800 F.3d 343 (7th Cir. 2015), 14-1437, Life Plans, Incorporated v. Security Life of Denver Insurance Co.

Docket Nº:14-1437
Citation:800 F.3d 343
Opinion Judge:Hamilton, Circuit Judge.
Party Name:LIFE PLANS, INCORPORATED, Plaintiff-Appellant, v. SECURITY LIFE OF DENVER INSURANCE COMPANY, Defendant-Appellee
Attorney:For Life Plans Incorporated, Plaintiff - Appellant: Stephen Novack, Attorney, Novack & Macey LLP, Chicago, IL. For Security Life of Denver Insurance Company, Defendant - Appellee: James Vincent Garvey, Attorney, Nicole J. Highland, Attorney, Vedder Price P.C., Chicago, IL.
Judge Panel:Before MANION, ROVNER, and Hamilton, Circuit Judges. CONCUR BY: ROVNER (In Part) Rovner, Circuit Judge, concurring in part and dissenting in part.
Case Date:August 31, 2015
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
SUMMARY

In 2011, the two companies signed an agreement under which Life Plans would broker and Security Life would insure life insurance policies financed through arbitrage. Four months later, Security Life terminated the agreement. Life Plans then sued for breach of contract and of the implied covenant of good faith and fair dealing for refusing to offer the policies. The district court granted summary... (see full summary)

 
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800 F.3d 343 (7th Cir. 2015)

LIFE PLANS, INCORPORATED, Plaintiff-Appellant,

v.

SECURITY LIFE OF DENVER INSURANCE COMPANY, Defendant-Appellee

No. 14-1437

United States Court of Appeals, Seventh Circuit

August 31, 2015

Argued December 3, 2014.

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 11 C 8449 -- Ronald A. Guzmá n, Judge.

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For Life Plans Incorporated, Plaintiff - Appellant: Stephen Novack, Attorney, Novack & Macey LLP, Chicago, IL.

For Security Life of Denver Insurance Company, Defendant - Appellee: James Vincent Garvey, Attorney, Nicole J. Highland, Attorney, Vedder Price P.C., Chicago, IL.

Before MANION, ROVNER, and Hamilton, Circuit Judges.

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OPINION

Hamilton, Circuit Judge.

Plaintiff Life Plans, Inc. appeals from the grant of summary judgment in favor of defendant Security Life of Denver Insurance Company. In 2011, the two companies signed an agreement under which Life Plans would broker and Security Life would insure life insurance policies financed through arbitrage. Roughly four months later, Security Life said it was terminating the agreement. Life Plans then sued Security Life for breach of contract and breach of the implied covenant of good faith and fair dealing for refusing to offer the life insurance policies. The district court granted summary judgment, reading the contract to grant Security Life the right to terminate at any time. Life Plans has appealed the grant of summary judgment, as well as the district court's denial of a motion to alter the judgment and its earlier denial of leave to amend the complaint to add new claims against Security Life and its parent company.

We reverse. The evidence presents genuine disputes of material facts for both the contract and the implied covenant claims. The language of the agreement is ambiguous as to whether Security Life could terminate at will during the first three years of the agreed term. The extrinsic evidence of meaning is in conflict, so summary judgment is not appropriate on this claim. We also reject Security Life's alternative grounds for affirmance--that a condition precedent requiring Security Life's review and approval of the product, did not occur. The facts are disputed regarding what review was required by the agreement and whether the required approval was received. The district court also erred in denying Life Plans' motion to alter the judgment, which argued that the district court had improperly granting summary judgment on a claim that had not been covered by the summary judgment briefing.

The implied covenant claim under Delaware law also should not have been resolved on summary judgment. A reasonable jury could find that Security Life's conduct was arbitrary and unreasonable and had the effect of denying Life Plans the fruits of its bargain. Finally, the district court abused its discretion in denying Life Plans' motion for leave to amend its complaint. Leave to amend should be given freely unless there is a showing of futility, undue delay, undue prejudice, or bad faith. None of those exceptions applied here. Life Plans filed the motion promptly after discovering the factual basis of its claims and acted to mitigate any delay that might result.

I. Factual and Procedural Background

In reviewing a grant of summary judgment, we view the facts and draw reasonable inferences in the light most favorable to the non-moving party--here, Life Plans. Spitz v. Proven Winners North America, LLC, 759 F.3d 724, 730 (7th Cir. 2014). The background that we recount here is not disputed. We identify the disputed facts as they come up in our later discussion of summary judgment.

A. The Arbitrage Life Payment System

Plaintiff Life Plans is a life insurance brokerage agency owned by Pamela Simon, who is also the company's President. Pamela Simon and her husband David Simon developed a new and apparently exotic method of financing life insurance policies they call the Arbitrage Life Payment Systems, or ALPS. The details of ALPS are not important for the issues we must decide; suffice it to say that significant changes in market interest rates can make what once seemed like an attractive deal

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for one side or the other look much less promising. Between 1994, an affiliate of Life Plans brokered ALPS-financed policies with insurers other than defendant Security Life from 1994 to 2005. In 2009 and 2010, Life Plans and Security Life discussed developing an ALPS-financed policy product together. The policy, later named " Peak," would be brokered by Life Plans and insured by Security Life.

B. The Joint Cooperation Agreement

On June 7, 2011, Life Plans and Security Life signed a joint cooperation agreement regarding the sale of Peak policies. The core deal was that Security Life promised to accept at least $100 million in premiums for Peak policies each year for three years. Life Plans claims it would have collected approximately $21 million in commissions and fees for those policies.

That arrangement never came to fruition. On October 17, 2011, an attorney for Security Life wrote to Life Plans to say that Security Life was terminating the agreement because the Peak policy had not been approved through Security Life's internal review process.

C. Procedural History

In October 2011, Life Plans sued Security Life in state court for breach of contract, or in the alternative, breach of the implied covenant of good faith and fair dealing. Security Life removed the suit to federal court based on diversity jurisdiction and promptly moved to dismiss the suit. The district court denied the motion to dismiss in July 2012.

The parties engaged in substantial discovery. After Life Plans took the deposition of Security Life's chief executive, Life Plans moved to amend its complaint to add a promissory estoppel claim against Security Life and a tortious interference claim against Security Life's parent, ING US, Inc., a new party that had not been named in the original complaint. The district court denied leave to amend the complaint.

After the close of discovery, Security Life moved for summary judgment, arguing that the failure of a condition precedent discharged its obligations under the agreement. Life Plans responded and cross-moved for summary judgment on its claim that Security Life was liable for its three-year, $300 million commitment and could not prematurely terminate under the agreement.

The district court granted summary judgment for Security Life, concluding that Security Life could terminate the agreement at any time, and entered final judgment in favor of Security Life on all claims. Life Plans then filed a motion to alter the judgment, arguing that it was improper to grant summary judgment on Security Life's liability for pending insurance applications. Life Plans argued that, even if Security Life's termination was proper, it remained liable for failing to accept applications that were submitted before the termination. The district court denied the motion to alter, finding that Security Life had no obligation to process pending applications under the agreement and that Life Plans had forfeited the claim by failing to present such an argument in its own motion for summary judgment.

This appeal followed. Life Plans appeals three orders of the district court: the grant of summary judgment on both counts, the denial of the motion to alter the judgment regarding the pending applications claim, and the denial of the motion for leave to amend the complaint.

II. Summary Judgment

We begin with the core of the parties' dispute: the district court's grant of summary judgment to Security Life. We review

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a grant of summary judgment de novo, viewing the evidence and drawing all reasonable inferences in favor of Life Plans, the non-moving party. Spitz, 759 F.3d at 730. Summary judgment is appropriate only where there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A dispute over a material fact is genuine if a reasonable jury could return a verdict for the non-moving party on the evidence presented. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). To survive summary judgment, the non-moving party must show evidence sufficient to establish every element that is essential to its claim and for which it will bear the burden of proof at trial. Celotex Corp., 477 U.S. at 322-23.

A. Breach of Contract

Life Plans claims that Security Life is liable for breaching the joint cooperation agreement. It offers two legal theories of breach: first, that Security Life violated the agreement by refusing to accept premiums for Peak policies; and second, that even if Security Life's termination was allowed under the agreement, it is still liable for refusing to process pending applications for Peak policies. We address both theories in turn. Pursuant to the choice-of-law provision in the contract, we apply Delaware law.

The role of a court in interpreting a contract is to give effect to the intention of the parties as expressed in the agreed terms. Norton v. K-Sea Transportation Partners L.P., 67 A.3d 354, 360 (Del. 2013); E.I. du Pont de Nemours & Co. v. Shell Oil Co., 498 A.2d 1108, 1113 (Del. 1985). We enforce the plain meaning of the words in the contract unless the parties intended a special meaning. AT& T Corp. v. Lillis, 953 A.2d 241, 252 (Del. 2008). We also must "...

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