Davis v. Mutual Life Ins. Co. of New York

Decision Date21 September 1993
Docket NumberNos. 90-3560,90-3587,90-3878,90-3879 and 90-3881,90-3561,s. 90-3560
Citation6 F.3d 367
PartiesRICO Bus.Disp.Guide 8411, 37 Fed. R. Evid. Serv. 1012 Emmett R. DAVIS, et al., Plaintiffs-Appellees, Cross-Appellants (90-3587/3881), v. The MUTUAL LIFE INSURANCE COMPANY OF NEW YORK (90-3560/3879); Trans World Assurance Company (90-3561/3878), Defendants-Appellants, Cross-Appellees, Donald S. Fletcher; Fletcher Insurance Associates, Defendants.
CourtU.S. Court of Appeals — Sixth Circuit

Michael G. Florez; and William H. Blessing (argued and briefed), Markovits & Greiwe, Cincinnati, OH, for plaintiffs-appellees, cross-appellants.

Timothy S. Black (argued and briefed), Cincinnati, OH, for the Mut. Life Ins. Co. of New York.

Timothy P. Heather (argued and briefed), Benjamin, Yocum & Heather, Cincinnati, OH, for Trans World Assur. Co.

Before: KENNEDY and GUY, Circuit Judges; and ENGEL, Senior Circuit Judge.

ENGEL, Senior Circuit Judge.

Two life insurance companies--The Mutual Life Insurance Company of New York ("MONY") and Trans World Assurance Company ("TWA")--appeal from a jury verdict finding each liable for common law fraud, breach of fiduciary duty, breach of contract, and violations of the Ohio Consumer Sales Practices Act ("CSPA"), OHIO REV.CODE ANN. Sec. 1345. In addition, MONY appeals the jury's finding that it was liable under the federal Racketeer Influenced Corrupt Organizations Act ("RICO"), 18 U.S.C. Secs. 1961 to 1968, and both insurance companies appeal the district judge's award of attorney's fees. Finally, in a cross-appeal, Emmett R. Davis, one of the 29 individual plaintiffs below, offers four grounds to challenge the district court's award of damages. 1 For the following reasons, we affirm in part and reverse in part.

I.

This controversy arises out of the highly effective--albeit fraudulent--method by which Donald S. Fletcher sold life insurance policies. This is not the first time this court has reviewed an action arising out of Mr. Fletcher's scheme. See Hofstetter v. Fletcher, 905 F.2d 897 (6th Cir.1988).

In 1980, after four years of remarkably successful sales as an agent for New York Life Insurance Company (not a party to this action), Fletcher and his associates began selling policies for MONY. Three years later, he dissociated himself from MONY and began to sell insurance for TWA. The 29 plaintiffs each purchased MONY or TWA policies through Fletcher's operation in Ohio. In Hofstetter, we summarized Fletcher's "fraudulent sales tactic to sell life insurance policies:"

[Fletcher] travelled throughout the country selling life insurance by emphasizing tax advantages. According to Fletcher, potential investors could drastically reduce and even eliminate their federal income tax liability by purchasing a life insurance policy in conjunction with the formation of a home-based business. Fletcher informed investors that they could write off almost all of their household expenses and attribute them to deductible business expenses. Fletcher also promised to assist the investors in the filing of their annual income tax forms [and to provide tax audit protection]. In order to participate in this tax/insurance program, the investor was required to purchase life insurance policies from Fletcher by paying annual premiums equal to one-half of the client's income tax for the previous year. The client was also required to become involved in a home-based business and to invest the equivalent of the other half of the preceding year's tax payment in the home-based business.

Id. at 900. Fletcher then prepared federal withholding (W-4) forms for his clients listing enough exemptions to reduce to zero the taxes withheld from their paychecks. He also arranged for the automatic withdrawal from their checking accounts of amounts equal to half the sums that had been withheld previously. These monies were used to pay the required insurance premiums. Fletcher and his associates then prepared his clients' federal tax returns, which claimed such liberal deductions for "business expenses" (which were, in fact, largely personal expenses) that virtually no tax was owed. Fletcher further promised his clients that, should the IRS audit any of their tax returns, he would provide "audit protection" or "prepaid legal care." Through this scheme, Fletcher sold to numerous investors, including the plaintiffs, MONY policies from 1980 until 1983, and TWA policies from 1983 until 1985.

Eventually, the scheme unraveled. The IRS audited each plaintiff's tax return and discovered that, relying on astounding deductions for home-based businesses, the plaintiffs had underpaid their federal income tax for several years. The IRS, determining that the deductions were mostly invalid, assessed hundreds of thousands of dollars in additional taxes, penalties, and interest. Fletcher and his associates repeatedly assured the plaintiffs that the IRS would eventually drop the audits. The IRS, of course, persisted and enforced its assessments.

Seeking to recover damages compensating them for these unexpected IRS assessments, the plaintiffs brought this action alleging that they were bilked by Fletcher's confidence game. The complaint listed several causes of action--including RICO violations predicated on fraud, and several Ohio common law and statutory violations--and named four defendants: Fletcher, his insurance agency, known as Fletcher Insurance Associates ("FIA"), and the two appellant insurance companies, MONY and TWA. After a trial, a jury found all four defendants liable under each state law claim. Each defendant was found liable for common law fraud; breach of its fiduciary duty to the plaintiffs; breach of its contract to help the plaintiffs avoid income tax liability by legal means; and for committing unfair, deceptive and unconscionable acts in violation of the Ohio CSPA. In addition, the jury found that Fletcher and MONY, but not TWA, had violated RICO, 18 U.S.C. Sec. 1962(c), and it found that Fletcher and FIA had engaged in a common law conspiracy. Based on the jury's findings, the district court awarded the plaintiffs $3,587,274 in damages. The court adjudged each defendant jointly and severally liable for certain portions of the judgment, and apportioned liability for the remainder. Finally, the district court, finding authority in both RICO and the Ohio CSPA, awarded the plaintiffs $951,307.72 in attorneys' fees and expenses.

After the jury announced its verdict, MONY and TWA moved for judgment notwithstanding the verdict and for a new trial. The district court issued an order denying these motions, and each insurance company now appeals that order, along with the judgment and the court's Order Awarding Attorneys' Fees. In addition, one plaintiff, Emmett R. Davis, brings a cross-appeal. Neither Donald S. Fletcher nor FIA is a party to this appeal.

II.
A. State Law Claims

At trial, each defendant insurance company asserted its immunity from liability arising from Donald Fletcher's tax preparation activities. Fletcher, they argued, was authorized only to sell life insurance, and they bore no responsibility for unauthorized activities such as tax preparation. Unpersuaded, the jury found each company vicariously liable for common law fraud, breach of contract, breach of fiduciary duty, and violations of the Ohio CSPA--all in connection with Fletcher's tax and insurance program. On appeal, both TWA and MONY challenge those findings. Their arguments, which largely overlap, are essentially two-fold: First, they argue that the district court erred by improperly instructing the jury regarding a principal's liability for its agents' conduct, and that the court compounded its error by refusing to furnish the jury with a requested instruction regarding the law of independent contractors. Second, MONY and TWA assert that the district court's misstatement of agency law was prejudicial because the plaintiffs presented evidence insufficient to support the jury's finding that Fletcher and his associates acted with MONY's or TWA's express, implied, or apparent authority when they prepared the fraudulent tax returns.

1. Jury Instructions

Where an appellant challenges jury instructions, we reverse only where the instructions, considered as a whole, are confusing, misleading, or prejudicial. Leila Hospital and Health Center v. Xonics Medical Systems, Inc., 948 F.2d 271, 277 (6th Cir.1991). A simple reading of the challenged instructions demonstrates that none of these conditions obtain. Rather than reading the instructions as a whole, the appellants object primarily to one sentence, namely, the court's instruction, with regard to the state law claims, that "[a]n insurance company which fails to adequately supervise its agents is directly liable for the agents' conduct." Davis v. Mutual Life Insurance Company of New York, No. C-1-87-0727, slip op. at 14 (Nov. 28, 1990) (Jury Instructions). That instruction, they argue, misstates Ohio law by failing to explain that an agent's unlawful conduct binds his principal only if performed within the scope of the agent's authority, suggesting instead that each insurance company is directly liable for any and all of Donald Fletcher's conduct. Indeed, as MONY and TWA argue, that sentence, abstracted from the whole, fails to explain that vicarious liability attaches only to acts that an agent performs within the scope of his authority. Read in toto, however, the instructions explicitly emphasize that crucial qualification. The challenged instruction, entitled "Claim Against the Insurance Companies," for example, provides in pertinent part:

The acts of the [sic] Donald Fletcher, Evelyn Johnson, or other insurance agents are binding upon MONY and Trans World, as the case may be, only if their acts were done within the scope of their express, implied, or apparent authority. An insurance company which fails to properly supervise its agents is directly liable for...

To continue reading

Request your trial
122 cases
  • Bank of Am., NA v. Fid. Nat'l Title Ins. Co.
    • United States
    • Court of Appeal of Michigan — District of US
    • June 21, 2016
    ...96 S.Ct. 1551, 47 L.Ed.2d 810 (1976) ; Phillips v. Deihm, 213 Mich.App. 389, 400, 541 N.W.2d 566 (1995) ; Davis v. Mut. Life Ins. Co. of New York, 6 F.3d 367, 384 (C.A.6, 1993). BOA is therefore entitled to an adverse inference that WTA was complicit in the fraudulent scheme given Butler's ......
  • West Hills Farms, LLC v. ClassicStar, LLC (In re ClassicStar Mare Lease Litig.)
    • United States
    • U.S. District Court — Eastern District of Kentucky
    • November 8, 2011
    ...RICO enterprise and ‘is alleged to have attempted to benefit from its employees' racketeering activity.’ ” Davis v. Mutual Life Ins. Co. of New York, 6 F.3d 367, 379 (6th Cir.1993) (quoting Petro–Tech, Inc. v. Western Co. of North America, 824 F.2d 1349, 1361–62 (3rd Cir.1987)). In Davis, a......
  • Walters v. Snyder (In re Flint Water Cases)
    • United States
    • U.S. Court of Appeals — Sixth Circuit
    • November 8, 2022
    ...when they refuse to testify in response to probative evidence offered against them.") (citation omitted); Davis v. Mut. Life Ins. Co. of New York , 6 F.3d 367, 384–85 (6th Cir. 1993) (extending the possible inference to non-party witnesses). But see Griffin v. California , 380 U.S. 609, 613......
  • Stewart v. Weis Markets, Inc., 4:CV-92-0539.
    • United States
    • U.S. District Court — Middle District of Pennsylvania
    • June 30, 1995
    ...cases, civil rights cases and other cases to which federal fee-shifting statutes apply. See, e.g., Davis v. Mutual Life Insurance Company of New York, 6 F.3d 367 (6th Cir. 1993) (Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1964(c), case); Drennan v. General Motors......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT