Brown et al v. Allianz Life Insurance Company of North America et al
Filing
133
OPINION AND ORDER GRANTING 121 MOTION for Partial Summary Judgment filed by Michael L Spichiger. By settlement agreements, Plas have relinquished those of their claims against Dft that relate to Midland or Old Mutual annuities. Signed by Judge Joseph S Van Bokkelen on 9/3/2013. (lns)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
LOIS J. BROWN and
CHARLES H. BROWN,
Plaintiffs,
v.
Civil Action No. 1:10-CV-158-JVB
MICHAEL L. SPICHIGER,
Defendant.
OPINION & ORDER
Plaintiffs now proceed on their Third Amended Complaint, against Michael Spichiger alone.
They allege that in the course of selling them annuities and acting as their investment adviser,
Defendant committed various frauds and breaches of fiduciary duty, including churning. The
subject of this Order is Defendant’s pending motion for partial summary judgment. In support of
the motion, Defendant has shown that two class-action settlements approved by the United States
District Court for the Central District of California release him from liability to Plaintiffs for any
actions he took as an agent of Midland National Life Insurance Company (“Midland”) or Old
Mutual Financial Company (“Old Mutual”). Plaintiffs have raised no genuine issue of material
fact in response, so Defendant is entitled to a partial summary judgment disposing of claims
related to Midland and Old Mutual annuities.
A. MATERIAL FACTS AND BACKGROUND
The facts material to this Order, including all well-pled facts of the Third Amended
Complaint, are uncontested or stipulated for the limited purposes of the motion at bar. (See Br.
Supp. Mot. Partial Summ. J., DE 122, at 3–6; Resp. to Mot. Partial Summ. J., DE 114; Stip., DE
122-1.) As Defendant explains, the Third Amended Complaint stems from Defendant’s sale to
Plaintiffs of twelve annuities issued by four insurance companies. (DE 122 at 1.) Midland issued
seven of those twelve annuities; Old Mutual issued one. (Id. at 1.) Defendant told Plaintiffs they
should buy the annuities to take advantage of a so-called “laddering system.” (Third Am.
Compl., DE 101, ¶ 23.) His sales pitch was to transfer funds from one annuity to the next to
obtain bonuses on premium deposits that were available only during the first years of each
annuity. (Id.) Midland’s annuities provided the largest bonuses, so Plaintiffs contend the fact that
Defendant encouraged them to buy other annuities discredits his explanation of the strategy. (Id.
¶¶ 23–27.) Instead, they say the circumstances “suggest[] that Spichiger’s primary goal was to
benefit from the numerous sales without regard to Plaintiffs’ best financial interest.” (Id. ¶ 27.)
Defendant also recommended investments to Plaintiffs that were too risky for their investment
objectives, and he dishonestly represented the investments to be riskless. (Id. ¶¶ 31–35.)
“Plaintiffs incurred fees and/or surrender charges on the various actions which occurred under
the advice and direction of Spichiger, and Spichiger earned substantial commissions and fees
thereon, with his own self interest in earning increasingly greater commissions in his dealings
with Plaintiffs being his apparent goal.” (Id. ¶ 37.)
Midland’s, Old Mutual’s, and their agents’ sales and servicing of annuities gave rise to two
class actions in the United States District Court for the Central District of California: In re
Midland National Life Insurance Co. Annuity Sales Practices Litigation, MDL No. 07-1825
CAS (MANx) and Vida F. Negrete v. Fidelity and Guaranty Life Insurance Company, case no.
2:05-CV-6837 CAS. (DE 122 at 1; Mot. Partial Summ. J., DE 121, at 1.) Plaintiffs were
members of both classes who did not opt out. Settlement agreements have been judicially
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approved in both cases, (DE 122-1 at 2) and the parties treat them as substantially identical. (See
DE 122 at 4 n.2; DE 114.) The Court will therefore follow suit. This Order treats the Old Mutual
settlement as identical to the Midland one, except that it covers Old Mutual annuities rather than
Midland annuities.
Defendant has affirmed under penalty of perjury, with no objection or dispute from Plaintiffs,
that his actions “with respect to the sale of the annuity products to the Plaintiffs described in the
Third Amended Complaint” were within “the ordinary course of [his] business and . . . the scope
of [his] agency with” Midland and Old Mutual. (Spichiger Aff. ¶ 4, DE 122-2.)
By the settlement of the class actions, every class member “fully and finally release[d]
Releasees from all Released Claims.” (Doc. no. 399-1 in C.D. Cal. case no. 2:07-ML-01825CAS-MAN, “Midland Class-Action Settlement,” p. 49 of 150 (CM-ECF pagination).)
“Releasees” included the issuers and their “past, present and future . . . agents (including, without
limitation, those acting on behalf of [the issuers] and within the scope of their agency).” (Id. at
48.) “Released Claims” included:
any and all past, present or future claims, complaints, causes of action, allegations
of liability, damages, restitution, equitable, legal or other interest, or demands or
rights, whether known or unknown, that concern, refer or relate to, or arise out of,
in whole or in part any facts, events or transactions relating to the Annuities that
have occurred or were in existence at any time prior to the entry of the Final
Order and Judgment, including, without limitation:
(a) the offering of advice in any manner related to the Annuities;
(b) the design, marketing, solicitation, sale, appropriateness or administration
of the Annuities;
(c) any disclosures or advertising related to the Annuities, whether written or
oral;
(d) the computation and crediting of interest to policy accounts; or
(e) the calculation and availability of any accumulation or surrender values, or
annuity payments, or the exercise of any rights under the Annuities.
(Id. at 48–49.) Plaintiffs have not argued that their annuities are excluded from the releases’
definition of “Annuities.”
3
The class members—and hence, Plaintiffs—likewise waived Released Claims that were then
unknown or unsuspected, thereby forfeiting rights under California Civil Code § 15421 “and all
similar federal or state laws, rules or legal principles of any other jurisdiction.” (Midland ClassAction Settlement at 50.)
As explained above, there is no need to discuss the settlement of the Old Mutual class action
separately in great detail. (See DE 122 at 4 n.2; DE 114.) A few points, however, provide
valuable context. First, the Court has already recognized that the Negrete settlement “explicitly
releases Old Mutual and its agents from all past and present actions arising from the sale of their
products and advice given by their agents.” (Order of July 1, 2011; DE 79; at 2.) “Moreover,” the
United States District Court for “the Central District of California issued an order enjoining the
Plaintiffs from bringing this suit against Old Mutual.” (Id.) The Court has ruled that “Old
Mutual’s Settlement Agreement Bars Plaintiffs’ Claims Against Old Mutual and Its Agents.”
(Id.)2
Both underlying class-action settlements, by their terms, “shall be governed by, and
interpreted according to, the law of the State of California, excluding its conflict of laws
provisions.” (Midland Class-Action Settlement at 72 of 150 (CM-ECF pagination).)
In seeking partial summary judgment, Defendant argues Plaintiffs have released the claims
they assert against him in relation to Midland and Old Mutual annuities. Plaintiffs respond with a
formulation of five issues they contend preclude summary judgment, and what they present as
two arguments in support. As stated by Plaintiffs, those issues are:
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“A general release does not extend to claims which the creditor does not know or suspect to exist in his or her
favor at the time of executing the release, which if known by him or her must have materially affected his or her
settlement with the debtor.” Cal. Civ. Code § 1542.
2
Plaintiffs point out in a “procedural note” (DE 114 at 1–2) that the Court also explained that under
Minnesota’s res judicata law, Allianz’s favorable jury verdict in 2007 in the United States District Court for the
District of Minnesota did not bar Plaintiffs’ claims in this case against Defendant for sales of Allianz products.
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a. Whether the resolutions of the prior class action lawsuits against [Old Mutual]
and Midland release Spichiger from all liability in the case at bar.
b. Whether the claims at bar were litigated in the Class Actions.
c. Whether the Browns had any intent to release claims not prosecuted in the
Class Actions.
d. Whether disparate bargaining power existed between the Browns and the Class
Action Defendants in negotiating the terms of the Class Action settlement
agreements.
e. Whether preclusion of the claims at bar due to the Class Action settlements
would be unconscionable and, therefore, unenforceable.
(DE 114 at 2.) Plaintiffs’ first supporting argument is that the class-action settlements could not
cover their claims against Defendant because those claims involve a fact-sensitive inquiry into
Defendant’s actions and mental state. In a related effort within the same section of their brief,
Plaintiffs attempt to show that Defendant’s interpretation of the releases leads to absurdity. (Id. at
3–6.) Next, Plaintiffs contend Defendant cannot enforce the releases because Plaintiffs had too
little bargaining power in negotiating them. (Id. at 6–8.)
B. LAW AND ANALYSIS
“The court shall grant summary judgment,” or, in this case, partial summary judgment, “if
the movant shows that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a) (entitled “Motion for Summary
Judgment or Partial Summary Judgment”). A motion under Rule 56 of the Federal Rules of Civil
Procedure is not an occasion for weighing evidence, Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 249 (1986), though a factual question is “genuine” only if it could be reasonably resolved in
favor of the non-moving party. See, e.g., Draper v. Martin, 664 F.3d 1110, 1113 (7th Cir. 2011).
Substantive law determines whether a dispute is material. Liberty Lobby, 477 U.S. at 248.
5
In diversity cases such as this, federal courts apply their respective states’ conflict-of-laws
rules to find the applicable substantive law. See Day & Zimmermann, Inc. v. Challoner, 423 U.S.
3, 4 (1975) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941)). Thus, this
Court looks first to Indiana law, under which “[p]arties may generally choose the law that will
govern their agreements.” Hoehn v. Hoehn, 716 N.E.2d 479, 484 (Ind. Ct. App. 1999); see also
Allen v. Great Am. Reserve Ins. Co., 766 N.E.2d 1157, 1162 (Ind. 2002) (“Indiana choice of law
doctrine favors contractual stipulations as to governing law.” (citing Hoehn, 716 N.E.2d at 484)).
Plaintiffs offer no reason why the underlying class-action settlements’ selection of California law
is invalid as a matter of Indiana law, so the Court will follow Indiana’s general practice of
honoring those clauses, which means interpreting the releases according to California law.3
California courts interpret a release as they interpret any other contract. Hess v. Ford Motor
Co., 41 P.3d 46, 51 (Cal. 2002) (citing Cal. Civ. Code § 1635 (“All contracts . . . are to be
interpreted by the same rules, except as otherwise provided by this Code.”)). By California law,
“[a] contract must be so interpreted as to give effect to the mutual intention of the parties as it
existed at the time of contracting, so far as the same is ascertainable and lawful.” Cal. Civ. Code
§ 1636. “The language of a contract is to govern its interpretation, if the language is clear and
explicit, and does not involve an absurdity.” Cal. Civ. Code § 1638. “When a contract is reduced
to writing, the intention of the parties is to be ascertained from the writing alone, if possible;
subject, however, to the other provisions of this Title.” Cal. Civ. Code § 1639. “When, through
fraud, mistake, or accident, a written contract fails to express the real intention of the parties,
such intention is to be regarded, and the erroneous parts of the writing disregarded.” Cal. Civ.
Code § 1640.
3
Yes, “before entangling itself in messy issues of conflict of laws a court ought to satisfy itself that there
actually is a difference between the relevant laws of the different states,” Barron v. Ford Motor Co. of Canada Ltd.,
965 F.2d 195, 197 (7th Cir. 1992) (emphasis added), but the choice of law in this case is simple.
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Plaintiffs have not argued the contractual language in this case is ambiguous, and it isn’t. The
writing plainly releases Plaintiffs’ claims against Old Mutual’s and Midland’s agents relating to
those issuers’ annuities that existed at the time. And Defendant is seeking summary judgment of
only the claims relating to those issuers’ annuities. So upon initial review, Defendant has the
winning argument.
Plaintiffs counter by citing Rowe v. Morgan Stanley Dean Witter, 191 F.R.D. 398 (D.N.J.
1999), to show that claims like theirs were (and are) unsuitable to class adjudication. But
whether churning, other breaches of fiduciary duty, or fraud were or could have been certified
for class treatment is irrelevant, because the releases were not limited to class claims.
Next, Plaintiffs attempt to demonstrate that Defendant’s interpretation leads to absurd results.
This does matter. See Cal. Civ. Code § 1638 (“The language of a contract is to govern its
interpretation, if the language is clear and explicit, and does not involve an absurdity.”
(Emphasis added.)). According to Plaintiffs, (1) “Defendant’s position would preclude a claim in
which a defendant used the subject annuities for money laundering,” and (2) “Claims of criminal
theft and conversion would be precluded so long as the converted funds were used to purchase
annuities.” (DE 114 at 6.) The releases plainly do not purport to forestall any criminal
prosecution, however. And insofar as Plaintiffs refer to private causes of action derivable from
criminal law, the problem is that they have not shown that a decision to release a wide universe
of claims, including some claims that are not concurrently pending, is per se absurd. In this case,
the alleged absurdity proves especially elusive because Plaintiffs knew of the causes of action
now at issue when they agreed to release them (Third Am. Compl. ¶ 43), because the contractual
language is so clear, and because that language was negotiated on Plaintiffs’ behalf through class
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counsel and then approved by a federal court. Thus, Plaintiffs’ first two propositions do not
establish Defendant’s interpretation as absurd.
Plaintiffs’ third pass at the claim of absurdity warrants separate treatment because it
implicates not only the issue of absurdity, but also whether the ostensible definition of the
Released Claims even encompasses Plaintiffs’ causes of action in the first place. Plaintiffs say
that “in order for the release to preclude the claims at bar, this Court must conclude that [Old
Mutual] and Midland provided Spichiger with authority to commit fraud.” (DE 114 at 6.) The
Court disagrees. To be a Releasee, Defendant did not need authorization to commit fraud; he
simply needed to have been an agent of the issuers. After all, the contracts made all “agents” of
the issuers “Releasees” of all of Plaintiffs’ “claims . . . that concern, refer or relate to, or arise out
of, in whole or in part any facts, events or transactions relating to the Annuities that have
occurred or were in existence at any time prior to the entry of the Final Order and Judgment.”
(See, e.g., Midland Class-Action Settlement at 48–49 (CM-ECF pagination).) So Plaintiffs have
relinquished the right to sue Midland’s and Old Mutual’s agents even for actions that exceeded
the scope of their agency. The releases at issue are broad, but broad does not mean absurd
without more than Plaintiffs have shown. Thus, the first three of Plaintiffs’ five “facts and issues
which preclude summary judgment” are disposed of.4
In Plaintiffs’ last effort to avoid the consequences of the plain language of their releases, they
invoke unconscionability. Their only supporting case applies Indiana law. And in it, the Court
4
“Whether the resolutions of the prior class action lawsuits against [Old Mutual] and Midland release Spichiger
from all liability in the case at bar” is not before the Court, because the instant motion is for only partial summary
judgment. “Whether the claims at bar were litigated in the Class Actions” also misses the point, because the basis of
the motion is the settlement of those claims, not res judicata. Finally, under the governing California law,
“[w]hether the Browns had any intent to release claims not prosecuted in the Class Actions” is relevant apart from
the text of their agreements only if that language is not clear, not explicit, or it involves an absurdity. See Cal. Civ.
Code § 1638; 14A Cal. Jur. 3d Contracts § 216 (West 2013) (“[I]f the terms of an agreement are set forth in writing,
and the words are not equivocal or ambiguous, the writing will constitute the contract, and a party is not permitted to
escape from his or her obligation by showing that he or she did not intend to do what his or her words bound him or
her to do.”).
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deemed the contract conscionable despite the acknowledged possibility of an imbalance in
bargaining power. DeGroff v. MascoTech Forming Techs.-Fort Wayne, Inc., 179 F. Supp. 2d
896, 907 (N.D. Ind. 2001).
Under California law, unconscionability—
has both a procedural and a substantive element, the former focusing on
oppression or surprise due to unequal bargaining power, the latter on overly harsh
or one-sided results. The procedural element of an unconscionable contract
generally takes the form of a contract of adhesion, which, imposed and drafted by
the party of superior bargaining strength, relegates to the subscribing party only
the opportunity to adhere to the contract or reject it. Substantively unconscionable
terms may take various forms, but may generally be described as unfairly onesided.
Gentry v. Super. Ct. of L.A. County, 165 P.3d 556, 572 (Cal. 2007) (quotation marks, alterations,
and citations omitted).
Both procedural and substantive unconscionability must be present for a contract
to be unenforceable, but each need not be present in the same degree. Rather, the
court invokes a sliding scale; the more substantively unconscionable the contract,
the less evidence of procedural unconscionability is necessary to conclude that the
contract is unenforceable, and conversely, the more procedural unconscionability
is present, the less substantive unconscionability is required to justify such a
determination.
Lanigan v. City of L.A., 132 Cal. Rptr. 3d 156, 168–69 (Cal. Ct. App. 2011).
Because as the parties agree, the underlying class actions were “massive” (e.g., DE 114 at 7),
it is likely that each settlement was available to the Browns on a take-it-or-leave-it basis. In other
words, Plaintiffs had “only the opportunity to adhere to the contract or reject it.” Gentry, 165
P.3d at 572. This means some degree of procedural unconscionability, as defined by California
law, was present in the negotiation of the class settlements.
But in pointing out that “claims of fraud and breach of fiduciary duty were not litigated in the
prior lawsuits,” that “a wide disparity existed in the bargaining power,” and that “counsel for the
certified classes was charged with prosecuting and resolving the common claims of the class
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without consideration of Spichiger’s fraudulent conduct,” Plaintiffs do not show a severely onesided outcome. All they have said as regards substantive unconscionability is that enforcing the
releases would entail “blanket dismissal of all claims involving annuity/investment decisions
involving the Browns.” This is an overstatement, because the settlements cover only Midland
and Old Mutual annuities, and it ignores four other important points. First, the central language
of the releases is comprehensible to ordinary laypersons. Second, Plaintiffs knew of the claims at
issue now when they became bound by the releases. (Third Am. Compl. ¶ 43.) Third, those
settlements provided them valuable benefits. Fourth, another federal court deemed the broad
language of the releases fair by the standards of Federal Rule of Civil Procedure 23(e)(2) for
class settlement. Under the circumstances, Plaintiffs have not done enough to avoid their
contracts on the ground of unconscionability.
C. CONCLUSION
Defendant’s motion for partial summary judgment (DE 121) is GRANTED. By settlement
agreements, Plaintiffs have relinquished those of their claims against Defendant that relate to
Midland or Old Mutual annuities.
SO ORDERED on September 3, 2013.
s/ Joseph S. Van Bokkelen
JOSEPH S. VAN BOKKELEN
UNITED STATES DISTRICT JUDGE
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