Court Opinion

ID: 222953
Source: CourtListenerOpinion
Date Created: 2011-08-11 16:47:32+00
Date Added: 2024-06-11T17:28:57.510936
License: Public Domain

NOT PRECEDENTIAL

                       UNITED STATES COURT OF APPEALS
                            FOR THE THIRD CIRCUIT
                                 _____________

                                     No. 10-4034
                                    _____________

               THE MICHAEL S. RULLE FAMILY DYNASTY TRUST,

                                                      Appellant

                                           v.

                           AGL LIFE ASSURANCE COMPANY
                                    _____________

                     On appeal from the United States District Court
                        For the Eastern District of Pennsylvania
                            (D.C. Civil No. 2-10-cv-00231)
                      District Judge: Honorable Berle M. Schiller
                                    _____________

                   Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
                                    July 14, 2011

            BEFORE: SLOVITER, FUENTES, and FISHER, Circuit Judges

                            (Opinion Filed: August 11, 2011)
                                    _____________

                              OPINION OF THE COURT
                                   _____________

FUENTES, Circuit Judge.

       The Michael S. Rulle Family Dynasty Trust (“Rulle Trust”) appeals from the

District Court’s Rule 12(b)(6) dismissal of its amended complaint. For the following

reasons, we will affirm.

                                           1
                                                  I.

       We write primarily for the parties and therefore recite only the facts necessary to

reach our decision. Rulle Trust filed this action as a result of losses suffered in

connection with a Flexible Premium Variable Life Insurance Contract (the “Policy” or

“Contract”) issued by AGL Life Assurance Company (“AGL”) and distributed through

Phoenix Equity Planning Corporation (“Phoenix Equity”), as broker-dealer. Michael S.

Rulle (“Rulle”), the named insured on the Policy, is an experienced investment banker.

The terms of the Policy are governed by Alaska law.

         The Policy offered Rulle Trust the opportunity to invest its premiums in either a

money market account or a “fund of funds” established by AGL called American Masters

Opportunity Insurance Fund, LLC, and later renamed Tremont Opportunity Fund III, L.P.

(“Tremont Fund”), a Delaware Partnership managed by Tremont Partners, Inc.

(“Tremont”). A document entitled the “AGL Life Assurance Company Private

Placement Memorandum” (“AGL PPM”) explained the details of these two options.

John Hillman—the Director, President and CEO of AGL, and a licensed broker under the

Financial Industry Regulatory Association (“FINRA”)—solicited Rulle Trust to invest

the Policy premiums in the Tremont Fund. Hillman represented to Rulle Trust that the

Tremont Fund was highly diversified, and that the investor “would be as far removed

from making investment decisions as possible.” (App. 602). Hillman also allegedly told

Rulle Trust that no more than 7% of its investment from the Policy would be placed in

the hands of any single investment manager. In October 2001, Rulle Trust elected to

invest all of its insurance premiums from the Policy in the Tremont Fund. Tremont

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subsequently distributed Rulle Trust’s premiums into various hedge funds, including four

funds operated by Bernard Madoff. As a result, Rulle Trust became one of the many

victims of Madoff’s infamous Ponzi scheme when it was exposed in December 2008.

When Madoff’s fraud was exposed, the estimated 23% of Rulle Trust’s premiums that

had been invested with Madoff lost their entire value.

       Rulle Trust filed suit against AGL, asserting eight claims: (1) breach of contract,

(2) breach of fiduciary duty, (3) breach of the common law duty of good faith and fair

dealing, (4) federal securities fraud, (5) fraud under the Alaska and Pennsylvania

Securities Acts, (6) professional negligence, negligence, and gross negligence, (7)

negligent misrepresentation, and (8) unjust enrichment.     The District Court ultimately

dismissed all eight causes of action for failure to state a claim under Rule 12(b)(6).

Rulle Trust now brings this timely appeal. 1

                                                   II.

       Rulle Trust first argues that AGL breached the terms of the Policy by improperly

valuing the Tremont Fund account to include the losses from Madoff’s fraud and by

failing to meet its diversification expectations. Absent ambiguous language, the meaning

of a contract is interpreted as a matter of law, Keffer v. Keffer, 852 P.2d 394, 397 (Alaska

1993), and “the plain language” controls. Rockstad v. Erikson, 113 P.3d 1215, 1222

(Alaska 2005). Here, the language in the Policy and AGL PPM is unambiguous and thus

1
 The District Court had jurisdiction under 28 U.S.C. § 1332, and we have jurisdiction
under 28 U.S.C. § 1291. We exercise plenary review over the District Court’s grant of
defendant’s motion to dismiss. The U.S. Dept. of Transp., ex rel. Arnold v. CMC Eng’g,
564 F.3d 673, 676 (3d Cir. 2009).

                                               3
controlling. The AGL PPM explicitly states that “[t]he [P]olicy owner bears the entire

investment risk for all amounts invested in the [P]olicy, including the risk of loss of

principal. There is no guaranteed minimum account value.” (App. 146) (emphasis

omitted). The AGL PPM further provides “no guarantee of future performance and …

no assurance that the Partnership will be able to achieve its investment objectives or be

profitable.” (App. 183) (emphasis omitted). The Policy also states that the value of

Rulle Trust’s account will fluctuate in accordance with the value of the investment

accounts into which it was invested. (App. 77).

       The District Court correctly determined that preceding language unambiguously

places the “entire” risk of investing the Policy premiums in the Tremont Fund on Rulle

Trust, and does not make AGL an insurer of that risk. Further, although a contract may

be rescinded and restitution awarded under Alaska law where a material

misrepresentation induced a party to enter into the contract, Cousineau v. Walker, 613
P.2d 608, 611-12 & n.5 (Alaska 1980), the breach of contract count of the amended

complaint nowhere mentions rescission.

       Further, while it is true that “[e]very contract in Alaska includes an implied

covenant of good faith and fair dealing,” Smith v. Anchorage Sch. Dist., 240 P.3d 834,

844 (Alaska 2010), the amended complaint’s allegations that this duty was breached

consists entirely of its contention that AGL failed to perform in accordance with the

terms of the Policy. Yet we have already affirmed the District Court’s ruling that Rulle

Trust fails to state a claim for breach of contract. Thus, its claim that AGL violated the

duty of good faith and fair dealing must fail as well.

                                              4
       Rulle Trust also failed to adequately plead a federal or state securities fraud claim.

“To establish liability under § 10(b) and Rule 10b-5, a private plaintiff must prove that

the defendant acted with scienter, a ‘mental state embracing intent to deceive,

manipulate, or defraud.’” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 319

(2007) (quoting Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193-94 (1976)). None of the

allegations in the amended complaint give rise to a plausible claim that AGL’s alleged

statements or omissions knowingly or recklessly misled Rulle Trust under the heightened

pleading standards of Rule 9(b) and the Private Securities Litigation Reform Act

(“PSLRA”). Inst. Investors Grp. v. Avaya, Inc., 564 F.3d 242, 252, 267 (3d Cir. 2009).

Specifically, the amended complaint does not allege how or why AGL should have

known or discovered that 23% of Rulle Trust’s premiums would ultimately be invested

with one manager by the Tremont Fund, a separate entity. It thus fails to specifically and

plausibly allege recklessness.

       As both the Alaska and Pennsylvania Securities Acts 2 have been interpreted to

include similar scienter requirements as the Federal Securities Laws, Rulle Trust’s state

securities claims fail for the same reason. See Leder v. Shinfeld, 609 F. Supp. 2d 386, 395

(E.D. Pa. 2009); Alaska Stat. § 45.55.010(a) (West 2010).

       Rulle Trust next argues that AGL owed it a fiduciary duty or duty of care because

it retained exclusive control over all aspects of Rulle Trust’s invested premiums and had

2
  Although the question of whether Alaska or Pennsylvania law applies to the remaining state
law claims was not definitively determined by the District Court, because we find the results to
be the same under the law of either state, we decline to undertake a full choice of law analysis for
any of these remaining claims.

                                                 5
the sole contact and communication with Tremont. However, we agree with the District

Court that AGL did not maintain control , let alone exclusive control over Rulle Trust’s

premiums. Rather, Rulle Trust was clearly informed that its investment would be

managed solely by Tremont, who would be entirely responsible for deciding the funds

and managers with which to invest. Further, AGL did not owe Rulle Trust a duty by

virtue of its status as an insurance provider, or because it gave Rulle Trust investment

advice. As the District Court correctly noted, this case did not involve an insurance

dispute; nor did AGL enter into or adopt the role of a broker-dealer, investment manager,

or investment advisor relationship with Rulle Trust. This is especially true given Rulle’s

sophisticated financial background, and the large, arm’s length deal that was at issue.

       Finally, Rulle Trust’s claim of unjust enrichment fails under both Pennsylvania

and Alaska law. Although Rulle Trust argues that the alleged management fees AGL

received were “improper,” given the absence of plausible allegations that AGL insured

Rulle Trust’s risk, or had some duty with regards to Rulle Trust’s investment in the

Tremont Fund, we agree with the District Court that the amended complaint fails to plead

anything improper that would support a plausible claim for unjust enrichment.

                                                 III.

       For the foregoing reasons, as well as the reasoning of the District Court in its

thorough and persuasive written opinion, we will affirm the District Court’s orders

dismissing Rulle Trust’s amended complaint.

                                             6