Shurwest, LLC v. Howard
| Decision Date | 19 March 2021 |
| Docket Number | No. 5:19-CV-180-REW,5:19-CV-180-REW |
| Parties | SHURWEST, LLC, Plaintiff, v. CAROLYN HOWARD, Defendant. |
| Court | U.S. District Court — Eastern District of Kentucky |
Plaintiff Shurwest, LLC is a self-described "industry-leading independent marketing organization" that markets the financial products of other companies to retirement planners. In 2017, its National Sales Director of Life Insurance (Melanie Schulze-Miller) marketed certain structured notes to Carolyn Howard, a Kentucky financial planner. The Director did this during a visit by Howard to Shurwest headquarters in Arizona, a cross-country business-recruiting trip paid for in full by Shurwest. Howard took the bait on the structured notes (for herself and one of her clients). Disaster (and loss) ensued when the structured notes seller imploded in a series of criminal and regulatory enforcement actions, actions that swept up Shurwest's National Sales Director as well. Shurwest and Howard are before the Court on a series of theories to sort out Shurwest's responsibilities, if any, for Howard's damages.
It's clear enough that Schulze-Miller "went rogue" in marketing the structured notes at Shurwest. The Company had rejected her proposal to market the structured notes in 2016. She made an end-run by creating a secret, side company, furtively enlisting some Shurwest employees, and forging on in the shadows. Adopting Doll's posture from the Shakespeare quote, Shurwest loudly distances itself from Schulze-Miller and contends that her rogue status provides a tidy way to end the dispute, now centering on cross-motions for summary judgment. Shurwest disavows any involvement in the marketing of the notes and any obligation for the conduct of its National Sales Director or her complicit underlings.
The Court has assessed the full record and the briefing.2 Ultimately, under the Rule 56 standards, the record is far less categorical and far more nuanced than Shurwest contends. In the Court's view, there are genuine disputes of material fact that preclude judgment for either party. That Schulze-Miller broke faith with Shurwest is not the end of the query. At the core, a jury must decide whether, in dealing with client Howard, Schulze-Miller yet acted within the scope of her Shurwest employment or whether she otherwise acted with apparent authority from the Company. Because the liability theories (put forth by counterclaim) are otherwise largely submissible, the jury also must evaluate the causes of action that hinge on Schulze-Miller's behavior. There will be plenty of opportunity for the jury to consider Howard's own role and responsibility, but whatever comparative faultshe may bear is not the subject of summary judgment. The Court DENIES all pending dispositive motions and resolves the other matters as this decision reflects.
The Court derives the factual background from the record. Although there is sharp dispute over what the facts signify, there are few contests at this stage on what historically happened. The Court here simply maps the assertions, making no factual findings in this procedural step, using the prism and/or making the reasonable inferences, relative to the particular movant or non-movant, that Rule 56 requires.
Shurwest is an independent marketing organization (IMO). DE 1 at 2 (Complaint ¶ 6). Shurwest markets annuities and insurance products to retirement planners, who are licensed insurance agents. Id. Carolyn Howard (Howard) is a licensed insurance agent and certified financial planner. DE 10 at 14 (Counterclaim ¶ 16). Howard holds Series 63 (securities agent) and Series 65 (investment advisor) licenses. DE 1 at 2 (Complaint ¶ 8). Future Income Payments, LLC (FIP) was an organization that purchased pensions, disability payments, and other revenue streams from individuals and then sold those revenue streams to investors. Id. at 3 (Complaint ¶ 10). Melanie Schulze-Miller was an employee of Shurwest from June 2012 to May 2018. DE 45-2 at 2 (Schulze-Miller Decl. ¶ 3). At all relevant times, she was National Sales Director of Life Insurance. In early 2016, Schulze-Miller sought approval from Shurwest management to market FIP products; Shurwest rejected the request. Id. (Schulze-Miller Decl. ¶¶ 4-5). On May 3, 2016, Schulze-Miller formed MJSM Financial LLC (MJSM), a limited liability company, owned wholly by Schulze-Miller, to refer FIP products. Id. at 2-3 (Schulze-Miller Decl. ¶¶ 6-7). Schulze-Miller did not disclose this business to Shurwest. Id. at 3 (Schulze-Miller Decl. ¶ 7).
In early February 2017, Howard flew to Arizona and attended a day-long event hosted, paid for, and fully sponsored by Shurwest, at Shurwest's corporate headquarters. DE 111-1 at 2-3 (Howard Decl. ¶¶ 3-5). Howard met, over the course of the day, with several Shurwest employees, including Schulze-Miller. Id. During their meeting, Schulze-Miller introduced and explained FIP products to Howard. Id. at 3-4. Schulze-Miller specifically included FIP structured notes as part of a strategy (the "IRA Reboot") that included the purchase of insurance products via the purchased income stream. The pitch, according to Howard, included specific statements vouching for FIP's reliability, legitimacy, and risk status. Schulze-Miller specifically stated that Shurwest used FIP products with many clients and had vetted FIP. See id. at 3-4 (Howard Decl. ¶¶ 5-8).
Schulze-Miller provided Howard an FIP marketing contract. On February 21, 2017, Howard emailed Schulze-Miller the Future Income Payments, LLC Producer Marketing Agreement, signed by Howard. Id.1 at 4 (Howard Decl. ¶ 8); id. at 26-33 (FIP Agreement). That contract listed Shurwest, on line 1, as the "referral/marketing group." Id. at 27. Schulze-Miller received the signed agreement on her Shurwest email account and promised, in reply, to complete the contracting status for Howard at FIP. Id. at 25.
In addition to Schulze-Miller, Shurwest employees Nick Johnson and Michael Seabolt also made representations to or dealt with Howard regarding FIP. Id. at 5 (Howard Decl. ¶ 15). They often communicated about specific investments via their Shurwest email accounts. Indeed, per Howard, Johnson reported to Howard, via his Shurwest account, that he had transmitted Howard's producer packet to FIP. Id. at 4 (Howard Decl. ¶ 9). Some of the transmittals involving Schulze-Miller and Johnson came from the email domain of MJSM, Schulze-Miller's secret entity.
Soon after, Howard also contracted through Shurwest to become a broker via Minnesota Life Insurance Company (Minn. Life). This contract dovetailed with the IRA Reboot strategy Schulze-Miller had discussed with Howard. See id. at 4-5 (Howard Decl. ¶¶ 11 & 15). Howard purchased structured notes, and then a Minn. Life insurance policy, as part of her own investment and part of what she understood to be the IRA Reboot strategy touted by Schulze-Miller. See id. at 5-6 (Howard Decl. ¶ 15 & 18).
Howard invested $500,000 of her own money in FIP products and recommended FIP structured notes to her client Lee Anne Walmsley, who then purchased two notes, totaling $225,000. Id. (Howard Decl. ¶¶15-16); DE 10 at 17 (Counterclaim ¶ 28). In April 2018, FIP's President Scott Kohn announced that FIP had ceased the majority of its operations and would no longer make payments to investors due to ongoing regulatory actions and litigation. DE 10 at 16 (Counterclaim ¶ 25). In early 2019, FIP and its founder were indicted, and FIP entered a court-ordered receivership. DE 1 at 7 (Complaint ¶ 19). Due to the collapse of FIP, Howard and Walmsley, like other FIP investors, lost their investments. Shurwest promptly fired Schulze-Miller when her activities came fully to light.
The record, without contest or contradiction, supports several conclusions. Schulze-Miller marketed FIP products without the permission of Shurwest, which had rejected her proposal to refer advisors to FIP as a funding mechanism for life insurance policies. Schulze-Miller did not inform Shurwest of her FIP linkage, her formation of MJSM, or her marketing of FIP via Shurwest's facilities or other resources. Shurwest was not a party to any FIP contract and did not derive funds from FIP itself—any commissions on FIP products went to Schulze-Miller or MJSM. DE 45-2 at 2-3 (Schulze-Miller Decl. ¶¶ 4-10). Shurwest did, however, receive commissions from Howard's purchase of a life insurance policy3 through Minn. Life, which Howard funded that through the FIP income stream. See DE 96 (Commissions Spreadsheet); DE 1 at 3 n. 2 (). In Howard's case, per the record, (and presumably for others involved in the IRA Reboot), if the mechanism involving structured notes led to purchase of a life policy, Shurwest got a resulting commission benefit.
Shurwest seeks a declaration that it had no duty, was not involved, and has no responsibility for the FIP debacle. Though Shurwest nominally is Plaintiff, Howard is the one actually making affirmative claims for relief, through a series of Kentucky-law tort and statutory claims. Each side seeks dispositive relief, but a jury must sort this complicated relationship and determine whether Schulze-Miller's rogue acts were actionable and ones Shurwest yet should have liability for.
First, to clarify the decisional record, the Court addresses Shurwest's motion targeting Howard's expert. Shurwest moves to exclude the testimony of Peter Kennedy, who Howard has offered as an expert. DE 99 at 1. Federal Rule of Evidence 702 provides that a qualified expert witness may testify if "(a) the expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact...
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