Saoud v. Everest Indem. Ins. Co.

• Decision Date: 28 July 2021
• Docket Number: Case No. 19-12389
• Parties: William SAOUD, Patricia Boland-Saoud, and Bill Saoud Financial, LLC, Plaintiffs/Counter-Defendants, v. EVEREST INDEMNITY INSURANCE COMPANY, Defendant/Counter-Claimant.
• Court: U.S. District Court — Eastern District of Michigan

551 F.Supp.3d 777

William SAOUD, Patricia Boland-Saoud, and Bill Saoud Financial, LLC, Plaintiffs/Counter-Defendants,

v.EVEREST INDEMNITY INSURANCE COMPANY, Defendant/Counter-Claimant.

Case No. 19-12389

United States District Court, E.D. Michigan, Southern Division.

Signed July 28, 2021

Douglas Young, Young Insurance Law, Royal Oak, MI, for Plaintiffs/Counter-Defendants.

Stephen P. Brown, Plunkett & Cooney, Bloomfield Hills, MI, for Defendant/Counter-Claimant.

OPINION AND ORDER GRANTING IN PART AND DENYING IN PART THE PARTIES’ CROSS MOTIONS FOR SUMMARY JUDGMENT [21, 22] AND HOLDING THE REMAINDER OF THOSE MOTIONS IN ABEYANCE PENDING SUPPLEMENTAL BRIEFS

LAURIE J. MICHELSON, UNITED STATES DISTRICT JUDGE

At the center of this case is whether an insurer is required to pay for losses sustained by the insured. William Saoud runs Bill Saoud Financial, LLC, a company that sells insurance and other financial products. In 2017 and 2018, Saoud offered several of his clients an investment product called the 1 Global "Memorandum of Indebtedness." 1 Global later went bankrupt, and the company and its CEO were sued by the Securities and Exchange Commission for, among other things, selling unregistered securities. Saoud's clients who invested in 1 Global sued Saoud alleging, among other things, that he sold them unregistered securities. When Saoud offered the 1 Global memorandum, he had professional liability insurance from Everest Indemnity Insurance Company. So when he was sued by his clients, Saoud asked Everest to defend and indemnify him. But Everest never gave a final response. Eventually, Saoud, Saoud Financial, and Patricia Boland-Saoud (Saoud's wife and an employee of Saoud Financial) brought this lawsuit seeking a declaration of insurance coverage.

Both the Saouds and Everest seek summary judgment. Summary judgment is usually all about the evidence. Here, though, the record does not contain much evidence. Indeed, as far as the summary-judgment record indicates, no depositions were taken in this case. And there are only two affidavits of record, both of which were prepared for use in a different case. True, the record does contain documentary evidence. But even that evidence is not as robust as it should have been—for instance, neither party has supplied the court with the 1 Global "Memorandum of Indebtedness" that caused all the trouble. Given the state of the evidentiary record, the Court cannot decide whether the policy Everest issued requires Everest to reimburse the Saouds for their losses arising out of the sale of the 1 Global memorandum. Accordingly, as detailed below, the Court will order the parties to file supplemental briefs and to supplement the record.

I.

A.

The information in this section is taken from two complaints filed by the U.S. Securities and Exchange Commission against 1 Global Capital, LLC and assisting lawyer Jan Atlas and, as such, the Court does not treat them as facts for purposes of resolving the pending summary-judgment motions. The Court presents the SEC's allegations because they provide helpful context for the facts of this case.

1 Global was founded in 2013. See Am. Compl., Securities & Exchange Commission v. 1 Global Capital LLC , No. 18-61991 (S.D. Fla. Sept. 26, 2018). Its CEO was Carl Ruderman. Id. at 8. 1 Global promoted itself to small and medium-sized businesses as an alternative source for short-term loans. Id. at 9. In exchange for a loan from 1 Global, a business would assign a portion of its accounts receivable to 1 Global. Id. at 10.

1 Global obtained the funds it lent to these small and medium-sized businesses from investors. To find these investors, 1 Global used a network of sales agents. Id. at 11. Many of these sales agents received three percent of every new investment brought into 1 Global. Id. at 12. 1 Global provided its sales agents with marketing materials that indicated to investors that their return on investment would be high, 10 percent or more of their investment amount. Id. at 14. If an investor agreed to provide 1 Global with funding, the investor would sign a "Memorandum of Indebtedness." Id. at 15. Once 1 Global obtained the investment funds, it would give each investor a small, fractionalized interest in hundreds of loans to the businesses. Id. at 16. According to the SEC, from "February 2014 until July 27, 2018, 1 Global ... raised more than $287 million from more than 3,400 investors." Id. at 1.

Unfortunately for these investors, Ruderman used $50 million of investor funds to purchase bad credit card debt. Id. at 19. Another $28 million went to "Ruderman personally as well as several companies in which he or his family members had a direct interest." Id. "Largely as a result of 1 Global and Ruderman's misappropriation and improper use of investor funds," "by June 30, 2018, 1 Global's financial records showed approximately $50 million in missing investor funds." Id. In July 2018, 1 Global filed for bankruptcy. Id. at 26.

In August 2018, the SEC sued 1 Global, Ruderman, and related entities in the U.S. District Court for the Southern District of Florida. Sec. & Exch. Comm'n v. 1 Global Capital LLC , No. 18-61991 (S.D. Fla. filed Aug. 23, 2018). The SEC asserted, among other things, that 1 Global and Ruderman sold securities that had not been registered as required by the Securities Act of 1933.

About a year later, the SEC sued Jan Atlas, a securities lawyer that allegedly aided 1 Global and Ruderman in violating federal securities laws. Complaint, Sec. & Exch. Comm'n v. Atlas , No. 19-62303 (S.D. Fla. Sept. 17, 2019) available at (ECF No. 26-3). The SEC alleged that after an attorney told 1 Global that the Memorandum of Indebtedness was likely a security (and thus subject to registration under the Securities Act), Ruderman reached out to Atlas, a securities lawyer. Id. at 4–5. According to the SEC, Atlas drafted a letter opining that the memoranda were not securities, despite being aware of facts strongly indicating that they were. Id. Further, after 1 Global's then-CFO obtained yet another law firm's opinion that the memoranda were securities, Ruderman again reached out to Atlas, and Atlas again drafted a letter opining that the memoranda were not securities. Id. at 5. According to the SEC, 1 Global used Atlas’ letters "to assure its external sales agents, some of whom bought 1 Global's notes themselves, that the notes were not securities and the agents did not need to have a securities license to offer and sell the notes." Id. at 6. Further, "[i]t was important to the external sales agents to know that the notes 1 Global offered were not securities and absent the assurance that the notes were not securities they would not have offered 1 Global's notes to investors." Id.

B.

William Saoud is the sole owner and member of Bill Saoud Financial, LLC. (ECF No. 21, PageID.362.) Saoud Financial sells insurance-related products, such as life insurance and annuities. (Id. )

At some point—likely in 2017—Saoud learned of 1 Global's financial product. Prior to becoming involved with the company, Saoud "was advised that the 1 Global loans ... were not securities and that [he] did not need to be registered as a securities broker or agent." (ECF No. 29, PageID.762.) Saoud "was advised by more than one attorney that 1 Global loans were not securities." (Id. )

In late 2017 and the first half of 2018, Saoud Financial provided some of its clients with information on 1 Global's Memorandum of Indebtedness. It appears that this included Victoria Berardi, Robin Diller, Judith Grady, and Michael and Deborah Tremblay. (See ECF No. 21, PageID.374, 376, 385, 387, 470, 472, 510, 512, 524.) As for Berardi, Diller, and Grady, they each attended one of Saoud's educational seminars "on retirement planning and insurance." (ECF No. 21, PageID.362.) According to Saoud, after the seminars, he met with Berardi, Diller, and Grady at their request. (Id. ) Saoud recalls that each sought "alternatives to insurance products." (Id. ) After they expressed interest, he presented materials about 1 Global's Memorandum of Indebtedness. (Id. ) Saoud asserts that he "made no representations about the 1 Global loan product, other than distributing the materials." (Id. ) Further, Saoud says that each of Berardi, Diller, and Grady was "very experienced and sophisticated," did not rely on him for advice, and "made [her] own decision." (Id. at PageID.363.)

In the spring and summer of 2018, both Michigan's Department of Licensing and Regulatory Affairs ("Licensing Department") and the SEC got wind that Saoud Financial was offering the 1 Global memoranda. In May 2018, the Licensing Department ordered Saoud to cease and desist from offering or selling securities that were not registered under Michigan's Securities Act. (ECF No. 22, PageID.635.) And the SEC, likely in connection with its investigation into 1 Global, sent Saoud Financial a subpoena for documents relating to the company's sale of 1 Global memoranda. (ECF No. 21-5, PageID.413.)

Saoud and his company faced additional accusations during the remainder of 2018. In September 2018, the Licensing Department issued another cease-and-desist order, accusing Saoud of continuing to sell unregistered securities after the prior cease-and-desist order. (ECF No. 22, PageID.637.) Further, in late 2018, Berardi, Diller, and Grady each sued Saoud and his company. (ECF No. 21, PageID.374, 385, 397.) Each accused Saoud of, among other things, selling a security that was not registered under Michigan's Securities Act and committing fraud. (ECF No. 21, 376–378, 388–390, 400–401.)

In December 2018, with the three lawsuits pending, Saoud filed an insurance claim with the defendant in this case, Everest Indemnity Insurance Company. (See ECF No. 21, PageID.368 (referencing December 2018 claim).) Under the insurance policy, Everest agreed to pay for losses resulting from Saoud's wrongful acts in rendering "Professional Services." (See ECF No. 22, PageID.586.) Everest also had a duty to...