Cruson v. Jackson Nat'l Life Ins. Co.

• Decision Date: 25 March 2020
• Docket Number: No. 18-40605,18-40605
• Citation: 954 F.3d 240
• Parties: David CRUSON; John Denman, Plaintiffs - Appellees v. JACKSON NATIONAL LIFE INSURANCE COMPANY, Defendant - Appellant
• Court: U.S. Court of Appeals — Fifth Circuit

954 F.3d 240

David CRUSON; John Denman, Plaintiffs - Appellees

v.JACKSON NATIONAL LIFE INSURANCE COMPANY, Defendant - Appellant

No. 18-40605

United States Court of Appeals, Fifth Circuit.

FILED March 25, 2020

Lewis T. LeClair, McKool Smith, P.C., Dallas, TX, Samuel Franklin Baxter, Senior Litigation Counsel, McKool Smith, P.C., Marshall, TX, for Plaintiffs-Appellees.

William R. Peterson, Thomas R. Davis, David Jack Levy, Morgan, Lewis & Bockius, L.L.P., Houston, TX, Scott T. Schutte, Morgan, Lewis & Bockius, L.L.P., Chicago, IL, for Defendant-Appellant.

Before CLEMENT, DUNCAN, and OLDHAM, Circuit Judges.

STUART KYLE DUNCAN, Circuit Judge:

David Cruson and other Texas residents brought a putative class action lawsuit against Jackson, a life insurance company that sells annuities, claiming Jackson overcharged them by miscalculating early-withdrawal fees in breach of the annuities contracts. The district court certified a nationwide class of similarly-situated investors and determined that Jackson had waived its personal jurisdiction defense as to any non-Texas class members. On interlocutory appeal, we conclude that the district court’s order is flawed in the following respects. First, we conclude that Jackson did not waive its personal jurisdiction defense as to non-Texas class members. Second, we conclude that the district court erred in its predominance analysis—specifically, by failing to assess how state-law variations may impact adjudication of the breach question and also by failing to consider the individualized evidence relevant to Jackson’s affirmative defenses of waiver and ratification. Third, we conclude that the plaintiffs failed to offer a damages model adequate to support class treatment, an issue they virtually conceded at oral argument. We therefore vacate the class certification order and remand for further proceedings.

I.

Jackson National Life Insurance Company, a Michigan corporation, sells variable annuities to customers nationwide through a network of brokers and other intermediaries. Because the annuities are structured as long-term investments, a customer who withdraws money early incurs charges meant to compensate Jackson for up-front costs, such as commissions paid to brokers and enhancements added to the annuities. Different charges, collectively called "surrender charges," are calculated according to a schedule of percentages that decrease with the annuity’s age.¹ In other words, the longer a customer has held an annuity, the lower the surrender charge.

In November 2016, fourteen Texas residents sued Jackson in federal district court for breach of contract, breach of fiduciary duty, and negligent misrepresentation. The plaintiffs—who had all bought Jackson annuities through a Texas broker, Tim Hightower—alleged Jackson had miscalculated their surrender charges in violation of the annuity contracts, resulting in lost income for them and a windfall for Jackson. The plaintiffs also alleged their living and death benefits under the annuities had been improperly reduced due to the inflated surrender charges. They sought compensatory and punitive damages, as well as injunctive relief. They also sought to bring claims on behalf of a nationwide class, consisting of all Jackson customers who had incurred surrender charges.

A complex procedural history followed. Jackson moved to dismiss the complaint under Rules 12(b)(1) and 12(b)(6) for lack of standing and failure to state a claim. Plaintiffs then filed an amended complaint, and Jackson again moved to dismiss under Rules 12(b)(1) and 12(b)(6). The district court denied Jackson’s motion in large part but did dismiss the claims of three plaintiffs on standing grounds because they had admittedly never incurred surrender charges.² In neither of Jackson’s Rule 12 motions did it raise lack of personal jurisdiction as a defense. In its subsequent answer, however, Jackson stated that, "[t]o the extent that a class outside of Texas is certified, [it was] denied that [the district court] has personal jurisdiction over Jackson for the remaining two-thirds of the putative class members residing outside of Texas."

Plaintiffs then moved to certify a nationwide class under Rule 23(b)(3), alleging Jackson’s inflated surrender charges had harmed roughly 150,000 people. In support, plaintiffs introduced an expert report which proposed a damages calculation for inflated surrender charges but not for damages associated with living and death benefits.³ Jackson opposed class certification, arguing inter alia that contract formation issues, affirmative defenses, and damages calculations would require individual determinations that would predominate over common issues. Moreover, Jackson again raised lack of personal jurisdiction, arguing that specific jurisdiction over Jackson as to claims by non-Texas residents was foreclosed by the Supreme Court’s recent decision in Bristol-Myers Squibb Co. v. Superior Court of California , ––– U.S. ––––, 137 S. Ct. 1773, 198 L.Ed.2d 395 (2017).⁴ On the same day that Jackson filed its response opposing class certification, Jackson also moved for summary judgment. The district court subsequently held a class certification hearing in March 2018.

After the hearing, but before any certification ruling, all but one of the original plaintiffs moved to voluntarily dismiss their claims, stating they would seek relief in state court. While that motion was pending, plaintiffs moved to amend their complaint to add an additional plaintiff, John Denman, as a potential class representative, to join David Cruson (the one original plaintiff not moving to dismiss his claims). While all initial plaintiffs had been clients of Tim Hightower, Denman had bought annuities through a different broker. Jackson opposed this addition, claiming it was too late to add a named party and that doing so would prejudice Jackson.

On May 9, 2018, the district court issued an order addressing three issues. First, the court granted plaintiffs’ motion to add Denman. Second, the court held that Jackson had waived any personal jurisdiction defense by failing to raise it in its Rule 12 motions and, alternatively, by litigating on the merits of plaintiffs’ claims. Third, the district court certified a nationwide class composed of "[a]ll persons who, within the applicable statute of limitations, purchased [various] variable annuity products from [Jackson] or its affiliates, and incurred a Surrender Charge during their ownership of such product."⁵ The court found that determining the correct calculation of surrender charges under Jackson’s contracts, an issue common to all plaintiffs, would "predominate over any questions affecting only individual members." See FED. R. CIV. P. 23(b)(3). The court further held that predominance was not defeated by issues pertaining to affirmative defenses or damages calculations.

We granted Jackson permission to appeal the district court’s class certification order under Federal Rule of Civil Procedure 23(f). On appeal, Jackson challenges the certification order on three fronts. First, Jackson reasserts its claim that the district court lacks personal jurisdiction over it with respect to the claims of potential class members outside Texas, and argues that the court erred in holding that Jackson waived its personal jurisdiction defense. Second, Jackson contends that the district court erred in concluding that issues common to the class predominated over individualized issues. Finally, Jackson argues that the district court erred in certifying a class when plaintiffs failed to provide a damages model.⁶

II.

Our court has not settled the standard for reviewing a district court’s finding of waiver of personal jurisdiction. See In re Depuy Orthopaedics , Inc. , 870 F.3d 345, 351 n.43 (5th Cir. 2017) (stating "[w]e need not decide th[e] standard-of-review question" for personal jurisdiction waiver); id. at 359 (Jones, J., concurring in part and dissenting in part) (noting majority "takes no firm position on ... [whether] waiver of personal jurisdiction should be reviewed for abuse of discretion"). Several circuits review waiver for abuse of discretion, reasoning that the finding pertains to the "[district court’s] broad duties in managing the conduct of cases pending before it." Lechoslaw v. Bank of Am., N.A. , 618 F.3d 49, 55–56 (1st Cir. 2010) (quoting United States v. Ziegler Bolt & Parts Co. , 111 F.3d 878, 882 (Fed. Cir. 1997) ); see also, e.g. , InfoSpan, Inc. v. Emirates NBD Bank PJSC , 903 F.3d 896, 900 (9th Cir. 2018) ; Hamilton v. Atlas Turner, Inc. , 197 F.3d 58, 60 (2d Cir. 1999). By contrast, the Tenth Circuit treats the issue as a mixed question of law and fact, reviewing pertinent factual findings for clear error but legal conclusions de novo . Am. Fid. Assurance Co. v. Bank of N.Y. Mellon , 810 F.3d 1234, 1237 (10th Cir. 2016). Much recommends the Tenth Circuit’s nuanced approach, given the presence of personal jurisdiction is itself a legal question reviewed de novo . See Patin v. Thoroughbred Power Boats Inc. , 294 F.3d 640, 652 (5th Cir. 2002) ("Whether in personam jurisdiction can be exercised over a defendant is a question of law subject to de novo review by this court."); see also, e.g. , Halliburton Energy Servs., Inc. v. Ironshore Specialty Ins. Co. , 921 F.3d 522, 539 (5th Cir. 2019) (reviewing de novo "a district court’s decision to grant a motion to dismiss for lack of personal jurisdiction"). We need not choose sides in this debate, however. As explained below, even under an abuse of discretion standard we conclude the district court committed reversible error in finding Jackson waived the defense of personal jurisdiction.

We review the district court’s class certification order for abuse of discretion. Crutchfield v. Sewerage & Water Bd. of New Orleans , 829 F.3d 370, 375 (5th Cir. 2016) ; Union Asset Mgmt. Holding A.G. v. Dell, Inc. , 669 F.3d 632, 638 (5th Cir. 2012). We review the legal conclusions in the order de novo , "...