Karam v. Sagemark Consulting

• Court: Court of Appeals for the Sixth Circuit
• Decided: September 10, 2004
• Docket: 03-1763
• Status: Published

Opinion

RECOMMENDED FOR FULL-TEXT PUBLICATION Pursuant to Sixth Circuit Rule 206 2 Karam et al. v. Sagemark No. 03-1763 ELECTRONIC CITATION: 2004 FED App. 0309P (6th Cir.) Consulting et al. File Name: 04a0309p.06 _________________ UNITED STATES COURT OF APPEALS COUNSEL FOR THE SIXTH CIRCUIT ARGUED: Jamal J. Hamood, HAMOOD & _________________ FERGESTROM, Troy, Michigan, for Appellants. Ted T. Amsden, DYKEMA GOSSETT, Detroit, Michigan, for CAROLE M. KARAM et al., X Appellees. ON BRIEF: Jamal J. Hamood, Richard E. Shaw, Plaintiffs-Appellants, - HAMOOD & FERGESTROM, Troy, Michigan, for - Appellants. Ted T. Amsden, Thomas S. Bishoff, Kathleen - No. 03-1763 McCree Lewis, DYKEMA GOSSETT, Detroit, Michigan, for v. - Appellees. > , SAGEMARK CONSULTING , _________________ - INC., f/k/a CIGNA FINANCIAL - OPINION ADVISORS, INC. et al., - _________________ Defendants-Appellees. - - RONALD LEE GILMAN, Circuit Judge. The decedent, N Abraham Karam, executed a trust agreement in 1987 that Appeal from the United States District Court divided his assets equally between a marital trust and a for the Eastern District of Michigan at Detroit. residual family trust. In 1994, the decedent entered into a No. 00-74743—Bernard A. Friedman, Chief District Judge. contract with Sagemark Consulting, Inc. (then known as Cigna Financial Advisors, Inc.) to review his personal Argued: August 4, 2004 finances for a $2,500 fee. The contract provided that Sagemark would prepare a personal financial plan based upon Decided and Filed: September 10, 2004 its evaluation of relevant documents to be furnished by Karam. Despite Sagemark’s awareness of the trust agreement Before: CLAY and GILMAN, Circuit Judges; MATIA, and its repeated requests to be sent a copy, Sagemark never Chief District Judge.* received the document. Sagemark’s report nevertheless stated that, under the decedent’s “current situation,” no federal estate tax would be due upon the death of the first spouse (either the decedent or his wife, Carole M. Karam), and that any federal estate tax would not be due until the death of the surviving spouse. When the decedent died in September of 1997, his estate was worth approximately $10 million. Contrary to * Sagemark’s report, roughly $1.9 million in federal estate The Honorable Paul R. Matia, Chief United States District Judge for taxes was due as a result of Karam’s death. the Northern District of Ohio, sitting by designation.

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The plaintiffs, who are Karam’s wife and children, the surviving spouse are immediately subject to the estate tax, subsequently filed suit against Sagemark, alleging both a less a $600,000 general exemption that was in effect at the breach of contract and violation of the Michigan Consumer time of Karam’s death. Protection Act (MCPA). After a jury verdict for the plaintiffs in the amount of approximately $3 million, the district court In July of 1994, after responding to a direct-mail granted Sagemark’s motion for judgment as a matter of law. solicitation from Sagemark, Karam entered into a contract On appeal, the plaintiffs argue that Sagemark was untimely in with the company pursuant to which Sagemark was to seeking judgment as a matter of law and, in any event, that provide a financial plan regarding estate planning, investment the district court erred in granting Sagemark the requested planning, retirement planning, and business succession relief. Sagemark, on the other hand, contends that the district planning in exchange for a $2,500 fee. Sagemark employees court’s judgment should be affirmed both on the merits and Catherine Imerman and David Moss were involved in the because the plaintiffs filed their complaint after Michigan’s process of providing the financial plan. Imerman testified six-year statute of limitations had run. For the reasons set that Sagemark’s true purpose for providing Karam with the forth below, we REVERSE the district court’s grant of financial plan, unbeknownst to Karam, was to convince him judgment as a matter of law, REINSTATE the jury’s verdict, that he needed life insurance that Sagemark was prepared to and REMAND the case for further proceedings consistent sell him. with this opinion. The contract between Sagemark and Karam provided that I. BACKGROUND Karam would “provide Advisor with financial and personal data necessary to prepare your plan,” and that “on the basis of A. Factual background the documents you provide . . . Advisor will prepare and present a personal financial plan summarized in written Karam’s trust agreement contained what is known as a tax form.” Sagemark, however, never received a copy of equalization clause, which required that the assets subject to Karam’s trust agreement, despite requesting it from both the trust be divided equally between the marital trust and the Karam and his attorney. residual family trust. The theoretical advantage of an equalization clause is that, because of progressive estate tax Without reviewing the trust agreement that he knew rates, two smaller distributions on the deaths of each spouse existed, Moss proceeded to prepare an estate planning report will result in less total estate tax liability than would one large that was delivered to Karam on August 18, 1994. (Moss had distribution on the death of the survivor. Equalization previously informed Karam that the plan would not address clauses, however, are relatively uncommon in estate planning. investment planning, retirement planning, or business More prevalent is the “normal” estate distribution, where the succession planning because these types of advice were not bulk of the decedent’s assets pass to the surviving spouse in relevant to Karam’s situation.) The report stated that, under a form that qualifies for the unlimited “marital deduction” Karam’s “current situation,” no federal estate tax would be under federal law. Because the distribution to the surviving due upon the first spouse’s death, and that any federal estate spouse is not taxed, the imposition of the estate tax is deferred tax would be deferred until the surviving spouse died. Moss until that spouse dies. With an equalization clause, in made this statement in the report because he assumed that contrast, the half of the decedent’s assets that do not pass to Karam’s trust agreement provided for a normal distribution. No. 03-1763 Karam et al. v. Sagemark 5 6 Karam et al. v. Sagemark No. 03-1763 Consulting et al. Consulting et al.

Although Karam subsequently modified his trust agreement Court of Appeals, which held that, under Michigan law, three times, none of the amendments affected the equalization extrinsic evidence is inadmissible to show that the decedent clause. intended an outcome different from that set forth by the language of the estate documents. Id. at 622-25. Because Karam died on September 28, 1997, leaving an estate worth Karam’s trust agreement contained an unambiguous approximately $10 million. The plaintiffs subsequently equalization clause and because there were no disputes about learned that roughly $1.9 million was owed in federal estate which documents constituted the estate plan, the court taxes. Their claim for damages flows from the federal and concluded that extrinsic evidence was inadmissible to show state tax liabilities and their loss of use of the money that was a variance. Id. at 625. needed to pay the taxes. 2. The present lawsuit B. Procedural background The plaintiffs filed the present lawsuit on September 27, 1. Karam v. Law Offices of Ralph J. Kliber 2000, naming Sagemark and three other entities as defendants. Sagemark removed the case to federal court on In October of 1998, the plaintiffs brought a state-court the basis of diversity of citizenship. The district court granted malpractice action against Karam’s former lawyer and the partial summary judgment in August of 2002, dismissing lawyer’s law firm. They also sued the bank that served as several of the plaintiffs’ claims and all of the defendants other cotrustee of the trust agreement for negligence, breach of than Sagemark. fiduciary duty, and a violation of the MCPA. Karam v. Law Offices of Ralph J. Kliber, 655 N.W.2d 614, 618 (Mich. Ct. When the jury trial began the following month, Sagemark App. 2002). The plaintiffs contended that Karam’s intent at filed a motion in limine to exclude any extrinsic evidence of the time he signed the trust agreement differed from what Karam’s intent that conflicted with the provisions of the trust actually appeared in the text of the document. Id. at 617-19. agreement. The district court granted Sagemark’s motion. Although the Michigan Court of Appeals’s opinion does not During the trial, however, at least two of Karam’s family state this directly, the plaintiffs apparently argued that Karam members testified that they had understood that no federal intended to have a normal estate plan that would have estate taxes would be due as a result of Karam’s death. The distributed the bulk of his assets to his wife. See id. at 617 family members did not explain the basis for their (discussing a letter written by a vice president of the understanding. Sagemark nevertheless failed to object. defendant bank, which incorrectly stated that Karam’s trust provided for a normal distribution scheme); see also The jury returned a verdict for the plaintiffs, specifically Sorkowitz v. Lakritz, Wissbrun & Associates, P.C., 683 finding that (1) Sagemark breached the contract with Karam; N.W.2d 210, 213 (Mich. Ct. App. 2004) (“Karam . . . was a (2) Karam did not commit the first substantial breach of the dispute concerning the decedent’s intent regarding alternative contract by failing to provide Sagemark with the trust estate planning approaches.”). agreement; (3) the breach-of-contract claim did not accrue before September 27, 1994; (4) the breach caused the The trial court granted summary judgment in favor of the plaintiffs $761,927.90 in damages; (5) the plaintiffs in their defendants. This decision was affirmed by the Michigan individual capacities are third-party beneficiaries to the No. 03-1763 Karam et al. v. Sagemark 7 8 Karam et al. v. Sagemark No. 03-1763 Consulting et al. Consulting et al.

contract between Sagemark and Karam; (6) Sagemark The district court next stated that the Supreme Court’s violated the MCPA by engaging in one or more unfair, decision in Weisgram v. Marley Co., 528 U.S. 440 (2000), unconscionable, or deceptive methods, acts, or practices; required the district court to disregard evidence that was (7) the MCPA violation did not occur before September 27, improperly admitted when ruling on the motion for judgment 1994; and (8) the violation of the MCPA caused the plaintiffs as a matter of law. Finally, the district court concluded that, $2,285,781 in damage. under Michigan law, Sagemark attempted to move for judgment as a matter of all extrinsic evidence that was admitted regarding the law twice during the trial. The first time was at the close of plaintiffs’ belief of what the decedent had told them the the plaintiffs’ proof, but the district court directed Sagemark tax consequences of his trust would be [was in fact] to wait until after closing arguments. Sagemark attempted to inadmissible, and [was] erroneously permitted. Such make the motion again at the close of all of the evidence, but testimony only serves to create the impression that the the district court stated that it would hear arguments on all decedent’s trust did not comport with his intentions. It motions during the jury’s deliberations. The motion was not must be assumed that the decedent intended the writing in fact argued at that time. After the jury delivered its verdict, of his trust and the resulting tax consequences to be just however, the district court stated that “I know you have as they were, and contrary evidence may not be admitted. reserved your right to make a Motion as a Matter of Law,” and directed Sagemark to make the motion along with any After disregarding the allegedly inadmissible evidence, the other post-trial motions that it intended to file. district court concluded that no legally sufficient evidentiary basis existed to support the jury’s verdict in favor of the Sagemark filed a motion for judgment as a matter of law or, plaintiffs on either of their claims. The district court thus in the alternative, for a new trial in October of 2002, declined to discuss Sagemark’s affirmative defense that the approximately one month after the jury’s verdict. The district lawsuit was filed after Michigan’s applicable six-year statute court granted judgment for Sagemark as a matter of law in of limitations had run. This timely appeal followed. May of 2003. In its decision, the court rejected the plaintiffs’ first argument that Sagemark had waived its right to file a II. ANALYSIS motion for judgment as a matter of law: A. The district court did not err in deciding that At the close of the plaintiffs’ proofs the Court ordered Sagemark had preserved its right to file a motion for the defendant to defer making its directed verdict motion, judgment as a matter of law and reserved all potential arguments as if the motion had been made. The Court then repeated this order at the The plaintiffs first argue that Sagemark waived its right to close of all proofs. After the jury verdict, the Court told file a motion for judgment as a matter of law by failing to the defendant, “I know you have reserved your right to make the motion before the case was submitted to the jury. make a motion as a matter of law,” and stated that this See Fed. R. Civ. P. 50(a)(2) (“Motions for judgment as a motion should be presented with other post-trial motions. matter of law may be made at any time before submission of Accordingly, the defendant has fully preserved its right the case to the jury.”). “The question of waiver is a mixed to bring the present motion. question of law and fact. We review any determination of No. 03-1763 Karam et al. v. Sagemark 9 10 Karam et al. v. Sagemark No. 03-1763 Consulting et al. Consulting et al.

underlying facts under the clearly erroneous standard of “District courts should grant judgment as a matter of law only review, and make a de novo determination of whether those if a complete absence of proof exists on a material issue in the facts constitute legal waiver.” Nationwide Mut. Ins. Co. v. action, or if no disputed issue of fact exists on which Home Ins. Co., 330 F.3d 843, 846 n.3 (6th Cir. 2003). reasonable minds could differ.” LaPerriere v. Int’l Union UAW, 348 F.3d 127, 132 (6th Cir. 2003). The record supports the district court’s factual finding that Sagemark attempted to bring its motion for judgment as a The district court in the present case granted Sagemark’s matter of law both at the close of the plaintiffs’ proof and at motion for judgment as a matter of law based upon the court’s the close of all of the evidence. Each time, the district court conclusion that it had erroneously admitted the family ordered the defendant to defer making its motion and reserved members’ testimony regarding their understanding that no all potential arguments as if the motion had been made. estate tax would be due at Karam’s death. See Weisgram v. Because Sagemark twice attempted to bring its motion before Marley Co., 528 U.S. 440, 457 (2000) (holding that a district the close of all of the evidence, the district court correctly court, when considering post-trial motions for judgment as a concluded that Sagemark had preserved its right to make the matter of law, may disregard “testimony erroneously motion after the entry of the jury’s verdict. admitted”). According to the district court, Our disposition of this matter, however, should not be [s]uch testimony only serves to create the impression that construed as an endorsement of how the district court handled the decedent’s trust did not comport with his intentions. this procedural issue. To the contrary, the proper practice is It must be assumed that the decedent intended the writing to allow the moving party to make its Rule 50(a) motion of his trust and the resulting tax consequences to be just before the jury retires to deliberate. See Advisory as they were, and contrary evidence may not be admitted. Committee’s Notes on 1991 Amendments to Fed. Rule Civ. ... P. 50(a)(2) (“Paragraph (a)(2) retains the requirement that a motion for judgment be made prior to the close of the trial, [T]he legal cause of the tax consequences was the subject to renewal after a jury verdict has been rendered. The decedent’s intent to have an equalization clause in his purpose of this requirement is to assure the responding party trust. The damages—the tax consequences—resulted an opportunity to cure any deficiency in that party’s proof that from the fulfillment of that intent by the operation of the may have been overlooked until called to the party’s attention federal estate tax law. There was no evidence presented by a late motion for judgment.”). by which the jury could conclude that the equalization clause was caused by CIGNA. The evidence shown at B. The district court erred in granting Sagemark’s trial indicated that the trust agreement containing this motion for judgment as a matter of law with regard clause was drafted and executed years before the to the plaintiffs’ breach-of-contract claim decedent’s dealings with CIGNA. However, even if it could be shown that CIGNA advised the decedent to “This Court reviews de novo a district court’s decision to have such a clause, there would still not be any basis for grant judgment as a matter of law pursuant to Rule 50(a) of finding that CIGNA caused the plaintiffs’ damages, the Federal Rules of Civil Procedure.” Hall v. Consolidated because the decedent’s intent to have such a clause, as Freightways Corp., 337 F.3d 669, 672 (6th Cir. 2003). No. 03-1763 Karam et al. v. Sagemark 11 12 Karam et al. v. Sagemark No. 03-1763 Consulting et al. Consulting et al.

expressed in the clause, would have been fulfilled, and had relied to his detriment on Sagemark’s erroneous tax evidence of a contrary intent would be inadmissible. advice. There are two problems with the district court’s analysis. Our conclusion that the family members’ testimony was The first is that Weisgram is probably not controlling on this admissible is consistent with the recent Michigan Court of issue because the defendant in Weisgram objected to the Appeals decision in Sorkowitz v. Lakritz, Wissbrun & admission of the evidence in question. 528 U.S. at 445 (“The Associates, P.C., 683 N.W.2d 210 (Mich. Ct. App. 2004). In District Court ov er ru le d d ef en da nt Ma rl ey’ s Sorkowitz, the plaintiffs contended that the defendant objections . . . .”). Sagemark, in contrast, allowed the family attorneys had negligently provided advice regarding the tax members’ testimony to be admitted without objection. In the consequences of an estate plan. The court held that absence of a timely objection, such testimony is generally not Michigan’s prohibition against the introduction of extrinsic considered to be “erroneously admitted.” See Fed. R. Evid. evidence was not applicable, and distinguished Karam as 103(a)(1) (“Error may not be predicated upon a ruling which follows: admits or excludes evidence unless a substantial right of the party is affected, and . . . [i]n case the ruling is one admitting Assuming that Karam correctly applied [Michigan’s rule evidence, a timely objection or motion to strike appears of against the admission of extrinsic evidence] to the record, stating the specific ground of objection, if the specific negligent drafting claim of the personal representative of ground was not apparent from the context . . . .”). the actual client, rather than the beneficiary, the instant case is distinguishable to the extent it involves a claim of We need not decide, however, whether the district court negligence in advising the client regarding tax correctly applied Weisgram because of a second and consequences and in formulating the estate plan without independent problem with the court’s analysis that the due regard for tax consequences, rather than negligence plaintiffs’ purpose in introducing the questioned testimony in failing to draft the document in accordance with the was not to negate Karam’s original intent to have an client’s expressed intent. equalization clause in the trust agreement. Instead, the purpose was to prove that Karam and his family members had 683 N.W.2d 214 n.5. Analogous to Sorkowitz, the plaintiffs’ detrimentally relied on Sagemark’s incorrect advice that no claim in the present case is that Sagemark provided erroneous federal estate tax would be due when Karam died. In other advice regarding the tax consequences of Karam’s estate plan. words, the district court believed that the plaintiffs had Sorkowitz therefore supports our conclusion that the district introduced the evidence in order to answer the question: “Did court erred in its post-trial ruling that the family members’ Karam originally intend to have an equalization clause in his testimony should have been excluded. trust agreement?” But that issue was not in dispute. The plaintiffs in fact introduced the testimony in order to answer We also note that the district court never discussed whether the question: “Why did Karam not substitute a “normal” Sagemark would have been entitled to judgment as a matter distribution clause for the equalization clause that was in the of law if the court had fully credited the family members’ trust agreement?” Testimony by the family members testimony. Morever, Sagemark does not argue on appeal that suggested that Karam did not change the clause because he the evidence as actually admitted was insufficient to support the jury’s verdict. We therefore reverse the district court’s No. 03-1763 Karam et al. v. Sagemark 13 14 Karam et al. v. Sagemark No. 03-1763 Consulting et al. Consulting et al.

decision to grant judgment as a matter of law with respect to Sagemark argues, however, that the alleged violation of the the plaintiffs’ breach-of-contract claim. MCPA did not cause the plaintiffs’ damages because Karam’s decision not to alter the equalization clause in the trust C. The district court erred in granting Sagemark’s agreement was not influenced by the failure of Sagemark to motion for judgment as a matter of law with regard disclose its true motivation for preparing the financial plan. to the plaintiffs’ MCPA claim The contrary argument is that Karam would not have relied on Sagemark’s advice if he had known that the financial plan The district court granted Sagemark’s motion without was simply a sales tool to market life insurance. Both of differentiating between the claim for breach of contract and these arguments are plausible, but the jury resolved this the claim under the MCPA. Presumably the court assumed debate when it found in favor of the plaintiffs on their claim that the family members’ testimony was necessary to under the MCPA. establish causation as to either claim, so that, if the testimony was in fact inadmissible, judgment for Sagemark was In the absence of direct evidence of what Karam would appropriate as to both claims. But as discussed in Part II.B. have done if Sagemark had made the required disclosure, both above, we have concluded that the district court erred in parties were forced to argue reasonable inferences from the granting judgment as a matter of law based upon the court’s evidence on hand. The jury was then left to decide the incorrect belief that the evidence of detrimental reliance following factual question: “What would Karam have done if should not have been admitted. With regard to the MCPA Sagemark had disclosed its true motivation for creating the claim, however, Sagemark offers the additional argument that financial plan?” This disputed question of fact was the evidence was legally insufficient to support the jury’s reasonably resolved by the jury in the plaintiffs’ favor. We verdict because it failed to demonstrate that the alleged therefore reverse the district court’s decision to grant violation of the MCPA was the cause of the plaintiffs’ judgment as a matter of law with respect to the MCPA claim. damages. D. Judgment as a matter of law would not have been The plaintiffs’ MCPA claim was based upon Sagemark’s appropriate based upon the statute of limitations failure to disclose that the financial plan it prepared for Karam was actually a sales tool used to persuade Karam to Michigan law provides for a six-year statute of limitations purchase life insurance from the company. See Mich. Comp. on claims for both breach of contract and for violations of the Laws §§ 445.903 (“Unfair, unconscionable, or deceptive MCPA. Mich. Comp. Laws §§ 600.5807(8) (breach of methods, acts, or practices in the conduct of trade or contract); 445.911(7) (MCPA). Although the district court commerce are unlawful . . . .”); 500.2005a(c) (“An unfair did not address the statute of limitations in ruling on method of competition and an unfair or deceptive act or Sagemark’s motion, this court “may affirm a decision of the practice in the business of insurance includes all of the district court if correct for any reason, including one not following: . . . (c) Making use directly or indirectly of any considered below.” United States Postal Serv. v. Nat’l Ass’n method of marketing that fails to disclose in a conspicuous of Letter Carriers, 330 F.3d 747, 750 (6th Cir. 2003). manner that a purpose of the method of marketing is solicitation of insurance and that contact will be made by an Sagemark contends that the plaintiffs’ claims accrued on insurance agent or insurance company.”). August 18, 1994, when the financial plan was delivered to No. 03-1763 Karam et al. v. Sagemark 15 Consulting et al.

Karam, and that this lawsuit, filed on September 27, 2000, should therefore have been barred by the statute of limitations. The plaintiffs, on the other hand, respond by pointing out that Karam met with Sagemark employee Moss to discuss the financial plan several times in August, September, and perhaps October of 1994, and that the plaintiffs’ claims did not accrue until at least the last of these meetings. Alternatively, the plaintiffs argue that their claims did not accrue until Karam’s death because, until that point, an essential element of their claims had not yet been established; i.e., that plaintiffs suffered no damages until Karam’s estate became liable for the death taxes. We need not resolve which of the parties’ alternative contentions is legally correct, because even if we assume for the sake of argument that the plaintiffs’ claims accrued at the time Karam received the erroneous advice from Moss, rather than at Karam’s death when the damage element of the claims was established, a factual dispute still remains as to the date of the advice. Sagemark contends that it occurred when the plan was delivered, while the plaintiffs argue that the meetings between Moss and Karam continued for as long as two months thereafter. This created a factual dispute for the jury to decide, which it did by specifically finding that the claims did not accrue before September 27, 1994. Because the jury’s resolution of this disputed issue of fact finds support in the record, judgment as a matter of law would not be appropriate based upon the statute of limitations. III. CONCLUSION For all of the reasons set forth above, we REVERSE the district court’s grant of judgment as a matter of law, REINSTATE the jury’s verdict, and REMAND the case for further proceedings consistent with this opinion.