United States District Court, N.D. Illinois, Eastern Division
Midco International, Inc. Employees Profit Sharing Trust, Plaintiff,
Metropolitan Life Insurance Company, Defendant.
MEMORANDUM OPINION AND ORDER
S. Shah United States District Judge
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.
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).
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.
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.
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.
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.
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.
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
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.
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
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 ...