In re Nat'l Western Life Ins. Deferred Annuities Litig., Case No.: 05cv1018 AJB (WVG)

In re NATIONAL WESTERN LIFE INSURANCE DEFERRED ANNUITIES LITIGATION. This Document Relates to: ALL ACTIONS.

Case No.: 05cv1018 AJB (WVG)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

DATED: February 10, 2012

Order Denying Motion for Summary Judgment and Denying As Moot Motion to

Exclude the Declaration of Craig Merrill

[Doc. Nos. 241 and 274]

Defendant, National Western Life Insurance Company, ("NWL") filed a motion for summary judgment. (Doc. No. 241.) The Plaintiffs' filed an opposition, (Doc. No. 273), and Defendant's filed a reply, (Doc. No. 283). The Plaintiffs' also filed a motion to exclude the declaration of Craig Merrill filed in support of NWL's motion for summary judgment. (Doc. No. 274.) NWL filed an opposition to Plaintiffs' motion to exclude, (Doc. No. 285), and the Plaintiffs filed a reply, (Doc. No. 287). Based upon the parties moving papers and for the reasons set forth below, NWL's motion for summary judgement is DENIED and Plaintiffs' motion to exclude the declaration of Craig Merrill is DENIED.

Background

I. Factual Background

A. Parties

Defendant, NWL, is a Colorado corporation headquartered in Texas. NWL sells deferred annuities on a national basis through a network of sales agent organizations and individual sales agents, including defendants Centre Point Advisors, Inc. ("Centre Point") and Advanced Business Strategies Institute ("ABSI"). Both Centre Point and ABSI have defaulted in this action, and only NWL brings the present motion.

The named Plaintiffs are Warren Petry of El Cajon, California; Mr. and Mrs. Peter and Mary Glenane of Vista, California; Mary Sweeney of San Diego County, California; and George Miller of Kingston, Pennsylvania (collectively "Plaintiffs"). Each of the Plaintiffs is at least 68 years old. With the exception of plaintiff Miller, Plaintiffs purchased NWL annuities wholly in California. Plaintiff Miller purchased his NWL annuity in Pennsylvania.

The Court appointed two of the named Plaintiffs - George J. Miller and Marie N. Sweeney - to serve as representatives for the Class claims, and indicated that the claims of Mr. and Mrs. Glenanes and Mr. Petry would proceed on an individual basis (Dkt. No. 206, Order Granting Plaintiffs' Renewed Motion for Class Certification at 1.)

B. Summary of the Case

This case involves the purchase and sale of deferred annuities to senior citizens. NWL develops, markets, and sells life insurance and annuity products¹ across the United States. Plaintiffs allege that Defendants have engaged in a scheme to defraud Plaintiffs and other seniors into purchasing deferredannuities that were not appropriate for them. The Plaintiffs contend that these annuities are inappropriate for the class² because they would not mature until well after the annuitants' expected life span. Therefore, Plaintiffs will either never receive any payments from their annuity policies, or be forced to access the annuity principal prematurely and incur substantial surrender charges as a result. Plaintiffs contend that Defendants also fail to adequately disclose material information on the risks associated with deferred annuities so that Plaintiffs may make an informed buying decision. Finally, the Plaintiffs contend that NWL fraudulently manipulated the terms of the annuities after purchase in order to erode Plaintiffs' returns on them.

C. Defendants' Products

The certified class includes four annuities: the Confidence Flex 45, the Confidence Flex 85, the Benefit Assurance, and the Future Assurance. The two Confidence Flex annuities were introduced in or about 1998. Merrill Decl., ¶ 8. Purchasers of the Confidence Flex 45 deferred annuity receive a 4% bonus at the time of purchase, and purchasers of the Confidence Flex 85 deferred annuity receive an 8% bonus. Id. Despite the two annuities' different bonuses, from 1998 until November 2009, the first-year interest rates for both products were identical.³ Id.

National Western introduced the Benefit Assurance and Future Assurance deferred annuities in or about 2005. Merrill Decl., ¶ 10. The Benefit Assurance pays a 5% bonus, and the Future Assurance pays a 10% bonus. Id. The credited interest rates, for both the first year and in subsequent years, have always been identical for both Assurance annuities. Id.

II. Procedural Background

The operative pleading in this case is the Consolidated and Amended Complaint ("CAC"), Doc. No. 54, which was filed on June 15, 2006 and contained nine causes of action. The Defendants filed a motion to dismiss, Doc. No. 59, on July 27, 2006, which was granted-in-part and denied-in-part by this Court in an Order issued on December 7, 2006, Doc. No. 71. The Court dismissed:1) the Plaintiffs claims under §1962(a) of Racketeer Influenced and Corrupt Organizations Act ("RICO"); 2) the Plaintiffs claims for breach of the duty of good faith and fair dealing, and; 3) Plaintiff Miller's claims under sections 17200 and 17500 of the California Business and Professional Code.

The Plaintiffs' moved for class certification on April 20, 2009, Doc. No. 129, which was denied in an Order issued by the Court on January 11, 2010, Doc. No. 176. The Plaintiffs filed an amended motion to certify the class, Doc. No. 177, which was granted-in-part and denied-in-part in this Court's Order of July 12, 2010, Doc. No. 206. The National RICO Class⁴ was certified in full and the California Class⁵ was certified as to all claims except breach of fiduciary duty. Plaintiffs' breach of fiduciary duty and aiding and abetting breach of fiduciary duty class claims were not certified. See Doc. No. 206, at 19-20.

NWL filed a motion for summary, Doc. No. 104, on October 31, 2008. NWL's motion sought summary judgment on the issue of whether or not the Plaintiffs' pled sufficient facts in the CAC to establish that NWL, its NMOs and the sales agents share a "common purpose," arguing that "independent businesses and competitors cannot share a common purpose. The Court's Order of June 16, 2009, Doc. No. 104, denied NWL's summary judgment motion, finding that competition among NMOs and among agents was not a barrier to finding that those same NMOs and agents share a common purpose with NWL. On March 4, 2011, NWL filed the instant motion for summary judgment, Doc. No. 241.

Legal Standard

I. Summary Judgment

Federal Rule of Civil Procedure 56 permits a court to grant summary judgment where (1) the moving party demonstrates the absence of a genuine issue of material fact and (2) entitlement to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). "Material," for purposes of Rule 56, means that the fact, under governing substantive law, could affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). For a dispute to be "genuine," a reasonable jury must be able to return a verdict for the nonmoving party. Anderson, 477 U.S. at 248.

The initial burden of establishing the absence of a genuine issue of material fact falls on the moving party. Celotex, 477 U.S. at 323. The movant can carry its burden in two ways: (1) by presenting evidence that negates an essential element of the nonmoving party's case; or (2) by demonstrating that the nonmoving party "failed to make a sufficient showing on an essential element of her case with respect to which she has the burden of proof." Id. at 322-23. "Disputes over irrelevant or unnecessary facts will not preclude a grant of summary judgment." T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987).

Once the moving party establishes the absence of genuine issues of material fact, the burden shifts to the nonmoving party to set forth facts showing that a genuine issue of disputed fact remains. Celotex, 477 U.S. at 324. The nonmoving party cannot oppose a properly supported summary judgment motion by "rest[ing] on mere allegations or denials of his pleadings." Anderson, 477 U.S. at 256. However, the court must draw any factual inferences in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

Discussion

NWL moves for summary judgment on: (1) Plaintiffs' RICO claims; and (2) Plaintiffs' state law claims.

I. Plaintiffs' RICO Claims

Plaintiffs allege RICO violations pursuant to 18 U.S.C. §§ 1962(b), (c) and (d), the essential elements of which are (1) conduct (2) of an enterprise (3) through a pattern of (4) racketeering activity. Stanford v. MemberWorks, Inc., 625 F.3d 550, 557 (9th Cir. 2010). The RICO statute defines an "enterprise" as "any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C § 1961(4). "Racketeering activity" is defined as certain criminally indictable acts, including mail and wire fraud. Id. § 1961(1).

A further requirement of the Plaintiffs RICO claims is that the Plaintiffs must demonstrate an injury to "business or property by reason of a violation of section 1962. 18 U.S.C. § 1964(c). The statute's "by reason of" language requires proof of "but for" causation, proximate causation, and a concrete financial loss to a protectable business or property interest. See Hemi Group, LLC v. City of New York, – U.S. – , 130 S.Ct. 983, 989, 175 L.Ed.2d 943 (2010).

The racketeering activities upon which Plaintiff relies are the federal offenses of wire fraud and mail fraud. "A wire fraud violation consists of (1) the formation of a scheme or artifice to defraud; (2) use of the United States wires or causing a use of the United States wires in furtherance of the scheme; and (3) specific intent to deceive or defraud." Odom v. Microsoft Corp., 486 F.3d 541, 554 (9th Cir. 2008) (internal quotation marks omitted); 18 U.S.C. § 1343. A violation of the mail fraud statute requires proof that the defendant (1) formed a scheme to defraud, (2) used the mails to further the scheme, and (3) specific intent to deceive...