Byrley v. Nationwide Life Ins. Co.

• Citation: 94 Ohio App.3d 1,640 N.E.2d 187
• Decision Date: 04 March 1994
• Docket Number: No. E-92-41,E-92-41
• Parties: , Blue Sky L. Rep. P 74,016 BYRLEY, Appellant, v. NATIONWIDE LIFE INSURANCE COMPANY et al., Appellees. *
• Court: United States Court of Appeals (Ohio)

Page 1

94 Ohio App.3d 1

640 N.E.2d 187, Blue Sky L. Rep. P 74,016

BYRLEY, Appellant, v. NATIONWIDE LIFE INSURANCE COMPANY et al., Appellees. ^*

No. E-92-41.

Court of Appeals of Ohio, Sixth District, Erie County.

Decided March 4, 1994.

James E. McGookey, Sandusky, for appellant.

James A. Laurenson and Robert J. Hanna, Cleveland, for appellees.

HANDWORK, Judge.

This case is on appeal from the August 14, 1992 judgment of the Erie County Court of Common Pleas, which entered judgment in favor of appellees, Nationwide Life Insurance Company, Nationwide Investing Foundation, Nationwide Financial Services, Inc., Nationwide Investors Services, Inc., Spiegelburg Insurance Agency, Inc., and Dale W. Spiegelburg. On appeal, appellant, Teri Moser Byrley, asserts the following assignments of error:

"I. Assignment of Error No. 1: The court erred in excluding all evidence regarding the second attempt of Spiegelburg to convince plaintiff to move her money.

"II. Assignment of Error No. 2: The verdict was against the manifest weight of the evidence."

Appellees assert the following cross-assignments of error to support the trial court's judgment:

"1. The trial court should have granted defendants' motions for summary judgment and for directed verdict.

"2. The trial court should not have charged the jury on punitive damages where the evidence failed to show hatred, ill will, or a spirit of revenge."

All of the causes of action asserted against the defendants in this case involve financial advice and transactions occurring between the summer of 1984 and the fall of 1987. Pertinent to this appeal are the following claims for relief asserted against all of the defendants: (1) that the defendants breached their fiduciary relationship with Byrley when they gave financial investment advice to her; (2) that the defendants fraudulently gave Byrley financial advice; (3) that the defendants fraudulently concealed information regarding financial investments; (4) that defendants' actions constitute churning because they induced her to transfer funds between investments solely for the purpose of gaining commissions; (5) through (8) that the defendants violated Sections 12(2) and 17(a) of the Securities Act of 1933, R.C. 1707.41, and Sections 1 through 4 of the Rules of Fair Practice of the National Association of Security Dealers and of the Policies of the Board of Governors; (9) that the defendants gave financial advice negligently; (10) that the defendants breached their contractual obligations owed to Byrley; and (11) that the defendants' actions constitute bad faith and deliberate misconduct.

Following a trial by jury, judgment was rendered in favor of the defendants on all counts. At trial, the following evidence was presented by Byrley.

Following her husband's death in 1984, Byrley consulted with Wayne Haywood, a sales manager for Nationwide Insurance Company, regarding the investment of the funds she received as a result of her husband's death. Byrley's husband had worked with Haywood, and Byrley trusted his advice. Haywood recommended that the money be invested in Nationwide's Multi-Flex Annuity. This annuity was established in October 1981 by Nationwide Financial Services, Inc. The annuity allowed money to be invested in a fixed-return fund or three variable funds (a common stock fund, a government bond fund, or a money market fund). A yearly 1.3 percent mortality and management fee was charged by Nationwide Insurance Company for managing the annuity. Money could be shifted between these funds at any time without charge. In Haywood's opinion, however, there was a restriction on the amount of money which could be shifted each quarter.

Haywood chose this annuity over Nationwide Insurance Company's mutual funds because the income from the annuity was tax deferred, the sales charge diminished to zero if the funds remained in the annuity for eight years and, upon Byrley's death, the funds would pass directly to a named beneficiary and avoid her probate estate. Byrley agreed to the investment because she understood it to be a safe, conservative investment which would give her a fixed rate of return.

Because Haywood could not sell Byrley the investment, he directed one of his salespersons, Dale Spiegelburg, to do so. Both Haywood and Spiegelburg received a commission on the sale.

In November 1986, Haywood wrote to Byrley to suggest that she move her money out of the fixed fund and into the variable funds of the annuity to obtain a better return on her investment. Byrley had discussed with Haywood the need to increase her rate of return. Haywood did not consider moving Byrley's money out of the annuity. When he heard that she was moving the money to mutual funds, he briefly compared the investments and found that the mutual funds had earned more than the annuity over the last five years.

The testimony regarding the events after this time is contradicted. Spiegelburg testified as follows. He met with Byrley for the first time on November 25, 1986, at her home. Before that meeting, Byrley had called Spiegelburg and indicated that she was unhappy with the return she was earning in the annuity's fixed fund (approximately six and one-half percent annual average yield) and asked about an alternate investment. She told him that she wanted to invest the money for her ten-year-old son's college education. Spiegelburg believed that Byrley had decided to move her money to another investment and he hoped to keep the money within his agency. They discussed moving the money into the variable funds of the annuity to obtain a higher yield, but dismissed the idea because of the risk of loss in such funds. Spiegelburg suggested Nationwide Investing Foundation's NIF fund (a stock fund) and a corporate bond fund established by Nationwide Financial Services, Inc., because they were more secure, had a higher-yield potential, and were more liquid.

Spielburg prepared a comparison of the annuity and other investments for Byrley. The comparison indicated that a deferred sales charge of $8,100 and an administration fee of $30 would be deducted from the money withdrawn from the annuity. Spiegelburg did not receive any of the sales charge as a commission. In addition, the comparison indicated that a three-percent sales charge ($6,316.50) would be assessed to move the money into the NIF fund and the Nationwide bond fund (hereinafter the "mutual funds"). Byrley was told that it would take two years to recoup the cost of moving the money to this new investment if future performance tracked past performance.

Spiegelburg prepared his comparison based upon the performance of the mutual funds in 1985. Spiegelburg did not use performance information regarding early years because he knew that the mutual funds were outperforming the annuity. The annuity had only been in existence for five and one-half years, yet Spiegelburg did not indicate the average yield for those years. Byrley was not given long-term comparisons between the investments. At this meeting, Spiegelburg also compared the safety issues between the two types of investments. Spiegelburg testified that he left with Byrley the prospectus for the mutual funds. The prospectus indicated the average yield for the prior year, three years, five years, and ten years. It indicated a ten-year average of 12.1 percent. Spiegelburg testified that a reasonable expected yield for the mutual funds would be ten-to-twelve percent.

Because of the consequences of moving her money, Spiegelburg advised Byrley to seek other advice for matters such as the tax consequences. They discussed the tax issue briefly and Byrley indicated that she had a low income and would rather pay taxes as her income was earned.

Sometime that day, Byrley executed a redemption slip to authorize the withdrawal of her money from the Multi-Flex Annuity. Spiegelburg could not recall when the slip was signed, but knew it was not done in his presence. A replacement slip was signed on November 28, 1986, because Byrley's signature on the first slip had not been guaranteed. After Spiegelburg received the proceeds from the annuity fund, he called Byrley to have her come to the office to complete an application to reinvest the money. Byrley had requested that the money be sent to the office rather than her home.

At the next meeting on December 6, 1986, Byrley signed the necessary forms to invest the money in the mutual funds: $105,397 was invested in the NIF fund, and $105,397 was invested in the Nationwide bond fund. Before the applications were completed, Spiegelburg discussed with Byrley and her current husband the consequences of the sales charges and the performance comparison.

Byrley testified regarding the same events, but stated that Spiegelburg had called her in November 1986, telling her that he was going to handle her insurance needs. He told her that he had an investment to show her that would earn more money than her annuity. When he came to her home, she told him that she did not understand the points he was making except that she would make more money. She could recall only that the comparison and Spiegelburg himself emphasized the three and one-half percent difference between the earnings on the mutual funds versus the annuity. She could not remember having a prospectus for the mutual funds given to her at that meeting. She also did not recall deciding that day to liquidate the annuity. However, she did acknowledge her signature on the redemption slip.

They set up another meeting in Spiegelburg's office, which Byrley's second husband attended. At the meeting, Spiegelburg showed them his comparison between the two investments. She questioned the sales charge, but was assured that the loss would be covered by the increased income. She also testified that Spiegelburg explained that the new investment required taxes to be paid up front. She did not fully understand this and was never advised to seek tax advice. She also testified,...