In Re: PRU SALES LITIGATION, et al v. PRUDENTIAL INSURANCE, et al
OPINION. Signed by Judge Dickinson R. Debevoise on 6/3/15. (DD, )
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
IN RE PRUDENTIAL INSURANCE
COMPANY OF AMERICA
SALES PRACTICES LITIGATION
Civil Action No. 95-4704 (DRD)
THIS DOCUMENT RELATES TO:
WYNNE WHITMAN, STACY WHITMAN
DENTONS US LLP
by: Edward J. Reich, Esq.
101 JFK Parkway
Short Hills, New Jersey 07078
889 Gregory Drive
Brick, NJ 08723
Attorneys for the Prudential Ins. Co. of America/Movant
CARROLL McNULTY & KULL LLC
by: Joseph P. McNulty, Esq.
Frank M. Falcone, Esq.
P.O. Box 650
Basking Ridge, New Jersey 07920
Attorneys for Wynne Whitman and Stacy Whitman
Debevoise, Senior U.S. District Judge
In 1997 the Court certified a settlement class and approved the settlement of a nationwide
class action against Prudential Insurance Company alleging that Prudential agents had engaged in
deceptive, fraudulent, and misleading sales practices with respect to the sale of life insurance. See
In re Prudential Ins. Co. of America Sales Practices Litigation, 148 F.3d 283 (3d Cir. 1998)
(approving class certification and settlement). Presently before the Court is Prudential’s motion
to enjoin Wynne Whitman and Stacy Whitman from litigating Whitman v. The Prudential Ins. Co.
of America, MRS-L-2247-14 (N.J. Super. Ct., Law Div., filed Sept. 9, 2014), in the Superior Court
of New Jersey, Law Division, Morris County. The Whitmans filed a memorandum of law and
certifications opposing the motion on the ground that their claims for breach of the express terms
of their life insurance policy contracts were not settled in the Prudential Sales Practices Litigation.
Prudential filed a Reply and an additional declaration. Because Prudential has not carried its
burden and for the reasons expressed below, this Court will deny Prudential’s motion.
Prudential Sales Practices Settlement
In 1994 a large group of policyholders brought a class action against Prudential alleging
that they were the victims of fraudulent, deceptive, and misleading sales and marketing practices
employed by Prudential’s sales force. As individual and class action lawsuits began to accumulate,
Prudential moved to consolidate the various federal actions in this District. On August 3, 1995,
the Judicial Panel on Multidistrict Litigation granted the motion and transferred several actions to
New Jersey. Prudential also removed various state actions which were centralized in this case.
On October 25, 1995, plaintiffs filed the First Consolidated Amended Class Action Complaint.
Prudential moved to dismiss and on May 10, 1996, the Court granted the motion in part and denied
the motion in part.
On September 19, 1996, plaintiffs filed a Second Amended Consolidated Complaint, which
contained essentially the same claims as the first. Plaintiffs alleged that Prudential management
“implemented a fraudulent scheme to sell life insurance policies through a variety of deceptive
sales practices including ‘churning,’ ‘vanishing premium,’ and ‘investment plan’ sales tactics.”
In re Prudential, 148 F.3d at 292. Plaintiffs alleged the following additional abusive sales
practices: “Prudential took affirmative steps to conceal its misrepresentations;” “Prudential agents
informed the Nicholson plaintiffs to ‘ignore’ notices concerning lapses in their policies;” and “a
Prudential agent made unauthorized withdrawals from the policy of named plaintiff Darner.” Id.
at 293 n.10.
On October 28, 1996, the parties filed a final Stipulation of Settlement and the Court issued
an Order conditionally certifying a national settlement class, directing issuance of class notice,
issuing an injunction barring certain policy holders from pursuing overlapping litigation unless the
policy holder opted out of the class, and scheduling a fairness hearing. See In re Prudential, 148
F.3d at 294. After conducting a fairness hearing, the Court entered a Final Order and Judgment
certifying the class and approving the settlement as fair, reasonable and adequate. See In re
Prudential Ins. Co. of America Sales Practices Litigation, 962 F.Supp. 450 (D.N.J. 1997).
The settlement class consists of “all persons who own or owned at termination an
individual permanent whole life insurance policy issued by Prudential . . . during the Class Period
of January 1, 1982 through December 31, 1995 [with certain exceptions not relevant here, who]
d[id] not timely exclude themselves from participating in the settlement.” In re Prudential Ins.
Co. of America Sales Practice Litigation, 261 F.3d 355, 359 (3d Cir. 2001) (affirming injunction
against the Lowes’ state court action).
In approving the settlement, this Court found that
“Prudential engaged in a systematic fraudulent marketing scheme in which its agents wrongfully
induced policyholders to purchase certain Prudential life insurance policies [and] implemented its
scheme through the use of false and misleading sales presentations, policy illustrations, marketing
materials, and other information that Prudential approved, prepared, and disseminated to its
nationwide sales force.” In re Prudential, 962 F.Supp. at 473-74. The Court found: (1) Prudential
used a deceptive sales practice called churning, which “refers to the removal, through
misrepresentations or omissions, of the cash value, including dividends, of an existing life
insurance policy or annuity to acquire a replacement insurance policy,” to sell policy holders
replacement policies, 962 F.Supp. at 474; 261 F.3d at 359 n.2; (2) Prudential misrepresented that
the premiums on its life insurance products would “vanish,” but “Prudential's standardized sales
presentations and policy illustrations failed to disclose that the policy premiums would not vanish
and that Prudential did not expect the policies to pay for themselves as illustrated,” 962 F.Supp. at
476; 261 F.3d at 359 n.3; and (3) “Prudential misrepresented to policyholders, through standard
presentations and materials, that life insurance policies were equivalent to investment or savings
accounts, pension maximization or retirement plans, college-tuition funding plans, mutual funds,
or other investment or savings plans.” 962 F.Supp. at 477; 261 F.3d at 359 n.4.
The Settlement provides for an Alternative Dispute Resolution Process whereby class
members who believed they had been misled by the fraudulent and deceptive sales practices could
submit a claim to Prudential. Under this process a claim was subject to a four tier review process,
which included applying a set of “criteria for each of four general categories of sales complaints:
(1) financed insurance (taking a loan against an existing policy in order to pay the premiums on a
new policy); (2) abbreviated payment plans (using dividends from a policy to pay the premiums
on that policy); (3) life insurance sold as an investment; and (4) other improper sales practices.”
148 F.3d at 295. The relief afforded a claimant class member varied depending on the final score
he or she was awarded.1 Id. at 296.
Without having to demonstrate liability on the part of Prudential, a policyholder could obtain
Basic Claim relief consisting of: “(1) low interest loans to help policy holders make premium
payments on existing policies; (2) enhanced value policies which allow[ed] members to purchase
new policies with additional coverage paid for by Prudential; (3) deferred annuities enhanced by
contributions from Prudential; and (4) the opportunity to purchase shares in designated mutual
funds enhanced by a contribution from Prudential.” 148 F.3d at 296. The following compensatory
relief was also potentially available based on the category of claim proved: (1) for financed
insurance claims, the policy holder could obtain a refund of the loans, dividends, or values
improperly used or cancel the new policy; (2) for abbreviated payment claims, the policy holder
In 1998, the United States Court of Appeals for the Third Circuit affirmed the certification
of the class and the determination that the above described settlement was fair, reasonable and
adequate. In re Prudential, 148 F.3d at 316, 329.
State Court Complaint Prudential Seeks to Enjoin
On September 9, 2014, Wynne Whitman and Stacy Whitman filed a complaint against
Prudential in the Superior Court of New Jersey, Law Division, bearing Civil Number MRS-L2247-14. (ECF No. 2030-6 at 9-15.) Plaintiffs allege in this complaint that on February 28, 1994,
they each purchased a Survivorship Modified Whole Life Insurance policy from Prudential
insuring the lives of their parents Gladstone Whitman and Sally G. Whitman for $2,500,000.
Plaintiffs assert that each policy expressly provides that the annual premium for the policy will
remain at $54,899 throughout the duration of the policy. They allege that beginning in 2009,
contrary to this provision, Prudential increased the premium for each policy to $109,701. Plaintiffs
assert that they paid the increased premiums under protest. They claim that Prudential breached
the express terms of each policy by increasing the premium from $54,899 to $109,701. Plaintiffs
seek (1) a money judgment to compensate them for premium payments made in excess of the
agreed upon annual premium of $54,899 and for litigation costs and (2) a declaratory judgment
that the annual premium on each policy is and will remain at $54,899 and that the guaranteed death
benefit is $2,500,000 on each policy. (ECF No. 2030-6 at 9-15.)
could cancel the policy and obtain a refund of some or all of the premiums paid or keep the policy
without having to make additional payments for some or all of the premiums due; (3) for
investment product claims, the policy holder could cancel the policy and obtain a refund of some
or all of the premiums paid or exchange the policy for an annuity; and (4) “[i]f a policyholder was
misled in some other way, the policyholder [could] cancel the policy and obtain a refund of some
or all of the premiums paid . . . or . . use the refund to purchase to purchase another policy.” 148
F.3d at 296 n.20.
In the present motion Prudential seeks an order enjoining the Whitmans from litigating this
action in the New Jersey courts. Prudential argues that an injunction is warranted to enforce the
class settlement because: (1) the class settlement released Prudential from the Whitmans’ claims
because the Whitmans are class members and their policies do not include a term limiting the
annual premium for each policy to $54,899, and (2) the class settlement released Prudential from
the Whitmans’ breach of contract claim. The Whitmans argue that this Court should deny the
motion for an injunction because, while they are class members, their breach of contract claims
were not settled in the class settlement, as the breach of contract claims do not arise from any
deceptive sales practices or misrepresentations by Prudential or its agents.
The Anti-Injunction Act provides that “[a] court of the United States may not grant an
injunction to stay proceedings in a State court except as expressly authorized by Act of Congress,
or where necessary in aid of its jurisdiction, or to protect or effectuate its judgments.” 28 U.S.C.
The Anti-Injunction Act “is an absolute prohibition against enjoining state court
proceedings, unless the injunction falls within one of three specifically defined exceptions.”
Atlantic Coast Line R.R. Co. v. Brotherhood of Locomotive Engineers, 398 U.S. 281, 286 (1970).
These “exceptions are narrow and are not to be enlarged by loose statutory construction.” Chick
Kam Choo v. Exxon Corp., 486 U.S. 140, 146 (1988). “Any doubts as to the propriety of a federal
injunction against state court proceedings should be resolved in favor of permitting the state courts
to proceed in an orderly fashion to finally determine the controversy.” Atlantic Coast Line R.R.
Co., 398 U.S. at 297. In addition, the Act cannot be evaded by addressing the order to the parties.
See Atlantic Coast Line R.R. Co. 398 U.S. at 287.
The All-Writs Act, which authorizes federal courts to “issue all writs necessary or
appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of
law,” 28 U.S.C. § 1651(a), “acts in concert with the Anti-Injunction Act to permit the issuance of
an injunction.” In re Prudential Ins. Co. of America Sales Practices Litigation, 261 F.3d 355, 365
(3d Cir. 2001) (citation and internal quotation marks omitted).
“[A] judgment pursuant to a class settlement can bar later claims based on the allegations
underlying the claims in the settled class action” and a federal court “may release claims over
which it has no subject matter jurisdiction if the state claims arise from the same nucleus of
operative facts as the claims properly before it.” In re Prudential, 261 F.3d at 366. The applicable
exception to the Anti-Injunction Act is the “necessary in aid of jurisdiction” exception. Id. at 36465. To determine whether the injunction Prudential seeks is necessary in aid of jurisdiction, the
Court must examine whether the Whitmans are class members and whether the breach of contract
and declaratory judgment claims raised in the Whitmans’ complaint arises from the same nucleus
of operative facts as the claims settled in the Prudential Sales Practices litigation.
The Whitmans are members of the settlement class because they purchased the whole life
insurance policies in 1994 and the class includes persons whose whole life insurance policies were
issued from January 1, 1982, through December 31, 1995. Prudential’s first argument is that the
Whitmans’ state complaint should be enjoined because, contrary to the allegations in that
complaint, their policies do not include a term limiting the premium to $54,899. However, the
Whitmans’ complaint asserts that the limitation of the premium to $54,899 was included in the
bound insurance policy. The Court will not allow Prudential to re-write the Whitmans’ complaint
to state a misrepresentation claim in order to enjoin the Whitmans from litigating a claim that is
not in their complaint. The factual dispute between the parties concerning the terms of the contract
is not properly before this Court.
Next, Prudential argues that this Court should enjoin the Whitmans’ state court complaint,
even if their insurance policies expressly limit the annual premium to $54,899. The Court,
however, agrees with the Whitmans that Prudential has not shown that the class settlement released
Prudential from honoring the express terms of insurance policies purchased by class members. As
explained above, the settlement involved class members’ claims arising from the fraudulent sales
and marketing scheme perpetrated by Prudential, “regardless whether each class member alleges
a churning claim, a vanishing premium claim, an investment plan claim, or some other injury
falling within the category of ‘other sales’ claims.” In re Prudential, 148 F.3d at 311.2 The breach
of contract and declaratory judgment claims the Whitmans seek to litigate in their state court
complaint have nothing to do with the fraudulent or misleading sales and marketing practices
which were the subject of the class action. The Whitmans do not assert in the state complaint that
they were induced by fraudulent sales practices to purchase these life insurance policies, nor do
they refer to any misrepresentation by Prudential. Rather, they claim that each of their polices
provides for a steady premium of $54,899 per year and that Prudential breached the premium term
in the policy contract by increasing the annual premium to $109,701. The breach of contract and
declaratory claims raised in the Whitmans’ complaint were not released in the class settlement, as
In approving the settlement, this Court found “plaintiffs would face a difficult burden at trial
demonstrating, inter alia, (1) class members were deceived by Prudential’s written disclosures and
illustrations; (2) their contract claims were not barred by the parol evidence rule because they
conflict with the unambiguous language in the insurance contracts; (3) the necessary reliance to
support their federal securities claims; and (4) their federal securities claims were not barred by
the one year statute of limitations and the three year statute of repose.” In re Prudential , 148 F.3d
at 319. The Whitmans’ breach of contract claim does not require the resolution of these issues.
those claims do not arise from the same nucleus of operative facts as the claims settled in the class
action, i.e., claims regarding deceptive sales practices and misrepresentations.
The scope of the release is not as broad as Prudential contends. Any doubt about the scope
of the release is resolved by the opinions of this Court and the Court of Appeals approving the
Prudential Sales Practices Settlement, which clarify that the settlement released only claims of
class members arising from Prudential’s scheme of deceptive sales practices and
misrepresentations. In approving the settlement, this Court and the Court of Appeals rejected the
notion that the settlement secured “an all-encompassing release for Prudential.” In re Prudential,
148 F.3d at 325. In response to the objectors’ contention that the release was all-encompassing,
the Court of Appeals found that the released claims are limited to the allegations in the Second
Amended Consolidated Complaint and unpleaded claims based on the same factual predicate 3 or
nucleus of operative facts as the allegations in the Second Amended Consolidated Complaint, i.e.,
deceptive sales practices and misrepresentations:
The crux of the plaintiffs' complaint was that Prudential engaged in a common
scheme of deceptive sales practices. Although the Second Amended Consolidated
Complaint specifically lists three types of deceptive sales claims—the churning,
vanishing premium and investment plan claims—other allegations address conduct
which supports the common scheme theory and which does not fall neatly within
the three enumerated categories. Therefore, we agree with the district court the
“other claims” were properly released. While it is essential to protect the interests
of absentee class members, we believe the claims of the absentees here are
adequately incorporated in the terms of the settlement. The category of “other
claims” are part and parcel of the “common scheme” which underlies plaintiffs'
entire case, and are separately addressed in the procedural guidelines which form
the basis for the ADR process. Finally, the settling parties have represented that the
settlement “does not release unknown claims relating to the servicing or
administration of class members' policies,” but is limited to claims relating to the
actual sale of insurance policies.
“[A] federal court may release claims which are not in the complaint provided they are based on
the ‘same factual predicate.’” In re Prudential, 148 F.3d at 326 n.82 (quoting Class Plaintiffs v.
City of Seattle, 955 F.2d 1268, 1287-88 (9th Cir. 1992)).
In re Prudential, 148 F.3d at 326 (citations and footnotes omitted).
In its Reply, Prudential cites Opinions issued in this case on March 31, 2000 (“Kyrk
Opinion”), and September 27, 2007 (“Thomas Opinion), for the proposition that “this Court has
previously enjoined state claims that Prudential failed to honor a waiver of premium provision in
the class policy.” (ECF No. 2033 at 10.) Prudential also cites an Opinion filed on October 12,
2001 (“LaMarra Opinion), for its contention that “[t]his Court has found that similar claims
regarding promises as to the amount of premiums due are covered by the Class settlement.” (ECF
No. 2033 at 9.) This Court has examined the cited Opinions but finds that they do not support
The Kyrk Opinion, which Judge Wolin filed on March 31, 2000, supports the Whitmans,
as Judge Wolin held that the settlement did not release Prudential from a claim that Prudential
failed to comply with the terms of a class member’s insurance policy. (ECF Nos. 1589, 2033-2 at
4-26.) Judge Wolin emphasized that “[t]he class action settlement achieves finality for Prudential
for claims that may fairly be said to arise out of the sales practices for which it was sued in the
class action. It does not absolve Prudential of other legal and contractual responsibilities.” (ECF
No. 2033-2 at 8.) Judge Wolin denied Prudential’s motion to enjoin a complaint filed by Atef
Bandary, the beneficiary of a policy previously owned by a deceased William A. Feitz, in the
United States District Court for the Central District of California. “Bandary allege[d in the
complaint] that Prudential applied improper deductions for premiums Prudential alleged had not
been paid. These deductions were wrongful, Bandary claim[ed], because the policy contained a
waiver of premium that excused payment during the period Feitz was disabled with his last illness.”
(ECF No. 2033-2 at 10.) Judge Wolin rejected Prudential’s contention that Bandary’s claim was
actually founded on an alleged misrepresentation by the Prudential agent who sold the policy to
The only question presented by this application is whether Bandary’s claim is one
that is related to or arises out of the claims released as part of the class settlement.
The Court answers that question in the negative. The claim here is about the
application of a waiver of premium provision in the policy. The case may hold a
question of fact regarding when and if Feitz was disabled and what notice he
provided or was required to provide to Prudential to invoke the waiver of premium
. . . . This case manifestly has nothing to do with the sale of the policy to Feitz.
Prudential’s argument that Bandary’s complaint actually turns on misrepresentation
as to the value of the death benefit is not convincing. The same could be said of
any policyholder’s claim; disappointed policyholders will, be definition, always be
receiving less than they expected. Without more, this truth cannot convert a postsettlement misinterpretation of the policy into a pre-settlement, sales practice claim.
In short, the class action and its settlement did not encompass all coverage disputes
between Prudential and its policyholders. As noted above, the class settlement was
broad, but it has boundaries. Prudential may not use it as a license to interpret
outstanding policies as it sees fit, immune from judicial oversight. Therefore, the
Court will deny Prudential’s motion with respect to Bandary.
(ECF No. 2033-2 at 11-12.)
Neither the LaMarra Opinion, filed by Judge Wolin on October 12, 2001, nor the Thomas
Opinion, filed by the undersigned on September 27, 2007, support Prudential’s motion to enjoin
the Whitmans. In the Thomas Opinion, the undersigned granted Prudential’s motion to enjoin
Walter Thomas from litigating claims that Prudential agent David Smith made misrepresentations
when he sold Thomas a life insurance policy in 1995 and that Prudential committed improper
replacement or churning. Unlike the breach of contract claim raised in the Whitmans’ complaint,
Thomas’s claims arose from the same nucleus of operative facts as the Second Amended
Consolidated Complaint in the Sales Practices Litigation, i.e., deceptive sales practices. Similarly,
none of the actions enjoined by Judge Wolin in the LaMarra Opinion raised a breach of contract
claim like the claim raised by the Whitmans. Moreover, the following statement in the LaMarra
Opinion supports the Whitmans: “[P]olicyholders’ rights to death benefits payable under the
explicit terms of Prudential policies were not released in the class settlement.” (ECF No. 2030-3
In sum, the Prudential Sales Practices Settlement did not release Prudential from complying
with the express terms of the Whitmans’ insurance policies.4 Prudential has not shown that it is
entitled to enjoin the Whitmans from pursuing Whitman v. The Prudential Ins. Co. of America,
Docket No. MRS-L-2247-14, in the Superior Court of New Jersey. This Court will deny the
This Court will deny Prudential’s motion to enjoin Wynne Whitman and Stacy Whitman
and will enter an appropriate order.
s/Dickinson R. Debevoise
DICKINSON R. DEBEVOISE
Dated: June 3, 2015
Although Prudential contends that the Whitmans’ policies do not include a term limiting the
annual premium to $54,899, as previously stated, this is a factual question to be decided in the
New Jersey courts when it resolves the breach of contract claim raised in the Whitmans’ complaint.
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