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Dolan v. PHL Variable Insurance Co.

United States District Court, M.D. Pennsylvania

October 25, 2017

TIMOTHY AND ANN DOLAN, et. al., Plaintiffs,


          A. Richard Caputo, United States District Judge.

         Presently before this Court are four (4) motions to dismiss Plaintiffs' Amended Complaint (Doc. 56) filed by Defendants Allianz Life Insurance Company of North America (“Allianz”) (Doc. 64), North American Company For Life and Health Insurance (“North American”) (Doc. 65), PHL Variable Insurance Company (“PHL”) (Doc. 66), and Forethought Life Insurance Company (“Forethought”) (Doc. 67) (collectively “Defendants”). Because the Amended Complaint fails to comport with Federal Rule of Civil Procedure 9(b) and fails to adequately plead a claim under the UTPCPL, Count I of the Amended Complaint will be dismissed without prejudice. Count II of the Amended Complaint will also be dismissed without prejudice because Plaintiffs have failed to adequately plead a fiduciary or confidential relationship between the parties. Finally, Count III of the Amended Complaint will be dismissed with prejudice because Plaintiffs' negligence claims are barred by the economic loss doctrine.

         I. Background

         A. Factual Background

         The facts, as set forth in Plaintiffs' Amended Complaint (Doc. 56), are as follows: Plaintiffs Timothy and Ann Dolan, the Estate of Jean Dolan, Raymond and Elizabeth Flannery, Robert and Linda Gruner, Virginia Hetherington, and Carmen Fierro (collectively "Plaintiffs") are alleged victims of a scheme perpetrated by a registered financial advisor, Joseph S. Hyduk (“Hyduk”), and his company BNA Financial Services (“BNA”).

         Plaintiffs aver that Hyduk separately targeted each Plaintiff, held himself out as an agent of Defendants, and specifically presented each Plaintiff with investment opportunities with Defendants. Hyduk explained to Plaintiffs that their purchase of annuities with Defendants would be a safe investment option without risk to principal. Further, Hyduk explained to Plaintiffs that the minimum guaranteed return on these annuities would be one percent. Plaintiffs allege that to convince them to purchase annuities issued by Defendants, Hyduk would often present Plaintiffs with pro forma statements prepared by Defendants, indicating the projected returns Plaintiffs would receive on their investment. Those statements allegedly helped convince Plaintiffs to rollover their existing investments to products issued by Defendants. Notably, Plaintiffs do not aver that the pro formas provided false information.

         To purchase annuities issued by Defendants, Plaintiffs were required to complete applications. After having their applications approved, Plaintiffs, through Hyduk, would purchase annuities issued by Defendants. These purchases would be accompanied by rollover forms identifying the current plan information and the account being transferred.

         Following the purchase of an annuity, Hyduk would manipulate Plaintiffs into selling their investment for his own gain. Hyduk profited by having his clients take withdrawals subject to substantial fees and penalties from their annuities issued by Defendants. After receiving the refund checks, instead of purchasing alternative investment products, Hyduk would keep those funds for his own benefit. Defendants also profited from Hyduk's actions because they retained fees related to Plaintiffs early withdrawal.

         Plaintiffs claim that Hyduk's rate of early withdrawals was unusually high and should have put Defendants on notice that Hyduk was not operating according to industry standards or in the best interest of their customers. The withdrawals generally occurred within the first few years following the purchase of Defendants' annuities, thus causing Plaintiffs to incur substantial surrender fees in connection with these transactions. It is unclear what industry standard Plaintiffs rely on and whether defendants were able to deny potentially fraudulent withdrawal requests.

         Plaintiffs further allege that Defendants ignored countless “red flags” that may have suggested that Hyduk was defrauding his clients. Specifically, Plaintiffs allege that Defendants ignored numerous transactions where the sale of annuities by Hyduk's clients resulted in substantial surrender charges. Defendants also purportedly disregarded that Hyduk's clients' repeated withdrawal requests were often unaccompanied by rollover forms authorizing the transfer of funds to purchase different investments offered by other financial service providers. According to Plaintiffs, the volume of transactions in which Hyduk's victims requested withdrawals in the absence of rollover forms was atypical and signaled a likelihood of criminal activity. Yet, despite the absence of rollover information, Defendants and their respective compliance departments failed to investigate Hyduk or otherwise question the provision of services by their authorized agent. Again, it is unclear what standard is used by Plaintiffs to deem Defendants' conduct atypical.

         Plaintiffs also allege that Hyduk converted the withdrawn funds for his own use by asking Plaintiffs to endorse checks for the funds directly to him. Defendants, however, allegedly ignored the fact that the withdrawal forms were not signed by the annuity holder, and failed to conduct any due diligence as to the conduct of Hyduk and the circumstances of these withdrawal requests.

         At bottom, Plaintiffs allege that, although numerous warning signs existed, Defendants failed to conduct even minimal due diligence with respect to Hyduk's operations.

         B. Procedural History

         On October 16, 2013, Hyduk's company was raided by the Federal Bureau of Investigation. On August 4, 2014, charges were filed against Hyduk in this Court.[1]Subsequently, Hyduk pled guilty to tax evasion and wire fraud. On July 30, 2015, he was sentenced to more than five years in prison In light of the foregoing events, on November 13, 2015, Plaintiffs filed a three-count Complaint (Doc. 1) against Defendants. Plaintiffs' Complaint was dismissed in its entirety without prejudice on November 22, 2016 due to its failure to comply with Federal Rules of Civil Procedure 8 and 9(b).

         Plaintiffs timely filed an Amended Complaint on December 13, 2016. The Amended Complaint contains the following claims: (1) Count I alleging violations of Pennsylvania's Unfair Trade Practices and Consumer Protection Law (“UTPCPL”); (2) Count II alleging a breach of fiduciary duties by Defendants; and (3) Count III alleging negligence. These are the exact claims contained in Plaintiffs' original complaint.

         Again, Defendants have moved to dismiss all claims with prejudice. (Docs. 64-67). These motions have been fully briefed and are ripe for disposition.

         II. Legal Standard

         A. Motion to Dismiss

         Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a complaint, in whole or in part, for failure to state a claim upon which relief can be granted. See Fed. R. Civ. P. 12(b)(6). When considering a Rule 12(b)(6) motion, the Court's role is limited to determining if a plaintiff is entitled to offer evidence in support of their claims. See Semerenko v. Cendant Corp., 223 F.3d 165, 173 (3d Cir. 2000). The Court does not consider whether a plaintiff will ultimately prevail. Id. A defendant bears the burden of establishing that a plaintiff's complaint fails to state a claim. See Gould Elecs. v. United States, 220 F.3d 169, 178 (3d Cir. 2000).

         “A pleading that states a claim for relief must contain . . . a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a). The statement required by Rule 8(a)(2) must give the defendant fair notice of what the . . . claim is and the grounds upon which it rests. Erickson v. Pardus, 551 U.S. 89, 93, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007) (per curiam) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Detailed f actual allegations are not required. Twombly, 550 U.S. at 555, 127 S.Ct. 1955. However, mere conclusory statements will not do; “a complaint must do more than allege the plaintiff's entitlement to relief.” Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). Instead, a complaint must “show” this entitlement by alleging sufficient facts. Id. “While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1950, 173 L.Ed.2d 868 (2009). As such, “[t]he touchstone of the pleading standard is plausability.” Bistrian v. Levi, 696 F.3d 352, 365 (3d Cir. 2012).

         The inquiry at the motion to dismiss stage is “normally broken into three parts: (1) identifying the elements of the claim, (2) reviewing the complaint to strike conclusory allegations, and then (3) looking at the well-pleaded components of the complaint and evaluating whether all of the elements identified in part one of the inquiry are sufficiently alleged.” Malleus v. George, 641 F.3d 560, 563 (3d Cir. 2011).

         Dismissal is appropriate only if, accepting as true all the facts alleged in the complaint, a plaintiff has not pleaded “enough facts to state a claim to relief that is plausible on its face, ” Twombly, 550 U.S. at 570, 127 S.Ct. 1955, meaning enough factual allegations “‘to raise a reasonable expectation that discovery will reveal evidence of'” each necessary element. Phillips v. County of Allegheny, 515 F.3d 224, 234 (3d Cir. 2008) (quoting Twombly, 550 U.S. at 556, 127 S.Ct. 1955). “The plausibility standard is not akin to a ‘probability requirement, ' but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. “When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief.” Id. at 679, 129 S.Ct. 1937.

         In deciding a motion to dismiss, the Court should consider the allegations in the complaint. In addition to the allegations found in the complaint, the court may examine “exhibits attached to the complaint, matters of public record, ” and “legal arguments presented in memorandums or briefs and arguments of counsel.” Mayer, 605 F.3d at 230; Pryor, 288 F.3d at 560. Additionally, the Court may consider “undisputedly authentic” documents when the plaintiff's claims are based on the documents and the defendant has attached copies of the documents to the motion to dismiss. Am. Corp. Soc. v. Valley Forge Ins. Co., 424 Fed.App'x. 86 (3d Cir. 2011) (citing Pension Benefit Gaur. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993)). A Court may also consider a “document integral or explicitly relied upon in the complaint.” In Re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997) (Alito, J.). At bottom, documents may be examined by this Court when ruling on a motion to dismiss when Plaintiff had proper notice of the existence of the documents. Id. The Court need not assume the plaintiff can prove facts that were not alleged in the complaint, see City of Pittsburgh v. W. Penn Power Co., 147 F.3d 256, 263 & n.13 (3d Cir. 1998), or credit a complaint's “‘bald assertions'” or “‘legal conclusions.'” Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997) (quoting In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1429-30 (3d Cir. 1997)).

         III. Discussion

         Defendants advance a number of identical arguments[2] seeking dismissal of the Amended Complaint in its entirety.

         A. The Amended Complaint's Compliance with the Federal Rules of Civil Procedure

         1. Federal Rule of Civil Procedure 9(b)

         Defendants first argue that Counts I and II of Plaintiffs' Amended Complaint should be dismissed for non-compliance with Federal Rule of Civil Procedure 9(b). Remember, Rule 9(b) was fatal to Plaintiffs' original complaint. Defendants contend that many of the ...

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