United States District Court, E.D. Arkansas, Western Division
RICHARD A. TORTI, SR., as successor Trustee of the Stuart Family 1997 Trusts PLAINTIFF
DEBRA HOAG; GENTRY PARTNERS LIMITED; and JOHN HANCOCK LIFE INSURANCE COMPANY USA DEFENDANTS
OPINION AND ORDER
J. LEON HOLMES UNITED STATES DISTRICT JUDGE
Richard A. Torti, Sr., brought 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, and breach of contract. The Court dismissed all claims against Hoag and Gentry Partners after being notified that those parties had reached a settlement. Document #112. Torti’s claims against Hancock for negligence and breach of contract remain. Hancock has filed a motion to dismiss those claims pursuant to Federal Rule of Civil Procedure 12(b)(6). For the following reasons, the motion 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. Stuart was the chief executive officer of One National Bank. The trusts designated Michael Heald-chief operations officer of the bank at that time-as trustee. Hoag-an insurance broker-negotiated the trust’s purchase from Hancock of a life insurance policy on the life of Stuart for $20 million. Document #73-5. The policy called for the payment of ten annual premium payments of $350, 000 each. To finance these payments, the trust entered into a split dollar life insurance agreement with the bank. Document #73-9. Heald collaterally assigned the policy to the bank. Id. at 1, ¶ 2. Pursuant to the agreement, the bank promised to pay the annual premiums and the trust promised that upon the death of Stuart, the bank would be entitled to receive a portion of the proceeds equal to the sum of its payments. Id. at 2, ¶¶ 3, 7. The agreement also dictated that the policy remain unencumbered, stating that “[d]uring the term of this Agreement, the Trustee shall not transfer, assign, encumber or terminate the Insurance Policy. No loans shall be made against the cash value of the Insurance Policy, which shall remain available (subject to the provisions of the Insurance Policy) to satisfy the amount payable to the Bank . . .” Id. at 2, ¶ 6.
On June 2, 2011, Heald resigned as trustee and appointed Hoag as the successor trustee. The next day Hoag submitted a policy loan request to Hancock on behalf of the trusts. Document #73-11. Hoag sought to borrow funds to the fullest extent possible, using the trusts’ life insurance policy as collateral. The request form did not include the signature of the “assignee”-the bank. Hoag obtained a loan in the amount of $1, 761, 000. On June 7, 2011, Hancock issued a check in that amount made payable to “Stuart Family Trust” and sent it the address of Stuart’s office in Little Rock. Stuart received the check, endorsed it, deposited it, and proceeded to use the funds in a manner contrary to the purposes of the trusts.
Stuart died on March 24, 2013. By May 28, 2013, Torti had become the trustee. Hancock required that Torti execute a release of all claims relating to or arising out of the payment of benefits as a condition of Hancock paying the death benefit proceeds pursuant to the insurance policy. Torti refused to sign the release. Hancock transferred $17, 693, 837.10 into a segregated account as death benefits owed pursuant to 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 filed a civil forfeiture complaint against those proceeds.
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. Gorog v. Best Buy Co., Inc., 760 F.3d 787, 792 (8th Cir. 2014). 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. “The court may consider, in addition to the pleadings, materials embraced by the pleadings and materials that are part of the public record.” In re K-tel Int’l, Inc. Sec. Litig., 300 F.3d 881, 889 (8th Cir. 2002).
A. Breach of Contract
Torti claims that Hancock breached its insurance contract with the Trust by making the $1, 761, 000 loan in violation of the split dollar agreement. Document #73 at 13, ¶¶ 32-34. According to Torti, Hancock knew that the split dollar agreement precluded Hoag from taking out a loan against the policy but made the loan anyway. “In order to state a cause of action for breach of contract, the complaint need only assert the existence of an enforceable contract between the plaintiff and defendant, the obligation of the defendant thereunder, a violation by the defendant, and damages resulting from the breach.” Smith v. Eisen, 97 Ark.App. 130, 139, 245 S.W.3d 160, 168-69 (2006). “A court cannot make a contract for the parties but can only construe and enforce the contract that they have made.” Found. Telecomm., Inc. v. Moe Studio, Inc., 16 S.W.3d 531, 538, 341 Ark. 231, 241-42 (2000).
The second amended complaint alleges the existence of an enforceable contract between the Trust and Hancock-the insurance contract. Document #73 at 5, ¶ 10. Pursuant to the contract, Hancock was obligated to pay the death benefits to the Trust upon the death of Stuart. Document #73-5 at 3. The contract also provided that the Trust could borrow money from Hancock upon the receipt of a completed form satisfactory to Hancock assigning the policy as the only security for the loan. Id. at 17. The second amended complaint also alleges that the Trust entered into a separate contract-to which Hancock was not a party-with One National Bank in order to finance the payment of the premiums called for under the insurance contract. Document #73 at 6, ¶13. Through this split dollar life insurance agreement, the Trust collaterally assigned the life insurance policy to the bank and the bank promised to pay the annual premiums required by the insurance contract. Document #73-9. The agreement entitled the bank to receive a portion of the death benefits equal to the sum of its annual premium payments. Id. at 2, ¶3. The agreement stated: “No loans shall be made against the cash value of the Insurance Policy, which shall remain available (subject to the provisions of the Insurance Policy) to satisfy the amount payable to the Bank . . .” Id. at 2, ¶6.
As for the obligation of Hancock under the insurance contract, the second amended complaint alleges:
14. . . . Pursuant to the terms and conditions of the [insurance contract] in Exhibits “E-1” and “E-2, ” Hancock had a duty to ensure that all signatures are properly obtained on any loan request, with all proper corporate resolutions, including any assignment of the Policy, such as the Bank.
32. The forms utilized by Hancock including Form E-1, E-2, and E-3, in administering the Policy form a ...