Weaver et al v. Aegon USA LLC et al
Filing
57
ORDER. IT IS THEREFORE ORDERED that Defendant Transamerica's motion to dismiss (ECF No. 19 ) is GRANTED; IT IS FURTHER ORDERED that Defendant AEGON USA, LLC's motion to dismiss (ECF No. 20 ) is GRANTED on the same bases as the Court has granted Transamerica's motion to dismiss; IT IS FURTHER ORDERED that the Complaint is dismissed with prejudice, and the Clerk is instructed to close this matter; and IT IS FURTHER ORDERED that Plaintiffs' Motion for L eave to Amend Complaint (ECF No. 27 ) is GRANTED in part and found to be moot in part. Defendants' Motion for Notice of Filing and Request for Judicial Notice (ECF No. 47 ) is denied. Signed by the Honorable R. Bryan Harwell on 9/28/2015. (hcic, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
FLORENCE DIVISION
BECKY A. WEAVER and
RODNEY WEAVER, individually and
on behalf of all others similarly situated,
Plaintiffs,
v.
AEGON USA, LLC, f/k/a AEGON USA,
INC.; and TRANSAMERICA LIFE
INSURANCE COMPANY, f/k/a LIFE
INVESTORS INSURANCE COMPANY
OF AMERICA f/k/a EQUITY NATIONAL
LIFE INSURANCE COMPANY,
Defendants.
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CIVIL ACTION NO. 4:14-cv-03436-RBH
ORDER
Plaintiffs Becky A. Weaver and Rodney Weaver filed this action on August 25, 2014
against Defendants Transamerica Life Insurance Company (“Transamerica”) and AEGON USA,
LLC (“Aegon”). Before the Court are the Motion to Dismiss filed by Defendant Transamerica
(ECF No. 19) and the Motion to Dismiss filed by Defendant Aegon (ECF No. 20). Also before
the Court are Plaintiffs’ Motion for Leave to Amend the Complaint (ECF No. 27)1 and
Defendants’ Motion for Notice of Filing and Request for Judicial Notice (ECF No. 47)2. A
hearing was held on the motions to dismiss and motion to amend on June 2, 2015 at 10:00 a.m.
1
Plaintiffs’ motion to amend seeks to omit the claims for fraud and unjust enrichment and to amend other allegations of the
complaint.
2
Defendants’ Motion to Take Judicial Notice was filed a month after the motion hearing in this matter and
requests the Court to take judicial notice of certain briefs filed by the appellants in the Arkansas Supreme Court in
Hunter v. Runyan, 382 S.W.2d 643 (Ark. 2011).
Present at the hearing were Patrick Knie, Susan Campbell, and Tony Gould on behalf of the
plaintiffs and Brent Clinkscale and Michael Cashman on behalf of the defendants.
ALLEGATIONS OF THE COMPLAINT
The plaintiffs allege that they are owners of a supplemental cancer insurance policy
issued by a predecessor-in-interest of Defendant Transamerica and serviced by Defendant
Aegon. Plaintiffs bring this action on behalf of themselves and all others in the United States, or
alternatively, South Carolina residents, who were not named plaintiffs in a class action formerly
pending in the state circuit court of Pulaski County, Arkansas, referenced in the Complaint as the
“Runyan suit”, and who were insured under a supplemental cancer policy that was issued or
administered by the defendants and measures some policy benefits by the medical providers’
“actual charges”. Plaintiffs allege that this Court has jurisdiction to decide whether the term
“actual charges” in the policies means “the greater, ‘billed’ or ‘pre-negotiated’ charges or the
reduced amount the provider agrees to accept from the patient’s other, unrelated major medical
insurance company in exchange for . . . ‘discounted’ or ‘post-negotiated’ charges.”
(Compl.
ECF No. 1, ¶ 20a) Plaintiffs allege that this Court has jurisdiction to determine whether
Defendants are precluded from taking the position that the term “actual charges” means the
“discounted” or “post-negotiated” charges because three federal courts have already issued
separate judgments against the defendants on that issue. Plaintiffs further allege that this Court
has jurisdiction to decide whether the defendants are precluded from taking the position that the
final judgment entered by the Arkansas court in Edison Runyan, et al. v. Transamerica Life
Insurance Company, et al., No. CV-09-2066-3 (the “Runyan Judgment) is binding on the
plaintiffs and the members of the proposed class, considering that a federal court in South
Carolina has already entered a decision against the defendants on the same issue in Hege v.
-2-
Aegon USA, LLC, et al., No.: 8:10-1578-GRA (D.S.C.). Finally, Plaintiffs allege that this Court
has jurisdiction to decide whether the Runyan Judgment is entitled to Full Faith and Credit under
the United States Constitution Art. IV, § 1 or whether the Runyan Judgment was rendered in
violation of the due process clause of the Fourteenth Amendment to the United States
Constitution and/or the First Amendment.
The theories of recovery contained in the Complaint are (1) declaratory relief; (2) fraud;
(3) unjust enrichment; (4) breach of contract; and (5) bad faith. In the motion to amend,
Plaintiffs seek permission of the Court to dismiss the claims for fraud and unjust enrichment and
also to amend the complaint in other respects. Defendants consent to the dismissal of the fraud
and unjust enrichment claims but oppose any other amendments. At the hearing, the plaintiffs
requested the Court to hold the motion to amend in abeyance until a determination has been
made regarding whether jurisdictional discovery will be needed regarding Defendant Aegon.
The Court granted this request. In an effort to simplify the issues now before the Court,
however, the Court grants the motion to amend insofar as it requests dismissal of the fraud and
unjust enrichment claims. In this order, the Court will discuss the defendants’ arguments that the
remaining claims, i.e., those for declaratory relief, breach of contract, and bad faith should be
dismissed. Defendants move for dismissal of all claims pursuant to Fed. R. Civ. P. 12(b)(1), lack
of subject matter jurisdiction, and Fed. R. Civ. P. 12(b)(6), failure to state a claim3.
Legal Standard for Fed. R. Civ. P. 12(b)(1) Motion to Dismiss for Lack of Subject Matter
Jurisdiction
3
Defendants move to dismiss based upon the Rooker-Feldman doctrine; the Full Faith and Credit Act, 28
U.S.C. Section 1738, and the doctrine of res judicata, collateral estoppel, and the release in the Runyan judgment;
the Anti-Injunction Act, 28 U.S.C. Section 2283; and principles of comity and federalism.
-3-
Motions to dismiss for lack of subject-matter jurisdiction challenge a court’s authority to
hear a matter, and the plaintiff has the burden of proving subject matter jurisdiction. See Best
Med. Belgium, Inc. v. Kingdom of Belgium, 913 F. Supp. 2d 230, 236 (E.D. Va. 2012), citing
United States v. Hays, 515 U.S. 737, 743 (1995). “The district courts of the United States are
courts of limited jurisdiction. Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 552,
125 S. Ct. 2611, 162 L.Ed. 2d 502 (2005). They possess only the jurisdiction authorized them by
the United States Constitution and by federal statute.” U.S. ex rel. Vuyyuru v. Jadhav, 555 F.3d
337, 347 (4th Cir. 2009). “A court may dismiss a case for lack of subject matter jurisdiction on
any of the following bases:
‘(1) the complaint alone; (2) the complaint supplemented by
undisputed facts evidenced in the record; or (3) the complaint supplemented by undisputed facts
plus the court’s resolution of disputed facts.’ Norman v. Owens, No. 5:12-cv-01158-RBH, 2013
WL 4042038, at *3 (D.S.C. Aug. 7, 2013) (quoting Johnson v. United States, 534 F.3d 958, 962
(8th Cir. 2008)).” Bucksport Water Sys., Inc. v. Weaver Eng'g, Inc., No. 4:13-CV-02503-RBH,
2013 WL 5914410, at *2 (D.S.C. Oct. 31, 2013). “There are two critically different ways in
which to present a motion to dismiss for lack of subject matter jurisdiction”. Adams v. Bain, 697
F.2d 1213, 1219 (4th Cir. 1982).
First, it may be contended that a complaint simply fails to allege facts upon which subject
matter jurisdiction can be based. In that event, all the facts alleged in the complaint are
assumed to be true and the plaintiff, in effect, is afforded the same procedural protection
as he would receive under a Rule 12(b)(6) consideration. Second, it may be contended
that the jurisdictional allegations of the complaint were not true. A trial court may then go
beyond the allegations of the complaint and in an evidentiary hearing determine if there
are facts to support the jurisdictional allegations.
Id.
Significantly, in considering a “facial challenge,” the Court “may also consider matters of
public record the parties do not dispute and certain other materials.” See, e.g., L.K. ex rel.
Henderson v. N.C. State Bd. of Educ., No. 5:08cv85, 2011 WL 861181, at *4 (E.D.N.C.
Feb. 18, 2011); N.Y. Shipping Ass'n v. Waterfront Comm'n of N.Y. Harbor, No. Civ. A.
-4-
10–5633, 2011 WL 1042771, at *2 (D.N.J. Mar. 18, 2011) (“In a facial attack .... [a]
court may ... consider only the complaint, exhibits attached to the complaint, matters of
public record, and undisputedly authentic documents if the plaintiff's claims are based
upon those documents.”) (emphasis added); Community Fin. Group, Inc. v. Republic of
Kenya, ––– F.Supp.2d ––––, 2011 WL 915131, at *1 (D.Minn. Mar. 15, 2011) (“In a
facial challenge under Rule 12(b)(1) .... [t]he court limits its inquiry to the pleadings. The
pleadings, however, include matters of public record.”); Paschal v. Univ. of Pittsburgh
School of Dental Medicine, No. Civ. A. 10–502, 2010 WL 4854675, *3 (W.D.Pa. Nov.
22, 2010) (on “a facial challenge to the court's subject matter jurisdiction ... the court is
not required to review evidence extrinsic to the pleadings, except matters of which the
court may take judicial notice”) (emphasis added); Bridgewater v. Double Diamond–
Delaware, Inc., No. 3:09cv1758, 2010 WL 1875617, at *5 (N.D.Tex. May 10, 2010) (“In
reviewing a facial attack, the Court may consider, in a light most favorable to the
plaintiff, the allegations of the complaint and documents referenced therein, as well as
matters of public record such as court records.”).
Bland v. Fairfax Cnty., Va., No. 1:10CV1030 JCC/JFA, 2011 WL 2580343, at *2 (E.D. Va. June
29, 2011). See Fields v. Berman, 526 Fed. Appx. 287, 292, 2013 WL 2382304 at *5 (4th Cir.
2013) (“Furthermore, we reject Field’s contention that the district court erred in dismissing
Counts II and III based upon the Rooker-Feldman doctrine without, as he alleges, the
applicability of Rooker-Feldman appearing on the face of his complaint and without permitting
him to conduct discovery or present evidence at an evidentiary hearing. The district court
properly resolved the jurisdictional issues on the extensive record before it, which included, inter
alia, Field’s complaint, fourteen exhibits attached thereto, and other relevant documents from the
parties’ long litigation history.”)
In the case at bar, the parties disagree as to whether a facial or a factual challenge to
subject matter jurisdiction is being made. Plaintiffs assert that Defendants are engaging in a
facial challenge, while Defendants assert that they are making a factual challenge.4 Plaintiffs
argue that “Transamerica’s Rule 12(b)(1) dismissal motion does not challenge the truthfulness
4
Defendants state that they disagree with the factual allegations by Plaintiffs in the Complaint that the
attorneys representing the Arkansas class colluded with the defendants.
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(of) the Complaint’s factual allegations in any real sense. On the contrary, Transamerica’s
jurisdictional motion challenges the ‘sufficiency’ of those allegations insofar as it suggests the
due process violations alleged in the Complaint are not actionable even if true, because this
federal court cannot make findings inconsistent with the express findings of the Runyan court.”
(Pl. Resp. in Opp. to Motion to Dismiss, ECF No. 55, p. 6)
Even though Defendants assert that they make a factual challenge in which they may
submit extrinsic evidence to support their argument for lack of subject matter jurisdiction, the
plaintiffs claim that Defendants have really only made a facial challenge. The Court will give
Plaintiffs the benefit of the doubt and review the motion in a facial challenge fashion and
consider certain unquestionable matters of public record and, specifically, certain records from
the Runyan case of which it takes judicial notice.5 However, the Court finds it unnecessary and
improper to consider the additional extensive Runyan briefs and the defendants’ memoranda
filed a month after the hearing in this matter and which the Court did not request and which were
part of the defendants’ Motion to Take Judicial Notice (ECF No. 47).
Legal Standard for Motions to Dismiss Pursuant to Fed. R. Civ. P. 12(b)(6).
Federal Rule of Civil Procedure 12(b)(6) governs motions to dismiss for “failure to state
a claim upon which relief can be granted.” The purpose of such a motion is to test the
sufficiency of the facts alleged in a plaintiff’s complaint. See Edwards v. City of Goldsboro, 178
F.3d 231, 243 (4th Cir. 1999).
Rule 8(a)(2) of the Federal Rules of Civil Procedure provides that a pleading must
contain “a short and plain statement of the claim showing that the pleader is entitled to relief.”
While this standard “does not require ‘detailed factual allegations,’ . . . [a] pleading that offers
5
The Court will address which parts of the Runyan record it will consider hereinafter.
-6-
‘labels and conclusions,’ or ‘a formulaic recitation of the elements of a cause of action will not
do.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555 (2007)). Likewise, “a complaint [will not] suffice if it tenders ‘naked assertion[s]’
devoid of ‘further factual enhancement.’” Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at
557). Rather, to survive a Rule 12(b)(6) motion to dismiss, the “[f]actual allegations must be
enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. The
United States Supreme Court recently stated that [t]o survive a motion to dismiss, a complaint
must contain sufficient factual matter, accepted as true, to “state a claim to relief that is plausible
on its face.” A claim has facial plausibility when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.
Iqbal, 556 S. Ct. at 678 (quoting Twombly, 550 U.S. at 570). When ruling on a motion to
dismiss, the court “must accept as true all of the factual allegations contained in the complaint.”
Erickson v. Pardus, 551 U.S. 89, 94 (2007).
Federal Rule of Civil Procedure 12(d) provides that, if on a motion under Rule 12(b)(6),
“matters outside the pleadings are presented to and not excluded by the court, the motion must be
treated as one for summary judgment under Rule 56” and “all parties must be given a reasonable
opportunity to present all the material that is pertinent to the motion.” However, the Fourth
Circuit has recognized an exception to the general rule that the court should not consider
extrinsic evidence when ruling on a Rule 12(b)(6) motion. “Although as a general rule extrinsic
evidence should not be considered at the 12(b)(6) stage, we have held that when a defendant
attaches a document to its motion to dismiss, ‘a court may consider it in determining whether to
dismiss the complaint [if] it was integral to and explicitly relied on in the complaint and [if] the
plaintiffs do not challenge its authenticity.” Am. Chiropractic Ass’n v. Trigon Healthcare, Inc.,
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367 F.3d 212, 234 (4th Cir. 1999)(quoting Phillips v. LCI Int’l Inc., 190 F.3d 609, 618 (4th Cir.
1999). The reason for the exception “is that the primary problem raised by looking to documents
outside the complaint—lack of notice to the plaintiff—is dissipated where plaintiff has actual
notice . . . and has relied upon these documents in framing the complaint.” Trigon, (quoting In
re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1426 (3d Cir. 1997) (internal quotation
marks omitted).
Plaintiffs acknowledge that, in ruling on a motion to dismiss, a court may consider
extrinsic evidence not attached to the complaint as long as the items are “integral to and
explicitly relied on in the complaint and . . . the plaintiffs do not challenge [their] authenticity.”
Phillips v. LCI Intern., Inc., 190 F.3d 609, 618 (4th Cir. 1999). (Plaintiff’s Response in
Opposition to Motion to Dismiss, ECF No. 30, p. 13.) However, they object to the Court’s
consideration of the declarations submitted by the defendants in support of their motion
[Declaration of Markham R. Leventhal (ECF No. 19-3), Declaration of Stephen Gwinn dated
November 5, 2009 (ECF No. 19-8), and Declaration of Stephen Gwinn dated October 24, 2014
(ECF No. 19-10)] and any unauthenticated documents that are attached to the declarations. The
Court agrees with the plaintiffs that the declarations and any unauthenticated attachments from
the Arkansas records should not be considered and will disregard the same in making its rulings.
It will, however, consider only the authenticated copies of the Arkansas circuit court record of
proceedings in Runyan submitted by the defendants with their motion to dismiss (ECF No. 19)
and also the published Arkansas Supreme Court decision in the case.6 For example, the Runyan
court’s findings of fact and conclusions of law were incorporated into that court’s final
6
The Court declines, in its discretion, to convert Transamerica’s motion to dismiss to a motion for
summary judgment.
-8-
judgment.
Authenticated copies of the Runyan court’s Final Order and Judgment (“Final
Judgment”) and its Findings of Fact and Conclusions of Law (“Findings”) have been filed with
this Court in conjunction with the Motion to Dismiss (ECF No. 19).7
The Court denies the defendants’ [47] Motion for Judicial Notice which requests the
Court to take judicial notice of certain briefs filed by the appellants in the Runyan appeal. This
motion was submitted approximately one month after the hearing on the motions to dismiss in
this matter (ECF No. 19 and 20) and about nine months after the filing of the motions to dismiss.
Therefore, it is untimely. In addition, consideration of these briefs is not necessary to this
Court’s ruling.
The Court will next discuss the Runyan class action in Arkansas which was specifically
referenced in the Complaint herein and as shown by the authenticated copies of the Runyan
record attached to Transamerica’s motion to dismiss.
The Runyan litigation
The Insurance Policies
The policies at issue were supplemental cancer insurance policies that provided limited
benefits, many of which were expressed in fixed dollar amounts, for example, $100 to $200 per
day for hospital confinement, $150 for certain lab or diagnostic tests, among other fixed dollar
benefits. Findings at 4 ¶ 5.8 Absent an assignment of benefits, the policies paid benefits in cash
directly to the insured. Id. at 4 ¶ 6. The policies generally included an insuring clause on the
7
ECF Nos. 19-1 (Final Judgment) & 19-2 (Findings). Paragraph 2 of the Final Judgment incorporated the
Findings into the Final Judgment. Citations to pages of the Findings and Final Judgment are to the actual pages of
these documents. Unless otherwise indicated, citations to pages of all other ECF documents are to the page numbers
created by the ECF system located in the header of the document.
8
Many of the policies were issued by companies that merged into Transamerica or predecessors of
Transamerica. For ease of reference, all predecessor companies that issued the policies are referred to as
Transamerica.
-9-
cover page stating that the policies insured for “loss” or “loss incurred.” Id. at 4 ¶ 7. In addition
to fixed benefits, the policies paid some benefits based on the “actual charges” for certain items,
including for example, chemotherapy, radiation therapy, ambulance services, or transportation.
Id. at 5-6 ¶ 9. The policies required that an insured submit written “proof of loss” as a condition
to receiving benefits. Id. at 4 ¶ 7. The premium rates under the policies were subject to annual
increases upon written notice. Id. at 6 ¶ 12.
In 2004, Transamerica determined it had been overpaying claims for “actual charges”
benefits because policyholders were submitting documents with their claims that contained “list
prices,” instead of the actual amounts being billed, charged, and paid for their medical
treatment.9 The Runyan court noted that “list prices are substantially inflated, and virtually no
consumers actually pay these list prices.”10 Transamerica’s investigation concluded that the
payment of “actual charges” benefits based on documents reflecting list prices was resulting in
windfall payments to a minority of policyholders and driving up premium rates for the majority
of policyholders.11
In 2006, Transamerica sent a letter to its policyholders explaining that it was updating its
claim forms and instructions to ensure it would receive proper documentation of the “actual
9
Findings at 7 ¶¶ 13-14, 11 ¶ 13. “‘List prices’ are the maximum prices that hospitals and other healthcare
providers create for their various services or procedure codes.” Id. at 12 ¶ 13.
10
Findings at 12 ¶ 13 (citing George A. Nation, III, “Obscene Contracts: The Doctrine of
Unconscionability and Hospital Billing of the Uninsured,” 94 Ky. L.J. 101, 104 (2005) (“The labels for these
charges, ‘regular,’ ‘full,’ or ‘list,’ are misleading, because in fact they are paid by much less than five percent of
patients nationally.”)).
11
Findings at 7 ¶ 14; see also id. at 30 ¶ 10 (quoting Bulletin No. 2008-15, S.C. Dept. of Ins. at 2 (Aug. 28,
2008) (explaining that insurance is a contract of indemnification and construction of “actual charges” consistent
with this basic principle “ensures that a few insureds and beneficiaries do not receive windfalls . . . greater than sums
actually paid to health care providers,” and “[s]uch windfalls inevitably would cause premiums to increase
exponentially for all and would restrict the availability and affordability of supplemental disease policies”))
(emphasis omitted).
-10-
charges” being paid to and accepted by medical providers. Findings at 7 ¶ 15. The 2006 letter
explained Transamerica’s view that “list prices” do not constitute “actual charges”:
Doctors, hospitals, and other healthcare providers will often send
informational statements to the patient that contain “list” prices or
“standard” rates for their medical services. This happens most frequently
if the patient is covered by Medicare or a group health insurance plan.
These statements are not true “bills” and do not reflect the actual amounts
being paid to and accepted by the healthcare provider as payment in full.
Consequently, these types of informational statements do not reflect the
“actual charges” being incurred and paid. The amounts healthcare
providers are actually charging and accepting as payment are often
significantly less than the amounts listed on these informational
statements.
Findings at 7-8 ¶ 16. The letter included updated claim forms and explained that Transamerica
had revised the claim forms “to make sure that the necessary information and documents are
included to support a claim for benefits based on actual charges.” Id. at 8 ¶ 16. Very few
policyholders communicated any disagreement with the company’s explanation of “actual
charges,” and one year after the 2006 letter, 83% of policyholders had renewed their policies. Id.
at 8 ¶ 17.
Litigation over “Actual Charges”
In 2007, three class actions were filed against Transamerica’s predecessors, the first of
which
was
Pipes
v.
Life
Investors
Insurance
Company
of
America,
Case
No.
1:07-cv-00035-SWW (E.D. Ark.) (“Pipes”). Findings at 8-9 ¶ 2. Plaintiffs’ counsel in Pipes
also filed five additional cases, including three class actions and two individual actions in various
states including Arkansas, Mississippi, Michigan, and Louisiana. Findings at 9 ¶ 3. The cases
all complained that Transamerica had breached its policies in 2006 by changing its method of
paying “actual charges” benefits.
Transamerica argued that its policies insured only for “loss” or “loss incurred,” and that
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“actual charges” under the policies could only be reasonably interpreted as the actual amounts
that are being charged, paid to, and accepted by the healthcare provider as payment in full for the
services rendered. Findings at 11 ¶ 11. Transamerica argued further that it began overpaying
claims for “actual charges” benefits as a result of changes in healthcare billing practices and
because insureds began submitting, and claim examiners began incorrectly accepting, documents
from healthcare providers which were not genuine “bills” and which contained “list prices”
instead of the actual amounts being paid to and accepted by the providers as payment for their
services. Id. at 11 ¶ 12. Transamerica also argued that the few plaintiffs bringing these class
actions had a substantial conflict of interest with the vast majority of policyholders because they
were seeking a windfall for themselves, while driving up the premiums exponentially for the
majority of policyholders.12
The Runyan Class Action Settlement
Following a year and a half of contentious litigation, including written discovery,
document production, depositions, and third-party discovery, on October 6, 2008, counsel for
Transamerica met to discuss settlement with plaintiffs’ counsel in Pipes, who also represented
the plaintiffs in five other cases. Findings at 9 ¶¶ 3-4, 13 ¶ 1; Hall v. Equity Nat’l Life Ins. Co.,
730 F. Supp. 2d 936, 938 (E.D. Ark. 2010) (“Because Pipes’s counsel had the largest number of
plaintiffs and related cases, counsel for [Transamerica] began settlement discussions with them
12
See Hunter v. Transamerica Life Ins. Co., 498 F. App’x 430, 432 n.1 (5th Cir. 2012) (“despite the
policy’s insuring clause―which insures the policyholder “for loss incurred”―the plaintiffs in these class actions are
seeking a windfall). See also Pipes v. Life Investors Ins. Co. of Am., 254 F.R.D. 544, 550 (E.D. Ark. 2008) (noting
that “[t]he millions of dollars in extra premium rate increases required by plaintiffs’ proposed method of paying
benefits will make Life Investors’ [cancer only] policies less affordable or unaffordable for a large number of
policyholders” (quoting actuarial testimony), and concluding, “[t]he conflict identified by [Transamerica] goes to the
very heart of this litigation”); Smith v. Life Investors Ins. Co. of Am., 2009 WL 3756913, at *9 (W.D. Pa. Nov. 6,
2009) (denying class certification because economic interests of named plaintiff with “actual charges” claim
conflicted with the “majority of the putative class members, who . . . may instead prefer to prevent future premium
increases”).
-12-
in October 2008.”). On November 20-21, 2008, the parties engaged in a two-day mediation
before former U.S. District Court Judge Nicholas Politan. Findings at 13 ¶ 2. The parties did
not reach a settlement but agreed to continue negotiating. Id. On November 25, 2008, the
district court in Pipes entered an order denying class certification. Pipes, 254 F.R.D. at 552.
The Pipes lawyers filed a motion for reconsideration, which was fully briefed on February 20,
2009. Findings at 14 ¶ 3.
After months of additional negotiations, in early March 2009, the parties reached a
preliminary understanding on the terms of a global class action settlement, subject to completion
of a comprehensive settlement agreement and subject to court approval. Findings at 14 ¶ 4. On
March 13, 2009, plaintiffs’ counsel filed a class action complaint in the Runyan action. Findings
at 14 ¶ 5. The Runyan complaint was not a new litigation. Rather, Runyan was the continuation
and “consolidation of six prior actions [brought by the Runyan class counsel], including four
class actions and two individual actions.” Findings at 8 ¶ 1; Hall, 730 F. Supp. 2d at 939 (the
Runyan complaint “essentially consolidated the claims of the plaintiffs in the Pipes, Runyan,
Ross, Weidman, Harris, and Nolan federal actions”). All eight plaintiffs from Pipes class
counsel’s six federal cases joined as representative plaintiffs in the Runyan class action
complaint.
Approximately one month later, on or about April 17, 2009, the Runyan class plaintiffs
and Transamerica finalized a Class Action Settlement Agreement (ECF No. 19-5, at pp. 70-175)
and filed it with the trial court on April 20, 2009. Hunter v. Runyan, 382 S.W.3d 643, 646 (Ark.
2011). The Runyan court granted preliminary approval to the settlement on April 23, 2009,
appointed a Settlement Administrator, and approved a comprehensive notice plan, including
written notice to settlement class members, publication notice in USA Today, creation of a
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settlement website, and establishment of a toll-free telephone call center. Findings at 1-2, 19-20
¶¶ 2-5. All six federal courts handling class counsel’s other cases stayed their proceedings so the
Runyan state court could consider whether to approve the settlement. Hall, 730 F. Supp. 2d at
939.
The Runyan Class Notice
On May 14, 2009, the Settlement Administrator mailed the Runyan notice of Proposed
Class Action Settlement to 250,136 settlement class members. Findings at 19-20 ¶ 3.13 The
class notice approved by the Runyan court was based on the Question and Answer format
recommended by the Federal Judicial Center. Findings at 21 ¶ 7. Among other things, the
notice contained a section explaining the nature of the dispute as follows:
4. What is this lawsuit about?
The Plaintiffs in this lawsuit assert a variety of claims on behalf of themselves and
a class of other persons relating to cancer insurance policies and other specified
disease or supplemental insurance policies. Among other things, Plaintiffs allege
the following:
● that the Policies pay certain benefits based upon the “actual charges” for
certain services, such as chemotherapy, radiation therapy, blood-related
expenses, and ambulance services, and that prior to April 1, 2006, the
Defendants paid claims and interpreted “actual charges” to mean any amount
that appeared on a medical provider’s statement, without reduction for any
discount, third-party payment, or write-off of any kind;
● that in early 2006, the Defendants acted unlawfully by sending a form letter to
policyholders and announcing an intention to change their claim forms and
procedures to interpret “actual charges” as the amount actually owed and paid
to the medical provider as payment in full for the services rendered; and that
beginning on or about April 1, 2006, the Defendants reduced benefits under
the Policies by implementing this change in claim forms and procedures;
13
A copy of the Runyan class settlement notice is contained in the record at ECF No. 19-9, at pp. 5-21.
-14-
● that the Defendants’ change in their claim procedures in 2006 created a new
definition or interpretation of “actual charges” that was inconsistent with the
Defendants’ prior practice and course of conduct, and that Plaintiffs and other
policyholders interpreted the Policies similar to the prior practice and
justifiably relied upon Defendants’ prior practice in paying claims; and that by
changing its claim procedures, the Defendants’ breached the insurance
Policies and acted in bad faith;
● that the Defendants acted inconsistently with the way in which the Policies
had been marketed and sold, and made misrepresentations at the time of sale
regarding coverage and/or benefits payable under the Policies, and
subsequently made misrepresentations to insurance regulators and
policyholders regarding the reasons and legal authority for their change in
procedures;
● that the Defendants reduced benefits and wrongfully denied coverage or failed
to pay for a variety of other items covered under the Policies; that the
Defendants were motivated by a desire to elevate company profits above their
obligations under the Policies; that the Defendants conspired and worked in
concert with one another, and that AEGON USA, Inc. is responsible for the
wrongful conduct of all other Defendants;
● that many if not all policyholders have experienced premium rate increases
and that these premium increases were unfair, improper, and/or in violation of
the terms of the Policies and/or state insurance laws; and
● that premium rate increases were the result of actuarial mistakes in pricing the
Policies, or the payment of excessive benefits, and that Defendants failed to
disclose the likelihood and extent of premium increases and all of the reasons
for premium rate increases, including that Defendants had closed and stopped
selling one or more policy forms or blocks of policies; and that continually
raising premium rates breaches the promise of guaranteed renewability under
the Policies and constitutes bad faith and an unfair and deceptive practice.
The Defendants strenuously deny any wrongdoing and maintain that the payment
of claims under the Policies, the correction of the claim forms and procedures for
the Policies, and all actions taken with respect to premiums and benefits have
been proper, lawful, and appropriate in all respects. Among other things, the
Defendants contend:
● that the Company sent a letter in 2006 to all policyholders in good faith
explaining the need to update claim forms, that the Company is properly
paying benefits for “actual charges,” and that the “actual charges” are the
actual amounts that are being charged by, paid to, and accepted by the
provider as payment in full for the services rendered;
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● that the Company discovered that it had been overpaying claims for “actual
charges” benefits because insureds began submitting statements from
healthcare providers that contained “list prices” instead of the “actual
charges;” and that the Company has every right to correct its claim practices
to prevent unnecessary premium rate increases to other policyholders;
● that all coverage and benefits decisions by the Company have been correctly
made in good faith with the intent to correctly apply the language and terms of
the Policies; and
● that the Policies are subject to premium rate increases and all such premium
rate increases have been lawfully and properly implemented, and filed with
state regulators as required.
ECF No. 19-9, at pp. 9-10 (pp. 5-6 of notice).
The notice provided an opportunity to opt out of the settlement and instructions on how
to do so (by mailing a written request for exclusion to the settlement administrator postmarked
on or before June 28, 2009). ECF No. 19-9, at p. 13 (p. 9 of notice). The notice also explained
the consequences of not excluding yourself from the class:
9. What am I giving up to receive a payment or to stay in the
Settlement Class?
If you do not exclude yourself from the Settlement Class, you will be eligible for
the benefits discussed above for which you qualify, but you will not be able to
sue, continue to sue, or be part of any other lawsuit against any of the Defendants
or their predecessors or affiliated companies concerning the claims alleged in this
case. If you stay in the Settlement Class, all of the Court’s orders will apply to
you and legally bind you.
If the Settlement is finally approved by the Court, all individual and class action
claims asserted in this lawsuit and any that could have been asserted, will be
dismissed on the merits and with prejudice. None of those claims may thereafter
be asserted by any Settlement Class member in any other lawsuit or proceeding.
By staying in the Class, you will also be bound by the release of all claims against
the Defendants and their affiliates and others, including all claims alleged in this
lawsuit and any that could have been alleged. A complete copy of the “Release”
that will bind all Settlement Class members is attached to this Notice as Exhibit
A. The Release is comprehensive and is an essential term to the Settlement and
should be reviewed carefully because it will affect your rights. Anyone not in
agreement with the Release should take steps to exclude themselves from the
Settlement.
-16-
EXCLUDING YOURSELF FROM THE SETTLEMENT
If you do not want any of the benefits from the Settlement, or if it is more
important for you to keep the right to sue or continue to sue any of the Defendants
on your own, then you must take steps to exclude yourself from the Settlement
Class. This is sometimes referred to as “opting out” of the Settlement Class.
ECF No. 19-9, at p. 13 (p. 9 of notice); see also id. at p. 14 (p. 10 of notice) (“If I do not
exclude myself, may I sue the Defendants later? No. Unless you exclude yourself, you give
up the right to sue the Defendants for the claims that this Settlement resolves and that are
described in the attached Release (Exhibit A).”) (bold font in original).
The notice also provided all settlement class members with an opportunity to object to the
settlement. ECF No. 19-9, at p. 14 (p. 10 of notice) (“If you are a Settlement Class member and
you do not exclude yourself from the Settlement Class, you can object to the Settlement if you do
not like any part of it. You can give reasons why you think the Court should not approve it. The
Court will consider your views.”); see also id. at p. 15 (p. 11 of notice) (explaining the difference
between objecting and excluding). The notice informed all settlement class members that the
court would hold a fairness hearing to decide whether to finally approve the settlement. The
fairness hearing was originally scheduled for July 27, 2009.14
The Runyan Trial Court’s Review of the Settlement
From May through December of 2009, Judge James M. “Jay” Moody, Jr., the Runyan
state court trial judge, presided over contested proceedings to determine whether the settlement
14
The fairness hearing was postponed because a district court in Tennessee (the Gooch court) enjoined
Transamerica from completing the settlement. This injunction was stayed by the Sixth Circuit on an emergency
motion and later vacated in its entirety. In re Life Investors Ins. Co. of Am., No. 09-5598 (Order, dated Aug. 17,
2009) (granting Transamerica’s emergency motion to stay injunction of Runyan settlement proceedings); In re Life
Investors Ins. Co. of Am., 589 F.3d 319, 332 (6th Cir. 2009) (vacating injunction). The fairness hearing was
ultimately held on November 9, 2009.
-17-
should be approved as fair, reasonable, and in the best interests of the settlement class.15 The
proceedings included objections, motions to intervene, and other motions filed by lawyers
representing objectors and plaintiffs with competing class actions.16 The objectors and putative
intervenors argued, among other things, that the settlement benefits were “illusory,” that the
parties engaged in “collusion,” that the class representatives were not adequate, that the objectors
were denied due process, and a host of other arguments. In addition to motions, briefs, and
volumes of evidence, Judge Moody held several hearings, including a preliminary approval
hearing in April, three hearings on September 16, 17, and October 1, 2009, devoted to motions
by objectors and putative intervenors, and a fairness hearing on November 9, 2009. ECF No. 188, at pp. 225, 231, 241.
At the fairness hearing, all class members who had timely filed a notice of intent to
appear were allowed to present argument. Findings at 2. Plaintiffs’ counsel Patrick Knie argued
two motions at the fairness hearing―a motion to carve out South Carolina policyholders, and a
motion to extend the opt out deadline and to also renotice the class. ECF No. 19-8, at pp. 72-82
(Transcript at pp. 9-19). Mr. Knie argued that (i) the settlement was contrary to the Fourth
Circuit opinion in Ward v. Dixie National Life Insurance Co., 2007 WL 4293319 (4th Cir.
Nov. 29, 2007), (ii) the district court in Ward subsequently entered a summary judgment in favor
of policyholders in that case, (iii) the notice was misleading because it did not state that the
district court in Ward had ruled that it would apply the “actual charges” statute prospectively
15
Judge Moody is now a U.S. District Judge in the Eastern District of Arkansas .
16
Plaintiffs’ lead counsel here, Tony Gould, and co-counsel, Patrick Knie and Susan Campbell,
represented objectors in the Runyan proceeding while pursuing competing class actions in other states. Mr. Gould
was counsel in a putative class action in Oklahoma. Lindley v. Life Investors Ins. Co. of Am., Case No. 4:08-cv00379 (N.D. Okla.) (“Lindley”). Mr. Knie and Ms. Campbell were counsel in a putative class action in this district.
Belue v. AEGON USA, Inc., Case No. 7:08-cv-03830-GRA (D.S.C.) (“Belue”).
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only, (iv) South Carolina’s law was unique, and (v) South Carolina policyholders should receive
a renotice to correct the alleged misrepresentation about the South Carolina statute. ECF No.
19-8, at pp. 73-81 (Transcript at pp. 10-18).
In response, Transamerica argued that Mr. Knie had already opted out his own clients and
he had no right to represent or exclude other South Carolina policyholders who were not his
clients, especially given that many had already filed claims. Id. at 83 (Transcript at p. 20).
Transamerica argued further (i) that the Fourth Circuit’s 2007 decision in Ward was designated
unpublished and not binding precedent, (ii) that the South Carolina Department of Insurance
disagreed so vehemently with Ward that it lobbied the legislature which passed a statute defining
“actual charges” to overrule Ward, (iii) that the Department had issued a Bulletin explaining that
the statute was to prevent a few insureds from receiving windfalls, resulting in exponential
premium rate increases to other policyholders, (iv) that the Bulletin required claims for “actual
charges” benefits after the effective date of the statute to be paid according to the statute, (v) that
the settlement was consistent with the statute, and (vi) that many policyholders would be better
off in the settlement. Id. at 83-86 (Transcript at pp. 20-23). Runyan class counsel argued (i) that
any South Carolina policyholders who did not like the settlement had the option to opt out,
(ii) several did opt out, but many filed claims and wanted to participate in the settlement, and
(iii) there was no defect in the notice. Id. at 88-89 (Transcript at pp. 25-26).
On December 8, 2009, Judge Moody entered a 31-page Order ruling on various motions
to intervene and other pending motions by class members opposing the settlement. ECF No.
19-8, at pp. 219-249. The court noted that the motions were filed by a very small minority of
class members opposing the settlement:
The Settlement Class overall has responded very favorably to the Notice.
From the 250,136 Notices sent to Settlement Class members, a very small
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number of individuals filed timely objections with the Court. Several
class members withdrew their objections, and other objectors, proven to be
non-class members also withdrew their objections. As a result, there are
only nine objectors that remain pending before the Court. Thus, the ratio
of objectors to Settlement Class members (9:250,136) is less than four
one-thousandths of 1%, or approximately .0036%). Several of these
remaining objectors appear to have been actively solicited to object, or
they are represented by plaintiffs’ counsel in other putative class actions.
In contrast to the minimal number of objections, the Settlement
Administrator has received several thousand Claim Forms from Class
members seeking one of the monetary benefits under the Settlement.
ECF No. 19-8, at p. 227 (footnote and citations omitted). “In its 31-page order, the Circuit Court
discussed at length the history of the litigation, how the six federal cases came to be consolidated
in the Runyan state action, the settlement agreement, and the notice plan. The Circuit Court also
noted the objections by counsel for the plaintiffs in the other pending federal actions in other
states, including Gooch (M.D. Tenn.), Belue (D.S.C.), and Smith (W.D. Pa.).”
Hall, 730
F. Supp. 2d at 940.
“In a lengthy discussion of the merits of the petitioners’ arguments to intervene,” Hall,
730 F. Supp. 2d at 940, the Runyan court denied the motions to intervene. ECF No. 19-8, at pp.
231-240 (pp. 13-22 of Dec. 8, 2009 Order). Judge Moody rejected the movants’ arguments that
intervention should be allowed because the existing class representatives were not adequate:
The proposed intervenors have also failed to meet their burden to establish
the third factor under Rule 24(a)(2) ― that their interests are not
adequately represented by the existing parties. There are eight Class
Representatives in this action. They are all current or former policyholders
of insurance policies similar to the policies owned or formerly owned by
Crager, Shepherd, and Hunter. The proposed intervenors have not
distinguished their interests in any meaningful way from those of the
existing Class Representatives.
Id. at p. 236 (p. 18 of Dec. 8, 2009 Order). Judge Moody concluded, “intervention would not
add substantial value to the Settlement, but would cause substantial delay and prejudice.” Id. at
p. 240 (p. 22 of Dec. 8, 2009 Order).
-20-
The Runyan Trial Court’s Findings and Final Judgment
On December 21, 2009, approximately six weeks after the final fairness hearing, Judge
Moody entered his final judgment, which incorporated 63 pages of findings of fact and
conclusions of law. ECF Nos. 19-1 & 19-2. “As part of its findings of fact, the court found that
the parties were ‘represented by experienced class action counsel who worked diligently
negotiating the Settlement at arms’ length in an adversarial setting to ensure that the Settlement
Agreement was fair, reasonable, and adequate …. The Court finds further that the Settlement
was negotiated in good faith and there was no collusion or “reverse auction” of any kind in the
negotiation of the Settlement.’” Hall, 730 F. Supp. 2d at 940 (quoting Findings at 14 ¶ 7).
Judge Moody reviewed the terms and benefits of the agreement, including the provision
which resolved the parties’ dispute over “actual charges.” Findings at 15-18 ¶¶ 1-10. He found:
The most significant benefit to the Settlement Class is the value of the
injunction requiring Actual Charges Benefits to be paid according to “the
amount of money that a healthcare provider (or other vendor) agrees to
accept, or is obligated by agreement or operation of law to accept, as
payment in full for the particular goods and services provided to the
patient (or consumer).” Agreement §1(b). This provision is estimated to
save the Settlement Class approximately $135,925,608 of premium dollars
over the next 10 years. Absent this provision, the evidence is
overwhelming that payment of benefits based on “list prices” would result
in dramatic premium rate increases to the detriment of the Settlement
Class as a whole, rendering many of these Policies unaffordable and
resulting in loss of coverage.
Findings at 16-17 ¶ 6 (citations omitted). The court concluded, “[t]he Settlement provision
governing the payment of Actual Charges Benefits going forward is a fair, adequate, and
reasonable method of resolving any alleged ambiguity regarding how ‘actual charges’ should be
interpreted under the Policies. Indeed, this provision is consistent with the definition of ‘actual
charges’ in five state statutes. Moreover, this same type of provision was included in at least two
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other class action settlements involving cancer insurance policies which were approved by other
Courts.” Id. at 17 ¶ 6 (footnote and citation omitted).
The court reviewed the other benefits of the settlement and concluded that the total value
of the settlement to the class as a whole exceeded $151 million. Findings at 18 ¶ 8. The court
rejected objectors’ arguments that the benefits of the settlement were “illusory.” Id. at 48 ¶ 8
(“Any contention that the Settlement benefits are ‘illusory’ is meritless.”).
The Runyan court also reviewed the class notice and the notice plan, and found:
The Notice clearly and concisely informed Settlement Class members of:
(i) who is part of the Settlement; (ii) the nature of the litigation; (iii) the
terms of the Settlement; (iv) the binding effect of any judgment for those
persons who are Settlement Class members; (v) the right of Class
members to request exclusion (opt out) from the Class and the procedures
and deadlines for doing so; (vi) the right of Class members to object to any
aspect of the Settlement and to appear at the Fairness Hearing and the
procedures and deadlines for doing so; (vii) the date, time, and location of
the Fairness Hearing; (viii) how to obtain additional information; (ix) how
to make a claim; and (x) information on Class Counsel’s fees and
expenses.
Findings at 20-21 ¶ 6. The court also noted that the Settlement Administrator had received
approximately 476 requests for exclusion, “illustrating that Settlement Class members were able
to follow the directions and exclude themselves if they desired to do so.” Id. at 21 ¶ 6.
The Runyan court applied the legal criteria necessary to evaluate whether a class action
settlement should be approved. In addition to consideration of federal cases interpreting class
issues under federal Rule 23 (Findings at 22-23 ¶ 1), Judge Moody noted the strong public policy
favoring settlements under both Arkansas and federal law. Findings at 21-23 ¶¶ 1-3 (collecting
cases). The court found that the settlement “was negotiated at arms’ length by experienced
counsel after substantial litigation, discovery, and in an adversarial setting with multiple cases
pending between the Parties,” and that under such circumstances, “[m]any courts recognize a
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presumption of fairness.” Findings at 23 ¶ 3 (citing Wal-Mart Stores, Inc. v. Visa U.S.A., Inc.,
396 F.3d 96, 116 (2d Cir. 2005) (“A ‘presumption of fairness, adequacy, and reasonableness may
attach to a class settlement reached in arm’s-length negotiations between experienced, capable
counsel after meaningful discovery.’”) (quoting Manual for Complex Litigation, Third, § 30.42
(1995)); City P’ship Co. v. Atl. Acquisition Ltd. P’ship, 100 F.3d 1041, 1043 (1st Cir. 1996)
(“When sufficient discovery has been provided and the parties have bargained at arms-length,
there is a presumption in favor of the settlement.”) (other citations omitted).
Judge Moody then applied the Ballard factors for evaluating whether a class action
settlement is fair, reasonable, and adequate, which factors include:
(1)
the strength of the case for the plaintiffs on the merits, balanced against the
amount offered in the settlement;
(2)
the defendant’s overall financial condition and ability to pay;
(3)
the complexity, length, and expense of further litigation; and
(4)
the amount of opposition to the settlement.
Ballard v. Martin, 79 S.W.3d 838, 844 (Ark. 2002) (citing Grunin v. Int’l House of Pancakes,
513 F.2d 114, 124 (8th Cir. 1975)).
Regarding the strength of the plaintiffs’ case on the merits, the record shows Judge
Moody was aware of all litigation pending against the defendant companies and the status of
each case. See Findings at 10-11 ¶ 10 & n.8. In addition, the Runyan court undertook a detailed
review of the legal landscape at the time of the settlement.
Findings at 26-31 ¶¶ 3-11.
Regarding the merits of plaintiffs’ claims and the likelihood of prevailing, the Runyan court
noted that the plaintiffs would need to prevail not just on the merits of “actual charges,” but also
prevail on class certification in a contested proceeding. The court noted that two courts had
already denied class certification in cases involving Transamerica’s policies. Id. at 26 ¶ 3 (“it is
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uncertain that Plaintiffs would succeed at class certification outside the Settlement context. The
chances of successfully obtaining a national class certification in a contested proceeding, and
prevailing through appeal, are even more uncertain”). The Runyan court concluded: “The merits
of the Plaintiffs’ case, when weighed against the terms of the Settlement, favor final approval of
the Settlement. The possibility of Plaintiffs litigating this case on a class basis through judgment
is highly uncertain and would involve expensive, time-consuming continued litigation, whereas
the overall value of the Settlement is significant.” Findings at 26 ¶ 4.
The Runyan court also addressed the third Ballard factor, which involves consideration
of “the complexity, length, and expense of further litigation.” Findings at 24 ¶ 4, 35-36 ¶ 24.
The court concluded:
The third Ballard factor also weighs heavily in favor of approving the
Settlement. There is no question that, absent the Settlement, Class
members would be subject to lengthy, continued, and expensive litigation,
as well as the prospect of numerous potential appeals. If no Settlement is
approved, the Parties will continue to litigate numerous state-wide putative
class actions far into the foreseeable future. Decisions on class
certification would likely lead to interlocutory appeals, and once the class
issues are finally resolved, any trials in the Litigation would be expensive
and would likely lead to further appeals. The time and expense of
continuing the Litigation would be substantial, and such transactional
costs could significantly reduce and delay whatever judgment, if any,
Plaintiffs could ultimately obtain, there being no guarantee that Plaintiffs
would recover anything on a class-wide basis.
Findings at 35-36 ¶ 24.
Regarding the fourth Ballard factor―the amount of opposition to the settlement―the
Runyan court noted that there were very few objections, and “[t]he minimal amount of
opposition to the Settlement and its unpersuasive nature also weighs heavily in favor of final
approval.” Findings at 36 ¶ 26. “Although more than 250,136 Notices were sent to Settlement
Class Members, only eighteen individuals filed objections with the Court, and nine of those were
-24-
subsequently withdrawn.” Findings at 36-37 ¶ 26 (footnote omitted). In the end, the Runyan
court concluded, “[t]he Ballard factors are plainly met in this case, and the Settlement
Agreement is therefore approved as fair, reasonable, and adequate.” Findings at 26 ¶ 2.
The court also conducted an analysis of the requirements of Arkansas Rule 23 and
concluded that they were satisfied and that the settlement should be approved. Findings at 38-44
¶¶ 1-15. Regarding adequacy under Arkansas Rule 23(a)(4), the court found that Runyan class
counsel were experienced in class actions, expended considerable time and effort proving their
claims, were prosecuting six actions against Transamerica, and “[t]here has been no showing that
Class Counsel in this action is inadequate.” Findings at 41 ¶ 9. Regarding the eight named
plaintiffs, Judge Moody found, “[e]ach of the Class Representatives has a strong interest in the
Settlement and there is no evidence of collusion. The Court finds that the Class Representatives
are adequate for purposes of adjudicating the Settlement in the best interests of the Settlement
Class.” Id. at 41 ¶ 10. Regarding the conflict of interest that caused the Pipes and Smith courts
to deny class certification, the court noted, “[t]he Settlement here requires payment of Actual
Charges Benefits consistent with the actual amount paid or owed to the provider, and therefore
eliminates the conflict mentioned in Pipes.” Id. at 42 ¶ 11.17
The Runyan court’s findings also contain extensive discussion of all objections filed in
opposition to the settlement, including Judge Moody’s reasoning as to why each of the
objections was overruled. Findings at 44-55 ¶¶ 1-25. These objections included arguments to
“carve out” Mississippi policyholders, that the settlement relief was inadequate, and that
variations in state law precluded settlement. Id. at 46-47 ¶¶ 5-6 & n.35. The court rejected
17
The Runyan court also concluded that the settlement eliminated several other problematic issues that
would exist in a contested class certification proceeding, for example, variations in state law and individual proof of
loss issues. Findings at 42-43 ¶ 12.
-25-
arguments by South Carolina objectors that the settlement benefits were illusory and that the
settlement was a “reverse auction.” Id. at 48-49 ¶¶ 8-9 (“the Court has found there was no
collusion or reverse auction of any kind”).18 The court also rejected an objection that the “Actual
Charges Benefit injunction confers no benefit on the Class, and instead benefits only the
Company.”
Id. at 49 ¶ 9 (finding “[t]he injunction governing payment of Actual Charges
Benefits will save the Settlement Class millions of premium dollars”). Judge Moody concluded,
“the South Carolina Objectors ignore the law and public policy of their own State, which has
passed a statute consistent with the Actual Charges Benefit in the Settlement.” Id. (citing S.C.
Ann. § 38-71-242; Bulletin No. 2008-15, S.C. Dep’t of Ins. (Aug. 28, 2008)).
The court
concluded that “none of the objections require disapproval of the Settlement.” Id. at 45 ¶ 2.
Post-Judgment Motions
After entry of the Runyan final judgment, objector Daniel Crager filed a Motion for
Rehearing, and settlement class member William Shepherd filed a Motion to Reconsider. Both
motions relied on an interlocutory order certifying a competing class in the Gooch case (the same
district court in Tennessee that had previously been reversed by the Sixth Circuit for enjoining
the settlement). Judge Moody denied the motions, holding:
The Court’s Final Judgment was entered after careful consideration over a
lengthy period of time of volumes of briefing and evidentiary materials
submitted in favor and against final approval of the Settlement. For the
reasons set forth in this Court’s Findings of Fact and Conclusions of Law,
the Court overruled the objections and approved the Settlement as fair,
reasonable, and adequate pursuant to Rule 23 of the Arkansas Rules of
Civil Procedure. The Court finds the motions to be without merit, and
nothing in the motions justifies reconsideration of the Court’s approval of
the Settlement or modification of the Final Judgment.
18
The court cited to the definition of a “reverse auction” in the Manual for Complex Litigation and
concluded, “the record is clear that [Transamerica] negotiated with one group of plaintiffs’ counsel, and there was
no ‘auctioning’ whatsoever.” Findings at 48-49 n.38.
-26-
ECF No. 19-8, at pp. 265-266 (pp. 1-2 of Feb. 4, 2010 Order). Regarding the Gooch order,
Judge Moody ruled, “[t]he issues surrounding the proceedings in Gooch were fully argued and
considered by this Court prior to Entry of the Final Judgment” and “the interlocutory order in
Gooch provides no reason for this Court to revisit or reconsider its Final Judgment.” Id. at 266
(p. 2 of Feb. 4, 2010 Order).
The Arkansas Supreme Court’s Decision
Three settlement class members filed appeals in Runyan to the Arkansas Supreme
Court.19 Appellants argued, among other things, that the Runyan class representatives were not
adequate, that the parties were not adverse because they had agreed on the material terms of the
settlement before the complaint was filed, that the procedures employed by the trial court
violated due process, that their interests were not adequately represented, and that the class
notice was too broad and failed to account for differences among states.
In Hunter v. Runyan, 2011 Ark. 43, 382 S.W.3d 643(2011), cert. denied sub nom. Crager
v. Runyan, 132 S. Ct. 243 (2011) the Arkansas Supreme Court noted the appeal was “of
substantial public interest” and presented “an issue of first impression” regarding subject matter
jurisdiction. Hunter, 382 S.W.3d at 645. In a comprehensive opinion, the Supreme Court
thoroughly reviewed the facts and procedural history, and appellants’ various arguments, and
concluded, “[w]e find no error in the circuit court’s orders and affirm.” Id. The Court rejected
the argument that the parties were “not adverse because they had reached agreement on the
material terms of the settlement prior to the complaint being filed.” Id. at 650. The Court noted
that this argument disregarded “the significant fact that the settlement agreement, according to its
19
William Shepherd, Daniel Crager, and Audry Hunter appealed the denial of their motions to intervene,
and Shepherd and Crager also appealed the final judgment approving the settlement. Hunter v. Runyan, 382 S.W.3d
643, 648 (Ark. 2011). The South Carolina objectors did not file a motion to intervene.
-27-
express terms, also applies to the six pending cases in the federal courts.” Id. at 650-51 (noting
the parties had “a history of contentious litigation”).
The Arkansas Supreme Court rejected the argument that the class definition was “too
broad” and failed to account for differences in state law, making it “unfair” to residents of
various states who allegedly had “advantageous” laws. Id. at 654. The court also considered
arguments that the Runyan class members were inadequately represented, finding objectors
“were unable to identify any reason why the class representatives could not adequately represent
their interests.” Id. at 656. The Arkansas Supreme Court also considered Hunter’s argument
“that the circuit court arbitrarily denied her due process right to discovery and to participate in
the hearing,” finding the argument “wholly without merit,” concluding the class member “did
have an opportunity to be heard” and that the “record support[ed] the circuit court’s reasoning
that the class members had previously engaged in adequate discovery.” Id.
The Arkansas Supreme Court found that the circuit court had subject matter jurisdiction
to hear the case and rejected arguments that the parties were not adverse because they had
allegedly reached agreement on the material terms of the settlement before the complaint was
filed. The court also found that appellant Crager had abandoned his appeal from the denial of his
motion to intervene and that appellants Hunter and Shepherd’s motions to intervene were
procedurally defective. The court also affirmed the denial of Hunter and Shepherd’s motions to
intervene on the merits and found that “any interests that Hunter and Shepherd intended to assert
in this case were either protected by the class representatives or by their right to opt out of the
settlement class.” Id., 382 S.W.2d at 655. Finally, the court found that Hunter did not raise to
the circuit court the due process aspect of her argument that, by preventing the intervention of
objectors, the circuit court immunized its fairness determination from appellate review and thus
-28-
denied her due process. Nevertheless, the court observed that “the concerns raised about the
settlement by an objector who has been denied intervention are concerns that will receive
appellate review in the context of an appeal of the denial of the motion to intervene.” Id. at 656.
Defendants’ Arguments in their Motions to Dismiss.
Because Plaintiffs’ action in this Court was filed well after the Runyan state court
proceedings had ended, Defendants argue that this Court lacks subject matter jurisdiction based
on the Rooker-Feldman doctrine. Defendants also argue that the Plaintiffs’ claims are barred by
the Full Faith and Credit Act, res judicata, collateral estoppel, the release in the Runyan final
judgment, the Anti-Injunction Act, and comity. Defendants assert that this is the third attempt by
Plaintiffs’ counsel to reverse the Runyan final judgment,20 and the seventh time counsel has
objected to or attacked the Runyan settlement.21 Defendants argue further that every federal court
to address the Runyan judgment after the Arkansas Supreme Court’s decision has concluded that
the final judgment is entitled to full faith and credit and res judicata effect.22
20
Plaintiffs’ lead counsel, Tony Gould, appeared in the Runyan proceedings on behalf of another
settlement class member and appealed to the Arkansas Supreme Court. Mr. Gould then filed an action in the
Southern District of Texas, almost identical to the Complaint in this action, asking the district court to “declare[] the
Runyan judgment is not entitled to Full Faith & Credit” and “does not operate as res judicata.” See First Amended
Class Action Complaint at 46 (underlining in original), in Hunter v. Transamerica Life Ins. Co., Case No.
4:10-cv-04906, 2011 WL 4621111 (S.D. Tex.) (a copy of the First Amended Complaint in Hunter is attached to
Transamerica’s motion, ECF No. 19-11). The district court in Hunter dismissed the action on multiple grounds
including Full Faith and Credit, res judicata, collateral estoppel, and release, Hunter, 2011 WL 4621111, at *2, and
the Fifth Circuit affirmed “based on the preclusive effect of the Runyan judgment.” Hunter v. Transamerica Life
Ins. Co., 498 F. App’x 430, 432 (5th Cir. 2012).
21
In addition to challenging the settlement in the Runyan trial court, the Arkansas Supreme Court, the
Hunter proceedings in the Southern District of Texas, and the Fifth Circuit, Mr. Gould’s fifth attempt to attack the
settlement was as amicus curiae at a hearing in the Gooch district court proceedings in which he argued that the
court should enjoin the Runyan settlement. Gooch, No. 1:07-cv-00016 (M.D. Tenn. July 14, 2009), ECF No. 321.
In his sixth attack on Runyan, Mr. Gould opposed a motion to stay the class allegations in his competing class action
in Lindley pending a decision by the Runyan court on whether to approve the settlement. See Lindley v. Life
Investors Ins. Co. of Am., 2009 WL 3296498, at *1 (N.D. Okla. Oct. 9, 2009).
22
See, e.g., Hunter, 2011 WL 4621111, at *2 (plaintiff’s “claims are barred by res judicata, collateral
estoppel and the release in the Runyan final judgment, pursuant to the Full Faith and Credit Act, 28 U.S.C. § 1738”);
Hunter, 498 F. App’x at 440 (“The district court appropriately determined that the Runyan judgment is entitled to
(footnote continued on next page)
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DISCUSSION
Defendants first argue that the plaintiffs’ complaint must be dismissed for lack of subject
matter jurisdiction pursuant to the Rooker-Feldman doctrine. The Rooker-Feldman doctrine
takes its name from two decisions of the United States Supreme Court. Dist. of Columbia Ct. of
Appeals v. Feldman, 460 U.S. 462, 482-86 (1983); Rooker v. Fid. Trust Co., 263 U.S. 413,
415-16 (1923); see also Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284
(2005); Brown & Root, Inc. v. Breckenridge, 211 F.3d 194, 198-99 (4th Cir. 2000); Davani v.
Virginia Dept. of Transp., 434 F.3d 712 (4th Cir. 2006); Smalley v. Shapiro & Burson, LLP, 526
F. App’x 231, 235-37 (4th Cir. 2013). In Rooker, the plaintiffs asked a federal court to declare
that a state court judgment was “null and void” because it allegedly violated the Constitution.
263 U.S. at 414-15. The Supreme Court held that the district court lacked subject matter
jurisdiction over the claim because “[u]nder the legislation of Congress, no Court of the United
States other than [the Supreme Court] could entertain a proceeding to reverse or modify [a state
court] judgment for errors of [a Constitutional] character.” Id. at 416. In Feldman, the Supreme
Court held that federal district courts lack authority to review final decisions of state courts
because under 28 U.S.C. § 1257 such review can only be conducted by the Supreme Court. 460
U.S. at 476. As the Fourth Circuit has explained, “[t]he independence of state courts would
surely be compromised if every adverse decision in state court merely rang the opening bell for
federal litigation of the same issues.” Brown & Root, 211 F.3d at 198.
preclusive effect and did not err in affording that judgment full faith and credit.”); Gough v. Transamerica Life Ins.
Co., 781 F. Supp. 2d 498, 510 (W.D. Ky. 2011) (“the Court must give full faith and credit to the Runyan final
judgment”); Gooch v. Life Investors Ins. Co. of Am., 672 F.3d 402, 426 (6th Cir. 2012) (“the Runyan settlement
carries preclusive effect under state law and complies with the federal due-process requirements for full faith and
credit”).
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The Supreme Court narrowed the Rooker-Feldman doctrine in Exxon, holding that the
doctrine applies when “the losing party in state court file[s] suit in federal court after the state
proceedings [have] ended, complaining of an injury caused by the state-court judgment and
seeking review and rejection of that judgment.” 544 U.S. at 291. “[T]he Rooker-Feldman
doctrine precludes not only review of adjudications of the state’s highest court, but also the
decisions of its lower courts.” Jordahl v. Democratic Party of Virginia, 122 F.3d 192, 199 (4th
Cir. 1997).
In Davani, the Fourth Circuit explained that the Fourth Circuit and courts nationally had
given the Rooker-Feldman doctrine an “expansive interpretation” by applying it, not only to
issues actually decided by a state court, but also to issues the state court did not decide but which
were inextricably intertwined with questions decided by the state court. The Fourth Circuit cited
the Exxon language that Rooker-Feldman does not “stop a district court from exercising subjectmatter jurisdiction simply because a party attempts to litigate in federal court a matter previously
litigated in state court. If a federal plaintiff presents some independent claim, albeit one that
denies a legal conclusion that a state court has reached in a case to which he was a part . . . , then
there is jurisdiction and state law determines whether the defendant prevails under principles of
preclusion.” Davani, 434 F.3d at 718, citing Exxon, 125 S.Ct. at 1521-22, 1527.
The
Fourth
Circuit concluded that the focus of a Rooker-Feldman analysis, then, is on the injury that the
plaintiff asks the court to redress.”[I]f the state-court loser seeks redress in the federal district
court for the injury caused by the state-court decision, his federal claim is, by definition,
‘inextricably intertwined’ with the state-court decision, and is therefore outside of the
jurisdiction of the federal court.” Davani, 434 F.3d at 719. However, “if the plaintiff’s claim of
injury rests not on the state court judgment itself, by rather on the alleged violation of his
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constitutional rights [by the defendant]”, then Rooker-Feldman does not apply. Id. at 718-719,
citing Washington v. Wilmore, 407 F.3d 274, 280 (4th Cir. 2005), a post-Exxon decision.
Because the Rooker-Feldman doctrine concerns the Court’s jurisdiction over this action,
it must be addressed before the defendants’ other arguments for dismissal. Friedman’s, Inc. v.
Dunlap, 290 F.3d 191, 196 (4th Cir. 2002) (“Because the Rooker-Feldman doctrine is
jurisdictional, we are obliged to address it before proceeding further in our analysis.”).
The Court will first address whether the plaintiff’s first cause of action for declaratory
relief is barred by Rooker-Feldman. Plaintiffs contend that the Supreme Court has “repeatedly
recognized” a class member’s standing to collaterally attack class action settlements, citing
Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985) and Matsushita Elec. Ind. Co. v. Epstein,
516 U.S. 367 (1996). ECF No. 30, at p. 32. A split of authority exists as to “the proper scope of
a federal court's collateral review of a state court's class action judgment for satisfaction of these
due process requirements.” Hege v. Aegon USA, LLC, 780 F. Supp. 2d 416, 426 (D.S.C. 2011).
While the Fourth Circuit has not yet had the opportunity to decide the question, United States
District Judge G. Ross Anderson considered in Hege a virtually identical collateral attack on the
same Runyan Judgment, and concluded that a broader, merits-based scope of collateral review
“presents the appropriate scope of analysis.” Hege, 780 F. Supp. 2d at 426. However, this
Court’s research reveals at this time that the majority view favors a more limited collateral
review. See Gough v. Transamerica Life Ins. Co., 781 F.Supp.2d 498, 506 (W.D. Ky. 2011),
cited in 2 McLaughlin on Class Actions, Section 6:30 (11th ed.). “Gough followed the majority
rule that ‘the reviewing court may not ‘reconsider[] . . . the merits of the claim or issue,’ but
rather may only consider whether absent class members’ due process rights were ‘protected by
the adoption of the appropriate procedures by the certifying court,’ in which case the original
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judgment is entitled to full faith and credit.’ The court therefore confined its review for purposes
of determining whether to accord full faith and credit to the prior judgment to ‘whether the
procedures in the prior litigation afforded the party against whom the earlier judgment is asserted
a ‘ full and fair opportunity’ to litigate the claim or issue,’ requiring the court to determine (1)
whether there were safeguards in place to guarantee sufficient notice and adequate
representation; and (2) whether such safeguards were, in fact, applied.” (emphasis added) Gough
quoted Epstein v. MCA, Inc., 179 F.3d 641, 649 (9th Cir. 1999) and Hospitality Management
Associates, Inc. v. Shell Oil Co., 356 S.C. 644, 591 S.E.2d 611, 619 (2004). In Hospitality
Management, the South Carolina Supreme Court reviewed cases and concluded that “only a
limited collateral review is appropriate. “It would run counter to the class action goals of
efficiency and finality to allow successive reviews of issues that were, in fact, fully and fairly
litigated in the rendering court.” McLaughlin refers to Hege as “a high water mark in the scope
of collateral review of a prior judgment entered on a class action settlement.” McLaughlin,
supra, at 9. In the case at bar, the plaintiffs in their declaratory judgment action are seeking to
bring an independent action to collaterally attack the Runyan judgment on constitutional
grounds. Therefore, the Court denies the motion to dismiss the claim for declaratory relief on the
basis of the Rooker-Feldman doctrine and finds that it has subject matter jurisdiction over the
cause of action for declaratory relief.
The Court will next turn to the question whether this Court lacks subject matter
jurisdiction under the Rooker-Feldman doctrine over the breach of contract and bad faith claims.
Plaintiffs first argue that the Rooker-Feldman doctrine should not apply because Plaintiffs were
not “true parties” to the Runyan proceedings in Arkansas. ECF No. 30, at pp. 32-33. Plaintiffs
rely on Hege, in which the district court held in an interlocutory order which was never appealed
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that two absent class members in the Arkansas action should not be treated as “true parties”
because settlement class members had no appellate rights under Arkansas law unless they
intervened, even if they had objected to the settlement. 780 F. Supp. 2d at 422-23 (finding
because neither of the plaintiffs “intervened in the litigation” Arkansas law “bars Plaintiffs from
challenging the Order on direct appeal”).23 In Hunter v. Runyan, the Arkansas Supreme Court
re-affirmed previous cases which had held that an objecting class member has appellate rights
and may exercise those rights by moving to intervene and appealing the denial of any such
motion:
In such an appeal, [the class member] would receive appellate review of
the issues related to the settlement that he seeks. For example, the issue of
whether his due-process rights are violated by our requirement that he first
intervene to obtain standing to appeal the settlement would arise in the
context of the appeal of the denial of his motion to intervene. . . . As
another example, the issue of whether his interest was adequately
represented by the class and class counsel would . . . arise in the context of
whether [he] had an interest that was inadequately represented by the
parties to warrant intervention under Rule 24.
382 S.W.3d at 652. In Runyan, objecting class members argued to the Arkansas Supreme Court
that the Runyan trial court’s denial of intervention to objecting absent class members
“immunized its fairness determination from appellate review and thus denied . . . objectors’ dueprocess rights.” Id. at 656. The Arkansas Supreme Court expressly rejected that argument:
As for her argument concerning the circuit court’s immunizing from
appellate review its decision to approve the settlement, we reiterate our
previous observation that the concerns raised about the settlement by an
objector who has been denied intervention are concerns that will receive
appellate review in the context of an appeal of the denial of the motion to
intervene.
23
Unlike this case, Hege was filed before the Runyan state court proceedings ended and was a concurrent
proceeding. Accordingly, Rooker-Feldman did not apply. This action was commenced several years after the
Runyan proceedings, including all appeals, were concluded.
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Id. The Arkansas Supreme Court thus made it clear that absent class members in an Arkansas
class action have the opportunity to seek appellate review of any objections to a settlement,
including due process objections.
Id. at 651-52.
The Arkansas Supreme Court’s opinion
removes any doubt that Plaintiffs and other Runyan class members had appellate rights in the
state court proceeding.
Plaintiffs also rely on Lance v. Dennis, 546 U.S. 459 (2006). Lance, however, did not
involve a state court class action, or settlement class members who could opt-out, remain in the
proceeding and raise objections, or pursue intervention and a subsequent appeal. 546 U.S. at
460-61, 465-66. Lance involved true non-parties to the judgment at issue, citizens of the State of
Colorado who were not class members and who did not participate in the prior state court
proceeding at all. Unlike the members of a certified class, the non-parties in Lance were not
bound by the judgment and had no participation or appellate rights in the prior proceeding. Id. at
461.
The Rooker-Feldman doctrine did not deprive the federal court of subject matter
jurisdiction because the non-parties in Lance were strangers to the prior state court proceeding.
Id. Lance does not address whether the Rooker-Feldman doctrine applies to class members who
are bound by the state court judgment and who had participation and appellate rights in the state
court.
At oral argument, Plaintiffs’ counsel cited to the Fourth Circuit’s opinion in Holliday
Amusement Co. of Charleston v. South Carolina, 401 F.3d 534 (4th Cir. 2005), and argued that it
mandates that this Court reject application of Rooker-Feldman in this case. Tr. at 48. Holliday,
however, is inapposite. Like Lance, it did not involve a class action case or settlement, and the
federal plaintiff in Holliday was not a party to the state court proceeding. 401 F.3d at 536
(finding Rooker-Feldman did not apply where federal court plaintiff was not a party to prior state
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court proceeding in which certain owners and lessees had lost their attempt to challenge a state
statute making it illegal to possess video gaming machines). The plaintiff in Holliday was a
complete stranger to the prior state court proceeding. Id. at 538. Here, the Plaintiffs were
Runyan class members who received a class settlement notice and made a decision to remain in
the class, participate in the settlement, and accept the benefits of the settlement. Plaintiffs and
class members had participation rights and were able to file claims, obtain benefits, object,
appear at hearings, and appeal. The plaintiff Weavers did not opt out, object to the settlement, or
move to intervene. They have enjoyed the benefits of the settlement for several years.
The Rooker-Feldman doctrine prohibits a litigant from instituting a federal action which,
although not designated as an appeal, “amounts to nothing more than an attempt to seek review
of [the state court’s] decision by a lower federal court.” Plyler v. Moore, 129 F.3d 728, 733 (4th
Cir. 1997). Here, in the breach of contract and bad faith causes of action, Plaintiffs ask this
Court to review the state court proceedings and make contrary rulings. Thus, Rooker-Feldman
deprives this Court of subject matter jurisdiction over those claims. Plaintiffs’ alleged injury
flows directly from the Runyan final judgment. Plaintiffs would have this Court reverse factual
findings and legal conclusions made by the state court, and enter a contradicting judgment. See
Smalley, 526 F. App’x at 235 (“A litigant may not circumvent . . . jurisdictional mandates by
instituting a federal action which, although not styled as an appeal, amounts to nothing more than
an attempt to seek review of [the state court’s] decision by a lower federal court.”) (quotations
and citations omitted). Therefore, the Court grants the defendants’ motion to dismiss the breach
of contract and bad faith claims on the basis of the Rooker-Feldman doctrine.
The Full Faith and Credit Act
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Even if the Rooker-Feldman doctrine does not apply to any of Plaintiffs’ claims,
Transamerica argues that the Runyan judgment is entitled to full faith and credit, and that all of
Plaintiffs’ claims are barred by res judicata, collateral estoppel, and the release in the Runyan
final judgment. The Court agrees.
In Matsushita Electric Industrial Co. v. Epstein, 516 U.S. 367, 374 (1996), the U.S.
Supreme Court directly held that “a judgment entered in a class action, like any other judgment
entered in a state judicial proceeding, is presumptively entitled to full faith and credit under the
express terms of the [Full Faith and Credit] Act.” The Court explained that “[t]he Full Faith and
Credit Act mandates that the ‘judicial proceedings’ of any State ‘shall have the same full faith
and credit in every court within the United States . . . as they have by law or usage in the courts
of such State . . . from which they are taken.’” Id. at 373 (quoting 28 U.S.C. § 1738).
The Act thus directs all courts to treat a state court judgment with the same
respect that it would receive in the courts of the rendering state. Federal
courts may not “employ their own rules . . . in determining the effect of
state judgments,” but must “accept the rules chosen by the State from
which the judgment is taken.”
Id. (quoting Kremer v. Chem. Constr. Corp., 456 U.S. 461, 481-82 (1982).24
In Kremer, the Supreme Court set forth a federal court’s standard of review under the
Full Faith and Credit Act: “state proceedings need do no more than satisfy the minimum
procedural requirements of the Fourteenth Amendment’s Due Process Clause in order to qualify
for the full faith and credit guaranteed by federal law.” Kremer, 456 U.S. at 481 (emphasis
added). See Hansberry v. Lee, 311 U.S. 32,42 (1940) (“With a proper regard for divergent local
24
The Full Faith and Credit Act “was enacted to implement the Full Faith and Credit Clause” of the U.S.
Constitution, “and specifically to insure that federal courts, not included within the constitutional provision, would
be bound by state judgments.” Kremer, 456 U.S. at 483, n.24 (citations omitted). The Act embodies the
fundamental constitutional interests of comity and federalism which are a “bulwark of the federal system.” Id. at
466, n.6 (citations omitted).
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institutions and interests, this Court is justified in saying that there has been a failure of due
process only in those cases where it cannot be said that the procedure adopted, fairly insures the
protection of the interests of absent parties who are to be bound by it.”) (citations omitted)
In Phillips Petroleum Co. v. Shutts, the Supreme Court defined what constitutes
minimum procedural due process:
The plaintiff must receive notice plus an opportunity to be heard and
participate in the litigation, whether in person or through counsel. The
notice must be the best practicable, “reasonably calculated, under all the
circumstances, to apprise interested parties of the pendency of the action
and afford them an opportunity to present their objections.” The notice
should describe the action and the plaintiffs’ rights in it. Additionally, we
hold that due process requires at a minimum that an absent plaintiff be
provided with an opportunity to remove himself from the class by
executing and returning an “opt out” or “request for exclusion” form to the
court. Finally, the Due Process Clause of course requires that the named
plaintiff at all times adequately represent the interests of the absent class
members.
472 U.S. 797, 811-12 (1985) (citations omitted). Accordingly, minimum procedural due process
requires notice of the pendency of the action, a description of the action, an opportunity to object
and opt out, and adequate representation. See, e.g., Gough v. Transamerica Life Ins. Co., 781 F.
Supp. 2d 498, 504-07 (W.D. Ky. 2011) (applying Shutts and holding the Runyan court satisfied
due process requirements).
As the Fourth Circuit explained in Lawson v. Dixon, 1994 WL 258629, at *4 (4th Cir.
June 13, 1994), “under Kremer, we can examine only those aspects of the previous case that
implicate procedural due process in determining whether to give preclusive effect to the prior
state adjudication.” Even where a federal court believes that a state court’s judgment is wrong,
the court is not permitted to deny full faith and credit. See, e.g., Lawson, 1994 WL 258629, at *4
(“other errors that may be disclosed in our review of the state court case must be passed over, for
if we were to begin to investigate these, we would bring ourselves back into Feldman territory
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for certain”); Conopco, Inc. v. Roll Int’l, 231 F.3d 82, 88 (2d Cir. 2000) (“even if the trial court’s
decision were erroneous, it would not create a due process claim .... It is black-letter law that
due process guarantees a fair hearing, not a legally correct outcome .... Accordingly, the trial
court’s judgment is entitled to the full faith and credit guaranteed by 28 U.S.C. § 1738.”)
(emphasis omitted).25
The filings that the Court has considered from the Runyan record are admissible at this
stage under Fed. R. Evid. 201(d), which provides that the “court may take judicial notice at any
stage of the proceeding.” The Full Faith and Credit Act provides: “The records and judicial
proceedings of any court of any such State . . . shall be proved or admitted in other courts within
the United States and its Territories and Possessions by the attestation of the clerk and seal of the
court annexed, if a seal exists, together with a certificate of a judge of the court . . .” 28 U.S.C.
Section 1738.
1.
Application to the Runyan Judgment
Five federal courts, including two U.S. Courts of Appeal, have held that the Runyan final
judgment is entitled to full faith and credit. See Hunter, 498 F. App’x at 435 (rejecting argument
that Runyan judgment was not entitled to preclusive effect and finding that Hunter had received
notice and an opportunity to be heard in Runyan); Hunter v. Transamerica Life Ins. Co., 2011
WL 4621111, at *1-2 (S.D. Tex. Sept. 27, 2011) (affording full faith and credit to Runyan final
judgment); Hall v. Equity Nat’l Life Ins., 730 F. Supp. 2d 936, 944 (E.D. Ark. 2010) (denying
class certification to proposed named plaintiff who had opted out of Runyan and holding Runyan
25
See also Salazar v. United States Air Force, 849 F.2d 1542, 1548 (5th Cir. 1988) (“Under § 1738, we
can inquire no further. No matter how intrinsically erroneous the [Texas] state district court’s unappealed judgment
... that judgment is conclusively binding on the parties in this case.”); Kiowa Tribe of Okla. v. Lewis, 777 F.2d 587,
592 (10th Cir. 1985) (“Regardless of whether we agree with the Kansas Supreme Court’s construction … we must
honor the judgment.”).
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judgment was “fully contested in good faith” and entitled to full faith and credit); Gough, 781 F.
Supp. 2d at 507 (“Based on a review of the record, the Court concludes that the minimal due
process requirements identified in Shutts were fully and fairly litigated in the Runyan court.”);
Gooch v. Life Investors Ins. Co. of Am., 672 F.3d 402, 418, 424 (6th Cir. 2012) (holding that the
Runyan notice “met the due-process baseline” and that “the notice was not so misleading that it
failed to apprise potential class members of their rights .”)
The Court has reviewed the process and procedure employed by the Runyan court in
detail as discussed hereinabove. The Runyan court approved a notice and notice plan to ensure
that all settlement class members received a comprehensive written notice of the settlement,
which described the nature of the dispute and included an opportunity to opt out or to remain in
the settlement and object, and an opportunity to appear and be heard. Plaintiffs here admit that
they received the notice, but did not opt out. (Tr. of June 2, 2015 motions hearing before this
Court, ECF No. 44, p. 37) The record reflects that a number of settlement class members took
full advantage of their opportunity to be heard. The Runyan court held a preliminary approval
hearing, three other hearings, and a fairness hearing, and objectors and other class members were
given the opportunity to make any motions and arguments they desired.26 The Runyan court
supervised eight months of contested proceedings and entered 63 pages of findings of fact and
conclusions of law in connection with its final judgment. The Runyan court reviewed the
adequacy of the notice and the adequacy of representation in connection with its analysis under
Rule 23, and in response to objections and challenges by class members. In addition, all class
members had the opportunity to file a motion to intervene and to appeal any complaints
26
The Runyan court allowed Plaintiffs’ counsel Tony Gould to argue at a hearing on October 1, 2009,
during which Mr. Gould entered 22 exhibits into evidence. ECF No. 19-8, at p. 172.
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regarding the settlement, through the granting or denial of their motion to intervene, to the
Arkansas Supreme Court. This Court agrees with the other courts that have held the Runyan
proceedings satisfied the minimum procedural requirements of due process necessary for full
faith and credit.
Plaintiffs’ Arguments to Avoid Full Faith and Credit
Plaintiffs argue, however, that the Court should refuse to afford the Runyan judgment full
faith and credit because (1) the class notice was misleading, (2) the Plaintiffs did not receive
adequate representation in the Runyan proceedings, and (3) absent class members were not given
the right to be heard and object to the proposed settlement.
Class Notice
Pursuant to Shutts, to satisfy due process, a class action settlement notice must be
“reasonably calculated . . . to apprise interested parties of the pendency of the action and afford
them an opportunity to present their objections and to opt out.” Shutts, 472 U.S. at 812; Mullane
v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314 (1950); see also Grunin v. Int’l House of
Pancakes, 513 F.2d 114, 122 (8th Cir. 1975) (notice “may consist of a very general description
of the proposed settlement, including a summary of the monetary and other benefits that the class
would receive and an estimation of attorneys’ fees and other expenses” and should “emphasize
that the court is expressing no opinion on the merits of the case”). “Within the bounds of due
process, the form that such notice is to take is left to the discretion” of the trial court. Tennille v.
W. Union Co., 785 F.3d 422, 436 (10th Cir. 2015) (internal citations and quotation marks
omitted). According to the Manual for Complex Litigation:
The notice should announce the terms of a proposed settlement and state
that, if approved, it will bind all class members. If the class has been
certified only for settlement purposes, that fact should be disclosed. Even
though a settlement is proposed, the notice should outline the original
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claims, relief sought, and defenses so class members can make an
informed decision about whether to opt out.
Manual for Complex Litigation (Fourth) § 21.312. The Court has reviewed the notice in detail,
and the Runyan court’s related findings27 and agrees with the courts in Gooch, Hunter, and
Gough that the notice satisfied the minimum requirements of due process.
Plaintiffs argue, however, that the notice was misleading. The Complaint does not allege
that the Plaintiffs actually read the notice when they received it, or that they were in fact misled
by any particular provision. Instead, the Complaint makes general allegations that the notice
violated the due process rights of the entire Runyan class nationwide. The Complaint (ECF
No. 1, at pp. 32-33 ¶ 130) refers to the following provision in the notice, which appears in the
section of the notice describing the settlement’s “Non-Monetary Benefits”:
“Actual Charges” Benefits. The Company will be required to pay all
claims for Actual Charges Benefits consistent with the definition of
“actual charges” as the amount legally owed to the provider, which is
consistent with the current definition of “actual charges” in Section 38-71[2]42(A) of the South Carolina Code and similar laws in Oklahoma,
Georgia, and Texas. The parties expect this to confer a substantial benefit
on the Class by lessening the amount and frequency of future premium
increases.
ECF No. 19-9, at p. 11 (p. 7 of notice). According to Plaintiffs, this provision was misleading
because it “falsely represented that this construction of ‘actual charges’ was consistent with
‘current’ South Carolina law.” ECF No. 1, at pp. 32-33 ¶ 130.
27
In its final judgment, the Runyan court found that “the Notice Plan, including the distribution of the
written Notice by mail, issuance of the Publication Notice, and creation of the Internet website, in accordance with
the Settlement Agreement and this Court’s Preliminary Approval Order,” “constituted the best notice practicable
under the circumstances to Settlement Class members,” “constituted notice that was reasonably calculated, under the
circumstances, to apprise Settlement Class members of the pendency of the Action, how the Settlement would affect
them, their right to exclude themselves from the Settlement, and their right to object to the Settlement and appear at
the Fairness Hearing,” “was reasonable and constituted due, adequate, and sufficient notice,” and “fully satisfied the
requirements of Arkansas Rule of Civil Procedure 23, the due process requirements of the United States
Constitution, and other applicable law.” Final Judgment at 4 ¶ 5.
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For several reasons, the Court finds the Plaintiffs’ arguments unpersuasive. First, the
cited provision accurately describes what the settlement provides, i.e., the settlement requires
Transamerica to pay “Actual Charges Benefits” consistent with the definition of “Actual
Charges” in the settlement as the “amount legally owed to the provider.” In addition, the
settlement definition of “Actual Charges” at the time the notice was mailed on May 14, 2009 was
consistent with the definition of “actual charges” in the South Carolina state statute, which was
effective on June 4, 2008. Indeed, the Runyan court expressly found as follows:
The Settlement provision governing the payment of Actual Charges
Benefits going forward is a fair, adequate, and reasonable method of
resolving any alleged ambiguity regarding how “actual charges” should be
interpreted under the Policies. Indeed, this provision is consistent with the
definition of “actual charges” in five state statutes.
Findings at 17 ¶ 6 & n.13 (citing statutes).28
Second, the provision describing how Actual Charges Benefits would be paid under the
settlement does not purport to provide legal advice or describe the Plaintiffs’ claims or the
parties’ positions on the merits. Rather, it is part of the answer to the question: “What type of
benefits does the Settlement provide to Settlement Class Members?” ECF No. 19-9, at p. 10
(p. 6 of notice). The notice contains a separate preceding section which answers the question:
“What is this lawsuit about?” ECF No. 19-9, at pp. 9-10 (pp. 5-6 of notice). It was not
incumbent upon the Runyan court to resolve the merits of the plaintiffs’ case in evaluating the
28
S.C. CODE ANN. § 38-71-242 (defining “actual charges” as the lower of (a) the amount the healthcare
provider “agreed to accept, pursuant to a network or other agreement with a health insurer,” as payment in full or
(b) the amount the provider “agreed or is obligated by operation of law to accept as payment in full”); GA. CODE
ANN. § 33-24-16.1 (the term “actual charge” or “actual fee” “when used in an individual or group specified disease
insurance policy, shall mean the amount actually paid by or on behalf of an insured person and accepted as full
payment by a health care provider or other designated person for the goods or services provided”); OKLA. STAT.
ANN. tit. 36, § 3651 (as used in a specified disease insurance policy, “actual charge” or “actual fee” means “the
amount actually paid by or on behalf of the insured and accepted by a provider for services provided”); TEX. INS.
CODE ANN. § 1201.0601 (“the amount actually paid by or on behalf of the insured and accepted by a provider for
services provided”); MO. ANN. STAT. § 376.789 (defining “actual charge” as the amount a medical provider
“[a]grees, or is obligated by operation of law, to accept as payment in full”).
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notice. S.C. Nat’l Bank v. Stone, 139 F.R.D. 335, 339 (D.S.C. 1991) (in weighing the fairness of
the settlement “a court is not to decide the merits of the case or to attempt to resolve unsettled
factual or legal questions”) (citations omitted).
To the extent Plaintiffs argue that the notice was required to discuss case law favorable to
plaintiffs or disadvantageous to defendants, “[d]ue process does not require the notice to set forth
every ground on which class members might object to the settlement.” Gooch, 672 F.3d at 423
(rejecting argument that Runyan notice violated due process) (quotations omitted)).29 The notice
adequately described the nature of the dispute and the claims and defenses of the parties. ECF
No. 19-9, at pp. 9-10 (pp. 5-6 of notice). The Runyan court reviewed the state of the law and
concluded:
“The merits of the Plaintiffs’ case, when weighed against the terms of the
Settlement, favor final approval of the Settlement. The possibility of Plaintiffs litigating this
case on a class basis through judgment is highly uncertain and would involve expensive, timeconsuming continued litigation, whereas the overall value of the Settlement is significant.”
Findings at 26 ¶ 4.30 Due process did not mandate that the notice in Runyan refer to caselaw or
predict class members’ chances of winning the litigation on the merits.
29
See also Adams v. S. Farm Bur. Life Ins. Co., 493 F.3d 1276, 1287-88 (11th Cir. 2007) (notice that did
not describe an “increasing premium” theory of liability advanced by plaintiffs nevertheless complied with due
process and was not misleading); Rodriguez v. West Publ’g Co., 563 F.3d 948, 962 (9th Cir. 2009) (“While the
Notice does not detail the content of objections ..., we do not see why it should.”).
30
Most, if not all, of Plaintiffs’ argument relates to South Carolina law. Defendants disagree that the law
was settled in plaintiffs’ favor when the Runyan court approved the settlement. Defendants point out that the South
Carolina “actual charges” statute became effective June 4, 2008 and directed that all claims administered after that
date must be paid consistent with the statutory definition. S.C. CODE ANN. § 38-71-242(C). Defendants also note
that, in 2008, the South Carolina Insurance Department issued Bulletin 2008-15, which instructed insurers that, after
the effective date, they “‘may not pay any claim or any benefit in excess of the amount specified in S.C. CODE ANN.
38–71–242.” It was not until 2014, when the South Carolina Supreme Court issued its opinion in Kirven v. Cent.
States Health & Life Co., 760 S.E.2d 794, 801 (S.C. 2014), in response to two certified questions from a federal
district court, that the retroactive effect of the “actual charges” statute was finally resolved under South Carolina
law. In Kirven, the South Carolina Supreme Court held that application of Section 38-71-242 to insurance contracts
entered into before the statute’s effective date would violate the Contract Clause of the state and federal
constitutions. Courts in Oklahoma and Texas, however, held that their actual charges statutes apply retroactively.
(footnote continued on next page)
-44-
Plaintiffs also argue that the notice was misleading because it “falsely suggested that
Defendants had viable claims or counterclaims for overpayment of benefits against its
policyholders.” ECF No. 1, at p. 33 ¶ 130 (emphasis omitted). Plaintiffs are referring to the
following section of the notice:
Waiver of Claims Against Settlement Class Members. The Company
will agree to waive and not pursue any claims or counterclaims for
overpayment of benefits that the Company might otherwise have against
any Settlement Class Members as of the date of the Final Order and
Judgment.
ECF No. 19-9, at p. 12 (p. 8 of notice). According to Plaintiffs, this provision “made the
deceptive and misleading threat” that settlement class members “would expose themselves to a
lawsuit” unless they remained in the settlement. ECF No. 1, at p. 33 ¶ 133. The Court rejects
this characterization of the notice for several reasons. First, the provision accurately describes
Section 3(b)(vi) of the Class Action Settlement Agreement, negotiated by the parties, under
which Transamerica agreed to waive any claims for overpayments against settling class
members.
ECF No. 19-5, at p. 87 (Section 3(b)(vi) of Settlement Agreement).
Second,
Transamerica had in fact asserted counterclaims to recover overpayments in other actions.31
Consequently, the waiver of any such claims was a benefit to the settlement class members that
was properly described in the notice and was not misleading.
See, e.g., Lindley v. Life Investors Ins. Co. of Am., 2010 WL 723670, at *8 (N.D. Okla. Feb. 22, 2010) (holding
Oklahoma “actual charges” statute applied retroactively and did not violate the Contract Clause of the United States
Constitution); Hunter v. Transamerica Life Ins. Co., 498 F. App’x 430, 438 (5th Cir. 2012) (holding Texas “actual
charges” statute applied to Runyan Class member’s policy and claims submitted after the effective date even though
the policy was issued many years before the statute was enacted).
31
See, e.g., Gooch v. Life Investors Ins. Co., 2009 WL 7026071 (M.D. Tenn. Feb. 24, 2009) at ¶ 89
(breach of contract counterclaim for damages for alleged “overpayments to the counterclaim defendant in an amount
to be proven at trial”); Lindley v. Life Investors Ins. Co., 267 F.R.D. 382, 398 (Feb. 17, 2010) (summarizing
counterclaims for breach of contract, bad faith, and unjust enrichment contending policyholder “has been overpaid”
and “should not be allowed to retain the excess”).
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In sum, the Court disagrees that Plaintiffs’ arguments regarding the notice establish a due
process violation that would allow Plaintiffs to avoid full faith and credit.
Adequacy of Representation
Relying heavily on Hege, Plaintiffs also allege that the Runyan proceedings violated due
process because class counsel did not adequately represent the settlement class.32 Plaintiffs
argue that “Class Counsel had [a] stark financial conflict of interest with absent class members
and breached their fiduciary obligations to absent class members by colluding with Defendant.”
ECF No. 30, at p. 29. However, this Court has already rejected the broad, “merits-based”
collateral review espoused by Hege in favor of a collateral review simply to determine whether
the Arkansas state court used adequate procedures to satisfy Shutts. The Court first notes that it
is unclear whether “adequacy of representation” in this context even includes adequacy of
counsel, as Shutts refers to whether the named plaintiff adequately represented the class. Shutts,
472 U.S. at 812. However, even assuming that adequacy of representation by counsel must be
shown under the minimum due process review33, a review of the Runyan findings would dictate a
conclusion that class counsel provided adequate representation. Under Fed. R. Civ. P. 23, for
example, the court must evaluate “whether class counsel are qualified, experienced, and
generally able to conduct the proposed litigation.” Lott v. Westinghouse Savannah River Co.,
32
ECF No. 30, at p. 11 (citing Hege, 780 F. Supp. 2d at 439) (interlocutory order denying defendant’s
motion for summary judgment). This is contrary to the position taken by at least one of Plaintiffs’ current counsel in
the Runyan proceeding. ECF No. 19-8, at p. 170 (p. 12 of Transcript of October 1, 2009 hearing, argument of
counsel for objector/intervenor Audry Hunter) (“I will submit to you that the counsel representing the settling
plaintiffs are competent and adequate counsel. Mrs. Hunter doesn’t have any objection with the competency of
plaintiffs’ counsel.”).
33
See AmChem Products, Inc. v. Windsor, 521 U.S. 591 at 626 n. 20 (1997). The adequacy of
representation requirement in a class certified under Fed. R. Civ. P. 23 generally encompasses whether the
representative parties were adequate and whether counsel was adequate to represent the class. Lott v. Westinghouse
Savannah River Co., 200 F.R.D. 539, 561 (D.S.C. 2000).
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200 F.R.D. 539, 561 (D.S.C. 2000). The Arkansas court reviewed the qualifications of class
counsel and found they were fully qualified. Specifically, Judge Moody found that the parties
were “represented by experienced class action counsel who worked diligently negotiating the
settlement at arms’ length in an adversarial setting to ensure that the Settlement Agreement was
fair, reasonable, and adequate . . . The Court finds further that the Settlement was negotiated in
good faith and there was not collusion or ‘reverse auction’ of any kind in the negotiation of the
Settlement.” Findings at 14 ¶ 7. It is also clear that the Arkansas procedures provided adequate
mechanisms for challenging the adequacy of representation.
Full and Fair Opportunity to Object
Plaintiffs assert that the Runyan trial court utilized procedures which deprived class
members of the opportunity to evaluate the proposed settlement and meaningfully oppose it.
They also assert that appellate review of the settlement approval was not available. To the
contrary, the Arkansas Supreme Court explained the manner under Arkansas law in which appeal
could be taken. An unnamed class member could move to intervene and, if the motion was
denied, appeal the denial of the motion. As part of his appeal of the denial of the motion to
intervene, he “would receive appellate review of the issues related to the settlement that he
seeks.” Hunter v. Runyan, 382 S.W.3d at 16. For example, “the issue of whether his interest
was adequately represented by the class and class counsel would . . . arise in the context of
whether Crager had an interest that was inadequately represented by the parties to warrant
intervention under (Ark.) Rule 24.” Id. Therefore, it is clear that a procedure was available
under Arkansas law for an unnamed class member to attempt to challenge the settlement. Here,
the Weavers did not opt out of the class, did not file a motion to intervene, and filed no
objections to the settlement. Instead, they waited for years after the settlement was approved and
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other individuals pursued appeals to attempt to bring another class action on the same basis
against the same defendants.
A review of the procedures utilized in Runyan shows that they were sufficient to afford
absent class members such as the Weavers with minimum procedural due process. Therefore,
this Court rejects the plaintiffs’ arguments that the Runyan judgment should not be accorded full
faith and credit on the basis of failure to meet due process requirements.
Res Judicata
Under the Full Faith and Credit Act, “Congress has specifically required all federal courts
to give preclusive effect to state-court judgments whenever the courts of the State from which
the judgments emerged would do so.” Kremer v. Chem. Constr. Corp., 456 U.S. 461, 482 (1982)
(quoting Allen v. McCurry, 449 U.S. 90, 96 (1980)). As the district court in Gough observed, in
this case, given “the Arkansas Supreme Court’s review of the Runyan final judgment, there can
be no question that Arkansas will fully enforce the judgment.” Gough, 781 F. Supp. 2d at 510.
Arkansas law holds that “a valid and final judgment rendered on the merits by a court of
competent jurisdiction bars another action by the plaintiff or his privies against the defendant or
his privies on the same claim.” Barclay v. Waters, 182 S.W.3d 91, 95 (Ark. 2004) (citing
Carwell Elevator Co. v. Leathers, 101 S.W.3d 211 (Ark. 2003)). “Res judicata bars not only the
re-litigation of claims which were actually litigated in the first suit, but also those which could
have been litigated.” Barclay, 182 S.W.3d at 95-96. Arkansas law applies res judicata when:
(1) the first suit resulted in a final judgment on the merits; (2) the first suit was based upon
proper jurisdiction; (3) the first suit was fully contested in good faith; (4) both suits involve the
same claim or cause of action; and (5) both suits involve the same parties or their privies. Bailey
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v. Harris Brake Fire Prot. Dist., 697 S.W.2d 916, 917 (Ark. 1985) (citing Wells v. Ark. Pub.
Serv. Comm’n, 616 S.W.2d 718 (Ark. 1981)).
The Runyan final judgment satisfies all requirements for application of res judicata under
Arkansas law. See Hunter, 2011 WL 4621111, at *2 (plaintiff’s individual and class “claims are
barred by res judicata, collateral estoppel, and the release in the Runyan final judgment, pursuant
to the Full Faith and Credit Act”), aff’d by Hunter, 498 F. App’x at 432 (“We AFFIRM the
district court’s judgment dismissing the [Hunter] lawsuit based on the preclusive effect of the
Runyan judgment.”); Gooch, 672 F.3d at 419 (“The Arkansas Supreme Court has disposed of
Gooch’s [subject matter jurisdiction and res judicata] arguments, making us certain that
Arkansas would give preclusive effect to its judgment.”); Gough, 781 F. Supp. 2d at 510
(“Considering the Arkansas Supreme Court’s review of the Runyan final judgment, there can be
no question that Arkansas will fully enforce the judgment. “); Hall v. Equity Nat’l Life Ins. Co.,
730 F. Supp. 2d 936, 944 (E.D. Ark. 2010) (“[T]he Runyan judgment is entitled to the same
respect in this Court that it would receive in the courts of the State of Arkansas,” and finding the
“class allegations are barred by both res judicata and collateral estoppel.”). As all these courts
have recognized, given the Arkansas Supreme Court’s review and affirmance, there can be no
question that Arkansas law would give preclusive effect to the Runyan Final Judgment.
The Runyan Final Judgment dismissed all claims “on the merits and with prejudice as to
all Settlement Class members who did not request exclusion from the Settlement Class . . . .”
Final Judgment at 11 ¶ 14.
The existence of the Runyan final judgment clearly and
unequivocally satisfies the first prong of res judicata. Francis v. Francis, 31 S.W.3d 841, 846
(Ark. 2000) (“Dismissal with prejudice is as conclusive of the rights of the parties as if there
were an adverse judgment as to the plaintiff after a trial,” and holding that a settlement “was a
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final adjudication on the merits of ‘all matters in controversy between the parties.’”). The final
judgment was also based on proper jurisdiction. The Supreme Court of Arkansas expressly
affirmed that the Runyan court had subject matter jurisdiction under Arkansas law. Hunter, 382
S.W.3d at 650 (“[T]here can be no question that the circuit court certainly had subject-matter
jurisdiction to review and approve or not approve the settlement reached in this case.”).
Accordingly, the second prong of res judicata is satisfied.
With respect to the third prong, Plaintiffs’ Complaint in this action and the Runyan action
involve the same cancer insurance policies, construction of the same policy provisions regarding
“actual charges,” and the same allegations that Transamerica underpaid or caused a “reduction in
benefits” for “actual charges.” Compare ECF No. 1, at pp. 8, 17 ¶¶ 31, 75 (Transamerica has
paid plaintiffs’ “actual charges” benefits by paying claims based upon a “reduced” amount
accepted by plaintiffs’ medical provider) with ECF No. 19-3, at pp. 15-20 (Runyan Complaint
¶¶ 29-31, 33, 39). There is no question that this action and the Runyan action involve the same
subject matter, claims, and cause of action.
Finally, the Runyan action involved the same parties or their privies. Plaintiffs in this
case concede that they are Runyan settlement class members, and the Complaint purports to
assert claims on behalf of a class defined to encompass the Runyan settlement class members.
Compare ECF No. 1, at p. 4 ¶ 18 with Final Judgment at ¶ 3. Accordingly, the final element for
applying res judicata under Arkansas law is satisfied, and Plaintiffs’ claims asserted in this
action are precluded.34
34
The plaintiffs contend that res judicata is an affirmative defense that cannot be raised on a motion to
dismiss. However, numerous cases in the Fourth Circuit have allowed such a challenge. See Field; Chaudery v.
Stevens, 2005 WL 1923231, at *4 (facts may be judicially noticed by court “entertaining a motion to dismiss on the
ground of res judicata or collateral estoppel”).
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Collateral Estoppel
Under Arkansas law, Plaintiffs’ claims are also barred by collateral estoppel or issue
preclusion, which has four elements: “(1) the issue is the same as that involved in a prior
litigation; (2) the issue was actually litigated; (3) the issue was determined by a valid and final
judgment; and (4) the determination was essential to the judgment.” Nat’l Farmers Union
Standard Ins. Co. v. Morgan, 966 F.2d 1250, 1253 (8th Cir. 1992) (citing Lane v. Sullivan, 900
F.2d 1247, 1250 (8th Cir. 1990) (citing East Texas Motor Freight Lines, Inc. v. Freeman, 713
S.W.2d 456, 459 (Ark. 1986))).
Collateral estoppel bars the claims alleged in the Complaint.
First, the Complaint
attempts to relitigate the meaning of “actual charges” under the same cancer insurance policies
involved in the Runyan action, on behalf of the settlement class in Runyan. Second, the issues
raised by Plaintiffs here were litigated in the Runyan action to a final judgment on the merits and
a dismissal with prejudice.
See, e.g., Francis, 31 S.W.3d at 846 (settlement is “a final
adjudication on the merits of ‘all matters in controversy between the parties,’” and a “[d]ismissal
with prejudice is as conclusive of the rights of the parties as if there were an adverse judgment as
to the plaintiff after a trial”). Third, those issues were determined by a valid and final judgment,
affirmed by the state’s highest court. And finally, the determination of the “actual charges”
issues under the policies was essential to the Runyan final judgment. Accordingly, Plaintiffs’
claims in this action are also barred by collateral estoppel.
Plaintiffs’ Claims Have Been Released
The Runyan final judgment includes a broad release that was included in the notice.
Plaintiffs do not dispute that their claims in this case fall within the scope of the Runyan release.
“[A] suit can be barred by the earlier settlement of another suit in either of two ways:
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res judicata or release.” Reppert v. Marvin Lumber & Cedar Co., 359 F.3d 53, 56 (1st Cir.
2004) (citation omitted) (subsequent federal court action was barred by both res judicata and
release); Grant Cnty. Sav. & Loan Ass’n v. Resolution Trust Corp., 968 F.2d 722, 725 (8th Cir.
1992) (settlement agreement released the defendant from pending claims). The Runyan release
is comprehensive and expressly includes, among other things, any and all claims that were
asserted or could have been asserted in the Runyan action; any and all claims “relating to
premiums or benefits under the Policies including but not limited to Claims relating to the
amount of premiums paid or payable, the amount of benefits paid or payable”; any and all claims
relating to “any type of Actual Charges Benefits paid or payable under a Policy, or the meaning,
definition, or interpretation of ‘actual charges’ or ‘charges’ under a Policy”; and any and all
claims relating to “the Company’s administration of the Policies including but not limited to the
forms, processes, proof of loss requirements, or procedures used in connection with or relating to
the processing of claims and payment of benefits under such Policies, or any changes to such
forms, processes, proof of loss requirements, or procedures.” Final Judgment at 6-7 ¶ 8. The
final judgment expressly states that: “Notwithstanding any other provision of the Settlement
Agreement or this Final Judgment, under no circumstances shall the Release be interpreted to
allow any future claims challenging the Company’s interpretation of ‘actual charges’ or
‘charges,’ . . .” Id. at 9 ¶ 8.
This release bars all claims asserted in the Complaint, and any claims Plaintiffs might
assert with the respect to the Runyan settlement or any claims for benefits or related to the
interpretation of the terms of their insurance policy. This applies equally to the purported class
claims. Hall, 730 F. Supp. 2d at 945-46 (“Hall’s class claims are the same as those litigated and
then released in Runyan, so those claims are barred”).
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The Anti-Injunction Act
Transamerica also moves to dismiss pursuant to the Anti-Injunction Act, 28 U.S.C.
§ 2283, which is “an absolute prohibition against enjoining state court proceedings.” Atl. Coast
Line R.R. Co. v. Bhd. of Locomotive Eng’rs, 398 U.S. 281, 286 (1970).
There are three
exceptions to the Anti-Injunction Act, but Plaintiffs do not allege that those exceptions apply
here.35 Instead, Plaintiffs contend that the Anti-Injunction Act does not apply here because they
are not seeking an express injunction of the Runyan proceedings and, in any event, those
proceedings have concluded. But Plaintiffs misunderstand the scope of the Anti-Injunction Act.
The Fourth Circuit has observed that it is not limited to express injunctions and also applies
where the plaintiffs seek declaratory and restitutionary relief that “would have the same effect as
an injunction.” Denny’s, Inc. v. Cake, 364 F.3d 521, 528 n.8 (4th Cir. 2004).
The relief sought by Plaintiffs here would interfere with the continuing jurisdiction of the
Arkansas Circuit Court and would unquestionably have the same effect as an injunction. The
declaratory relief Plaintiffs seek would effectively prohibit Transamerica from complying with
the Runyan court’s final judgment, and Plaintiffs’ prayer for restitution would require
Transamerica to violate the Runyan final judgment. Transamerica correctly observes that the
Anti-Injunction Act prohibits this result. Emp’rs Res. Mgmt. Co., 65 F.3d at 1130 (“We take
seriously the mandate in the Anti-Injunction Act and recognize that for over two hundred years,
the Act has helped to define our nation’s system of federalism.”); see also Denny’s, Inc., 364
F.3d at 528, 531 (quoting Emp’rs Res. Mgmt. Co., 65 F.3d at 1130; finding the Anti-Injunction
35
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. § 2283. These three exceptions to the Act are to be
“construed narrowly.” Emp’rs Res. Mgmt. Co. v. Shannon, 65 F.3d 1126, 1129-1130 (4th Cir. 1995).
-53-
Act “rendered the district court powerless to issue” declaratory or injunctive relief related to
separate state court proceedings).
Plaintiffs’ contention that the Runyan proceedings are over and that there is nothing to
enjoin is contrary to the terms of the final judgment, through which the state court expressly
retained “exclusive jurisdiction” to enforce, interpret, and administer the settlement and to
“resolve[] any disputes, claims or causes of action that . . . are related to or arise out of the
Settlement Agreement, and/or th[e] Final Judgment.” Final Judgment at 12 ¶ 16(a). The AntiInjunction Act applies to “state court proceedings,” which are defined broadly to apply “not only
to an execution issued on a judgment, but to any proceeding supplemental or ancillary taken with
a view to making the suit or judgment effective.” Hill v. Martin, 296 U.S. 393, 403 (1935). The
prohibition of the Anti-Injunction Act “cannot be evaded by addressing the order to the parties”
rather than to the state court. Atl. Coast Line R.R. Co., 398 U.S. at 287. In this case, the
Plaintiffs seek to declare and enforce a different method of calculation and paying Actual
Charges Benefits that would be in direct conflict with the Runyan final judgment; and Plaintiffs
seek an award of restitution that would effectively require Transamerica to violate the final
judgment for claims that have already been paid to every member of the Runyan class. ECF No.
1, at p. 54. This would “result in precisely the same interference with and disruption of” the
Runyan final judgment “that the longstanding policy limiting injunctions was designed to avoid.”
Samuels v. Mackell, 401 U.S. 66, 72 (1971); see also Everson v. Doughton, 2009 WL 903316, at
*2 (M.D.N.C. Apr. 2, 2009), aff’d, 366 F. App’x 461 (4th Cir. 2010) (“[T]he ultimate relief that
Plaintiffs request, a permanent injunction against enforcement of Judge Doughton’s final
judgment, is squarely prohibited by the Anti–injunction Act.”). For these reasons, the AntiInjunction Act bars Plaintiffs’ claims and independently requires dismissal.
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Comity and Federalism
Transamerica also moves to dismiss based on principles of comity and federalism,
arguing that, even if the Anti-Injunction Act were inapplicable, the Court should dismiss this
action because the state court retained exclusive jurisdiction over disputes involving the
settlement or final judgment, and Plaintiffs can seek individual relief from the final judgment in
the state court. Plaintiffs disagree, pointing out that the principal case upon which Transamerica
relies for this proposition is an unpublished decision from another jurisdiction. See Bar Codes
Talk, Inc. v. GS1, Inc., 2010 WL 4510982, at *2 (M.D. Fla. Nov. 2, 2010) (dismissing federal
court challenge to state class action settlement, where “state court retain[ed] exclusive
jurisdiction over [the] settlement agreement”). In the Bar Codes case, the federal district court
explained that “it would not make sense for the state court to retain jurisdiction, yet have the
district court determine what the state court meant in the consent judgment.” See id. at *1.
Although the Bar Codes opinion is not controlling, this Court finds its reasoning persuasive and
notes that the court’s decision in Bar Codes relied on decisions from several other jurisdictions,
including a decision in this district, which similarly dismissed federal litigation in deference to
the state court’s reservation of jurisdiction. See id. at *2 (citing, inter alia, House v. Aiken Cnty.
Nat’l Bank, 956 F. Supp. 1284, 1292 (D.S.C. 1996); Petoskey Inv. Grp., LLC v. Bear Creek
Twp., 2005 WL 1796130, at *8-9 (W.D. Mich. July 27, 2005); Johnson v. Hoffman, 1996
WL 296527, at *6 (E.D. Pa. June 3, 1996) (in dicta)).
Questions of comity and federalism are unquestionably raised by Plaintiffs’ Complaint,
which seeks to unwind a national class action settlement that the state trial and appellate courts
spent several years adjudicating and resolving, and to relitigate released claims related to the
interpretation of thousands of insurance policies. The state court expressly retained “continuing
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and exclusive jurisdiction as to all matters relating to the administration, consummation,
enforcement, and interpretation of the Settlement Agreement and [the] Final Judgment,”
including the jurisdiction to enforce the terms of the settlement agreement, resolving any
disputes that arise out of the settlement agreement or final judgment, and entering orders to
protect or effectuate the final judgment and settlement agreement. See Final Judgment at 12
¶ 16. Transamerica correctly points out that, because the Runyan court retained jurisdiction over
the settlement, Plaintiffs can seek relief from the final judgment in the state court. For example,
to the extent Plaintiffs have colorable grounds why they should not be bound by the judgment,
they can move for an order in the Runyan court excluding themselves from the settlement.
Plaintiffs do not dispute that the state court retained jurisdiction over the claims asserted
in this litigation, but they argue that the Runyan court cannot determine the res judicata effect of
its own judgment. ECF No. 30, at pp. 27-28. Plaintiffs’ misunderstand this issue, which is not
related to res judicata. See, e.g., Sandler Assocs., L.P. v. BellSouth Corp., 818 F. Supp. 695, 705
(D. Del. 1993) (dismissing claims “based on principles of comity between state and federal
courts”; explaining that failure to respect the state court’s decision would “unjustifiably
proliferate litigation, defeat legitimate expectations of the settling parties, engender uncertainty
among class members and defendants as to their ability to retain the benefits of settlements,
discourage settlements altogether and create unwarranted conflict between state and federal
courts”). Plaintiffs also complain that it would be inconvenient to make them leave their home
state to seek exclusion from the Runyan action in Arkansas. ECF No. 30, at pp. 35-36. This
contention is unpersuasive. Plaintiffs are represented by law firms from two different states, and
all of their lawyers are already admitted to practice pro hac vice before the Runyan court. As
Transamerica points out, the relief sought in this case profoundly implicates the Runyan court’s
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exclusive jurisdiction.
For all of these reasons, the Court dismisses Plaintiffs’ claims in
deference to the exclusive retention of jurisdiction by the Runyan court.
CONCLUSION
The Court has thoroughly reviewed the entire record, including the pleadings, motions,
responses, replies, the arguments of counsel, and the applicable law. For the reasons stated
above, the Court finds that it lacks subject matter jurisdiction over the breach of contract and bad
faith claims, as those claims are barred by the Rooker-Feldman doctrine. Even if the RookerFeldman doctrine did not apply, the Court grants the defendants’ motion to dismiss on the
remaining grounds argued by the defendants.
The claim for declaratory relief is dismissed on the basis of Full Faith and Credit, res
judicata, collateral estoppel, the release in the Runyan final judgment, and the Anti-Injunction
Act. The Court also dismisses the claim for declaratory relief based on the state court’s retention
of exclusive jurisdiction over the Runyan final judgment and principles of comity and federalism.
IT IS THEREFORE ORDERED that Defendant Transamerica’s motion to dismiss
(ECF No. 19) is GRANTED; IT IS FURTHER ORDERED that Defendant AEGON USA,
LLC’s motion to dismiss (ECF No. 20) is GRANTED on the same bases as the Court has
granted Transamerica’s motion to dismiss36; IT IS FURTHER ORDERED that the
Complaint is dismissed with prejudice, and the Clerk is instructed to close this matter; and IT IS
FURTHER ORDERED that Plaintiffs’ Motion for Leave to Amend Complaint (ECF No. 27) is
GRANTED in part and found to be moot in part. Defendants’ Motion for Notice of Filing
and Request for Judicial Notice (ECF No. 47) is denied.
36
It is not necessary to discuss the arguments by Aegon that the Court lacks personal jurisdiction over it, in
light of the dismissal of the case on the other grounds argued.
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IT IS SO ORDERED.
September 28, 2015
Florence, SC
s/R. Bryan Harwell
R. Bryan Harwell
United States District Judge
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