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Torti v. Hoag

United States District Court, E.D. Arkansas, Western Division

October 17, 2014

RICHARD A. TORTI, SR., as successor Trustee of the Stuart Family 1997 Trusts, Plaintiff,


J. LEON HOLMES, District Judge.

Richard A. Torti, Sr., brings this action as successor trustee of the Stuart Family 1997 Trusts against former trustee Debra Hoag, Gentry Partners Limited, and John Hancock Life Insurance Company (U.S.A.), alleging claims of breach of fiduciary duty, negligence, deceit, and a violation of the Arkansas Deceptive Trade Practices Act.[1] The defendants have filed motions to dismiss the first amended complaint. Torti has filed a motion to strike portions of Hoag and Gentry Partners's motion to dismiss. For the reasons set forth above, John Hancock's motion to dismiss is granted, Hoag and Gentry Partners's motion to dismiss is granted in part and denied in part, and Torti's motion to strike is granted.


On August 8, 1997, Layton P. Stuart created the Stuart Family 1997 Trusts, which consisted of separate trusts for the benefit of each of his three immediate family members.[2] Stuart was the chief executive officer of One National Bank. Michael Heald was the chief operations officer of the bank. The trusts designated Heald as trustee. Hoag, an insurance broker, negotiated Heald's purchase, in the name of the trusts, of a $20 million life insurance policy on Stuart's life from John Hancock. That same day, the bank and the trusts entered into a split dollar life insurance agreement. In that agreement, the bank acknowledged that Stuart rendered service to the bank that was to the bank's benefit and for which Stuart was inadequately compensated. Document #14-1 at 52 ¶1. As inducement to Stuart to continue in the bank's employ, the bank entered into an agreement to finance the trusts' payment of the insurance policy's $350, 000 annual premiums. Under the agreement the bank agreed to pay the policy's premiums and to be repaid from the policy's death proceeds. The agreement also provided, in pertinent part, "No loans shall be made against the cash value of the Insurance Policy, which shall remain available... to satisfy the amount payable to the Bank...." Document #14-1 at 53 ¶6. In return, acting on the trusts' behalf, Heald assigned the policy to the bank as collateral.

On June 2, 2011, Heald resigned as trustee and appointed Hoag as the successor trustee. Hoag accepted the appointment. On June 3, 2011, Hoag submitted a policy loan request to John Hancock on behalf of the trusts. Hoag sought to borrow funds to the fullest extent possible, using the trusts' life insurance policy as collateral. Hoag was the president of Gentry Partners, and she used employees of Gentry Partners to facilitate the policy loan request. Hoag obtained a loan in the amount of $1, 761, 000. On June 7, 2011, John Hancock issued a check in that amount made payable to "Stuart Family Trust" and sent it to the address Hoag had submitted on the loan application, which was Stuart's office in Little Rock. Stuart received the check, endorsed it, deposited it, and thereafter used the funds contrary to the purposes of the trusts.

On March 24, 2013, Stuart died. By May 28, 2013, Torti had become the trustee. John Hancock required that Torti execute a release of all claims relating to or arising out of the policy or the payment of benefits thereunder as a condition of its paying the death benefit under the insurance policy. Torti declined to sign the release. John Hancock transferred $17, 693, 837.10 into a segregated account as death benefits owing under the policy minus the $1, 761, 000 policy loan and accrued interest.

On June 11, 2013, the United States issued a warrant to seize the death benefit proceeds (less the loan proceeds), and it filed a civil forfeiture complaint against those proceeds.[3]


To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a)(2). Although detailed factual allegations are not required, the complaint must set forth "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 1974, 167 L.Ed.2d 929 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). The court must accept as true all of the factual allegations contained in the complaint, Twombly, 550 U.S. at 572, 127 S.Ct. at 1975, and must draw all reasonable inferences in favor of the nonmoving party. Cole v. Homier Distrib. Co., Inc., 599 F.3d 856, 861 (8th Cir. 2010). The complaint must contain more than labels, conclusions, or a formulaic recitation of the elements of a cause of action, which means that the court is "not bound to accept as true a legal conclusion couched as a factual allegation." Twombly, 550 U.S. at 555, 127 S.Ct. at 1965.


A. Breach of Fiduciary Duty

Torti's complaint alleges a claim against the defendants for breach of fiduciary duty. Hoag and Gentry Partners argue that the "no loans" provision in the split dollar agreement was for the benefit of the bank and not the trust so that the provision created no duty to the trust. Furthermore, they argue that a provision in the trust agreement permitted Hoag to borrow or loan money in any manner. Document 14-1 at 14 ¶E-1(c). They contend that this provision does not create a fiduciary duty under Arkansas law, which, they argue, requires that a duty and the requisite standards of that duty must be set forth.

By statute, however, a trustee has a duty to administer the trust prudently and with loyalty: see Ark. Code Ann. § 28-73-801 ("[T]he trustee shall administer the trust in good faith, in accordance with its terms and purposes and the interests of the beneficiaries."); id. § 28-73-804 ("A trustee shall administer the trust as a prudent person would, by considering the purposes, terms, distributional requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution."); id. § 28-73-802(a) ("A trustee shall administer the trust solely in the interests of the beneficiaries.").[4] Torti has alleged that Hoag obtained a $1.7 million loan on behalf of the trust in violation of the terms of the split dollar agreement and that she directed the funds to be delivered to Stuart's business address with the expectation that Stuart would use the funds for purposes unrelated to and inconsistent with the purposes of the trusts. Document #14 at 8 ¶¶18, 19. In view of the allegation that Hoag allowed trust assets to be used for purposes unrelated to and inconsistent with the Trusts' purposes, the first amended complaint states a claim for a breach of fiduciary duty against Hoag.

Torti has also alleged that Hoag's conduct should be imputed to Gentry Partners because Hoag "utilized employees" of Gentry Partners, including Jane Yoo, to facilitate the request for the loan, that the loan request proceeded "from Hoag through Gentry, " and that "[t]hrough Yoo, ... it was determined that the loan could be $1, 761, 000." Document #14 at 7 ¶¶17, 18. "Under the doctrine of respondeat superior, an employer may be held vicariously liable for the tortious conduct of an agent if the evidence shows that such conduct was committed within the scope of the agent's employment." See St. Joseph's Reg'l Health Ctr. v. Munos, 326 Ark. 605, 612, 934 S.W.2d 192, 195 (1996); Cedar Rapids Lodge & Suites, LLC v. JFS Dev., Inc., No. 09-CV-175-LRR, 2010 WL 1780760, at *5 (N.D. Iowa Apr. 29, 2010) (breach of fiduciary duty is a tort). Torti's allegations that Hoag was the president, and therefore an agent, of Gentry Partners, that she sought the loan from John Hancock, and that she used Gentry Partners ...

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