A wine collector who was ensnared by a Ponzi scheme has been trying to recover his losses by suing third parties. The 10th Circuit Court of Appeals has now shut another door on a lawsuit the collector filed in the wake of the scheme, this time siding with his insurance company.
In an opinion published Aug. 27, the 10th Circuit held that plaintiffs weren’t insured for the loss of wine they’d paid for, but never received, because they presented inadequate evidence they’d actually owned the undelivered product. Malik and Seeme Hasan had paid a vintage wine retailer, Premier Cru, hundreds of thousands of dollars only to have a fraction of their order fulfilled. With Premier Cru later pleading guilty to conducting a fraudulent scheme and filing for bankruptcy, the Hasans claimed the undelivered goods as a loss under their valuable collection policy with AIG. AIG denied coverage, and the district court granted the insurer’s summary judgment motion.
In Hasan v. AIG Property Casualty Co., the 10th Circuit affirmed the district court, albeit on different grounds. Judge Harris Hartz penned the opinion joined by judges Jerome Holmes and Joel Carson.
Malik Hasan had also sued credit card companies in the wake of the Ponzi scheme, and the 10th Circuit dealt him a setback there in January 2018. A separate panel ruled the Fair Credit Billing Act didn’t require Chase Bank and American Express to refund Hasan for the wine he’d purchased using his credit card account but never received. G.W. Merrick & Associates, the Centennial-based firm representing Hasan in each case, didn’t respond to a request for comment.
Malik Hasan, who practiced neurology in Pueblo, ran one of the largest HMOs in the U.S. Over fifteen years, the Hasans ordered wine from Berkeley, California-based Premier Cru, including not just wines the company had in its own warehouses but “pre-arrival” bottles it promised it would acquire and send to customers at a later date. Premier Cru would collect money for the pre-arrival orders from thousands of customers but in many cases would never acquire or send these bottles.
Premier Cru’s president admitted to owing the Hasans about $690,000. After Premier Cru went bankrupt, according to the Hasans, they received less than $5,000 from the bankruptcy trustee.
The Hasans had $2,000,000 in coverage for their wine collection under their AIG policy, which covered “direct physical loss or damage to valuable articles anywhere in the world” subject to exclusions. After Premier Cru filed for bankruptcy, the Hasans filed a claim with AIG for about $1.7 million. The amount, nearly triple what the Hasans paid for the undelivered bottles, is what they claimed was the market value of the loss.
AIG denied the claim, citing the policy’s definition of “valuable articles” as property the policyholders owned or possessed. Because the Hasans never owned or possessed the bottles, they didn’t experience a loss their policy would cover, AIG argued. The policy notably didn’t cover losses from fraud.
District Judge Raymond Moore granted AIG’s motion for summary judgment, agreeing with the insurer that the Hasans failed to show loss or damage to property under the policy. The key distinction is that the Hasans lost money from the Ponzi scheme, not property, as Moore wrote in his August 2018 order. “Plaintiffs’ claim is for the value of the wine that has not been delivered, not for physical damage to the wine.” Having reached that conclusion, Moore found it unnecessary to decide whether the Hasans technically owned any of the undelivered wine.
The Hasans appealed, arguing to the 10th Circuit that they owned the wine bottles upon purchasing them, regardless of never taking possession of them. “The problem with this argument is the absence of evidence that [Premier Cru president John] Fox actually purchased the ordered bottles for Plaintiffs,” noted Hartz in the 10th Circuit opinion. Fox likely spent money he received from the Hasans on things besides bottles to fulfill their orders, including Fox’s own personal expenses or even bottles for other customers’ orders.
The Hasans also argued they should have been allowed to add a claim to their complaint; AIG nonrenewed their insurance policy, which the plaintiffs alleged was in retaliation to the lawsuit. The 10th Circuit found the district court hadn’t abused its discretion.
Trying to supply evidence of a covered loss, the Hasans argued that Fox had a “routine practice” of actually buying the bottles they ordered. “Plaintiffs rely on Dr. Hasan’s declaration, which states merely that he had always received the bottles he paid for except the [missing] 2,448 bottles,” according to the opinion.
“There are a host of problems with this argument,” the panel said. The plaintiffs didn’t show what dates they’d bought the 2,448 bottles they never received.
There wasn’t evidence that fulfilling orders was a routine practice Fox had with his other customers or one that he necessarily kept up once the business became insolvent, the panel reasoned. And even when delivered, Premier Cru’s bottles were often delayed — a sign they fell under the Ponzi scheme fulfillment practice.
—Doug Chartier