William L. Thorp Revocable Trust v. Ameritas Inv. Corp.

Decision Date30 September 2014
Docket NumberNo. 4:11–CV–193–D.,4:11–CV–193–D.
CourtU.S. District Court — Eastern District of North Carolina
PartiesWILLIAM L. THORP REVOCABLE TRUST, and Patricia B. Webster, individually and as trustee, Plaintiffs, v. AMERITAS INVESTMENT CORPORATION, Unifi Mutual Holding Company, Ameritas Holding Company, Ameritas Life Insurance Corporation, and Stewart S. King, Defendants.

Michael A. Ostrander, Howard Clay Hodges, Jr., Harris Surratt & Hodges, LLP, Raleigh, NC, for Plaintiffs.

David P. Ferrell, Kevin Alan Rust, Vandeventer Black LLP, Raleigh, NC, for Defendants.

ORDER

JAMES C. DEVER III, Chief Judge.

On November 10, 2011, Patricia B. Webster (Webster) and the William L. Thorp Revocable Trust (“Trust”) (collectively, plaintiffs) sued Ameritas Investment Corporation (AIC), Unifi Mutual Holding Company (UNIFI), Ameritas Holding Company (AHC), Ameritas Life Insurance Corporation (ALIC), and Stewart S. King (King) (collectively, defendants). See Compl. [D.E. 1] ¶¶ 1–7. On December 9, 2011, plaintiffs filed a verified amended complaint with twelve claims. See Am. Compl. [D.E. 19] ¶¶ 64–157. On September 19, 2012, this court dismissed three claims completely and two claims in part, allowing plaintiffs to proceed with nine claims. See [D.E. 31] 20.

On February 3, 2014, defendants moved for summary judgment on the remaining claims [D.E. 51]. Plaintiffs responded in opposition [D.E. 59], and defendants replied [D.E. 63]. As explained below, the court grants defendants' motion for summary judgment [D.E. 51], grants defendants' motion to strike plaintiffs' errata sheet [D.E. 60], and dismisses as moot plaintiffs' and defendants' motions to strike expert testimony and defendants' motion to compel [D.E. 64, 66, 74].

I.

Webster and King met in June 2008. King Dep. [D.E. 59–2, 63–6] 166. King was an independent life insurance and annuities sales agent for AIC, where he started working in 2005. Id. at 90–91; Sherffius Dep. [D.E. 59–11] 83. King had not sold annuities before 2005. King Dep. 91–92. In June 2008, King held the Series 6 and 63 licenses but did not have a Series 7 license.Id. at 18. When Webster and King first met, Webster and the Trust each held investments with a managed account at Fidelity. Webster Dep. [D.E. 51–16, 59–3, 63–1] 29. Webster had lost between $600,000 and $800,000 in 2008 with her Fidelity account and was looking to invest elsewhere. Id. at 22–23. Mutual friends of Webster and King suggested to Webster that she meet with King. Id. at 72.

At their initial meeting, Webster told King about the recent decrease in the balance in her Fidelity account. King Dep. 169. King told Webster that he had a track record of earning annual returns of 10% to 12% for his clients, that he could help her “stop the bleeding,” and that he had products with investment floors to “make sure that there was no lessening of the investment.” Id. at 168–69; see also Webster Dep. 89. King explained one such product as a “variable annuity” with “a guaranteed floor as an option, which would prevent [one's] amounts to be reduced.” Id. at 169–70. Webster also asserts that King described one particular annuity as having a “guaranteed five percent yield.” Webster Dep. 88.

Sometime after the initial June meeting between King and Webster, Webster called her CPA, Jane Huband, and her tax attorney, Thomas Wilson, to arrange a meeting with all four of them. See Webster Dep. 117, 173; Wilson Dep. [D.E. 59–16] 20; Huband Dep. [D.E. 51–13, 59–9] 109: see also [D.E. 51–1] Ameritas 5; [D.E. 51–2] Ameritas 170–71. Webster told Huband and Wilson that she would “welcome [their] opinions” on King and his products. Webster Dep. 131.

On September 8, 2008, Webster emailed King in preparation for this upcoming meeting. Webster referenced King's “plan for [Webster's] portfolio, including ... the guaranteed 5% yield.” [D.E. 59–4] PW 614. King's reply, one day later, did not mention the 5% yield. See id. PW 615.

On September 10, 2008, Webster and King met with Huband and Wilson. See [D.E. 51–1] Ameritas 33–34. According to Huband's notes from the meeting, Webster was considering using King as “her ‘investment’ person,” but King discussed life insurance and annuities rather than investment products. [D.E. 51–1] Ameritas 33–34. Shortly after the meeting, King sent Huband and Wilson documents explaining the annuities. See [D.E. 51–1] Ameritas 5, 64–161; [D.E. 51–2] Ameritas 193–279; Webster Dep. 179–80; Huband Dep. 101–02. The documents included information on the Guaranteed Lifetime Withdrawal Benefit (“GLWB”), an optional rider on an ALIC variable annuity. See [D.E. 51–1] Ameritas 144–52; [D.E. 51–2] Ameritas 25–61. These documents describe the GLWB rider as an option that creates a shadow account used for determining the annuitant's lifetime withdrawal benefit. See [D.E. 51–1] Ameritas 144–52. This shadow account assumes a 5% increase in the market value of the investment regardless of the actual change in value, and the annuitant receives the greater of the two values when withdrawal benefits are calculated. Id. The annuitant must activate and pay for the GLWB rider to receive these benefits and, in September 2008, the rider's annual cost was 0.60% of the investment value. Id. The documents also contain a notice that the rider does not apply “to the investment performance or account value of the underlying variable portfolios” and that [v]ariable annuities are suitable for long-term investing and are subject to investment risk, including possible loss of principal.” Id. Ameritas 152.

Defendants claim that Huband and Webster discussed Huband's analysis of the documents King provided.See Huband Dep. 100; [D.E. 51–1] Ameritas 30 (noting the [g]uaranteed life income options” as a benefit of the annuity). Webster, however, testified that neither Huband nor Wilson ever explained to her how the GLWB rider worked. See Webster Dep. 195.

On September 21, 2008, King provided Webster, Huband, and Wilson with the contact information of two other Ameritas employees who could have explained the annuities to her in full. See [D.E. 51–14] PW 636. The record does not reflect that any of the three ever called.

On October 1, 2008, in anticipation of a second meeting, Webster sent another email to King in which she asked King to explain “if we go with the annuity alone, why I will be better than with Fidelity (eg. 5% guaranteed, no withdrawal penalty, tax advantages, etc.).” See [D.E. 59–5] Ameritas 627. On October 2, 2008, the parties met again. See [D.E. 51–2] Ameritas 280. At the meeting, the parties discussed the annuities, although Webster and defendants present different views of that discussion. Webster testified that King “opened [a] brochure from Ameritas [and] talked about the guaranteed five percent.” Webster Dep. 258. She further testified that “the part I remember is guaranteed five percent yield,” id. at 189, and that the GLWB rider was not discussed at the meeting. Id. at 189–90. Webster also testified that underlining in the GLWB brochure from the meeting was King's, not Wilson's. Id. at 190; see [D.E. 51–2] Ameritas 252–61. Webster claimed that there was no discussion of the guaranteed 5% yield being a rider or an option, or that the rider required activation and carried a fee. Webster Dep. 190–91. Huband testified that she did not recall discussing the GLWB rider, its benefits, or its details, and that she had no experience with guaranteed lifetime withdrawal benefits. Id. at 109, 111.

King, on the other hand, testified that he never told Webster she was guaranteed a 5% return on her investment, and that Webster never told him she understood the annuities to include such a guarantee. King Dep. 198. King also acknowledged, however, that he “probably” explained that the GLWB rider “allowed you to have a five percent growth ... or the market, whichever is ... greater for that year. And if the market reduced below where it entered ... your funds would stay at that level. They wouldn't follow the market down.” Id. at 132, 171.

Webster testified that her two “experts,” Wilson and Huband, gave conflicting advice regarding the annuities: Wilson approved purchasing the annuities, but Huband was concerned about the transaction. Webster Dep. 276; Huband Dep. 102. Both Huband and Wilson suggested that Webster consider options other than King's offered products. Webster Dep. 231.

On October 15, 2008, Webster opened four AIC accounts, three on her behalf and one, acting as trustee, on behalf of the Trust. See [D.E. 51–5] Ameritas 1700–01, 1734–35, 1766–67, 3546–47. Contemporaneously, she purchased four ALIC variable annuities with initial investments of $60,819.50, $313,939.60, $500,000.00, and $688,932.84. See [D.E. 51–8] Ameritas 2845–50; Am. Compl. ¶¶ 29–30. King completed the forms on Webster's behalf, but Webster reviewed the forms, signed them, and checked a box stating that no one except her would have trading authority. King Dep. 293–95; [D.E. 51–8] Ameritas 2848; see Webster Dep. 306–07. The forms stated that Webster had a “high risk” tolerance and that her top two investment objectives were “tax-advantaged” and “aggressive growth” and the lowest was “income.” See, e.g., [D.E. 51–5] Ameritas 1700–01.1 Furthermore, the GLWB rider was marked as “Inactive Phase,” although Webster purchased a guaranteed death benefit. See [D.E. 51–8] Ameritas 2846. The annuity application also stated that 100% of the investment would go into a money-market portfolio. See [D.E. 51–8] Ameritas 2847. However, because King “checked the wrong box,” the money went into an aggressive fund in October 2008. See [D.E. 51–15] PW 802–03.

Webster and King communicated throughout 2009. In January 2009, Webster learned that her funds were mistakenly put into an aggressive fund, but she also learned that the portfolios had grown by 12%. See [D.E. 51–15] PW 802–03. Webster kept the money in the aggressive funds. See id.; Carter Dep. [D.E. 63–11] 190–91; [D.E. 51–7] Ameritas 2624. On March...

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