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Armellini v. Levin

United States District Court, D. Maryland

January 9, 2020

DEBORAH ARMELLINI, et al. Plaintiffs
v.
SCOTT M. LEVIN, et al. Defendants.

          MEMORANDUM OPINION

          Ellen L. Hollander United States District Judge

         This suit concerns a life insurance policy purchased by plaintiffs Deborah Armellini and Armellini Management Company through defendant Scott M. Levin, an alleged agent and/or employee of defendant Worthington Financial Partners, LLC (“Worthington”), a subsidiary of Life Insurance Company of the Southwest. ECF 1 (the “Complaint”).[1] Plaintiffs allege that in November 2009, Mr. Levin, a Financial Advisor, induced them to purchase an Indexed Universal Life Insurance Policy (the “Policy”) from the Life Insurance Company of the Southwest (“LICS”), and to continue investing in the Policy by misrepresenting the Policy's true features, causing plaintiffs to lose over $250, 000.[2]

         The Complaint contains five counts. Count I, lodged against Mr. Levin, alleges a common law claim for conversion. ECF 1, ¶¶ 27-31. In Count II, plaintiffs assert a cause of action against Mr. Levin for breach of fiduciary duty. Id. ¶¶ 32-38. Count III, also lodged against Mr. Levin, alleges fraudulent misrepresentation. Id. ¶¶ 39-45. Count IV asserts a claim against Worthington for breach of fiduciary duty. Id. ¶¶ 46-54. And, in Count V, plaintiffs assert a claim against Worthington for fraudulent misrepresentation. Id. ¶¶ 55-61.

         Defendants have jointly moved to dismiss the Complaint, pursuant to Fed.R.Civ.P. 12(b)(6). ECF 21. The motion is supported by a memorandum of law (ECF 21-1) (collectively, the “Motion”), and one exhibit. ECF 21-2. Plaintiffs oppose the Motion (ECF 27), and defendants have replied. ECF 28.

         Pursuant to Fed.R.Civ.P. 14(a), defendants filed a third-party complaint against Ms. Armellini's tax advisor, Simcha Baer, a licensed Certified Public Accountant. ECF 23 (the “Third-Party Complaint). According to defendants, to the extent that they are liable, so too is Mr. Baer, because he facilitated the initial meeting between Ms. Armellini and Mr. Levin in November 2009, participated in the planning, and provided investment advice to Ms. Armellini in regard to the Policy. The Third-Party Complaint lodges claims against Mr. Baer for “Implied Indemnity” (Count I) and “Contribution” (Count II).

         Mr. Baer has filed a pre-discovery motion to dismiss or, in the alternative, for summary judgment, pursuant to Fed.R.Civ.P. 12(b)(6) and Fed.R.Civ.P. 56. ECF 33 (the “Baer Motion”). An affidavit from Mr. Baer is appended to the Baer Motion. ECF 33-1. Defendants oppose the Baer Motion (ECF 36), which is supported by an affidavit from Mr. Levin. ECF 36-1. Mr. Baer has replied. ECF 39.

         No hearing is necessary to resolve the motions See Local Rule 105.6. For the reasons that follow, I shall grant defendants' Motion (ECF 27) in part and deny it in part. And, construing the Baer Motion as one for summary judgment, I shall grant the Baer Motion (ECF 33).

         I. Factual Background

         A. The Armellini Complaint[3]

         Ms. Armellini met with Mr. Levin on November 24, 2009, to discuss life insurance policies. ECF 1, ¶¶ 13-14. According to plaintiffs, Mr. Levin worked as a “Financial Advisor” for Worthington, a subsidiary of LICS. Id. ¶ 13; see Id. ¶ 7. Mr. Levin “advised” Ms. Armellini to purchase the Policy from LICS. Id. ¶ 13. He represented to Ms. Armellini that the Policy was indexed to the stock market. Id. ¶ 16. And, he allegedly “promised” Ms. Armellini that “within 10 years of taking out the policy, the cash value of the policy would be, at least, equal to the total investment.” Id. ¶ 17. The same day, Ms. Armellini and Mr. Levin executed an “‘Application for Life Insurance,' which included representations made by Mr. Levin and Worthington[.]” Id. ¶ 15.

         Based on Mr. Levin's statements, plaintiffs began investing $75, 000 per year in the Policy. Id. ¶ 18. In total, they invested over $475, 000 in the Policy. Id. ¶ 19.

         Plaintiffs allege that Mr. Levin “repeatedly advised [them] that the cash value of the policy would equal Ms. Armellini's contributions” and that, “despite the fact that the cash value of the policy [was] continually declining, all ‘was well.'” Id. ¶ 21. Further, on January 5, 2015, Mr. Levin emailed Ms. Armellini, stating that the cash value of the Policy “would be ‘at least' equal to the amount of Ms. Armellini's contributions after 10-years from the initial policy investment.” Id. ¶ 21.

         However, “[t]his promise never came to fruition.” Id. ¶ 22. Instead, the Policy's value “plummeted.” Id. Plaintiffs allegedly learned in April 2018, that the Policy had only a three percent fixed rate of return, the funds were not invested in stock indices, and the Policy allocated $72, 000 of plaintiff's annual investments to premiums. Id. ¶ 23. As a result, “the cash value of the Policy [was] quickly depleted.” Id. According to plaintiffs, they lost approximately $250, 000 by investing in the Policy. Id. ¶ 24.

         B. The Third-Party Action[4]

         Mr. Baer was a Certified Public Accountant (“CPA”), whose practice included providing tax advice and form preparation for small businesses. ECF 33-2, ¶ 2.[5] However, he is not a Certified Financial Planner, nor is he licensed to sell life insurance. Id. ¶¶ 4, 5. Plaintiffs “were long-term clients” of Mr. Baer's. Id. ¶ 3; see ECF 23, ¶¶ 7-9.

         According to Mr. Levin, Mr. Baer facilitated a meeting in November 2009 between Ms. Armellini, Mr. Levin, Mr. Baer, and Clifford Kwartner, an agent of NLV, [6] to discuss investment strategy. ECF 36-2, ¶¶ 6, 8; see also ECF 23, ¶ 13. During the meeting, Mr. Baer and Mr. Levin proposed a plan for Ms. Armellini to purchase the Policy. ECF 36-2, ¶ 8; ECF 23, ¶ 13. Specifically, they proposed that Ms. Armellini “fund $150, 000 per year for an initial five-year period into a fixed account, ” and then “move the funds into an indexed portion of the [P]olicy, where it would remain and continue to grow on a tax-deferred basis.” ECF 36-2, ¶ 9; ECF 23, ¶ 14; see ECF 36-2, ¶ 9. Further, Mr. Baer and Mr. Levin proposed that Ms. Armellini purchase a separate Term Life Insurance Policy for an initial five-year period, after which it would be converted into another Indexed Life Insurance Policy, with tax benefits. ECF 36-2, ¶ 10; ECF 23, ¶ 15.

         Mr. Levin states that he presented this proposal to Ms. Armellini only after Mr. Baer “expressed his opinion during the meeting as to the amounts that Ms. Armellini should fund, or would be able to fund, over an initial 5-year period.” ECF 36-2, ¶ 11; see ECF 23, ¶ 16. Further, he states that Mr. Baer “specifically recommended, endorsed and approved” the proposed investment strategy. ECF 36-2, ¶ 13; see ECF 23, ¶ 17.

         Ms. Armellini, relying on Mr. Baer's recommendation, proceeded to purchase the Policy and Term Life Insurance Policy from Mr. Levin. ECF 36-2, ¶ 14; ECF 23, ¶ 18. But, according to defendants, Ms. Armellini “eventually ceased to fund the policies, allegedly due to a change in circumstances in her business.” ECF 36-2, ¶ 15; see ECF 23, ¶ 19.

         Mr. Levin paid Mr. Baer a consulting fee of $3, 850 on November 30, 2010. ECF 36-2, ¶ 16. And, Mr. Levin states that he believes Mr. Kwartner paid Mr. Baer a consulting fee in the same amount. Id. ¶ 17.

         Mr. Baer does not dispute that he attended the meeting in November 2009 with Ms. Armellini and Mr. Levin. But, he denies that he ever advised plaintiffs “regarding the investment aspects of the insurance policies []or make any guarantees regarding returns on the policies.” ECF 33-2, ¶ 10. Although Mr. Baer does not indicate whether he received fees for facilitating the meeting, he maintains that he never collected any premiums on the Policy. Id. ¶ 11.

         II. Choice of Law

         The parties assume, without discussion, that Maryland law applies to this diversity case. In an action based upon diversity of citizenship, a federal court must apply the substantive law of the state in which it sits, including that state's choice of law rules. Klaxon Co. v. Stentor Elect. Mfg. Co., 313 U.S. 487, 496-97 (1941); Colgan Air, Inc. v. Raytheon Aircraft Co., 507 F.3d 270, 275 (4th Cir. 2007); Baker v. Antwerpen Motorcars, Ltd., 807 F.Supp.2d 386, 389 n.13 (D. Md. 2011).

         Maryland is, of course, the forum state. Under Maryland's choice-of-law principles for tort claims, Maryland applies the doctrine of lex loci delecti, i.e., the law of the jurisdiction where the alleged wrong occurred. Lewis v. Waletzky, 422 Md. 647, 657, 31 A.3d 123, 129 (2011); Erie Ins. Exch. v. Heffernan, 399 Md. 598, 620, 925 A.2d 636, 648 (2007); Kortobi v. Kass, 182 Md.App. 424, 443, 957 A.2d 1128, 1139 (2008), aff'd, 410 Md. 168, 978 A.2d 247 (2009).

         Defendants are both citizens of Maryland. See ECF 1, ¶¶ 6-7; ECF 14. Mr. Baer is also a citizen of Maryland. ECF 23, ¶ 3; ECF 33-1, ¶ 1. Therefore, it seems likely that the allegedly tortious conduct of defendants and Mr. Baer occurred in Maryland. In any event, all parties rely on Maryland law in their submissions. See ECF 21; ECF 27; ECF 28; ECF 33; ECF 36; ECF 39. And, in a case where the parties have not identified any state law conflicts, the court need not undertake a choice-of-law analysis. See Cleaning Authority, Inc. v. Neubert, 739 F.Supp.2d 807, 820 (D. Md. 2010) (“‘Choice-of-law analysis becomes necessary . . . only if the relevant laws of the different states lead to different outcomes.'” (citation omitted)); see also Vanderhoof-Forschner v. McSweegan, 215 F.3d 1323 (Table) at *2 n.2 (4th Cir. 2000) (“[B]ecause the parties implicitly agree that Maryland law governs their claims, [the Court] need not inquire further into the choice-of-law questions.”). Accordingly, I shall apply the substantive law of Maryland.

         III. Standards of Review

         A. Rule 12(b)(6)

         Defendants move to dismiss the Complaint pursuant to Fed.R.Civ.P. 12(b)(6). ECF 21. A defendant may test the legal sufficiency of a complaint by way of a motion to dismiss under Rule 12(b)(6). In re Birmingham, 846 F.3d 88, 92 (4th Cir. 2017); Goines v. Valley Cmty. Servs. Bd., 822 F.3d 159, 165-66 (4th Cir. 2016); McBurney v. Cuccinelli, 616 F.3d 393, 408 (4th Cir. 2010), aff'd sub nom., McBurney v. Young, 569 U.S. 221 (2013); Edwards v. City of Goldsboro, 178 F.3d 231, 243 (4th Cir. 1999). A Rule 12(b)(6) motion constitutes an assertion by a defendant that, even if the facts alleged by a plaintiff are true, the complaint fails as a matter of law “to state a claim upon which relief can be granted.”

         Whether a complaint states a claim for relief is assessed by reference to the pleading requirements of Fed.R.Civ.P. 8(a)(2). That rule provides that a complaint must contain a “short and plain statement of the claim showing that the pleader is entitled to relief.” The purpose of the rule is to provide the defendants with “fair notice” of the claims and the “grounds” for entitlement to relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007).

         To survive a motion under Rule 12(b)(6), a complaint must contain facts sufficient to “state a claim to relief that is plausible on its face.” Twombly, 550 U.S. at 570; see Ashcroft v. Iqbal, 556 U.S. 662, 684 (2009) (citation omitted) (“Our decision in Twombly expounded the pleading standard for ‘all civil actions' . . . .”); see also Paradise Wire & Cable Defined Benefit Pension Plan v. Weil, 918 F.3d 312, 317 (4th Cir. 2019); Willner v. Dimon, 849 F.3d 93, 112 (4th Cir. 2017). To be sure, a plaintiff need not include “detailed factual allegations” in order to satisfy Rule 8(a)(2). Twombly, 550 U.S. at 555. Moreover, federal pleading rules “do not countenance dismissal of a complaint for imperfect statement of the legal theory supporting the claim asserted.” Johnson v. City of Shelby, Miss., 574 U.S. 10, 10 (2014) (per curiam). But, mere “‘naked assertions' of wrongdoing” are generally insufficient to state a claim for relief. Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009) (citation omitted).

         In other words, the rule demands more than bald accusations or mere speculation. Twombly, 550 U.S. at 555; see Painter's Mill Grille, LLC v. Brown, 716 F.3d 342, 350 (4th Cir. 2013). If a complaint provides no more than “labels and conclusions” or “a formulaic recitation of the elements of a cause of action, ” it is insufficient. Twombly, 550 U.S. at 555. “[A]n unadorned, the-defendant-unlawfully-harmed-me accusation” does not state a plausible claim of relief. Iqbal, 556 U.S. at 678. Rather, to satisfy the minimal requirements of Rule 8(a)(2), the complaint must set forth “enough factual matter (taken as true) to suggest” a cognizable cause of action, “even if . . . [the] actual proof of those facts is improbable and . . . recovery is very remote and unlikely.” Twombly, 550 U.S. at 556 (internal quotation marks omitted).

         In reviewing a Rule 12(b)(6) motion, a court “must accept as true all of the factual allegations contained in the complaint” and must “draw all reasonable inferences [from those facts] in favor of the plaintiff.” E.I. du Pont de Nemours & Co., 637 F.3d at 440 (citations omitted); see Semenova v. Md. Transit Admin., 845 F.3d 564, 567 (4th Cir. 2017); Houck v. Substitute Tr. Servs., Inc., 791 F.3d 473, 484 (4th Cir. 2015); Kendall v. Balcerzak, 650 F.3d 515, 522 (4th Cir. 2011), cert. denied, 565 U.S. 943 (2011). But, a court is not required to accept legal conclusions drawn from the facts. See Papasan v. Allain, 478 U.S. 265, 286 (1986); Glassman v. Arlington Cty., 628 F.3d 140, 146 (4th Cir. 2010). “A court decides whether [the pleading] standard is met by separating the legal conclusions from the factual allegations, assuming the truth of only the factual allegations, and then determining whether those allegations allow the court to reasonably infer” that the plaintiff is entitled to the legal remedy sought. A Society Without a Name v. Virginia, 655 F.3d 342, 346 (4th. Cir. 2011), cert. denied, 566 U.S. 937 (2012).

         Courts ordinarily do not “‘resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses'” through a Rule 12(b)(6) motion. Edwards, 178 F.3d at 243 (quoting Republican Party v. Martin, 980 F.2d 943, 952 (4th Cir. 1992)). However, “in the relatively rare circumstances where facts sufficient to rule on an affirmative defense are alleged in the complaint, the defense may be reached by a motion to dismiss filed under Rule 12(b)(6).” Goodman v. Praxair, Inc., 494 F.3d 458, 464 (4th Cir. 2007) (en banc); accord Pressley v. Tupperware Long Term Disability Plan, 553 F.3d 334, 336 (4th Cir. 2009). Because Rule 12(b)(6) “is intended [only] to test the legal adequacy of the complaint, ” Richmond, Fredericksburg & Potomac R.R. Co. v. Forst, 4 F.3d 244, 250 (4th Cir. 1993), “[t]his principle only applies . . . if all facts necessary to the affirmative defense ‘clearly appear[ ] on the face of the complaint.'” Goodman, 494 F.3d at 464 (quoting Forst, 4 F.3d at 250) (emphasis added in Goodman).

         “Generally, when a defendant moves to dismiss a complaint under Rule 12(b)(6), courts are limited to considering the sufficiency of allegations set forth in the complaint and the ‘documents attached or incorporated into the complaint.'” Zak v. Chelsea Therapeutics Int'l, Ltd., 780 F.3d 597, 606 (4th Cir. 2015) (quoting E.I. du Pont de Nemours & Co., 637 F.3d at 448). Ordinarily, the court “may not consider any documents that are outside of the complaint, or not expressly incorporated therein . . . .” Clatterbuck v. City of Charlottesville, 708 F.3d 549, 557 (4th Cir. 2013); see Bosiger, 510 F.3d at 450.

         But, under limited circumstances, when resolving a Rule 12(b)(6) motion, a court may consider documents beyond the complaint without converting the motion to dismiss to one for summary judgment. Goldfarb v. Mayor & City Council of Balt., 791 F.3d 500, 508 (4th Cir. 2015). In particular, a court may properly consider documents that are “explicitly incorporated into the complaint by reference and those attached to the complaint as exhibits.” Goines, 822 F.3d at 166 (citation omitted); see also Six v. Generations Fed. Credit Union, 891 F.3d 508, 512 (4th Cir. 2018); Anand v. Ocwen Loan Servicing, LLC, 754 F.3d 195, 198 (4th Cir. 2014); U.S. ex rel. Oberg v. Pa. Higher Educ. Assistance Agency, 745 F.3d 131, 136 (4th Cir. 2014); Am. Chiropractic Ass'n v. Trigon Healthcare, Inc., 367 F.3d 212, 234 (4th Cir. 2004), cert. denied, 543 U.S. 979 (2004); Phillips v. LCI Int'l Inc., 190 F.3d 609, 618 (4th Cir. 1999).

         However, “before treating the contents of an attached or incorporated document as true, the district court should consider the nature of the document and why the plaintiff attached it.” Goines, 822 F.3d at 167 (citing N. Ind. Gun & Outdoor Shows, Inc. v. City of S. Bend, 163 F.3d 449, 455 (7th Cir. 1998)). Notably, “[w]hen the plaintiff attaches or incorporates a document upon which his claim is based, or when the complaint otherwise shows that the plaintiff has adopted the contents of the document, crediting the document over conflicting allegations in the complaint is proper.” Goines, 822 F.3d at 167. Conversely, “where the plaintiff attaches or incorporates a document for purposes other than the truthfulness of the document, it is inappropriate to treat the contents of that document as true.” Id.

         A court may also “consider a document submitted by the movant that [is] not attached to or expressly incorporated in a complaint, so long as the document was integral to the complaint and there is no dispute about the document's authenticity.” Goines, 822 F.3d at 166 (citations omitted); see also Woods v. City of Greensboro, 855 F.3d 639, 642 (4th Cir. 2017), cert. denied, __ U.S. __, 138 S.Ct. 558 (2017); Oberg, 745 F.3d at 136; Kensington Volunteer Fire Dep't. v. Montgomery Cty., 684 F.3d 462, 467 (4th Cir. 2012). To be “integral, ” a document must be one “that by its ‘very existence, and not the mere information it contains, gives rise to the legal rights asserted.'” Chesapeake Bay Found., Inc. v. Severstal Sparrows Point, LLC, 794 F.Supp.2d 602, 611 (D. Md. 2011) (citation omitted) (emphasis in original). See also Fed. R. Civ. P. 10(c) (“A copy of a written instrument that is an exhibit to a pleading is a part of the pleading for all purposes.”).

         In addition, “a court may properly take judicial notice of ‘matters of public record' and other information that, under Federal Rule of Evidence 201, constitute ‘adjudicative facts.'” Goldfarb, 791 F.3d at 508; see also Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322 (2007); Katyle v. Penn Nat'l Gaming, Inc., 637 F.3d 462, 466 (4th Cir. 2011), cert. denied, 565 U.S. 825 (2011); Philips v. Pitt Cty. Mem. Hosp., 572 F.3d 176, 180 (4th Cir. 2009). However, under Fed.R.Evid. 201, a court may take judicial notice of adjudicative facts only if they are “not subject to reasonable dispute, ” in that they are “(1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.”

         In support of defendants' Motion, defendants filed a copy of a record of the Maryland Department of Assessments and Taxation for Worthington. ECF 21-2. This document is publicly available, and plaintiffs do not challenge its authenticity. Accordingly, I may take judicial notice of this exhibit.

         B. Rule 9(b)

         To the extent that plaintiffs' suit lodges fraud claims against Mr. Levin and Worthington, Fed.R.Civ.P. 9(b) is pertinent. Rule 9(b) states: “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person's mind may be alleged generally.”

         As a preliminary matter, claims that sound in fraud, whether rooted in common law or arising under a statute, implicate the heightened pleading standard of Fed.R.Civ.P. 9(b). See, e.g., E-Shops Corp. v. U.S. Bank N.A., 678 F.3d 659, 665 (8th Cir. 2012) (“Rule 9(b)'s heightened pleading requirement also applies to statutory fraud claims.”); see also Spaulding v. Wells Fargo Bank, N.A., 714 F.3d 769, 781 (4th Cir. 2013) (stating that an MCPA claim that “sounds in fraud[] is subject to the heightened pleading standards of Federal Rule of Civil Procedure 9(b)”).

         Under the rule, a claim that sounds in fraud “‘must, at a minimum, describe the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby.'” U.S. ex rel. Nathan v. Takeda Pharms. N.A., Inc., 707 F.3d 451, 455 (4th Cir. 2013) (citation omitted). In other words, Rule 9(b) requires the plaintiff to plead “the who, what, when, where, and how of the alleged fraud” before the parties can proceed to discovery. U.S. ex rel. Wilson v. Kellogg Brown & Root, 525 F.3d 370, 379 (4th Cir. 2008) (internal quotation marks omitted)

         Rule 9(b) serves several salutary purposes:

First, the rule ensures that the defendant has sufficient information to formulate a defense by putting it on notice of the conduct complained of. . . . Second, Rule 9(b) exists to protect defendants from frivolous suits. A third reason for the rule is to eliminate fraud actions in which all the facts are learned after discovery. ...

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