Filed: Feb. 21, 2020
Latest Update: Mar. 03, 2020
Summary: Case: 19-50175 Document: 00515318251 Page: 1 Date Filed: 02/21/2020 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals Fifth Circuit FILED No. 19-50175 February 21, 2020 Lyle W. Cayce Clerk WEALTHMARK ADVISORS INCORPORATED; DAVID SHIELDS, Plaintiffs - Appellants v. PHOENIX LIFE INSURANCE COMPANY; PHL VARIABLE INSURANCE COMPANY, Defendants - Appellees Appeal from the United States District Court for the Western District of Texas USDC No. 5:16-CV-485 Before
Summary: Case: 19-50175 Document: 00515318251 Page: 1 Date Filed: 02/21/2020 IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals Fifth Circuit FILED No. 19-50175 February 21, 2020 Lyle W. Cayce Clerk WEALTHMARK ADVISORS INCORPORATED; DAVID SHIELDS, Plaintiffs - Appellants v. PHOENIX LIFE INSURANCE COMPANY; PHL VARIABLE INSURANCE COMPANY, Defendants - Appellees Appeal from the United States District Court for the Western District of Texas USDC No. 5:16-CV-485 Before K..
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Case: 19-50175 Document: 00515318251 Page: 1 Date Filed: 02/21/2020
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
No. 19-50175
February 21, 2020
Lyle W. Cayce
Clerk
WEALTHMARK ADVISORS INCORPORATED; DAVID SHIELDS,
Plaintiffs - Appellants
v.
PHOENIX LIFE INSURANCE COMPANY; PHL VARIABLE INSURANCE
COMPANY,
Defendants - Appellees
Appeal from the United States District Court
for the Western District of Texas
USDC No. 5:16-CV-485
Before KING, JONES, and DENNIS, Circuit Judges.
PER CURIAM:*
Appellant Wealthmark Advisors, Inc. (“Wealthmark”) challenges the
judgment for more than $3 million for its breach of contract with Appellees.
Having carefully considered the briefs, oral argument and pertinent portions
of the record, we find no reversible error of fact or law and AFFIRM.
In 2010, Wealthmark entered into an Annuity Distributor Agreement
(the “Distributor Agreement”) with Phoenix Life Insurance Company
* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
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No. 19-50175
(“Phoenix”) whereby Wealthmark agreed to sell Phoenix annuities in exchange
for sales commissions. Under the Distributor Agreement, if Phoenix had to
refund to a policyholder a premium on an annuity that Wealthmark had sold,
Wealthmark was required to repay to Phoenix the commission on the sale.
Over the years, Wealthmark and its representatives successfully sold millions
of dollars in Phoenix products and were paid accordingly. But in 2014, the
Minnesota Attorney General sued a Wealthmark representative named
Anthony Friendshuh, alleging Friendshuh had made misrepresentations to
consumers in connection with his sales of Phoenix annuities. Phoenix’s parent
company stepped in and settled the case, but not before agreeing to an
Assurance of Discontinuance that resulted in Phoenix’s providing monetary
relief on 248 annuities (the “Annuities”). In total, Phoenix returned over $27
million in premiums and interest.
Predictably, Phoenix demanded Wealthmark repay the commissions on
the Annuities. Wealthmark refused and sued Phoenix in state court for
negligence, seeking a declaration that the Distributor Agreement did not
require Wealthmark to return any sales commissions. After removing the case
to federal court, Phoenix filed a counterclaim against Wealthmark for breach
of contract, alleging Wealthmark breached the Distributor Agreement by
failing to repay the commissions. Phoenix then moved for partial summary
judgment as to liability on Wealthmark’s negligence claim and Phoenix’s
breach of contract counterclaim. The district court, approving a magistrate
judge’s report and recommendation, granted Phoenix’s motion, and the case
proceeded to a bench trial on damages. Wealthmark now appeals the district
court’s adverse summary judgment as well as two evidentiary rulings made
during the damages trial. We turn first to the summary judgment.
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We review the granting of a motion for summary judgment de novo,
applying the same standard as the district court. Tango Transp. v. Healthcare
Fin. Servs. LLC, 322 F.3d 888, 890 (5th Cir. 2003). Summary judgment is
appropriate if no genuine dispute of material fact exists, and the moving party
is entitled to judgment as a matter of law. FED. R. CIV. P. 56(a).
As to Phoenix’s breach of contract claim, we agree with the magistrate
judge’s careful analysis, as approved by the district court. The court held that
Wealthmark was contractually obliged to return the commissions Wealthmark
had received on the Annuities because the Annuities were rescinded, and
Wealthmark breached the Distributor Agreement by not doing so. It is
undisputed that a Repayment-of-Commissions provision in the Distributor
Agreement generally required Wealthmark to repay sales commissions “should
Phoenix for any reason refund or return any amount of any premium payment”
on an annuity, including when an annuity was rescinded. Nor is it disputed
that “Footnote (e)” of the compensation schedule—attached to and
incorporated into the Distributor Agreement—limited that repayment
obligation when annuities were “surrendered.” 1 The parties disagree only as
to whether the Annuities were, in fact, rescinded (such that the general
repayment requirement controls and Wealthmark is liable) or surrendered
(such that the Footnote (e) exception controls and Wealthmark is off the hook).
The district court correctly explained that the Distributor Agreement
does not define the term “surrender,” but “technical words are to be interpreted
1 Footnote (e) limited the repayment requirement to fifty percent when annuities were
surrendered more than six months after issuance, and it extinguished the repayment
requirement when annuities were surrendered more than one year after issuance. The record
is silent as to whether, assuming the Annuities were surrendered, they were surrendered
within these six- or twelve-month windows, but Phoenix does not dispute that, if the
Annuities were surrendered, Wealthmark has no repayment obligation.
3
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as usually understood by persons in the business to which they relate.” Exxon
Corp. v. Emerald Oil & Gas Co., L.C., 348 S.W.3d 194, 211 (Tex. 2011). 2 In
insurance parlance, “surrender” refers to a policyholder’s cancellation of an
insurance policy in return for a sum of money, generally referred to as the “cash
surrender value” of the policy. 3 2 COUCH ON INS. § 32:83 (3d ed. 2019); see also
Value, BLACK’S LAW DICTIONARY (11th ed. 2019) (defining “Cash Surrender
Value” as “[t]he amount of money payable when an insurance policy having
cash value . . . is redeemed before maturity or death.”). Rescission is legally
distinct from surrender. “Upon rescission of a contract, ‘the rights and
liabilities of the parties are extinguished and they are restored to the relative
positions which they would have occupied had no such contract ever been
made.’” Baty v. ProTech Ins. Agency,
63 S.W.3d 841, 855 (Tex. App.—Houston
[14th Dist.] 2001, pet. denied) (quoting Taylor v. Gill,
211 S.W.2d 363, 367
(Tex. Civ. App.—Eastland 1948, no writ.)). Thus, although surrender and
rescission are conceptually both forms of policy cancellation, a key difference
is whether the policyholder winds up in the position he was in prior to
obtaining the policy.
2Texas law applies because this is a diversity case. Ideal Mut. Ins. Co. v. Last Days
Evangelical Ass’n, 783 F.2d 1234, 1240 (5th Cir. 1986).
3 As an example, one of the Annuities contained the following Surrender Provision:
You may request a withdrawal of the entire Accumulation Value
at any time prior to the Contract Maturity Date; this is a
surrender. Surrenders must be made by written request . . . .
Surrender Charges, Market Value Adjustments, and taxes will
be applied, if applicable. . . . The payment you will receive is the
Cash Surrender Value. The Cash Surrender Value is an amount
equal to the Accumulation Value, adjusted by any applicable
Market Value Adjustment, less any applicable Surrender
Charges and taxes.
4
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Here, the Annuities were cancelled—in the generic sense of the term—
pursuant to the Assurance of Discontinuance that governed Phoenix’s
settlement with the Minnesota Attorney General. The Assurance of
Discontinuance created a claims process, described in a section titled
“Rescission Offer,” that “gave each policyholder whose annuity was still in force
the opportunity to submit a claim to request that their Phoenix annuity be
rescinded if they believe[d] they were not fully informed about the terms or
conditions of the annuity.” In accordance with this process, Phoenix provided
relief on 248 annuities. Of those, Phoenix returned all premiums plus interest
on 222 annuities. The remaining Annuities were no longer in force at the time
the Assurance of Discontinuance was executed, but Phoenix returned “any
surrender charges or fees” previously “imposed by Phoenix that resulted in the
Policyholder receiving less than the amount of the premium paid to Phoenix
for the annuity.” In other words, the Annuities were cancelled, and
policyholders received compensation designed to put them in the position they
would have occupied had they never purchased a Phoenix annuity. That is
rescission. Wealthmark was therefore obliged to repay the commissions on the
Annuities and, because it did not, Wealthmark breached the Distributor
Agreement. Summary judgment was proper on Phoenix’s breach of contract
claim.
The district court also found Wealthmark’s negligence claim was barred
by the economic loss rule, which “precludes recovery in tort when the loss
complained of is the subject matter of a contract between the parties.” Ibe v.
Jones, 836 F.3d 516, 526 (5th Cir. 2016) (citing Sw. Bell. Tel. Co. v. DeLanney,
809 S.W.2d 493, 494 (Tex. 1991)). Wealthmark’s briefing on this issue is
perfunctory. Wealthmark seeks monetary relief for losses it sustained in
“spending substantial sums to promote the business of Phoenix,” all of which
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was allegedly “lost . . . due to defendants’ negligence in the way they handled
the sale of their products.” But Wealthmark’s alleged losses would not have
occurred had it not agreed in the Distributor Agreement to “promote, market,
and sell Phoenix products” and to be generally “responsible for all expenses
incurred” in fulfilling that commitment. Thus, Phoenix’s alleged malfeasance
would not give rise to liability absent the Distributor Agreement. The
economic loss rule therefore applies, and summary judgment was proper on
Wealthmark’s negligence claim.
Now to damages. Because the district court granted summary judgment
on liability only, the parties tried the issue of damages to the court.
Wealthmark challenges the court’s admission of summaries of the commissions
Phoenix paid to Wealthmark (Exhibit D10) and Friendshuh (Exhibit D11).
“This court applies a ‘deferential abuse of discretion standard’ when reviewing
a district court’s evidentiary rulings.” Williams v. Manitowoc Cranes, L.L.C.,
898 F.3d 607, 615 (5th Cir. 2018) (quoting Heinsohn v. Carabin & Shaw, P.C.,
832 F.3d 224, 233 (5th Cir. 2016)).
Wealthmark first argues the district court erred in admitting Exhibits
D10 and D11 because the best evidence of the commissions Phoenix paid was
“in the form of checks and/or EFT records that evidenced the actual payments
made.” Under Rule 1002, “[a]n original writing, recording, or photograph is
required in order to prove its content.” FED. R. EVID. 1002. But Exhibits D10
and D11 were not offered to prove the truth of the factual contents in the checks
or electronic transfers; they were used to prove up the balance of the
commissions Wealthmark owed Phoenix. See Dalton v. F.D.I.C.,
987 F.2d 1216, 1223 (5th Cir. 1993). Moreover, the summaries were admitted
pursuant to Rule 1006 as summaries of voluminous records. See FED. R. EVID.
1006 (“The proponent may use a summary, chart, or calculation to prove the
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contents of voluminous writings, records, or photographs that cannot be
conveniently examined in court.”). Even if the summaries were used to prove
the contents of the “checks and/or EFT records,” Rule 1006 operates as an
exception to the best evidence rule. CHARLES ALAN WRIGHT & ARTHUR R.
MILLER, FEDERAL PRACTICE & PROCEDURE EVIDENCE § 8043 (3d ed. 2019).
And while there are limits to the admission of summary evidence under
Rule 1006, Wealthmark did not challenge Exhibits D10 and D11 on such
grounds.
Wealthmark also argues the district court erred in admitting Exhibits
D10 and D11 because they were irrelevant, as “they [were] not, and [could not]
be conclusive in showing the amounts paid on any particular product sold by
Phoenix.” But whether evidence is “conclusive” is not the standard. “Evidence
is relevant if: (a) it has any tendency to make a fact more or less probable than
it would be without the evidence; and (b) the fact is of consequence in
determining the action.” FED. R. EVID. 401. Phoenix’s witness testified that
Exhibit D10 summarized and totaled the commissions paid to Friendshuh and
that his debt had been transferred to Wealthmark pursuant to the Distributor
Agreement. The same witness also testified that Exhibit D11 summarized and
totaled the commissions paid directly to Wealthmark. Both exhibits, then, had
a tendency to show the amount of commissions Phoenix paid, which was of
consequence in determining Phoenix’s breach of contract damages. The
district court did not abuse its discretion in overruling Wealthmark’s objections
to Exhibits D10 and D11. 4
4 Wealthmark submitted written pre-trial objections to Exhibits D10 and D11 that
stated “OBJECTION: 401, 402, 403, 901, 1006.” At trial, however, Wealthmark only objected
on best evidence and relevancy grounds. The district court never ruled on Wealthmark’s
other written objections, and Wealthmark does not discuss them on appeal. Wealthmark’s
objections on grounds other than the best evidence rule and relevance are therefore waived.
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For the foregoing reasons, the district court’s summary judgment and
evidentiary rulings are AFFIRMED.
See Audler v. CBC Innovis Inc., 519 F.3d 239, 255 (5th Cir. 2008) (“A party waives an issue
if he fails to adequately brief it.”).
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