United States District Court, N.D. Illinois
April 8, 2004.
AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, as Trustee f/b/o Emerald Investments Limited Partnership, and EMERALD INVESTMENTS LIMITED PARTNERSHIP, an Illinois partnership, Plaintiffs,
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY, Defendant
The opinion of the court was delivered by: JOHN GRADY, Senior District Judge
Before the court is defendant's motion for reconsideration and
clarification of our Memorandum Opinion of December 11, 2003, in which we
granted in part plaintiffs' motion for summary judgment. Defendant's
motion is denied for the reasons stated below.
This is a breach of contract action brought by Emerald Investments
Limited Partnership ("Emerald") regarding two annuities*fn1 Emerald
bought from defendant Allmerica Financial Life Insurance and Annuity
Company ("Allmerica").*fn2 Emerald alleges that Allmerica breached the
Annuity Contracts by unilaterally imposing a set of Transfer Rules that severely limited transfers of amounts
in various investments and by refusing to permit Emerald to make these
transfers after the Transfer Rules were imposed.
Emerald filed a motion for summary judgment on its breach of contract
claim. In our Memorandum Opinion of December 11, 2003, we held that there
is no genuine issue that Allmerica breached the Contracts by imposing the
Transfer Rules. (The issue of damages for this breach remains,) We also
held that there is a genuine issue of fact as to whether Allmerica
breached the Contracts by refusing to permit trades after the Transfer
Rules were imposed, and we allowed discovery on that issue.
Allmerica now moves for reconsideration and clarification of our
A. Reconsideration of "Partial" Summary Judgment for Plaintiffs
Our memorandum opinion discussed Allmerica's affirmative defense that
Emerald breached the Annuity Contracts by violating the duty of good
faith and fair dealing. We found that although Emerald had the
contractual discretion to make transfers and therefore was required to
exercise that discretion in accord with the parties' reasonable
expectations, Allmerica had not demonstrated a genuine issue of material
fact that Emerald breached that obligation.
Allmerica contends that it has now has "newly-discovered evidence" that
creates a genuine issue of material fact as to the reasonableness of Emerald's exercise of contractual discretion and as to
Allmerica's equitable estoppel defense. Allmerica submits the Declaration
of James O'Brien, who was a sales representative for Kemper
Distributors, Inc. ("Kemper") (now known as Scudder Distributors, Inc.)
at the time the Annuity Contracts were entered into. (Kemper was
responsible for marketing and selling Allmerica's annuities.) According
to Allmerica, Emerald "assured Mr. O'Brien that [it] would only engage in
one or two trades per month between the funds in the Gateway annuity
sub-account," and "[o]nce Mr. O'Brien was satisfied by [Emerald's]
assurances, the sale went forward." (Defendant's Memorandum at 4-5.)
Allmerica asserts that "[s]hortly after Allmerica issued the contracts to
Emerald, Emerald did exactly the opposite of what it had told Mr.
O'Brien. It began engaging in frequent large trades between accounts far
in excess of the one or two trades a month it had told Kemper." (Id. at
Allmerica states that it "did not have the opportunity to speak with
Mr. O'Brien until recently," so it was unable to present this evidence in
its brief opposing summary judgment. (Defendant's Memorandum at 5.)
Outside counsel for Allmerica states simply that before January 2004, he
"was not permitted to speak to any Scudder representatives involved in
the marketing of these annuities." (Defendant's Memorandum, Ex. A,
Declaration of Alan S. Gilbert.) Counsel fails to explain why he was not "permitted" to discover facts
from Scudder, a party that Allmerica claims was its own agent.
"To support a motion for reconsideration based on newly discovered
evidence, the moving party must `show not only that this evidence was
newly discovered or unknown to it until after the hearing, but also that
it could not with reasonable diligence have discovered and produced such
evidence [during the pendency of the motion].'" Caisse Nationale de
Credit Agricole v. CBI Indus., 90 F.3d 1264, 1269 (7th Cir. 1996)
(citation omitted). Allmerica has failed to make this showing because its
explanation is incomplete. Nevertheless, we will examine its
"newly-discovered evidence" Mr. O'Brien's declaration. The declaration
states in relevant part:
4. From approximately October 1996 to February
2000, I was a regional sales representative for
Scudder Distributors, Inc. I was responsible for,
among other things, wholesaling variable annuity
products to broker/dealers in the Midwest region
of the United States.
5. One of the variable annuity products I was
responsible for wholesaling was the Kemper Gateway
Custom Variable Annuity (the "Gateway Annuity"). The
Gateway Annuity was issued by Allmerica Financial and
wholesaled by Scudder Distributors, Inc.
6. In early 1999, I spoke with Gary Hokin ("Hokin") of
Nicoh Securities to discuss the Gateway Annuity.
7. Hokin told me that he had a client that was
interested in purchasing a Gateway Annuity. Hokin
also told me that the client expected to engage in
one or two trades per month between the funds in
the Gateway Annuity sub-accounts.
8. I later learned that Hokin's client engaged in
substantially more than two trades per month between
the funds in the Gateway Annuity sub-accounts. 9. If Hokin had disclosed to me, prior to the
purchase, the true frequency of his trading, I
would have terminated my discussions with Hokin
regarding the Gateway Annuity.
10. Hokin did not disclose to me that either he or
Nikoh Securities was affiliated with his client.
11. I later learned that the client was Emerald
(Defendant's Memorandum, Ex. D, Declaration of James O'Brien.) We
will assume for purposes of this discussion both that Mr. Hokin's
statements can be attributed to Emerald and that Allmerica can be deemed
to have had knowledge of any statements made to Mr. O'Brien.
Mr. O'Brien's declaration is notable for what it does not say. Because
it only refers to "early 1999," it is unclear as to when the conversation
took place in relation to the execution of the Annuity Contracts. Mr.
O'Brien does not provide any context for the conversation or explain who
contacted whom and why. Significantly, he does not state that he knew
that Mr. Hokin was referring to Emerald at the time of their conversation
or before the Annuity Contracts were executed; in fact, he states that he
"later learned" (but does not say exactly when, how or from whom) that
Mr. Hokin's client was Emerald. No mention is made regarding who made the
final decision to sell the annuities to Emerald or what that person
expected based on any representations by Emerald. It is a big leap from
Mr. Hokin's statements to Allmerica's argument that "Emerald induced
Allmerica to issue the annuities by representing to Kemper that Emerald
would only trade a few times a month." (Memorandum at 7.) In sum, the declaration does not adequately demonstrate that Emerald
made any statements to Allmerica prior to the execution of the Annuity
Contracts that created any particular expectations regarding the
frequency of transfers. Because Mr. O'Brien's statements are insufficient
to create a genuine issue of material fact as to the parties' reasonable
expectations of Emerald's exercise of contractual discretion, Allmerica's
motion for reconsideration is denied.
B. Clarification Regarding Breach by Imposition of Transfer Rules
As explained supra, in our Memorandum Opinion of December 11, 2003, we
held that there is no genuine issue that Allmerica breached the Annuity
Contracts by imposing the Transfer Rules on Emerald. We also held that
there is a genuine issue of fact as to whether Allmerica breached the
Contracts by refusing to permit trades after the Transfer Rules were
imposed, and we permitted discovery on the issue. Allmerica now requests
that we "clarify" our opinion "with regard to those portions of the
Transfer Rules that merely set forth administrative procedures that do
not violate any terms of the Contracts." (Defendant's Memorandum at 10.)
Allmerica did not previously make this argument in its briefs opposing
summary judgment. The parties treated the Transfer Rules as a whole and
did not attempt to analyze them in parts. The overarching, operative
feature of the Transfer Rules is the severe limitation on trading. The
simple fact that the Transfer Rules as a whole, containing this severe limitation, were unilaterally imposed on
Emerald constituted the breach of contract. It is therefore unnecessary
to examine and render an opinion as to each portion of the Transfer
Rules. Nor do we believe that it is necessary to parse each component of
the 4-page Transfer Rules when it is unclear at this juncture what the
precise factual issues will be with regard to the trades that were refused
after the Transfer Rules were imposed. Accordingly, Allmerica's request
for "clarification" will be denied.
Allmerica's motion for reconsideration and clarification is denied. A
status hearing is set for April 28, 2004, at 11:00 a.m.