United Teacher Associates v. Union Labor Life Ins.

Decision Date25 July 2005
Docket NumberNo. 04-50531.,No. 04-50852.,04-50531.,04-50852.
Citation414 F.3d 558
PartiesUNITED TEACHER ASSOCIATES INSURANCE CO., Plaintiff-Appellant, v. UNION LABOR LIFE INSURANCE COMPANY, Union Standard of America Life Insurance Co., Defendants-Appellees. United Teacher Associates Insurance Co., Plaintiff-Counter Defendant-Appellee, v. Union Labor Life Insurance Company, Union Standard of America Life Insurance Co., Defendants-Counter Claimants-Appellants.
CourtU.S. Court of Appeals — Fifth Circuit

James G. Ruiz (argued), Craig T. Enoch, Brandon Duane Gleason, Winstead, Sechrest & Minick, Austin, TX, for Plaintiff-Appellant.

Nicholas T. Christakos (argued), Gail L. Westover, Sutherland, Asbill & Brennan, Washington, DC, Francine W. Breckenridge, Strasburger & Price, Austin, TX, for Defendants-Appellees.

Appeals from the United States District Court for the Western District of Texas.

Before KING, Chief Judge, and BARKSDALE and STEWART, Circuit Judges.

KING, Chief Judge:

Plaintiff-Appellant United Teacher Associates Insurance Company sued Defendants-Appellees Union Labor Life Insurance Company and Union Standard of America Life Insurance Company for fraud, alleging that they failed to disclose material information during the course of a business transaction. The Defendants-Appellees responded by filing a counterclaim seeking both a declaration that certain acquisition agreements between the parties were valid and binding and an order of specific performance and injunctive relief. After a bench trial, the district court ruled in favor of the Defendants-Appellees, granted the relief requested in their counterclaim, and awarded them costs. Subsequently, however, the district court denied a motion for further relief pursuant to 28 U.S.C. § 2202 filed by them.

Plaintiff-Appellant United Teacher Life Insurance Company now appeals the judgment of the district court, claiming that the district court erred by: (1) holding that no duty to disclose exists in Texas absent a confidential or fiduciary relationship; (2) refusing to certify to the Texas Supreme Court the question of when a duty to disclose exists in Texas; and (3) improperly awarding certain costs to the Defendants-Appellees. Union Labor Life Insurance Company and Union Standard of America Life Insurance Company also appeal, arguing that the district court erred when it denied their motion for further relief. The parties' appeals have been consolidated. For the following reasons, we AFFIRM in part, VACATE in part, and REMAND to the district court for further proceedings consistent with this opinion.

I. FACTUAL AND PROCEDURAL BACKGROUND

In November 1999, Union Labor Life Insurance Company ("Union Labor") and its subsidiary, Union Standard of America Life Insurance Company ("USA Life") (collectively "Union/USA"), agreed to sell their Medicare Supplement and Medicare Select insurance policies (the "Medicare Block") to United Teacher Associates Insurance Company ("United Teacher").

Prior to putting the Medicare Block up for sale, Union/USA had entered into two consent orders with the Florida Department of Insurance ("FDI") that restricted future premium rate increases on the Medicare Block. First, on May 27, 1997, Union/USA entered into a consent order restricting premium rate increases to trend on the Florida Medicare Select policies for a two-year period, followed by a reevaluation of the anticipated lifetime loss ratio at the end of this period.1 Second, on June 18, 1999, Union/USA entered into a consent order with the FDI that allowed for a 12% premium rate increase on the Medicare Supplement policies in force prior to the effective date of the consent order, but restricted future increases to trend unless Union Labor had "credible experience" on new issues.2 According to United Teacher, the 1997 and 1999 consent orders significantly affected the profitability of the Medicare Select and Medicare Supplement policies.

After Union Labor put the Medicare Block up for sale,3 it assembled a due diligence team, led by Union Labor associate actuary Jennifer Lazio, to respond to requests for information from prospective purchasers. When Larry Doze, the president of United Teacher, learned that the Medicare Block was up for bid through a broker, he requested information about it. Lazio responded by sending him the 1998 rate-filing information for the Medicare Supplement policies and an actuarial memorandum about the Medicare Select policies. Lazio did not, however, mention the consent orders. Doze subsequently requested as part of his due diligence investigation, other documents and information to assess the profitability of the Medicare Block. He did not specifically request information about consent orders or impediments to future rate increases, and he received no such information. United Teacher also conducted an on-site visit to the offices of Union Labor's third-party administrator, the American Insurance Administration Group ("AIAG"), but did not learn of the consent orders from this visit. At one point in the negotiations, Lazio told Doze that the FDI had recently approved a 12% increase in the Medicare Supplement premiums and an 8% increase in the Medicare Select premiums, but she did not tell him that these increases were pursuant to the consent orders. United Teacher now claims that Union/USA was fraudulently hiding the consent orders from it.

In November 1999, United Teacher decided to purchase the Medicare Block, and it entered into a letter agreement to that effect with Union/USA, with a formal written agreement to follow. In August 2000, United Teacher decided not to follow through with the purchase. Accordingly, on December 6, 2000, Union/USA sued United Teacher in the U.S. District Court for the District of Columbia for relief arising out of United Teacher's failure to consummate the transaction. On October 4, 2001, the parties settled the litigation, and Union/USA agreed to pay United Teacher $2.5 million for United Teacher to acquire the Medicare Block from it. At the time of settlement, United Teacher still did not know about the consent orders.

During the settlement negotiations, United Teacher concluded that it would need to seek rate increases aggressively on the Medicare Block to make it profitable. Accordingly, it asked Union/USA to permit it to do the 2001 rate increase filings for the various states that required them. Union/USA agreed, but it suggested that it (Union Labor) handle the rate filings for the state of Florida. United Teacher agreed to this arrangement. When the FDI only approved increases of 6% and 18% (rather than the 100% increases requested), Doze asked Union/USA for the 2001 Florida rate filing information, including all communications with the FDI.

Agreements related to the sale of the Medicare Block (the "Agreements") were signed on October 4, 2001, with closing to occur on October 15, 2001. In a conference call on October 22, 2001, Lazio mentioned for the first time that the 1999 consent order existed. In response, United Teacher once again requested the 2001 rate filing information, and on November 8, 2001, Union Labor produced it to United Teacher. On December 18, 2001, United Teacher, which by then understood the full impact of the 1999 consent order, notified Union/USA of its intent to rescind the Medicare Block transaction. By this time, the deadline for reopening the D.C. lawsuit had passed. That same day, United Teacher filed suit against Union/USA in Texas state court alleging fraud and seeking rescission of the Agreements, and it ceased its efforts at completing the transaction with Union/USA. According to United Teacher, Union/USA failed to disclose material facts about the sale of the Medicare Block during the due diligence phase. At the time of the lawsuit, Union/USA was still administering the Medicare Block and was incurring losses from claims submitted by the insureds. Union/USA removed the lawsuit to federal court, United Teacher amended its complaint to request damages, and Union/USA counterclaimed for a declaratory judgment that the Agreements were valid and an order of specific performance against United Teacher. On October 22, 2002, nearly a year after it learned about the 1999 consent order, United Teacher, which was investigating a discrepancy in the Medicare Select line's lifetime loss ratios, learned for the first time of the 1997 consent order.

In September 2003, a bench trial was held on United Teacher's fraud claim and on Union/USA's declaratory judgment counterclaim. The district court subsequently issued written Findings of Fact and Conclusions of Law (the "Findings") and a Final Judgment on March 31, 2004, in which it found that United Teacher had not proven fraud. In its decision, the district court stated, inter alia, that: (1) in Texas, "for a duty of disclosure to arise there must be a confidential or fiduciary relationship between the parties"; and (2) no confidential or fiduciary relationship existed between United Teacher and Union/USA. The district court did not address Union/USA's counterclaim in its Findings. Accordingly, Union/USA filed a motion to alter or amend, in which it requested that the district court amend its judgment to address its counterclaim. On April 29, 2004, the district court amended its Final Judgment to state that the Agreements "are valid and binding, and that [United Teacher] must perform its obligations thereunder." Additionally, the district court awarded costs to Union/USA. On May 26, 2004, United Teacher appealed the district court's Amended Final Judgment (Case No. 04-50531).

On May 7, 2004, Union/USA demanded that United Teacher immediately pay all amounts due and owing to Union/USA under the Agreements and take steps to consummate the transfer of the Medicare Block.4 According to Union/USA, the amount due and owing at that time was $8,393,660 (for insurance losses and expenses associated with the...

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