In re LifeUSA Holding Inc.

• Decision Date: 14 December 2000
• Docket Number: No. 00-1775,00-1775
• Citation: 242 F.3d 136
• Parties: (3rd Cir. 2001) IN RE: LIFEUSA HOLDING INC., LIFEUSA HOLDING, INC., APPELLANT Argued: Thursday,
• Court: U.S. Court of Appeals — Third Circuit

Page 136

242 F.3d 136 (3rd Cir. 2001)

IN RE: LIFEUSA HOLDING INC., LIFEUSA HOLDING, INC., APPELLANT

No. 00-1775

UNITED STATES COURT OF APPEALS FOR THE THIRD CIRCUIT

Argued: Thursday, December 14, 2000

Filed March 5, 2001

On Appeal from the United States District Court for the Eastern District of Pennsylvania District Judge: Honorable J. Curtis Joyner

[Copyrighted Material Omitted]

Attorneys for Appellant: James F. Jorden (Argued) Waldemar J. Pflepsen, Jr. Paul A. Fischer Richard Karpinski Stephen H. Goldberg Jorden Burt Boros Cicchetti Berenson & Johnson Llp 1025 Thomas Jefferson Street, N.W. Suite 400 East Washington, D.C. 20007, William T. Hangley Michael Lieberman Hangley Aronchick Segal & Pudlin One Logan Square - 27th Floor Philadelphia, PA 19103

Attorney for Appellees: John M. Elliott Thomas J. Elliott Henry F. Siedzikowski (Argued) Mark A. Kearney Timothy T. Myers Brian J. McCormick Elliott Reihner Siedzikowski & Egan, P.C. 925 Harvest Drive P.O. Box 3010 Blue Bell, PA 19422

Attorneys for Amicus-Appellant American Council of Life Insurers: Evan M. Tager Mayer, Brown & Platt 1909 K Street, N.W. Washington, D.C. 20006, Victoria E. Fimea American Council of Life Insurers 1001 Pennsylvania Avenue, N.W. Washington, D.C. 20004-2599

Before: Scirica, Fuentes and Garth, Circuit Judges

OPINION OF THE COURT

Garth, Circuit Judge

LifeUSA appeals the January 13, 2000 order (filed January 19, 2000) of the District Court which certified a class of plaintiffs who had purchased LifeUSA "Accumulator" annuity policies between August 1, 1989 to the present. In its order certifying a class, the District Court focused entirely on the alleged pr e-sale misrepresentations of LifeUSA agents in the marketing, advertising, and sales of the Accumulator, stating "... that the gravamen of plaintiffs' claims is that Defendant's sales techniques and advertising constituted an allegedly fraudulent scheme." (A-16). The District Court's focus was not on the alleged post-sale misrepresentations contained in quarterly statements issued to purchasers of the Accumulator.

This emphasis on the pre-sale marketing of the Accumulator is not surprising, considering the allegations of the plaintiffs' Complaint. However, on appeal for the first time, we learned that the plaintiffs' claims were not and are not based upon the sales presentations made by each of LifeUSA's agents. Rather, the plaintiffs have since shifted their emphasis from pre-sale fraud and misconduct in connection with the sale and marketing of the annuities, to post-sale fraud and misconduct: "The gravamen of this case is the nondisclosure of the real interest rate in every uniform annuity and identical quarterly statement." Appellees' Br., at 20.

Because the plaintiffs have alleged no breach of contract claim in their Complaint and because their claims are no longer based on the sales presentations -- the predicate of the District Court's class certification -- but are rather centered on the interest rates reported in post-sale quarterly statements and because the requirements of Federal Rule of Civil Procedure 23(a) and (b) have not been met, we will vacate the District Court's class certification, which resulted from facts, allegations, and a theory differing materially from the facts, allegations, and theory presented to us on appeal.

We will, however, remand to the District Court to give that Court an opportunity to consider, together with the other issues identified in its summary judgment opinion,¹ if the present interest rate and real interest theory of the plaintiffs as explicated in their briefs on appeal and at oral argument warrant relief and if so, class certification. On remand, if a class meets class certification standards and is then certified, the District Court must also ascertain whether it may exercise jurisdiction over all class plaintiffs consistent with this Court's ruling in Meritcare, Inc. v. St. Paul Mercury Ins. Co., 166 F.3d 214 (3d Cir. 1999), and whether jurisdiction pursuant to the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461, is available.

I.

Plaintiffs/appellees represent a class of persons who purchased "Accumulator" annuities from defendant/appellant LifeUSA Holding, Inc. ("LifeUSA"). The Accumulator is a two-tiered deferred annuity contract,² whereby upon the deposit of the purchaser's premiums, a one-time bonus is paid on the amount deposited and interest is then credited to that increased amount.

The Contract Provisions

The Accumulator is a two-tiered annuity because it contains both an "Annuitization Value" and a "Cash Value." The Annuitization Value is the amount paid to the owner if the funds deposited are held under the contract for at least one year and annuitized over at least five years. The contract provides that the owner "will receive the Annuitization Value if the policy has been in force for at least one year and the proceeds are paid in a settlement extending over at least five years." (A-510). The Annuitization Value consists of premiums, bonuses credited to such premiums, and accumulated interest. The contract guarantees that the "minimum interest rate credited to the Annuitization Value is 4%," (id.), but provided that LifeUSA "may declare a higher interest rate than the guaranteed rate." (Id.).

The Cash Value of the contract is the amount the contract owner receives in the event that he or she elects a full or partial lump sum surrender. The Cash Value reflects a front-end load, no bonus, and, if the contract has been in deferral for less than ten years, a credited interest rate lower than that used to calculate the Annuitization Value. The contract explains:

Cash Value -- Cash Value premium payment are equal to 80% of the first year premium payment and 90% of the premium payment in years two through five. Cash Value premium payments after year five are equal to 100% of the payment made.

Premium paid during the first five policy years in excess of the planned annual premium will be credited to the Cash Value in an amount equal to 95% of the excess amount paid. After the first five policy years, any excess premium will be credited to the Cash Value in an amount equal to 105% of the excess amount paid.

The guaranteed minimum interest rate credited to the Cash Value is 4%. We may declare a higher interest rate than the guaranteed rate. The rate in effect for the Cash Value on the policy date is guaranteed for the first policy year. After the first policy anniversary, we may change the declared rate at our option. The rate declared will never be lower than the guaranteed minimum interest rate.

The interest rate credited to the Cash Value will be equal to the rate credited to the Annuitization Value after the tenth policy anniversary.

(Id.).

The contract further provides that "Policy values before the Annuity Date are based on 4% interest compounded annually." (Id.). All Accumulator contracts contained a 20- day "free look" period providing the prospective purchaser the opportunity to review the contract and return it within 20 days if not satisfied.³ Significantly, the Complaint filed by the plaintiffs does not contain any claims that LifeUSA has breached any of the contract provisions. Moreover, in depositions, the named plaintiffs testified that they either failed to read or merely glanced at the contracts after they had received them.

LifeUSA's Marketing of the Accumulator

LifeUSA sold the Accumulator through 30,271 independent agents. Indeed, the record discloses that a number of Accumulator purchasers were themselves independent agents who sold annuities. Agents were not all trained by LifeUSA. Agents learned about the Accumulator from (1) written materials describing the product, (2) the contract itself, and (3) from voluntary seminars sponsored by LifeUSA and independent Field Marketing Organizations ("FMOs"). Marketing materials sent by LifeUSA to agents were not uniform. Decl. Of Charles Kavitsky P 17, (A-2588) ("While some of the product information LifeUSA created was mailed to all LifeUSA or Allianz agents and FMOs, other items were distributed only to agents and FMOs licensed in a particular state.").

Agents also employed marketing materials generated by FMOs, not LifeUSA. Agents were permitted to use their own sales material, provided that the material was approved by LifeUSA, for the purpose of complying with state regulation. Agents did not uniformly rely on the marketing materials in learning about LifeUSA's Accumulator. In fact, some discarded the materials entirely. Approximately 10-15% of LifeUSA's agents have attended the seminars, and the oral content of the seminars varies.

The Accumulator was sold typically in face-to-face meetings between agents and clients. The District Court found that the Accumulator was not sold according to uniform, scripted sales presentations. (A-22) ("the information provided to each of the plaintiffs by the individual sales agents who sold them their policies was not identical."). Agents used varying sales presentations that they developed themselves, based on the prospective purchaser's financial objectives and sophistication, and the agent's knowledge and experience. Agents did not employ LifeUSA's marketing materials uniformly. For example, some agents always used illustrations provided by LifeUSA, while other agents never used them. Four of the plaintiffs testified that they might have received literature from their agents before purchasing the Accumulator, but none of them relied on such literature and none could recall the substance of it.

Plaintiffs' Class Allegations

Plaintiffs' Complaint asserts claims of fraudulent nondisclosures and misrepresentations (Count II), negligent misrepresentation (Count III), breach of duty of good faith and fair dealing (Count IV), negligence (Count V), and unjust enrichment (Count VI). In Count I, plaintiffs seek injunctive relief.

Although the plaintiffs' Complaint...