Schuetta v. Aurora Nat'l Life Assurance Co.

LEO R. SCHUETTA, Plaintiff, v. AURORA NATIONAL LIFE ASSURANCE COMPANY, Defendant.

Case No. 13-CV-1007-JPS

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WISCONSIN

Dated: November 27, 2013

ORDER

The plaintiff, Leo Schuetta, initially filed his complaint in this case on July 30, 2013, in Racine County Circuit Court. (Docket #1). In it, he alleges various claims stemming from his allegations that the defendant, Aurora National Life Assurance Company ("Aurora"), failed to pay him amounts due and owing to him under an annuity contract. (Compl. ¶¶ 11-32). Aurora removed the case to this Court on diversity grounds, pursuant to 28 U.S.C. §§ 1332 and 1441(b).¹ Shortly after removing the case to this Court, Aurora moved to dismiss several counts contained therein pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. (Docket #3). That motion is now fully briefed (Docket #4, #18, #19), and the Court renders its decision on the matter.

1. STANDARD ON MOTION TO DISMISS

In evaluating Aurora's motion to dismiss pursuant to Rule 12(b)(6), the Court must determine whether Mr. Schuetta has pled facts that show that his claim of relief is plausible on its face. Bell Atlantic Corp. v. Twombly, 550U.S. 544, 562-63 (2007); Ashcroft v. Iqbal, 556 U.S. 662, 664 (2009). The Court must accept Mr. Schuetta's well-pleaded facts as true and consider them in the light most favorable to Mr. Schuetta, and, doing so, must determine whether those facts plausibly suggest a right to relief that is more than speculative. See, e.g., Twombly, 550 U.S. at 562-63; Iqbal, 556 U.S. at 664; Alam v. Miller Brewing Co., 709 F.3d 662, 665 (7th Cir. 2013); Luevano v. Wal-Mart Stores, Inc., 722 F.3d 1014, 1027 (7th Cir. 2013); Atkins v. City of Chicago, 631 F.3d 823, 832 (7th Cir. 2011).

2. BACKGROUND

Mr. Schuetta's factual allegations are relatively straightforward.²

Prior to May of 1990, Mr. Schuetta worked for Dana Corporation at a manufacturing plant in Racine County, Wisconsin. (Compl. ¶ 3). During that time, Dana Corporation purchased annuity contracts from Aurora³ for the benefit of its employees. (Compl. ¶ 4). As one of Dana Corporation's employees, Mr. Schuetta was named as a beneficiary under one of these contracts, and was accordingly entitled to receive a monthly annuity of $397.51 from Aurora after his retirement. (Compl. ¶ 5). Mr. Schuetta was alsothe beneficiary of a separate $316.00 monthly pension benefit provided by Dana Corporation upon his retirement. (Compl. ¶ 6).

Mr. Schuetta retired in May of 1990. (Compl. ¶ 6). He thereafter began to receive his $316.00 per month pension benefit from Dana Corporation. (Compl. ¶ 6).

However, he did not ever begin receiving his $397.51 monthly annuity payment from Aurora. (Compl. ¶ 6). In fact, Mr. Schuetta did not seem to even be aware that he was entitled to receive the annuity payment. (See Compl. ¶¶ 6-7). This point is supported by the alleged fact that Mr. Schuetta received a letter from Aurora in September of 1990. (Compl. ¶ 16). Mr. Schuetta asserts that, when he received that letter, he believed it was sent in connection to his pension from Dana Corporation; he did not realize that the letter actually dealt with his annuity from Aurora. (Compl. ¶ 16). Under that incorrect impression, Mr. Schuetta called Aurora to inform them of several "mistakes" contained in the letter; of course, these "mistakes" were not actually mistakes, but were correct recitations of the terms of the annuity contract that did not comply with Mr. Schuetta's understanding of his pension benefit. (Compl. ¶ 16). When Mr. Schuetta called Aurora, Aurora's representatives told him to write his corrections on the letter and return it to them. (Compl. ¶ 16). Mr. Schuetta did so. (Compl. Ex. B). In fact, he wrote in the amount he expected to receive under his pension plan—a lesser amount than Aurora informed him he would receive under the annuity contract—over top of the stated benefit amount before returning the letter. (Compl. Ex. B).

Throughout this time, Aurora never corrected Mr. Schuetta's mistaken impressions. (Compl. ¶ 16). Despite Mr. Schuetta's mistaken belief, made clear to Aurora during both a phone conversation and when Mr. Schuettareturned the letter with his corrections (which lacked support in Aurora's letters), Aurora never corrected Mr. Schuetta's mistaken beliefs. (Compl. ¶ 16).

Thus, Aurora allegedly never made Mr. Schuetta aware that he was entitled to the $397.51 monthly annuity. (Compl. ¶¶ 6, 16). Lacking that awareness, Mr. Schuetta also was not aware that he needed to submit a notification to Aurora to trigger his receipt of the annuity. (Compl. ¶ 7).

As such, for a period of more than 20 years—from approximately 1991 through 2013—Mr. Schuetta was entitled to receive the $397.51 monthly annuity, but did not. (Compl. ¶ 7).

He became aware of this only after the death of his wife. (Compl. ¶ 7). At that time, Aurora called Mr. Schuetta to inform him of the fact that the annuity in his benefit remained outstanding and that he could begin to receive it—and all of the amounts owing to him beginning in 1991—if he submitted a notification form. (Compl. ¶ 7).

Mr. Schuetta submitted the form, but Aurora changed its position, and told Mr. Schuetta that he would be entitled only to future payments of the $397.51 monthly annuity, which would commence 60 days after his submission of the notification form. (Compl. ¶ 8). He would not be entitled to receive the approximately $100,000.00 in payments that would have been paid to him if he had timely submitted the notification form in 1991. (Compl. ¶ 8).

Aurora's refusal to pay that amount precipitated this litigation, in which Mr. Schuetta claims that he is entitled to receive the entire amount of payments dating back to 1991. Mr. Schuetta asserts several causes of action against Aurora: (1) breach of contract (Compl. ¶¶ 11-14); (2) reformation of contract (Compl. ¶¶ 15-19); (3) equitable estoppel (Compl. ¶¶ 20-24); (4)breach of the implied duty of good faith and fair dealing inherent in the annuity contract (Compl. ¶¶ 25-28); and (5) negligence (Compl. ¶¶ 29-32).

3. DISCUSSION

Aurora has moved to dismiss only three of those claims: the reformation of contract claim (the "reformation claim"); the breach of implied duty of good faith and fair dealing claim (the "breach of duty claim"); and the negligence claim. (Docket #3). The Court has considered the parties' arguments in that regard, and agrees with Aurora that the reformation claim must be dismissed. It, however, disagrees as to the breach of duty claim and economic loss doctrine claims, and finds that Mr. Schuetta is entitled to proceed on those claims.

3.1 Reformation Claim

There is little question that the Court must dismiss Mr. Schuetta's reformation claim.

Under Wisconsin law, when an agreement between parties "fails to express a prior agreement between [them] because of either the mutual mistake of both parties regarding the contents or effect of the [contract] or the mistake of one party coupled with fraud or inequitable conduct by the other party, the [contract] may be reformed to reflect the prior agreement." Milwaukee Metro. Sewerage Dist. v. Am. Int'l Specialty Lines Ins. Co., 598 F.3d 311, 317 (7th Cir. 2010) (citing Russ ex rel. Schwartz v. Russ, 302 Wis.2d 264, 734 N.W.2d 874, 885 (2007); Vandenberg v. Continental Ins. Co., 244 Wis.2d 802, 628 N.W.2d 876, 889 n. 35 (2001)). This is because "Wisconsin has adopted the rule found in Restatement (Second) of Contracts § 166," providing that if one party induces another to enter into a contract through a "fraudulent misrepresentation as to the contents or effect of a writing evidencing or embodying in whole or in part an agreement, the court at the request of therecipient may reform the writing to express the terms of the agreement as asserted." Metavante Corp. v. Emigrant Sav. Bank, 619 F.3d 748, 766 (7th Cir. 2010) (citing Hennig v. Ahearn, 230 Wis. 2d 149, 601 N.W.2d 14, 26 (1999)).

In other words, reformation of a contract is appropriate where one party fraudulently induces another to enter into a contract by representing that the written contract says (or will say) something that it ultimately does not. In such an instance, courts may intervene and order that the contract be reformed to reflect the agreement that the duped party believed he or she was entering.

That is simply not the case that the Court confronts, here. Mr. Schuetta does not allege that Aurora made any false representations to him (or to Dana Corporation) when the contract was formed. The only allegedly false representations occurred after formation, when Aurora allegedly failed to inform Mr. Schuetta of his mistaken beliefs. But those alleged misrepresentations had no effect, whatsoever, on the contract. In fact, it seems that the contract provided exactly what was bargained for between Aurora and Dana Corporation: annuity benefits for retired employees that would take effect upon notice from the employee. Mr. Schuetta complains that Aurora made misrepresentations to him that impeded the performance of that contract, but there is no allegation that the contract said something different than what the parties agreed upon.

Accordingly, Mr. Schuetta has not stated a valid claim for reformation of contract, and the Court is obliged to dismiss that portion of his complaint.

3.2 Breach of Duty Claim

On the other hand, the Court must allow Mr. Schuetta's breach of duty claim to proceed. Mr. Schuetta contends that, by failing to correct his mistaken impression regarding the notice of annuity he received, Aurorabreached duties of good faith and fair dealing that were implicit in the annuity contract.

In Wisconsin, "every contract implies good faith and fair dealing between the parties to it." Bozzacchi v. O'Malley, 211 Wis. 2d 622, 626, 566 N.W.2d 494 (Ct. App. 1997). See also Metavante, 619 F.3d at 765-66 (citing Kreckel v. Walbridge Aldinger Co., 295 Wis. 2d 649, 721 N.W.2d 508, 514 (20...