Burns v. Massachusetts Mut. Life Ins. Co.

• Decision Date: 27 May 1987
• Docket Number: No. 86-1608,86-1608
• Citation: 820 F.2d 246
• Parties: William R. BURNS, on behalf of himself and as representative of the class herein defined, Appellant, v. MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 246

820 F.2d 246

8 Fed.R.Serv.3d 155

William R. BURNS, on behalf of himself and as representative of the class herein defined, Appellant, v. MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, Appellee.

No. 86-1608.

United States Court of Appeals,

Eighth Circuit.

Submitted Dec. 8, 1986.

Decided May 27, 1987.

Doyle D. Sanders, Des Moines, Iowa, for appellant.

Vaughn C. Williams, New York City, for appellee.

Before McMILLIAN and BOWMAN, Circuit Judges, and CONMY, ^* District Judge.

BOWMAN, Circuit Judge.

William R. Burns seeks to overturn the order of the District Court ¹ granting defendant's motion to dismiss for lack of subject matter jurisdiction, 653 F.Supp. 77. Burns attempted to establish diversity jurisdiction under 28 U.S.C. Sec. 1332. The District Court held that Burns had failed to allege an amount in controversy in excess of $10,000 as required by Sec. 1332, and denied Burns's motion for class certification after finding that the commonality requirement of Fed.R.Civ.P. 23(a)(2) had not been met. ² Burns appeals both of these rulings. We affirm the District Court's determination that it lacked subject matter jurisdiction. We hold that Burns failed to allege the requisite amount in controversy and that his claimed losses cannot be aggregated with those of prospective class members to gain jurisdiction.

Burns, owner of a life insurance policy issued by Massachusetts Mutual Life Insurance Company (Massachusetts Mutual), brought suit for breach of contract against the company, challenging its distribution of dividends following implementation of its "UPDATE" program. UPDATE was designed to increase the amount of income which could be invested by the company at market rates, and thus to increase the competitiveness of the company by increasing the dividends it could pay to policy holders. Contracts previously issued by the company had provided fixed loan rates of between five and eight percent. Burns's policy specified that he would receive a five percent interest rate on any loan against his policy. Under the UPDATE program, Massachusetts Mutual gave policy holders the option of surrendering their contractual right to obtain loans at the low interest rates specified in their policies in exchange for higher dividend payments. Massachusetts Mutual anticipated that the additional revenues generated by both the higher interest rates on loans and by the investment at market rates of larger sums (derived because of the decreased demand for loans which the increased loan interest rates would cause) would pay for the increase in dividends to policy holders who opted to participate in the UPDATE program. Those who did not accept UPDATE still could obtain loans at the fixed rates specified in their policies, but would receive dividends smaller than those received by policy holders who did accept UPDATE.

Burns declined to join the UPDATE program. He then brought this lawsuit and sought to certify a national class of those who had not accepted the UPDATE offer (approximately 550,000 policy holders), contending that those who have not accepted UPDATE are being forced to support by their premium payments the increased dividends of those who have accepted UPDATE, or, alternatively, that the non-acceptors are being deprived of dividends that properly are due them. The complaint seeks to enjoin Massachusetts Mutual from distributing dividends in accordance with the UPDATE plan and to impress a lien and a trust upon Massachusetts Mutual's surplus funds in order to protect the class. Burns contends that to accord differing treatment to policy holders based on their acceptance or non-acceptance of UPDATE is a breach of contract. The complaint alleges that the amount in controversy for each individual in the proposed class can be measured by subtracting the total amount of dividends which a class member will receive over his or her life expectancy from the average of the dividends paid to an UPDATE and a non-UPDATE policy holder in the individual's policy group during that same period. ³ Burns enhances his claimed loss by adding an eight percent per annum personal investment loss to that figure. Burns assumes his life expectancy to be fifteen years and concludes that the amount in controversy with respect to his individual claim is $19,230 if the eight percent accumulated interest is included, or $12,823 if it is not. Alternatively, Burns seeks to aggregate the individual claims of the class members in order to establish the jurisdictional amount. ⁴

The amount in controversy in a suit for injunctive relief is measured by the value to the plaintiff of the right sought to be enforced. Massachusetts State Pharmaceutical Association v. Federal Prescription Service, Inc., 431 F.2d 130, 132 (8th Cir.1970); see Bishop Clarkson Memorial Hospital v. Reserve Life Insurance Co., 350 F.2d 1006, 1008 (8th Cir.1965). While a plaintiff's good faith allegation is to be taken as true unless challenged, a plaintiff who has been challenged as to the amount in controversy has the burden of showing that the diversity jurisdiction requirements have been met. McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 189, 56 S.Ct. 780, 785, 80 L.Ed. 1135 (1936); Euge v. Trantina, 422 F.2d 1070, 1074 (8th Cir.1970). And where, "from the face of the pleadings it is apparent, to a legal certainty, that the plaintiff cannot recover the amount claimed ... the suit will be dismissed." St. Paul Mercury Indemnity Co. v. Red Cab Co., 303 U.S. 283, 289, 58 S.Ct. 586, 590, 82 L.Ed. 845 (1938). The District Court found that Burns had failed to meet this burden of proof.

In making its determination, the District Court carefully considered and rejected Burns's argument that his threatened loss should be measured by aggregating his claimed per year loss for the period of his life expectancy. The court attacked this assumption on several grounds. The court first noted that Burns incorrectly stated the amount in controversy because he had assumed that the fund from which dividends come is of a finite size and that any increase in dividends paid to UPDATE acceptors is a decrease in dividends to non-acceptors. In fact, the court found, the amounts available to Massachusetts Mutual for the payment of dividends have been increased as a direct result of the UPDATE program. Moreover, the court noted that the market-determined interest rates at which Massachusetts Mutual invests its funds are determinative of the difference between the dividends paid to UPDATE and non-UPDATE policy holders, and that the illustrative figures that Massachusetts Mutual had distributed did not reflect the currently prevailing lower rates.

The court also found Burns's claimed losses to be highly speculative, noting that Massachusetts Mutual had no duty under the policy to pay dividends in any year, nor to pay those dividends in the manner which Burns asserted. Burns's policy provided only that the "policy while in force will be credited with such share of the surplus funds of the Company as may be apportioned thereto by the Directors, such apportioned shares being designated herein as dividends." Thus, Burns's argument that his receipt of dividends in every year since 1959 renders the payment of dividends a certainty is mistaken; there was no contractual guarantee that any dividends would be paid over Burns's lifetime. Noting the speculative nature of the claimed future loss, the District Court held as a matter of law that "[w]here an injunction protects only a potential right as in this case, the court believes that only the present value of the possible additional dividends can be considered in determining the value of the right sought to be enforced." Order at 4 (citing Weinberger v. Wiesenfeld, 420 U.S. 636, 642, 95 S.Ct. 1225, 1230, 43 L.Ed.2d 514 n. 10 (1975)). ⁵ The court found the present value of Burns's claimed loss to be, to a legal certainty, well below the $10,000 jurisdictional amount required by Sec. 1332.

A recent decision of the Seventh Circuit supports the approach taken by the District Court. In Sarnoff v. American Home Products Corp., 798 F.2d 1075 (7th Cir.1986), the plaintiffs brought a breach of contract action seeking to obtain certain stock, or its monetary equivalent, that had been awarded to them and that was to be issued to them over a ten year period. The defendant moved to dismiss on the ground that the plaintiffs had not alleged the minimum jurisdictional amount. Plaintiffs asserted that the amount in controversy was equal to the price of stock at the time the motion to dismiss was filed, multiplied by the total number of shares to which they laid claim. The court rejected this argument, requiring that plaintiffs demonstrate that the stock (and any attorney's fees they could claim) had a present value greater than $10,000. The court concluded that

the plaintiffs ... were [not] entitled to all the shares at once. At best, they were entitled to them in equal annual installments over 10 years.... When what is claimed is a future benefit, the valuation of the claim for purposes of jurisdiction (as for purposes of computing the lump sum of damages to which a winning plaintiff is entitled in compensation for losing the future benefit) requires discounting the future benefit to its present value.

Id. at 1078 (emphasis added); see also Martinez v. Maher, 485 F.Supp. 1264, 1269 (D.Conn.), aff'd, 631 F.2d 5 (2d Cir.1980). We are in agreement with the Seventh Circuit and the well-reasoned opinion of the District Court below. Where the heart of a cause of action is a claim for future benefits, the amount in controversy is the present value of the claimed future benefit. Here, the District Court has determined that the present value of Burns's claim is less than $10,000. That determination is not clearly erroneous. Accordingly, we agree with the District Court that Burns, individually, does not meet the amount in controversy requirement of 28 U.S.C. Sec. 1332....