Sreenivasan Asokan, Chakravarthy Raghavan, Nanni Pidikiti, Rakesh Parekh, Ram Reddy, Madhubala Reddy, Rodger Lodge, Anuradha Asokan, Indep. Anesthesia Servs., P.A. v. Am. Gen. Life Ins. Co.

302 F.Supp.3d 1303

Sreenivasan ASOKAN, Chakravarthy Raghavan, Nanni Pidikiti, Rakesh Parekh, Ram Reddy, Madhubala Reddy, Rodger Lodge, Anuradha Asokan, Independent Anesthesia Services, P.A., C. Raghavan, M.D., P.A., Nanni Pidikiti, M.D., P.C., Tejal Parekh, Rakesh S. Parekh, M.D., P.A., Family Internal Medicine, P.A., Pamela Paulshock and Three Point Productions, Inc., Plaintiffs,

v.AMERICAN GENERAL LIFE INSURANCE COMPANY, Defendant.

Case No: 6:15–cv–2048–Orl–40KRS

United States District Court, M.D. Florida, Orlando Division.

Signed August 1, 2017

Clay M. Townsend, Keith R. Mitnik, Paul Louis SanGiovanni, Morgan & Morgan, PA, Orlando, FL, Lilia Bulgucheva, Law Office of Michael J. Reiser, Michael J. Reiser, Reiser Law, P.C., Walnut Creek, CA, Linda Lam, Michael Schrag, Gibbs Law Group LLP, Oakland, CA, Melissa Riess, Tyler R. Meade, The Meade Firm PC, Berkeley, CA, for Plaintiffs.

David T. McDowell, Hutson Brit Smelley, Robert Paul Debelak, III, Amy B. Boyea, Kate H. Easterling, Edison McDowell & Hetherington LLP, Houston, TX, Kristina B. Pett, Edison, McDowell & Hetherington LLP, Boca Raton, FL, for Defendant.

ORDER

PAUL G. BYRON, UNITED STATES DISTRICT JUDGE

This cause comes before the Court on the following:

1. Plaintiffs' Motion for Reconsideration of the Court's Order on Defendant's Motion to Dismiss (Doc. 110), filed April 17, 2017;

2. Defendant's Response in Opposition to Plaintiffs' Motion for Reconsideration (Doc. 114); filed May 1, 2017;

3. Defendant's Motion for Summary Judgment (Doc. 115), filed May 1, 2017;

4. Plaintiffs' Memorandum in Opposition to Defendant's Motion for Summary Judgment (Doc, 133), filed May 19, 2017; and

5. Defendant's Reply in support of Motion for Summary Judgment (Doc. 137), filed June 2, 2017.

The parties have completed their briefing and the Court is otherwise fully advised on the premises. Upon consideration and review of the record, including all pleadings, deposition transcripts, affidavits, exhibits, and the parties' respective legal memoranda, the Court will grant in part and deny in part Plaintiffs' Motion for Reconsideration, and grant in part and deny in part Defendant's Motion for Summary Judgment.

I. BACKGROUND

A. Introduction

Plaintiffs sue Defendant, American General Life Insurance Company ("American General"), for failing to disclose crucial information to Plaintiffs when they invested in Voluntary Employee Beneficiary Association ("VEBA") programs that included life insurance policies issued by American General. (Doc. 54, ¶ 2). The particular VEBA programs that Plaintiffs invested in have been found to be tax avoidance schemes, and have thus subjected Plaintiffs to penalties issued by the Internal Revenue Service ("IRS"). Plaintiffs claim that American General knew that the VEBA programs at issue in this case did not comply with federal law, and yet failed to disclose that information to Plaintiffs. Moreover, Plaintiffs allege that American General promoted and marketed the Programs despite its knowledge of the Programs' noncompliance. Plaintiffs bring claims for (1) common law unfair competition (Count II); (2) misleading advertising under Florida Statute § 817.41 (Count III); (3) fraud by concealment (Count IV); (4) common law fraud (Count V); (5) violation of Florida's Deceptive and Unfair Trade Practices Act ("FDUTPA"), Fla. Stat. §§ 501.201 –.23 (Count VII); (6) breach of fiduciary duty (Count VIII); (7) constructive fraud (Count IX); and (8) negligent misrepresentation (Count X).¹

B. The Sea Nine VEBA Program

A VEBA is a tax-exempt association providing for medical, disability, life, and other benefits to association members. 26 U.S.C.A. § 501 (2015). The VEBAs at issue in this case were administered by Sea Nine Associates, Inc. ("Sea Nine") and were offered to small, closely-held business owners as a way to provide for employee life insurance policies (the "Sea Nine VEBA Program"). (Doc. 54, ¶ 4). Small business owners were advised to join the Sea Nine VEBA Programs and make supposedly tax-deductible contributions that the VEBA would then use to purchase life insurance policies. (Doc. 133, Pp. 1). Later, the business owners would take ownership of the policies and then either cash them out or borrow against them, again supposedly on a tax-free basis. (Id. at p. 1–2). Plaintiffs all consist of small business owners who participated in the Sea Nine VEBA Programs.

Unfortunately for Plaintiffs, the specific type of VEBA Programs administered in this case have been classified as "listed transactions" by IRS, meaning that they do not comply with federal law and are considered tax avoidance schemes. (Doc. 133, p. 2). In 2011, Plaintiffs began receiving letters from the IRS stating that the deductions that they claimed for contributions to the VEBAs had been made improperly and that Plaintiffs were required to pay back taxes and penalties for failing to notify the IRS that the VEBAs were listed transactions. (Id. at p. 8).

C. American General's Involvement

Plaintiffs allege that American General knew that the VEBAs were not tax compliant but still promoted the sale of insurance policies through the VEBAs. (Doc. 54, ¶ 5). According to Plaintiffs, agents of American General² were involved with the Sea Nine VEBA Programs during the 1990's and therefore knew that the Programs were illegal. (Doc. 133, p. 2). Despite this knowledge, they revived the Programs in 2002, at which time the VEBAs purchased life insurance policies from American General. (Doc. 133–30, 57:10–15).

According to Plaintiffs, senior executives of American General worked closely with the administrators of the VEBAs and aided in the marketing and promotion of the Programs. For example, executives of American General attended marketing meetings with clients and their advisors. (Doc. 133, p. 3). The Sea Nine VEBA administrators would refer potential clients to American General's senior counsel and head of advance sales, David Robinson ("Robinson"), to answer questions about the insurance policies included in the VEBA. (Doc. 133–31, 74:9–16). One individual involved in the administration of the Sea Nine VEBAs—Lalat Pattanaik ("Lalat")—testified that he believed that the advice given by Robinson "provided credibility" to the Sea Nine VEBA Program due to Robinson's extensive qualifications. (Id. at 73:21–25, 74:1).

American General also provided marketing materials to the VEBA administrators, including software that the VEBA administrators used to illustrate the potential benefits of participating in the VEBA Programs. (Id. at 103:18–104:15). The marketing materials provided by American General included an "advisor's guide," which is a technical informational document that provided information about the VEBA Program and the legal framework the programs are structured under. (Doc. 140–1). The American General advisor's guide was used frequently to educate financial advisors in hopes that those advisors "would then convince their clients to—to join [the Sea Nine] VEBA program and buy American General product." (Doc. 133–31, 61:12–15). American General also provided a less technical informational document that was used to share information about the Sea Nine VEBA Program to other clients. (Doc. 133–35). This document was described by Sea Nine marketer Lalat as "a great tool to engage other agents that had wealthy entrepreneurial clients." (Doc. 133–31, 62:25–63:2). Plaintiffs claim that the marketing materials provided by American General "enhanced the credibility of the VEBA program by giving it the imprimatur of one of the county's most well established insurance firms." (Doc. 133, p. 3).

Plaintiffs further contend that American General knew that the Sea Nine VEBA Programs were noncompliant with federal tax law, withheld that information from Plaintiffs and other potential clients, and continued to sell insurance policies to the VEBAs in spite of its noncompliance. In 2003, after the IRS tightened regulations governing VEBAs, Robinson asked Sea Nine employee Elliott to send documents showing that the Sea Nine VEBA Programs were compliant with the new regulations. (Doc. 133–40). Without ever receiving any confirming documentation, Robinson added the Sea Nine VEBA Programs to American General's list of regulatory compliant programs. (Doc. 133–43). Thereafter, Sea Nine submitted documents to American General, including a draft opinion letter from a tax attorney stating that the Sea Nine Programs did not comply with current regulations and that the plan documents would need to be amended. (Doc. 133–47). The plan documents were not immediately amended, (Doc. 133–30, 195:9–16); nevertheless, American General continued to issue policies to the Sea Nine VEBAs until February 2008, (Doc. 133–31, 21:4–9). Based on these facts, Plaintiffs contend that American General was aware that the Sea Nine VEBA Programs failed to comply with current federal tax regulations, and yet continued to market, promote, and sell policies through the noncompliant Sea Nine VEBA Programs.

D. Procedural History

This case was initiated in state court on August 14, 2015. On December 4, 2015, American General removed the action to this Court based on the Court's diversity jurisdiction. (Doc. 1). On February 9, 2016, the Court entered a Case Management and Scheduling Order ("CMSO"), establishing that the deadline to amend pleadings was April 4, 2016. (Doc. 35).

On April 4, 2016, the deadline for amended pleadings, Plaintiffs filed the First Amended Complaint, adding their spouses and employers as parties, and dropping a claim for rescission of contracts. (Doc. 41). The First Amended Complaint alleged several causes of action: Count I alleged a claim under Florida's RICO (Racketeer Influenced and Corrupt Organization) Act, Fla. Stat. §§ 895.01 – 895.06. Count II alleged a claim for common law unfair competition. Count III asserted a misleading advertising claim under Florida Statute § 817.41. Count IV alleged a claim of fraud by concealment. Count V asserted a...