Opinion
Case No. 1:98-CV-609.
Dated: March 31, 2000.
JUDGMENT
This action came before the Court on Defendants' motions for summary judgment. The issues having been decided, decisions have been rendered by an Order of the Court dated March 31, 2000.
IT IS THEREFORE ORDERED AND ADJUDGED that Judgment be entered in favor of Defendants on all of Plaintiffs' claims in this case.
ORDER
In accordance with the Opinion filed on this date,
IT IS HEREBY ORDERED that Defendant National Annuity Programs, Inc.'s Motion For Summary Judgment (docket no. 71) and Defendant National Western Life Insurance Company's Motion For Summary
Judgment (docket no. 73) are GRANTED.
The Clerk shall enter judgment for Defendants.
This case is CONCLUDED.
OPINION
Plaintiff, Gilbert M. Lindsay ("Lindsay"), has sued Defendants, National Western Life Insurance Company ("NWL") and National Annuity Programs, Inc. ("NAP"), alleging state law claims for violation of the Michigan Consumer Protection Act ("MCPA"), M.C.L.A. §§ 445.901 to .922, fraud and misrepresentation, negligence, breach of duty of good faith and fair dealing, and negligent misrepresentation in connection with Defendants' marketing and sale of certain annuity contracts. Now before the Court are NWL's and NAP's motions for summary judgment. For the reasons stated in this Opinion, this Court concludes that Lindsay's claims are barred by Michigan's six year statute of limitations. See M.C.L.A. § 600.5813.
Facts
Lindsay's claims involve a type of annuity contract known as a 2206 policy, which NWL sold between 1988 and 1992 through NAP, its marketing representative and agent. Lindsay was an agent of NAP who sold the 2206 policy to many of his clients and also purchased a 2206 policy himself. Many of Lindsay's clients were Michigan public school employees who had specialized retirement needs due to the timing difference between retirement and receipt of social security benefits. Because of its features, Lindsay determined that the 2206 policy suited his clients' investment needs.
The 2206 policy is a tax sheltered insurance contract pursuant to which a policyholder makes tax deductible contributions during his or her working career. As contributions are made, interest accrues tax free. During the accumulation phase, one of two rates applies, either the "current rate" or the "guaranteed rate". The "current rate" is the rate of interest being paid on the contract and the "guaranteed rate" is the minimum rate of interest that will be credited to the contract. The current rate may be more, but will never be less than, the guaranteed rate. At the time of retirement, the accumulated value of the policy is used to fund an income stream that is paid to the policyholder during retirement pursuant to one of seven different payout options. Options 1 through 4 provide for payment over the life of the policyholder or the policyholder's spouse and options 5 through 7 provide for payments over a fixed number of years. (See 2206 Policy at 4, NWL's Br. Supp. Ex. 2.)
The 2206 policy was similar to another NWL policy, the 1063 policy, which also offered seven payout options. However, the 2206 policy differed from the 1063 policy in one critical aspect that is central to Lindsay's claims in this case: the 1063 policy guaranteed that interest would be paid at the rate of 3% on payout options 5 through 7, whereas the 2206 policy provided that the interest rate on options 5 through 7 would be determined by NWL on the annuity date. (See 1063 Policy at 5, NWL's Br. Supp. Ex. 3; 2206 Policy at 4, NWL's Br. Supp. Ex. 2.) Thus, under the language in the 2206 Policy, NWL had the right to set the amount of interest on payout options 5 through 7, including the right to pay 0% interest. (See Facey Decl. ¶ 6, NWL `s Br. Supp. Ex. 1; Lindsay Dep. at 59-60, NWL's Br. Supp. Ex. 4.)
In 1989, Lindsay attended a presentation on the 2206 policy at NAP's headquarters in Austin, Texas. One topic of discussion during the presentation concerned statements by competitors regarding the possibility that 0% interest could be paid by NWL under payout options 5 through 7 of the 2206 policy. (See Lindsay Dep. at 26.) According to Lindsay, Bob Meyer ("Meyer"), the president of NAL, stated that the possibility of 0% interest was "not true" and that NWL was "going to pay interest rates [under the 2206 policy] like they're paying in their other products." (Id. at 26-27.) In addition, Lindsay claims that in a one-on-one conversation with Meyer following the presentation, Meyer assuaged Lindsay's concerns over the possibility that NWL may pay 0% by stating that "a company would not produce a product that would pay zero percent interest on a payout option. . . ." (Id. at 40.) Based on Meyers' statements, Lindsay understood that NWL would not go to 0% on payout options 5 through 7. (See id.)
In May of 1989, NAP distributed Bulletin No. 49 to its agents. The bulletin was intended to address statements in a letter by a competitor to clients regarding the 2206 policy. One of the statements concerned the lack of a contractual interest guarantee for payment options 5 through 7. NAP responded that:
The rate of interest payable on these options is determined by [NWL] on the Annuity Date. [NWL] has consistently paid a competitive interest rate and the current rate for a fixed period 7-year payout ranges up to 8% depending upon the age of the contract and is 7% on the interest only option.
(Bulletin No. 49 at 2, NWL's Br. Supp. Ex. 8.) Lindsay received and reviewed Bulletin No. 49, including NAP's discussion regarding the possibility of NWL paying 0% interest. (See Lindsay Dep. at 84-85.) Lindsay described NAP's response as "the same message that [he]'d been given time after time concerning the verbiage in the contract" regarding the possibility of 0% interest. (Id. at 85.)
Lindsay purchased his own 2206 policy in May of 1991 and received a copy of the contract in June of 1991. Lindsay found no problems with the contract until he read the provision stating that the rate of interest for options 5 through 7 would be determined by NWL on the annuity date, which he understood to mean that NWL "could pay zero interest if, in fact, they chose to, as far as these options were concerned." (Id. at 59-60.) Being concerned that the language gave NWL the right to pay 0% interest, Lindsay flew to Austin, Texas and met with Myer at Myer's home. Lindsay claims that in response to Lindsay's concerns, Meyer stated, "Gil, you know, you wouldn't work for a company or market for a company that paid zero percent interest under Options 5, 6, and 7; therefore, there's really nothing to worry about in that this company has no intention of paying zero percent interest under Options 5, 6, and 7." (Lindsay Dep. at 34-35.)
Following the assurances by Myer that NWL would not pay 0% on options 5 through 7, Lindsay resumed marketing the 2206 policy to his clients. In the spring of 1992, NWL reduced the interest rates payable on all of its two tier annuity products from current rates to the guaranteed interest rates set forth in the policies. On June 29, 1992, NWL announced that it would no longer accept applications for its two tier annuity products, including the 2206 policy. (See NAP Announcement, Pl.'s Resp. Br. Ex. 6.) The decision to cease offering two tier annuities was based upon a proposed "significant modification to the reserve requirements for annuities" by the National Association of Insurance Commissioners that would "affect the way annuity contracts (not just two-tier) are designed and sold." (Id.) Within a short time, NWL reduced the rate of interest on 2206 policies to 0%.
Lindsay first learned of NWL's decision to pay 0% interest in December of 1992, when he received a response from NWL to his request for payout projections for three of his clients. Upon reviewing the projections, Lindsay discovered that they were based upon a 0% interest rate. Lindsay immediately contacted NWL and was informed that NWL did in fact intend to pay 0% interest on the fixed period options. Lindsay notified the National Association of Insurance Commissioners of the situation but was unable to obtain any assistance in persuading NWL to reverse its decision.
In addition to learning that NWL had reduced the interest rate to 0% on the fixed payout options, Lindsay discovered that NWL was not allowing policyholders to take payouts under the fixed term options for periods of shorter than seven years. Thus, Lindsay and his clients were faced with the prospect of having their funds tied up for seven years at 0% interest. Given that situation, Lindsay canceled his own 2206 policy and moved his funds into another investment, which he alleges resulted in a loss to him of several thousand dollars. In addition, Lindsay claims that he devoted a substantial amount of time over the next three years to counseling his clients who were invested in the 2206 policy regarding the implications of moving their funds into other investment products and, consequently, was unable to spend time developing new clients and lost referral business from clients who were disappointed with the 2206 policy.
Summary Judgment Standard
Summary judgment is appropriate if there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56. The rule requires that the disputed facts be material. Material facts are facts which are defined by substantive law and are necessary to apply the law.Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510 (1986). A dispute over trivial facts which are not necessary in order to apply the substantive law does not prevent the granting of a motion for summary judgment. Id. at 248, 106 S.Ct. at 2510. The rule also requires the dispute to be genuine. A dispute is genuine if a reasonable jury could return judgment for the non-moving party. Id. This standard requires the non-moving party to present more than a scintilla of evidence to defeat the motion. Id. at 251, 106 S.Ct. at 2511 (citing Improvement Co. v. Munson, 14 Wall. 442, 448, 20 L.Ed. 867 (1872)).
A moving party who does not have the burden of proof at trial may properly support a motion for summary judgment by showing the court that there is no evidence to support the non-moving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 324-25, 106 S.Ct. 2548, 2553-54 (1986). If the motion is so supported, the party opposing the motion must then demonstrate with "concrete evidence" that there is a genuine issue of material fact for trial. Id.;
Frank v. D'Ambrosi, 4 F.3d 1378, 1384 (6th Cir. 1993). The court must draw all inferences in a light most favorable to the non-moving party, but may grant summary judgment when "the record taken as a whole could not lead a rational trier of fact to find for the non-moving party." Agristor Financial Corp. v. Van Sickle, 967 F.2d 233, 236 (6th Cir. 1992) (quoting Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356 (1986)).
Discussion
NWL and NAP have moved for summary judgment, arguing that Lindsay's claims are all barred the applicable statutes of limitation. As set forth below, the Court concludes that all of Lindsay's claims are barred by the statute of limitations. Because the fraud claim has the longest period of limitations, the Court will focus its discussion on that claim.
NWL and NAP have also raised other arguments specifically pertaining to various claims which the Court finds no need to address in light of its conclusion that all claims are time barred.
I. Fraud and Misrepresentation
Defendants contend that they are entitled to summary judgment on Lindsay's fraud and misrepresentation claim in Count II because it is barred by the statute of limitations. The period of limitations applicable to fraud claims is the six year period set forth in M.C.L. § 600.5813. See Garden City Osteopathic Hosp. v. HBE Corp., 55 F.3d 1126, 1135 (6th Cir. 1995); Kuebler v. Equitable Life Assurance Soc'y of United States, 219 Mich. App. 1, 6, 555 N.W.2d 496, 499 (1996). Lindsay's fraud claim is based upon a series of misrepresentations made by Meyer and NAP between 1988 and June of 1991 which Lindsay alleges led him to believe that NWL would not pay 0% interest on options 5 through 7 under the 2206 policy. Because the last of the alleged misrepresentations occurred in June of 1991, Lindsay's fraud claim would be timely only if it was filed prior to June 1997. Lindsay did not file his complaint until July 1998.
Lindsay contends that his fraud claim is not barred because he did not become aware until after December 15, 1992, that, despite its representations that it would pay interest on payout options 5 through 7, NWL actually intended to pay 0% interest on those payout options. In addition, Lindsay argues that he did not have knowledge that NWL was aware that its representations between 1988 and 1991 that it would not pay 0% interest were false when made, until 1998, when Lindsay received a copy of NWL's policy reserve statement which demonstrated that NWL had calculated its reserves based upon the premise that 0% interest would be paid under options 5 through 7.
A policy reserve is the amount of money that an insurance company such as NWL must set aside in order to pay all of the company's outstanding obligations to policyholders. The amount of the reserves are calculated based upon the payment option that results in the most amount of money being paid out in the shortest time. Lindsay contends that NWL's intent to pay 0% interest is demonstrated based upon the fact that for the 2206 plan, NWL calculated payout rates under options 5 through 7 at 0%. NWL counters that the assumptions NWL used to determine its policy reserves has no relationship to its decision to pay 0% interest.
In Agristor Financial Corp. v. Van Sickle, 967 F.2d 233 (6th Cir. 1992), the United States Court of Appeals for the Sixth Circuit held that the discovery accrual standard applied by Michigan courts to various types of tort claims also applies to fraud claims. See Agristor Financial, 967 F.2d at 239. The discovery standard "effectively delays when a statute of limitation begins to run by delaying when a claim accrues, thereby extending the time in which a plaintiff can file a complaint." Shields v. Shell Oil Co., 237 Mich. App. 682, 691, 604 N.W.2d 719, 725 (1999) (per curiam). The test used to determine whether the discovery standard applies in a given case is at what point in time the plaintiff knew or should have known of his claim. See id. "A plaintiff need only be aware that a possible cause of action exists, not that a likely cause of action exists." Id.
After reviewing cases in which the Michigan Supreme Court applied the discovery accrual standard to other types of tort claims, the court in Agristor Financial concluded that application of the discovery rule to the fraud counterclaim before it would not frustrate the two primary purposes of statutes of limitation, namely: "`1) to encourage plaintiffs to pursue claims diligently, and 2) to protect defendants from having to defend against stale or fraudulent claims.'" Agristor Financial, 967 F.2d at 239 (quoting Larson v. Johns-Manville Sales Corp., 427 Mich. 301, 311, 399 N.W.2d 1, 5 (1992)). However, the discovery accrual standard should be applied only where the circumstances surrounding the claim show that "starting the limitations period when the fraudulent act occurred would extinguish the claim before some injury occurred that the plaintiff could or should discover."Garden City Osteopathic Hosp., 55 F.3d at 1135. Whether or not the discovery accrual standard applies "depends on a case-by-case analysis, not on adherence to a static rule." Agristor Financial, 967 F.2d at 238; Garden City Osteopathic Hosp., 55 F.3d at 1135.
In considering whether to apply the discovery accrual standard in this case, this Court must balance the fairness of allowing Lindsay's claim to accrue when he became aware of it against the fairness to NAP and NWL of not having to defend against stale claims. See id.; Moll v. Abbott Labs., 444 Mich. 1, 23-24, 506 N.W.2d 816, 827 (1993). Applying these considerations to this particular case, the Court concludes that Lindsay's discovery in 1992 of the basis of his alleged injuries, i.e., NWL's decision to pay 0% interest, does not provide a sufficient reason to apply the discovery rule. The purpose of the rule is "to prevent the barring of claims before the claimant's realization of a cause of action."Moll, 444 Mich. at 23, 506 N.W.2d at 827. Assuming that Lindsay became aware of his injuries in December 1992, he had more than four years before the statute of limitations expired on his fraud claim. Therefore, the purposes behind the discovery rule would not be served by applying the rule to Lindsay's discovery in December 1992.
Even considering the argument that Lindsay was not aware of the extent of his injury until the end of the three year period during which he assisted his clients in moving their investments to other annuity products, Lindsay still would have had over a year in which to file his complaint.
The next question is whether Lindsay's receipt of NWL's policy reserve statement in 1998 warrants a delayed accrual of the claim. Lindsay contends that he was unable to assert his fraud and misrepresentation claim prior to his receipt of NWL's policy reserve statement showing NWL's calculation of reserves based upon payment of 0% interest because he was unaware of NWL's fraudulent intent prior to that time. However, Lindsay's argument relies upon an overly broad application of the discovery rule. "A plaintiff need not be able to prove each element of [a] claim" to "discover" that he has a claim. Warren Consol. Schs. v. W.R. Grace Co., 205 Mich. App. 580, 583, 518 N.W.2d 508, 510 (1994) (per curiam).
In Moll, the Michigan Supreme Court refined the discovery rule by adopting a "possible cause of action" standard, under which a plaintiff's claim accrues when the plaintiff discovers that he has a possible cause of action, instead of a "likely cause" standard, under which a claim accrues when the plaintiff discovers his injuries and the "likely cause" of the injuries. See Moll, 444 Mich. at 22-24, 506 N.W.2d at 827. The court concluded that the "possible cause of action" standard struck the appropriate balance between competing interests of plaintiffs and defendants:
This standard advances the Court's concern regarding preservation of a plaintiff's claim when the plaintiff is unaware of an injury or its cause, yet the standard also promotes the Legislature's concern for finality and encouraging a plaintiff to diligently pursue a cause of action. Once a claimant is aware of an injury and its possible cause, the plaintiff is aware of a possible cause of action. We see no need to further protect the rights of the plaintiff to pursue a claim, because the plaintiff at this point is equipped with sufficient information to protect the claim. This puts the plaintiff, whose situation at one time warranted the safe harbor of the discovery rule, on equal footing with other tort victims whose situation did not require the discovery rule's protection.Id. at 24, 506 N.W.2d at 827-28.
Although Moll involved a pharmaceutical products liability suit, the Court finds no reason why the "possible cause of action" standard should not apply to the fraud claim in this case. In fact, the Moll court rejected the plaintiffs' contention that a specific discovery rule should be adopted for the pregnancy drug at issue in that case. See id. at 16, 506 N.W.2d at 824. In this case, Lindsay's reliance on the copy of NWL's reserve statement he received in 1998 as a basis for delaying the accrual of his fraud claim is contrary to the policy behind the "possible cause of action" standard. The facts in this case, which are not in dispute, show that Lindsay was aware of his injuries and the cause of those injuries as early as December 1992, when he still had several years in which to bring his claim. Thus, he was aware of a possible claim against NWL and NAP with enough time left to investigate and preserve his claim.
The fact that Lindsay obtained evidence relating to NWL's and NAP's alleged intent to defraud several years after the alleged misrepresentations were made does not provide a basis for applying the discovery rule because Lindsay's receipt of that evidence merely fortified an element of his claim.
It is not necessary that a party should know the details of the evidence by which to establish his cause of action. It is enough that he knows that a cause of action exists in his favor, and when he has this knowledge, it is his own fault if he does not avail himself of those means which the law provides for prosecuting or preserving his claim.Weast v. Duffie, 272 Mich. 534, 539, 262 N.W. 401, 402 (1935) (en banc). By allowing the result that Lindsay seeks, the Court would essentially be sanctioning an application of the discovery standard in a manner that would permit a plaintiff to delay pursuing a claim until he obtains sufficient proof of each element of the claim, even though the plaintiff was aware of his injuries much earlier. Because the discovery standard focuses upon the plaintiff's discovery of his injuries rather than upon his discovery of evidence needed to prove his claim, the Court concludes that the discovery standard is not applicable to Lindsay's fraud and misrepresentation claim.
II. Other Claims
As Lindsay concedes, each of his remaining claims are subject to limitations periods of six years or less and Lindsay has not offered any persuasive reason why the Court should reach a different result on those claims. Therefore, the Court concludes that Lindsay's MCPA, negligence, breach of duty of good faith and fair dealing, and negligent misrepresentation claims are barred by the respective statutes of limitation.
Conclusion
For the foregoing reasons, the Court will grant NWL's and NAP's motions for summary judgment.
An Order consistent with this Opinion will be entered.