PUBLISH UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT

_________________________________ JAMES MORDEN; JENALYN MORDEN; WADE MORDEN, Plaintiffs

- Appellants/Cross

Appellees,

v. XL SPECIALTY INSURANCE, Defendant

- Appellee/Cross

Appellant.

––––––––––––––––––––––––––––––––––– JAMES MORDEN; JENALYN MORDEN; WADE MORDEN, Plaintiffs

- Appellees,

v. XL SPECIALTY INSURANCE, Defendant

- Appellant. No . 17

- 4029

No. 17

- 4038

_________________________________ Appeal from the United States District Court for the District of Utah (D.C. No. 2:15
- CV
- 00862
- RJS)

_________________________________ Erik A. Olson, Marshall Olson & Hull, P.C., Salt Lake City, Utah , for Plaintiffs

Appellants/Cross

- Appellees. FILED United States Court of Appeals Tenth Circuit 

### September 10, 2018
Elisabeth A. Shumaker Clerk of Court2 David M. Gi sche, Clyde & Co US LLP, Washington, D.C. (Jennifer Mathis, Troutman Sanders LLP, San Francisco, CA on the briefs) for Defendant

- Appellee/Cross

- Appellant.

_________________________________ Before BRISCOE , HARTZ , and PHILLIPS , Circuit Judges.

______________ ___________________ HARTZ , Circuit Judge.

_________________________________ This appeal concerns an assigned claim on a liability

- insurance policy. Belsen Getty, LLC , a registered investment adviser owned by Terry Deru , obtained a claims

made financial

- services

- liability p olicy (the Policy) from XL Specialty Insurance Company covering Belsen Getty and its advisers for the period from October 9, 2010, to October 9, 2011. Under the policy, XL had no duty to defend. During the policy period James, Jenalyn , and Wade Morden brought claims against Belsen Getty and Deru alleging improper and misleading investment advice, but XL denied coverage. XL asserted that the Mordens’ claim s and claim s brought by the Securities and Exchange Commission (SEC) before the policy period concerned “ Interrelated Wrongful Acts,” as defined by the Policy, and that the Policy therefore required treating the two claims as one claim made before the policy period

. Belsen Getty and Deru then settled with the Mordens, assigning their rights against XL ; and the Mordens sued XL in the United States District Court for the District of Utah , raising the assigned claims that XL breached its covenant of good faith and fair d ealing and its fiduciary dut ies to Belsen Getty and Deru in denying co verage under the
P olicy. XL counterclaimed that the Policy’s Interrelated Wrongful Acts provision precluded coverage

. T he Mordens moved for partial summary judgment on the3 counterclaim and on several of XL’s affirmative defenses , and XL moved for summary judgment under the Interrelated Wrongful Acts provision and for failure to prove bad faith or breach of fiduciary duty

. Pertinent to this appeal, t he district court denied XL’s counterclaim but granted it summary judgment anyway for lack of evidence supporting
the bad

- faith and fiduciary

- duty claims. The court also denied the Mordens’ motion to amend their complaint to add a breach

- of

- contract claim. The Mordens appeal t he summary judgment against them on their bad

- faith and fiduciary

- duty claims and the denial of their motion to amend their complaint to add a breach

- of

- contract claim. XL cross

- appeals the summary judgment against it on its counterclaim that the Policy’s Interrelated Wrongful Acts provision bars all the Mordens’ claims. Exercising jurisdiction under 28 U.S.C. § 1291, we reverse the denial of XL’s motion for summary judgment on its counterclaim. This reversal undermines the Mordens’ challenges to the sum mary judgment against them and the denial of their motion to amend. We therefore affirm the summary judgment against the Mordens on their claims and the denial of their motion to amend.
I. BACKGROUND We first describe the misconduct of Deru and Belsen Getty alleged by the SEC and the Mordens and then summarize the SEC proceedings and the Mordens’ lawsuit against the two before turning to the relevant provisions of the Policy and the Mordens’ claims against XL.4 A. Alleged Misconduct by Belsen Getty Belsen Getty , through Deru and other advisers, counseled clients regarding th eir investments. Sometimes it recommende d the clients buy certain investments. Sometimes, exercising discretionary trading authority granted by clients , it made investments before getting client approval, although clients later received statements showing the investments and could inquire about the propriety of the investments at that time . The misconduct alleged against Belsen Getty and Deru involved client investments in four ventures from 2005 to 2009. The investments and the ventures were quite varied in nature. But the allegations agains t Belsen Getty and Deru with respect to the investments share common threads. Clients were promised too much, not warned of risks, and not informed of conflicts of interest of their advisers, who had undisclosed stakes in the ventures. The ventures were Nine Mile Software , Inc

. (Nine Mile) ; Axxess Funding Group , LLC (Axxess) ; Pro F ire Energy, Inc. (ProFire) ; and Vermillion Holdings , LTD (Vermillion) . We discuss in turn the allegations regarding each venture

. 1. Nine Mile In 2006 , Deru, his son Damon (who was a Belsen Getty adviser) , and Andrew Limpert (another Belsen Getty adviser) founded Nine Mile, a software company

. Damo n was its CE O and Limpert was the chairman of its board of directors

. In 2007 the company issued 1,882,000 shares of restricted stock, three quarters of which was owned by the three men. Later that year Nine Mile commenced an initial public offering of its

common stock , issuing 714,288 shares at $ 0 .70 a share

. Nine Mile w as illiquid a t the time . Yet more than 90 % of the stock was sold to Belsen Getty c lients , as Deru and5 Limpert recommended the stock or purchased it using their discretionary trading authority over investor accounts. Deru ignored the preferences of risk

- averse clients and invested their money without disclosing the ris k , and he promised quick profits

. He did not disclose to investors that Belsen Getty’ s discretionary trading authority over client
accounts gave it control over the great majority of the shares after the offering

. A fter the initial offering Deru manipulated the market in Nine Mile stock by using his discretionary tradin g authority over client accounts to repeatedly buy and sell Nine Mile stock (still without informing clients of the risks or of his conflict of interest) . T his inflated the stock price by c reating phony trading volume and making it appear that there

was c onsiderable investor interest

. 2. Axxess In 2005 , Deru, Limpert, and Dam on formed Axxess , a firm that loaned money secured by real estate. They raised money for the firm from Belsen Getty clients in private offerings in 200 5 and 2007

– 08, exercising their discretionary authority over client
accounts and recommending the investment to clients

. The private placement
memoranda for the offerings said that Deru, Limpert, and Damon would manage the company and vote on decisions, and noted that all of them had extensive education and experience qualifying them for these posts

. They also represented that c ompensation for the three would come from only a management fee and a share of profits

. Contrary to the se representations , however, Deru managed the company himself without in put from the other two men , and he used his position to his family’s financial advantage

. He paid his high

- school

- educated son $300,000 in 2007

– 08 ( about 10% of what was raised in the6 private offerings) to do very little work (which should have been performed by the three founders anyway ) ; and he loaned himself $500,000 of company funds without informing the members of the LLC or obtaining the require d unanimous consent

. 3. ProFire In 2008 Deru and Limpert bought restricted stock in a public shell company through a private sale . After a merger they renamed the company ProFire , and Limpert became the firm’s chief financial officer

. Belsen Getty controlled most of the

un restricted stock in the company

. In 2009, Deru sold restricted ProFire stock , including some of his personal shares, to Belsen Getty clients, either touting the investment as providing a quick return or using his discretionary aut hority over client accounts to make the purchase for the client without prior consent. He did not disclose that unrestricted ProFire stock was available in t he open market , that the stock he sold was not freely tradable , or that he had a significant inter est in the company . 4. Vermillion In March 2009 Deru advised the Mordens to be prudent with their investments. The next month he began pitching to them an investment in the Vermillion gold

- mine project in Mexico. He persuaded them to eventually lend Vermillion $1 million by emphasizing that the loan was not risky and would be quickly repaid because the mine operation “was ready to go.” Aplt. App. , Vol. 1 at A 114. He claime d Vermillion had the rights to an operational gold

- processing plant that would be able to generate a positive cash flow after the first year , that the operation was run by experienced personnel, that all the necessary permits had been obtained , and that ex tensive testing on samples indicated7 that the mine had profitable amounts of gold in it. But after investing , the Mordens learned that Deru had significantly misrepresented the project’s readiness

. The required permits had not been obtained; Vermillion d id not own the mining concessions ; and the mining plant and necessary equipment s till needed to be moved to the site. Although Deru told the Mordens that he had invested in the mine, he failed to disclose that Vermillion had no rights to the mine, which was actually owned by a Mexican company that was 99% owned by Deru, or that the plant purchased by Vermillion was transferred to Deru’s company

. B . The SEC Investigation
In February 2009 , before the policy period , the SEC sent letters to Nine Mile, Belsen Getty, Deru, Damon, and Limpert saying that the SEC staff “intends to recommend that the [SEC] bring . . . civil injunctive action [s] against [ each of them ], alleging that [they] violated” various securities laws

. Aplt. App., Vol. 2 at A377

– A 86. Although the investigation may initially have been limited to conduct relating to Nine Mile, the investigation broadened. The SEC issued a formal order of investigation on September 24, 2009 (which was given to Deru no later than August 17, 201 0) stating that from at least May 2007, Belsen Getty and its officers, directors, and employees may have made “ false statements of material fact or fail[ ed ] to disclose material facts concerning, among other things, the suitability of recommended investmen ts , conflicts of interest , control of the common stock of Nine Mile, and the value of client portfolios. ” Aplt. App. , Vol. 3 at A567. The formal order commence d investigative proceedings through which the SEC was empowered to compel testimony and production of relevant records.8 See 15 U.S.C § 78u(b) ; SEC v. Blackfoot Bituminous, Inc. , 622 F.2d 512, 514 (10th Cir. 1980)

. In April 2010 the SEC deposed James Morden about his investment s in Vermillion and Axxess , as well as Nine Mile

. The agency deposed Limpert later that month , and Damon in June. I n August it deposed Deru about his involvement in all four
ventures.
I n May 2011 , after the policy period began , the SEC issued an order instituting administrative cease

- and

- desist proceedings that alleged claims against Belsen Getty,
D eru, and Limpert relating to the four ventures

. For Nine Mile , the advisers were accused of failing to disclose to their clients the riskiness of the public offering and their significant interest s in the company ; and Deru was also a ccused of manipulating the market in Nine Mile st ock by exercising his discretionary authority over client accounts

. Fo r Axxess , the advisers were accused of misrepresenting how the company was managed and failing to disclose highly excessive payments to Deru’s son and a $500,000
loan to Deru

. For ProF ire, Deru was accused of exercising his discretionary authority to purchase for a client $50,000 of his personal restricted stock without obtaining prior permission or disclosing his interest in writing. He then exag gerated the potential rate of return, while failing to disclose that nonrestricted stock could be acquired, probably at a lower price. And for Vermillion, De ru was accused of misleading the Mordens about the safety of the investment in the gold

- mine opera tion

— failing to disclose that Vermillion had no rights to the mine and was in financial distress

— and failing to disclose his financial interest

.9 I n July 2012 the SEC entered a cease

- and

- desist order and imposed remedial sanctions on Belsen Getty and Deru arising out of their conduct with respect to Nine Mile, Axxess, and Pro F ire

. C. The Morden Action In October 2011 , a little more than four months after the SEC issued its order initiating administrative procee dings, the Mordens sued Belsen Getty and Deru in state
court

. Although the Mordens ’ complaint raised a number of federal

- law and state

- law claims , the alleged factual basis of the claims ( which were restricted to the Mordens’ investment s in each of the ventures) tracked the allegations in the SEC order in describing the misconduct with respect to the investments in Nine Mile, Axxess, Pro F ire , and Vermillion

. 1 Most notable is that two paragraphs in the complaint summarizing the misconduct are virtually identical to language in the SEC order:
88. Belsen Getty, through Deru, recommended high

- risk, speculative, and illiquid investments to J. Morden and J.C. Morden, even though the investments did not match their investment objective s. These investments include Nine Mile, Axxess, ProFire and Vermillion

. 89. Belsen Getty, through Deru, purchased investments for J. Morden and J.C. Morden using Belsen Getty’s discretionary

1 E.g ., c ompare Aplt. App., Vol. 1 at A110 ¶ 18 ( C omplaint: “Deru did not disclose to the Mordens that Belsen Getty controlled the outstanding non

- restricted stock of Nine Mile.”) , with Aplt. App., Vol. 4 at A966 ¶ 2 (SEC order: “Belsen Getty, through Deru and Limpert, failed to disclose that Belsen Getty exercised discretionary trading authority over, and thus controlled, 92% of the outstanding non

- restricted Nine Mile Stock.”); c ompare Aplt. App., Vol. 1 at A111 ¶ 22 (Complaint : “ Deru hired his high

- school educated son to perform functions that were supposed to be performed by Deru and other management.”), with Aplt. App., Vol. 4

. at A967 ¶ 10 (SEC order: “Deru hired his high

school educated son to perform many of the functions that were supposed to be performed by the members and for which the members received compensation . . . .”)

.10 authority and did not disclose material information about such investments, including conflicts of interest, and financial interests in such investments by Deru. These investments included Nine Mile, Axxess, ProFire and Vermillion

. Aplt. App., Vol. 1 at A122 (emphasis added). The complaint did depart from the SEC order, however, in linking the other three ventures to Vermillion, which was not mentioned in the paragraph in the order. 2
D. The Policy After being sued by the Mordens , Belsen Getty demanded that XL cover the claim. XL denied coverage. It argued that the Wrongful Acts alleged in the complaint and the misconduct alleged by the SEC were Interrelated Wrongful Acts, which are deemed to be a single claim made at the time of the earlier claim. According to XL, because the SEC claim predated t he policy period , the complaint is deemed to also predate the period and therefore is not covered. The pertinent provisions of the Policy are as follows:

2 The SEC o rder stated: Belsen Getty, through Deru, recommended high

- risk, speculative, and illiquid investments to Belsen Getty client s, even though the investments did not match the clients’ investment objectives. Belsen Getty, through Deru, completed many purchases for clients using Belsen Getty’s discretionary authority and did not disclose material conflicts of interest, namely that Deru, Limpert, and/or Deru’s family members had a financial interest in these investments. These high risk investments included Nine Mile, Access, and ProFire. Aplt. App., Vol. 4 at A 968.11 The Policy was a “claims

- made” p olicy that “only applie [d] to claims first made during the policy period , ” which ran from October 9, 2010 to October 9, 2011. Id. at A50. The Policy defines a claim as: (1) any written notice received by an Insured that any person or entity intends to hold any Insured responsible fo r a Wrongful Act; (2) any civil proceeding in a court of law or equity, or arbitration; or (3) any criminal proceeding which is commenced by the return of an indictment. Id. at A62 (emphasis omitted ). Wrongful Act is defined as actual or alleged defamation or: any actual or alleged act, error, omission, misstatement, misleading statement or breach of fiduciary duty or other duty committed by any Insured in the perform a nce of, or failure to perform, Professional Services

. Id. at A68 (emphasis omitted). If a claim was first made against Belsen Getty within the policy period , XL insured against the claim even if the underlying Wrongful Acts took place outside the policy period

. When an insured has multiple claims against it, as Belsen Getty had here, the Policy ’s “Interrelated Wrongful Acts ” provision comes into play

. In that circumstance : All claims arising from Interrelated Wrongful Acts shall be deemed to constitute a single Claim and shall be deemed to have been made at the earliest time at which the earliest such Claim is made or deemed to have been made pursuant to [notice provisions of the Policy]. Id. at A65 (emphasis added ). Interrelated Wrongful Acts a re broadly defined as : Wrongful Acts which are based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving any of the same or related or series of related facts, circumstances, sit uations, transactions or events. Id. at A62.12 E. Mordens’ Settlem ent with Belsen Getty and Suit A gainst XL In 2014 Belsen Getty and its advisers settled with the Mordens. Although the Mordens ’ complaint raised claims about their investments in all four ventures , the settlement mentioned only the misconduct concerning the Vermillion deal. As part of the settlement , t he Mordens were assigned Belsen Getty’s and Deru’s rights under the Policy , though Belsen Getty and Deru would receive a small percentage of any recovery the Mordens obtained from XL. The Mo rdens then sued XL but summary judgment was entered against them. That summary judgment and the district court’s denial of XL’s
counterclaim based on the Interrelated W rongful Acts provision are the subject s of this appeal.
II. DISCUSSION “We review a district court’s decision to grant summary judgment de novo, applying the same standard as the district court [should apply] .” Llewellyn v. Allstate Home Loans, Inc. , 711 F. 3d 1173, 1178 (10th Cir. 2013) (internal quotation marks omitted). “Summary judgment is appropriate if ‘there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.’” Id. (quoting Fed. R. Civ. P. 56(a) )

. T he Mordens argue on appeal that the district court improperly granted summary judgment on their bad

- f aith and fiduciary

- duty claims, and also erred by denying t heir
motion to amend to add a breach

- of

- contract claim

. XL cross

- appeals the denial of its interrelated

- wrongful

- acts counterclaim. Because we conclude that the Interrelated13 Wrongful Acts provision applies here and bars coverage , we can summarily dispose of the other issues on appeal

. A. The Interrelated Wrongful Acts Provision The Morden s do not dispute that the initial SEC notices to Nine Mile, Belsen Getty, Deru, Limpert, and Damon constituted a claim within the meaning of the Policy. Nor do they dispute that those notices encompassed at least the alleged misconduct relating to Nine Mile . Their argument is that the Wrongful A cts underlying their claims about Vermillion, which purportedly are the only ones that form the basis of their settlement with Belsen Getty, are too distinct from the misconduct relating to the other
venture s to constitute Interrelated Wrongful Acts. We disagree. The Vermillion

- based Wrongful A cts in the Mor den s’ c laim s and the Nine Mile

- based Wrongful A cts in the initial SEC notices are interrelated. We therefore need not address whether the Mordens construe the notion of a claim too narrowly. In particular, we need not decide (1) whether a settlement can successfully circumvent policy provisions precluding coverage by declaring that the settlement is not based on claims in the operative complaint for which there was not coverage or (2) whether the SEC’s formal order of investigation constituted a claim, or at least expanded the SEC’s original claim. The Policy’s test for whether Wrongful Acts are interrelated is quite broad: the
acts must mere ly be “based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving any of the same or related or series of related facts, circumstances, situations, transactions or events. ” Aplt. App., Vol. 1 at A62. That test is satisfied here because the Wrongful Acts relating to Vermillion were committed by14 t he same entity (Belsen Getty), against the same victims (the Mordens and other clients ), using the same techniques (understating risk, overstating upside potential, and concealing fina ncial interests of the advisers ), during the same time frame ( 200 5

– 2009 )

. To quote again two allegations from the Mordens’ complaint:
88. Belsen Getty, through Deru, recommended high

- risk, speculative, and illiquid investments to J. Morden and J.C. Morden, even though the investments did not match their investment objectives. These investments include Nine Mile, Axxess, ProFire and Vermilli on . 89. Belsen Getty, through Deru, purchased investments for J. Morden and J.C. Morden using Belsen Getty’s discretionary authority and did not disclose material information about such investments, including conflicts of interest, and financial interest s in such investments by Deru. These investments included Nine Mile, Axxess, ProFire and Vermillion

. Id. at A122 (emphasis added)

. In reaching this conclusion we are guided by precedent of this court construing similar language. In Brecek & Young Advis ors, Inc. v. Lloyds of London Syndicate 2003 , 715 F.3d 1231, 1238 (10th Cir. 2013) , we relied on the portion of the policy defining interrelated wrongful acts to include wrongful acts that are “connected by reason of any common fact, circumstance, situation, transaction, casualty, event, decision or policy or one or more series of facts, circumstances, situations, transactions, casualties, events, decisions or policies .” We held that the wrongful acts alleged in three separate arbitra tion proceedi ngs were interrelated because of several common facts: the same alleged culprits, roughly the same time period (“from the late 199 0s to the mid 2000s ”), and similar alleged fraud

— selling “unsuitable investment products including various types of annuities” and churning or flipping investment accounts. Id. at 1238 . The minor15 variations in the arbitration claims were inconsequential. See id . at 1238

– 39 ; see also Kilcher v. Cont’l Cas

. Co. , 747 F.3d 983, 990 (8th Cir. 2014) (when construing broad “Interrelated Wrongful A cts” provision, court states that variations in the specifics of the fraud perpetuated against various clients were immaterial “micro

- distinguishing” factors , particularly in light of the victims’ allegations of similarity ). The policy provision in this case is, if anything, broader than the one in Brecek

. The language is comprehensive, treating Wrongful Acts as interrelated if they are “in any way involving any of the same or related or series of related facts, circumstances, situations, transactions or events.” Aplt. App. , Vol. 1 at A 62. The policy in Brecek required “common” facts, etc., 715 F.3d at 1238, which strikes us as more restrictive language than merely “related” facts, etc. In our vi ew, the Mordens ’ complaint alleges a practice

— a scheme

— of defrauding investors over a period of several years by means of “related” misconduct. Belsen Getty, particularly Deru, obtained investors in ventures in which the defrauders had undisclosed financi al stakes by misrepresenting the risks and rewards of the ventures. The Mordens attempt to distinguish Brecek by pointing out that our decision in that case was applying New York law, whereas it is undisputed that Utah law governs this case. True, the sou rce of the governing law is a different jurisdiction. But Brecek did not turn on any idiosyncrasy of New York law. Our reliance on decisions applying New York law was limited to the requirement s that policy language be unambiguous , that the insurer bear the burden to establish that a claim falls within a policy exclusion , and that “[t]o negate coverage, exclusions must be stated in clear and unmistakable language,16 subject to no other reasonable interpretation, and applicable in the particular case.” Id. at 1237

– 38 . The Mordens have not directed us to any Utah law to the contrary or , more importantly, any Utah law that would call into question the application here of our analysis in Brecek . What we did in that case , like what we a re doing here, is no more than providing the natural construction of policy language

— that is, what it would mean

“ to a person of ordinary intel ligence and understanding, in accordance with the usual and natural meaning of the words, and in the light of exi sting circumstances, including the purpose of the policy .” Lopez v. United Auto. Ins. Co. , 274 P.3d 897, 902 (Utah 2012) ( ellipsi s and internal quotation marks omitted).
B. R emaining Claims
Because the Mordens’ claims against Belsen Getty and Deru are not covered by the Policy , there is no basis for any bad

- faith or breach

- of

- fiduciary

- duty claim against
XL. See S.W. Energy Corp. v. Cont’l Ins. Co. , 974 P.2d 1239, 1243 (Utah 1999) (“[G]iven that the ins urer ’ s denial of coverage was proper, [the insured’s ] claims for bad faith

. . . [and] breach of fiduciary duty

. . . were appropriately dismissed .”)

. And t he Mordens’ challenge to the district court’s refusal to permit them to raise a claim of breach of contract is obviously foreclosed as well.
III. CONCLUSION W e REVERSE the district court’s order dismissing XL ’s c ounterclaim and REMAND with instructions to grant summary judgment on the counterclaim , and we AFFIRM the entry of summary judgment against the Mordens

.