Deception in Sale of Annuities Held Sufficient to State Elder Abuse Claim

A U.S. district court in California refused to throw out a case against Merrill Lynch (now Bank of America) alleging elder abuse and breach of fiduciary duty after one of the brokerage’s financial advisors persuaded an elderly client to exchange a fixed annuity for a variable annuity and then annuitize it. Sakai v. Merrill Lynch Life Insurance Company (N.D.Ca., No C-06-2581 MMC, Sept. 10, 2008).

In 1995 Louis Tiano, a financial advisor for Merrill Lynch, encouraged his client, Fusako Sakai, to exchange her fixed annuity for a variable annuity. Four years later, Mr. Tiano persuaded Ms. Sakai to annuitize the policy. Dale Sakai (it is unclear what relationship Mr. Sakai has to Ms. Sakai) subsequently brought suit against Merrill Lynch, alleging that Ms. Sakai lost more than $145,000 from Mr. Tiano’s advice and that the company had vicariously violated its fiduciary duty as well as California’s elder abuse statute, which makes it illegal to wrongfully obtain and use an elder’s property

Merrill Lynch moved for summary judgment, arguing that Mr. Tiano had not shown a breach of duty, and that even if there were a breach, it was not “egregious” as required by the elder abuse statute. The brokerage also requested summary judgment to bar punitive damages since Mr. Sakai had not proven that officers or managers at Merrill Lynch were aware of Mr. Tiano’s actions.

The U.S. District Court for the Northern District of California allows Mr. Sakai’s claim to proceed but limits the potential recovery to compensatory damages. The court finds that “allegations that an insurer used ‘unsavory’ marketing practices or other deceptive practices in connection with the sale of annuities to senior citizens have been held sufficient to state a claim for financial elder abuse.” However, in regards to damages, the court determines that “even if plaintiff can show Tiano acted with recklessness, plaintiff would have to show that ‘an officer, director or managing agent’ of defendants ‘had advance notice’ of Tiano’s unfitness . . . the record before the Court contains no such evidence.”

The Sakai v. Merrill Lynch Insurance Company case can be found here – sakai-v-merrill-lynch