EFG Bank AG v. AXA Equitable Life Ins. Co.

• Decision Date: 14 February 2018
• Docket Number: 17–CV–4803 (JMF),17–CV–4767 (JMF)
• Citation: 309 F.Supp.3d 89
• Parties: EFG BANK AG, CAYMAN BRANCH, Plaintiffs, v. AXA EQUITABLE LIFE INSURANCE COMPANY, Defendant. The Duffy 2004 LLC and The Tull 2006 LLC, Plaintiffs, v. AXA Equitable Life Insurance Company, Defendant.
• Court: U.S. District Court — Southern District of New York

309 F.Supp.3d 89

EFG BANK AG, CAYMAN BRANCH, Plaintiffs,

v.AXA EQUITABLE LIFE INSURANCE COMPANY, Defendant.

The Duffy 2004 LLC and The Tull 2006 LLC, Plaintiffs,

v.AXA Equitable Life Insurance Company, Defendant.

17–CV–4767 (JMF)

17–CV–4803 (JMF)

United States District Court, S.D. New York.

Signed February 14, 2018

Khai LeQuang, Abigail W. Lloyd, Ric Tsuyoshi Fukushima, Orrick Herrington and Sutcliffe LLP, Irvine, CA, Darren S. Teshima, Orrick, Herrington & Sutcliffe LLP, San Francisco, CA, Geoffrey G. Moss, Orrick, Herrington & Sutcliffe LLP, Los Angeles, CA, Peter A. Bicks, Orrick, Herrington & Sutcliffe LLP, New York, NY, for Plaintiffs.

David Robert Gelfand, Daniel Robert Walfish, Stacey Jill Rappaport, Milbank, Tweed, Hadley & McCloy LLP, New York, NY, Elena Kilberg, Samir Lalit Vora, Jerry Lee Marks, Milbank Tweed Hadley and McCloy LLP, Los Angeles, CA, Michael J. Von Loewenfeldt, Kerr and Wagstaffe LLP, San Francisco, CA, for Defendant.

OPINION AND ORDER

JESSE M. FURMAN, United States District Judge

In these related cases, the owners and beneficiaries of flexible-premium universal life insurance policies bring claims against the issuer of those policies, Defendant AXA Equitable Life Insurance Company ("AXA"). The Court described the policies at issue in Brach Family Found., Inc. v. AXA Equitable Life Ins. Co. , 16–CV–740 (JMF), 2016 WL 7351675 (S.D.N.Y. Dec. 19, 2016), a related case, and will not repeat the description here. For now, it suffices to say two things. First, each of the policies—which are known as Athena Universal Life II ("AUL II") policies—"consists of two distinct components: (1) the life insurance component, for which the insurance company charges a cost to cover the risk of the insured's death (the cost of insurance); and (2) a savings component, where premiums paid in excess of the cost of insurance (and certain other policy charges) accumulate and earn interest at a rate that will not be lower than a guaranteed minimum crediting rate." (EFG Docket No. 64 ("EFG SAC"), ¶ 5). Second, under the terms of the policies, AXA is permitted, subject to certain restrictions, to change the cost of insurance ("COI")—which is typically the largest expense that a policyholder has to pay. (EFG SAC ¶¶ 33, 35; Duffy Docket No. 19 ("Duffy FAC") ¶¶ 25, 27). The policies, however, provide that any such changes "will be on a basis that is equitable to all policyholders of a given class, and will be determined based on reasonable assumptions as to expenses, mortality, policy and contract claims, taxes, investment income, and lapses." (EFG Docket No. 62 Ex. 2 ("EFG Doe Policy"), at 11).

Plaintiffs in these cases allege that, by increasing the COI for a group of life insurance policyholders (namely, holders of policies that: (1) insure individuals who were seventy years or older at the time of issue; and (2) have face values of $1,000,000 or greater), AXA breached their contracts. (EFG SAC ¶¶ 4, 73–77; Duffy FAC ¶¶ 1–2, 64–68). In addition, they bring claims, sounding in both contract and tort, for breach of the implied covenant of good faith and fair dealing. (EFG SAC ¶¶ 78–91; Duffy FAC ¶¶ 69–75). They seek compensatory damages and, with respect to the tort good-faith-and-fair-dealing claims, punitive damages. (EFG SAC ¶¶ 4, 16, 84; Duffy FAC ¶¶ 1, 12, 75). They also seek declaratory relief. (EFG SAC ¶¶ 92–95; Duffy FAC ¶¶ 76–79). AXA now moves, pursuant to Rule 12(b) of the Federal Rules of Civil Procedure, for partial dismissal. (EFG Docket No. 75; Duffy Docket No. 64; see also EFG Docket No. 76 ("AXA Mem.") ). In particular, AXA moves to dismiss Plaintiffs' good-faith-and-fair-dealing claims as well as their requests for punitive damages and declaratory relief. AXA does not seek to dismiss Plaintiffs' express breach-of-contract claim. (AXA Mem. 5, 18, 19–20). For the reasons that follow, AXA's partial motion to dismiss is GRANTED.

DISCUSSION

When reviewing a motion to dismiss, the Court "must accept[ ] all factual allegations in the complaint and draw[ ] all reasonable inferences in the plaintiff's favor." ATSI Commc'ns, Inc. v. Shaar Fund, Ltd. , 493 F.3d 87, 98 (2d Cir. 2007) (alterations in original). The Court will not dismiss any claims pursuant to Rule 12(b)(6) unless the plaintiff has failed to plead sufficient facts to state a claim to relief that is facially plausible, see Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), that is, one that contains "factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged," Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). More specifically, a plaintiff must allege facts showing "more than a sheer possibility that a defendant has acted unlawfully." Id. A complaint that offers only "labels and conclusions" or "a formulaic recitation of the elements of a cause of action will not do." Twombly , 550 U.S. at 555, 127 S.Ct. 1955. Further, if a plaintiff has not "nudged [its] claims across the line from conceivable to plausible, [those claims] must be dismissed." Id. at 570, 127 S.Ct. 1955.

As noted, AXA moves to dismiss Plaintiffs' claims for breach of the implied covenant of good faith and fair dealing, their requests for punitive damages, and their prayers for declaratory relief. The Court will begin with the implied covenant claims.

A. Implied Covenant Claims

Plaintiffs allege that AXA violated the implied covenant of good faith and fair dealing by raising and charging excessive COI rates absent sufficient justification, information disclosure, or basis; and in a manner that improperly targeted Plaintiffs, boosted profits, and forced Plaintiffs to choose between paying premiums "that AXA kn[ew] would no longer justify the ultimate death benefits" and giving up their policies. (EFG SAC ¶ 81(g); Duffy FAC ¶ 72(g) ). More precisely, they bring two species of implied covenant claims. First, they bring claims for contractual breach of the implied covenant with respect to the policies issued in nine states, including California. (EFG SAC ¶¶ 31, 78–84; see also EFG Docket No. 78 ("Pls.' Mem."), at 6 n.4 (withdrawing implied covenant claims alleged with respect to Alabama and Georgia policies) ). Second, they allege tortious interference of the implied covenant with respect to policies issued in California. (EFG SAC ¶¶ 85–91; Duffy FAC ¶¶ 69–75; see also Pls.' Mem. 12). The Court will address each species of claim in turn.¹

1. The Contract–Based Claims

The covenant of good faith and fair dealing, which is implied in all contracts, "embraces a pledge that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." State St. Bank & Trust Co. v. Inversiones Errazuriz Limitada , 374 F.3d 158, 169 (2d Cir. 2004) (internal quotation marks and citation omitted). More specifically, it encompasses "any promises which a reasonable person in the position of the promisee would be justified in understanding were included." Manhattan Motorcars, Inc. v. Automobili Lamborghini, 244 F.R.D. 204, 214 (S.D.N.Y. 2007) (internal quotation marks omitted). Significantly, however, an "implied-covenant [contractual] claim can survive a motion to dismiss only if it is based on allegations different than those underlying the accompanying breach of contract claim and the relief sought is not intrinsically tied to the damages allegedly resulting from the breach of contract." Grant & Eisenhofer, P.A. v. Bernstein Liebhard LLP , No. 14-CV-9839 (JMF), 2015 WL 1809001, at *4 (S.D.N.Y. Apr. 20, 2015) (internal quotation marks and citation omitted). That is, "[i]f the allegations do not go beyond the statement of a mere contract breach and, relying on the same alleged acts, simply seek the same damages or other relief already claimed in a companion contract cause of action, they may be disregarded as superfluous as no additional claim is actually stated." Careau & Co. v. Sec. Pac. Bus. Credit, Inc. , 222 Cal. App. 3d 1371, 1395, 272 Cal.Rptr. 387 (1990) ; accord Fleisher v. Phoenix Life Ins. Co. , 858 F.Supp.2d 290, 298–99 (S.D.N.Y. 2012).

In this case, Plaintiffs' contractual implied-covenant claims are duplicative of their express contract claims. The gravamen of Plaintiffs' contract claims is that AXA increased COI rates for reasons other than those permitted under the terms of the policies (namely, "based on reasonable assumptions as to expenses, mortality, policy and contract claims, taxes, investment income, and lapses" (EFG Doe Policy 11) ) and impermissibly discriminated against certain classes of insureds. (EFG SAC ¶¶ 4, 13–14, 38–44, 73–77; Duffy FAC ¶¶ 30–35, 64–68). The gravamen of their implied-covenant claims is the exact same.

(EFG SAC ¶¶ 4, 13–14, 38–44, 78–91; Duffy FAC ¶¶ 30–35, 69–75). In fact, with one exception—Plaintiffs' claim that AXA failed to "provide or make available the documents that Defendant contends support its alleged bases for raising the cost of insurance rates" (EFG SAC ¶ 81(h); Duffy FAC ¶ 72(h) )—the allegations underlying the two claims are identical in substance, if not identical in words. (AXA Mem. 8–9 (chart comparing the language of Plaintiffs' express contract claims and implied-covenant claims) ). Nor does Plaintiffs' allegation regarding the non-disclosure of documents save their claims, as the relief they seek is "intrinsically tied to the damages allegedly resulting from the breach of contract." Grant & Eisenhofer , 2015 WL 1809001, at *4 (internal quotation marks and citation omitted). That is, the damages Plaintiffs seek as a result of AXA's alleged failure to turn over documents is identical to the damages they seek for the alleged breach of contract. Thus, the fact that they do not allege non-disclosure of documents as a basis for their express contract claim (presumably because the policies contain no such provision) "does not mean that ...