LUCEY

Filing 81

Judge Michael A. Ponsor: MEMORANDUM AND ORDER entered. As follows: Defendants Motion to Dismiss the Amended Complaint (Dkt. No. 22 ) is hereby DENIED. Counsel appeared for a scheduling conference on April 27, 2011, and a separate scheduling order will issue this day. See the attached memo and order for complete details. (Lindsay, Maurice)

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

KEVIN AND JOYCE LUCEY
and TRACEY LYNN REECE
EISWERT, individually and
on behalf of all others
similarly situated,
Plaintiffs
v.
PRUDENTIAL INSURANCE
COMPANY OF AMERICA,
Defendant

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C.A. 11-md-02208-MAP
C.A. 10-cv-30163-MAP

MEMORANDUM AND ORDER REGARDING
DEFENDANT’S MOTION TO DISMISS AMENDED COMPLAINT
(Dkt. No. 22)
May 5, 2011
PONSOR, D.J.
I. INTRODUCTION
Plaintiffs1 bring this putative class action on behalf
of beneficiaries of life insurance policies issued by
Defendant Prudential Insurance Company of America to

1

Named Plaintiffs are Kevin Lucey, Joyce Lucey, Jorge
Castro, Susana Ferro, Carlos Gonzalez, Maria Gonzalez, Karen
Meredith, George D. Patrin, Barbara Phillips, and Veterans
and Military Families for Progress.

servicemembers and veterans of the United States military.2
The seven-count amended complaint alleges violation of 38
U.S.C. § 1970(d) and 38 C.F.R. 9.5 (Count 1); Breach of
Contract (Count 2); Breach of Implied Covenant of Good Faith
and Fair Dealing (Count 3); Unjust Enrichment/Money Had and
Received (Count 4); Fraud (Affirmative Misrepresentation)
(Count 5); Fraud (Omission) (Count 6); and Breach of
Fiduciary Duty/Constructive Trust (Count 7).

(Dkt. No. 8,

Am. Compl.)
The court held a status conference and heard oral
argument on the motion to dismiss on March 18, 2011.
Observing that Plaintiffs had filed the original complaint
nearly nine months prior, in July 2010, the court denied the
motion to dismiss from the bench and requested proposed
scheduling orders from the parties in order to facilitate
discovery.

The following is an explanation of the court’s

reasons for denying the motion to dismiss.
II.

FACTS

2

On February 4, 2011, the United States Judicial Panel
on Multidistrict Litigation issued a Transfer Order
transferring a similar case pending in the District of New
Jersey, Phillips, et al. v. Prudential Ins. Co. of Am., et
al., D. N.J., C.A. No. 2:10-05375, to this court for
coordinated or consolidated pretrial proceedings. (Dkt. No.
58.) Subsequently, two additional cases filed in the
District of New Jersey were consolidated here as well, D.
N.J., C.A. 2:10-06077; D. N.J., C.A. 2:10-06835.
2

Pursuant to 38 U.S.C. § 1970, the Servicemembers Group
Life Insurance Act (the “SGLIA”), active servicemembers,
veterans, and Reservists are eligible for life insurance
through two federally subsidized life insurance programs -Servicemembers Group Life Insurance (“SGLI”) and Veterans
Group Life Insurance (“VGLI”).

The statute provides that

the group contracts will automatically insure servicemembers
and their dependents, subject to their right to decline
coverage, at a maximum coverage amount that is currently
$400,000.

With regard to this case, the most important

provision of the statute concerns the distribution of the
proceeds to the beneficiaries.

The statute provides:

(d) The member may elect settlement of insurance
under this subchapter either in a lump sum or in
thirty-six equal monthly installments. If no such
election is made by the member the beneficiary or
beneficiaries may elect settlement either in a
lump sum or in thirty-six equal monthly
installments. If the member has elected
settlement in a lump sum, the beneficiary or
beneficiaries may elect settlement in thirty-six
equal monthly installments.
38 U.S.C. § 1970(d) (emphasis added).
In 1965, Defendant and the United States Department of
Veterans Affairs (“VA”) entered into a contract to implement
the life insurance programs.

Although the contract has been

amended multiple times, the relevant provisions have
remained substantively identical throughout its life.

The

iterations of the contract at issue here are those from 2001
3

through 2007, which provide that the insured “may elect
settlement of insurance either in a lump sum or in thirtysix equal monthly installments” and that “[p]ayment shall
include interest at a rate to be determined by the Insurance
Company.”

(Dkt. No. 24, Ex. 2, at 56-58, Article I, §§ 2,

4.)
It appears undisputed that the vast majority of
insureds elect the lump-sum option.

Plaintiffs’ decedents

all elected the lump-sum option, and the Class will only
include those beneficiaries whose decedents elected the
lump-sum option.
Until June 1999, upon notice of the death of an insured
who had requested payment in a lump sum, Defendant mailed a
check for the lump-sum amount to the beneficiary.

According

to the complaint, in June 1999, Defendant changed its
practice.

(Dkt. No. 8, Am. Compl. ¶ 21.)

As described in

Defendant’s Servicemembers’ and Veterans’ Group Life
Insurance Handbook, the beneficiary no longer received a
check in the mail.

Instead,

[i]f the insured member elects a lump-sum payment,
the beneficiary(ies) will receive the funds
through an Alliance Account. An Alliance Account
is an interest bearing draft account with an
account book similar to a checking account.
Insurance proceeds are deposited in the
beneficiary’s name and the beneficiary can write
drafts for any amount up to the full amount of the
proceeds.
4

(Dkt. No. 24, Ex. 6, at 37.)
In 2000, the VA issued a handbook called “Government
Life Insurance Programs for Veterans and Members of the
Uniformed Services,” which described the payment options as
either the thirty-six-month payout or:
If the proceeds are to be paid in a lump sum then
beneficiaries of SGLI and VGLI will receive the
payment of their insurance proceeds via an
“Alliance Account”. Rather than the traditional
single check for the full amount of insurance
proceeds, the beneficiary now receives a checkbook
for an interest bearing account from which the
beneficiary can write a check for any amount of
$250 up to the full amount of the proceeds. The
Alliance Account
*
earns interest at a competitive rate
*
is guaranteed by Prudential
*
gives the beneficiary time to make
important financial decisions while their
funds are secure and earning interest
*
gives them instant access to their money
at all times
(Dkt. No. 24, Ex. 7 at 6 (emphasis in original).)
Upon notice of the death of the insured, Defendant
sends the beneficiary/ies a “checkbook” that provides access
to the proceeds in the Alliance Account.

The beneficiary

can write drafts of $250.00 or greater either to the
beneficiary him or herself or to a third party.

The

beneficiary may write a draft for the entire amount of the
proceeds in order to close the account.

Conversely, the

beneficiary may also retain the proceeds in the Alliance
Account indefinitely and operate the account as a checking
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account.

Although the beneficiary receives a statement

regarding account activity in his or her specific Alliance
Account, the proceeds allotted to the Alliance Account
remain in Defendant’s general account.

(Dkt. No. 8, Am.

Compl. ¶ 36.)
III. DISCUSSION
Plaintiffs’ allegations arise out of the procedure for
distribution of the lump-sum payout via the Alliance
Account.

Plaintiffs contend that the procedure is not in

accordance with the terms of Defendant’s contracts either
with the insureds or with the VA because giving a
beneficiary access to an Alliance Account is not equivalent
to mailing a check to the beneficiary in the amount of the
lump sum.

Moreover, Plaintiffs allege that Defendant is

aware that grief-stricken beneficiaries will often not seek
an immediate payout of the lump-sum amount, and that
Defendant is benefitting by maintaining, and accruing
interest on, the proceeds in its own general account.
Although the Alliance Account generates some interest for
the beneficiary, Plaintiffs allege that it is only a
fraction of the interest that Defendant earns for itself on
the retained funds.

(Dkt. No. 8, Am. Compl. ¶ 117.)

Defendant argues in response that its obligation to
send a payment in a lump sum is satisfied by sending a
6

checkbook that provides access to the lump sum.

Based

essentially on this argument, it has moved to dismiss all
counts of the complaint for failure to state a claim.
A.

Standard of Review.
To survive a motion to dismiss under Rule 12(b)(6), a

complaint must contain sufficient factual matter to state a
claim for relief that is both actionable as a matter of law
and “‘plausible on its face.’”

Ashcroft v. Iqbal, 129 S.

Ct. 1937, 1949 (2009) (quoting Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570 (2007)).

When assessing a

complaint’s sufficiency, a court must accept all wellpleaded facts as true and draw all reasonable inferences in
favor of a plaintiff.

Edes v. Verizon Communs., 417 F.3d

133, 137 (1st Cir. 2005); Fed. R. Civ. P. 12(b)(6).
This “highly deferential” standard of review “does not
mean, however, that a court must (or should) accept every
allegation made by the complainant, no matter how conclusory
or generalized.”

United States v. AVX Corp., 962 F.2d 108,

115 (1st Cir. 1992).

Accord Sanchez v. Pereira-Castillo,

590 F.3d 31, 49 (1st Cir. 2009) (noting that pleadings that
are no more than conclusions “are not entitled to the
assumption of truth”) (citing Iqbal, 129 S. Ct. at 1950).
Ultimately, a complaint must “set forth ‘factual
allegations, either direct or inferential, respecting each
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material element necessary to sustain recovery under some
actionable legal theory.’”

Gagliardi v. Sullivan, 513 F.3d

301, 305 (1st Cir. 2008) (quoting Centro Medico del Turabo,
Inc. v. Feliciano de Melecio, 406 F.3d 1, 6 (1st Cir.
2005)).
B.

Threshold Issues.
Defendant contends at the outset that Plaintiffs have

failed to allege any cognizable injury because, Defendant
argues, there is no material distinction between receiving a
check in the mail and writing a draft against a checking
account.

For all intents and purposes, Defendant argues,

they are both lump-sum payments.

Furthermore, Defendant

asserts, Plaintiffs have alleged no damages.
1.

Lump-Sum Payment.

With respect to Defendant’s first argument that there
is no distinction between the two methods of payment, the
First Circuit has explicitly held otherwise.

In Mogel v.

UNUM Life Ins. Co., in which the plaintiff beneficiaries
alleged breach of fiduciary duty under ERISA against the
defendant life insurance company, the court unambiguously
held that
delivery of the checkbook did not constitute a
“lump sum payment” called for by the policies. As
the district court put it, “[t]he difference
between delivery of a check and a checkbook . . .
is the difference between [the insurance company]
retaining or [the insurance company] divesting
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possession of Plaintiffs’ funds.”
Mogel v. UNUM Life Ins. Co. of Am., 547 F.3d 23, 26 (1st
Cir. 2008) (quoting 540 F. Supp. 2d 258, 262 (D. Mass.
2008)).

Despite Defendant’s exhaustive efforts to

distinguish Mogel, the court simply cannot ignore such clear
and pointed direction from the First Circuit.

A lump-sum

payment by check (which actually transfers the funds to the
beneficiary) is simply not the same as a lump-sum payment by
checkbook (which allows the insurance company to retain the
funds and earn interest on them). 3

It is important to

underline that this finding only bears on the motion to
dismiss presently before the court. The question whether
Defendant breached its contract, or is liable under one or
more of the other theories offered in the amended complaint,
remains for further proceedings.
2.

Damages.

Defendant’s second argument that Plaintiffs have
alleged no damages is similarly unfounded.

Plaintiffs

contend that Defendant has unlawfully retained some of the
interest earned from funds kept in Alliance Accounts, and

3

Defendant relies primarily on a footnote in an
unpublished opinion in which the Second Circuit discounted
the plaintiff’s reliance on Mogel because the contract at
issue authorized non-lump-sum payments. See Rabin v. MONY
Life Ins. Co., 387 Fed. Appx. 36, *39 n.1 (2d Cir. 2010).
This opinion is not controlling and, to the extent it is
relevant, is unpersuasive.
9

they seek restitution of such monies.

Specifically, the

complaint alleges:
Although Prudential credits beneficiaries with
some trivial amount of interest on the funds it
detains through its Alliance Account® scheme, it
only credits as much interest as it decides in its
self-serving discretion. On information and
belief, that rate has ranged from .5% to 1.5%
while Prudential actually made 5-6% on its use of
the money it withheld from beneficiaries pursuant
to this Alliance Account® scheme.
(Dkt. No. 8, Am. Compl. ¶ 25.)

Plaintiffs further allege

injury from Defendant’s “abhorrent behavior [that is] not to
be tolerated in a civilized society, and warrants the
imposition of punitive and exemplary damages.”

(Id. ¶ 117.)

It is true that pleadings that are solely conclusory
“are not entitled to the assumption of truth.”

Sanchez v.

Pereira-Castillo, 590 F.3d 31, 49 (1st Cir. 2009).

Here,

however, Defendant admitted at the hearing that the interest
it has earned on the Alliance Accounts is more than the
interest it pays.

This theory of damage, at this stage,

describes a sufficiently cognizable injury to avoid
dismissal.
Apart from the arguments seeking dismissal of the
entire complaint, Defendant contends that individual counts
should be dismissed for more narrowly focused reasons.
C.

Count 1: Violation of 38 U.S.C. § 1970(d).
Defendant seeks dismissal of Count 1 on the grounds
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that the SGLIA, 38 U.S.C. § 1970, confers no private right
of action.

Again, despite Defendant’s painstaking attempt

to distinguish the many cases holding otherwise, the court
is unpersuaded by its arguments.

To be sure, Defendant

accurately points out that the majority of SGLIA cases to
date concern the fairly straightforward issue of withholding
proceeds.

See Hubbert v. Prudential Ins. Co. of Am., No.

2:06-cv-260, 2007 WL 1031638, *3 (W.D. Mich. Apr. 3, 2007)
(“Federal courts have held that a cause of action exists
under the SGLIA for a beneficiary of a life insurance policy
to pursue a claim against the insurer for the proceeds of
that policy.”); Cotton ex rel. Boynton v. Prudential Ins.
Co. of Am., No. 3:05-cv-46-RS, 2006 WL 212016, *3 (N.D. Fla.
Jan. 27, 2006) (In case regarding withheld proceeds, the
court held “that an implied cause of action is granted to
beneficiaries under the SGLI statute against the OSGLI.”);
Parker v. Office of Servicemembers’ Group Life Ins., 91 F.
Supp. 2d 820, 825 (E.D. Pa. 2000) (“[T]he overall structure
and purpose of the statute convince us that Congress
intended to create a right of action which allows a
beneficiary of a life insurance policy issued under the
SGLIA to pursue a federal claim against the insurer for
proceeds withheld.”).

However, the Tenth Circuit was

presented with a more nuanced issue and, after substantial
11

analysis, determined that the SGLIA confers a private right
of action on beneficiaries with no apparent limitations.
Rice v. Office of Servicemembers’ Group Life Ins., 260 F.3d
1240 (10th Cir. 2001).
In Rice, the plaintiff brought suit against the Office
of Servicemembers Group Life Insurance (“OSGLI”), a
subsidiary of Prudential, regarding the effectiveness of a
last-minute change in beneficiary of her husband’s policy
just prior to his suicide.

The Tenth Circuit engaged in an

extensive discussion about whether state or federal law
should apply to the determination of the insured’s mental
capacity, concluding both that federal common law applied
and that “the federal SGLI statute gives rise to an implied
private cause of action.”

Id. at 1245.

The court observed

that “[t]he statute requires beneficiaries to make
‘claim[s]’ for payment under some circumstances, but
contains no mechanism (administrative or otherwise) to
enforce the insurance contract.”

Id. at 1246.

Additionally, “the applicable regulations contemplate that
beneficiaries may bring ‘[a]ctions at law or in equity to
recover’ from the [SGLI].”
9.13).

Id. at 1247 (quoting 38 C.F.R. §

The Tenth Circuit concluded that, “[a]lthough the

text of the SGLI statute is silent, we believe its structure
shows that Congress intended to allow private causes of
12

action to enforce the provisions of SGLI policies.”
1246.

Id. at

This court agrees and will deny Defendant’s motion to

dismiss Count 1 on the grounds that the case law, limited as
it may be, unanimously supports a finding that a private
cause of action exists under the SGLIA.
D.

Count 2: Breach of Contract.
In Count 2, Plaintiffs allege that a breach of contract

occurs each time that an insured elects the lump-sum option
and Defendant then provides that lump sum through an
Alliance Account, instead of through a check made out to the
beneficiary.

As noted, Defendant argues that the two

processes are analogous.

Assuming all well-pleaded facts to

be true, see Edes, 417 F.3d at 137; Fed. R. Civ. P.
12(b)(6), and noting the First Circuit’s holding with regard
to the distinction between a check and a checkbook, the
court will deny Defendant’s motion to dismiss Count 2.
E.

Count 3: Breach of the Implied Covenant of Good Faith
and Fair Dealing.
Defendant’s argument in support of its motion to

dismiss Count 3 rests on its claim that the distribution of
lump-sum proceeds by check is no different from the
distribution of lump-sum proceeds via an Alliance Account.
For the reasons set forth above, the court cannot, at this
stage, find this to be true as a matter of law.
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Thus,

Defendant’s motion to dismiss Count 3 will be denied.
F.

Count 4: Unjust Enrichment/Money Had and Received.
Defendant argues that the contract between the parties

precludes Plaintiffs from bringing this claim because, in
Massachusetts, the equitable remedy of unjust enrichment is
not available to parties with an adequate remedy at law.
See Infusaid Corp. v. Intermedics Infusaid, Inc., 739 F.2d
661, 668 (1st Cir. 1984) (“[I]f there is an adequate remedy
at law, equitable relief is unavailable.”); Santagate v.
Tower, 833 N.E.2d 171, 176 (Mass. App. Ct. 2005) (same).

As

noted at the hearing, Plaintiffs have clearly alleged this
count as an alternative legal theory should their breach of
contract count ultimately fail.

Accordingly, the court

will, for now, deny Defendant’s motion to dismiss Count 4.
G.

Count 5: Fraud (Affirmative Misrepresentation).
Federal Rule of Civil Procedure 9(b) includes a

heightened pleading standard for fraud claims.

Fed. R. Civ.

P. 9(b) (“In alleging fraud or mistake, a party must state
with particularity the circumstances constituting fraud or
mistake.”).

Although Defendant does not contest the

sufficiency of Plaintiff’s specific allegations of fraud,
Defendant contends, as a threshold matter, that Plaintiffs’
failure to specifically allege that they read the statements
that they now allege to be false undercuts their assertion
14

See Wells v. Monarch

that they relied on those statements.

Capital Corp., No. 91-10575-MA, 1991 U.S. Dist. LEXIS 20789,
*39-40 (D. Mass. Aug. 23, 1991) (finding pleadings
inadequate where plaintiff alleged that “he relied ‘directly
or indirectly’ upon the defendants’ misrepresentations . . .
[but did] not state that he read any of the allegedly false
documents”).

Defendant is mistaken.

While Plaintiffs did

not use the word “read,” their allegations refer to specific
quotations within the standard form documents that all
Alliance Account beneficiaries receive.
Compl. ¶ 86(a)-(g).)

(Dkt. No. 8, Am.

Clearly, Plaintiffs could not cite to

these quotations without having first read them.

Moreover,

Plaintiffs alleged that they received the Alliance Account
information in the mail and relied on it.

(Dkt. No. 8, Am.

Compl. ¶¶ 30-35 (alleging that Defendant sent each named
Plaintiff a checkbook and “represented in writing that the
check book was the lump sum payment to which they were
entitled under the policy” and that each named Plaintiff
“had no reason to doubt Prudential’s written
representations”).)

The court thus finds that Plaintiffs

have satisfied the particularity requirement of Rule 9(b).
Fed. R. Civ. P. 9(b).
Moving to the substance of Plaintiffs’ allegations,
Plaintiffs allege that Defendant has affirmatively
15

misrepresented how the Alliance Account works.

Defendant

argues that the contested statements are, at worst,
ambiguous and that the ambiguity is immaterial.
While some of Plaintiffs’ allegations may not withstand
further scrutiny, at least two satisfy, for the purposes of
this motion, the required elements of a fraud claim.

See

Armstrong v. Rohm & Haas Co., 349 F. Supp. 2d 71, 81 (D.
Mass. 2004) (citing Reisman v. KPMG Peat Marwick LLP, 787
N.E.2d 1060, 1066-67 (Mass. App. Ct. 2003)) (holding that to
prove fraud, a plaintiff must “show that (1) the defendant
made a false representation of material fact, (2) with the
knowledge of its falsity, (3) for the purpose of inducing
the plaintiff to act in reliance thereon, (4) the plaintiff
relied upon the representation, (5) the plaintiff acted to
his detriment.”).

First, Plaintiffs allege that Defendant’s

claim that it will satisfy the insured’s selection of the
lump-sum payment option by creating an Alliance Account is
false because the Alliance Account is not equivalent to a
lump-sum payment.

Second, Plaintiffs allege that

Defendant’s statement that the Alliance Account is a
personal interest-bearing account is false because the
account is not personal and the interest is credited at
Defendant’s discretion and not by a legal instrument setting
an interest rate.

(Dkt. No. 8, Am. Compl. ¶ 86.)
16

These two

statements, which suggest that Defendant intentionally
misrepresented essential elements of the Alliance Account in
order to induce beneficiaries to maintain the insurance
proceeds in the accounts, are sufficient to overcome
Defendant’s motion to dismiss Count 5.
H.

Count 6: Fraud (Omission).
Plaintiffs allege that Defendant withheld numerous

material facts from Plaintiffs, including that Defendant was
earning up to five or ten times more interest than it was
paying beneficiaries.

(Dkt. No. 88, Am. Compl. ¶ 97 (c).)

As with Count 5, while the allegations of this count may
narrow after discovery, Count 6 cannot at this stage be
dismissed.
I.

Count 7: Breach of Fiduciary Duty/Constructive Trust.
Plaintiffs’ allegations regarding breach of fiduciary

duty arise not out of Defendant’s role as holder of the life
insurance policy, but instead out of Defendant’s role as
holder of the insurance proceeds between the time of the
death of the insured who elected a lump-sum payment and the
time at which the beneficiary actually possessed that lump
sum.

Because Defendant benefits from the use of the money

during this time, Plaintiffs argue, it has a fiduciary duty
to Plaintiffs.

Defendant argues, to the contrary, that any

duties that it owes Plaintiffs cease once it makes the
17

insurance proceeds available via the Alliance Account,
because its sole duty under the contract is to pay the
proceeds in a lump sum.

This assertion, of course, rises

and then falls on Defendant’s underlying contention that the
creation of the Alliance Account is the equivalent of the
mailing of a check for the lump sum.
Defendant’s argument is further stymied by the First
Circuit’s holding in Mogel v. UNUM, that
[the insurer] cannot be said to have completed its
fiduciary functions under the plan when it set up
the Security Accounts and mailed the checkbooks,
retaining for its use the funds due until they
were withdrawn. . . . [U]ntil the beneficiaries
received the lump sum payments to which they were
entitled, [the insurer] remained obligated to
carry out its fiduciary duty under the plan.
Mogel v. UNUM Life Ins. Co. of Am., 547 F.3d 23, 26 (1st
Cir. 2008).

In light of this authority, Defendant’s motion

to dismiss Count 7 must be denied.
IV. CONCLUSION
For the foregoing reasons, Defendant’s Motion to
Dismiss the Amended Complaint (Dkt. No. 22) is hereby
DENIED.

Counsel appeared for a scheduling conference on

April 27, 2011, and a separate scheduling order will issue
this day.
It is So Ordered.

18

/s/ Michael A. Ponsor
MICHAEL A. PONSOR
U. S. District Judge

19