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Marleen M. Laplant, Individually and On Behalf of A Class v. the Northwestern Mutual Life Insurance Company

November 28, 2012


Appeal from the United States District Court for the Eastern District of Wisconsin. No. 11-C-910--Lynn Adelman, Judge.

The opinion of the court was delivered by: Easterbrook, Chief Judge.


Before EASTERBROOK, Chief Judge, and FLAUM and SYKES, Circuit Judges.

Northwestern Mutual sold an annuity contract, which the parties call a "Pre-MN annuity," to approximately 36,000 persons. Of these, some 3,000 live in Wisconsin. In 1985 Northwestern Mutual changed the method it used to calculate the annuitants' annual dividend. The annuitants contend that this change violates the terms of the annuity contracts, both substantively and with respect to the notice Northwestern Mutual must give its customers.

This is not the first class action filed by the annuitants. In 2001 the lawyers who today represent Marleen LaPlant, our representative plaintiff, filed suit in a Wis- consin state court seeking to represent all annuitants throughout the nation. The judge declined to certify that class, ruling among other things that (a) a claim for damages creates individual issues that make class treatment imprudent, and (b) a national class is not manageable given differences in the state law appli- cable to the policies, approximately 45% of which contain choice-of-law clauses specifying application of the law in the annuitants' home state, rather than Wisconsin, where Northwestern Mutual is incorporated and has its headquarters. Noonan v. Northwestern Mutual Life Insurance Co., 298 Wis. 2d 247 (Ct. App. 2006), affirmed that decision. The current suit, reflecting the limits established in Noonan, initially proposed a class limited to annuitants who live in Wisconsin and sought only a declaratory judgment that the 1985 change is invalid. A declaratory judgment in favor of the class could be followed by individual suits seeking damages.

The Wisconsin-only suit was certified as a class action and tried to the court (since the only proposed remedy was a declaratory judgment). Judge Dennis J. Flynn ruled in plaintiffs' favor, issuing a sweeping decision declaring that Northwestern Mutual violated the annuity contracts, breached its fiduciary duties, and should pay substantial compensatory and punitive damages. Plant [sic] v. Northwestern Mutual Life Insurance Co., No. 08-CV- 11988 (Cir. Ct. Milwaukee County Mar. 7, 2011). The class then amended its complaint to seek damages for all annuitants in every state.

Contending that the amendment brought the suit within the scope of the Class Action Fairness Act, 28 U.S.C. §§ 1332(d), 1453, Northwestern Mutual filed a notice of removal. LaPlant asked the district court to remand, relying on §1453(d), which says that the Act "shall not apply to any class action that solely in- volves-- . (2) a claim that relates to the internal affairs or governance of a corporation or other form of business enterprise and arises under or by virtue of the laws of the State in which such corporation or busi- ness enterprise is incorporated or organized". (Section 1332(d)(9)(B) contains a materially identical provision for suits filed initially in federal court.) LaPlant main- tained that the suit "relates to the internal affairs" of

Northwestern Mutual because the policyholders of a mutual insurer have an ownership interest in its gover- nance and profits. Northwestern Mutual replied that the suit relates to the annuity contracts, not to its internal affairs, and that at all events the suit does not "solely involve[]" Wisconsin's corporate law, given the choice-of- law clauses that led to Noonan's decision against certifying a national class.

The district court remanded the suit. 2012 U.S. Dist. LEXIS 116872 (E.D. Wis. Aug. 20, 2012). The judge observed that the appellate decision in Noonan had not held that multiple states' laws apply but had concluded only that the state trial judge had not abused his discretion in so holding. Deeming the state trial judge's decision on that point not binding, the federal district judge declared that the choice-of-law clauses are invalid and that Wisconsin law applies to the policyholders in every state. The district judge also concluded that all disputes concerning policies issued by a mutual insurer relate to that insurer's internal affairs, so that §1453(d)(2) requires a remand. We accepted Northwestern Mutual's petition for permission to appeal. See 28 U.S.C. §1453(c)(1).

The application of §1453(d)(2) in litigation con- cerning a Wisconsin corporation has the potential to create anomalies. The internal-affairs doctrine is "a conflict of laws principle which recognizes that only one State should have the authority to regulate a corpora- tion's internal affairs--matters peculiar to the relation- ships among or between the corporation and its current officers, directors, and shareholders--because otherwise a corporation could be faced with conflicting demands." Edgar v. MITE Corp., 457 U.S. 624, 645 (1982). See also Atherton v. FDIC, 519 U.S. 213, 223 (1997). Section 1453(d)(2) reflects the view that, when just one state's law applies to a nationwide class, a state court can provide a satisfac- tory resolution. Yet Wisconsin does not uniformly employ the internal-affairs doctrine. In Beloit Liquidating Trust v. Grade, 270 Wis. 2d 356 (Wis. 2004), the Supreme Court of Wisconsin applied Wisconsin law to a suit con- cerning the internal affairs of a Delaware corporation. Northwestern Mutual does not contend, however, that a state's adoption of the internal-affairs doctrine is essen- tial to a remand under §1453(d)(2), which asks whether the dispute "relates to" internal affairs and not what law the state court will apply (apart, that is, from the "solely" language).

The parties do, however, dispute how we should resolve uncertainties about whether a particular suit relates to internal affairs. The district court concluded, and the class contends, that "relates to" should be read broadly and that the existence of other issues (here, the interpretation of the contracts) should not prevent a remand. Northwestern Mutual sees the word "solely" as defeating a broad reading of "relates to". Although at least one circuit has held that the statutory language reflects a preference for remand to state court, see Green- wich Financial Services Distressed Mortgage Fund 3 LLC v. Countrywide Financial Corp., 603 F.3d 23, 29 (2d Cir. 2010), this circuit's approach is to read the exceptions in §1332(d) and §1453(d) without a presumption for either remanding or retaining jurisdiction. We try to give the statutory language a natural meaning in light of its context, without a thumb on the scale. See, e.g., Appert v. Morgan Stanley Dean Witter, Inc., 673 F.3d 609 (7th Cir. 2012); Katz v. Gerardi, 552 F.3d 558 (7th Cir. 2009).

Congress did not define "internal affairs", but neither did it signal a departure from that term's ordinary meaning, which the Supreme Court restated in Edgar: "matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders". By that standard, LaPlant's claim does not relate to Northwestern Mutual's internal affairs. The suit does not involve the identity or authority of the firm's officers or directors, and the annuitants are not shareholders.

True, policyholders in a mutual have "ownership" interests, but that is not enough. Holders of corporate bonds also have ownership interests, especially when the issuer does not pay the promised return (the very sort of claim LaPlant makes). Yet disputes between corpo- rations and their creditors regularly are resolved under the law of contract; they are not thought of as disputes about internal corporate affairs. Annuity policies are effectively debt contracts, and this suit depends on the terms of promises that Northwestern Mutual made in the "Pre-MN annuities." Money due under a contract is not a dividend for corporate-law purposes, no matter what the contract calls it. In corporate law, a dividend is discretionary with the board. The annuitants are entitled to be paid, not to a role in Northwestern Mutual's corporate governance.

One logical implication of holding that a dispute between annuitants and mutual insurers relates to the insurer's internal affairs would be that any dispute about the meaning of any of the issuer's policies relates to the firm's internal affairs--for holders of standard policies, no less than holders of annuities, have remote "ownership" interests in mutual insurers. Yet suits about the meaning of an advertising-injury coverage, or an exclusion for intentional torts, are decided every day without either judge or litigants dreaming that they need to understand or address corporate law. These are disputes about the policies, resolved under insurance law rather than the Model Business Corporations Act and the internal-affairs doctrine. Just so with disputes about the meaning of annuity contracts. A court should proceed in this suit the same way it would if the issuer were a for-profit insurer with shares traded on the New York Stock Exchange rather than a mutual insurer. Judge Flynn relied on New York and Wisconsin insurance law and several states' laws about marketing but scarcely mentioned Wisconsin's corporate law. That pretty much shows that this dispute ...

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