Wealthmark Advisors Incorporated et al v. Phoenix Life Insurance Company et al

Filing 91

OPINION AND ORDER. Signed by Judge Royce C. Lamberth. (aej)

UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION

p/I

WEALTHMARK ADVISORS
INCORPORATED and DAVID SHIELDS,
INDIVIDUALLY,
Plaintiffs,
Civil No. SA-16-cv-OO485-RCL

V.

PHOENIX LIFE INSURANCE
COMPANY and PHL VARIABLE
INSURANCE COMPANY,
Defendants.

OPINION AND ORDER
On January 31, 2019, a bench trial was held in this contract dispute between defendants

Phoenix Life Insurance Company and PHL Variable Insurance Company ("PHL") together,
"defendants" or "Phoenix") and plaintiffs WealthMark Advisors Incorporated and Day d Shields
(together, "plaintiffs" or "WealthMark"). The Court previously adopted the Magistrate' s Report
and Recommendation [ECF No. 68] and granted summary judgment in favor of PHL orj the issue

of liability on its breach of contract counterclaim for the return of commissions pursunt to the
Repayment-of-Commissions provision of the Distributor

Agreement.1

4, ECF 71. Therefore, the only issue for trial was the amount

Order Acceptin R&R at

of damages Phoenix is ntitled to

recover on its breach of contract counterclaim. Based on all the evidence presented, the Court

In that order, the Court also granted summary judgment such that WealthMark' s request for a declarato judgment
was denied and granted summary judgment in favor of Phoenix on WealthMark's negligence claims. Se Order
Accepting R&R at 4, ECF 71.
1

makes the following findings of fact and conclusions of law and will, consistent with tlfrem, enter

judgment in favor of Phoenix against WealthMark.
On June 9, 2010, Phoenix and WealthMark entered into the Annuity Distributor
(the "Distributor Agreement") wherein Phoenix agreed to compensate W

for the

authorized sale of its insurance products by WealthMark' s representatives

g to the

compensation schedules attached to the Distributor Agreement. Stipulated Facts ¶ 4, CF 78-1;
Stipulated Facts ¶ 4, ECF 79-1. In certain situations, though, a "Repayment-of

fissions,,

provision in the Distributor Agreement entitled Phoenix to a return of

ins paid.

Stipulated Facts ¶ 5, ECF 78-1; Stipulated Facts ¶ 5, ECF 79-1.
One of WealthMark's representatives was Anthony Friendshuh, who sold

products in Minnesota. Stipulated Facts ¶ 6, ECF 78-1; Stipulated Facts ¶ 6, ECF 792014, the State of Minnesota began investigating Mr. Friendshuh for fraudulent

s annuity

Around
es in the

sale of PHL annuity products. R&R at 3-4, ECF 68. In conjunction with that invstigation,

Phoenix's parent company and the Minnesota Attorney General reached a settlement prviding for
a rescission process for Minnesota purchasers of Phoenix's annuities through Mr

iuh. See

DX-5 (the Assurance of Discontinuance); Trial Tr. 8:14-22. Pursuant to this

process,

over 234 annuities were rescinded (the "Rescinded Annuities") with Phoenix being

to return

over $27 million in premiums to clients of Mr. Friendshuh. DX-10. Because these

tcts were

held to be rescinded and not surrendered,

See

R&R at 15; Order Accepting R&R,

missions

paid on the sale of the Rescinded Annuities must be repaid to Phoenix.
Phoenix paid a commission to both WealthMark and Mr. Friendshuh for the

Lucts

Mr.

Friendshuh sold. Trial Tr. 7:11-13. At trial, Phoenix called Nancy Turner to testify on

amount

of commissions paid to WealthMark and Mr. Friendshuh and that is properly owed

Phoenix

under the "Repayment-of-Commissions" provision in the Distributor Agreement. Trial
11. Ms. Turner is the Second Vice President

rr. at 2:6-

of Distribution Administration at Phoeni's parent

company. Trial Tr. at 2:25. As part of her job, Ms. Turner oversees payments of commssions for
agents and distributors and the collection of charge backs. Trial Tr. at 3:7-10

ge backs"

are reversals of commissiOns that are triggered by certain transactions, such as the

ssion of a

policy. Trial Tr. at 3:14-19; Trial Tr. at 7:16-24.

Phoenix keeps track of commissions and charge backs through an automated computer
system called Performance Plus. Trial Tr. at 4:2-7. When an agent sells a product, uch as an

annuity, the new business department will enter an application into Performance Plus.

'rial Tr. at

4:19-5:3. Performance Plus then automatically calculates the commission owed on tht product
and feeds that information to a disbursement system that either cuts a check or iritiates an

electronic funds transfer to the agent or distributor owed the commission. Trial Tr. at4:19-5:3;
Trial Tr. 6:1-11. Alternatively, when a rescission occurs, the post-issue department proesses the

rescission through the system, which determines the amount of charge back owed.2 Tria Tr. 7:1624. This

databoth commissions

and charge

backsis put into

a compensation rep4rt for the

agent or distributor.
At trial, Ms. Turner presented the compensation reports for both Mr. Frienshuh and

WealthMark related to the Rescinded Annuities.

See

DX-10; DX-1 i.4 Based on

thee records,

Phoenix paid Mr. Friendshuh $2,215,689.39 in commissions for the sale of the

Annuities with the total outstanding charge backs owed to Phoenix totaling $2, 166,53 .32. DX-

For rescissions, charge backs equal the commission previously paid out. Trial Tr. 7:25-8:5.
These records were properly admitted in summary form under Fed. R. Evid. 1006, as they were derivec from
voluminous records.
'
These records were properly admitted in summary form under Fed. R. Evid. 1006, as they were derive from
voluminous records.
2

3

10; Trial Tr. 26:8-10.

To WealthMark, the records show Phoenix paid $392, 82.35 in

commissions for the sale of the Rescinded Annuities with the total outstanding charge b cks owed
to Phoenix totaling $383,152.75. DX-11; Trial Tr. 34:15-18. Because Phoenix has b en unable
to collect the charge backs owed by Mr. Friendshuh, it has transferred his debt to WealhMark, as

permitted under the Distributor Agreement.

See

DX-3; DX-6. The records, therefore,

a total of $2,549,684.07 in charge backs owed to Phoenix by WealthMark.

WealthMark argues that this evidence presented by Phoenix is insufficient t meet its

burden of proving damages. Trial Tr. 81:12-82:9 ("I don't think they met their burden.

. .

I

have

no reason to doubt that it was accurate that the documents show what they show but I don't think

they show enough.").

Specifically, WealthMark claims that there is a differenc

between

commissions owed and commissions paid. Trial Tr. 81:24-25. Without literal proof oC payment
(e.g.

checks, EFT records), WealthMark contends that Phoenix has not sufficiently

prven what

must be paid back. 82:5-9. This argument by WealthMark is quite the gamble, as it isjsupported
almost entirely by suggestion and speculation. WealthMark presents no documentary et'idence to
support the theory that Phoenix was not paying the commissions it owed its agents and dstributors
and provides no damages model of its own. Such documentary evidence, if it even

Kists, was

discoverable from Phoenix, if not already in WealthMark's possession. Instead,

a1thMark

relies on the burden of proof to do the heavy-lifting and reduce Phoenix's damages

over $2.5

million to $0.
Well, WealthMark's gamble did not pay off. The documentary evidence

ented by

Phoenix along with the testimony of Ms. Turner demonstrates to the Court by a

[erance of

the evidence that the commissions on the Rescinded Annuities were paid by

ioenix to

WealthMark and Mr. Friendshuh. Accordingly, under the Repayment-of-C

provision

of the Distributor Agreement, WealthMark is liable for breach of contract to PHL in tie amount
of $2,549,684.07 for the non-returned commissions PHL paid Mr. Friendshuh and Wealtthmark on
the Rescinded Annuities.
Additionally, Phoenix asks the Court to award prejudgment interest.5 In this divrsity case,
state law governs an award of prejudgment interest. Bituminous Cas. Corp.

v.

Vacuim Tanks,

Inc., 75 F.3d 1048, 1057 (5th Cir. 1996). A prevailing plaintiff in a contract case governed by

Texas law is entitled to an award of prejudgment interest "in all but exceptional circuistances."
Am.

Int'l Trading Corp.

Joy Pipe,

v.

Petroleos Mexicanos, 835 F.2d 536, 541 (5th Cir. 1987); seel also, e.g.,

USA, L.P. v. ISMT Ltd., 703 F.

App'x 253, 257 (5th Cir. 2017) (per curiam) (eiterating

the Fifth Circuit's interpretation that Texas law requires equitable prejudgment interest "s a matter

of course, absent exceptional circumstances").

Prejudgment interest is calculated as simple

interest at the state post-judgment interest rate until the day preceding the date juigment is

rendered beginning the earlier of: (a) the 180th day after the date the defendant recei\fes written

notice of a claim; or (b) the date the suit is filed. TEx. FIN. CODE § 304.103,304.104. lihe current

post-judgment interest rate is 5.25% per annum. See TEx.

FIN.

CODE § 3 04.003; Intekest Rates,

OCCC (Feb. 1, 2019), https://occc.texas.gov/publications/interest-rates.

The Court finds that

Phoenix is entitled to recover prejudgment interest at 5.25% from the date the suit was fliled, April
22, 2016, until January 21, 2019. Therefore, Phoenix is entitledto $371,869.68 in

prjudgr

interest.

This is not to be confused with Phoenix's prior claim for recovery of interest payments it made pursua t to the
settlement with the Minnesota Attorney General, which Phoenix has agreed to dismiss. See Joint Advis ry
Regarding Case Status, ECF 74; Trial Tr. 1-6.
5

Phoenix is also entitled to post-judgment interest on its damages.

TEx.

Fiir. CODE

304.003. A determination of entitlement to attorneys' fees and costs will be made at

aj

later date

upon motion under Fed. R. Evid. 54.
For the foregoing reasons, judgment consistent with these findings of fact and

of law shall be entered for defendants. A separate judgment shall issue this date.

Royce C.
United States
DATE:

LI//IT

iberth
rict Judge