Aronstein v. Mass. Mut. Life Ins. Co.

15 F.4th 527

Jesse ARONSTEIN, individually and on behalf of all others similarly situated, Plaintiff, Appellant/Cross-Appellee,

v.MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY, Defendant, Appellee/Cross-Appellant,C.M. Life Insurance Company, Defendant.

Nos. 20-2103

20-2135

United States Court of Appeals, First Circuit.

October 6, 2021

Kevin B. Love, with whom Ian McLoughlin, Adam Stewart, Criden & Love, P.A., and Shapiro Haber & Urmy LLP were on brief, for appellant/cross-appellee.

Eric S. Mattson, with whom Robert N. Hochman, Heather Benzmiller Sultanian, John P. Pucci, Jodi K. Miller, Sidley Austin LLP, and Bulkley, Richardson and Gelinas, LLP were on brief, for appellee/cross-appellant.

Before Howard, Chief Judge, Selya and Lynch, Circuit Judges.

LYNCH, Circuit Judge.

When a life insurance company cuts the interest rate of an annuity in half, it must make that change clear to its consumers. In choosing to change an interest rate by an endorsement its own staff warned would sow consumer confusion, defendant Massachusetts Mutual Life Insurance Company ("MassMutual") introduced ambiguity into its annuity certificate. Because of that lack of clarity, plaintiff Jesse Aronstein believed that he had bought an annuity that guaranteed him 3.0% annual interest. MassMutual has taken the position that it clearly promised only 1.5%. After a bench trial, the district court ruled against MassMutual; it also ruled against Aronstein's class action claims.¹

Finding no error, we affirm the district court's denial of class certification, entry of judgment for Aronstein, and award of prejudgment interest.

I.

In 2003, MassMutual decided to cut the minimum guaranteed interest rates -- the lowest rates annuities can earn -- paid to purchasers of some of its annuities. For the New York version of its "Odyssey" annuity, MassMutual reduced the rate from 3.0% to 1.5%. To effect that change, MassMutual considered two options: updating the entire certificate or attaching an amendment to the certificate, called an endorsement or rider, to override the certificate's terms. MassMutual chose the latter option, despite internal documents stating that creating such a conflict between the endorsement and the certificate would be "[c]onfusing to the client." MassMutual entitled this rider the "GUARANTEED INTEREST RATE ENDORSEMENT." It also changed references in its internal documents from "guaranteed interest rate" to "guaranteed minimum interest rate." (Emphasis added.) But MassMutual did not make a similar clarification in the endorsement to educate all of its consumers.

We briefly describe the Odyssey annuity certificate, as purportedly amended by the endorsement. The body of the certificate explains that interest will accrue at a minimum rate of 3.0% per year. On the first substantive page of the certificate, the minimum guaranteed interest rate is listed as 3.0%, and the policy promises that "[t]he interest rate credited to this Certificate shall never be less than the Minimum Guaranteed Interest Rate shown above" (i.e., 3.0%). The certificate repeats that promise several times. The certificate also contains payout schedules based on the 3.0% rate. No payout figures based on a 1.5% rate are included. Additionally, the certificate promises 4.0% interest for the first year of the term. The certificate also provides that "[t]he entire Certificate consists of this Certificate, the application, if any, and any riders or endorsements attached to this Certificate."

The endorsement on which MassMutual relies appears on a separate sheet following the certificate. The endorsement is entitled "GUARANTEED INTEREST RATE ENDORSEMENT," but the certificate refers to the relevant rate as the "Minimum Guaranteed Interest Rate." Below the title, the endorsement reads:

This endorsement modifies the Contract to which it is attached. In case of a conflict with any provision in the Contract, the provisions of this endorsement will control. The effective date of this endorsement is the date the endorsement is attached to the Contract. Where appropriate, the word "Certificate" shall be substituted for the word "Contract". The Contract is modified as follows:

The Minimum Guaranteed Interest Rate has been changed to 1.5%.

The single endorsement page was only one of thirty-four pages sent to consumers. At the start of the certificate, the table of contents provides no reference to the endorsement. The second page of the certificate schedule lists a single "rider" to the policy: a "GUARANTEED INTEREST RATE ENDORSEMENT."

New York regulators approved the interest rate change in July 2003, and MassMutual put the changed interest rate into effect for annuities sold after December 31, 2003. In the lead-up to that change, MassMutual communicated about the new, reduced interest rate with both its own salesforce and affiliated salespeople. It provided them with new marketing materials for the Odyssey, which did not reference the 3.0% rate (or the 1.5% rate).

Before purchasing the annuity, in December 2003, Aronstein met with a third-party salesperson authorized to sell MassMutual annuities at his local bank. Aronstein told the salesperson that he was looking for a secure investment with better interest rates than the bank was advertising for certificates of deposit. The salesperson steered Aronstein towards the Odyssey, which he described as offering a 3.0% minimum interest rate. The salesperson also gave Aronstein one of MassMutual's marketing brochures reflecting the 3.0% rate. The salesperson did not tell Aronstein that the minimum guaranteed interest rate would soon be halved. Had Aronstein bought the annuity that day, he would have received a certificate guaranteeing him a 3.0% return. But by the time Aronstein had reviewed the materials with his wife and decided to purchase the annuity, MassMutual had lowered the interest rate. And when Aronstein returned to purchase the annuity, the salesperson did not tell him about the change. Aronstein executed the papers to purchase the annuity believing that he would always receive at least 3.0% annual interest.

When Aronstein received in the mail from MassMutual a package of the key documents, he reviewed it. But he did not notice the single-page endorsement tucked between the certificate and a copy of his application. He read the nineteen pages of the certificate, and he specifically noted that the certificate listed the minimum guaranteed interest rate as 3.0%. He then "thumbed through" the four pages of the copy of his application at the end of the package. He did not catch the endorsement sandwiched between the certificate and the application materials. In fact, Aronstein did not notice the endorsement until years later when, upon receiving an annual statement, he realized that MassMutual had credited him less than 3.0% interest for several years. Even then, he only discovered it attached to his certificate after a MassMutual employee sent him a copy and Aronstein matched the copy against the one in his materials. After discovering the endorsement, Aronstein obtained counsel who sued on behalf of Aronstein and a purported class of similarly situated customers. He alleged causes of action for breach of contract and unfair and deceptive trade practices.

Following discovery, the district court allowed in part and denied in part MassMutual's motion for summary judgment. It dismissed the unfair and deceptive trade practices claim, holding that it was time barred. It allowed the breach of contract claim to continue to trial, holding that the meaning of the certificate was ambiguous. The district court then denied Aronstein's motion for class certification, permitting him to pursue his individual claim. Relying on its earlier determination that the contract was ambiguous, it concluded that extrinsic evidence would be needed to determine what interest rate each class member believed the annuity guaranteed. Thus, the district court held that common issues did not predominate over individual ones, precluding class certification. See Fed. R. Civ. P. 23(b)(3). The district court then tried Aronstein's individual claim without a jury and entered judgment for Aronstein. It also awarded Aronstein prejudgment interest.

Aronstein appealed from the denial of class certification. MassMutual cross-appealed from the judgment against it and conditionally cross-appealed from the grant of prejudgment interest.

II.

After a bench trial, we review the district court's findings of fact for clear error and its legal conclusions de novo. Calandro v. Sedgwick Claims Mgmt. Servs., Inc., 919 F.3d 26, 33 (1st Cir. 2019). In this diversity case, the parties agree that we apply New York law. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938) ; see also Borden v. Paul Revere Life Ins. Co., 935 F.2d 370, 375 (1st Cir. 1991) ("Where ... the parties have agreed about what law governs, a federal court sitting in diversity is free, if it chooses, to forgo independent analysis and accept the parties’ agreement.").

We begin with MassMutual's challenge to the district court's judgment for Aronstein. MassMutual argues that the annuity unambiguously sets the minimum guaranteed interest rate at 1.5%, entitling it to judgment as a matter of law. That argument fails.

A.

The annuity contract, composed of several documents, was ambiguous under New York law as to the Odyssey minimum guaranteed interest rate at the time Aronstein purchased it.

New York courts read contracts as a "harmonious and integrated whole." See Westmoreland Coal Co. v. Entech, Inc., 100 N.Y.2d 352, 763 N.Y.S.2d 525, 794 N.E.2d 667, 670 (2003). Several documents can comprise a single contract. See Cnty. of Columbia v. Cont'l Ins. Co., 83 N.Y.2d 618, 628, 612 N.Y.S.2d 345, 634 N.E.2d 946 (1994) ("[I]t is settled that in construing an endorsement to an insurance policy, the endorsement and the policy must be read together, and the words of the policy remain in full force and effect except as...