On August 12, 2010, the U. S. Court of Appeals for the
Eighth Circuit affirmed the denial of class certification in Avritt v.
Reliastar Life Ins. Co., No. 09-2843 (8th Cir. Aug. 12, 2010), a case in
which Plaintiffs challenged the manner in which interest was credited to fixed
annuities. (Please click here for opinion).
In Avritt, the annuity contracts in question
provided for a guaranteed minimum interest crediting rate, with discretion for
the insurer to credit additional interest. Plaintiffs alleged that the
insurer's practice of paying lower interest rates on "old money" and higher
rates on "new money" (i.e., banding) violated various duties of good faith,
loyalty, and fair dealing. They further alleged misrepresentations and
omissions in statements about the interest rate crediting practices. Plaintiffs
alleged that these practices resulted in a breach of contract, a violation of
the Washington Consumer Protection Act (WCPA), and a violation of the
California Unfair Competition Law (California UCL).
Plaintiffs sought to certify, under Rule 23(b)(2) or
23(b)(3), a class of California residents who were purchasers or holders of or
beneficiaries under relevant annuity contracts issued from 1992 to 2002. The
U.S. District Court for the District of Minnesota denied class certification. See
Avritt v. Reliastar Life Ins. Co., No.07-1817, 2009 WL 455808 (D. Minn.
Feb. 23, 2009). (Please click here for our Legal Alert on the district
court decision.) The Eighth Circuit held that the district court did not abuse
its discretion in denying class certification under both Rules 23(b)(2) and
23(b)(3).
With respect to Rule 23(b)(3), the Eighth Circuit held
that Plaintiffs had not met their burden to establish that common questions
predominated over individual questions as to any of their claims:
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Breach of Contract/Implied Covenant
Claims: The court held that the existence of two more reasonable
interpretations of the contract would require extrinsic evidence about the
intent of the parties, the explanation of the contract given during sales
discussions, and each purchaser's understanding of the contract. The court
agreed with the district court that to establish a breach of contract,
Plaintiffs would need to rely on their argument that the contractual duty of
good faith and fair dealing required applying a particular formula. Because
this theory was based on the expectations of the parties, separate proof of the
expectations of individual class members would be required. The court further
stated that whether the insurer "acted in bad faith by emphasizing its
non-guaranteed interest rate for new deposits and encouraging purchasers to
believe that the introductory rate was indicative of future rates is a question
closely tied to the circumstances of each individual plaintiff." (Slip Op. at
11). The Eighth Circuit also rejected the holding of a Washington state court
in Curtis v. Northern Life Ins. Co., No. 61372-3-1, 2008 WL 4927365
(Wash. Ct. App. Nov. 17, 2008), that a breach of implied covenant claim could
be based on disclosures in regulatory filings and thus could be pursued on a class
basis. To the contrary, the Eighth Circuit held that Washington state law
required that the duty of good faith and fair dealing must arise out of the
contract itself.
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WCPA Claim: The
court noted that under Schnall v. AT&T Wireless Services, Inc., 225
P.3d 929 (Wash. 2010), WCPA actions may be brought only on behalf of persons
residing within the state. Because Plaintiffs sought certification of a class
of California residents who were allegedly injured by the activities of a
company based in Washington, a WCPA claim could not succeed.
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California UCL Claim: The
court rejected Plaintiffs' reliance on the California Supreme Court's holding
in In re Tobacco II Cases, 207 P.3d 20, 31-32 (Cal. 2009), that the
California UCL's proof of injury requirement applies solely to class
representatives. The court stated that Tobacco II does not apply in the
class certification context. To the extent Tobacco II holds that a single
injured plaintiff may bring a class action on behalf of a group of individuals
who may not have had a cause of action themselves, it is inconsistent with the
doctrine of standing applied by federal courts. The court also stated that even
if it were not necessary to consider individual evidence of injury, the
California UCL claim would require individual evidence of misconduct and
reliance, further precluding class certification.
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With respect to Rule 23(b)(2), the court held
that Plaintiffs could not show that the primary relief sought was declaratory
or injunctive; indeed, Plaintiffs had conceded that the case was primarily
about money damages, not injunctive relief. Moreover, the fact that the level
of disclosure and the extent of reliance varied by individual made the case
inappropriate for injunctive or declaratory relief on a class basis.
* * *
If you have any questions regarding this
Legal Alert, please feel free to contact any of the attorneys listed below or
the Sutherland attorney with whom you regularly work.
Authors
Steuart H. Thomsen 202.383.0166
steuart.thomsen@sutherland.com
Phillip E. Stano 202.383.0261
phillip.stano@sutherland.com
Brendan Ballard 202.383.0820
brendan.ballard@sutherland.com
Related Attorneys
Frederick R. Bellamy 202.383.0126
fred.bellamy@sutherland.com
Mary Jane Wilson-Bilik 202.383.0660
mj.wilson-bilik@sutherland.com
Thomas R. Bundy III 202.383.0716
thomas.bundy@sutherland.com
Thomas M. Byrne 04.853.8026
tom.byrne@sutherland.com
Nicholas T. Christakos 202.383.0184
nick.christakos@sutherland.com
Thomas W. Curvin 404.853.8314
tom.curvin@sutherland.com
Mary Thornton Payne 202.383.0698
mary.payne@sutherland.com
Stephen E. Roth 202.383.0158
steve.roth@sutherland.com
Gail L. Westover 202.383.0353
gail.westover@sutherland.com
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