Ogles v. Sec. Benefit Life Ins. Co.

• Decision Date: 12 July 2019
• Docket Number: Case No. 18-CV-02265-HLT-KGG
• Citation: 401 F.Supp.3d 1210
• Parties: Albert OGLES, Plaintiff, v. SECURITY BENEFIT LIFE INSURANCE COMPANY, et al., Defendants.
• Court: U.S. District Court — District of Kansas

401 F.Supp.3d 1210

Albert OGLES, Plaintiff,

v.SECURITY BENEFIT LIFE INSURANCE COMPANY, et al., Defendants.

Case No. 18-CV-02265-HLT-KGG

United States District Court, D. Kansas.

Signed July 12, 2019

Courtney Cooper Gipson, Pro Hac Vice, P. Michael Yancey, Pro Hac Vice, Robert G. Methvin, Jr., Pro Hac Vice, James M. Terrell, Pro Hac Vice, Methvin Terrell Yancey Stephens & Miller, P.C., Birmingham, AL, Eric D. Barton, Sarah S. Ruane, Tyler W. Hudson, Wagstaff & Cartmell, LLP, Kansas City, MO, for Plaintiff.

Anthony F. Rupp, Foulston Siefkin LLP, Overland Park, KS, Gillian H. Clow, Pro Hac Vice, Samuel J. Park, Pro Hac Vice, Alston & Bird, LLP, Los Angeles, CA, Holly A. Dyer, Foulston Siefkin LLP, Wichita, KS, Robert D. Phillips, Jr., Pro Hac Vice, Alston & Bird, LLP, San Francisco, CA, Dan K. Webb, Pro Hac Vice, Todd Jay Ehlman, Pro Hac Vice, Winston & Strawn, LLP, Chicago, IL, Kerry C. Donovan, Pro Hac Vice, Winston & Strawn, LLP, New York, NY, Michael J. Abrams, Robert Kent Sellers, Lathrop Gage, LLP, Kansas City, MO, for Defendants.

MEMORANDUM AND ORDER

HOLLY L. TEETER, UNITED STATES DISTRICT JUDGE

Plaintiff Albert Ogles filed this civil action alleging violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 - 1968, and a state-law claim for unjust enrichment. Defendants Security Benefit Life Insurance Company, Security Benefit Corporation (collectively "Security Benefit"), Guggenheim Partners, LLC, and Guggenheim Investments (collectively "Guggenheim") have filed motions to dismiss the operative second amended complaint. Docs. 67, 69.¹ Both Security Benefit and Guggenheim argue that Ogles's RICO claim is reverse-preempted under the McCarran-Ferguson Act, 15 U.S.C. § 1012, and that Ogles has failed to state a claim under either RICO or for unjust enrichment. The Court heard oral argument on May 16, 2019.²

For the reasons discussed below, the Court grants both motions to dismiss. Specifically, the Court holds that Ogles's RICO theory involving the financial strength of Security Benefit is reverse-preempted under the McCarran-Ferguson Act. Ogles's RICO theory alleging the fraudulent design of the annuity at issue is dismissed for failure to state a claim under Rule 12(b)(6). The Court declines to exercise supplemental jurisdiction over Ogles's claim for unjust enrichment, and that claim is therefore dismissed without prejudice.

I. BACKGROUND

The following facts are taken from the well-pleaded allegations of the second amended complaint, Doc. 61, and, consistent with the standards for evaluating motions to dismiss under Rule 12(b)(6), the Court assumes the truth of these facts for purposes of analyzing the motions to dismiss.

Security Benefit is an insurance company based in Topeka, Kansas. Doc. 61 at 19. Guggenheim bought Security Benefit in 2010 and went to work making Security Benefit into a competitive player in the fixed-index annuity market. Id. at 17-18. This dispute stems from Ogles's purchase of an annuity from Security Benefit in July 2012—in particular his purchase of a Total Value Annuity ("TVA"), which is a type of fixed-index annuity. Id. at 8. The TVA has been very profitable for Security Benefit. Id. at 20.

A fixed-index annuity is something of a hybrid. It combines the generally low-risk features of a traditional fixed annuity, which provides principal security but a typically modest rate of return, with the ability to link interest growth to a particular financial index. Doc. 66-5 at 3.³ The return on investment for a fixed-index annuity—called the crediting option—is often linked to an equity-based index like the S & P 500, Dow Jones, or Nasdaq. Doc. 61 at 21. Many fixed-index annuities are capped in terms of how much they can earn. But the TVA was uncapped, meaning it had, theoretically, unlimited potential. Id. The crediting option for the TVA was the Annuity Linked TVI Index ("ALTVI"). Id. at 22.

The ALTVI combines the Trader Vic Index with a proprietary volatility overlay. Id. at 22-24; Doc. 66-5 at 4. The Trader Vic Index is based on commodities, currencies, and interest rates and was developed and is managed by the Royal Bank of Scotland. The Trader Vic Index is generally thought to perform inversely to equities-based indices, like the Dow Jones. Doc. 61 at 22-24; Doc. 66-5 at 4. The selling point of the TVA, then, with its ALTVI crediting option, was that it might perform favorably when annuities linked to indices based on stocks might not, and its potential was uncapped. Id. ; see also Doc. 66-5 at 2-4.

A brochure explaining the ALTVI stated that it was "developed and is owned" by the Royal Bank of Scotland. Doc. 66-5 at 5. The TVA contract Ogles signed also noted that the ALTVI is trademarked by the Royal Bank of Scotland, but that Security Benefit's annuity products "are not sponsored, endorsed, sold or promoted by The Royal Bank of Scotland," and that the "Royal Bank of Scotland ... make[s] no representation and offer[s] no advice with regard to purchasing any Security Benefit annuity." Doc. 61 at 23; Doc. 66-1 at 7. Ogles claims that the Royal Bank of Scotland was just a "front" and that, in reality, the ALTVI was developed by third-party companies partnered with Security Benefit and Guggenheim, and thus it was not "external" as advertised. Doc. 61 at 32-33. Ogles also alleges that historical simulations of the ALTVI's performance—needed because the ALTVI was a recent creation—were misleading. Specifically, historical performance simulations showed an upward trend in past years—a trend that did not hold up after Ogles purchased his annuity. The historical simulations were used in marketing materials to tout the potential of the ALTVI, though those materials stated that this simulated past performance "does not reflect what will happen in the future." Id. at 25-26.

Ogles purchased the TVA in Alabama in July 2012 for approximately $145,000 and allocated 100% of his funds to the ALTVI, which was one of the available crediting options. Id. at 45. Under the terms of the TVA, the annuity would be held for five years before any crediting occurred, presuming the index's performance warranted crediting. Id. at 7. But at the end of that period, Ogles "learned that the Five Year Annuity Linked TVI Index Account Rider failed to produce any interest credits or to otherwise perform consistent with the uniform representations made...." Id. at 46. The failure to produce interest credits is the source of Ogles's alleged damages. There are no allegations that Ogles's initial investment of $145,000 was depleted. The claims center on whether the TVA had an inherently diminished value due to an allegedly fraudulent design, and thus was not worth the $145,000 investment. Tr. at 96:8-18. Ogles also received a 10% bonus allocation on his principal, though at oral argument Ogles counsel stated that the bonus would be forfeited if the annuity funds were withdrawn within the first ten years.⁴ Doc. 66-1 at 5; Tr. at 100:21-101:2.

Ogles has now sued under RICO alleging that the true nature, development, and potential of the TVA and ALTVI were misrepresented, as was Security Benefit's true financial condition, and therefore he was damaged in that the annuity he purchased was worth less than the premium he paid for it. Doc. 61 at 43-44.⁵

II. STANDARD

To survive a motion to dismiss under Rule 12(b)(6), "a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A claim is plausible if it is accompanied by sufficient factual content to allow a court "to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. The plausibility standard requires "more than a sheer possibility that a defendant has acted unlawfully," but it "is not akin to a ‘probability requirement.’ " Id. "Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief." Id. (quoting Twombly , 550 U.S. at 557, 127 S.Ct. 1955 ) (internal quotations omitted).

In undertaking this analysis, the Court accepts as true all well-pleaded allegations in the second amended complaint, though it need not accept legal conclusions. Id. Likewise, conclusory statements are not entitled to the presumption of truth. Id. at 678-79, 129 S.Ct. 1937. Additionally, where a plaintiff asserts a RICO claim, certain heightened pleading standards apply. Specifically, predicate acts of mail or wire fraud must be pleaded with particularity under Federal Rule of Civil Procedures 9(b). George v. Urban Settlement Servs. , 833 F.3d 1242, 1254 (10th Cir. 2016). This means that "plaintiffs must ‘set forth the time, place and contents of the false representation, the identity of the party making the false statements and the consequences thereof.’ " Id. (quoting Koch v. Koch Indus. , 203 F.3d 1202, 1236 (10th Cir. 2000) ).

III. ANALYSIS

Ogles's second amended complaint asserts RICO claims against all Defendants, alleging violations of 18 U.S.C. § 1962(c) and (d). Doc. 61 at 49-63. Ogles also asserts of claim of unjust enrichment against Guggenheim. Id. at 64. Each claim is discussed in turn.

A. Ogles asserts two theories of relief under RICO.

Because of the complex subject matter and the lengthy complaint—and because the precise nature of the claim bears on the analysis—a somewhat detailed description of Ogles's claims is necessary. Specifically, Ogles alleges that Defendants "fraudulently duped Plaintiff and members of the proposed Class into buying annuity products based on false assurances of safety and financial strength, and through the fraudulent concealment of the truth about the design of the Total Value Annuity and the 5 Year Annuity Linked TVI Index...