Ryan v. Salisbury

• Decision Date: 14 May 2019
• Docket Number: Civ. No. 18-00406 ACK-RT
• Parties: Kathy RYAN, Individually, and in Her Capacity as Trustee of the Brody Family Trust; Plaintiff, v. Christopher S. SALISBURY; C. Salisbury, LLC; Claraphi Advisory Network, LLC ; National Asset Management, Inc.; Michael Diyanni; Lake Forest Bank & Trust Company, N.A.; Wintrust Life Finance; Aurora Capital Alliance; Security Life of Denver Insurance Company; and Alejandro Alberto Bellini, Defendants.
• Court: U.S. District Court — District of Hawaii

380 F.Supp.3d 1031

Kathy RYAN, Individually, and in Her Capacity as Trustee of the Brody Family Trust; Plaintiff,

v.Christopher S. SALISBURY; C. Salisbury, LLC; Claraphi Advisory Network, LLC ; National Asset Management, Inc.; Michael Diyanni; Lake Forest Bank & Trust Company, N.A.; Wintrust Life Finance; Aurora Capital Alliance; Security Life of Denver Insurance Company; and Alejandro Alberto Bellini, Defendants.

Civ. No. 18-00406 ACK-RT

United States District Court, D. Hawai‘i.

Signed May 14, 2019

Michael Diyanni, La Jolla, CA, pro se.

Courtney C. Gipson, Pro Hac Vice, Methvin, Terrell, Yancey, Stephens & Miller, P.C., Perry Michael Yancey, Pro Hac Vice, Robert G. Methvin, Jr., Birmingham, AL, Margery S. Bronster, Melinda M. Weaver, Honolulu, HI, for Plaintiffs.

Janine M. Lucas, Meagan A. Lamberti, Miles D. Hart, Pro Hac Vice, Saretsky Hart Michaels + Gould PC, Birmingham, MI, Mallory T. Martin, Theodore D. C. Young, Jeffrey S. Portnoy, Cades Schutte LLP, Matthew C. Shannon, Lianne T. Chung, Bays Lung Rose & Holma, Sianha M. Gualano, Starn O'Toole Marcus & Fisher, Brian W. Tilker, Hoi Shan Wirt, Torkildson Katz Hetherington Harris & Knorek, Robert G. Klein, Klein Law Group LLLC, Carl H. Osaki, Honolulu, HI, Kristina H. Kaluza, Pro Hac Vice, Dykema Gossett PLLC, Minneapolis, MN, Todd Gale, Pro Hac Vice, Dykema Gossett PLLC, Chicago, IL, Todd J. Langford, Pro Hac Vice, Anton N. Handal, Greenspoon Marder LLP, San Diego, CA, David T. McDowell, Diane Wizig, Pro Hac Vice, McDowell Hetherington LLP, Houston, TX, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT MICHAEL DIYANNI'S MOTION TO DISMISS

Alan C. Kay, Sr. United States District Judge

For the reasons set forth below, the Court GRANTS IN PART and DENIES IN PART Defendant Michael Diyanni's Motion to Dismiss, ECF No. 52, as follows:

1. As to the First Cause of Action (UDAP), the Motion is DENIED.

2. As to the Second Cause of Action (UDAP—Unsuitability), the Motion is GRANTED.

3. As to the Third Cause of Action (UDAP—Elder Abuse), the Motion is GRANTED.

4. As to the Fifth Cause of Action (Fraudulent Misrepresentation), the Motion is DENIED.

5. As to the Sixth Cause of Action (Breach of Fiduciary Duty), the Motion is DENIED.

6. As to the Seventh Cause of Action (Vicarious Liability/Respondeat Superior), the Motion is GRANTED.

7. As to the Tenth Cause of Action (RICO Violation), the Motion is GRANTED.

8. As to the Eleventh Cause of Action (Conspiracy to Violate RICO), the Motion is GRANTED.

9. As to the Twelfth Cause of Action (Hawai'i RICO), the Motion is GRANTED.

FACTUAL BACKGROUND

The Brody Family Trust ("the Trust") was created on February 9, 1993, with Plaintiff Kathy Ryan (then Kathy Brody) ("Plaintiff")¹ serving as its trustee. Compl., ECF No. 1 ¶ 23. The Trust was organized under the laws of California. Id. Sometime in 2002 or thereafter, the estate planning company that first established the Trust referred Plaintiff to Defendant Christopher S. Salisbury ("Defendant Salisbury") for her investment and financial planning needs. Id. ¶ 24.

Early on in his tenure as Plaintiff's financial advisor, Defendant Salisbury began investing Plaintiff's money and/or that of the Trust into annuities, among other investments. Id. ¶ 25. Defendant Salisbury, together with Defendant C. Salisbury, LLC and Accelerated Estate Planning, LLC (together, "the Salisbury Entities") caused Plaintiff to surrender certain annuities and move the money to different annuities with the promise that any surrender fees would be offset either by bonus monies or greater earnings of the new product (a process the Complaint calls "churning"). Id. ¶ 26. Defendant Salisbury understood that Plaintiff did not have sophisticated knowledge of investment, financial, and insurance-related matters. Id. ¶ 29. The Salisbury Entities made verbal representations about the products Defendant Salisbury was directing Plaintiff to invest in or purchase, and Defendant Salisbury routinely presented Plaintiff with signature pages, rather than complete documents, which he instructed her to sign but not date. Id. ¶ 30. Defendant Salisbury, a licensed notary, often notarized documents Plaintiff had signed, including those signed outside his presence. Id.

I. The Annuities

Among the many annuities involved in Defendant Salisbury's "churning" process were annuities issued by Allianz, at least two of which were surrendered at a sizeable loss. See id. ¶ 31. First, on or about December 29, 2009, Plaintiff was caused to surrender Allianz Flexible Premium Deferred Annuity Policy (Index Benefit bearing policy number XXX 3635, policy date September 1, 2006)—which was then valued at approximately $ 902,000—at a loss of approximately $ 200,077. Id. ¶ 32. Second, on or about November 21, 2014, following Defendant Salisbury's advice and direction, Plaintiff surrendered an Allianz annuity with a policy number XXX 7754, which was issued on December 18, 2006.

Again acting on Defendant Salisbury's advice and direction, Plaintiff also surrendered four Phoenix Personal Income Annuities. On or about October 19, 2017, Plaintiff surrendered two such annuities. One, number XXX 5109, was issued with a single premium of $ 24,795.55 on December 9, 2014, and its surrender cost Plaintiff approximately $ 3,790.04 in surrender charges, id. ¶ 34a; the other, number XXX 5355, was issued with a single premium of $ 24,800.42 on December 11, 2014, and its surrender cost Plaintiff approximately $ 3,939.86 in surrender charges, id. ¶ 34b. On or about November 7, 2017, Plaintiff surrendered Phoenix Personal Income Annuity number XXX 8769, which had been issued with a single premium of $ 700,000 on May 4, 2015, and incurred approximately $ 110,220.74 in surrender charges. Id. ¶ 34d. And on or about November 8, 2017, Plaintiff incurred approximately $ 25,983.85 in surrender charges by surrendering Phoenix Personal Income Annuity XXX 4609, which was issued on December 18, 2014 with a single premium of $ 160,319.48. Id. ¶ 34c. As to these four annuities, Plaintiff lost approximately $ 143,931.49. Id. ¶ 34.

Again following Defendant Salisbury's advice and direction, Plaintiff purchased and invested in the Fidelity Premium Deferred Fixed Index Annuity, AdvanceMark Ultra 14, number XXX 5051, which was issued on February 8, 2015. Id. ¶ 35. As of the most recent annual statement, it had an account value of approximately $ 453,282.52. Id. Plaintiff surrendered it in or around October 2017, and the surrender charge was $ 52,382.80. Id.

Similarly, Defendant Salisbury allowed an American National annuity, number XXX 0431, to run just over a year before he caused Plaintiff to surrender it in or around April 2015. Id. ¶ 36. The surrender of this annuity, which had been issued on March 14, 2014 with an initial premium payment of $ 737,450.85, incurred approximately $ 61,028 in surrender charges. Id.

Plaintiff was also issued a ForeThought Single Premium Deferred Annuity Contract number XXX 8001 on February 11, 2009, with an initial premium payment of $ 166,949.80. Id. ¶ 37. At Defendant Salisbury's direction, Plaintiff made several withdrawals from this annuity while it was in force. Id. At the time of surrender on or about November 17, 2014, the annuity was valued at $ 146,486.39, and the surrender fee was $ 7,324.32. Id. ¶ 37.

And on November 26, 2007, Plaintiff was issued a North American Company Individual Flexible Premium Deferred Annuity, number XXX 2105, with an initial premium payment of $ 276,745.13. Id. ¶ 38. Plaintiff paid an additional premium of $ 598,595.71 on or about April 27, 2012. Id. On or about January 29, 2014, the annuity was surrendered at a net loss of $ 88,205.94. Id.

These transactions—which Plaintiff alleges are a representative list of Defendant Salisbury's "churning" activities rather than an exhaustive one, see id. ¶ 39—cost Plaintiff approximately $ 576,207.28 in surrender charges, id. With respect to each transaction, and over the course of them all, Defendant Salisbury told Plaintiff that the surrenders were in her best interest and explained that any surrender charge incurred was worth incurring to better position the funds in the replacement annuity. Id. ¶ 40.

II. The Insurance Policies

Acting on Defendant Salisbury's advice, Plaintiff obtained a Lincoln Benefit Flexible Premium Variable Life Insurance Policy on October 6, 2004. Id. ¶ 44. This policy carried a death benefit of $ 5,066,782, and its planned annual payment was $ 279,731. Id. In or around 2008, Defendant Salisbury reduced the death benefit to $ 500,000, and the policy was surrendered on October 7, 2013. Id.

Again acting on Defendant Salisbury's advice, Plaintiff procured a one million dollar Flexible Premium Universal Life Insurance Policy from Columbus Life Insurance Company. See id. ¶ 43. The policy had an effective date of May 20, 2004, and the planned premiums were $ 16,881.12 annually. Id. This policy was cancelled in or around April 2016 and replaced with a $ 2,500,000 VOYA IUL-Global Choice Policy ("the VOYA Policy" or "the Policy") issued by Defendant Security Life of Denver ("Defendant SLD") and subject to a financing arrangement conceived of and carried out by Defendants Salisbury, Claraphi Advisory Network, LLC ("Defendant Claraphi"), Michael Diyanni ("Defendant Diyanni"), Aurora Capital Alliance ("Defendant ACA"), Lake Forest Bank & Trust Company, N.A. ("Defendant Lake Forest"), Wintrust Life Finance ("Defendant Wintrust"), and Alejandro Alberto Bellini ("Defendant Bellini"). Id. ¶ 45. Defendant Bellini was the writing agent of the VOYA Policy and participated in selling the Policy to Plaintiff. Id. ¶ 20.

Defendant Salisbury advised Plaintiff that the VOYA Policy would fund itself—that she would never have to make premium payments on it due to the design of the premium financing arrangement orchestrated by Defendants Salisbury, Claraphi, Diyanni, ACA, Lake Forest, Wintrust, and Bellini. Id. ¶ 46. Plaintiff expressed concern to Defendant Salisbury about the value...