C & C Family Trust 04/04/05 v. AXA Equitable Life Ins. Co.

• Decision Date: 28 August 2014
• Docket Number: Civil Action No. 3:14–CV–62–TCB.
• Citation: 44 F.Supp.3d 1247
• Parties: C & C FAMILY TRUST 04/04/05, by and through its Trustees Cynthia COX–OTT and Patricia Ann Cox, Plaintiff, v. AXA EQUITABLE LIFE INSURANCE COMPANY, AXA Advisors LLC and Armen Hovakimian, Defendants.
• Court: U.S. District Court — Northern District of Georgia

44 F.Supp.3d 1247

C & C FAMILY TRUST 04/04/05, by and through its Trustees Cynthia COX–OTT and Patricia Ann Cox, Plaintiff
v.
AXA EQUITABLE LIFE INSURANCE COMPANY, AXA Advisors LLC and Armen Hovakimian, Defendants.

Civil Action No. 3:14–CV–62–TCB.

United States District Court, N.D. Georgia, Newnan Division.

Signed Aug. 28, 2014.

44 F.Supp.3d 1251

James J. Leonard, Kara Cleary, Barnes & Thornburg LLP, Atlanta, GA, for Plaintiff.

David G. Russell, Peter Frank Busscher, Parker, Hudson, Rainer & Dobbs, LLP, Atlanta, GA, for Defendants.

ORDER

TIMOTHY C. BATTEN, SR., District Judge.

I. Background¹

In 1988, Cynthia Cox–Ott married Claude Ott. When they divorced in 2005, part of Cynthia's settlement included the establishment of a life insurance trust: Plaintiff C & C Family Trust 04/04/05.² The funding mechanism for the trust was a policy insuring Claude's life and naming the trust as the beneficiary. This action centers on that policy.

In August 2005, the trust took out a “flexible premium universal life insurance policy” from Defendant AXA Equitable Life Insurance Company. Before doing so, Cynthia had several discussions with Defendant Armen Hovakimian, an employee or agent of Defendants AXA Advisors LLC or AXA Equitable (or both),³ who showed her illustrations and projections for policies issued by AXA Equitable. She selected a policy that would be paid up when Claude (then sixty-seven) turned eighty-three; provided a net death benefit of $4,000,000; and had an annual premium of $88,000. The policy was delivered to the trust on February 16, 2006.

During 2005 and 2006, AXA represented that the policy's paid-up date, net death benefit and annual premium were “guaranteed.” These representations were made orally by Hovakimian and in written policy illustrations, which AXA Equitable prepared. Specifically, on February 24, 2006, eight days after the policy's delivery, Hovakimian discussed with Cynthia an “Original Illustration” showing “Guaranteed Values” for the “Annualized Premium Outlay” ($88,000) and “Net Death Benefit” ($4,000,000). Based on this representation, the trust decided to keep the policy in force.

In her capacity as trustee, Cynthia made an initial premium outlay of $165,800 and

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paid the annualized premium of $88,000 each year since the policy issued.

In July 2012, the trust received its annual policy report from AXA Equitable. Because this report revealed conflicting notices, projections and illustrations, the trust retained counsel to get clear answers from AXA Equitable. Specifically, the trust asked AXA Equitable to confirm that the annual premium was $88,000 and inquired when the policy would be paid up.

AXA Equitable did not respond, so in April 2013 the trust filed a formal complaint with the Georgia Insurance Commissioner. Two months later, AXA Equitable informed the trust that premium increases would be required to keep the policy in force.

Given this explanation, the trust alleges that in 2005 and 2006 AXA misrepresented the policy's “guaranteed values and annualized premium outlays.” In this action, the trust brings claims for common-law fraud (count one) and negligent misrepresentation (count two) against AXA Advisors and AXA Equitable. The trust also seeks equitable reformation of the policy (count three) against AXA Equitable.

AXA now moves to dismiss the trust's complaint for failure to state a claim [3]. That motion will be granted.

II. Legal Standard

A claim will be dismissed under Federal Rule of Civil Procedure 12(b)(6) if the plaintiff does not plead “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 547, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ; Chandler v. Sec'y of Fla. Dep't of Transp., 695 F.3d 1194, 1199 (11th Cir.2012). The Supreme Court has explained this standard as follows:

A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged. The plausibility standard is not akin to a “probability requirement,” but it asks for more than a sheer possibility that a defendant has acted unlawfully.

Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal citation omitted); Resnick v. AvMed, Inc., 693 F.3d 1317, 1325 (11th Cir.2012). Thus, a claim will survive a motion to dismiss only if the factual allegations in the complaint are “enough to raise a right to relief above the speculative level,” and “a formulaic recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555, 127 S.Ct. 1955. And while all well-pleaded facts must be accepted as true and construed in the light most favorable to the plaintiff, Powell v. Thomas, 643 F.3d 1300, 1302 (11th Cir.2011), the court need not accept as true plaintiff's legal conclusions, including those couched as factual allegations, Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. Thus, evaluation of a motion to dismiss requires two steps: (1) eliminate any allegations in the complaint that are merely legal conclusions, and (2) where there are well-pleaded factual allegations, “assume their veracity and ... determine whether they plausibly give rise to an entitlement to relief.” Id. at 679, 129 S.Ct. 1937.

III. Discussion

Fraud and negligent misrepresentation are similar causes of action. Indeed, “ ‘the only real distinction between negligent misrepresentation and fraud is the absence of the element of knowledge of the falsity of the information disclosed.’ ” Holmes v. Grubman, 286 Ga. 636, 691 S.E.2d 196, 200 (2010) (quoting Mindis Acquisition Corp. v. BDO Seidman, LLP, 253 Ga.App. 360, 559 S.E.2d 111, 118 (2002), rev'd on other grounds,

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276 Ga. 311, 578 S.E.2d 400 (2003) ) (internal quotation marks omitted). And because “ ‘(t)he same principles apply to both fraud and negligent misrepresentation cases,’ ” id. (alteration in original) (quoting Mindis Acquisition, 559 S.E.2d at 118 ) (internal quotation marks omitted), the Court's analysis focuses on AXA's alleged fraud.

AXA offers four reasons to dismiss the trust's fraud claim: it

(1) is not pleaded with particularity;

(2) is time-barred;

(3) fails on the merits; and

(4) is barred by the policy's merger clause.

And because the trust's reformation claim is derivative of its fraud and negligent-misrepresentation claims, AXA argues that it, too, fails as a matter of law.

A. Pleading Georgia Common–Law Fraud in Federal Court

To state a claim for fraud under Georgia law, the plaintiff must allege facts showing that (1) the defendant knowingly made a false statement; (2) the defendant intended for the plaintiff to act or refrain from acting in reliance on that statement; (3) the plaintiff justifiably relied on the defendant's false statement; and (4) the plaintiff's reliance resulted in damage. Wylie v. Denton, 323 Ga.App. 161, 746 S.E.2d 689, 695 (2013).⁴

Federal Rule of Civil Procedure 9(b) provides that a party alleging fraud “must state with particularity the circumstances constituting fraud” but may allege scienter generally.⁵ This heightened-pleading standard amplifies rather than abrogates the notice-pleading requirements of Rule 8(a). Edwards v. Wis. Pharmacal Co., 987 F.Supp.2d 1340, 1347 (N.D.Ga.2013).⁶

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To plead fraud with particularity, the plaintiff must allege

(1) precisely what statements or omissions were made in which documents or oral representations; (2) the time and place of each such statement and the person responsible for making (or, in the case of omissions, not making) them; (3) the content of such statements and the manner in which they misled the plaintiff; and (4) what the defendant obtained as a consequence of the fraud.

FindWhat Investor Grp. v. FindWhat.com, 658 F.3d 1282, 1296 (11th Cir.2011), cert. denied, ––– U.S. ––––, 133 S.Ct. 109, 184 L.Ed.2d 23 (2012). In short, the plaintiff must plead facts that when taken as true establish the who, what, when, where, how and why of the fraud. See Garfield v. NDC Health Corp., 466 F.3d 1255, 1262 (11th Cir.2006). Requiring fraud to be pleaded with particularity serves an important purpose: it “alert[s] defendants to the ‘precise misconduct with which they are charged’ and protect[s] defendants ‘against spurious charges of immoral and fraudulent behavior.’ ” Ziemba v. Cascade Int'l, Inc., 256 F.3d 1194, 1202 (11th Cir.2001) (quoting Durham v. Bus. Mgmt. Assocs., 847 F.2d 1505, 1511 (11th Cir.1988) ) (internal quotation marks omitted).

Here, AXA contends that the trust has not pleaded fraud with particularity. The trust denies this. In its opposition brief, the trust argues that its complaint alleges that...