Wal-Mart Stores, Inc. v. AIG Life Ins. Co.

• Decision Date: 04 November 2004
• Docket Number: No. 126,2004.,126,2004.
• Citation: 860 A.2d 312
• Parties: WAL-MART STORES, INC., a Delaware Corporation, and Wachovia Bank of Georgia, N.A., in its capacity as Trustee of the Wal-Mart Stores, Inc. Corporation Grantor Trust, Plaintiffs Below, Appellants, v. AIG LIFE INSURANCE COMPANY, a Delaware Corporation; Hartford Life Insurance Company, a Connecticut Corporation; Westport Management Services, Inc., a Delaware Corporation; International Corporate Marketing Group, LLC, a Delaware limited liability company; National Benefits Group, Inc., dba Marsh Financial Services, a Minnesota Corporation; Seabury & Smith, Inc., a Delaware Corporation; Marsh & McLennan National Marketing Corporation, now known as J & H Marsh & McLennan Private Client Services, Inc., a Delaware Corporation, Defendants Below, Appellees.
• Court: Supreme Court of Delaware

860 A.2d 312

WAL-MART STORES, INC., a Delaware Corporation, and Wachovia Bank of Georgia, N.A., in its capacity as Trustee of the Wal-Mart Stores, Inc. Corporation Grantor Trust, Plaintiffs Below, Appellants, v. AIG LIFE INSURANCE COMPANY, a Delaware Corporation; Hartford Life Insurance Company, a Connecticut Corporation; Westport Management Services, Inc., a Delaware Corporation; International Corporate Marketing Group, LLC, a Delaware limited liability company; National Benefits Group, Inc., dba Marsh Financial Services, a Minnesota Corporation; Seabury & Smith, Inc., a Delaware Corporation; Marsh & McLennan National Marketing Corporation, now known as J & H Marsh & McLennan Private Client Services, Inc., a Delaware Corporation, Defendants Below, Appellees.

No. 126,2004.

Supreme Court of Delaware.

Submitted: August 18, 2004.

Decided: November 4, 2004.

Robert K. Payson and Gregory A. Inskip, of Potter Anderson & Corroon, L.L.P., Wilmington; Michael Y. Horton (argued) and David S. Cox, of Morgan, Lewis & Bockius, L.L.P., Los Angeles, CA; Paul A. Zevnik, of Morgan, Lewis & Bockius, L.L.P., Washington, DC, of counsel, for Appellants.

Richard D. Heins and Carolyn S. Hake, of Ashby & Geddes, Wilmington; James F. Jorden and Paul A. Fischer, of Jorden Burt, L.L.P., Washington, DC, of counsel, for Appellee AIG Life Insurance Company.

Elizabeth A. Wilburn, of Blank Rome, L.L.P., Wilmington; Ian M. Comisky and Roger F. Cox, of Blank Rome, L.L.P., Philadelphia, PA, of counsel, for Appellee National Benefits Group, Inc.

Edward P. Welch, Julie T. Saunders and Edward B. Micheletti, of Skadden, Arps, Slate, Meagher & Flom, L.L.P., Wilmington; Marco E. Schnabl and Michael S. Davi, of Skadden, Arps, Slate, Meagher & Flom, L.L.P., New York City, of counsel, for Appellees Marsh Financial Services, Seabury & Smith, Inc., Marsh, Inc., and Marsh & McLennan National Marketing Corporation, now known as J & H Marsh & McLennan Private Client Services.

R. Franklin Balotti, Lisa A. Schmidt and Michael R. Robinson, of Richards, Layton & Finger, P.A., Wilmington; Barry A. Chasnoff (argued), and David R. Nelson, of Akin Gump Strauss Hauer & Feld, L.L.P., San Antonio, TX; Michael Quigley and Jeffrey P. Kehne, of Akin Gump Strauss Hauer & Feld, L.L.P., Washington, DC; Michael Small, of Akin Gump Strauss Hauer & Feld, L.L.P., Los Angeles, CA, of counsel, for Appellees Hartford Life Insurance Company and International Corporate Marketing Group.

Before HOLLAND, BERGER and JACOBS, Justices.

PER CURIAM:

On September 3, 2002, the plaintiff below-appellant, Wal-Mart Corporation ("Wal-Mart"), brought an action in the Court of Chancery. In its amended complaint Wal-Mart asserted legal and equitable claims arising out of insurance policies that Wal-Mart had purchased between 1993 and 1995 from the defendants, who are certain insurance brokers and insurance providers. The Court of Chancery granted the defendants' motion to dismiss the amended complaint, determining as a matter of law that all of Wal-Mart's claims had accrued between 1993 and 1995, the period during which the policies were purchased. The Court further concluded that there was no basis to toll the running of the three-year statute of limitations. Because Wal-Mart's claims were found to be time-barred, the Court of Chancery granted the motion to dismiss.

Wal-Mart appealed to this Court, contending that: (1) none of its claims accrued before October 19, 1999, a date less than three years before this Chancery action was filed; (2) even if Wal-Mart's claims did accrue before October 19, 1999, the statute of limitations was tolled at least until then; and (3) in any event, the motion to dismiss should have been denied because the issues of when the causes of action accrued and whether the statute of limitations was tolled were fact-intensive and could not be decided on the face of the complaint.

We agree that the limitations defense poses issues that require a more developed record, for which reason this matter was improperly disposed of on a motion to dismiss. Accordingly, we reverse the judgment of the Court of Chancery and remand the case for further proceedings.

FACTS

The Parties

The pertinent facts, which for present purposes are assumed to be true, appear from the well-pleaded allegations of the complaint.¹ Wal-Mart is a national retailer that is incorporated in Delaware and whose principal place of business is in Bentonville, Arkansas.² The defendants are insurance providers and insurance brokers from or through whom Wal-Mart purchased policies of insurance between 1993 and 1995.³

Facts Relating to the Dismissal Motion

Wal-Mart's claims arise out of its purchase from the insurer-defendants of some 350,000 corporate-owned life insurance ("COLI") policies, under which Wal-Mart was named as the beneficiary. Those COLI policies, which insured the lives of Wal-Mart's employees, were purchased as part of a plan whereby the insurers granted Wal-Mart loans that were used to pay the premiums on the policies. Wal-Mart would then deduct the interest payments on those loans from its income for purposes of reducing its federal income taxes.⁴ During the 1980s and early 1990s, many large corporate employers besides Wal-Mart had purchased COLI policies under similar tax-reducing COLI plans.

In August 1993, Wal-Mart retained the broker-defendants to advise it about using COLI policies to obtain tax benefits. After proposals from several insurance companies were received, the broker-defendants recommended that Wal-Mart purchase COLI policies from AIG and Hartford. The broker-defendants also recommended that Wal-Mart create and use a Georgia "grantor trust" as the vehicle to purchase the policies, so that Georgia law would govern any "insurable interest" issues that might arise after the policies were purchased. The broker-defendants advised Wal-Mart that Georgia law would provide a favorable result if any employee(s) challenged whether Wal-Mart had a legally valid insurable interest in the lives of its workers.

Between 1993 and 1995, Wal-Mart purchased approximately 350,000 COLI policies from the insurer-defendants, and retained Marsh, Inc. to administer and service those policies. Wal-Mart sought — and obtained — assurances from both the insurer defendants and the broker defendants that: (i) the policies complied with the Internal Revenue Code, (ii) future changes to the tax law were unlikely to impact the policies adversely, and (iii) Wal-Mart had a valid insurable interest in the lives of its employees.

Through 1995, Wal-Mart claimed the federal tax deductions as contemplated under the COLI plan. In 1996, however, the legal landscape changed. As part of the Health Insurance Portability and Accountability Act ("HIPAA"), Congress prospectively disallowed interest deductions for loans used to fund COLI plans. HIPAA also provided for "transitional relief" that allowed taxpayer companies to take deductions in 1997 and 1998 for up to a maximum of 20,000 COLI policies. HIPAA did not, however, disallow any deductions that were taken before January 1, 1996. In response to the HIPAA legislation, Wal-Mart immediately began "unwinding" its COLI policies, although it took whatever deductions for 1997 and 1998 were allowed under HIPAA's transitional relief provision.⁵

Of importance to Wal-Mart's claims is that HIPAA eliminated the deductibility of interest payments for loans funding COLI policies prospectively, but did not disallow deductions taken before 1996; i.e., retrospectively. In 1997, nonetheless, the United States Internal Revenue Service ("IRS") brought several lawsuits in which it sought to disallow retrospectively COLI-related tax deductions that the defendants in those cases had taken before 1996. In those lawsuits the IRS characterized the COLI programs as "sham transactions." Wal-Mart was not included among the companies that were named as defendants in the IRS lawsuits.

The first of the IRS cases, Winn-Dixie Stores Inc. v. C.I.R.,⁶ was decided by the United States Tax Court on October 19, 1999. In that case, the Tax Court disallowed deductions that were taken in 1993 for the interest that had accrued on Winn-Dixie's COLI policies. After the Winn-Dixie decision, two other federal courts retrospectively disallowed COLI tax deductions that had been taken before 1996.⁷ After those adverse decisions were handed down, Wal-Mart negotiated a settlement with the IRS. In that settlement, which was concluded in 2002, most of the COLI-related tax deductions that Wal-Mart had claimed before 1996 were retrospectively disallowed.⁸

Separate and apart from the tax deductibility issue, beginning in 2001 Wal-Mart found itself confronted with lawsuits brought by the estates of deceased employees, wherein the estates claimed that Wal-Mart had no legally valid insurable interest in its employees' lives. In August 2002, in one of these lawsuits, Mayo v. Hartford Life Ins. Co., the Court held that Texas law, rather than Georgia law, governed the insurable interest question, and that under Texas law Wal-Mart had no valid insurable interest in the lives of its Texas employees.⁹ Similar lawsuits challenging Wal-Mart's insurable interest in the employees' lives were pending in other jurisdictions at the time Wal-Mart filed its Court of Chancery action on September 3, 2002.¹⁰

Procedural History

Wal-Mart's Chancery complaint alleges several claims arising out of both the retrospective disallowance of the COLI-related tax deductions and the adverse "insurable interest" litigation. Specifically, Wal-Mart's complaint asserts claims against all defendants for: (i) unjust enrichment and restitution, (ii) breach of fiduciary duty, (iii) equitable fraud, (iv) breach of contract, (v) violation of the Delaware Consumer Fraud Act, and (vi) declaratory relief. Wal-Mart also asserts a separate claim against the broker defendants for negligence.

With one possible exception, the gravamen of those claims is...