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Cook v. John Hancock Life Insurance Co. Usa

United States District Court, W.D. Virginia, Roanoke Division

January 14, 2015

I. KENNETH COOK, et al., Plaintiffs,


MICHAEL F. URBANSKI, District Judge.

Pending before the court are two motions to dismiss, both of which seek dismissal of all the claims against each moving defendant. They were filed by defendants John Hancock Life Insurance Company (U.S.A.) ("JHLIC"), [1] Dkt. No. 12, and Nationwide Insurance Company ("Nationwide"), Dkt. No. 18. Both motions have been fully briefed, and were argued before Senior United States District Judge James C. Turk on January 14, 2012. Shortly thereafter, the entire case was stayed to allow plaintiffs' claims against Crown Capital Securities, LP to be arbitrated. The two motions to dismiss were denied without prejudice in light of the stay. Dkt. Nos. 35, 42. After the stay was lifted on July 1, 2014, the case was transferred to the undersigned. The motions have been re-urged by the defendants, Dkt. No. 52, and are now ripe for disposition.

For the reasons set forth herein, the court will GRANT IN PART and DENY IN PART both motions.



There are two named plaintiffs in this matter-Dr. I. Kenneth Cook ("Cook"), a retired physician and resident of Virginia, and the Kenneth Cook Irrevocable Insurance Trust, by its Trustee, Kenneth Todd Cook ("the Trust" and "the Trustee, " respectively). The plaintiffs seek to hold the defendants liable for more than $1 million in financial damages they allegedly incurred, primarily as a result of alleged conduct by defendant Neil Copeland Winterrowd, who served for many years as Cook's investment adviser. The complaint alleges that the remaining defendants are liable in part because of their own alleged acts or omissions, but primarily because of their respective relationships with Winterrowd. The extent and nature of those relationships and, in particular, whether Winterrowd can be considered an "agent" of either JHLIC or Nationwide for purposes of liability in this case, are raised by the pending motions. The defendants also assert various other arguments in support of their motions to dismiss, as discussed below.

One of the defendants named in the complaint-Crown Capital Securities, LP-was dismissed from the case with prejudice after the arbitration concluded. Dkt. No. 52. In addition to Winterrowd (a California resident), there are three remaining defendants:

1. JHLIC, a Michigan corporation with its principal place of business in Massachusetts;
2. JP Turner & Co., LLC, a limited liability company whose two members were both Georgia residents at the time the complaint was filed; and
3. Nationwide, an Ohio corporation with its principal place of business in Ohio.[2]

Winterrowd worked as a Financial Industry Regulatory Authority ("FINRA")[3] registered representative for Crown Capital from May 2004 to August 2009 and for JP Turner from August 2009 to September 2011.

As discussed in more detail below, JHLIC's connection to the case is based on the fact that Winterrowd recommended as an investment and sold Cook a $10 million life insurance policy from JHLIC in 2007 (while working for Crown), advice plaintiffs allege was both negligent and fraudulent. He then took additional steps related to that policy that plaintiffs contend also give rise liability on the part of JHLIC, including the alleged conversion of certain premiums Cook paid. Winterrowd also sold Cook a variable annuity from Nationwide and took certain actions related to that annuity that plaintiffs allege render Nationwide liable. The details of the alleged actions are described below.

As noted, JHLIC and Nationwide responded to the complaint by filing the pending motions to dismiss. J.P. Turner answered and filed a cross-claim for indemnity, contribution, and attorneys' fees and costs against Winterrowd, but did not file a motion to dismiss. Winterrowd was served, but has not answered or otherwise responded to the complaint.


The court accepts the well-pled allegations of the complaint as true for purposes of ruling on the pending motions to dismiss. Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008). As relevant to the motions here, the complaint alleges that Cook began receiving investment and insurance advice from Winterrowd in 1994. Dkt. No. 1 at ¶ 12. At the time, Winterrowd was a registered FINRA securities representative providing services through Smith Barney. From 1994 through the events described in the complaint, Winterrowd continued to act as a financial advisor to Cook and Cook's wife. For example, he provided investment and insurance advice, managed their investments, and sold various insurance and securities products to the Cooks.

In 2007, Winterrowd sold Cook a $10 million life insurance policy from JHLIC (the "JHLIC Policy"). Cook alleges that such a policy was "excessively large" and "far beyond the amount that Cook thought he might need." Dkt. No. 1 at ¶ 15. The premium payments required were also high, e.g., the annual premium for the first year was $257, 957.00. Id. at ¶ 16. Cook alleges that Winterrowd told him that he could borrow money for the premiums from a bank, if necessary. Id.

Despite his concerns over the policy amount and high premiums, Cook alleges he agreed to purchase such a large policy because Winterrowd advised him that it could be used as an investment and be sold after two years for a profit. In support of this representation, Winterrowd provided documents from an entity with which he was associated-Fairway Capital. The documents demonstrated how the policy could be sold in two years as a life settlement for a gain of almost one million dollars.[4] See Dkt. No. 1, Ex. 1. Fairway Capital was a California entity used by Winterrowd and Kevin Yurkus (the president of Fairway Capital), to sell investments. Dkt. No. 1 at ¶ 17. JHLIC paid a commission on the $10 million policy to Fairway, which Cook alleges was shared with Winterrowd. Id.

Winterrowd advised and facilitated the establishment of a living trust to be designated as the owner of the JHLIC Policy. Cook initially paid the premiums to the attorney who established the trust, Dimitri Reyzin, whose law firm was designated as its trustee. Winterrowd subsequently instructed Cook to pay the premiums directly to Winterrowd, which Cook did. Id. at ¶¶ 19-20. Winterrowd did not forward all of these payments to JHLIC and instead kept some of them. Reyzin did not keep Cook or the Trust's beneficiaries informed of the deficiencies in the premium payments and further failed to advise them of the lapse of the policy due to non-payment of the premiums. Id. at ¶ 20.

Winterrowd repeatedly represented to Cook that he was in the process of arranging for the sale of the JHLIC Policy, and even had Cook sign settlement papers in 2011. Dkt. No. 1 at ¶ 21. Cook further alleges that these representations were false and merely a part of Winterrowd's fraudulent scheme. The JHLIC Policy was never sold, and as noted, eventually lapsed for non-payment of premiums. Additionally, at some point Winterrowd withdrew $50, 000 from one of Cook's Prudential variable annuities and had the check sent to JHLIC. JHLIC then returned the money by sending a check to "Annuity Investment Group"-a trade name used by Winterrowd- and Winterrowd then converted those funds for his personal use. Id. at ¶ 32.

In total, Cook asserts he lost approximately $1 million related to the JHLIC policy, which consists both of amounts paid to JHLIC for coverage while the policy was in effect, some premium payments allegedly converted by Winterrowd, and the $50, 000 paid by JHLIC to Winterrowd.[5]

Cook also alleges Winterrowd, J.P. Turner, and Nationwide are liable for Winterrowd's actions in connection with an annuity contract issued by Nationwide. Nationwide issued the annuity contract-which Cook purchased through Winterrowd-in 2006. See Dkt. No. 18, at Ex. A. Cook does not allege any improprieties as to the sale or issuance of the annuity. Rather, he complains that in 2010, Winterrowd allegedly used Cook's signature from a different form to withdraw $150, 000 from the Nationwide annuity-without Cook's permission-in order to pay the premium on the JHLIC Policy. Dkt. No. 1 at ¶¶ 24-26. Although Cook wired the funds back to Winterrowd so that Winterrowd could return them to the Nationwide annuity, Cook alleges Winterrowd converted those funds. Id . ¶ 27. Cook also incurred $14, 239.93 in surrender charges assessed by Nationwide for that withdrawal. Id . After Winterrowd had converted the funds, he continued to misrepresent to Cook that the transaction had been or would be reversed without financial consequences. Id. at ¶ 28. Winterrowd also had Cook sign a letter drafted by Winterrowd (on letterhead for "Legacy Insurance Partners") informing Nationwide that Cook "authorized" the return of the funds and "under[stood] and agree[d] this transaction will be treated retroactively as if the initial withdrawals never were initiated, and the market performance will be retroactive as well." Id. at ¶ 28 & Ex. 3. Nationwide has refused to reimburse Cook for any portion of the withdrawal or for the surrender charges. Id. at ¶ 29.


Plaintiffs' complaint contains five counts. With the exception of Count III, however, the counts do not differentiate between defendants, appearing instead to name all of the defendants. Count I is a claim for conversion. Count II alleges violations of the Virginia Securities Act, Va. Code §§ 13.1-502 and 13.1-522, Section 10(b) of the Federal Securities Exchange Act of 1934, and also asserts claims for common law fraud and constructive fraud. Count III names all the defendants except Winterrowd and alleges that they were negligent for failing to prevent Winterrowd's conversion of funds, for failing to adequately supervise Winterrowd, and for negligently breaching independent duties owed to plaintiffs. Count IV alleges defendants breached fiduciary duties owed to the plaintiffs arising out of defendants' role as investment, securities, and insurance professionals. In Count V, plaintiffs allege defendants breached express and implied contracts.


Rule 12(b)(6) of the Federal Rules of Civil Procedure directs dismissal when a plaintiff fails "to state a claim upon which relief can be granted." Fed.R.Civ.P. 12(b)(6). To survive a motion to dismiss, the plaintiff's allegations must "state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). "It requires the plaintiff to articulate facts, when accepted as true, that show' that the plaintiff has stated a claim entitling him to relief, i.e., the plausibility of entitlement to relief.'" Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009) (quoting Iqbal, 556 U.S. at 678).

Where a federal court's jurisdiction is based on diversity, it must apply the forum state's substantive law, including its choice-of-law rules. Erie R. Co. v. Tompkins, 304 U.S. 64, 78 (1938); Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941). For tort claims, Virginia applies the rule of lex loci delicti, Jones v. R.S. Jones & Assocs., Inc., 246 Va. 3, 5, 431 S.E.2d 33, 34 (1993), which requires the court to apply the law of the state where the last event necessary to make an actor liable takes place. Quillen v. Int'l Playtex, Inc., 789 F.2d 1041, 1044 (4th Cir. 1986). In this case, the last act necessary for each of the claims asserted is the resulting damages to the plaintiffs, which loss was sustained by them in Virginia. See, e.g., St. Paul Fire & Marine Ins. Co. v. Hoskins, 2012 WL 748574, at *4 (W.D. Va. Mar. 7, 2012) (applying Virginia law to claims of breach of fiduciary duty, common law conspiracy, and related claims because Virginia was where the loss was sustained by the plaintiff). Accordingly-and as the parties do in their respective filings-the court applies Virginia substantive law to plaintiffs' tort claims.

As to the law to be applied to plaintiffs' breach of contract claims, the JHLIC policy expressly states that it shall "be governed by and construed according to the laws of Virginia." Dkt. No. 13-1 at 23. Thus, a claim based on any breach of that policy would be governed by Virginia law. Likewise, the Nationwide annuity appears to be a Virginia-specific form and-although no party has identified a choice-of-law provision in that policy and the court has not found one-the annuity references Virginia law on the front page. See Dkt. No. 18-1 at 1. Additionally, "Virginia adheres to the principle that the law of the place of performance governs questions arising in connection with the performance of a contract." Equitable Trust Co. v. Bratwursthaus Mgmt. Corp., 514 F.2d 565, 567 (4th Cir. 1975) (citing Arkla Lumber & Mfg. Co. v. W.Va. Timber Co., 146 Va. 641, 132 S.E. 840, 842 (1926)). Here, the place of performance for both the JHLIC Policy and the Nationwide annuity was Virginia, since that is where Cook (the insured under the JHLIC Policy) lived and where payments would be made to him under the Nationwide annuity. For all these reasons, the court concludes that Virginia law governs the breach of contract claims.


A. JHLIC'S Motion to Dismiss

The court first addresses JHLIC's motion to dismiss, which is premised on several different grounds. JHLIC first claims that the Trust cannot bring claims in its own name and argues that all of its claims must be dismissed for lack of standing.[6] Second, JHLIC claims that plaintiffs fail to state a claim against it because plaintiffs' claims are dependent upon Winterrowd being an agent of JHLIC and the facts do not sufficiently allege an agency relationship. Third, JHLIC contends that each of the individual counts is subject to dismissal for other reasons, in addition to the lack of agency.

1. Standing of the Trust

JHLIC's first argument is that the trust lacks standing to bring any claims in this action. Dkt. No. 14 (objection on standing grounds); Dkt. No. 13 at 5. In response to this argument, plaintiffs ask that, to the extent there are any errors in the way the complaint is styled, they should be granted leave to amend to name the party as "Kenneth Todd Cook, as Trustee of the Trust." Dkt. No. 20 at 3-4. In JHLIC's reply, it contends that plaintiffs' response shows they misunderstand the nature of the standing argument. Dkt. No. 26 at 2 n.2. It argues that the only proper plaintiff is "Kenneth Todd Cook, Trustee of the Kenneth Cook Irrevocable Insurance Trust." Id.

JHLIC relies heavily on Rule 17(a)(1)(E) of the Federal Rules of Civil Procedure to support its argument.[7] The proper starting point for court's analysis, however, is Rule 17(b), which directs that the determination of whether a trust has the capacity to sue or be sued is governed by the law of the state where the court is located (here, Virginia). Fed.R.Civ.P. 17(b); see Blick v. Soundview Home Loan Trust 2006-WF1, 2013 WL 139191, at *3 (W.D. Va. Jan. 10, 2013). "Under Virginia law, [u]nless a statute expressly provides otherwise, a trust as such cannot sue or be sued; actions must be brought by or against the trustees.'" Id. at *3 (quoting 1-5 Sinclair & Middleditch, Virginia Civil Procedure § 5.10 (5th ed. 2008) (citation omitted)); see also Dkt. No. 26 at 1-2 (JHLIC's reply citing authority for the proposition that the Trust, as an entity, has no capacity to sue or be sued, including Limouze v. M.M. & P. Mar. Advancement, Training, Educ. & Safety Program, 397 F.Supp. 784, 789 (D. Md. 1975), Yonce v. Miners Mem'l Hosp. Ass'n, 161 F.Supp. 178, 188 (W.D. Va. 1958), and Carpenters & Millwrights Health Benefit Trust Fund v. Domestic Insulation Co., 387 F.Supp. 144, 147 (D. Colo. 1975)).

JHLIC is thus correct that the Trust may not sue in its own name. Instead, it can sue only through its trustee. Accordingly, the second plaintiff should be "Kenneth Todd Cook, Trustee of the Kenneth Cook Irrevocable Insurance Trust." See Dkt. No. 26 at 2 n.2 (JHLIC noting the same, although omitting "Todd"). Despite the misnomer in the complaint, the court declines JHLIC's invitation to dismiss all claims by this plaintiff for lack of standing, particularly since plaintiffs have moved to amend the name of the party to comport with whatever the court determines is proper. See Dkt. No. 20 at 4.

While Virginia law governs the capacity of a trust to sue, "substitution of a party appears to be a matter of procedure that should be governed by federal law." Blick, 2013 WL 139191, at *3 (citing Erie R. Co., 304 U.S. 64). The amendment of pleadings is likewise a matter of procedure governed by federal law. See Homeland Training Ctr., LLC v. Summit Point Auto. Research Ctr. 594 F.3d 285, 293 n.1 (4th Cir. 2010) (citing Hogue v. Sam's Club, 114 F.Supp.2d 389, [391] (D. Md. 2000)). In Blick, Judge Moon looked to Fed.R.Civ.P. 21, which allows a court to sua sponte, at any time, on just terms, add or drop a party, and further states that "[m]isjoinder of parties is not a ground for dismissing an action." Fed.R.Civ.P. 21. Similarly, Rule 17(a)(3) provides that "[t]he court may not dismiss an action for failure to prosecute in the name of the real party in interest until, after an objection, a reasonable time has been allowed for the real party in interest to... be substituted into the action. After... substitution, the action proceeds as if it had been originally commenced by the real party in interest." Fed.R.Civ.P. 17(a)(3).

Consistent with Rules 17(a)(3) and Rule 21, the court will simply allow amendment and will substitute "Kenneth Todd Cook, Trustee of the Kenneth Cook Irrevocable Insurance Trust" as the second plaintiff. The style of the case shall be amended to reflect the change. To the extent JHLIC seeks dismissal of the claims brought by the now-substituted party based on a lack of standing, its motion will be denied.

2. Agency

JHLIC's next argument is that the complaint fails to allege facts to establish an agency relationship between Winterrowd and JHLIC and thus that JHLIC cannot be held vicariously liable for any of the acts Winterrowd committed. According to JHLIC, the lack of any facts to support an agency theory requires dismissal of all the claims against it except for the breach of contract claim.

In Virginia, "[u]nless the existence of an agency relationship depends upon unambiguous written documents, or undisputed facts, the question of agency vel non is one of fact for the jury." Drake v. Livesay, 231 Va. 117, 121, 341 S.E.2d 186, 189 (1986); Acordia of Va. Ins. Agency, Inc. v. Genito Glenn, L.P., 263 Va. 377, 384, 560 S.E.2d 246, 250 (2002) (same). Moreover, "[a]gency may be inferred from the conduct of the parties and from the surrounding facts and circumstances." Drake, 231 Va. at 121, 341 S.E.2d at 189. Thus, if plaintiff has alleged facts to support a plausible claim of agency, JHLIC's motion to dismiss on this ground must be denied.[8]

The court concludes that plaintiff has adequately pled Winterrowd was JHLIC's agent for purposes of selling the JHLIC policy and collecting premiums on it. This conclusion is based on several factors considered collectively: (1) the Virginia statute governing insurance agents renders it plausible that Winterrowd was JHLIC's agent; (2) the complaint adequately alleges that Winterrowd was a sub-agent of Yurkus, who was JHLIC's appointed producer and agent in Virginia to sell JHLIC life insurance policies; and (3) there are sufficient facts to plausibly show Winterrowd acted within the scope of his apparent authority.

The Virginia insurance statute on which plaintiffs rely-Virginia Code § 38.2-1801- provides:

A. A licensed agent shall be held to be the agent of the insurer that issued the insurance sold, solicited, or negotiated by such agent in any controversy between the insured or his beneficiary and the insurer. No licensed agent or any other person shall claim to be a representative of, authorized agent of, agent of, or other term implying an appointed relationship with a particular insurer unless such agent has become an appointed agent of that insurer. For the purpose of notice of claim or suit, the agent or producer of record shall be deemed to be the agent of the insurer. In the case of policies of life insurance, accident and sickness insurance, annuities and variable annuities, such notice shall be given to the insurer at its home office as shown in the policy of insurance.
B. A premium payment made by an insured to an agent, whether appointed by an insurer or not, or to a surplus lines broker, where the insurer or its appointed agent acknowledged specific insurance for a specific policy period by the issuance of a policy, written binder, or other contract of temporary insurance, whether new or renewal, shall be considered payment to the insurer, and such insurer shall be liable to the insured for (i) any covered losses under the insurance and (ii) ...

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