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Thompson v. Allianz Life Insurance Company of North America

United States District Court, D. Minnesota

December 21, 2017

Debra J. Thompson, an individual on behalf of herself and on behalf of all other similarly situated persons, Plaintiffs,
v.
Allianz Life Insurance Company of North America, Defendant.

          Andrew S. Friedman, Esq., Bonnett Fairbourn Friedman & Balint, Phoenix, Arizona, for Plaintiffs.

          Anne T. Regan, Esq., Hellmuth & Johnson, Edina, Minnesota, for Plaintiffs.

          Jeffrey D. Hedlund, Esq, Faegre Baker Daniels LLP, Minneapolis, Minnesota for Defendant.

          Stephen J. Jorden, Esq., Carlton Fields Jorden Burt PA, Hartford Connecticut, for Defendant.

          REPORT AND RECOMMENDATION

          STEVEN E. RAU, United States Magistrate Judge

         This matter comes before the undersigned on Defendant Allianz Life Insurance Company of North America's (“Allianz”) Motion to Dismiss [Doc. No. 18]. This matter was referred to the undersigned pursuant to 28 U.S.C. § 636 and District of Minnesota Local Rule 72.1. See (Order Dated June 13, 2017) [Doc. No. 30]. For the reasons stated below, the Court recommends denying Allianz's Motion to Dismiss.

         I. BACKGROUND

         This case involves the question of whether a breach of contract claim related to a death benefit provision in an annuity contract is barred by res judicata on the basis of a prior litigation requesting recession of the annuity contract under a fraudulent inducement theory. This question is made more complicated due to the nature of the relationship between the parties and the nature of the interests at issue. In particular, the fraudulent inducement action involved the owner of the annuity contract as an absent class member and the breach of contract claim in the instant action involves the named beneficiary of the annuity contract. As a result, the Court must address whether the timing and nature of the interests that vested under the annuity contract confer privity between the parties and whether the fraudulent inducement claim involved the same factual circumstances as the breach of contract claim now asserted.

         Plaintiff Debra Thompson (“Thompson”) brings the breach of contract claim under an Allianz MasterDex 10 annuity (the “Policy”). See generally (Class Action Compl., “Compl.”) [Doc. No. 1]; see also (Mem. of Law in Supp. of Def.'s Mot. to Dismiss, “Mem. in Supp.”) [Doc. No. 20 at 3-4] (defining the nature of the Policy); (Compl. ¶¶ 20, 23, 25) (same); (Ex. 17, Attached to Decl. of Stephen J. Jorden in Supp. of Allianz's Mot. to Dismiss Compl., “Jorden Decl.”) [Doc. No. 21-1 at 270-98] (the Policy and associated application).[1] The Policy was purchased by Thompson's mother, Florence Warburg (“Warbug”). (Compl. ¶¶ 11, 57). Warburg was also an absent class member in Mooney v. Allianz Life Ins. Co., No. 06-cv-545 (ADM/FLN), which addressed the question of whether policy holders were fraudulently induced into purchasing these policies. See, e.g., 2010 WL 419962 (D. Minn. Jan. 29, 2010) (Montgomery, J.) [hereinafter Mooney III]; 2009 WL 511572 (Feb. 26, 2009) (Montgomery, J.) [hereinafter Mooney II]; 2007 WL 128841 (Jan. 12, 2007) (Montgomery, J.) [hereinafter Mooney I]; see also (Exs. 1-15, Attached Jorden Decl. at 1-196) (various submissions and trial exhibits filed in Mooney); (Pl.'s Suppl. Mem. in Opp'n to Def.'s Mot. to Dismiss, “Suppl. Mem. in Opp'n”) [Doc. No. 44 at 5] (stating “Warburg herself was not a party in Mooney, but merely an absent class member”).[2]

         In Mooney, the “Plaintiffs [sought] recovery on claims of consumer fraud in violation of the Minnesota Prevention of Consumer Fraud Act (‘MPCFA'), Minn. Stat. §§ 325F.68-.70.” Mooney I, 2007 WL 128841 at *1. The plaintiffs in Mooney alleged that they were fraudulently induced into purchasing the policies because bonuses that were marketed as immediate actually required multiple years to accrue. Id. at *3. Mooney “went to trial on September 22, 2009, and a jury returned a verdict on October 12, 2009, ” ultimately finding “that none of the class members were harmed as a direct result of the misrepresentation or deceptive practice.” Mooney III, 2010 WL 419962 at *1 (internal quotation marks omitted).

         Warburg purchased the Policy on December 19, 2006. (Compl. ¶¶ 11, 57). “Ms. Warburg [initially] named Lawrence Warburg as the primary beneficiary under the policy.” (Compl. ¶¶ 11, 57); see also (Ex. 17 at 281-86) (application for the Policy). Thereafter, Warburg changed beneficiaries on the Policy at least three times, naming Thompson the lone primary beneficiary in February 2015. (Id. ¶ 58). Warburg “passed away on March 8, 2015.” (Id. ¶¶ 11, 59). Thompson then “elected to receive the Annuitization Value annuitized over a period of five years, using the Annuitization Value to calculate the payout.” (Id.). When Allianz allegedly “reduce[d] the Annuitization Value by 3%, ” Thompson brought the instant action alleging: (1) breach of contract under the Policy; and (2) breach of implied covenant of good faith and fair dealing. See (id. ¶¶ 59, 81-90).

         Allianz brought its Motion to Dismiss arguing that Mooney and res judicata bar Thompson's breach of contract claims. See generally (Mem. in Supp.). Allianz asserts that

Thompson's claims here, based on the same [expense recovery adjustment (“ERA”)] calculation and the same contract, were litigated vigorously and to conclusion in Mooney. The court-approved Mooney class notice described alleged “reductions” caused by the ERA calculation as one of two theories of alleged wrongdoing on which the Mooney class's claims were based. And the ERA calculation was a primary focus of the Mooney litigation, including the argument and evidence at trial.

(Id. at 1-2). Allianz asserts the res judicata test in Minnesota that: “(1) the earlier claim involved the same set of factual circumstances; (2) the earlier claim involved the same parties or their privies; (3) there was a final judgment on the merits; and (4) the estopped party had a full and fair opportunity to litigate the matter” under Hauschildt v. Beckingham, 686 N.W.2d 829, 840 (Minn. 2004), “is easily satisfied here.”[3] (Mem. in Supp. at 11) (citations omitted) (internal quotation marks omitted).

         With respect to whether Thompson's instant case involves the same factual circumstances present in Mooney, Allianz states

Thompson's claims are based on the same factual circumstances and the conduct that was a focal point of the Mooney class's claims: Allianz's alleged wrongful utilization of the ERA calculation. In fact, Thompson's claims not only rely on the same conduct litigated in Mooney, they also rely on the identical alleged promise and the same theory about why the promise was breached.

(Id. at 12).

         With respect to privity, Allianz claims that “Thompson's status as a third-party beneficiary to Warburg's contract alone establishes privity.” (Id. at 20). Alternatively, Allianz asserts there is privity between Thompson and Warburg because “Thompson as the primary beneficiary of her mother's MasterDex 10 policy ‘follows' her mother ‘in ownership or control' of that annuity.” (Id.).

         Thompson, not surprisingly, asserts that Mooney does not satisfy the res judicata prongs. See generally (Pl.'s Mem. of Law in Opp'n to Def.'s Mot. to Dismiss, “Mem. in Opp'n”) [Doc. No. 28]. Specifically as it relates to whether the earlier claim involved the same factual circumstances, Thompson argues that different factual circumstances are involved because different evidence supports different claims and because the claims at issue in the instant action had not accrued at the time of the Mooney litigation; each assertion would prevent the satisfaction of the first prong of the res judicata analysis under Minnesota law. See (id. at 9-15).[4]

         The Court heard oral argument on Allianz's Motion to Dismiss. See (Minute Entry Dated Sept. 11, 2017) [Doc. No. 38]. Supplemental briefing was requested regarding the question of whether the manner in which “Thompson's interests under the annuity at issue vested” impacted the privity determination of the res judicata analysis. See (Text Only Order Dated Sept. 12, 2017) [Doc. No. 39].

In its supplemental brief to the Court, Allianz asserts
Thompson was not just a successor-in-interest to, and third-party beneficiary of, Warburg's annuity contract (two firmly established categories of privity under Minnesota res judicata law); her rights and interests in challenging and seeking recovery for an alleged “reduction” in the annuity contract's annuitization value ...

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