In re New England Mut. Life Ins. Co. Sales, No. MDL-1105(REK).

• Court: United States District Courts. 1st Circuit. United States District Courts. 1st Circuit. District of Massachusetts
• Writing for the Court: Keeton
• Citation: 236 F.Supp.2d 69
• Decision Date: 26 November 2002
• Docket Number: No. CIV.A.02-11626-REK.,No. MDL-1105(REK).
• Parties: In re NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY SALES PRACTICES LITIGATION SG Metals Industries, Inc., Plaintiff v. New England Life Insurance Company, Defendant

236 F.Supp.2d 69 In re NEW ENGLAND MUTUAL LIFE INSURANCE COMPANY SALES PRACTICES LITIGATION
SG Metals Industries, Inc., Plaintiff
v.
New England Life Insurance Company, Defendant No. MDL-1105(REK). No. CIV.A.02-11626-REK. United States District Court, D. Massachusetts. November 26, 2002.

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Patrick J. Stueve, Brian J. Madden, Steve Heider Siegel, Kansas city, MO, for plaintiffs.

Jonathan T. Foot, Peter S. Terris, Christine Marie Griffin, Palmer & Dodge, LLP, Boston, MA, for defendants.

Opinion and Order

KEETON, District Judge.

I. Pending Motion

Pending for decision is Defendant's Motion to Dismiss All Claims (filed May 28, 2002 in United States District Court for the District of Kansas). Plaintiff filed an opposition in United States District Court for the District of Kansas, before the transfer to this court.

II. Relevant Factual Background

In September of 1985, plaintiff purchased corporate life insurance policies for its employees. Plaintiff alleges that defendant fraudulently represented that it would need to pay premiums through six years and then the premiums would vanish. According to plaintiff, defendant made additional fraudulent representations to plaintiff regarding the amount of time that plaintiff would need to pay premiums before they would vanish. On August 17,

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1990, defendant represented to plaintiff, in writing, that its premiums would vanish in another three years.

Plaintiff further alleges that defendant continued to perpetuate its "vanishing premium" scheme by continually representing to plaintiff that it need only pay premiums for a limited number of years. Each of the representations extended the "vanishing point" several years. In 1998, plaintiff cancelled its policies.

III. Relevant Procedural Background

In July of 1996, this court began proceedings under a Multi-District Litigation Panel Order in a national class action filed against defendant for fraudulent insurance sales practices. The plaintiffs' complaints alleged that defendant used deceptive tactics in its sales practices, artificially inflating projected dividends and "vanishing premiums."

On or about May 19, 2000, the parties to the MDL class action entered into a Stipulation of Settlement. The Stipulation of Settlement, defined the class as "person(s) or entity(ies), who,... had ... an ownership interest in a Policy...." (Plaintiff's opposition at 4). The definition of "policy" in the Stipulation, however, excluded "Corporate Owned Life Insurance Policies, Bank Owned Life Insurance Policies, Policies issued to pension plans..., or work site marketing Policies..." Plaintiff's policies, because they were corporate owned policies, were therefore excluded from the class action settlement. On or about October 4, 2000, the court ordered a final judgment in the MDL proceedings, approving the class settlement.

On or about March 12, 2002, plaintiff filed a complaint against defendant asserting the following claims: violation of the Racketeer Influenced and Corrupt Organizations act ("RICO") (Count I), common law fraud (Count II), fraudulent inducement (Count III), negligent misrepresentation (Count IV), negligent supervision (Count V), breach of contract (Count VI), and breach of fiduciary duty (Count VII). Defendant filed a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) arguing that: (1) plaintiff's claims are barred by statutes of limitation and (2) plaintiff's fiduciary duty claim fails as a matter of law because defendant did not owe a fiduciary duty to plaintiff. Plaintiff's original complaint, defendant's motion to dismiss, and plaintiff's opposition were all filed in the United States District Court for the District of Kansas. The case was then transferred to this court by order of the MDL panel exercising its authority under 28 U.S.C. § 1407, the multidistrict litigation statute.

IV. Legal Standard

The court can dismiss for failure to state a claim "only if it clearly appears, according to the facts alleged, that the plaintiff cannot recover on any viable theory." Berezin v. Regency Sav. Bank, 234 F.3d 68, 70 (1st Cir.2000) (quoting Correa-Martinez v. Arrillaga-Belendez, 903 F.2d 49, 52 (1st Cir.1990)) (internal quotation marks deleted). When ruling on a Rule 12(b)(6) motion, the court must accept all well-pleaded factual allegations of plaintiff's complaint as true and must give plaintiff the benefit of all reasonable inferences. LaChapelle v. Berkshire Life Ins. Co., 142 F.3d 507, 508 (1st Cir.1998).

V. The Merits

A. Choice of Law

A threshold issue I must consider is what law applies in this case. A federal court sitting in diversity normally applies the choice of law rules and the statutes of limitation of the forum state. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496-97, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). This cause of action was initially

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filed in the United States District Court for the District of Kansas and was transferred to this court under 28 U.S.C. § 1407. "[W]hen a case is transferred, it is well-known that the transferee court, this [c]ourt [in this case], must apply the choice of law rule of the transferor court, whether that case is transferred under 28 U.S.C. § 1404(a) or 28 U.S.C. § 1407." Masonite Corp. Hardboard Siding Products Liability Litigation 170 F.R.D. 417, 422 (E.D.La.1997) (internal citations omitted). I will apply Kansas choice of law rules.

For tort claims, Kansas follows the "lex loci delicti" approach, meaning that the law of the place of the wrong controls. Maberry v. Said, 911 F.Supp. 1393, 1399 (D.Kan.1995). In the case at hand, the wrong alleged occurred in Kansas, where plaintiff is located. Under Kansas choice of law rules, therefore, Kansas substantive law governs plaintiff's tort claims.

For contract claims, Kansas applies the law of the state in which the last act necessary for contract formation occurred. Smith v. Hawkeye-Security Ins. Co., 842 F.Supp. 1373, 1375 (D.Kan.1994). The last act necessary for formation of an insurance contract ordinarily is either (1) delivery of the policy or (2) payment of the first premium. Duggan v. Mass. Mtual Life Ins. Co., 736 F.Supp. 1072, 1074-75 (D.Kan.1990). In the case at hand, the policies were sent to plaintiff in Kansas and neither party disputes that the plaintiff sent its initial premium from Kansas. Under Kansas choice of law rules, therefore, Kansas substantive law governs plaintiff's contractual claims.

For statute of limitation issues, Kansas choice of law rules apply lex fori, meaning that the law of the forum controls. Menne v. Celotex Corp., 722 F.Supp. 662, 663 (D.Kan.1989). Under Kansas law, therefore, the law of the forum state determines the applicable statute of limitation. F.J. Joseph, Inc. v. Lida Adver., Inc., 2 F.Supp.2d 1425, 1427 n. 3 (D.Kan.1998). Because the forum state of the transferor court was Kansas, I will apply Kansas statutes of limitation.

B. Plaintiff's claims accrued outside the applicable statutes of limitation.

1. Plaintiff's claims for common law fraud (Count II), fraud in the inducement (Count III), and negligent misrepresentation (Count IV).

Kansas has a two-year statute of limitation on fraud claims. K.S.A. § 60-513(a)(3). In determining when the causes of action accrued, I must apply a discovery rule. Bagby v. Merrill Lynch, Pierce, Fenner & Smith, 104 F.Supp.2d 1294, 1299 (D.Kan.2000). Under Kansas law, "[f]raud is discovered at the time of actual discovery or when, with reasonable diligence, the fraud could have been discovered." Id. In explaining the discovery rule, the court in Bagby stated;

The discovery rule does not toll the statute of limitations until the plaintiff can appear in court with knowledge of every detail and show the exact method by which defendant perpetrated the fraud. Rather, the threshold is lower — the statute begins to run when the plaintiff has such information that a more thorough investigation is warranted.

Id. at 1300.

Plaintiff had such information to warrant a more thorough investigation either (1) when it received the policies that did not contain the alleged representations of the vanishing premiums or (2) when it received notice that additional payments

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would still be due after the six year period ending in 1991. The policies were delivered in September of 1985 and plaintiff admits that it received a written notice on August 17, 1990, indicating that premiums would not vanish until another three years.

The policies that plaintiff received in September of 1985 indicated that premiums were due for the life of the policy and that dividends were not guaranteed. Plaintiff argues, however, that nothing in those policies directly contradicted the alleged misrepresentations. Plaintiff alleges that defendant informed plaintiff that, over time, the premiums due under the policy would be paid by the accumulated value of the policy. Plaintiff...