United States District Court, D. Maine
HOLLIE T. NOVELETSKY, THOMAS HEANEY, and JOSHUA W. ROSENTHAL, Plaintiffs,
METROPOLITAN LIFE INSURANCE COMPANY, INC., FRANCINE TEMKIN, and ALAN L. SILVERMAN, Defendants
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
For HOLLIE T NOVELETSKY, THOMAS HEANEY, JOSHUA W ROSENTHAL, Plaintiffs: BENJAMIN S. PIPER, LEAD ATTORNEY, PRETI, FLAHERTY LLP, PORTLAND, ME; SIGMUND D. SCHUTZ, LEAD ATTORNEY, JOHN J. CRONAN, III, PRETI, FLAHERTY, BELIVEAU, & PACHIOS, LLP, PORTLAND, ME.
For METROPOLITAN LIFE INSURANCE COMPANY INC, Defendant: DANIEL R. MAWHINNEY, ELIZABETH G. KNOX PECK, THOMPSON & BOWIE, LLP, PORTLAND, ME.
For FRANCINE TEMKIN, doing business as TEMKIN FINANCIAL GROUP, Defendant: PHILLIP S. BIXBY, LEAD ATTORNEY, FRIEDMAN, GAYTHWAITE, WOLF & LEAVITT, PORTLAND, ME.
For ALAN L SILVERMAN, doing business as SILVERMAN WEALTH AND INCOME STRATEGIES, Defendant: HEIDI J. HART, JOHN S. WHITMAN, RICHARDSON, WHITMAN, LARGE & BADGER, PORTLAND, ME.
ORDER ON PARTIES' CROSS-MOTIONS FOR SUMMARY JUDGMENT
Nancy Torresen, United States District Judge.
Before the Court are four motions for summary judgment: (1) Defendant Francine
Temkin's motion for summary judgment (ECF No. 175); (2) Defendant Alan Silverman's second motion for summary judgment (ECF No. 178); (3) Defendant Metropolitan Life Insurance Company, Inc.'s (" MetLife" ) motion for summary judgment (ECF No. 182); (4) and Plaintiffs Thomas Heaney and Joshua Rosenthal's cross-motion for partial summary judgment against Defendant Temkin (ECF No. 191). For the reasons that follow, the Defendants' motions for summary judgment are GRANTED, and the Plaintiffs' cross-motion for partial summary judgment is DENIED. Additionally, the Defendants' Daubert motions (ECF Nos. 174, 180, 183, 220, 221, 222) are GRANTED IN PART. The remainder of the objections raised in the Defendants' Daubert motions and all the objections raised in the Plaintiffs' Daubert motion (ECF No. 176) are DENIED AS MOOT.
In 1999, Hollie Noveletsky's father died, and she and her sister inherited their father's structural steel fabrication company, Novel Iron Works. SSMF ¶ ¶ 1-2. Noveletsky already owned her own steel erection company, Rose Steel, Inc. SSMF ¶ ¶ 2, 5; PSMF ¶ 22. At the time of her father's death, his estate was valued at almost $13 million, but Novel Iron Works lacked the liquidity to pay the $6 million in estate taxes owed. SSMF ¶ ¶ 1, 3. The estate entered an agreement with the IRS to pay off the tax debt incrementally over ten years. SSMF ¶ ¶ 1, 5. Noveletsky wanted to make sure that her own son, Joshua Rosenthal, had sufficient funds to pay the estate taxes when he inherited the company after she died. SSMF ¶ 4; TSMF ¶ 7. Noveletsky told Tom Heaney, Novel Iron Works' executive vice president, that she wanted to buy $5 million of life insurance for Rosenthal. TSMF ¶ 43; PSMF ¶ 20.
Noveletsky turned to Francine Temkin for help. TSMF ¶ 8. Temkin, Noveletsky's best friend and the sister of Noveletsky's ex-husband, was a long-time life insurance agent for MetLife. TSMF ¶ 8; PSMF ¶ 10. Temkin told Noveletsky that her situation was " too complex" for her and referred Noveletsky to Alan Silverman, a MetLife agent, as well as a chartered life underwriter and financial consultant and certified public accountant and financial planner, who did business under the names Silverman Wealth and Income Strategies
and Silverman Estate Planning and Financial Group. PSMF ¶ ¶ 2-4, 47; SSMF ¶ 28.
Before his first in-person meeting with Noveletsky, Silverman asked Noveletsky to provide him with some of her financial records. PSMF ¶ 52. Silverman developed a sense that the MetLife Life98 life insurance policy (the " Metlife Policy" ) (ECF No. 93-2), a whole life policy with a $5 million death benefit, accumulating cash value, and variable dividends, would likely be appropriate for her. SSMF ¶ ¶ 8(e)-(f); PSMF ¶ 53.
Noveletsky, Silverman, and Temkin met face-to-face on May 11, 2001, and discussed Noveletsky's desire to obtain life insurance that would help her son pay the estate taxes when she died. PSMF ¶ ¶ 56-58. At the time, Noveltsky was a healthy 41-year-old with an actuarial life expectancy of 40 years. SSMF ¶ 6. Silverman recommended Noveletsky purchase the Metlife Policy. SSMF ¶ ¶ 9, 15; PSMF ¶ 54. At the meeting, Noveletsky and Silverman also discussed term life policies, which Silverman did not recommend. SSMF ¶ 8; PSMF ¶ ¶ 68, 98. Silverman did not present the option of universal life insurance to Noveletsky, though he knew that a generic universal life policy would have had annual premiums about half as large as those of the MetLife Policy. PSMF ¶ ¶ 66, 98.
Silverman told Noveletsky that under the MetLife Policy she " would only have to pay for 10, maybe 12 years max and the policy would pay for itself out of its dividends." SSMF ¶ 17; PSMF ¶ 69. Noveletsky understood that the number of payments she would have to make depended on the economy. SSMF ¶ 17; MSMF ¶ 30. Noveltsky understood Silverman to mean that she would be required to pay only for ten years in a good economy but up to twelve years in a not-so-good economy. PSMF ¶ ¶ 70-71.
Silverman's file contained two Life Insurance Policy Illustrations--one dated May 10, 2001, and labeled " Prepared For Hollie Noveletsky" and the other dated July 12, 2001, and labeled " Prepared For Hollie T. Noveletsky-Rosenthal." SSMF ¶ 30; MSMF ¶ ¶ 24, 26; May 10, 2001 Illustration (" May Illustration" ) (ECF No. 93-5); July 12, 2001 Illustration (" July Illustration" ) (ECF No. 93-6). Both illustrations give projections for the MetLife Policy, although the May Illustration assumes a preferred rating and $1 million in coverage while the July Illustration assumes a standard rating and $5 million in coverage. MSMF ¶ ¶ 24, 26; May Illustration 2; July Illustration 2. The illustrations show when the MetLife Policy would become self-funding at the " guaranteed" dividend scale, at the " non-guaranteed current dividend scale" being paid by MetLife, and at a " non-guaranteed reduced dividend scale." May Illustration 14-16; July Illustration 14-16. Both illustrations show the policies becoming self-funding at 10 and 12 years at current and reduced dividend scales, respectively. May Illustration at 14-16; July Illustration at 14-16. Both illustrations also show that the policies would not become self-funding until year 57 under the guaranteed scale. May Illustration at 14-16; July Illustration at 14-16. Finally, both illustrations contain the following language:
The policy is eligible for annual dividends beginning at the end of the second policy year. Dividends are based on factors such as MetLife's investment returns,
taxes, persistency, claims experience (mortality) and expenses. The amount of any future dividend cannot be guaranteed and is subject to change by MetLife. Actual results may be more or less favorable than those shown.
MSMF ¶ 28; May Illustration at 2; July Illustration at 2.
Noveletsky confirmed that before the MetLife Policy was issued, in the company of Silverman and Temkin, she saw and reviewed an illustration similar in format to the July Illustration, although she could not be sure that it was the July Illustration that she had seen. MSMF ¶ 29;  May 5, 2013 Dep. of Hollie Noveletsky Pt. 1 at 24 (105:1-8).
Silverman also recommended that Noveletsky establish an irrevocable life insurance trust, or ILIT, to hold the policy, and he referred her to trusts attorney John Hughes to advise her. SSMF ¶ ¶ 11-12; PSMF ¶ 87. He also told Noveletsky to submit a trial application to MetLife on her own behalf, though it was his intention that the ILIT purchase the policy, not Noveletsky. PSMF ¶ 99. Noveletsky followed Silverman's recommendations. SSMF ¶ ¶ 12-13; PSMF ¶ 100.
After Noveletsky submitted the trial application, MetLife required her to disclose her medical records and undergo a medical exam in order to make an underwriting decision about how much the MetLife Policy would cost. PSMF ¶ 102. On July 19, 2001, MetLife gave Noveletsky a " standard" rating, as opposed to a " preferred" rating. PSMF ¶ 103. In accordance with that decision, MetLife set the price of the annual premiums for the MetLife policy at $66,750 a year. PSMF ¶ ¶ 54, 104. The premiums would have been lower had Noveletsky received a " preferred" rating. PSMF ¶ 104.
At Noveletsky's request, Attorney Hughes drafted a trust instrument (the " Trust Instrument" ) for the ILIT. SSMF ¶ 12; ECF No. 181-8. The primary purpose of the trust was to hold the life insurance policy on Noveletsky's life and to enable payment of estate taxes at Noveletsky's death. TSMF ¶ 78. The Trust Instrument included provisions purporting to excuse the Trustee from certain duties, including:
o Section 4, titled " TRUSTEE'S DUTIES AND POWERS," which states:
[D]uring the time in which the assets of the trust estate consist solely of principal cash, if any, and insurance policies, the Trustee shall not be required to diversify investments nor make any investment recommendations.
Trust Instrument 7.
o Section 11, titled " TRANSACTIONS WITH INTERESTED TRUSTEE," which states:
Any individual acting as a Trustee hereunder or any firm or corporation of which it is a member or employee may act as attorney for, deal and contract with, and be employed by the Trustee hereunder, and any individual acting as a Trustee hereunder may act as attorney, director, officer, agent or employee of any corporation in which the Grantor's estate or the trust is interested, directly or indirectly, as a stockholder or otherwise, all in the same manner and with the same freedom as though not a Trustee or the employee of a Trustee hereunder and
without accountability for any compensation received in connection with such action.
Trust Instrument 12-13. Another provision of the Trust Instrument, § 12(A), requires the trustee to " render accounts of the administration of the trust annually." Trust Instrument 13.
Noveletsky chose Temkin to be the ILIT's trustee. SSMF ¶ 13; PSMF ¶ 113; Trust Instrument 1-18. Temkin was appointed as trustee for the sole purpose of purchasing the MetLife Policy, which had already been selected by Noveletsky at the time Temkin became trustee. TSMF ¶ 116. Noveletsky, Silverman, and Temkin met on July 26, 2001 to execute the Trust Instrument. PSMF ¶ 112.
On August 9, 2001, Silverman, Temkin, and Noveletsky met again. PSMF ¶ 126. Temkin applied for the MetLife Policy on the ILIT's behalf. PSMF ¶ 147. Temkin and Noveletsky signed a certificate acknowledging that the ILIT was purchasing the MetLife Policy and that Rosenthal would be the policy's beneficiary. MSMF ¶ ¶ 32- 33; ECF No. 94-1. On August 9, 2001, Temkin also signed the July Illustration. MSMF ¶ 26; July Illustration at 5. The first payment to MetLife, which bound the ILIT, was paid that month. PSMF ¶ 126.
Noveletsky received and read the MetLife Policy at some point after it went into effect. MSMF ¶ 51. In a section entitled " Dividends" the policy provided:
Every year we determine an amount to be paid to our policyholders as dividends. We will determine the share, if any, for this policy and credit it as a dividend at the end of the policy year.
MetLife Policy at 5.
MetLife pays its agents a commission upon the delivery of an insurance contract to a customer. PSMF ¶ 152. The amount of the commission depends on the size of policy's premiums. PSMF ¶ 153. As co-agents on the sale of the MetLife Policy, Temkin and Silverman split an $80,000 commission. PSMF ¶ ¶ 155-56, 200. Noveletsky was unaware that Temkin received part of the commission. PSMF ¶ 200.
Over the next ten years, with the exception of 2009, Noveletsky made annual payments into the ILIT out of her own funds. PSMF ¶ ¶ 93, 175, 184, 235. Noveletsky funded the ILIT each year with the net proceeds of an approximate $120,000-$130,000 bonus payment from her company, Rose Steel. PSMF ¶ ¶ 93, 175, 235. The bonus payment was " grossed up" to allow Noveletsky to fund the ILIT at exactly $66,750 a year after paying income taxes on the bonus. PSMF ¶ ¶ 93, 175, 235. In 2009, Noveletsky's business had a bad year and she opted not to make a payment. PSMF ¶ 184.
Each year, with the exception of 2009, Temkin would receive a check for $66,750 from Noveletsky, and each year, with the exception of 2002, Temkin would send out a form known as a " Crummey letter" to Rosenthal informing him of his ability to withdraw this gift from the trust. TSMF ¶ 99; PSMF ¶ ¶ 184, 191. Temkin would
wait thirty days and then use the gift to pay the MetLife Policy's annual premium. TSMF ¶ ¶ 99, 117. She sent Rosenthal no other annual accounting of the administration of the ILIT and she failed to send the Crummey letter at all in 2002. TSMF ¶ 99; PSMF ¶ 191. Temkin received no compensation for her work on the ILIT's behalf. TSMF ¶ 27.
Each year, MetLife sent annual policy statements addressed to " Francine Temkin" to Noveletsky's home. TSMF ¶ 102. When they arrived, Noveletsky would turn them over to Temkin. TSMF ¶ 45. Temkin would then give them back to Noveletsky, who would then turn them over to Heaney, unopened. TSMF ¶ 45. The annual policy statements for 2004, 2009 and 2010 were admitted into the record. MetLife Annual Policy Statements for 2004, 2009 & 2010 (" Policy Statements" ) (ECF No. 181-5). Each contained information about the amount of the premium, the amount of the current death benefit, the cash surrender value, and the amount of dividend paid for that year. Policy Statements at 1-3. They also contain statements announcing that the dividend scale is lower than the prior scale. Policy Statements at 1-3. For instance, the 2004 annual statement reads: " The current dividend scale for this policy is lower than the prior scale, reflecting investment experience. . . . If you have questions regarding the effect of the dividend scale . . ., please contact your Representative or MetLife as described in the Notice below." Policy Statements at 1.
Unbeknownst to Noveletsky, dividends on the MetLife Policy began decreasing as the economy faltered in the wake of the September 11, 2001 attacks and the mortgage crisis. PSMF ¶ ¶ 187-189. In the spring of 2011, after consultation with George Blaisdell, an insurance broker working on Novel Iron Works' 401(k) plan, Noveletsky realized that there was no cap on the number of payments needed to fund the MetLife Policy. SSMF ¶ 19. By then, the ILIT had paid nine premiums funded by Noveletsky, one each year from 2001 to 2010, except for 2009 when Noveletsky did not fund the ILIT. SSMF ¶ 18; PSMF ¶ 184; see also Duval Report 20-29. At then-existing rates, the policy was not expected to become self-funding until seventeen premiums had been paid. SSMF ¶ 19. Noveletsky also learned that Temkin had received half of the $80,000 commission on the MetLife Policy. PSMF ¶ 200.
Following Noveletsky's discoveries, she arranged to have Temkin replaced as the ILIT's trustee. PSMF ¶ ¶ 201-202. In February of 2012, the ILIT's new trustee, Thomas Heaney, surrendered the MetLife Policy and purchased a Genworth universal life insurance policy (the " Genworth Policy" ) using the $590,150.51 in cash value that the MetLife Policy had accumulated. PSMF ¶ 204; MSMF ¶ 56. The new policy provided a guaranteed death benefit, up to age 99, of $4,782,208 with no further premium payments due. SSMF ¶ 25; TSMF ¶ 56. With an additional $27,000 the ILIT could have purchased a
policy with $5 million of coverage. SSMF ¶ 26.
The Plaintiffs solicited the opinions of three experts to bolster their theories of liability and quantify their alleged damages: (1) Phillip E. Harriman, a life insurance expert; (2) John T. Gurley, a tax liability expert; and (3) John J. Duval, Jr., a damages expert. PSMF ¶ ¶ 207, 224; Jan. 14, 2014 Expert Report of John J. Duval, Jr. ( " Duval Report" ) (ECF No. 223-1).
Harriman opines that most trustees consider a range of insurance options before buying a policy and that Temkin and Silverman should have performed a " needs analysis" to determine the amount of insurance and type of policy appropriate for Noveletsky. PSMF ¶ ¶ 215-16; Aug. 27, 2012 Expert Report of Philip E. Harriman 6 (" Harriman Report" ) (ECF No. 192-2). He contends that a needs analysis would have revealed that a whole life insurance policy like the MetLife Policy was inappropriate. PSMF ¶ 217; Harriman Report 7. He further asserts that the ILIT should have purchased a universal life insurance policy instead, in light of Noveletsky's goals. PSMF ¶ 217; Harriman Report 7. Harriman identified a Manulife universal life policy (the " Manulife Policy" ) that he claims was available in 2001, which would have provided Noveletsky a $5 million death benefit through the age of 99 with annual premiums of just $32,505, so long as Noveletsky secured a " preferred" rating from Manulife as opposed to the " standard" rating she received from MetLife. PSMF ¶ 223; Harriman Report 7, 11.
Gurley offers opinions regarding the tax implications of the arrangement Noveletsky entered into with MetLife and the ILIT. Oct. 4, 2012 Expert Report of John T. Gurley (" Oct. 4, 2012 Gurley Report" ) (ECF No. 180-4 at 14-24); Oct. 31, 2012 Correction of John T. Gurley (" Oct. 31, 2012 Gurley Supplement" ) (ECF No. 180-4 at 25-26).
First, in what he labels Opinions 1(A) and 2(B), Gurley opines that Noveletsky would have been exposed to $115,216 less in estate tax liability and paid $202,819 less in income tax had the ILIT purchased the Manulife Policy instead of the MetLife Policy. PSMF ¶ ¶ 226, 230, 233. This scenario assumes that Noveletsky would have taken smaller grossed-up bonuses from Rose Steel and left the extra money in the company. PSMF ¶ ¶ 226, 230, 233; Oct. 4, 2012 Gurley Report 13-14, 19 (" Opinion 1(A)" ); Oct. 4, 2012 Gurley Report 15-16, 20 (" Opinion 2(B)" ); Oct. 31, 2012 Gurley Supplement 25-26.
Second, in what he labels Opinions 3(A) and 3(B), Gurley proposes that Noveletsky would have been exposed to $165,171 less in estate tax liability and paid $358,917 less in income tax had Noveletsky foregone any bonuses from Rose Steel and instead had Rose Steel fund the ILIT directly through
a split-dollar arrangement. This scenario assumes that the ILIT would have still purchased the MetLife Policy. PSMF ¶ ¶ 227, 230, 237; Oct. 4, 2012 Gurley Report 19-20 (" Opinion 3(A)" and " Opinion 3(B)" ); Gurley Supplement 25-26.
Third, in what he labels Opinions 1(B) and 2(D), Gurley proposes that Noveletsky would have been exposed to $165,171 less in estate tax liability and paid $393,532 less in income tax had she foregone life insurance and taken no bonuses from Rose Steel. PSMF ¶ ¶ 228, 230, 235; Oct. 4, 2012 Gurley Report 13-14, 19 (" Opinion 1(B)" ); Oct. 4, 2012 Gurley Report 18, 20 (" Opinion 2(D)" ).
The Plaintiffs' final expert, Duval, used both Harriman and Gurley's expert reports to build " damage models," essentially estimates of how much more money the ILIT and Noveletsky would have had in 2012, when the ILIT surrendered the MetLife Policy, if Noveletsky and the ILIT had taken different actions from 2001 to 2010. January 14, 2014 Expert Report of John Duval 9 (the " Duval Report" ) (ECF No. 220-2). The Plaintiffs propose that two of Duval's models could be used as the basis for an award of the damages the ILIT suffered as a result of Temkin's alleged breaches of trust: (1) the " Actual Premiums Lost Opportunity" model, which estimates that the ILIT suffered $269,785 in damages; and (2) the " Excess Premiums 2 Lost Opportunity" model, which estimates that the ILIT suffered $441,306 in damages. PSMF ¶ ¶ 240-41; Duval Report 4 & Exs. 3, 11; Pls.' Opp'n to Def. Temkin's Mot. for Summ. J. 4, 6-7 (ECF No. 190).
The Actual Damages Lost Opportunity estimate is calculated in the following manner. The ILIT paid $600,494 in MetLife Policy premiums from 2001 to 2010 and received $590,407 back in 2012 when it surrendered the policy. Accordingly, Duval concludes, it suffered a net change in wealth of -$10,343. PSMF ¶ 241; Duval Report 4, 20-29. Next, Duval calculates that if the ILIT had still received $66,750 a year in funding from 2001 to 2010 but invested the money in a bond market index fund instead of paying the MetLife Policy premiums, its investment would have yielded $259,422 by February of 2012.
PSMF ¶ 241; Duval Report 4-5, 20-29. Finally, Duval calculates the difference between the ILIT's net change in wealth (-$10,343, a/k/a " actual damages" ) and the amount it could have made through conservative investments ($259,422, a/k/a " lost opportunity" ), to produce a final " Actual Damages Lost Opportunity" damages ...