Cranley v. National Life Ins. Co. of Vermont
| Citation | 318 F.3d 105 |
| Decision Date | 21 January 2003 |
| Docket Number | Docket No. 01-7706. |
| Parties | John J. CRANLEY, III, Julius Grad and Walter J. Birdsall, on behalf of themselves and all other similarly situated policyholders of National Life of Vermont, Plaintiffs-Appellants, Betty C. Birdsall, on behalf of herself and all other similarly situated policyholders of National Life of Vermont, Plaintiff, v. NATIONAL LIFE INSURANCE COMPANY OF VERMONT, National Life Holding Company, NLV Financial Corporation, Patrick E. Welch, Chairman of the Board of Directors and Chief Executive Officer of National Life Insurance Company of Vermont, Thomas MacLeay, President and Chief Operating Officer, and member of the Board of Directors of National Life Insurance Company of Vermont, James A. Mallon, Executive Vice President and Chief Marketing Officer of National Life Insurance Company of Vermont, William A. Smith, Executive Vice President and Chief Financial Officer of National Life Insurance Company of Vermont, Rodney A. Buck, Senior Vice President and Chief Investment Officer of National Life Insurance Company of Vermont, Gregory H. Doremus, Senior Vice President of National Life Insurance Company of Vermont, Charles C. Kittredge, Senior Vice President of National Life Insurance Company of Vermont, Robert E. Boardman, David R. Coates, Benjamin F. Edwards, III, Earle H. Harbison, Jr., Roger B. Porter, E. Miles Prentice, III, Thomas P. Salmon, A. Gary Shilling, Thomas R. Williams, Patricia K. Woolf, Members of the Board of Directors of National Life Insurance Company of Vermont, Elizabeth R. Costle, Commissioner of the Department of Banking, Insurance, Securities, and Health Care Administration of the State of Vermont, in her Official capacity, Defendants-Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (2nd Circuit) |
Steven F. Stuhlbarg, Cincinnati, Ohio (Richard S. Wayne, William K. Flynn, Strauss & Troy, Cincinnati, Ohio, Geoffrey W. Crawford, O'Neill Crawford & Green, Burlington, Vermont, Stanley M. Chesley, Robert A. Steinberg, Waite, Schneider, Bayless & Chesley, Cincinnati, Ohio, Howard A. Specter, David J. Manogue, Joseph
N. Kravec, Jr., Specter Specter Evans & Manogue, Pittsburgh, Pennsylvania, Glen DeValerio, Michael G. Lange, John P. Zavez, Berman DeValerio & Pease, Boston, Massachusetts, Jody Anderman, Leblanc, Maples & Waddell, Baton Rouge, Louisiana, on the brief), for Plaintiffs-Appellants.
Jeffrey B. Rudman, Boston, Massachusetts (Andrea J. Robinson, Peter A. Spaeth, Jonathan A. Shapiro, Sharon Simpson Jones, Hale & Dorr, Boston, Massachusetts, Robert S. Burke, National Life Insurance Company, Montpelier, Vermont, on the brief), for Defendants-Appellees National Life Insurance Company of Vermont, National Life Holding Company, NLV Financial Corporation, Welch, MacLeay, Mallon, Smith, Buck, Doremus, Kittredge, Boardman, Coates, Edwards, Harbison, Porter, Prentice, Salmon, Shilling, Williams, and Woolf.
Bridget C. Asay, Assistant Attorney General, Montpelier, Vermont (William H. Sorrell, Attorney General of the State of Vermont, and Cathy Nelligan Norman, Assistant Attorney General, Montpelier, Vermont, on the brief), for Defendant-Appellee Costle.
Malakoff Doyle & Finberg, Pittsburgh, Pennsylvania (Michael P. Malakoff, Erin M. Brady, Pittsburgh, Pennsylvania, of counsel), filed a brief for Amicus Curiae National Consumer Law Center, in support of Plaintiffs-Appellants.
Debevoise & Plimpton, New York, New York (Bruce E. Yannett, Carl Micarelli, New York, New York, Duncan J. Logan, Metropolitan Life Insurance Company, New York, New York, Colby A. Smith, Debevoise & Plimpton, Washington, D.C., of counsel), filed a brief for Amici Curiae Metlife, Inc., and Metropolitan Life Insurance Company, in support of Defendants-Appellees.
Before: KEARSE and McLAUGHLIN, Circuit Judges, and Daniels, District Judge.*
Plaintiffs John J. Cranley, III, et al., appeal from a judgment of the United States District Court for the District of Vermont, William K. Sessions, III, Judge, dismissing their claims that the two-step conversion of defendant National Life Insurance Company of Vermont ("National Life") from a mutual to a stock life insurance company in accordance with Vermont Banking and Insurance Law, see Vt. Stat. Ann. tit. 8, § 3441 (Supp.2001), as approved by defendant Elizabeth R. Costle in her official capacity as Commissioner of the Department of Banking, Insurance, Securities and Health Care Administration of the State of Vermont (the "Commissioner"), violated their rights under the Contracts Clause and the Due Process Clause of the Constitution, constituted an unlawful taking in violation of the Fourteenth Amendment, and violated various rights under state law. The district court granted the motions of defendants National Life, its officers, directors, and corporate affiliates National Life Holding Company ("National Life Holding") and NLV Financial Corporation ("NLV Financial"), and the Commissioner to dismiss plaintiffs' federal constitutional claims for failure to plead facts sufficient to establish either a facial constitutional violation or state action; the court declined to exercise supplemental jurisdiction over plaintiffs' state-law claims and dismissed those claims without prejudice. On appeal, plaintiffs challenge the dismissal of their federal claims. For the reasons that follow, we affirm.
The complaint, whose factual allegations are taken as true for purposes of reviewing a dismissal for failure to state a claim, alleged the following events. National Life was chartered by the State of Vermont ("State") in 1848, to operate as a mutual life insurance company, i.e., a company whose capital consists of premiums paid by policy holders for their mutual indemnification against loss and whose operation is for the sole benefit of policyholders. Plaintiffs were policyholders, or members, of the mutual company.
Section 3441 of the Vermont insurance law allows a domestic mutual insurance company to reorganize into a stock insurance company by a process known as "two-step demutualization," so long as certain procedures are followed and so long as the Commissioner concludes that the conversion will not be unfair to policyholders, or contrary to their financial interests, or contrary to the general good of the State. See Vt. Stat. Ann. tit. 8, § 3441. In this two-step process, the mutual insurance company becomes a stock insurance company that is controlled by a mutual holding company. The interests of the policyholders are then divided between the two companies: their contracts of insurance remain with the insurer, which has become a stock company; but they have membership only in the holding company rather than directly in the insurance company. Following such a reorganization, the insurance company is able to raise capital by selling stock and is thereafter operated for the benefit of its stockholders, not for the sole benefit of its policyholders.
In order to effect such a demutualization, the reorganization plan must first be adopted by a two-thirds vote of the company's board of directors. See Reg. 97-5, § 6(C), Mutual Insurance Holding Companies, Vt.Code R. 21-020-041 (2002). Then the company must, inter alia, obtain approval from two-thirds of its voting policyholders and from the Commissioner. See id. §§ 6(C) and 6(E)(5).
In 1998, National Life's board of directors unanimously approved a plan for the two-step demutualization of National Life. National Life would become a stock corporation; it would be wholly owned by NLV Financial, also a stock corporation; and NLV Financial would be owned by National Life Holding, a mutual company. Policyholders of the former mutual insurance company would no longer be members of the insurance company but would instead be members of National Life Holding.
National Life filed the documentation called for by § 3441 with the Commissioner and, as required, gave notice of the proposed reorganization, in summary form, to policyholders and the public. The Commissioner held a public hearing to allow public comment on the proposal and undertook an intensive review of the proposed reorganization. The Commissioner found that all of the required information had been disclosed and that the plan would not be unfair to policyholders or contrary to their financial interests and would not be contrary to the general good of the State.
Accordingly, the Commissioner approved the reorganization plan. National Life provided policyholders with a copy of the plan, along with informational materials that stated, National Life, Policyholder Information Statement, Oct. 12, 1998, at i (emphasis in original). The plan was approved by policyholders in November 1998.
Plaintiffs thereafter commenced actions in the district court, which were consolidated, on behalf of themselves and similarly situated policyholders, against National Life, its affiliates, officers, and directors, and against the Commissioner. The consolidated complaint alleged, inter alia, that § 3441, both facially and as applied, violated the Contracts Clause of Article I of the Constitution and deprived plaintiffs of due process, and that the conversion constituted an illegal taking in violation of the Fourteenth Amendment.
Defendants moved to dismiss the complaint pursuant to Fed.R.Civ.P. 12(b)(6) for failure to state a claim on which relief can be granted. They argued that plaintiffs' federal claims must be dismissed principally on the ground that the complaint failed to allege facts sufficient to show state action and that, in any event, it failed to show any deprivation of property or impairment of contract rights.
In an opinion reported at 144 F.Supp.2d 291 (2001), the district court granted the motion to dismiss. It ruled that the...
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