United States District Court, Northern District of Illinois, E.D
November 17, 1982
CHICAGO BOARD OPTIONS EXCHANGE, INC., ET AL., PLAINTIFFS,
CONNECTICUT GENERAL LIFE INSURANCE COMPANY, DEFENDANT.
The opinion of the court was delivered by: Shadur, District Judge.
MEMORANDUM OPINION AND ORDER
Chicago Board Options Exchange, Inc. ("CBOE") and the
Trustees of its Retirement Income Plan (the "Plan") sue
Connecticut General Life Insurance Company ("Connecticut
General"), which entered into a group annuity insurance
contract (the "Contract") with CBOE to fund benefits under the
Plan. Plaintiffs' Complaint charges Connecticut General with:
1. breach of contract (Count I);
2. deceptive conduct in violation of the
Illinois Uniform Deceptive Trade Practices Act
(the "Illinois Act," Ill.Rev. Stat. ch. 121 1/2,
§§ 311-17) (Count II); and
3. fiduciary improprieties in violation of the
Employee Retirement Income Security Act ("ERISA,"
29 U.S.C. § 1001-1461) (Count III).
Connecticut General has moved under Fed. R.Civ.P. ("Rule")
12(b)(6) to dismiss the entire Complaint for failure to state
any cognizable claim. For the reasons stated in this
memorandum opinion and order, Connecticut General's motion is
Allegations of the Complaint*fn1
In 1977 CBOE and Connecticut General negotiated the Contract
to fund Plan benefits effective July 1, 1978. In entering into
the Contract CBOE relied on claimed misrepresentations in
Connecticut General's June 1977 proposal (the "Proposal,"
Complaint Ex. C), including the following sentence in its
"highlights" page in which it "summarize[d] the advantages" of
Funds may be transferred to a new carrier if
Connecticut General's performance is not entirely
Under the Contract the Administrator*fn2
was to direct
Connecticut General as to the manner of crediting
contributions made on behalf of the Plan's Participants (CBOE
employees). Credits were to be allocated to either or both of
two types of investment accounts, in such mix as the
1. a "Variable Account," representing an
undivided interest in a group of pooled assets
(the "Separate Account") maintained by
Connecticut General in connection with the
Contract and other group annuity contracts
(understandably, the value of the Variable
Account always reflected the market value of the
underlying assets); and
2. a "Guaranteed Account," providing a yield in
the form of an interest rate periodically set in
advance by Connecticut General (both that
interest rate and the principal of the Guaranteed
Account were guaranteed by Connecticut General).
Contract Parts XII and XIII defined CBOE's right to part
company with Connecticut General by discontinuing further
contributions and causing a transfer of the Participants'
Accounts to a new funding agent (keeping the Plan qualified
under the Internal Revenue Code).
All amounts allocated to Variable Accounts have always been
transferable without limitation upon such discontinuation,
subject only to compliance with appropriate procedures for
valuation and distribution. As for Guaranteed Accounts,
however, Contract § 13.03 has always permitted Connecticut
General to defer full payout under these circumstances:
1. If the aggregate proposed transfers and
withdrawals from Guaranteed Accounts on the
effective date of CBOE's departure, together with
previous transfers and withdrawals during the
same calendar year — taking into account in each
instance not only the Contract itself but all
"contracts in this class of business" — exceed 10%
of the total Guaranteed Contract funds for all
"contracts in this class of business" as of the
beginning of that calendar year, the current
transfers could be deferred.
2. In any event such deferral could not block a
Participant from the transfer of at least 10% of
his or her Guaranteed Account in each year.
Non-transferred portions of the Guaranteed Accounts would
continue to draw interest in the same manner as before.
What triggered the current dispute was an attempted
amendment of the Contract by Connecticut General. Contract
§ 11.02 deals with "Change of Contract":
(a) Any or all of the terms of this contract may
be changed from time to time by agreement in
writing between the Insurance Company and the
Contractholder. However, any such change shall
not affect in any way the amount or terms of any
Retirement Annuity purchased before the effective
date of such change.
(b) The Insurance Company may, at any time, make
any changes, including retroactive changes to the
provisions of this contract to the extent that
such changes are required in order to conform the
contract to the provisions of Section 401(a) of
the Internal Revenue Code as amended, ERISA or
any regulation issued by any governmental agency
to which the Plan or the Insurance Company is
(c) The Insurance Company may change the rates in
Table A2 without giving advance notice of the
change, provided such change is not made more
frequently than once annually. Any such change
shall be applicable to this contract and to all
other contracts in the same class of business as
this contract using the same Assumed Investment
Return and shall take effect as of the date the
Insurance Company makes such change. On and after
the first anniversary of July 1, 1978 the Insurance
Company may change from time to time any or all of
the other terms of this contract. Such other change
may be made by the Insurance Company by giving 90
days advance notice in writing to the
Contractholder. Any such change may not affect (i)
the terms or amounts of any Retirement Annuity
purchased before the effective date of such change,
and (ii) the amount of interest credited or accrued
prior to the effective date of such change.
Connecticut General purported to amend the Contract by
unilateral action in September 1981, to take effect January 1,
1982 (Connecticut General claims it complied with the 90-day
notice provision of Section 11.02(c), though Complaint ¶ 12
states, "On November 13, 1981, CBOE became aware, for the first
time [of the purported amendment]*fn3
). By that amendment (the
"Amendment") Connecticut General substituted "Guaranteed
Account A" for the existing Guaranteed Account and created a
new "Guaranteed Account B" for all contributions made after
December 31, 1981. Because the Amendment also contemplated an
automatic annual transfer of 10% of Guaranteed Account A to
Guaranteed Account B, the deferral provisions of Contract
§ 13.03 would be automatically triggered every year.*fn4
By letter dated December 14, 1981 (Complaint Ex. G) the
Administrator directed Connecticut General to transfer all
CBOE employees' accounts (including both Variable and
Guaranteed Accounts) to a new funding agent July 1, 1982. One
week later the Administrator wrote Connecticut General
challenging the Amendment and the proposed Guaranteed Account
transfer as invalid (Complaint Ex. H). Connecticut General has
refused to accede to that direction and challenge, adhering
instead to the terms of the Amendment.
CBOE's first effort to invalidate the Amendment took the
form of a complaint filed with the Illinois Department of
Insurance (the "Department") December 31, 1981. Some months
later the Department rejected that challenge entirely:
After a comprehensive review of this letter, your
complaint letter and the contract provisions, we
are unable to discern any violation of the
Illinois Insurance Code by the insurer's
amendments to the contract. The contract entered
into between the Chicago Board of Options
Exchange and Connecticut General granted
Connecticut General the right to unilaterally
amend the contract as stated in Section 11.02 of
the General provisions. No unfair discrimination
or detrimental capability is caused by the
amended contract provisions.
CBOE has sought review of the Department's decision by an
administrative review complaint (still pending) in the Circuit
Court of Cook County.
This opinion will deal in turn with each aspect of
plaintiffs' three-pronged assault identified at the outset.
None successfully states a cause of action.
Apart from the notice contention referred to at n. 3, Count
I claims the Amendment breached Contract § 11.02 because CBOE
did not give its "agreement in writing" under Section 11.02(a).
That argument is frankly nonsensical and scarcely merits
In literal terms Contract § 11.02(c) authorized the Amendment
by Connecticut General's sole action, simply by notice to (and
not consent of) CBOE. There are several reasons for not
distorting that literal meaning, as CBOE's contention would do:
1. Each of Contract §§ 11.02(a), (b) and (c) is
stated independently of the others. As even CBOE
recognizes, Section 11.02(b) and the first
paragraph of Section 11.02(c) do not incorporate
the consent provision of Section 11.02(a). There is
then no rational basis for skewing the second
paragraph of Section 11.02(c) by reading it with a
totally different meaning.
2. If CBOE's written consent were required
under Section 11.02(c)'s second paragraph, its
90-day advance notice provision would be rendered
wholly meaningless. By contrast, Section 11.02's
literal reading gives all of its provisions a
rational meaning and relationship.
3. Section 11.01 states flatly the Contract
"may be modified or amended only by written
agreement of the Insurance Company . . ." — a
requirement wholly consistent with Connecticut
General's concurrence being required under each
subsection of Section 11.02 (subsection (a) with
CBOE's agreement, (b) and (c) without). Section
11.01 does not however impose a like condition of
CBOE's agreement to all amendments.
Because nothing in CBOE's allegations supports the notion its
agreement to the
Amendment was needed,*fn5
Count I cannot survive Connecticut
Count II alleges dual deception on Connecticut General's
part, in violation of the Illinois Act:
1. In its 1977 Proposal, Connecticut General
misleadingly stated without qualification that
contractholders could withdraw their funds if
Connecticut General's "performance is not
2. In its 1981 description of the Amendment,
Connecticut General deceptively stated the
Amendment would offer employees better return
rates and options "without sacrificing any of
their existing rights" and "without changing [the
employer's] basic plan design."
Again neither claimed misrepresentation rises to the level of
a cognizable claim.
As for the alleged 1981 misrepresentations, Count II neither
alleges nor implies any resulting injury. Indeed, the
possibility of damage is refuted by CBOE's own conduct. It
concededly believed the Amendment was inimical to its
interests, for it both objected to Connecticut General and
complained to the Department of Insurance before the January
1, 1982 effective date. It cannot be heard to say it was
deluded to its detriment by the claimed 1981
As for the asserted 1977 misrepresentations, they run afoul
of the three-year limitation period set by Section 10a(e) of
the Consumer Fraud Act (Ill.Rev.Stat. ch. 121 1/2, § 270a(e)),
which controls actions under the Illinois Act. That clock
starts ticking when a plaintiff first experiences (or, in some
circumstances, first discovers) all the elements of injury
stemming from the deceptive acts.*fn6 See Airprint Systems,
Inc. v. Burroughs Corp., No. 81 C 2119, slip op. at 1-2
(N.D.Ill. Aug. 20, 1981).
At least on the face of the Complaint, plaintiffs'
misrepresentation injury (if any) arose when the Contract
(including its Section 13.03) became effective in 1978. From
that very beginning point, plaintiffs' ability to withdraw
funds under the Contract was already circumscribed — and any
alleged inconsistency between that limited ability and the
unfettered right assertedly represented in the earlier Proposal
It may be that plaintiffs' injury became more tangible after
the Administrator's unsuccessful effort to discontinue the
Contract, but on the current allegations that would not affect
when that injury was first incurred. Nor, on the present
Complaint, can plaintiffs invoke the discovery rule to toll
this statute of limitations, for Count II alleges no factual
basis for doing so.
Indeed, even if a different assumption were made arguendo
— that plaintiffs' injury occurred when the Amendment was
adopted — the current misrepresentation claim would face
another difficulty: There is no effective allegation of
proximate causation between the 1977 deceptive statements and
the current injury. Even had CBOE in fact been misled into
entering the Contract, it could have averted damage by
exercising its Section 13.03 withdrawal rights at any time
before the Amendment restricted the effect of such exercise.
In sum, then, Count II must also fail under the current
Complaint. It remains only to examine Count III.
Count III says Connecticut General, by adopting the
Amendment, breached its fiduciary responsibilities under ERISA
§§ 404 and 406, 29 U.S.C. § 1104 and 1106. That claim must be
rejected because CBOE itself has acknowledged those fiduciary
rules are inapplicable to Connecticut General.
ERISA § 3(21)(A), 29 U.S.C. § 1002(21)(A), defines the persons
to whom the statute's fiduciary obligations extend:
. . a person is a fiduciary with respect to a
plan to the extent (i) he exercises any
discretionary authority or discretionary control
respecting management of such plan or exercises
any authority or control respecting management or
disposition of its assets, (ii) he renders
investment advice for a fee or other
compensation, direct or indirect, with respect to
any moneys or other property of such plan, or has
any authority or responsibility to do so, or
(iii) he has any discretionary authority or
discretionary responsibility in the
administration of such plan. . . .
Connecticut General fits none of those categories.
No serious contention can be made for application of
subsections (ii) or (iii), or the "management of such
plan" provision of subsection (i), to Connecticut General.*fn7
It is not an investment advisor, and the Plan management and
administration are specifically vested in the Administrator. At
most it might arguably be claimed Connecticut General
"exercises . . . authority or control respecting management or
disposition of [the Plan's] assets."
But that possible aspect of "fiduciary" status with respect
to the Guaranteed Accounts — the only ones at issue in this
litigation — is directly negated by the parties' own contrary
intentions. It takes only a brief excursion through the Plan's
relevant provisions to demonstrate Count III's claim is refuted
by the very documents on which it must depend:
1. "Fiduciary" is given the same meaning in
Plan § 1.17 as under ERISA § 3(21)(A). Thus the
extent to which "fiduciary" functions are vested in
Connecticut General under the terms of the Plan —
and only that extent — measures the extent to
which Connecticut General is a "fiduciary" under
2. Plan § 1.29 defines a Participant's
"Guaranteed Account" as the portion of all
contributions for his or her benefit invested in
Connecticut General's general portfolio, not its
"Separate Account" or any other particular assets.
3. Plan § 1.30 defines a Participant's "Variable
Account" as the portion of all contributions for
his or her benefit invested in Connecticut
General's "Separate Account."
4. Plan § 1.35 in turn defines "Separate Account"
as a pooled separate account of specific assets.
5. Plan Article X defines its "Fiduciary Duties
and Responsibilities." And Plan § 10.4 expressly
defines and limits Connecticut General's liability
as a "Fiduciary . . . to that arising from its
arrangement of any assets of the Plan held by the
Insurance Company in its Separate Account"
In short, the parties themselves have circumscribed "the
extent . . . [to which Connecticut General] exercises any
authority or control respecting management or disposition of
[the Plan's] assets" (ERISA § 3(21)(A)). That extent reaches
only to Variable Accounts, not Guaranteed Accounts. By the
parties' own withholding of ERISA-defined "fiduciary"
responsibilities from Connecticut General as to Guaranteed
Accounts, they have precluded CBOE's assertion of a claim based
on a breach of such non-existent ERISA duties.*fn9
Plaintiffs have struck out on all three counts. Their
Complaint is dismissed under Rule 12(b)(6) for failure to
state a claim upon which relief can be granted.