Torti v. Hoag

• Decision Date: 17 August 2017
• Docket Number: No. 16-1793,16-1793
• Citation: 868 F.3d 666
• Parties: Richard A. TORTI, Sr., as Successor Trustee of the Stuart Family 1997 Trusts, Plaintiff-Appellant v. Debra HOAG; Gentry Partners Limited, Defendants John Hancock Life Insurance Company, USA, Defendant-Appellee
• Court: U.S. Court of Appeals — Eighth Circuit

868 F.3d 666

Richard A. TORTI, Sr., as Successor Trustee of the Stuart Family 1997 Trusts, Plaintiff-Appellant

v.Debra HOAG; Gentry Partners Limited, Defendants

John Hancock Life Insurance Company, USA, Defendant-Appellee

No. 16-1793

United States Court of Appeals, Eighth Circuit.

Submitted: January 12, 2017

Filed: August 17, 2017

Joshua Martin Allen, Christopher O. Parker, James Henry Penick, III, EICHENBAUM & LILES, Little Rock, AR, for Plaintiff-Appellant.

John T. Adams, Debra Brown, Steven Shults, SHULTS & BROWN, Little Rock, AR, for Defendant-Appellee.

Before COLLOTON, GRUENDER, and KELLY, Circuit Judges.

KELLY, Circuit Judge.

Richard A. Torti, as Trustee of the Stuart Family Trusts, brought a lawsuit against Debra Hoag, Gentry Partners Limited (Gentry) and the John Hancock Life Insurance Company, USA (Hancock), alleging claims of breach of fiduciary duty, breach of contract, and negligence.¹ After Torti settled with Hoag and Gentry, Hancock moved pursuant to Federal Rule of Civil Procedure 12(b)(6) for dismissal of the breach of contract and negligence claims remaining against it. The district court² granted Hancock's motion, dismissing Torti's second amended complaint (SAC) with prejudice. Because we agree that Torti failed to plead sufficient facts to state a plausible claim for breach of contract or negligence, we affirm.³

I. Background

This is an appeal from the district court's grant of a motion to dismiss, so we draw the relevant facts from Torti's SAC. See Neubauer v. FedEx Corp. , 849 F.3d 400, 403 (8th Cir. 2017). We also consider the exhibits attached to the SAC, including the trust agreement and the Hancock insurance policy. See id. On August 8, 1997, Layton P. Stuart, as trustor, established the Stuart Family 1997 Trusts (the Trusts) by a written trust agreement. At the time, Stuart was Chief Executive Officer of One Bank & Trust (One Bank) in Little Rock, Arkansas. Pursuant to the trust agreement, Michael Heald, the Chief Operating Officer (COO) of One Bank, was appointed trustee. The trust agreement granted Heald certain powers of administration, including the authority "to apply for and to own policies of insurance on the life of the trustor."

Heald, as trustee, applied for a $20 million variable life insurance policy on Stuart's life, which was issued by Hancock on August 12, 1997. As relevant here, Paragraph 11 of the policy gave the trustee authority to apply for loans against the cash value of the policy "on receipt at [the Hancock] Home Office of a completed form satisfactory to [Hancock] assigning the policy as the only security for the loan." Paragraph 24 of the policy allowed the policy to be assigned without the consent of any revocable beneficiary but stated that Hancock would not be on notice of any assignment unless it was provided notice "in writing" and "a duplicate of the original assignment has been filed at [the Hancock] Home Office." Paragraph 28 of the policy stated in relevant part:

The written application for the policy is attached at issue. The entire contract between the applicant and [John Hancock] consists of the policy and such application. However, additional written applications for policy changes ... may be submitted to [Hancock] after issue and such additional applications may become part of the policy.... Other changes in this policy may be made by agreement between [the Trusts] and [Hancock]. Only the President, Vice President, the Secretary, or an Assistant Secretary of the Company has authority to waive or agree to change in any respect any of the conditions or provisions of the policy, or to extend credit or to make an agreement for [Hancock].

Hoag, an insurance broker acting as Hancock's agent, facilitated the Trusts' purchase of the policy. The confirmation page of the policy named the "Stuart Family Trust, Mike Heald, Trustee" as the owner of the policy with an address of 300 W. Capitol Avenue, Little Rock, Arkansas, 72201. The premium for the policy was $350,000 per year for ten years.

To finance the premiums, Heald, on behalf of the Trusts, entered into a split-dollar agreement with One Bank, effective August 12, 1997. One Bank agreed to pay the annual premiums for the life insurance policy, to be reimbursed upon Layton Stuart's death out of the insurance proceeds. As consideration for the payment of premiums, the Trusts assigned the Hancock policy to One Bank. Paragraph 6 of the split-dollar agreement prohibited the trustee from "transfer [ing], assign[ing], encumber[ing] or terminat[ing] the Insurance Policy ... [d]uring the term of this Agreement," including by applying for loans against the cash value of the policy, which was to "remain available (subject to provisions of the Insurance Policy) to satisfy the amount payable to [One Bank]." The split-dollar agreement was signed by Heald on behalf of both parties—as COO of One Bank and as trustee of the Trusts. In an August 15, 1997, letter to Heald, Hoag acknowledged that the premium for the policy would be funded via the split-dollar agreement.

Nearly fourteen years later, on June 2, 2011, Heald retired as trustee and appointed Hoag as successor trustee. On June 3, 2011, Hoag requested a loan against the full cash value of the policy on a Hancock "Request for Policy Loan" form, using the Hancock insurance policy as collateral. The request form identified Hoag as the trustee and the Trusts as the owner of the policy with an address of 300 W. Capitol Avenue, Little Rock, Arkansas, 72201. Though the request form provided signature lines for assignees of the insurance policy (here, One Bank), the form was signed only by Hoag, as trustee, on behalf of the Trusts.

On June 7, 2011, Hancock issued a check in the amount of $1,761,000.00 payable to the "Stuart Family Trusts." The check was sent by FedEx to 300 W. Capitol Avenue, Little Rock, Arkansas, 72201. Hancock allowed the check to be paid after it was endorsed by Layton Stuart, who used the proceeds for non-trust related purposes.

Hoag resigned as trustee on October 25, 2012, and appointed Torti as successor trustee. Stuart died on March 24, 2013. In May 2013, Hoag notified Torti that before Hancock would pay the insurance proceeds, Torti would have to sign a release, releasing Hancock from any "demands, claims and causes of action ... relating to or arising out of the Policy or the payment of any benefits thereunder." Torti refused and Hancock transferred the net death benefits owing under the policy—a sum of $17,693,837.10—to a segregated account. On June 17, 2013, the United States Attorney notified the Trusts that the net death benefit proceeds had been seized.

On June 2, 2014, Torti filed suit against Hoag, Gentry, and Hancock. After the complaint was amended, Torti's claims against Hancock were dismissed without prejudice on October 17, 2014. Hancock was brought back into the lawsuit over a year later, on December 9, 2015, when Torti filed the SAC. Attached to the SAC were 13 exhibits, including the split-dollar agreement, the Hancock insurance policy, and "forms utilized by Hancock ... in administering the Policy," which the SAC alleged "form[ed] a part of the contract of insurance." These forms were identified as Exhibits E-1 (instructions for completing a request for a policy loan); E-2 (a blank request for policy loan form); and E-3 (a checklist to be filled out by a Hancock employee upon receipt of a loan request) (collectively, "loan forms"). The SAC alleged breach of contract and negligence against Hancock. The district court granted Hancock's motion to dismiss, and this appeal follows.

II. Discussion

We review the district court's grant of a motion to dismiss de novo, "accepting as true all factual allegations in the complaint and drawing all reasonable inferences in favor of the nonmoving party." Neubauer , 849 F.3d at 404 (quotation omitted). "To survive a motion to dismiss for failure to state a claim, the complaint must show the plaintiff ‘is entitled to relief,’ ... by alleging ‘sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.’ " In re Pre-Filled Propane Tank Antitrust Litig. , 860 F.3d 1059, 1063 (8th Cir. 2017) (en banc) (quoting Fed. R. Civ. P. 8(a)(2) and Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ). To avoid dismissal, "[a] plausible claim must plead ‘factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.’ " Id. (quoting Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 ). But a complaint must allege "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Courts "are not bound to accept as true a legal conclusion couched as a factual allegation," and "[f]actual allegations must be enough to raise a right to relief above the speculative level." Id. (internal quotation omitted).

A. Breach of contract claim

Torti alleges the district court erred in holding that the SAC failed to state a claim for breach of contract against Hancock. Because our jurisdiction is based on diversity of citizenship, we apply federal procedural rules but Arkansas substantive law. See Ashley Cty. v. Pfizer, Inc. , 552 F.3d 659, 665 (8th Cir. 2009). Our review of the district court's interpretation of Arkansas law is de novo. Hortica-Florists' Mut. Ins. v. Pittman Nursery Corp. , 729 F.3d 846, 852 (8th Cir. 2013).

In Arkansas, "[i]nsurance policies are to be interpreted like other contracts." Agric. Ins. v. Ark. Power & Light Co. , 361 S.W.2d 6, 12 (Ark. 1962). "In order to state a cause of action for breach of contract, the complaint need only assert the existence of a valid and enforceable contract between the plaintiff and the defendant, the obligation of defendant thereunder, a violation by the defendant, and damages resulting to plaintiff from the breach." Farris v. Conger ...