Merrimon v. Unum Life Ins. Co. of Am.

• Decision Date: 02 July 2014
• Docket Number: 13–2168.,Nos. 13–2128,s. 13–2128
• Citation: 758 F.3d 46
• Court: U.S. Court of Appeals — First Circuit
• Parties: Denise MERRIMON and Bobby S. Mowery, Plaintiffs, Appellees, v. UNUM LIFE INSURANCE COMPANY OF AMERICA, Defendant, Appellant. Denise Merrimon and Bobby S. Mowery, Plaintiffs, Appellants, v. Unum Life Insurance Company of America, Defendant, Appellee.

758 F.3d 46

Denise MERRIMON and Bobby S. Mowery, Plaintiffs, Appellees,

v.UNUM LIFE INSURANCE COMPANY OF AMERICA, Defendant, Appellant.

Denise Merrimon and Bobby S. Mowery, Plaintiffs, Appellants,

v.Unum Life Insurance Company of America, Defendant, Appellee.

Nos. 13–2128, 13–2168.

United States Court of Appeals, First Circuit.

July 2, 2014.

Donald R. Frederico, with whom Catherine R. Connors, Byrne J. Decker, Gavin G. McCarthy, and Pierce Atwood LLP were on brief, for defendant.

James F. Jorden, Waldemar J. Pflepsen, Jr., Michael A. Valerio, Ben V. Seessel, John C. Pitblado, Jorden Burt LLP, and Lisa Tate on brief for American Council of Life Insurers, amicus curiae.

Jeremy P. Blumenfeld, Morgan, Lewis & Bockius LLP, J. Michael Weston, and Lederer Weston Craig on brief for Defense Research Institute, amicus curiae.

John C. Bell, Jr., with whom Lee W. Brigham, Bell & Brigham, Stuart T. Rossman, Arielle Cohen, National Consumer Law Center, M. Scott Barrett, and Barrett Wylie LLC were on brief, for plaintiffs.

Before TORRUELLA and SELYA, Circuit Judges, and McAULIFFE,^* District Judge.

SELYA, Circuit Judge.

In 1974, Congress enacted the Employee Retirement Income Security Act (ERISA). Pub.L. No. 93–406, 88 Stat. 829, codified as amended at 29 U.S.C. §§ 1001–1461. One of ERISA's principal goals is to afford appropriate protection to employees and their beneficiaries with respect to the administration of employee welfare benefit plans. See Nachman Corp. v. Pension Benefit Guar. Corp., 446 U.S. 359, 361–62, 100 S.Ct. 1723, 64 L.Ed.2d 354 (1980). As is true of virtually any prophylactic statute, interpretive questions lurk at the margins. This class action, which arises out of an insurer's redemption of claims on ERISA-regulated life insurance policies through the establishment of retained asset accounts (RAAs), spawns such questions.

Here, the plaintiffs challenge the insurer's use of RAAs as a method of paying life insurance benefits in the ERISA context. They presented the district court with two basic questions. First, did the insurer's method of paying death benefits in the form of RAAs constitute self-dealing in plan assets in violation of ERISA section 406(b)? Second, did this redemption method offend the insurer's duty of loyalty toward the class of beneficiaries in violation of ERISA section 404(a)? The district court answered the first question in favor of the insurer and the second in favor of the plaintiff class. It proceeded to award class-wide relief totaling more than $12,000,000.

Both sides appeal. We agree with the district court that the insurer's use of RAAs in the circumstances of this case did not constitute self-dealing in plan assets. We disagree, however, with the district court's answer to the second query and hold that the insurer's use of RAAs did not breach any duty of loyalty owed by the insurer to the plaintiff class. Accordingly, we affirm in part and reverse in part.

I. BACKGROUND

We briefly rehearse the relevant facts, which are largely undisputed. Readers who hunger for more exegetic detail may consult the district court's fulsome rescript. See Merrimon v. Unum Life Ins. Co., 845 F.Supp.2d 310, 312–15 (D.Me.2012).

The plaintiffs, Denise Merrimon and Bobby S. Mowery, represent a class of beneficiaries of ERISA-regulated employee welfare benefit plans funded by certain guaranteed-benefit group life insurance policies that the defendant, Unum Life Insurance Company of America (the insurer), issued.¹ In 2007, each named plaintiff submitted a claim for life insurance benefits. After reviewing the submissions, the insurer approved the claims.

The insurer redeemed the claims by establishing, through a contractor, accounts for the named plaintiffs at State Street Bank and credited to each plaintiff's account the full amount of the benefits owed: $51,000 to Merrimon and $62,300 to Mowery. At the same time, the insurer mailed books of drafts to the plaintiffs, along with informational materials regarding the accounts. The drafts empowered the plaintiffs to withdraw all or any part of the corpus of the RAAs; provided, however, that each withdrawal was in an amount not less than $250.

In short order, the plaintiffs fully liquidated their RAAs and the accounts were closed. During the time that funds remained in their RAAs, however, the insurer retained the credited funds in its general account and paid the plaintiffs interest at a rate of one percent (substantially less, the plaintiffs allege, than the return the insurer earned on its portfolio).

The closing of the RAAs did not end the matter. In October of 2010, the plaintiffs filed a putative class action complaint in the United States District Court for the District of Maine. Their complaint alleged that the insurer's method of redeeming their claims violated ERISA sections 404(a) and 406(b), 29 U.S.C. §§ 1104(a), 1106(b), and sought “appropriate equitable relief” under 29 U.S.C. § 1132(a)(3).² Following discovery, the parties cross-moved for summary judgment and the plaintiffs moved for class certification. The district court granted partial summary judgment in favor of the insurer on the plaintiffs' section 406(b) claims and granted partial summary judgment in favor of the plaintiffs on their section 404(a) claims. See Merrimon, 845 F.Supp.2d at 327–28. The court then certified the plaintiff class. See id. The insurer moved to reconsider the adverse summary judgment and class certification rulings, but the district court doubled down: it both denied the motion and struck it as untimely.

A bench trial ensued to determine the appropriate measure of relief based on the district court's determination (on partial summary judgment) that the insurer had violated section 404(a). When all was said and done, the court awarded the plaintiff class monetary relief in excess of $12,000,000 (exclusive of prejudgment interest). Neither side was overjoyed, and these cross-appeals followed.

II. JURISDICTION

The insurer argues, albeit conclusorily, that the plaintiffs lack constitutional standing to pursue their claims. One of the amici helpfully develops the argument in significantly greater detail. Although these circumstances might ordinarily give rise to questions of waiver, see, e.g., United States v. Zannino, 895 F.2d 1, 17 (1st Cir.1990) (explaining that issues briefed in a perfunctory manner are normally deemed abandoned); Lane v. First Nat'l Bank, 871 F.2d 166, 175 (1st Cir.1989) (explaining that a court will usually disregard issues raised only by amici and not by parties), no such obstacle exists here. The presence or absence of constitutional standing implicates a federal court's subject-matter jurisdiction. When an issue implicates subject-matter jurisdiction, a federal court is obliged to resolve that issue even if the parties have neither briefed nor argued it. See Arizonans for Official English v. Arizona, 520 U.S. 43, 73, 117 S.Ct. 1055, 137 L.Ed.2d 170 (1997); In re Sony BMG Music Entm't, 564 F.3d 1, 3 (1st Cir.2009).

The Constitution carefully confines the power of the federal courts to deciding cases and controversies. See U.S. Const. art. III, § 2; Hollingsworth v. Perry, ––– U.S. ––––, 133 S.Ct. 2652, 2661, 186 L.Ed.2d 768 (2013). “A case or controversy exists only when the party soliciting federal court jurisdiction (normally, the plaintiff) demonstrates ‘such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends.’ ” Katz v. Pershing, LLC, 672 F.3d 64, 71 (1st Cir.2012) (quoting Baker v. Carr, 369 U.S. 186, 204, 82 S.Ct. 691, 7 L.Ed.2d 663 (1962)); see Muskrat v. United States, 219 U.S. 346, 361–62, 31 S.Ct. 250, 55 L.Ed. 246 (1911). In order to make such a showing, “a plaintiff must establish each part of a familiar triad: injury, causation, and redressability.” Katz, 672 F.3d at 71 (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 560–61, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992)).

The pivotal question here involves the injury in fact requirement. The best argument for the absence of constitutional standing is the notion that the plaintiffs did not suffer any demonstrable financial loss as a result of the insurer's alleged transgressions and, therefore, did not sustain any injury in fact. Put another way, the argument is that because the plaintiffs received everything to which they were entitled under the ERISA plans, they suffered no actual harm.

This argument is substantial. When confronted with essentially the same question, the Second Circuit bypassed it and asserted jurisdiction on other grounds. See Faber v. Metro. Life Ins. Co., 648 F.3d 98, 102–03 (2d Cir.2011). The Third Circuit rejected the argument in a divided opinion. See Edmonson v. Lincoln Nat'l Life Ins. Co., 725 F.3d 406, 415–17 (3d Cir.2013), cert. denied, ––– U.S. ––––, 134 S.Ct. 2291, 189 L.Ed.2d 173 (2014); id. at 429–33 (Jordan, J., dissenting). After careful perscrutation, we hold that the plaintiffs have constitutional standing.

An injury in fact is defined as “an invasion of a legally protected interest which is (a) concrete and particularized; and (b) actual or imminent, not conjectural or hypothetical.” Lujan, 504 U.S. at 560, 112 S.Ct. 2130 (footnote omitted) (internal citations and quotation marks omitted). But in order to establish standing, a plaintiff does not need to show that her rights have actually been abridged: such a requirement “would conflate the issue of standing with the merits of the suit.” Aurora Loan Servs., Inc. v. Craddieth, 442 F.3d 1018, 1024 (7th Cir.2006). Instead, a plaintiff need only show that she has “a colorable claim to such a right.” Id. (emphasis omitted). The evaluation of whether such a showing has been made must take into account the role of Congress. After all, Congress has the power to define “the status of legally cognizable injuries.” Katz, 672 F.3d at 75.

These principles are...