Ezell v. Lexington Ins. Co.

335 F.Supp.3d 91

Norma EZELL, Leonard Whitley, and Erica Biddings, on behalf of themselves and all others similarly situated, Plaintiffs,

v.LEXINGTON INSURANCE COMPANY; American International Group, Inc.; AIG Assurance Company ; AIG Insurance Company ; AIG Property Casualty Company; AIG Specialty Insurance Company ; American General Life Insurance Company; National Union Fire Insurance Company of Pittsburg, P.A.; AGC Life Insurance Company; American General Annuity Service Corporation; and AIG Domestic Claims, Inc., Defendants.

Civil Action No. 17-10007-NMG

United States District Court, D. Massachusetts.

Signed September 27, 2018

Craig R. Spiegel, Pro Hac Vice, Steve W. Berman, Pro Hac Vice, Hagens Berman Sobol Shapiro LLP, Seattle, WA, Kristen A. Johnson, Hagens Berman Sobol Shapiro LLP, Cambridge, MA, Richard B. Risk, Jr., Pro Hac Vice, South Pasadena, FL, for Plaintiffs.

William T. Hogan, III, Patrick T. Uiterwyk, Nelson, Mullins, Riley & Scarborough, LLP, Boston, MA, Adam H. Offenhartz, James L. Hallowell, Pro Hac Vice, James L. Hallowell, Pro Hac Vice, Nancy E. Hart, Pro Hac Vice, Peter M. Wade, Pro Hac Vice, Gibson, Dunn & Crutcher, LLP, New York, NY, for Defendants.

MEMORANDUM & ORDER

Nathaniel M. Gorton, United States District Judge

Plaintiffs Norma Ezell ("Ezell"), Leonard M. Whitley, Jr. ("Whitley") and Erica Biddings ("Biddings") (collectively "plaintiffs") bring this putative class action against ten insurance companies and subsidiaries (collectively "defendants") alleging that certain commissions charged in connection with annuity payments are unlawful. Pending before this Court is defendants' motion to dismiss plaintiffs' amended complaint. For the reasons that follow, the motion to dismiss will be allowed with respect to both the civil RICO claim and fraudulent misrepresentation claim.

I. Background

Plaintiffs' putative class action arises from a number of structured settlements of personal injury, wrongful death and workers' compensation claims against non-parties insured by Lexington Insurance Company ("Lexington"). The structured settlements provided that the claimants would receive a portion of their settlement payments over time according to a fixed schedule (rather than in a lump sum). The structured settlement portions of those settlements were ultimately funded through the purchase of annuities from a separate life insurance company. Plaintiffs allege that defendants fraudulently deducted 4% from the cash portion of the settlement 100% of which the settling parties had agreed would fund the annuity payments.

A. The Parties

1. Named Plaintiffs

The putative class action is brought by three named plaintiffs, Norma Ezell, Leonard Whitley and Erica Biddings on behalf of themselves and similarly situated settling parties.

Plaintiffs Norma Ezell ("Ezell") and Leonard M. Whitley, Jr. ("Whitley") are both residents of Aberdeen, Mississippi. Ezell and Whitley entered into a settlement agreement in April, 2003, with Community Eldercare Services and CLC of West Point, LLC, to resolve wrongful death claims arising from the death of their aunt, Odessa Ware. Lexington was the insurer of the nursing home. Ezell and Whitely each brought claims individually and in their capacities as Administratrix of and heirs to the estate of their aunt.

Plaintiff Erica Biddings ("Biddings") resides in Southwest Ranches, Florida. In August, 2009, Biddings settled wrongful death and personal injury claims brought individually and as a personal representative of the estate of her husband, Roddy Major, against Bull Motors LLC, doing business as Maroone Ford. Lexington was the liability insurer of Maroone Ford and was obligated to pay any claim made or judgment obtained against it covered by its policy with Bull Motors.

2. Defendants

Plaintiffs name eleven affiliated insurance companies in their amended complaint: (1) Lexington, (2) American International Group, Inc. ("AIG Parent"), (3) AIG Assurance Company, (4) AIG Insurance Company, (5) AIG Property Casualty Company, (6) AIG Specialty Insurance Company, (7) American General Life Insurance Company ("AGL"), (8) National Union Fire Insurance Company of Pittsburgh, Pa. ("NUFIC"), (9) AGC Life Insurance Company, (10) American General Annuity Service Corporation ("AGASC") and (11) AIG Domestic Claims, Inc.

In their amended complaint, plaintiffs state that nine defendants are subsidiaries of AIG Parent. Throughout their amended complaint, plaintiffs refer to defendants collectively as "AIG" and refer to AIG Parent as the umbrella company for all its subsidiaries. Defendants clarify that Lexington, AIG Assurance Company, AIG Property Casualty Company, AIG Specialty Insurance Company and AGASC are AIG's property and casualty ("P & C") insurance companies. Defendants contend that the complaint does not allege that any of AIG's P & C companies, other than Lexington, had any interaction with the defendants. Defendants note that AGL, AGC Life Insurance Company and AGASC are AIG's life insurance companies.

B. Settlements

Ezell and Whitley settled claims against Community Eldercare Services and CLC of West Point, which were insured by Lexington, in April, 2003. The terms of their settlement included a lump sum payment of $700,000 and a payment of $200,000 to be annuitized to provide periodic payments beginning in June, 2003. According to the amended complaint, Ezell and Whitley were advised by Tom Senderhauf, a representative of AIG, that a part of that settlement would be paid in the form of an annuity. Under that payment structure, Ezell and Whitley were each allocated one half of the $200,000, or $100,000. The annuity to fund future payments was issued by AGL.

Ezell and Whitely allege they were unaware that the annuity portion of the settlement, $200,000, was subject to the payment of a commission by defendants to someone working on defendants' behalf to settle the claim. Plaintiffs contend that Senderhauf represented to them that they would receive the full $100,000 and that defendants did not inform them that 4% of the annuity premium would be paid to an AIG-Approved Broker, Jim Beatty.

Biddings entered into a settlement agreement in August, 2009, resolving wrongful death and personal injury claims against Bull Motors LLC which was insured by Lexington. Consistent with the settlement of Ezell and Whitley, Biddings's settlement agreement provided for a cash payment and a series of periodic payments with a "present value" of $1,642,000. Lexington funded three separate annuities issued by three life insurance companies which were not affiliated with defendants and are not parties to this action: Allstate Life Insurance Company, Hartford Life Insurance Company and New York Life Insurance Company.

Biddings alleges that she was unaware that 4% of the $1,642,000 annuity premium would be paid to AIG-Approved Broker Douglas Smith. The complaint states that Biddings did not know that the amount to be annuitized included a commission to be paid to someone working on behalf of defendants to settle the claims brought against Lexington in its capacity as liability insurer of Bull Motors.

C. Procedural History

Plaintiffs commenced this action in January, 2017, and in March, 2017, defendants jointly moved to dismiss the complaint in its entirety. In an order entered on December 20, 2017, this Court allowed defendants' motion to dismiss the original complaint in its entirety without prejudice. This Court held that plaintiffs failed to state a civil RICO claim because they did not plead adequately that defendants and non-party brokers associated together for a common illegal purpose to establish the required association-in-fact enterprise. The Court further held that plaintiffs failed to state a claim of fraudulent misrepresentation because they did not specifically allege which defendant made the fraudulent misrepresentation pursuant to Rule 9(b) of the Federal Rules of Civil Procedure. The Court afforded plaintiffs leave to file an amended complaint.

Plaintiffs filed an amended complaint in January, 2018, reasserting their earlier RICO and fraudulent misrepresentation claims. Shortly thereafter, defendants jointly moved to dismiss the amended complaint in its entirety.

D. Additional Facts Pled in Amended Complaint

In response to this Court's previous order allowing defendants' motion to dismiss, plaintiffs make several new allegations in support of their civil RICO and fraudulent misrepresentation claims. With respect to their civil RICO claim, plaintiffs assert that the AIG-Approved Brokers were publicly known at all times and that each of the brokers was aware of the others. Plaintiffs base that allegation on two different webpages located on the websites of AGL and AIG.

Furthermore, plaintiffs refer to two emails dated March 5, 2004, and December 3, 2008, which they claim indicate that the AIG-Approved Brokers not only knew of each other's existence but also collaborated in a scheme to defraud structured settlement claimants. The March 5, 2004, email, sent by an AIG employee to AIG-Approved Brokers, states that AIG-Approved Brokers should "continue to act as a team" to meet that year's goals for structured settlement premiums by following AIG's recommended quoting procedure. The December 3, 2008, email was sent by the Global Head of Structured Settlements at AIG to AIG-Approved Brokers and stated that there had been a decline in compliance with AIG's quoting procedure and that the brokers' "role as [ ] AIG approved consultant[s] requires [them] to comply with this process". Those new allegations are likely in response to the Court's determination that the original complaint

does not state how the brokers collaborated with each other or if the brokers were even aware of each other's participation in the alleged scheme.

Ezell v. Lexington Ins. Co., 286 F.Supp.3d 292, 298 (D. Mass. 2017)

With respect to their fraudulent misrepresentation claim, plaintiffs allege that Lexington was aware of the 4% commission charged by...