Vecchio v. Conseco, Inc. et al

• Decision Date: 23 October 2000
• Docket Number: No. 99-4177,99-4177
• Citation: 230 F.3d 974
• Parties: (7th Cir. 2000) Elio Del Vecchio, Plaintiff-Appellant, v. Conseco, Inc., Bankers National Life Insurance Company, and Great American Reserve Insurance Company, Defendants-Appellees
• Court: U.S. Court of Appeals — Seventh Circuit

Page 974

230 F.3d 974 (7th Cir. 2000)

Elio Del Vecchio, Plaintiff-Appellant, v. Conseco, Inc., Bankers National Life Insurance Company, and Great American Reserve Insurance Company, Defendants-Appellees.

No. 99-4177

In the United States Court of Appeals For the Seventh Circuit

Argued May 8, 2000

Decided October 23, 2000

Appeal from the United States District Court for the Southern District of Indiana, Indianapolis Division. No. IP 98-0091-C H/G--David F. Hamilton, Judge. [Copyrighted Material Omitted] Before Bauer, Posner, and Diane P. Wood, Circuit Judges.

Diane P. Wood, Circuit Judge.

At one time, Elio Del Vecchio held a $5,000 whole life insurance policy issued by Bankers National Life Insurance Company (Bankers Life). Many years later, he turned it in and replaced it with a $10,000 universal life policy. He thought, in essence, that he could transform the $5,000 policy into the $10,000 policy for free. When that turned out not to be true, he sued Conseco, Bankers Life, and Great American Reserve Insurance Company for defrauding him by inducing him to make the trade. Del Vecchio's suit was brought on behalf of himself and other purchasers of the defendants' life insurance products who had been similarly defrauded. Because we find that the federal courts do not have jurisdiction over this case, it must be dismissed on that basis.

I

In 1947, Del Vecchio purchased his $5,000 whole life insurance policy from Bankers Life. For the next 20 years, he paid premiums, and in 1967 Bankers Life informed him that he was "paid up" and that his policy would remain in effect without any further premium payments.

In 1982, a Bankers Life agent, Joseph Gennaco, contacted Del Vecchio and tried to convince him to turn in his $5,000 whole life policy and replace it with a $10,000 universal life policy. Gennaco told him that after his initial premium payment (equal to the value of his surrendered policy, which was $3,137.27), he would not have to make any further premium payments on the new policy. As Del Vecchio understood it, Gennaco in effect told him that he could double the size of his policy without having to pay any additional money.

After mulling over Gennaco's proposal for a full two years, Del Vecchio purchased the new policy in 1984. The policy included a "Table of Premiums and Values," and it explained the table as follows

TABLE OF VALUES--Minimum Cash Values are shown in the table on Page 4 ["Table of Premiums and Values"] on the assumption that the Scheduled Premiums are paid as shown. These values are based on the Guaranteed Interest Rate and the Maximum Annual Risk Charges shown in the table on Page 9, and on the assumption that no loans, partial withdrawals nor additional premium payments are made.

In 1985, Del Vecchio received his first policy statement. The statement included the following language

With no loans, partial withdrawals, or future increases made after this report date, based upon current assumptions, your policy will remain in force until maturity with no future premiums.

And, based upon guaranteed assumptions, your policy will remain in force until 5/20/1997 with no future premiums.

For the next nine years, Del Vecchio continued to receive annual statements from Bankers Life. In 1994, however, he was distressed to observe that for the first time, the actual cash value of his policy was less than the cash value "guaranteed" by the policy, by $366. The actual cash value was $3,810 (the amount he would receive if he were to surrender his policy), while the "cash surrender loan value" listed for year 11 of the policy in the "Table of Premiums and Values" was $4,176. The shortfall increased every year thereafter. Del Vecchio never paid any premium payments beyond his initial payment on the new $10,000 policy.

Believing that he had been duped by the company's representations at the time he made the switch in policies, Del Vecchio filed a class- action lawsuit in federal court in 1998. His complaint included six counts, all based on state law, including, among others, breach of contract, fraudulent misrepresentation, and breach of fiduciary duty. The district court granted the defendants' motion for summary judgment on the basis that the statutes of limitations for Del Vecchio's various claims had run. Del Vecchio appeals.

II

In his complaint, Del Vecchio asserted that federal jurisdiction was proper under 28 U.S.C. sec.sec. 1332 and 1367. But in order to support jurisdiction under sec. 1332, two requirements must be satisfied: complete diversity of citizenship between the plaintiffs and the defendants, and the proper amount in controversy (now and when Del Vecchio sued, more than $75,000). Del Vecchio's problem is not the citizenship requirement, as the parties are clearly diverse: Del Vecchio's domicile is in Massachusetts, while each of the three corporate defendants is incorporated in either Indiana or Texas, and all have their principal place of business in Indiana. Rather, Del Vecchio's difficulty lies in meeting the amount in controversy requirement.

Snyder v. Harris, 394 U.S. 332 (1969), held that Fed. R. Civ. P. 23 does not alter the general rule that multiple persons' claims cannot be combined to reach the minimum amount in controversy. A few years later, the Court extended Snyder's rule to the situation in which the named plaintiff's claim met the statutory amount in controversy, but unnamed class members had claims that did not. See Zahn v. International Paper Co., 414 U.S. 291 (1973). Since the passage of the supplemental jurisdiction statute, 28 U.S.C. sec. 1367, there has been a conflict in the circuits on the question whether Zahn's holding survives the enactment of sec. 1367. This court concluded that it did not, in Stromberg Metal Works, Inc. v. Press Mechanical, Inc., 77 F.3d 928, 930-33 (7th Cir. 1996). Although it had appeared that the Supreme Court would resolve the issue, it did not in the end, instead affirming by an equally divided court the Fifth Circuit's decision (which had taken the same position as Stromberg Metal Works) in In re Abbott Laboratories, 51 F.3d 524, 528-29 (5th Cir. 1995), aff'd as Free v. Abbott Laboratories, Inc., 120 S.Ct. 1578 (2000). In any event, the issue has been settled for this circuit's purposes for some time. See also In re Brand Name Prescription Drugs, 123 F.3d 599, 609 (7th Cir. 1997). Ultimately, though, the continuing vitality of Zahn is irrelevant here, because unless we were to accept some of Del Vecchio's more creative arguments (which we discuss below), this case fits into the Synder pattern rather than the Zahn one. And, as we now explain, Del Vecchio's suit cannot proceed under Snyder.

Del Vecchio's complaint included the following allegations about the amount in controversy

The amount-in-controversy exceeds $75,000, exclusive of interests and costs. Specifically, Plaintiff has alleged unjust enrichment and seeks the imposition of a constructive trust. As a result, he has an undivided interest in the full recovery in this action, which will substantially exceed the necessary jurisdictional amount.

From the language of his pleading, it appears that Del Vecchio was trying to evade Snyder by framing the amount in controversy in terms of what the defendants would have at stake if the class action were certified: their total unjust enrichment over which Del Vecchio seeks the imposition of a constructive trust. (Presumably, he is proposing to act as the trustee for the other class members.) Del Vecchio's theory, however, amounts to a complete end-run around the principles enunciated in Snyder. See In re Brand Name Prescription Drugs, 123 F.3d at 610 (discussing this problem). While this court has adopted the "either viewpoint" approach (that is, the amount in controversy can be determined from either the plaintiff's or the defendant's viewpoint), see McCarty v. Amoco Pipeline Co., 595 F.2d 389, 395 (7th Cir. 1979), cited in In re Brand Name Prescription Drugs, 123 F.3d at 609 we have nonetheless maintained that "[w]hatever the form of relief sought, each plaintiff's claim must be held separate from each other plaintiff's claim from both the plaintiff's and the defendant's standpoint." In re Brand Name Prescription Drugs, 123 F.3d at 610. That means, for Del Vecchio, that the amount in controversy from the defendants' point of view is the amount they risk paying him, not the amount they might have to pay the entire class.

Furthermore, this case does not fit into the narrow exceptions to the anti-aggregation rule recognized by the Snyder Court. It is not a case where there is one res at issue, such as an estate. In those cases, it is proper to consider the value of the entire res for purposes of determining jurisdiction, for even if several plaintiffs have a claim to it, the recovery is nonetheless a unitary whole that must then be divided. See, e.g., Shields v. Thomas, 58 U.S. (17 How.) 3, 4-5 (1854); Gilman v. BHC Securities, Inc., 104 F.3d 1418, 1422-23 (2d Cir. 1997) (discussing Shields and the development of the "common fund exception" to the "non- aggregation rule"). This is not such a situation, as each of the insureds Del Vecchio wants to represent is entitled to his or her own separate recovery. Under Snyder, Del Vecchio simply cannot satisfy the amount in controversy requirement by framing it in terms of the aggregate amount by which Bankers Life and the other defendants have been unjustly enriched through their insurance contracts with the various unnamed class members.

Noting this problem with jurisdiction, and our duty to dismiss the case if jurisdiction is lacking, McNutt v. General Motors Acceptance Corp., 298 U.S. 178, 186-87 (1936), we asked the parties to submit supplemental briefing regarding the amount in controversy. Del Vecchio responded by claiming that not only he, but each and every class member, would be able to assert such high punitive damages in good faith that each class member...