LaPlant v. Northwestern Mutual Life Insurance Company

Filing 19

ORDER signed by Judge Lynn Adelman on 8/20/12 granting 10 Motion to Remand. (cc: all counsel) (dm)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
MARLEEN M. LAPLANT, on her own behalf
and on behalf of a class similarly situated,
Plaintiffs,
v.

Case No. 11-CV-00910

THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY,
Defendant.

DECISION AND ORDER
Plaintiff, Marleen M. LaPlant, the holder of an annuity insurance policy issued by
defendant, Northwestern Mutual Life Insurance Company, brought an action in state court
on behalf of a class of Wisconsin policyholders and, after a two week court trial, prevailed.
Subsequently, plaintiff moved to expand the class to include policyholders from other
states at which point defendant removed the case under the Class Action Fairness Act
(“CAFA”), 28 U.S.C. § 1332(d). Plaintiff now moves to remand.
The facts that gave rise to the suit are as follows: defendant is a mutual insurance
company incorporated in Wisconsin. As a mutual company, it is owned cooperatively by
its policyholders. Under Wis. Stat. § 632.62, defendant issued “participating” policies to
members of the putative class. Section 632.62(2) requires that such policies give the
policyholders the right to participate in the mutual company’s profits. For a time, defendant
paid dividends to the policyholders by apportioning its profits. In 1985, however, defendant
moved the money invested by the policyholders into a separate short-term bond fund and
began paying dividends based on the interest the fund generated. This change resulted

in the policyholders receiving smaller dividends and precipitated the present action alleging
breach of contract and breach of fiduciary duty.
Under CAFA, federal courts have jurisdiction over class actions in which at least one
class member is a citizen of a state different from a defendant, the class exceeds 100
members and members’ claims add up to more than $5,000,000. Appert v. Morgan Stanley
Dean Witter, Inc., 673 F.3d 609, 617 (7th Cir. 2012) (citing 28 U.S.C. § 1332(d)(2), (d)(5)).
Congress enacted CAFA to allow federal courts “to decide most interstate class actions
because these cases usually involve large amounts of money and many plaintiffs, and
have significant implications for interstate commerce and national policy.” S. Rep. No. 10914, at 27 (2005). However, CAFA contains exceptions designed to ensure that state courts
can adjudicate class actions “that have a truly local focus.” Id. at 28. One exception, the
“corporate governance exception,” withdraws federal jurisdiction over a class action that
“solely involves a claim that relates to the internal affairs or governance of a
corporation . . . and that arises under or by virtue of the laws of the State in which such
corporation . . . is incorporated . . . .” 28 U.S.C. §§ 1332(d)(9)(B), 1453(d)(2). The question
presented is whether the corporate governance exception requires remand.
Plaintiff has the burden of proof on this issue. See Appert, 673 F.3d at 619. I
address first whether the claims of members of the putative class relate solely to
defendant’s internal affairs. This inquiry focuses “on the source of the right that the
plaintiff’s claim seeks to enforce.” Greenwich Fin. Servs. Distressed Mortg. Fund 3, LLC
v. Countrywide Fin. Corp., 603 F.3d 23, 29 (2d Cir. 2010). “Internal affairs” are “matters
peculiar to the relationships among or between the corporation and its current officers,

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directors and shareholders.” S. Rep. No. 109-14, at 45 (quoting Edgar v. MITE Corp., 457
U.S. 624, 645 (1982)). In the present case, members of the putative class sue defendant
in their capacity as defendant’s owners claiming that defendant improperly calculated their
dividends and thereby breached its contractual and fiduciary duties to them. The
declaration and payment of dividends generally involve the internal affairs of a corporation.
See, e.g., Pittway Corp. v. U.S.A., 88 F.3d 501, 503 (7th Cir. 1996); In re Harnischfeger
Indus., Inc., 293 B.R. 650, 662 (Bankr. D. Del. 2003) (citing Restatement (Second) of
Conflict of Laws § 302 cmt. e (1971)). Further, claims for breaches of fiduciary duty against
a corporation by its shareholders are regularly treated as matters involving internal affairs.
See, e.g., Nagy v. Riblet Prods. Corp., 79 F.3d 572, 574 (7th Cir. 1996). Thus, the claims
of members of the putative class relate to defendant’s internal affairs.
Defendant argues that because the state trial court addressed matters other than
dividends, including defendant’s misleading marketing of policies, failure to give notice of
the change in dividend calculation, willful cover-up of the change, deception of New York
regulators and punitive damages, the case does not solely involve claims related to its
internal affairs. However, the substance of plaintiff’s claims does not change merely
because the case raises collateral issues or because the state court discussed other
wrongdoing by defendant. The phrase “solely involves” should not be read to limit the
exceptions under § 1332(d)(9) to class actions that raise no collateral issues. Greenwich,
603 F.3d at 31. Other language in the statute such as the phrase “relates to” is fairly broad.
Id. “If Congress had intended these provisions to apply only to class actions that involve

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no legal issues extraneous to the primary claim, they [sic] would have used language that
was more clearly limiting.” Id.
I turn next to whether the claims of members of the putative class “arise[] under or
by virtue of” Wisconsin law. The state court held that the Wisconsin policyholders’ claims
are governed by Wisconsin law. Thus, the question presented is whether Wisconsin law
also governs the claims of policyholders who purchased policies elsewhere. Because this
is a diversity case, I apply Wisconsin choice-of-law rules to determine the law under which
putative class members’ claims arise. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S.
487, 496 (1941).
Defendant contends that the Wisconsin Court of Appeals held that Wisconsin law
does not govern such claims in Noonan v. Northwestern Mutual Life Insurance Company,
No. 2005AP1683, 2006 WL 3314622 (Wis. Ct. App. Nov. 16, 2006). In Noonan,
policyholders Daniel and Catherine Noonan brought an action on behalf of all
policyholders, but the trial court denied class certification on the ground that a nationwide
class action would be unmanageable in part because other states’ laws might apply. The
problem with defendant’s argument is that, although the court of appeals affirmed, it
expressly declined to decide which state’s law applied and held only that the trial court did
not abuse its discretion. Id. at *3 n.6. Thus, Noonan is not helpful on this issue.
Since Wisconsin has not adopted the internal affairs doctrine, under which the law
of the state of incorporation ipso facto governs a corporation’s internal affairs, I apply the
state’s general choice-of-law principles. Beloit Liquidating Trust v. Grade, 270 Wis. 2d 356,
373–74 (2004). Cf. Becher v. Northwestern Mut. Life Ins. Co., No. 10-6264, 2010 WL

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5138910 (C.D. Cal. 2010) (remanding a parallel lawsuit after concluding that Wisconsin law
governed based on California’s internal affairs doctrine). I apply the choice-of-law
framework used in Drinkwater v. American Family Mutual Insurance Company, 290 Wis.
2d 642 (2006), which like the present case involved tightly bound contract and tort claims.
I ask first whether the case has more significant contacts with Wisconsin or the state
where the class members purchased their policies. Id. at 658. I presume that Wisconsin
law applies to lawsuits brought in Wisconsin, “unless it becomes clear that non-forum
contacts are of greater significance.” Id. If it is unclear which state’s contacts are of greater
significance, Wisconsin courts apply five choice-influencing factors: “(1) predictability of
results; (2) maintenance of interstate and international order; (3) simplification of the
judicial task; (4) advancement of the forum’s governmental interest; and (5) application of
the better rule of law.” Id. “The importance of each factor will vary depending upon the
specific facts presented in each case.” Beloit, 270 Wis. 2d at 375 (quoting Zelinger v. State
Sand & Gravel Co., 38 Wis. 2d 98, 106 (1968)).
In the present case, it is unclear which state’s contacts are of greater significance.
Defendant is located in Wisconsin, and it calculates and pays dividends out of its
Wisconsin headquarters. However, the putative class members purchased their policies
elsewhere and receive dividends in other states. The alleged breaches occurred in
Wisconsin, but the injury occurred elsewhere. Thus, I will consider the choice-influencing
factors.
The first factor, “predictability of results,” requires me to decide which state’s law is
more likely to provide the parties with predictable and expected results. Drinkwater, 290

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Wis. 2d at 660. Since defendant is incorporated and located in Wisconsin and plaintiff’s
suit involves defendant’s internal affairs, I conclude that Wisconsin law provides the parties
with the more predictable result. Policyholders knew they were investing in a Wisconsin
corporation with headquarters in Wisconsin. Applying Wisconsin law ensures that all
policyholders will be treated the same regardless of where they purchased their policy, and
that defendant will not be subjected to different obligations in different states.
The second factor, “maintenance of interstate and international order,” is designed
to ensure that “a jurisdiction which is minimally concerned [will] defer to a jurisdiction that
is substantially concerned.” Id. at 661. Here, all the states involved are more than minimally
concerned. Wisconsin has an interest in regulating Wisconsin corporations doing business
in Wisconsin and the states where policies were purchased have an interest in protecting
their citizens. Thus, this factor is neutral.
The third factor is “simplification of the judicial task.” Application of Wisconsin law,
will almost always simplify the task of a Wisconsin court. Id. at 662. Thus, this factor
supports applying Wisconsin law unless Wisconsin’s law is “complex or uncertain” as
compared to that of another jurisdiction. Id. Wisconsin contract law is well-developed, and
the Wisconsin Court of Appeals has already held that defendant owes policyholders a
fiduciary duty. Noonan v. Northwestern Mut. Life Ins. Co., 276 Wis. 2d 33 (Ct. App. 2004)
(denying defendant’s motion to dismiss the Noonans’ individual claims). Thus, applying
Wisconsin law would simplify the judicial task.
The fourth factor is “advancement of the forum’s governmental interest.” As the
Beloit court noted, “Wisconsin has an interest in having its laws applied to corporations,

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and their officers and directors, transacting business within the state.” Beloit, 270 Wis. 2d
at 377. In Beloit, the court held that Wisconsin law governed the internal affairs of a
Delaware corporation because it was headquartered in Wisconsin and its officers had
allegedly breached their fiduciary duty while working in the state. Id. The same reasoning
applies here. Defendant is incorporated and headquartered in Wisconsin, and, as
evidenced by Wis. Stat. § 632.62, Wisconsin has a strong interest in regulating defendant’s
payment of dividends.
The fifth factor, “application of the better rule of law,” requires selection of “the law
that most adequately does justice to the parties and has the greatest likelihood of being
applicable with justness in the future.” Beloit, 270 Wis. 2d at 377 (quoting Heath v. Zellmer,
35 Wis. 2d 578, 598 (1967)). Wisconsin law best satisfies this requirement. As discussed,
applying Wisconsin law ensures that all policyholders will have the same rights and that
defendant will not be saddled with different obligations in different states.
For the foregoing reasons, I conclude that Wisconsin choice-of-law principles favor
the application of Wisconsin law to the claims of the putative class members. Defendant’s
final argument is that, regardless of the choice-of-law analysis, some claims are governed
by other states’ law because in 1983 some policyholders signed an amendment to their
contracts, which included language stating that the amendment was “governed by the law
of the state in which the owner resides at the time that the Amendment is accepted by the
Owner.” (Decl. of Joshua D. Maggard Ex. O, ECF No. 14-15.)
Assuming the amendment governs some putative class members’ claims, I
conclude that the choice-of-law provision contained therein is unenforceable. Parties to a

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contract can agree to a choice-of-law provision but not “at the expense of important public
policies of a state whose law would be applicable if the parties’ choice of law provision
were disregarded.” Bush v. Nat’l School Studios, Inc., 139 Wis. 2d 635, 642 (1987). As
discussed, absent the amendment’s choice-of-law provision, Wisconsin law would govern
the claims in question. Further, applying the laws of other states would undermine
important Wisconsin public policies. Specifically, it would prevent Wisconsin from
effectively regulating defendant’s payment of dividends to participating policyholders. As
the Beloit court held, Wisconsin has an important governmental interest in regulating the
internal affairs of companies headquartered in Wisconsin, and Wis. Stat. § 632.62 makes
it clear that this regulatory interest extends to the payment of dividends by defendant as
a mutual company. Thus, the choice-of-law provision in the amendment cannot be applied
to the claims in the present case.
For the foregoing reasons I find that the proposed expanded class action is within
CAFA’s corporate governance exception. The action solely involves claims that relate to
defendant’s internal affairs and the claims arise under Wisconsin law. As a result, this court
lacks jurisdiction.
THEREFORE, IT IS ORDERED that plaintiffs’ motion to remand [Docket #10] is
GRANTED.
Dated at Milwaukee, Wisconsin, this 20th day of August 2012.

s/ Lynn Adelman
LYNN ADELMAN
District Judge
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