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Midco International, Inc. v. Metropolitan Life Insurance Co.

United States District Court, N.D. Illinois, Eastern Division

July 5, 2017

Midco International, Inc. Employees Profit Sharing Trust, Plaintiff,
Metropolitan Life Insurance Company, Defendant.


          Manish S. Shah United States District Judge

         Midco International, Inc. Employees Profit Sharing Trust brought this diversity suit alleging breach of contract by Metropolitan Life Insurance Company. Midco alleges that MetLife breached the covenant of good faith and fair dealing implied into their contract, last amended in 1999, when MetLife transferred Midco's assets and the responsibility to manage those assets to a third party in 2006. MetLife moves for summary judgment, and that motion is granted.

         I. Legal Standard

         Summary judgment is appropriate if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(a). A genuine dispute as to any material fact exists if “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Justifiable inferences are drawn in the nonmovant's favor, id. at 255, and the party seeking summary judgment has the burden of establishing that there is no genuine dispute as to any material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

         II. Background[1]

         Plaintiff is a trust established to administer a retirement plan for the employees of Midco International, Inc., a Chicago-based manufacturer of gas burners. Defendant MetLife provides investment options to employee retirement plans.

         In 1980, Midco entered into a fixed investment option contract with New England Mutual Insurance Company. Midco plan participants received interest each year pursuant to a “declared rate” determined by New England Mutual. From 1980 until 1996, the declared rate was set by the performance of the assets in New England Mutual's general investment account. In 1996, MetLife acquired New England Mutual and took on the task of managing Midco's assets.

         In 1999, Midco and MetLife agreed to renegotiate their contract. The 1999 agreement was made retroactively effective to 1995 and expressly provided that the declared rate would be determined by MetLife “from time to time.” The discretion granted by this provision in the 1999 contract forms the basis of Midco's breach of contract claim.

         MetLife initially employed its discretion to set the declared rate based on the performance of its general investment account, just as New England Mutual had. In 2006, MetLife sold its 401(k) administration business to Great-West Life & Annuity Insurance Company. The transfer took the form of a 100% indemnity reinsurance transaction. As MetLife's expert described such a transaction, the seller of a book of business cedes 100% of the insurance risk to a third party, and the assets supporting those liabilities are also transferred. The seller also transfers administrative control of those assets, and the underlying holder of the annuity policy is encouraged to “repaper” with the third party. To repaper is to sign an entirely separate contract with the third-party administrator. Pursuant to this transaction, the Midco assets backing the 1999 contract were transferred to Great-West, and MetLife ceded responsibility for setting the declared rate to Great-West. The goal of this reinsurance transaction was to eventually get Midco's contract off of MetLife's books through repapering. MetLife had considered unilaterally terminating the Midco plan but opted for the Great-West transaction after concluding such an action would breach the contract.

         MetLife informed Midco in 2006 that Midco's business had been transferred to Great-West, stating that Great-West would provide “recordkeeping and administrative services” while the “existing MetLife contract provisions will stay the same.” At that time, MetLife did not state where Midco's assets would be held or where the responsibility for setting the declared rate would lie. While MetLife's investment strategy involved aggressive risks with higher returns, Great-West's strategy was more conservative. The declared rate selected by Great-West continually decreased after Great-West acquired Midco's assets, falling from 6.7% in 2007 to 1.2% in 2016. MetLife retained the right to review Great-West's rate, but it never exercised that right.

         Each year, Great-West prepared a Summary Annual Report, which was reviewed by Midco's trustee and distributed to plan participants from 2009 to 2014. The Midco plan trustees were required under ERISA to ensure that the information distributed to plan participants was accurate. These reports showed that Great-West, rather than MetLife, held the Midco assets (but the reports did not explicitly state that Great-West was now setting the declared rate of return on the assets).

         After the 2006 transaction, the Midco fund website maintained by Great-West continued to refer to the “MetLife Stable Value Option.” Investment guides and enrollment kits prepared for Midco by Great-West similarly referred to the “MetLife Stable Value Option.” MetLife's own employee acknowledged that this label was confusing, as Great-West held and managed Midco's assets.

         Great-West made efforts to repaper with Midco, but Midco declined such offers. Midco declined because of the firm's favorable history with the MetLife Stable Value Fund. In early 2014, a Midco representative reached out to Great-West to confirm that Midco's funds remained with MetLife. Great-West's senior counsel informed Midco in a July 2014 email that Midco's assets were no longer in the MetLife general account. The senior counsel further stated that Great-West was the reinsurer and recordkeeper for the Midco plan.

         Midco filed this suit in November 2014, alleging that MetLife breached the parties' contract. The complaint did not identify an express term in the contract that MetLife breached, but at the motion to dismiss stage, I understood Midco's theory to be that Great-West's control over the declared rate ...

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