Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

DAWSON v. NEW YORK LIFE INS. CO.

July 19, 1996

RONALD D. DAWSON, Plaintiff,
v.
NEW YORK LIFE INSURANCE COMPANY and NYLIFE SECURITIES INC., Defendants.



The opinion of the court was delivered by: CASTILLO

 On February 8, 1993, a state court jury in Corpus Christi, Texas found that New York Life Insurance Company ("New York Life") and one of its agents breached their duty of good faith and fair dealing, breached their fiduciary duty, and committed false, misleading or deceptive acts in connection with certain transactions involving a policy-holder and his wife. The jury also found that New York Life committed fraud in connection with these transactions. The jury awarded $ 65,000 in pecuniary losses, $ 1 million for mental anguish, and $ 15 million against New York Life as punitive damages. This was the first punitive damages award against New York Life in its 150-year history. Shortly thereafter, senior New York Life officers spoke at an annual New York Life Managers' Meeting, implicating local management at the Corpus Christi Office in the wrongdoing that gave rise to the Corpus Christi jury award. New York Life also produced a 30-minute videotape on corporate responsibility that was issued to every New York Life office for use in training agents. The videotape included excerpts from remarks made at the 1993 Managers' Meeting and specifically included the remarks implicating local management at the Corpus Christi Office.

 The plaintiff in the present action, Ronald Dawson, was the General Manager of New York Life's Corpus Christi General Office from August 1985 to September 1989. Dawson brings this action against defendants New York Life and NYLIFE Securities Inc. ("NYLSEC") *fn1" for defamation, intentional interference with prospective economic advantage, and intentional infliction of emotional distress based principally on the remarks made at the Managers' Meeting, the training videotape, and other allegedly defamatory statements. Dawson also asserts a breach of contract claim, alleging that New York Life breached an oral agreement relating to Dawson's compensation. Defendants' motion for summary judgment as to all of Dawson's claims is presently before the Court.

 RELEVANT FACTS2

 Dawson's Employment and Compensation Agreements with New York Life

 Dawson was employed by New York Life for more than 18 years, beginning in June 1974 when he started as an agent. Pl.'s Add'l Facts P 1. Throughout his career with New York Life, Dawson was promoted to positions of greater and greater responsibility based on his performance as an agent and manager. In 1981, after previously serving as an agent and Assistant Manager, he was promoted to General Manager. Id. P 2. From August 1985 to approximately September 1, 1989, Dawson was employed as the General Manager of the company's Corpus Christi, Texas General Office. Dawson's transfer to Corpus Christi was initiated by three senior New York Life officers. New York Life chose Dawson to manage the Corpus Christi Office because the company wanted a strong recruiter of agents in that office and Dawson was so regarded. Id. When Dawson arrived in Corpus Christi, there were approximately 38 agents in the office; when he left Corpus Christi in 1989, there were 126 agents working out of that office. Id. P 3. Dawson received numerous awards while General Manager of the Corpus Christi Office. His office was selected as a field project location in connection with the agency home office management school -- which is considered an honor. Id. P 4. In 1987, Dawson's immediate supervisor Ernestine Beauchamp, who was then Regional Vice President, referred to Dawson as "the number one general manager" in the Southwest region. Id. P 6.

 Dawson's tenure at the Oak Brook office was not without blemish, however. In March of 1992, the Senior Vice President in charge of the Agency Department, Lyle Paul, criticized Dawson, and reduced his compensation by approximately $ 27,000, for his conduct in connection with a federal criminal investigation of one of Dawson's top-performing agents. Specifically, Dawson had attended a meeting at the U.S. Attorney's office in Chicago without informing either his superiors or New York Life's Office of the General Counsel. See Paul Aff. P 8.

 As a General Manager, Dawson had a written employment agreement with New York Life which provided that Dawson's employment could be terminated with or without cause upon written notice. Defs.' Facts PP 6, 7. Before March of each year that Dawson was General Manager of the Oak Brook Office, New York Life notified Dawson in writing of his base compensation for the period from March 1 through February 28 of the following year. Dawson understood the writing to be a binding commitment. Id. P 107. New York Life always honored the written commitments specifying Dawson's base compensation, except for the one occasion in 1992 on which his salary was reduced. Id. P 108. Dawson continued to work after receiving the written descriptions of his base compensation. Id. P 109.

 Dawson was terminated in February 1993. *fn3" Prior to his termination, Dawson had been a registered representative of NYLSEC; when New York Life terminated him, NYLSEC terminated Dawson's registration. On February 25, 1993, NYLSEC sent a Form U-5 ("Uniform Termination Notice For Securities Industry Registration") to the National Association of Securities Dealers ("NASD") concerning Dawson's termination. As is explained in greater detail below, New York Life subsequently amended Dawson's Form U-5 on three occasions.

 After he was fired by New York Life, Dawson (or someone working on his behalf) discussed employment with more than 12 top-rated insurance companies. Pl.'s Add'l Facts P 123. NASD member firms are required to access a prospective employee's NASD file before hiring. New York Life knew when it filed the Form U-5s relating to Dawson that other NASD members would access Dawson's U-5 information before hiring him. Id. P 126. Two companies, Minnesota Mutual and John Hancock, made inquiries to New York Life about Dawson. Id. P 124. Also, New York Life knew of a prospective business arrangement Dawson had with Pruco Securities in July 1994. Id. P 125. Dawson has not been able to broker securities for Pruco. Id.

 THE HERNANDEZ EVIDENCE AND VERDICT

 Dawson's termination stemmed from the evidence presented at the Corpus Christi trial that resulted in the multi-million dollar punitive damages award against New York Life. In March of 1989, Ramiro Hernandez collected $ 331,000 in settlement of a personal injury suit. Later that month, he and his wife Lamar gave Oscar Herrera, who was then a New York Life agent in the Corpus Christi Office, $ 100,000 to purchase a $ 100,000 life insurance policy and an annuity. Herrera altered Mrs. Hernandez' life insurance application by adding a zero to increase it to $ 1 million, using $ 27,910 to pay the first premium and investing the balance of $ 72,090 in an annuity. To obtain underwriting approval for the $ 1 million policy, Hernandez forged a note from Mr. and Mrs. Hernandez stating falsely that they had obtained a $ 2 million settlement. Herrera subsequently falsified paperwork and endorsements to withdraw $ 27,910 from the Hernandez annuity to pay the second premium on the $ 1 million policy, and to withdraw additional funds from the annuity. In October 1990, Ramiro Hernandez died and Mrs. Hernandez asked Herrera for a withdrawal from her annuity to pay for her husband's funeral and for living expenses. Rather than tell her that the annuity had been depleted, Herrera forged paperwork to withdraw money from another customer's annuity. In March 1991, Mrs. Hernandez discovered that she had a $ 1 million insurance policy rather than a $ 100,000 policy when she received a premium notice for the larger policy. Shortly thereafter, Mrs. Hernandez brought suit against Herrera and New York Life in Texas state court, resulting, on February 8, 1993, in a judgment of $ 65,000 in pecuniary damages, $ 1 million for emotional distress, and $ 15 million in punitive damages against New York Life. The jury found that New York Life committed "false, misleading or deceptive acts or practices in the business of insurance" and that New York Life had acted knowingly and had committed its misconduct "with heedless and reckless disregard of the rights of others." The jury was instructed that "New York Life" referred to "all" of New York Life's agents and employees "except Oscar Herrera." As to its finding of reckless disregard, the jury was also instructed that it could "consider only the conduct, if any, that [it had] found that is attributable to persons acting in a managerial or supervisory capacity."

 Of relevance to Dawson's present defamation action against New York Life, is the testimony presented at the Hernandez trial concerning the Corpus Christi Office management's awareness, if not authorization of, and participation in, misconduct by agents and employees of that office. Indeed, there was substantial evidence of such misconduct and of management's awareness, authorization, and participation in it. The evidence of misconduct in the Hernandez testimony centered around agents' unauthorized conversion of insurance policies (usually from term insurance to permanent insurance), forgery of policyholders' signatures, and unauthorized commission switching.

 A. Forgery and unauthorized conversions

 During his testimony in the Hernandez trial, Oscar Herrera testified that agents at the Corpus Christi Office forged policy holders' signatures, a practice known as "windowing." *fn4" With respect to management's knowledge of this conduct, Herrera testified as follows:

 
Q. And isn't it true sir, that these practices of windowing signature [sic] was done with the knowledge of management?
 
A. Correct.
 
Q. And specifically, it was done with the knowledge of Dale Gillum?
 
A. Correct.
 
Q. He was your supervisor.
 
A. Correct.
 
. . .
 
Q. And isn't it true sir, that this practice of windowing signatures or forging signatures occurred in large measure when people, when agents were converting . . . term policies to whole life policies?
 
A. Correct. . . .
 
. . .
 
Q. And isn't it true sir, that Dale Gillum was aware you were doing it?
 
A. Correct.

 Record from Hernandez Case (hereinafter "Record") at 2622-23.

 Herrera specifically testified that in June of 1989, he had forged the signature of a term policyholder (Richard Cruz) on a conversion application, and that Dale Gillum knew that he had forged Cruz's signature. Id. at 2630. Herrera also specifically testified that Dale Gillum was aware that in 1987 Herrera had forged his own uncle's signature on a life insurance application and took money that his uncle had given him for the purchase of an annuity and used that money to pay the premium for the insurance policy. *fn5" Id. at 2625-28. In addition to these two instances of forgery, Herrera also testified as to a third in which he converted a life insurance policy through a forged application in June of 1990, again with the knowledge of Gillum. Id. at 2637. Herrera stated that both Gillum and Dawson would have benefited from his conversions of the policies. Id. at 2629, 2631. Indeed, the evidence indicated that the majority of Herrera's forged conversions took place toward the end of June or December, which were significant months because they closed out periods for which compensation for managers was calculated. Id. at 2623-24.

 Herrera testified that he had seen others windowing signatures and that Dale Gillum was aware of the practice but looked the other way. Id. at 2622-23. In regard to one instance in which Herrera forged a permanent life insurance policyholder's signature on a whole life conversion application, Herrera testified that Gillum participated in the misconduct by giving him the money to pay the first month's premium on the fraudulently procured whole life policy, id. at 2633-36; and, with respect to his conduct in the Hernandez case, Herrera testified that Gillum conspired with him, and encouraged him, to defraud the Hernandezes by altering their policy application. *fn6" Id. at 2668, 2672, 270-09.

 It is undisputed in the present action that "Oscar Herrera did not directly testify that Dawson knew of or participated in the Hernandez fraud, the Cruz forgery, windowing or any other fraud or forgery Herrera committed." Defs.' Resp. Add'l Facts P 56. Additionally, Herrera expressly testified that Richard Miller, the Corpus Christi Office manager, did not know that Herrera had altered the Hernandez application from a $ 100,000 policy application to a $ 1 million application until two to three days or a week after the application was submitted. Id. at 2709-10.

 Sonny Correa, a former agent from the Corpus Christi Office gave the following testimony regarding forgery of policyholders' signatures:

 
Q. Now, the management in that office between 1986 and 1988 were encouraging churning *fn7" ; is that correct?"
 
A. That is correct, yes, sir.
 
Q. And they were encouraging churning to the point where they were teaching agents such as you to forge policies without the -- in other words, they wanted agents to churn and window and convert policies without the knowledge of the policyholder?
 
. . .
 
A. My personal experience was yes, that's what was going on.
 
Q. When you said no to these things and told Mario [Olivarez] no, I'm not going to forge, you were -- did you feel you were being branded kind of a trouble maker?
 
A. Yeah. That's right.
 
Q. Kind of like not a game man?
 
A. I would get called into Mr. Dawson's office and he would talk to me and try to set me straight.

 Id. at 1979. However, when asked if he was ever asked to convert policies by Ron Dawson, Correa answered, "Not directly, no sir. But through Mario Olivarez my manager." Id. at 1966. Correa testified, "Mario said Dawson asked him to talk to me about converting policies." Id. at 1988.

 Correa specifically identified two instances in which Olivarez asked him to convert policies by forging the policy holders' signatures -- one policy holder was his father, the other was his uncle. Id. at 1988. With respect to the forgery of his father's signature Correa stated that Olivarez told him that "in January we'll just turn around and say that he looked over the policy and decided he didn't want it and convert it back to what he had originally." *fn8" Id. at 1970-71. When asked if he had specific experience of a manager telling him to forge policies, Correa responded, "Yes, sir, I sure do," and then he referenced only these two instances involving Olivarez. Id. at 1978.

 Correa testified that he had personally observed two agents in the office windowing signatures. Correa noted that the conduct was "obvious" to him and that other agents and management would have been able to observe the conduct as well. Id. at 1960-61. During cross-examination Correa acknowledged that he had only seen Herrera window a signature once and that he had only seen one other agent window a signature once. Pl.'s Supplemental Excerpts at H50.

 Another former agent, Roland Garza, also testified that he was aware that windowing of signatures took place in the office, and that he was aware that many agents in the office engaged in the practice. *fn9" Record at 660. Garza also testified that conversion of policies was encouraged by management because more commissions would be generated by converting a policy from term to whole life. Id. at 661. (The question directed to Garza concerning management's encouragement of converting policies did not distinguish between legitimate, authorized conversions and unauthorized conversions.) Garza testified that, in his opinion, management's concern with "their pocket books" resulted in agents engaging in misconduct such as converting term policies to whole life policies without authorization. Id. at 694-95. Garza also testified that it was his opinion that "middle management, being Mario Olivarez, and upper management, being Dale Gillum and Ron Dawson, must have known about such practices." Id. at 695.

 B. Commission switching

 The only testimony by Herrera that directly implicated Dawson in misconduct (albeit misconduct that is wholly internal to New York Life) was his testimony that Dawson directed that the commission earned on the Hernandez policy be split with two other agents who had no involvement in selling the policy. Record at 2669. This practice is referred to in the record as "commission switching" or "commission splitting." *fn10"

 Correa also testified about the practice of commission switching in the Corpus Christi Office. Correa explained that New York Life maintained certain commission standards for its agents under which agents were required to average a certain amount of commissions over a three month period (referred to in the record as "quartering out"). And, Correa testified that when another agent was having difficulty quartering out, he (Correa) would be asked by his sales manager, Mario Olivarez, to shift some of his commissions to that agent in order to enable that agent to quarter out. *fn11" Id. at 1956-57. Indeed, Correa testified that the management in the Corpus Christi Office insisted on commission switching. Id. at 1975. When asked who benefited from the practice of commission switching, Correa opined that "it wasn't helping anyone but management," id. at 1957; see also id. at 1975. This testimony was echoed by that of Roland Garza, who testified that management benefitted by the practice of commission switching because management bonuses were determined in part by the number of agents in the office that met New York Life's commission criteria. Id. at 645-46, 659.

 Dale Gillum, the associate general manager at the Corpus Christi Office, testified that under Dawson's administration the practice of unauthorized commission switching was flagrant, and that the practice continued to a lesser degree under Dawson's successor Terry Richards. Id. at 2368-69. Gillum also testified that Dawson split Herrera's commission on the Hernandez policy between Herrera and two other agents who had no involvement in the sale of that policy. Id. at 2444-45. Gillum also testified that when Herrera complained to Dawson that another New York Life agent was going to try and sell the Hernandezes a policy, Dawson called that agent and essentially told him to back off because Herrera was there first. Id. at 2423. (Defendants rely on this testimony about Dawson as evidence indicating that Dawson was involved in the Hernandez fraud.)

 Dawson did not testify at the Hernandez trial; however, he was deposed prior to the trial and the Hernandezes' attorney played a videotape of that deposition at trial. Dawson testified that he had not permitted commission switching except in rare situations, denied that he had ever been reprimanded for commission switching, *fn12" claimed that he had told sales managers that they must stop the practice of commission switching and testified that the Office Manager had forged his signature to forms approving commission switches. Def.'s Facts PP 40, 41. Dawson also testified that he had no recollection of the $ 1 million Hernandez policy and denied any prior awareness that the commissions on the Hernandez policy had been switched. *fn13" Id. P 42.

 New York Life's Familiarity with the Hernandez Case

 Alan Taxerman, the New York Life in-house attorney who was assigned responsibility for the Hernandez case, attended almost all of the trial and participated in strategic decisions throughout. Defs.' Facts P 48. Prior to trial, Taxerman was involved in fact-gathering and responses to discovery. He attended several depositions and read the transcripts and viewed the videotapes of the others. Taxerman was in constant communication with Texas trial counsel assigned to the case, Corbet Bryant. Id. P 49. Taxerman's familiarity with the trial was reinforced by notes that he took at trial, by his discussions with trial counsel, and by review of trial exhibits and certain daily transcripts. Id. P 50.

 Throughout the pretrial proceedings and the trial, Taxerman provided updates on the case to his superiors, including then General Counsel Alice Kane and other officers of New York Life, including Senior Vice President Lyle Paul and Executive Vice President Lee Gammill. The updates included reports of lax supervision and the atmosphere in the Corpus Christi Office, and evidence that the three local managers (Dawson, Gillum, and Miller) were involved in various wrongdoing. *fn14" Id. P 51.

 William Morrison, an Assistant Vice President in New York Life's Agency Department, was designated as one of New York Life's official representatives at the Hernandez trial. Morrison kept notes of the trial evidence and reported to Paul and Gammill about that evidence. Pl.'s Add'l Facts P 47.

 Immediately after the Hernandez verdict, several meetings were held at the New York Life home office in which evidence that led to the verdict was analyzed, as were the company's possible legal and business responses to the verdict. Alice Kane participated in discussions with Taxerman, Texas trial counsel (Corbet Bryant), and new counsel (John Koeltl, then a partner at the New York law firm of Debevois & Plimpton). Defs.' Facts P 52. Part of the discussions focused on the theme of the Hernandez trial that local management knew of or participated in improper conduct such as commission switching, unauthorized conversions, forgery, providing loans to agents, and selling leads to agents. Id. P 53. With the assistance of Taxerman and Koeltl, Kane prepared a presentation concerning the Hernandez case for the Board of Directors. Id. P 54. Kane's presentation omitted discussion of evidence of any "misconduct" by the New York Life home office that might have contributed to the verdict, such as the home office's failure to take any disciplinary action toward Oscar Herrera despite being on notice of customer complaints, despite having knowledge of three documented instances of unauthorized conversions, and despite the fact that Terry Richards (Dawson's successor at the Corpus Christi Office) recommended he be fired based on allegations of forgery and policy switching in another case. *fn15" See Kane Dep. at 237-38.

 Dawson's Termination

 Lyle Paul had received reports on the Hernandez case from Taxerman, Texas trial counsel, and others. Within one week after the Hernandez verdict, Paul made the decision to terminate Dawson. The decision was made in consultation with Kane, Lee Gammill, and New York Life Chairman Harry Hohn. Defs.' Facts PP 55-57. Paul instructed John Zorio, Dawson's immediate supervisor, to deliver a letter of termination to Dawson. Id. P 58. Zorio arranged for a meeting with Dawson on February 16, 1993 between 7:00 and 7:30 a.m., prior to normal office hours. Zorio and an assistant met briefly with Dawson in his office and delivered the termination letter. No one else was present except a security guard who sat outside Dawson's office. New York Life subsequently arranged for Dawson's personal belongings to be delivered to him. Id. PP 59-61. The same day, New York Life terminated the employment of Richard Miller, the former Corpus Christi Office Manager. Associate General Manager Dale Gillum had resigned from the company in November 1992. Id. P 62.

 THE ALLEGEDLY DEFAMATORY STATEMENTS

 I. The 1993 Managers' Meeting

 A. Alice Kane's Remarks

 New York Life's annual Managers' Meeting took place February 28 to March 4, 1993 -- approximately three weeks after the Hernandez jury returned its verdict. General managers of each of the company's general offices were invited, as were certain other local managers and some senior officers of the company. More than 700 New York Life managers, employees and their spouses from all over the United States attended the meeting, which was held in Hawaii. Pl.'s Add'l Facts P 19. Senior New York Life officers believed that the Hernandez case implicated the interests of New York Life, its employees, agents, policyholders, customers, and the public. Among those interests were protecting New York Life policyholders and potential customers, and enforcing company rules. To further these interests, senior New York Life officers believed that it was important to report to the managers about lessons from the Hernandez case and about the role of local management in preventing wrongdoing. Defs.' Facts PP 76-79.

 Alice Kane gave a speech at the Managers' Meeting entitled "Corporate Responsibility is Everyone's Job." Kane's speech included the following comments concerning the Hernandez case:

 
Last month for the first time in our 150-year history, we were assessed punitive damages in a lawsuit.
 
. . . Did we "deserve" to be punished? Here are the facts.
 
. . .
 
. . . We need to realize that it wasn't the agent alone who cost us $ 15,000,000 in punitive damages. Mrs. Hernandez only lost $ 65,000. How then did we get from there to $ 15 million? Well, let me show you.
 
Before Terry Richards, there was a pattern of unethical behavior in the Corpus Christi office. It went well beyond this fraud. There was an attitude -- encouraged by management -- that rules were made to be broken -- and shortcuts were meant to be taken.
 
There were unauthorized conversions, unwitnessed signatures and commission switching for Council credit. Windowing was almost commonplace. And leads were bought and sold. All of this was done with the knowledge -- and sometimes the actual participation of -- the local management.
 
In the jury's mind, these abuses went a long way to fill the gap from $ 65,000. As I said before, punitive damages are awarded when a jury is sending a message. This time it was loud and clear. We were wrong. Local management failed and we -- the company -- must take steps to correct it.

 Defs.' Facts P 80. Kane testified that when she referred to "management" and "local management" in her speech she was referring to Dawson, among others. Kane also testified that she believed that the audience so understood her references, "if they knew who the managers were at Corpus Christi." Kane Dep. at 86-89.

 Kane's speech was drafted by an in-house speech writer, Lisa Frazier, in conjunction with New York Life's then Deputy General Counsel, Michael McLaughlin, Kane, and others. Defs.' Facts P 81. Among other things, Frazier relied upon a 2 1/2 page memorandum drafted by Taxerman, which set out a chronology of events in the Hernandez case. Pl.'s Add'l Facts P 44. Kane also requested that the speech be reviewed by Taxerman. Defs' Facts P 82. Taxerman attests that he reviewed Kane's speech for accuracy and believed that the challenged statements were true. Taxerman Aff. P 5. Additionally, Kane was personally familiar with certain materials which she regarded as supporting her remarks about "local management," including: (i) the results of an audit of the Corpus Christi Office that found that Dawson was involved in unauthorized commission switching; (ii) a Hernandez trial exhibit that discussed the problems of windowing and term conversions in the Corpus Christi Office; *fn16" (iii) reports from Taxerman and Texas trial counsel in the Hernandez case about evidence concerning local management; (iv) the jury charge and the jury's findings in the Hernandez case as to "New York Life." Defs.' Facts P 84. Kane also attested that she believed that the challenged statements were true and did not entertain any doubt as to their accuracy. Kane Aff. P 34.

 Kane also participated in a panel discussion on compliance issues at the 1993 Managers' Meeting. *fn17" During that discussion, she made the following extemporaneous remarks:

 
. . .
 
In the Hernandez case, we saw the local, practically everyone in the ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.