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Emerald Investments LP v. Equitable Life Assurance Society of the United States

December 19, 2005


The opinion of the court was delivered by: Charles P. Kocoras, Chief District Judge


This matter comes before the court on cross-motions for summary judgment. For the reasons set forth below, Plaintiff's motion is granted, and Defendant's motion is denied. The implied motion to strike the affidavits of Mark Hug and Naomi Weinstein is denied as moot.


Plaintiff Emerald Investments, LP ("Emerald"), is a partnership based in Illinois that engages in trading of, among other things, variable annuities. Defendant Equitable Life Assurance Society ("Equitable")*fn1 is a New York corporation that sells investment products, including variable annuities. One of the annuities Equitable offers is called "Equi-Vest." According to the Equi-Vest prospectus, the annuity was designed to be an investment tool for retirement savings and long-term financial planning. Despite this preference for nonvolatile investment practices, Equi-Vest annuitants could choose an available option called the Maximum Transfer Flexibility Option, which allowed an annuitant to execute an unlimited number of free transfers using the account during the contract year.

Around the end of April 1999, Emerald purchased two "Equi-Vest" annuities from Equitable. For each annuity, Emerald was issued a Certificate containing information specific to Emerald and about the annuity itself. Except for information such as the specific trustee, the provisions of the Certificates mirror those in Equitable's Group Annuity Contract No. AC 6725 ("GAC"). According to Data Page 1 of the Certificates, Section 1.09, and Section 9.01, the GAC is "the entire contract between the parties," and it governs the parties' respective rights and obligations. In Section 4.01, Equitable specified that "[a]ll transfers will be made on the Transaction Date." Section 1.23 defines "Transaction Date" as the business day on which Equitable's processing office receives a transaction request containing the information Equitable needed to complete the request in a form acceptable to Equitable. "Business Day" was in turn defined as any day that Equitable was open and that the New York Stock Exchange was open for trading. Section 4.01 also provides that "[t]ransfers are subject to the terms of Section 4.02 and to our rules in effect at the time of transfer." Section 4.02 states, inter alia, that Equitable had the right to change their transfer rules, as long as they provided advance notice.

Throughout the negotiations, Emerald emphasized its interest in investing in a fund that would permit frequent trades, particularly focusing on the unlimited number of transfers feature showcased in the Equi-Vest annuity. To further solidify Emerald's ability to enjoy this feature, it requested and received a guarantee from Equitable that, regardless of future limitations placed on the number of free transfers that could be made in Equi-Vest annuities, Emerald would be allowed at least 26 transfers per calendar year in its first Equi-Vest annuity. Two weeks thereafter, Equitable issued another letter extending the same guarantee to any future Equi-Vest annuity accounts Emerald opened, though the 26-transfer promise would be only effective for the year in which the change was first made. The parties refer to the letters containing these guarantees as the "Special Transfer Agreement" and agree that it is a valid modification of their contract.

Shortly after the first two annuities were funded, Emerald expressed an interest in opening a third. In response, Equitable examined the trading activity in the two open accounts and discovered that Emerald had been trading heavily. In part because of this volume, Equitable balked at issuing another Equi-Vest account and met with Emerald about its concerns. After the meeting, Emerald signed a letter stating that Emerald intended to maintain its investments in the annuity accounts at a level not to exceed 1% of the total assets of the accounts. It also stated that Emerald intended to execute an average of approximately 26 transfers per year.

After receiving the letter, Equitable issued a third annuity to Emerald. Rather than being another Equi-Vest annuity, it was a different product called the "Equitable Accumulator." This product also allowed an unlimited number of free transfers. The sections pertaining to transaction dates, business day, etc. were identical to those of the Equi-Vest annuity, as was the GAC identified as governing the parties' rights and obligations.

Throughout the following year, Emerald traded heavily in all three annuity accounts, sometimes in very hefty amounts. Although the parties do not specifically state all the methods Emerald used to place its transfer requests, they do indicate that at least some were made via facsimile, and the respective presentations strongly imply that Emerald used same-day methods frequently if not exclusively throughout the parties' relationship of approximately 15 months. On September 13, 2000, Equitable stopped accepting trade instructions placed by any method that would allow the trade to be made the same day that Emerald placed the request. Instead, Emerald was told it must either place its requests via U.S. mail or wait 5 days between trades. Emerald offered to use personal delivery through a messenger, but Equitable insisted on mail delivery only. On September 19, Emerald sent a transfer request by fax, but Equitable rejected it and again reiterated the mail-only rule.

On October 13, Emerald asked Equitable to either allow same-day trades or return all of Emerald's money, which at that point had grown from the originally invested $36 million to $55 million. Equitable returned the $55 million less a $2.16 million surrender fee exacted because Emerald withdrew its money before it had been invested for the minimum period of seven years specified in the contract. Emerald sued for breach of contract and other causes of action. Equitable responded with a separate complaint arising out of the described events, seeking relief for common law fraud as well as rescission of the Certificates.

After discovery closed and a motion for partial summary judgment had been decided, Emerald discovered that one of its partners shared Equitable's New York citizenship at the time the complaint was filed, thus destroying complete diversity and eradicating the sole basis for federal jurisdiction. The complaint and suit were accordingly dismissed, but before that ruling issued, Emerald removed the nondiverse partner and filed the complaint that commenced this action. Some further discovery ensued, and in July 2005 Emerald filed their portion of the motions under consideration here, which seeks a judgment that Equitable is liable for the contractual breaches in Counts I-III of the newly filed complaint. Equitable countered with a cross-motion for summary judgment in its favor on all seven counts of the complaint.


Summary judgment is appropriate only if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. Proc. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). In seeking a grant of summary judgment the moving party must identify "those portions of 'the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any' which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986) (quoting Fed. R. Civ. Proc. 56(c)). This initial burden may be satisfied by presenting specific evidence on a particular issue or by pointing out "an absence of evidence to support the non-moving party's case." Celotex, 477 U.S. at 325. Once the movant has met this burden, the non-moving party cannot simply rest on the allegations in the pleadings, but "must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. Proc. 56(e). A "genuine issue" in the context of a motion for summary judgment is not simply a "metaphysical doubt as to the material facts," Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986); rather, "[a] genuine issue exists when the evidence is such that a reasonable jury could find for the non-movant," Buscaglia v. United States, 25 F.3d 530, 534 (7th Cir. 1994). When reviewing the record we must draw all reasonable inferences in favor of the non-movant; however, "we are not required to draw every conceivable inference from the record--only those inferences that are reasonable." Bank Leumi Le-Israel, B.M. v. Lee, 928 F.2d 232, 236 (7th Cir. 1991).

When parties file cross motions for summary judgment, each motion must be assessed independently, and denial of one does not ...

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