Wuliger v. Anstaett

• Decision Date: 05 April 2005
• Docket Number: No. 3:03 CV 1114.,3:03 CV 1114.
• Parties: William T. WULIGER, Plaintiff, v. Jay ANSTAETT, Defendant.
• Court: U.S. District Court — Northern District of Ohio

363 F.Supp.2d 917

William T. WULIGER, Plaintiff, v. Jay ANSTAETT, Defendant.

No. 3:03 CV 1114.

United States District Court, N.D. Ohio, Western Division.

April 5, 2005.

COPYRIGHT MATERIAL OMITTED

Roger J. Katz, Victor M. Javitch, Javitch, Block, Eisen & Rathbone, Cleveland, OH, for Plaintiff.

Dianna M. Anelli, Mazanec, Raskin & Ryder, Columbus, OH, for Defendant.

MEMORANDUM OPINION

KATZ, Senior District Judge.

I. BACKGROUND

Plaintiff William T. Wuliger ("Wuliger") commenced this action against Defendant for recovery of commissions in connection with the sale of viatical investments. This case is an outgrowth of the Liberte v. Capwill¹ litigation which has spawned related litigation both in the state and federal courts. The essence of this action contends that Defendant Jay Anstaett ("Anstaett") entered into an agent sales agreement whereby he solicited individuals to invest in viatical settlements offered by Alpha Capital Group ("Alpha"). In return for making these sales, Anstaett is alleged to have received approximately $ 59,040.35 in commissions.

Wuliger was appointed Receiver of Alpha in the fall of 2001. Thereafter, he was authorized by the Court in the Liberte action, in part, to:

[U]se his best judgment to protect the rights of Alpha investors and to discharge his duties in a manner calculated to preserve the greatest monetary recovery for the maximum number of all Alpha investors.

(Liberte, Doc. No. 1290.) One year later those responsibilities included the right to pursue actions against Liberte and Alpha agents and brokers. (Liberte, Doc. No. 1758.) More recently, the Court clarified the expanded role of both the General and Alpha Receivers, stating that:

[I]n keeping with the ultimate goal of maximizing the estates for the benefit of the investors, [the Receivers] are empowered to represent and pursue the interests of the investors directly. The Receivers shall further continue to carry out their duties and obligations as set forth by previous and existing Order of the Court. Finally, the Receivers shall continue to coordinate their efforts with class counsel to recover, protect and preserve receivership assets.

(Doc. No.1982.)

Wuliger initiated this suit in June 2003 against Anstaett but amended the complaint in January 2004, alleging the following claims: (1) violations of the 1933 Securities Act, 15 U.S.C. § 77; (2) violations of the Securities Exchange Act of 1934, 15 U.S.C. § 78 j; (3) common law fraud; (4) fraud in the inducement; (5) breach of contract; (6) unjust enrichment; (7) conversion; (8) breach of fiduciary duty/breach of covenant to act in good faith and fair dealing; (9) intentional or negligent misrepresentation; and (10) violations of the Investment Advisor Act, 15 U.S.C. §§ 80b-3, 80b-4, 80b-6, and 80b-15. Anstaett now moves for dismissal of these claims under Fed.R.Civ.P. 12(b)(1) and (6).

II. MOTION TO DISMISS STANDARD

A. Fed.R.Civ.P. 12(b)(1)

Generally, Fed.R.Civ.P. 12(b)(1) motions to dismiss for lack of subject matter jurisdiction fall into two categories: facial attacks and factual attacks. FED.R.CIV.P. 12(b)(1); United States v. Ritchie, 15 F.3d 592, 598 (6th Cir.), cert. denied, 513 U.S. 868, 115 S.Ct. 188, 130 L.Ed.2d 121 (1994). A facial attack challenges the sufficiency of the pleading itself. Upon receiving such a motion, the Court must take all of the material allegations in the complaint as true and construe them in the light most favorable to the non-moving party. Id. (citing Scheuer v. Rhodes, 416 U.S. 232, 235-37, 94 S.Ct. 1683, 1686-87, 40 L.Ed.2d 90 (1974)). In contrast, a factual attack challenges the factual existence of subject matter jurisdiction. See Ohio Hosp. Ass'n v. Shalala, 978 F.Supp. 735, 739 (N.D.Ohio.1997), aff'd in part, rev'd in part, 201 F.3d 418 (1999).

When a Court is inquiring about whether it has subject matter jurisdiction, "no presumptive truthfulness applies to the factual allegations, and the court is free to weigh the evidence and satisfy itself as to the existence of its power to hear the case." United States v. Ritchie, 15 F.3d 592, 598 (6th Cir.1994) (internal citations omitted). See also RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1135 (6th Cir.1996). "In reviewing such a motion, a district court is to probe the facts and assess the validity of its own jurisdiction. In doing so, the Court has a wide discretion to consider affidavits and the documents outside the complaint, and may even conduct a limited evidentiary hearing if necessary." Ohio Hosp. Ass'n v. Shalala, 978 F.Supp. 735, 739 (N.D.Ohio.1997) (relying on Ohio Nat'l Life Ins. Co. v. United States, 922 F.2d 320, 325 (6th Cir.1990)). Finally, the plaintiff bears the burden of demonstrating that the Court has and may appropriately exercise jurisdiction over the subject matter. RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1134 (6th Cir.1996).

B. Fed.R.Civ.P. 12(b)(6).

In deciding a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), the function of the Court is to test the legal sufficiency of the complaint. In scrutinizing the complaint, the Court is required to accept the allegations stated in the complaint as true, Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984), while viewing the complaint in a light most favorable to the plaintiffs, Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); Westlake v. Lucas, 537 F.2d 857, 858 (6th Cir.1976). The Court is without authority to dismiss the claims unless it can be demonstrated beyond a doubt that the plaintiff can prove no set of facts that would entitle it to relief. Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-02, 2 L.Ed.2d 80 (1957); Westlake, supra, at 858. See generally 2 JAMES W. MOORE, MOORE'S FEDERAL PRACTICE, § 12.34[1] (3d ed.2004).

III. DEFENDANT'S MOTION TO DISMISS

A. Viatical Settlements as "Securities"

In this instance, the allegations involve the sale of viatical settlements which the Plaintiff contends violated various federal securities laws. Under 28 U.S.C. § 1331:

The district courts shall have original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the United States.

The federal laws or statutes implicated in the complaint are those set forth in 12 U.S.C. § 77 and 15 U.S.C. § 78j(b). It is the Defendant's contention that the sale of viatical settlements do not constitute securities. This Court disagrees. The exact same issue was presented in another agent commission action also involving viatical settlements sold by Alpha. Wuliger v. Christie, 310 F.Supp.2d 897 (N.D.Ohio 2004). In that case, the Court examined the Supreme Court's test in S.E.C. v. Howey, 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946), the relevant Sixth Circuit precedent, and chronicled the cases considering this same issue in both state and federal forums. Christie, 310 F.Supp.2d at 901-908. After examination of the relevant case law, this Court declined to adopt the narrow approach advocated by S.E.C. v. Life Partners, Inc., 87 F.3d 536 (D.C.Cir.1996), in coming to the following conclusion:

Therefore, in determining whether the Alpha viatical investment met the requirements under Howey, this Court is mindful of the Supreme Court's admonition in Tcherepnin v. Knight, 389 U.S. 332, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967), which advocated a more expansive approach to interpreting the term "securities." This Court believes such approach should be "flexible rather than a static principle" since it must be applied to all types of schemes aimed at investors. Howey, at 299, 66 S.Ct. at 1103. It applying the "efforts of others" prong, this Court is of the view that the promoter's selection of the vehicle, in this instance a viatical policy, is critical to the investor's expectation of profit. Once the investor agreed to purchase a viatical settlement, Alpha, like Liberte, would match the viatical settlement in an insurance policy maintained by Alpha. There is nothing to suggest the investor was involved or instrumental in the selection of the appropriate viatical policy, relying on the promise of the agent, broker or Alpha that their money would be in a matched policy. Thus, in this Court's view, it is not the date of the viator's death which establishes the success of the investment but the selection by the promoter of the policy into which the investor's money is placed, based upon its expertise in assessing the viator's life expectancy and other variables, which drives the success of the investment. It is this conduct which constitutes efforts of others under the broad construction advocated by the Supreme Court in Howey. Even under the analysis in Life Partners, such post-purchase conduct would suffice to meet the factors under Howey. However, to limit consideration to pre-purchase conduct would, in the words of Judge Wald, "violate[] the principle that form should not be elevated over substance and economic reality." 87 F.3d at 551.

In the case sub judice, economic realities dictate against a narrow approach since there will always be opportunistic entrepreneurs who attempt to evade liability based on those distinctions. In the end the investments offered by Alpha and peddled by its agents were an opportunity to "contribute or invest" money into a common enterprise and share profits derived, with the critical aspects of a successful investment riding on the "expertise" of Alpha. Keeping in mind the expansive approach employed in a securities analysis, the Court finds the viatical investments in this case constitute securities under the Federal Securities Act. 310 F.Supp.2d at 908-909. For these reasons, the Court determines that viatical settlements are securities within the Securities Exchange Acts of 1933 and 1934, thereby confirming the district court's jurisdiction under 28 U.S.C. § 1331.

The Defendant also contends the viatical settlements were not...