Bendzak v. Midland Nat. Life Ins. Co., No. 4:05-CV-00649.

CourtUnited States District Courts. 8th Circuit. United States State District Court of Southern District of Iowa
Writing for the CourtPratt
Citation440 F.Supp.2d 970
Docket NumberNo. 4:05-CV-00649.
Decision Date27 July 2006
PartiesMary H. BENDZAK, individually and on behalf of all others similarly situated, Plaintiff, v. MIDLAND NATIONAL LIFE INSURANCE COMPANY, Defendant.

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440 F.Supp.2d 970
Mary H. BENDZAK, individually and on behalf of all others similarly situated, Plaintiff,
v.
MIDLAND NATIONAL LIFE INSURANCE COMPANY, Defendant.
No. 4:05-CV-00649.
United States District Court, S.D. Iowa, Central Division.
July 27, 2006.

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Steve W. Berman, Hagens Berman Sobol Shapiro LLP, Seattle, WA, Elizabeth A. Fegan, Timothy A. Scott, Hagens Berman Sobol Shapiro LLP, Chicago, IL, J. Barton Goplerud, Michael Mallaney, Hudson Mallaney & Shindler PC, West Des Moines, IA, for Plaintiff.

Randall G. Horstmann, Nyemaster Goode West Hansell & O'Brien, PC, Des Moines, IA, Linda B. Oliver, Robert D. Phillips, Jr., Marshall C. Wallace, Reed Smith LLP, Oakland, CA, for Defendant.

ORDER

PRATT, Chief Judge.


Before the Court is Defendant's Motion to Dismiss or Stay Proceedings and Alternative Motion to Strike Claims Barred by the Statute of Limitations (Clerk's No. 14), filed on March 10, 2006. Plaintiff filed a Resistance (Clerk's No. 24) on April 26, 2006, and Defendant filed a Reply (Clerk's No. 25) on May 3, 2006. The matter is fully submitted.

I. FACTS

Marie H. Bendzak ("Bendzak") filed a Class Action Complaint (Clerk's No. 1) in this Court on December 8, 2005. Bendzak is a senior citizen who purchased eight deferred annuity policies from Defendant, Midland National Life Insurance Company ("Midland"), between April 2001 and January 2002. Compl. ¶ 6. The premiums for the policies totaled more than $200,000. Id. Bendzak purchased the policies through Cleveland Senior's Financial Services ("Cleveland Senior's"), a licensed agent of Midland. Cleveland Senior's is not currently a party to this lawsuit, but Bendzak states in her Complaint that she may amend it at a future date to name "additional parties of interest." Compl. TT 8, 9.

Bendzak claims that high surrender charges make deferred annuities an inappropriate product for senior citizens. A deferred annuity differs from a traditional annuity in that the purchaser of a deferred annuity does not receive payments immediately after purchasing the annuity. Instead, the purchaser begins receiving payments after the annuity has matured, typically years later. See Compl. ¶¶ 11-13; see also Lander v. Hartford Life & Annuity Ins. Co., 251 F.3d 101, 104 (2d Cir.2001). Typically, deferred annuities are subject to high surrender charges if the purchaser seeks to withdraw money before the annuity has matured. See id. T 13. When Bendzak purchased eight deferred annuities from Midland, she was 82 and 83 years old. Id. ¶ 21. The annuities will not mature until 2018 and 2019, when Bendzak will be 100 and 101 years old. Id. In Bendzak's terms, this is "well beyond her actuarial life expectancy." Id. Bendzak states that she cannot access "the vast amount of money held in the annuities for housing costs or general health care [for] the first fourteen years of the annuities without incurring substantial surrender changes as high as 25%." Id. T 22.

Bendzak filed this action on behalf of a proposed nationwide class consisting of:

All persons in the United States who have incurred, or could possibly incur, a surrender charge, whether upon surrender or a death benefit claim, under a Midland deferred annuity policy issued where the annuitant or owner was over the age of 65 at the time of sale, and where the date that the distribution payments

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from the annuity commences is beyond the annuitant's actuarial life expectancy.

Compl. ¶ 23. Bendzak claims that Midland's marketing and sales practices were illegal with respect to the deferred annuities. Bendzak's Complaint contains three counts. In Count One, Bendzak claims that Midland violated the provisions of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq. In Count Two, Bendzak claims that Midland engaged in common law civil conspiracy under Iowa and other states' laws. And in Count Three, Bendzak claims that Midland has been unjustly enriched through the wrongful collection of premiums, penalties, and surrender charges relating to its deferred annuity plans.

II. JURISDICTION AND VENUE

This Court has subject matter jurisdiction over this case pursuant to 28 U.S.C. § 1331 and supplemental jurisdiction over Plaintiff's state law claims pursuant to 28 U.S.C. § 1367. Bendzak alleges that some members of the proposed class are citizens of different states than the Defendant, and that the amount in controversy exceeds $5,000,000, making federal jurisdiction proper pursuant to 28 U.S.C. § 1332(d) as well. Midland's principal offices are located in Sioux Falls, South Dakota, but its annuity division operations are located in West Des Moines, Iowa. Bendzak alleges that the acts giving rise to her claims occurred in the Southern District of Iowa, making venue proper under 28 U.S.C. § 1391(b).

III. STANDARD FOR MOTION TO DISMISS

When ruling on a motion to dismiss, the Court must "accept the allegations contained in the complaint as true and draw all reasonable inferences in favor of the nonmoving party." Coons v. Mineta, 410 F.3d 1036, 1039 (8th Cir.2005). The Court applies a stringent standard to a Rule 12(b)(6) motion to dismiss, and "[a] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Panes v. Gateway 2000, Inc., 122 F.3d 539, 545-46 (8th Cir. 1997) (quoting Fusco v. Xerox Corp., 676 F.2d 332, 334 (8th Cir.1982) (citation omitted)). Accordingly, a motion to dismiss will be granted "only in the unusual case in which a plaintiff includes allegations that show on the face of the complaint that there is some insuperable bar to relief." Id. at 546.

IV. LAW & ANALYSIS

Midland argues that Bendzak's Complaint should be dismissed, partially dismissed, or stayed for four different reasons.1 First, Midland argues that the case should be dismissed because adjudication of Bendzak's claims in federal court would improperly interfere with state insurance regulation. Second, Midland argues that Bendzak's Complaint must be dismissed with respect to seven of the eight annuities she purchased because the statute of limitations has run for her claims relating to those annuities. Third, Midland contends that Bendzak has failed to state a claim upon which relief can be granted under RICO because she has not alleged facts that, if proved, would satisfy the elements of a RICO claim. Finally, Midland argues that Bendzak's claim for common law civil conspiracy must fail because she has not alleged a viable underlying wrong. Def.'s

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Br. in Supp. of Mot. to Dismiss at 2. Each of Midland's arguments is discussed below.

A. Interference with State Insurance Regulation

Midland contends that Bendzak's Complaint should be dismissed because adjudication of her claim in federal court would improperly interfere with state insurance regulation. Midland first cites the McCarran-Ferguson Act (the "Act"), 15 U.S.C. § 1011 et seq., stating that the Act dictates that annuities "are subject to state, not federal, regulation." Def.'s Br. in Supp. of Mot. to Dismiss at 7. Midland next argues that the case should be dismissed pursuant to the primary jurisdiction doctrine because resolution of Bendzak's claims would undermine established state administrative regulations. In the alternative, Midland argues that the Court should abstain pursuant to the doctrine established by the Supreme Court in Burford v. Sun Oil Company, 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943). Each of these arguments is addressed in turn.

1. McCarran-Ferguson Act.

Midland points to the McCarran-Ferguson Act, 15 U.S.C. § 1011 et seq., and states that the Act indicates that annuities, which are insurance contracts, are subject to state, not federal, regulation.2 The Act states, in relevant part: "No Act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance, or which imposes a fee or tax upon such business, unless such Act specifically relates to the business of insurance." 15 U.S.C. § 1012(b). In Humana Inc. v. Forsyth, the Supreme Court considered whether the McCarran-Ferguson Act precluded a RICO claim brought by a group of plaintiffs who held health insurance policies issued by Humana. 525 U.S. 299, 303, 119 S.Ct. 710, 142 L.Ed.2d 753 (1999). The Court held that the Act did not preclude the plaintiffs' claim, concluding that RICO's private right of action and treble damages provision complemented the Nevada statutory scheme at issue. Id. at 313-14, 119 S.Ct. 710. In the absence of any assertion that allowing Bendzak's RICO claim to proceed in this case would interfere with a state regulatory scheme in some way that the RICO claim in Humana did not, the Court concludes that the McCarran-Ferguson Act is not a ground for dismissal in this case.

2. Primary jurisdiction doctrine.

Midland argues that the Court should dismiss Bendzak's action because it "represents an attempt to re-legislate a subject matter that has already been the subject of careful policymaking by state legislators and state insurance regulators." Def.'s Br. in Supp. of Mot. to Dismiss at 7. Specifically, Midland contends that the annuities that Bendzak purchased are insurance contracts that are regulated under Ohio law because Bendzak is an Ohio citizen who purchased the annuities from an Ohio broker. Accordingly, Midland argues, the Court should dismiss or stay Bendzak's claims because hearing the case would interfere with work that should be left to the Ohio Department of Insurance.

The primary jurisdiction doctrine is a common law doctrine that is "concerned with promoting proper relationships between the courts and administrative agencies charged with particular regulatory...

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