Laney v. American Equity Inv. Life Ins. Co.

• Citation: 243 F.Supp.2d 1347
• Decision Date: 31 January 2003
• Docket Number: No. 800CV1071T30EAJ.,800CV1071T30EAJ.
• Parties: Ersell A. LANEY, individually and as Trustee of the Ersell A. Laney Trust, et al., Plaintiffs, v. AMERICAN EQUITY INVESTMENT LIFE INS. CO., et al., Defendants.
• Court: U.S. District Court — Middle District of Florida

243 F.Supp.2d 1347

Ersell A. LANEY, individually and as Trustee of the Ersell A. Laney Trust, et al., Plaintiffs, v. AMERICAN EQUITY INVESTMENT LIFE INS. CO., et al., Defendants.

No. 800CV1071T30EAJ.

United States District Court, M.D. Florida, Tampa Division.

January 31, 2003.

COPYRIGHT MATERIAL OMITTED

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John Ray Newcomer, Jr., John Allen Yanchunis, Sr., Kathleen Clark Ford, James, Hoyer, Newcomer, & Smiljanich, P.A., Tampa, FL, for Ersell A. Laney, Alice E. Laney.

Robert Eli Vaughn, Jr., Butler Pappas Weihmuller Katz Craig LLP, Tampa, FL, James Beckett Thompson, James B. Thompson, Jr., Thompson, Goodis, Thompson, Groseclose & Richardson, P.A., St. Petersburg, FL, Timothy J. Walker, Whitfield & Eddy, Des Moines, I A, for American Equity Investment Life Ins. Co.

Lewis F. Murphy, Barbara Bolton Litten, Steel, Hector & Davis, West Palm Beach, FL, Lewis F. Murphy, Traci H. Rollins, Steel Hector & Davis, LLP, Miami, FL, for Golden American Life Ins. Co.

Louis J. LaCava, Stephens, Lynn, Klein, La Cava, Hoffman, Tampa, FL, Joseph H. Lowe, Gary Khutorsky, Stephens, Lynn, Klein, La Cava, Hoffman, Miami, FL, R. Marshall Rainey, Williams, Schifino, Mangione & Steady, P.A., Tampa, FL, Andrew B. David, Sugar, Friedberg & Felsenthal, Chicago, IL, Stephens Lynn Klein, Law Office of Stephens Lynn Klein, Miami, IL, for First Variable Life Ins. Co.

R. Marshall Rainey, Williams, Schifino, Mangione & Steady, P.A., Tampa, FL, Michael W. Thrall, Nyemaster, Good, Voigts, West, Hansell, O'Brien, P.C., Des Moines, IA, for USG Annuity and Life Co.

Audrey B. Rauchway, Law Office of Audrey Rauchway, St. Petersburg Beach, FL, Laura Anne Olson, David C. Bearden, Olson & Bearden, P.A., Tampa, FL, for Richard W. Desimone.

Jorge Santeiro, Ogden & Sullivan, P.A., Tampa, FL, Timon V. Sullivan, Ogden & Sullivan, P.A., Tampa, FL, for Sun Life Assur. Co. of Canada.

John R. Bello, Jr., Gibbons, Cohn, Neuman, Bello, Segall & Allen, Tampa, FL, Pamela G. Matthews, Tyler Gates Mercer, Akin, Gump, Strauss, Hauer & Feld, L.L.P., San Antonio, TX, for Hartford Life/Ann.

Richard Allen Gilbert, Patrick Joseph McNamara, De La Parte & Gilbert, P.A., Tampa, FL, Anthony J. Durone, Kathleen M. Nemecheck, Berkowitz, Stanton, Brandt, Williams & Shaw, LLP, Kansas City, MO, for Birchtree Financial Services, Inc.

Charles Franklin Ketchey, Jr., Wesley D. Tibbals, Akerman, Senterfitt & Eidson, P.A., Tampa, FL, R. Michael Underwood, Akerman, Senterfitt & Eidson, P.A., Tallahassee, FL, Reza M. Bidgoli, Aragon Financial Services, Inc., Brea, CA, for Aragon Financial Services, Inc.

ORDER

MOODY, District Judge.

Before the Court is Defendant Richard W. Desimone's Motion for Summary Judgment and Memorandum of law (Dkt.# 229) and Motion to Strike Affidavit of John L. Lyman and for an Award of Attorneys' Fees (Dkt.# 243). Plaintiffs filed responses in opposition to each motion (Dkts.#240, 245). In addition, Plaintiff filed a Motion for Entry of a Default Judgment against defendant Aragon Financial Services,' Inc. ("Aragon") (Dkt.#215). Aragon failed to file a response even after this Court entered an Order to Show Cause (Dkt.# 216). After close consideration, this Court concludes as follows:

I. BACKGROUND

This case arises out of a series of investment transactions. Between 1994-1998, Plaintiffs invested in a series of variable and fixed annuities through and on the advice of an investment broker, Richard W. Desimone. In 2000, Plaintiffs brought a thirty count complaint (the "Complaint") against Desimone, Desimone's employers, and the insurance companies that issued the annuities,¹ claiming that the defendants breached their fiduciary duty, made negligent misrepresentations and omissions of material facts, and defrauded the Plaintiffs.² Plaintiffs' Complaint alleged that Desimone invested Plaintiffs in unsuitable investments and engaged in what is known as "churning" or "twisting." "Churning" or "twisting" is a securities concept where investments are purchased by a broker (or on the advice of a broker), quickly sold, and then other investments are purchased to generate commissions for the broker to the detriment of the investor. Despite allegedly investing Plaintiffs in unsuitable investments and churning or twisting their investments, Desimone's investment advice increased Plaintiffs' $320,000 portfolio value by approximately $260,000 over a six year period.

Annuities are an investment vehicle sold by insurance companies to investors usually for a fixed time period and differ widely on their terms and features.³ There are two main types of annuities: fixed and variable. A fixed annuity gives an annuitant certainty on what payments he will receive either monthly or yearly in the future. A variable annuity does not have the same level of certainty. Its benefits fluctuate with the success of the investments within the annuity. Both types of annuities were sold to the Plaintiffs.

Plaintiffs seek as compensatory damages: (1) the commissions that Desimone received; (2) their well managed account losses (the additional profit that they would have made had their money had been properly invested and not churned); and (3) payment for the emotional distress they suffered. Additionally, Plaintiffs seek an award of punitive damages. Desimone has moved for summary judgment, arguing that Plaintiffs cannot show that they suffered any damages.⁴ At the heart of whether Plaintiffs suffered any damages is the expert report, deposition, and affidavit of Plaintiffs' damages expert, John Lyman.

Lyman's Report

According to his report, Lyman calculated Plaintiffs' compensatory damages with three different calculations. For the first two calculations, Lyman used a measure of damages known as the well managed account measure of damages.⁵ The first two calculations differ primarily in the allocation of Plaintiffs' principal. The first calculation mirrored the principal allocation (the percentage invested in stocks versus bonds) that Plaintiffs' annuities had. The second calculation was based on a 50%-50% allocation of principal between stocks and bonds. In the third calculation, the "Statutory Damages with 10% Interest" calculation, Lyman took the principal amount invested by Plaintiffs added 10% interest per year and also added the estimated commission for Desimone to reach an amount that allegedly represents the lost opportunity cost to Plaintiffs.

The Motion for Summary Judgment and Plaintiffs' Response

In his motion for summary judgment, Desimone attacks Lyman's calculations. First, Desimone argues that Lyman's calculations are speculative because Lyman ignored the investment objectives, income, and health condition of the Plaintiffs. Second, Desimone argues that Plaintiffs calculation is a comparison of "apples and oranges" because Lyman's calculations use investment indicies that are more risky than the annuities that Plaintiffs invested in. Third, Desimone argues that Lyman's calculations do not take into account tax implications and commissions that would be due if Plaintiffs invested in the securities utilized by Lyman.

Plaintiffs respond that damages in securities cases are uncertain, but that uncertainty does not preclude recovery. Plaintiffs also respond that Desimone's motion is more a question of how much credibility and weight should be given to Lyman's opinion (which is not a proper subject for a motion for summary judgment) than a sale of securities more than four years ago. Plaintiffs did not respond to the statute of limitations argument in their response. question of whether any evidence supports their compensatory damage calculations.

II. LEGAL ANALYSIS

A. Motion for Summary Judgment

This Court concludes that Desimone's motion should be granted in part and denied in part. Subject to proof at trial, Plaintiffs can recover either the actual surrender fees paid (the surrender fees charged less any bonuses paid for buying a new annuity) or the transactions that jury determines were "churned" or their well managed account losses. Plaintiffs are not entitled to recover as compensatory damages a statutory measure of damages plus ten percent, commissions that they did not pay, or an amount for their emotional distress.

1. Standard of Review and what law applies.

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). The moving party bears the initial burden of showing the Court, by reference to materials on file that there are no genuine issues of material fact that should be decided at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Clark v. Coats & Clark, Inc., 929 F.2d 604 (11th Cir.1991). When the party moving for the summary judgment does not bear the burden of persuasion on the issue at trial, the moving party discharges its burden on a motion for summary judgment by "showing" or "pointing out" to the Court that there is an absence of evidence to support the non-moving party's case. Celotex, 477 U.S. at 325, 106 S.Ct. 2548. When a moving party has discharged its burden, the non-moving party must then "go beyond the pleadings," and by its own affidavits, or by "depositions, answers to interrogatories, and admissions on file," designate specific facts showing that there is a genuine issue for trial. Id. at 324, 106 S.Ct. 2548.

In this case, this Court's jurisdiction is based upon diversity, 28 U.S.C. § 1332, and this case arises under Florida law. In diversity cases arising under Florida law, a federal court is bound by the law articulated by the Florida Supreme Court. See Shapiro v. Associated Int'l Ins. Co., 899 F.2d 1116, 1118 (11th Cir.1990). If the Florida Supreme Court has not spoken on an issue, Florida District Court of Appeals decisions...