Cook v. John Hancock Life Ins. Co.
| Decision Date | 14 January 2015 |
| Docket Number | Civil Action No. 7:12-cv-00455 |
| Court | U.S. District Court — Western District of Virginia |
| Parties | I. KENNETH COOK, et al., Plaintiffs, v. JOHN HANCOCK LIFE INSURANCE COMPANY (U.S.A.), et al., Defendants. |
Pending before the court are two motions to dismiss, both of which seek dismissal of all the claims against each moving defendant. They were filed by defendants John Hancock Life Insurance Company (U.S.A.) ("JHLIC"),1 Dkt. No. 12, and Nationwide Insurance Company ("Nationwide"), Dkt. No. 18. Both motions have been fully briefed, and were argued before Senior United States District Judge James C. Turk on January 14, 2012. Shortly thereafter, the entire case was stayed to allow plaintiffs' claims against Crown Capital Securities, LP to be arbitrated. The two motions to dismiss were denied without prejudice in light of the stay. Dkt. Nos. 35, 42. After the stay was lifted on July 1, 2014, the case was transferred to the undersigned. The motions have been re-urged by the defendants, Dkt. No. 52, and are now ripe for disposition.
For the reasons set forth herein, the court will GRANT IN PART and DENY IN PART both motions.
There are two named plaintiffs in this matter—Dr. I. Kenneth Cook ("Cook"), a retired physician and resident of Virginia, and the Kenneth Cook Irrevocable Insurance Trust, by its Trustee, Kenneth Todd Cook ("the Trust" and "the Trustee," respectively). The plaintiffs seek to hold the defendants liable for more than $1 million in financial damages they allegedly incurred, primarily as a result of alleged conduct by defendant Neil Copeland Winterrowd, who served for many years as Cook's investment adviser. The complaint alleges that the remaining defendants are liable in part because of their own alleged acts or omissions, but primarily because of their respective relationships with Winterrowd. The extent and nature of those relationships and, in particular, whether Winterrowd can be considered an "agent" of either JHLIC or Nationwide for purposes of liability in this case, are raised by the pending motions. The defendants also assert various other arguments in support of their motions to dismiss, as discussed below.
One of the defendants named in the complaint—Crown Capital Securities, LP—was dismissed from the case with prejudice after the arbitration concluded. Dkt. No. 52. In addition to Winterrowd (a California resident), there are three remaining defendants:
representative for Crown Capital from May 2004 to August 2009 and for JP Turner from August 2009 to September 2011.
As discussed in more detail below, JHLIC's connection to the case is based on the fact that Winterrowd recommended as an investment and sold Cook a $10 million life insurance policy from JHLIC in 2007 (while working for Crown), advice plaintiffs allege was both negligent and fraudulent. He then took additional steps related to that policy that plaintiffs contend also give rise liability on the part of JHLIC, including the alleged conversion of certain premiums Cook paid. Winterrowd also sold Cook a variable annuity from Nationwide and took certain actions related to that annuity that plaintiffs allege render Nationwide liable. The details of the alleged actions are described below.
As noted, JHLIC and Nationwide responded to the complaint by filing the pending motions to dismiss. J.P. Turner answered and filed a cross-claim for indemnity, contribution, and attorneys' fees and costs against Winterrowd, but did not file a motion to dismiss. Winterrowd was served, but has not answered or otherwise responded to the complaint.
The court accepts the well-pled allegations of the complaint as true for purposes of ruling on the pending motions to dismiss. Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008). As relevant to the motions here, the complaint alleges that Cook began receiving investment and insurance advice from Winterrowd in 1994. Dkt. No. 1 at ¶ 12. At the time, Winterrowd was a registered FINRA securities representative providing services through Smith Barney. From 1994 through the events described in the complaint, Winterrowd continued to act as a financial advisor to Cook and Cook's wife. For example, he provided investment and insurance advice, managed their investments, and sold various insurance and securities products to the Cooks.
In 2007, Winterrowd sold Cook a $10 million life insurance policy from JHLIC (the "JHLIC Policy"). Cook alleges that such a policy was "excessively large" and "far beyond the amount thatCook thought he might need." Dkt. No. 1 at ¶ 15. The premium payments required were also high, e.g., the annual premium for the first year was $257,957.00. Id. at ¶ 16. Cook alleges that Winterrowd told him that he could borrow money for the premiums from a bank, if necessary. Id.
Despite his concerns over the policy amount and high premiums, Cook alleges he agreed to purchase such a large policy because Winterrowd advised him that it could be used as an investment and be sold after two years for a profit. In support of this representation, Winterrowd provided documents from an entity with which he was associated—Fairway Capital. The documents demonstrated how the policy could be sold in two years as a life settlement for a gain of almost one million dollars.4 See Dkt. No. 1, Ex. 1. Fairway Capital was a California entity used by Winterrowd and Kevin Yurkus (the president of Fairway Capital), to sell investments. Dkt. No. 1 at ¶ 17. JHLIC paid a commission on the $10 million policy to Fairway, which Cook alleges was shared with Winterrowd. Id.
Winterrowd advised and facilitated the establishment of a living trust to be designated as the owner of the JHLIC Policy. Cook initially paid the premiums to the attorney who established the trust, Dimitri Reyzin, whose law firm was designated as its trustee. Winterrowd subsequently instructed Cook to pay the premiums directly to Winterrowd, which Cook did. Id. at ¶¶ 19-20. Winterrowd did not forward all of these payments to JHLIC and instead kept some of them. Reyzin did not keep Cook or the Trust's beneficiaries informed of the deficiencies in the premium payments and further failed to advise them of the lapse of the policy due to non-payment of the premiums. Id. at ¶ 20.
Winterrowd repeatedly represented to Cook that he was in the process of arranging for the sale of the JHLIC Policy, and even had Cook sign settlement papers in 2011. Dkt. No. 1 at ¶ 21.Cook further alleges that these representations were false and merely a part of Winterrowd's fraudulent scheme. The JHLIC Policy was never sold, and as noted, eventually lapsed for non-payment of premiums. Additionally, at some point Winterrowd withdrew $50,000 from one of Cook's Prudential variable annuities and had the check sent to JHLIC. JHLIC then returned the money by sending a check to "Annuity Investment Group"—a trade name used by Winterrowd—and Winterrowd then converted those funds for his personal use. Id. at ¶ 32.
In total, Cook asserts he lost approximately $1 million related to the JHLIC policy, which consists both of amounts paid to JHLIC for coverage while the policy was in effect, some premium payments allegedly converted by Winterrowd, and the $50,000 paid by JHLIC to Winterrowd.5
Cook also alleges Winterrowd, J.P. Turner, and Nationwide are liable for Winterrowd's actions in connection with an annuity contract issued by Nationwide. Nationwide issued the annuity contract—which Cook purchased through Winterrowd—in 2006. See Dkt. No. 18, at Ex. A. Cook does not allege any improprieties as to the sale or issuance of the annuity. Rather, he complains that in 2010, Winterrowd allegedly used Cook's signature from a different form to withdraw $150,000 from the Nationwide annuity—without Cook's permission—in order to pay the premium on the JHLIC Policy. Dkt. No. 1 at ¶¶ 24-26. Although Cook wired the funds back to Winterrowd so that Winterrowd could return them to the Nationwide annuity, Cook alleges Winterrowd converted those funds. Id. ¶ 27. Cook also incurred $14,239.93 in surrender charges assessed by Nationwidefor that withdrawal. Id. After Winterrowd had converted the funds, he continued to misrepresent to Cook that the transaction had been or would be reversed without financial consequences. Id. at ¶ 28. Winterrowd also had Cook sign a letter drafted by Winterrowd (on letterhead for "Legacy Insurance Partners") informing Nationwide that Cook "authorized" the return of the funds and "under[stood] and agree[d] this transaction will be treated retroactively as if the initial withdrawals never were initiated, and the market performance will be retroactive as well." Id. at ¶ 28 & Ex. 3. Nationwide has refused to reimburse Cook for any portion of the withdrawal or for the surrender charges. Id. at ¶ 29.
Plaintiffs' complaint contains five counts. With the exception of Count III, however, the counts do not differentiate between defendants, appearing instead to name all of the defendants. Count I is a claim for conversion. Count II alleges violations of the Virginia Securities Act, Va. Code §§ 13.1-502 and 13.1-522, Section 10(b) of the Federal Securities Exchange Act of 1934, and also asserts claims for common law fraud and constructive fraud. Count III names all the defendants except Winterrowd and alleges that they were negligent for failing to prevent Winterrowd's conversion of funds, for failing to adequately supervise Winterrowd, and for negligently breaching independent duties owed to plainti...
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