N.W.2d
430,
Pillsbury Co.
435-36 (Iowa
2008).
Looking to the Ethics Code, there can be no question that it
dictates how Western Reserve would like its agents to treat its
customers.
For example, the second paragraph states, in part,
“Together, let us strive to always put the interests of the
customer first.
the
values
to
This Code formally states in one place many of
which
we
have
been
19
committed
throughout
our
Plaintiffs contend that Iowa law controls the Appointment
Applications because they were submitted to and accepted by
Western Reserve in Iowa.
See DeCesare v. Lincoln Benefit Life
Co., 852 A.2d 474, 484 (R.I. 2004) (noting that under Rhode
Island’s conflict of laws doctrine, in the absence of a
controlling contractual provision, the law of the state where
the contract was executed governs).
While these facts are not
alleged in the Complaints and Plaintiffs do not attach any
supporting
documentation,
Defendants
do
not
provide
any
conflicting evidence, and so the Court assumes Iowa law controls
the Appointment Applications for purposes of this decision.
34
history.
We ask you, as the true professional you are, to
commit yourself to these ethical concepts.”
Mot
to
Dismiss
1,
C.A.
No.
09-470,
ECF
(Ex. C to Defs.’
No.
94-4.)
While
Plaintiffs ask the Court to focus not on the actual words of the
Ethics Code, but rather to look to the broader “concepts” behind
it,
the
Court
concludes
that
the
language
set
forth
in
the
Ethics Code is clearly precatory and not intended to be binding
on the Agents, see Mattes v. ABC Plastics, Inc., 323 F.3d 695,
699 (8th Cir. 2003) (stating that precatory language “gives rise
to
no
specific
contractual
duty”),
and
therefore,
Plaintiffs
have not pleaded a claim for breach of contract in this respect.
Accordingly, cases 09-470 and 09-564, plead a viable claim
for
breach
of
contract
against
Agent
Condit
based
upon
his
alleged violations of state law, and his motion to dismiss is
denied with respect to these counts.
Because Plaintiffs do not
plead forgery in cases 09-472, 09-473, and 09-502, in which
Hanrahan is the named agent, and Plaintiffs fail to state a
viable breach of contract claim predicated on other grounds,
Hanrahan’s motion to dismiss is granted as to the breach of
contract counts against him.20
20
In light of the Court’s conclusion, Defendant Hanrahan’s
request for a more definite statement is denied as moot.
35
E.
Breach of the Duty of Good Faith and Fair Dealing
Defendants Condit and Hanrahan ask the Court to dismiss the
counts against them alleging breach of the duty of good faith
and fair dealing because, they contend, Plaintiffs have failed
to allege the breach of an express contractual provision.
Under Iowa law, the duty of good faith and fair dealing
“does
not
give
rise
to
new
substantive
terms
that
do
not
otherwise exist in the contract,” Mattes, 323 F.3d at 700, but
rather “the scope of conduct prohibited by the covenant of good
faith is circumscribed by the purposes and express terms of the
contract.”
Mid-America Real Estate Co. v. Iowa Realty Co., 406
F.3d 969, 974 (8th Cir. 2005) (quoting Carma Developers, Inc. v.
Marathon Dev. Cal., Inc., 826 P.2d 710, 727 (Cal. 1992)).
The
“covenant is breached when a party to a contract acts in a
manner that is offensive to ‘community standards of decency,
fairness and reasonableness.’”
Kopple v. Schick Farms, Ltd.,
447 F. Supp. 2d 965, 982 (N.D. Iowa 2006) (quoting Kooyman v.
Farm
Bureau
Mut.
Ins.
Co.,
315
N.W.2d
30,
34
(Iowa
1982)).
Because Plaintiffs have adequately pleaded breach of contract
based on the express terms of the agreement between Condit and
Plaintiffs, so too, Plaintiffs’ claim for breach of the duty of
good faith and fair dealing against Condit survives his motion
36
to dismiss.21
Agent Hanrahan’s motion to dismiss with respect to
this count, in cases 09-472, 09-473, and 09-502, is granted
because,
as
stated
above,
Plaintiffs
do
not
plead
a
viable
breach of contract claim against him and “the scope of conduct
prohibited by the covenant of good faith is circumscribed by the
purposes and express terms of the contract.”
Mid-America, 406
F.3d at 974 (quoting Carma Developers, 826 P.2d at 727).
F.
To
Civil Conspiracy
adequately
plead
civil
conspiracy,
a
plaintiff
must
allege that “(1) there was an agreement between two or more
parties and (2) the purpose of the agreement was to accomplish
an unlawful objective or to accomplish a lawful objective by
unlawful
means.”
Smith
v.
O’Connell,
997
F.
Supp.
226,
241 (D.R.I. 1998) (quoting Stubbs v. Taft, 149 A.2d 706, 708–09
(R.I. 1959)).
“Civil conspiracy is not an independent basis of
liability, but merely a means of establishing joint liability
for tortious conduct.
Thus, a civil conspiracy claim requires a
valid underlying intentional tort theory.”
21
Guilbeault, 84 F.
Defendants also argue that Plaintiffs’ claims fail
because the Iowa Supreme Court does not recognize a cause of
action for a breach of the duty of good faith and fair dealing
“in employment situations.” See NCMIC Fin. Corp. v. Artino, 638
F. Supp. 2d 1042, 1074 (S.D. Iowa 2009) (quoting Nelson v. Long
Lines Ltd., 335 F. Supp. 2d 944, 968 (N.D. Iowa 2004)).
However, while it is clear that Iowa law does not recognize the
cause of action in employment termination situations, see Fogel
v. Trs. of Iowa Coll., 446 N.W.2d 451, 456-57 (Iowa 1989), there
is no reason to believe that it would not be recognized under
these circumstances.
37
Supp. 2d at 268 (citing ERI Max Entm’t, Inc. v. Streisand, 690
A.2d 1351, 1354 (R.I. 1997)).
Here, Plaintiffs have pleaded a
valid theory of fraudulent inducement against the Agents, and
accordingly, their civil conspiracy counts survive.
G.
Civil Liability for Forgery
Defendants
seek
dismissal
of
the
new
claims
for
civil
liability for crimes and offenses, pursuant to R.I. Gen. Laws §
9-1-2,22 based on forgery of the annuity applications, which are
alleged in cases 09-470 (against the Agent and Broker), 09-549
(against the Sponsors, Agent, and Broker), and 09-564 (against
the Sponsors, Agent, and Broker).
(See 470 Compl. ¶¶ 66-72; 549
Compl. ¶¶ 151-57; 564 Compl. ¶¶ 103-09.)
In the June 2 Order, the Court dismissed the counts of
civil liability for crimes and offenses grounded in the Rhode
Island
because
insurance
that
fraud
statute
statute,
R.I.
criminalizes
Gen.
deceit
Laws
in
§
11-41-29,
connection
with
insurance policy applications, not applications for the issuance
of annuities, such as the ones involved here.
F. Supp. 2d at 287.
22
W. Reserve, 715
In their amendments, Plaintiffs attempt to
R.I. Gen. Laws § 9-1-2 provides in pertinent part:
Whenever any person shall suffer any injury to his or
her person, reputation, or estate by reason of the
commission of any crime or offense, he or she may
recover his or her damages for the injury in a civil
action against the offender, and it shall not be any
defense to such action that no criminal complaint for
the crime or offense has been made . . . .
38
revive this cause of action by alleging civil liability for
forgery.
R.I. Gen. Laws § 11-17-1 makes it a crime to
falsely make, alter, forge, or counterfeit, or procure
to be falsely made, altered, forged, or counterfeited
. . . policy of insurance, . . . or any writing
whatsoever purporting to contain evidence of any debt,
contract, or promise, or of the discharge, payment of
satisfaction of any debt, contract, or promise, with
intent to defraud.
Defendants say that because annuity contracts are not enumerated
within
the
statute,
Rhode
Island
forging of annuity applications.
does
not
criminalize
the
However, the catchall phrase
“any writing whatsoever purporting to contain evidence of any
debt, contract, or promise” arguably encompasses these annuity
applications, which contain evidence of a promise.
Moreover, the relaxed pleading standard of Rule 8 governs
the pleading of this count, and therefore, as noted previously,
Plaintiffs are free to allege in the alternative, and factual
allegations
inconsistent
with
the
crime
of
forgery
are
disregarded for purposes of considering this count on a motion
to dismiss.
See Fed. R. Civ. P. 8(d)(2)&(3).
Similarly, the
wholesale forgery allegations implicating “all Defendants” are
not fatal to this count.
Accordingly, the counts alleging civil liability for crimes
and
offenses
in
cases
09-470,
Defendants’ motions to dismiss.
39
09-549,
and
09-564
survive
H.
Unjust Enrichment
Defendants argue that Plaintiffs’ unjust enrichment claims
should be dismissed because they are derivative of the fraud
claims which they seek to have dismissed.
To make out a claim
for unjust enrichment, under Rhode Island law, a plaintiff must
prove
that
(1)
the
plaintiff
conferred
a
benefit
upon
the
defendant; (2) the defendant appreciated the benefit; and (3) it
would be inequitable, under the circumstances, for the defendant
to
retain
the
benefit
without
paying
for
its
value.
Narragansett Elec. Co. v. Carbone, 898 A.2d 87, 99 (R.I. 2006).
In contrast to a claim for civil conspiracy, a claim for unjust
enrichment does not require the existence of an underlying tort,
and so, strictly speaking, Plaintiffs’ unjust enrichment claims
are not derivative of their fraud claims.
other
arguments
on
this
point,
and
Defendants present no
accordingly,
the
unjust
enrichment claims survive their motions.
I.
Negligence Claims Against Agent Maggiacomo
In their briefing, Plaintiffs stated that they “do[] not
seek
to
resurrect
negligence
defendants at this time.”
ECF No. 67.)
for
Doctrine
now
does
against
any
of
the
(Omnibus Obj. 32, C.A. No. 09-470,
After the hearing on the instant motions, counsel
Plaintiffs
Plaintiffs
counts
wrote
take
not
a
the
bar
the
letter
informing
position
pending
40
that
the
“the
negligence
Court
that
Economic
Loss
count
against
Defendant/Agent Edward Maggiacomo.
been
in
a
direct
Transamerica.
contractual
He is not alleged to have
relationship
with
Plaintiff
It is therefore Transamerica’s position that the
most recent pleadings raise valid and pending negligence counts
against Defendant Maggiacomo.”
(Letter from Brooks R. Magratten
to Hon. William E. Smith (Aug. 9, 2011).)
First,
the
Court
considers
Plaintiffs’
argument
waived.
Their argument was submitted by letter to the Court (not by the
Electronic Case Filing (ECF) system) after briefing and argument
on the pending motions had closed.
merit.
Second, the argument lacks
The reasoning in the June 2 Order with respect to the
dismissal of the negligence claims against the Agents and the
Brokers
turned
Brokers;
the
therefore,
contractual
does
on
contracts
the
relationship
not
alter
analysis.
See
the
W.
between
confirmed
between
Court’s
Reserve,
Plaintiffs
absence
Maggiacomo
prior
715
F.
of
and
economic
Supp.
and
a
direct
Transamerica
loss
2d
the
at
doctrine
289-90.
Accordingly, in cases 09-471 and 09-549, the Court reaffirms its
dismissal of the derivative negligence counts against Maggiacomo
and
dismisses
the
negligence
claims
against
Estate
Planning
Resources based on vicarious liability for Maggiacomo’s actions.
III. Conclusion
Defendants
Caramadre,
Radhakrishnan,
Rodrigues,
Condit,
EPR, and ADM’s motion to dismiss and for reconsideration, filed
41
in cases 09-470, 09-471, 09-472, 09-473, 09-502, 09-549, and 09564 is hereby GRANTED in part and DENIED in part; Defendants
Hanrahan’s
and
Maggiacomo’s
motions
to
dismiss
and
for
reconsideration are hereby GRANTED in part and DENIED in part;
DK’s motion to dismiss, filed in case 09-473, is hereby GRANTED;
and Fortune’s motion to dismiss, filed in cases 09-470 and 09564, is hereby GRANTED in part and DENIED in part.
The
fraudulent
inducement
counts
against
Defendants
Caramadre, Radhakrishnan, and EPR in all above-captioned cases
are hereby DISMISSED.
The fraudulent inducement counts against
Defendants Condit, Hanrahan, and Maggiacomo will proceed.
The
fraud in the factum counts (pleaded in cases 09-470, 09-471, 09473,
09-549,
Radhakrishnan,
Fortune
are
and
09-564)
against
EPR,
Condit,
Hanrahan,
hereby
DISMISSED.
Defendants
Maggiacomo,
Likewise,
the
Caramadre,
DK,
rescission
and
and
declaratory judgment counts in case 09-471, insofar as they are
based on allegations of fraud in the factum, are DISMISSED.
The
counts alleging breach of contract and breach of the duty of
good faith and fair dealing against Defendant Hanrahan, in cases
09-472, 09-473, and 09-502, are hereby DISMISSED.
The counts
alleging breach of contract and breach of the duty of good faith
and fair dealing against Defendant Condit, in cases 09-470 and
09-564, will go forward.
The counts alleging civil conspiracy
(all cases except 09-470), unjust enrichment (all cases), civil
42
liability for crimes and offenses grounded in forgery (in cases
09-470, 09-549, and 09-564) will proceed, except those counts
dismissed as to certain Defendants in the June 2 Order.
The
negligence claims against Defendants Maggiacomo and EPR in cases
09-471 and 09-549 are hereby DISMISSED.
By
stipulation,
Leaders
and
Plaintiffs
have
also
agreed
that Leaders’ motion for partial dismissal of the Second Amended
Complaint (Counts VII and XI) in case 09-473 may be denied as
moot because Plaintiffs are not pursuing those counts against
Leaders.
71.)
(See Dismissal Stipulation, C.A. No. 09-473, ECF No.
Therefore, that motion is denied as moot.
In addition, DK
and Plaintiffs agree that DK’s earlier motion for judgment on
the pleadings (see Mot. of DK, LLC for J. on the Pleadings, C.A.
No. 09-473, ECF No. 61) is moot based on the third round of
pleadings.
Accordingly,
DK’s
motion
for
judgment
on
the
pleadings is also denied as moot.
The Court further reaffirms the dismissal of all claims
previously dismissed but not discussed in the instant Opinion
and Order.
IT IS SO ORDERED.
/s/ William E. Smith
William E. Smith
United States District Judge
Date: February 7, 2012
43
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