Court Opinion

ID: 165079
Source: CourtListenerOpinion
Date Created: 2010-08-14 08:43:59+00
Date Added: 2024-06-11T17:24:46.677279
License: Public Domain

F I L E D
                                                                 United States Court of Appeals
                                                                         Tenth Circuit
                     UNITED STATES COURT OF APPEALS
                                                                         OCT 7 2004
                                  TENTH CIRCUIT
                                                                    PATRICK FISHER
                                                                             Clerk

 DAVID M. ALBERT; WILLIAM H.
 CRAVEN; CHARLES SAVALL; and
 LEONID SHAPIRO; on behalf of
 themselves and others similarly
 situated,                                              No. 03-1393
                                               (D. Ct. No. 01-WY-1117-CB)
                Plaintiff - Appellants,                  (D. Colo.)

           v.

 ADVISOR’S CAPITAL
 INVESTMENT, INC.; ROBERT K.
 MANN; PACVEST ASSOCIATES,
 INC.; STERLING TRUST
 COMPANY,

                Defendants,

 and

 CUMBERLAND CASUALTY &
 SURETY COMPANY,

 Defendant - Appellee.

                              ORDER AND JUDGMENT *

Before TACHA, Chief Circuit Judge, KELLY, and McCONNELL, Circuit

       This order and judgment is not binding precedent, except under the
       *

doctrines of law of the case, res judicata, and collateral estoppel. This court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
Judges.

      Plaintiff-Appellants David M. Albert, William H. Craven, Charles Savall,

and Leonid Shapiro (“Plaintiffs”), as named representatives of a putative class,

brought breach of contract and promissory estoppel claims against Defendant-

Appellee Cumberland Casualty & Surety Company (“Cumberland”). The District

Court granted Cumberland’s motion for summary judgment on multiple grounds.

We take jurisdiction under 28 U.S.C. § 1291 and AFFIRM.

                               I. BACKGROUND

      The Plaintiffs, through a trust in which Sterling Trust Company acted as

trustee, invested significant sums of money into a mutual fund investment

program managed by Advisor Capital Investments, Inc. (“ACI”). Pac Vest

Associates, Inc. is the parent company of ACI, and Robert K. Mann holds a

controlling interest in Pac Vest. Upon Mr. Mann’s direction, ACI deposited

upwards of $10 million into Swiss bank accounts under the control of Credit

Bancorp, Ltd. Credit Bancorp, pursuant to an investment strategy, was to invest

these funds in mutual funds. Credit Bancorp, however, misappropriated the

money. Although the Securities and Exchange Commission is pursuing an action

against Credit Bancorp, the Plaintiffs have never recovered their assets.

      Prior to delivering the funds to Credit Bancorp, ACI purchased a Registered

Investment Advisor’s Liability Insurance Policy (“Policy”) from Cumberland.

                                        -2-
The Policy, in essence, insures against a net loss in principal to mutual funds

under ACI’s control that result from a failure of the risk management strategy

(i.e., ACI’s investment strategy). The Policy expressly excludes coverage of

ACI’s clients (i.e., the Plaintiffs): “This Policy does not provide Insurance

coverage directly to [ACI’s] clients. Clients of [ACI] shall have no claim directly

against [Cumberland] for any loss in any Account.”

      Cumberland also assisted ACI in the production of marketing materials.

Thus, Cumberland produced a document entitled “Supplement to the Registered

Investment Advisory Agreement Offered by Advisor’s Capital Investments, Inc.

Certification of Risk Management” (“Supplement”). This document, which

expressly states that it is a supplement to the Policy between Cumberland and

ACI, was distributed, apparently by ACI, to potential ACI investors, including the

Plaintiffs. Similarly, Cumberland produced documents entitled “Certificate of

Endorsement,” which were apparently distributed by ACI to potential ACI

investors.

      After the misappropriation by Credit Bancorp, the Plaintiffs brought a

putative class action suit and eventually settled with all Defendants except

Cumberland. Cumberland then moved for summary judgment on Plaintiffs’

breach of contract and promissory estoppel claims. The Plaintiffs countered that

although they lack standing to sue on the Policy when read in isolation, the Policy

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must be interpreted along with the Supplement. Thus, the Plaintiffs argued, they

are either beneficiaries of the contract between Cumberland and ACI or are direct

promisees of Cumberland and should escape summary judgment.

      The District Court disagreed with the Plaintiffs. It held that the Policy

itself was not ambiguous, that its plain language barred their contract suit, that the

Supplement did not create contractual privity between Cumberland and the

Plaintiffs, that the Supplement could not be used to interpret the Policy, and that

even if it could be so used the plain language of the Supplement bars recovery.

Similarly, the District Court rejected the promissory estoppel claim. It held that

Cumberland failed to make a promise at all to the Plaintiffs and that even if the

Supplement acted as a promise it was not definite enough to insure against Credit

Bancorp’s misappropriation.

      The Plaintiffs appealed. Cumberland moved us to dismiss, arguing that the

District Court had failed to enter a final judgment. We granted the motion. The

District Court then entered its final judgment, and the Plaintiffs filed a second

timely notice of appeal.

                           II. STANDARD OF REVIEW

      We review a district court’s “grant of summary judgment de novo, applying

the same standards used by the district court.” Byers v. City of Albuquerque, 150
F.3d 1271, 1274 (10th Cir. 1998). Summary judgment is appropriate “if the

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pleadings, depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment as a matter of

law.” Fed. R. Civ. P. 56(c). We view the evidence, and draw reasonable

inferences therefrom, in the light most favorable to the nonmoving party. Byers,
150 F.3d at 1274.

      Although the movant must show the absence of a genuine issue of material

fact, it “need not negate the nonmovant’s claim.” See Jenkins v. Wood, 81 F.3d
988, 990 (10th Cir. 1996). Once the movant carries this burden, the nonmovant

cannot rest upon its pleadings, but “must bring forward specific facts showing a

genuine issue for trial as to those dispositive matters for which [it] carries the

burden of proof.” Id. “The mere existence of a scintilla of evidence in support of

the nonmovant’s position is insufficient to create a dispute of fact that is

‘genuine’; an issue of material fact is genuine only if the nonmovant presents

facts such that a reasonable jury could find in favor of the nonmovant.”

Lawmaster v. Ward, 125 F.3d 1341, 1347 (10th Cir. 1997).

                                 III. DISCUSSION

      The Plaintiffs argue that the District Court erred in granting Cumberland

summary judgment on their contract and promissory estoppel claims. We

disagree.

                                          -5-
A.    The Contract Claim

      On appeal, the Plaintiffs raise several points of error in regard to the

granting of summary judgment on the breach of contract claim. First, Plaintiffs

contend that under applicable choice of law doctrines, Connecticut substantive

law, not Colorado law, applies. Second, Plaintiffs argue that the Supplement

makes clear that they have standing to sue as third-party beneficiaries of the

Policy. Third, Plaintiffs argue that the Supplement renders the terms of the Policy

ambiguous. Finally, Plaintiffs argue that under the terms of the Supplement,

Cumberland is liable to them for the loss resulting from Credit Bancorp’s

misappropriation.

      Cumberland counters that it is entitled to summary judgment under both

Colorado and Connecticut law. Second, Cumberland argues that the plain

meaning of the terms of the Policy itself preclude Plaintiffs’ status as third-party

beneficiaries. Third, Cumberland argues that relying upon the Supplement to

create an ambiguity in the Policy is in direct violation of the parol evidence rule.

Finally, Cumberland argues that even under the terms of the Supplement,

Plaintiffs have no insured loss.

      We hold that the Supplement itself simply does not insure Plaintiffs’ loss.

As the District Court held, “Plaintiffs misconstrue the Supplement to argue in

support of their view that the Supplement protects against the losses they have

                                         -6-
incurred.” Hence, even if we interpreted the Supplement as an insurance policy

issued by Cumberland to the Plaintiffs as insureds, the terms of the “policy”

would bar recovery.

      Because the Supplement does not insure the Plaintiffs’ loss, we can dispose

of their contract claim without deciding the related issues raised on appeal. We

need not pass on the merits of the choice of law issue because the Plaintiffs’

argument fails under the laws of both Connecticut and Colorado.   1
                                                                      Furthermore,

we assume arguendo that the Plaintiffs have standing as third-party beneficiaries

under the Supplement and that the parol evidence rule does not bar reliance upon

the Supplement to interpret the Policy.

      In Travelers Ins. Co. v. Namerow, 778 A.2d 168, 177 (Conn. 2001), the

Connecticut Supreme Court expounded upon the law of exclusionary clauses in

insurance policies. The court held that “‘[a]n insurance policy is to be interpreted

by the same general rules that govern the construction of any written contract and

      1
        Because Plaintiffs desire application of Connecticut law and Cumberland
does not object, we apply Connecticut substantive law. However, we would reach
the same outcome by applying Colorado state law. See, e.g., Bohrer v. Church
Mut. Ins. Co., 965 P.2d 1258, 1262 (Colo. 1998) (“The insurance contract at issue
in this case is unambiguous; the plain and ordinary meanings of the terms
regarding coverage and exclusion from coverage can be given effect.”). Plaintiffs
promissory estoppel claim, which we consider pursuant to Connecticut law, would
receive similar treatment under Colorado law. See, e.g., Berg v. State Bd. of
Agriculture, 919 P.2d 254, 259 (Colo. 1996) (applying § 90 of Restatement
(Second) of Contracts as governing law on promissory estoppel).

                                          -7-
enforced in accordance with the real intent of the parties as expressed in the

language employed in the policy.’” Id. (quoting Schultz v. Hartford Fire Ins. Co.,

213 Conn. 696, 702, 569 A.2d 1131 (1990)). Intent of the parties is to be found

in “‘the provisions of the policy.’” Id. (quoting O’Brien v. United States Fidelity

& Guaranty Co., 235 Conn. 837, 842, 669 A.2d 1221 (1996)). The court further

held that a “‘contract of insurance must be viewed in its entirety, and the intent of

the parties for entering it derived from the four corners of the policy.’” Id.

(quoting Flint v. Universal Machine Co., 238 Conn. 637, 643, 679 A.2d 929

(1996)).

      The Namerow court provided further guidance: “‘The policy words must be

accorded their natural and ordinary meaning and any ambiguity in the terms of an

insurance policy must be construed in favor of the insured because the insurance

company drafted the policy.’” Id. (quoting Hansen v. Ohio Casualty Ins. Co., 239
Conn. 537, 542- 43, 687 A.2d 1262 (1996)) (alterations omitted). The court

expressly held that this rule of construction applies to exclusionary clauses in

insurance contracts. Id. Finally, the Namerow court noted that “‘construction of

a contract of insurance presents a question of law[,] which [it] reviews de novo.’”

Id. (quoting Flint v. Universal Machine Co., 238 Conn. 637, 642, 679 A.2d 929

(1996)) (alterations omitted).

      The Supplement’s exclusionary clause contains two sentences. The first

                                          -8-
sentence of the exclusionary clause of the Supplement reads: “The Agreement

shall only provide protection against loss of Principal by an Account resulting

from the failure of Advisor’s Insured Risk Management strategy.” The

Supplement defines an “Advisor” as a “professional mutual fund analyst who is

registered with the U.S. Securities and Exchange Commission.” The Supplement

further states that the Advisor “provides market timing services and/or asset

allocation service to mutual fund investors based on technical analysis.” Here,

ACI was the Advisor. The Supplement defines a “Risk Management strategy” as

a “professional investment service provided by the Advisor . . . which attempts to

reduce market risk by transferring managed assets to a money market mutual fund

or other investment to adjust for changing market conditions.”

      The plain language of the first sentence of the Supplement’s exclusionary

clause, see Namerow, 778 A.2d at 177, makes clear that the Supplement does not

cover all losses. Instead, the Supplement expressly limits its coverage to losses

that result from the failure of the Advisor’s (i.e., ACI’s) risk management

strategy. Here, the loss was caused by Credit Bancorp’s misappropriation.

Because Credit Bancorp’s misappropriation cannot be considered part of ACI’s

risk management strategy, we hold that losses suffered as a result of such action

do not fall within the natural and ordinary meaning of the language used in the

first sentence of the Supplement’s exclusionary clause.

                                        -9-
      The fact that the exclusionary clause goes on to further limit Cumberland’s

liability in the second sentence does not alter our analysis. The second sentence

of the exclusionary clause reads: “Advisor is not liable for losses caused directly

or indirectly by any of the following, such loss or losses are excluded regardless

of any other cause or event contributing concurrently or in any sequence to the

loss[.]” The remainder of the sentence goes on to list those losses that are

excluded from coverage. The Plaintiffs make much of the fact that

misappropriation is not included in this list.

      Plaintiffs’ argument, however, simply avoids the plain meaning of this

second sentence. The plain meaning of the second sentence is to further limit the

scope of Cumberland’s liability as found in the first sentence of the exclusionary

clause. As Cumberland is not liable for misappropriation even under the broader

first sentence, the fact that misappropriation is not listed among the further

excluded causes in the second sentence is of no consequence. Therefore, even if

we construed the Supplement, as Plaintiffs urge, as constituting the terms of the

insurance policy, and assume they have third-party standing to enforce it, the

plain meaning of the Supplement itself bars recovery for a loss resulting from

Credit Bancorp’s misappropriation.

B.    Estoppel

      In the alternative, Plaintiffs argue that even if the Supplement does not

                                         - 10 -
provide grounds for a contract claim against Cumberland, it provides the grounds

for an estoppel claim. Under Connecticut law, to establish estoppel Plaintiffs

must prove: (1) that Cumberland made a “promise which [it] should reasonably

expect to induce action or forbearance on the part of the promisee,” and (2) an

induced action or forbearance by the promisee that will result in an injustice

unless the promise is enforced. D’Ulisse-Cupo v. Bd. of Directors of Notre Dame

High Sch., 520 A.2d 217, 221 (Conn. 1987) (adopting Restatement (Second) of

Contracts § 90 (1973)). As to the first element, the promise must be definite,

from the objective point of view, so as to reasonably induce reliance. Id. at 221-

22.

      Plaintiffs argue that the Supplement itself constitutes such a definite

promise of insurance coverage. As we illustrated above, however, the plain

language of the Supplement excludes insurance coverage for instances of

misappropriation. Thus, even if the Supplement constitutes a promise made by

Cumberland to the Plaintiffs, it is not definite enough to satisfy the elements of

promissory estoppel under Connecticut law.

                                IV. CONCLUSION

      We do not doubt that the Plaintiffs have been severely injured by Credit

Bancorp’s misappropriation. The coverage offered by Cumberland, as laid out in

plain language in the Policy and the Supplement, however, is very narrow in

                                        - 11 -
scope. As such, we AFFIRM.

                             ENTERED FOR THE COURT,

                             Deanell Reece Tacha
                             Chief Circuit Judge

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