Walter H. Adams v. Southern Farm Bureau Life Ins., (11th Cir. 2007)
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[P U B L IS H ]
IN THE UNITED STATES COURT OF APPEALS
FILED
F O R THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
JULY 25, 2007
THOMAS K. KAHN
N o . 06-13162
CLERK
D . C. Docket No. 98-00020-CV-CDL-4
W A L T E R H. ADAMS, individually, and on behalf
of all others similarly situated,
Plaintiff,
versus
SOUTHERN FARM BUREAU LIFE INSURANCE COMPANY,
a Mississippi Corporation,
Defendant-Intervenor-
Defendant-Appellee,
HARMON JOURDAN, a plaintiff in pending litigation
in Mississippi case,
RONNIE CARLISLE, a plaintiff in pending litigation
in Mississippi case,
KIMBERLY CARLISLE, a plaintiff in pending litigation
in Mississippi case,
CECILE BARNETT, a plaintiff in pending litigation
in Mississippi case,
WILLIAM HATHCOCK, a plaintiff in pending litigation
in Mississippi case,
DAVID LYONS, a plaintiff in pending litigation
in Mississippi case,
ROY HODGES, a plaintiff in pending litigation
in Mississippi case, DONNIE SMITH, a plaintiff in pending litigation in Mississippi case, WILSON CRAIG, a plaintiff in pending litigation in Mississippi case, ELIZABETH CRAIG, a plaintiff in pending litigation in Mississippi case, Respondents-Appellants.
A p p e al from the United States District Court fo r the Middle District of Georgia (July 25, 2007) B efo re EDMONSON, Chief Judge, and BIRCH and WILSON, Circuit Judges.
B I R C H , Circuit Judge: In this case, we must determine whether the district court acted properly in co n clu d in g that the appellantsa group of plaintiffs alleging claims against ap p ellee Southern Farm Bureau Life Insurance Company ("Southern Farm") in p ro ceed in g s in Mississippiare barred by the doctrine of res judicata from bringing th eir action, due to a consumer class action settlement in an earlier suit against S o u th ern Farm. After the appellants brought their complaints in Mississippi state co u rt in October 2005, Southern Farm filed a Motion to Enforce Final Judgment in th e Middle District of Georgia. Southern Farm argued that the settlement, release, an d judgment that had been entered by the district court in an earlier 1999 co n su m er class actionin which the appellants were class membersbarred the a p p e lla n ts ' pending claims. The district court agreed, and, accordingly, it enjoined th e appellants from further prosecuting their claims in Mississippi. This appeal fo llo w ed . Upon review, we conclude that: (1) the notice afforded the appellants in th e 1999 class action settlement satisfied the constitutional requirements of due p r o c e ss ; and (2) the claims that the appellants have brought against Southern Farm in Mississippi plainly fall within the scope of the earlier class action settlement and release, and, therefore, they are barred by the doctrine of res judicata.
Accordingly, we AFFIRM.
I. BACKGROUND A . The Adams Class Action and Settlement In January 1998, Walter H. Adams brought an action, on behalf of himself an d all others similarly situated, against Southern Farm in the Middle District of G e o r g ia ("the Adams Class Action"). The Adams complaint was generally based o n the allegation that Southern Farm had engaged in fraudulent and deceptive co n d u ct in connection with the marketing and sale of flexible premium and u n iv ersal life insurance policies to its customers.1 The complaint alleged that, b eg in n in g in 1984, Southern Farm had engaged in a scheme to fraudulently induc[e] existing policyholders to replace their existing p o licies in order to purchase new policies, without adequately in fo rm in g the policyholders that by doing so they would lose su b stan tial cash values, pay new and significant commission charges, a n d , if they lived beyond a certain age, pay significantly greater p rem iu m s, and/or be forced to accept less insurance or have their in su ran ce lapse.
R1-1 at 5.
More specifically, the Adams complaint alleged that Southern Farm had en g ag ed in a number of deceptive and misleading sales tactics in selling flexible p rem iu m and universal life policies, including, among others: misrepresenting the b en efits of the new policies; failing to provide an adequate explanation of concepts su ch as the policy's "cash value" and the "premium" required by the policy; and "em p lo yin g performance projections based on unreasonable explanations co n cern in g interest rates and misrepresenting and/or omitting adequate explanation o f the consequences of less favorable performance." Id. at 5, 7.2 The complaint asserted counts for breach of fiduciary duty, fraud, negligence, breach of contract, an d breach of the duty of good faith and fair dealing. Adams sought relief for h im self and all other class members similarly situated.
S o u th ern Farm denied the allegations of the Adams Class Action. Following d isco v ery, the parties entered into a Stipulation of Settlement. For purposes of the settlem en t, the proposed "class" was defined as "those persons and entities who c u r re n tly own, or have owned, one or more flexible premium or universal life in su ran ce policies [] issued between January 1, 1983 and March 24, 1999 by [S o u th ern Farm] to replace other life insurance policies." R5-147, Exh. 1 at 5.
2 The Adams Class Action was one of many that were brought in our circuit against the insurance industry in the late 1990s, based on allegedly deceptive conduct in the sale and marketing of flexible premium and universal life insurance policies. The allegations of each of these class actions are similar. See, e.g., Garst v. Franklin Life Ins. Co., No. 97-C-0074-S, 1999 U.S. Dist. LEXIS 22666, at *14-15 (N.D. Ala. June 28, 1999) (detailing a complaint alleging that the defendant "induced policyowners to believe that only a fixed number of out-of-pocket premium payments would be necessary" and that it engaged in "a widespread practice to sell replacement life insurance policies to existing and prospective policyowners"); Elkins v. Equitable Life Ins. Co., No. 96-196-CIV-T17B, 1998 U.S. Dist. LEXIS 1557, at *7-8 (M.D. Fla.
Jan. 28. 1998) (detailing a complaint alleging that "defendants misled Class Members into believing that their life insurance policies would remain in force after payment of a single out-ofpocket premium or a fixed or limited number of out-of-pocket premiums" and that defendants "misled Class Members to believe that the dividend scales and interest rates illustrated at the time their policies were sold were reasonable [and] not likely to change").
A f te r the district court approved the proposed settlement and preliminarily certified th e class for settlement purposes, a class notice was sent to each reasonably id e n tif ia b le class member in May of 1999. A total of 174,343 class notices were s en t out, via first class mail, to each class member's last known address. In ad d itio n to the mailings, Southern Farm created a toll-free telephone number to field inquiries about the Adams Class Action; it published notice in USA Today; an d it posted information about the Adams Class Action and the settlement on the S o u th e r n Farm website.
T h e class noticewhich all of the appellants receivedwas 48 pages in le n g th , and was written in a "Q & A"-type format. The notice indicated that it had b een sent because the recipient was believed to be included the class of "current a n d former flexible premium or universal life insurance policyowners [who were] elig ib le to participate in the proposed settlement." R5-147, Exh. 1 at 1. The o p en in g pages of the notice stated that the Adams Class Action "involv[ed] claims ab o u t how flexible premium and universal life insurance policies have been sold an d how those policies have performed." Id. More specifically, in a section en titled "Description of the Lawsuit," the notice advised that the Adams Class A ctio n concerned allegations that Southern Farm had "made misrepresentations or o m is sio n s of fact in connection with the sale of flexible premium and universal life in su ran ce policies," including, among other allegations: m is le ad in g policyowners to believe that only a single or fixed, limited n u m b er of out-of-pocket premium payments would be required to k eep a policy in force, and that the promised death benefits and in creasin g or stable cash values would continue to exist, without the p o licym ak er making any further out-of-pocket premium payments; misleading policy owners to believe that interest rates illustrated at the tim e the policies were sold to Class Members were reasonable, and th a t such rates were not likely to change, or would not change in an a m o u n t sufficient to cause the policies to perform differently than was r ep r e se n te d at the time of sale.
Id . at 21.
T h e notice stated that two forms of relief were available to class members w h o participated in the Adams Class Action settlement: general relief, and special ad ju d icatio n relief. For the former, class members were eligible for a "premium cred it" towards the purchase of any Southern Farm life insurance policy or annuity, to be used within 12 months of the final settlement. As to the latter, class members w h o believed that Southern Farm had made direct misrepresentations to them co n cern in g : the operation and performance of their policy; "the number, amount, an d frequency of premium payments would affect the cash value"; or the ability to k eep the policy in force "based on a fixed number or amount of premium p aym en ts" were entitled to elect special adjudication relief. Special adjudication r elie f consisted of an individualized review by Southern Farm's "claim review team ," and, if eligible, special relief in the form of an enhancement of the cash v alu e of the claimant's existing policy. Id. at 30-33.
The notice also stated that putative class members would be automatically in clu d ed in the proposed settlement with Southern Farm, unless they took the a ff ir m a tiv e step of opting out. The notice advised that a settlement hearing had b e e n proposed for 15 July 1999, and stated that once the proposed settlement had b een approved by the district court, each class member would receive a second n o tice offering them an opportunity to participate in the settlement.
P e rtin e n t to the present appeal, the class notice stated that all class members w h o failed to opt out or object to the settlement would be "bound by the orders and ju d g m en ts entered by the court, whether favorable or unfavorable to the class," and th at class members would "not be able to maintain, continue, or commence any o th er claim, lawsuit, or proceeding against [Southern Farm] relating to any [flex ib le premium or universal life] policy." Id. at 20. Section 5 of the class n o tice, entitled "Dismissal and Release of Claims," stated in bold that once the A d am s Class Action was settled, the claims alleged against Southern Farm would b e dismissed and "[n]one of those claims [could] thereafter be asserted by class m e m b e r s who remain[ed] in the Class in any other lawsuit or proceeding." Id. at 3 5 . Section 5 stated that class members who participated in the settlement would release Southern Farm from "liability for known and unknown claims relating to th e [p]olicies," id., and Section 10 detailed that, upon approval of the settlement, th e district court would enter a permanent injunction, barring any class member fro m filing, prosecuting, or participating "in any lawsuit . . . based on or relating to th e claims and causes of action or the facts and circumstances relating thereto." Id. at 41.
Finally, appended to the class notice was an five page document entitled "R elease and Waiver," which had been flagged in the "Q & A" section of the class n o tice; the text of the class notice indicated, in bold: "[y]ou should read [the R elease] very carefully, because it will affect your rights if you remain in the C lass." Id. at 35. The Release stated, in pertinent part, that all class members who w e re not excluded from the class would be barred from "now or hereafter in stitu t[in g ], maintain[ing], or assert[ing]" against Southern Farm any causes of a ctio n "that have been, could have been, may be, or could be, alleged or asserted n o w or in the future by Plaintiff or any Class Member against [Southern Farm] . . . in any other court action . . . on the basis of, connected with, arising out of, or related to, in whole or in part, the Released Transactions. . . . " Id. at 45. This in clu d ed any future causes of action based on (1) any or all of the acts, omissions, facts, matters, transactions, or o ccu rren ces that have been, could have been, or were directly or indirectly alleg ed , asserted, described, set forth, or referred to in [the Adams Class A c tio n ]; (2) any or all of the acts, omissions, facts, matters, transactions, [or] o c c u r r en c e s, sales presentations, illustrations, or any oral or written statem en ts or representations allegedly made in connection with or indirectly o r directly relating to the Released Transactions, including, without lim itatio n s, any acts, omissions, facts, matters, transactions, occurrences, or o ral or written statements relating to: (a) the number of out-of-pocket payments that were paid or would n eed to be paid for any life insurance policy or the [flexible premium o r universal life policies] . . .
(b) the ability to keep or not to keep the Policy or the Policies in force b ased on a fixed number and/or amount of premium payments. . .
(g ) the relationship between the Policy's or Policies' cash value or cash surrender value and the cumulative amount, number, and/or freq u en cy of premiums paid; Id. at 45-46.
The last page of the release stated that "the Class Members acknowledge that th ey may hereafter discover claims presently unknown or unsuspected, or facts in ad d itio n to or different from those which they now know or believe to be true with resp ect to the matters released herein." Id. at 48. Nevertheless, the release in d icated that participating class members agreed to release Southern Farm from all claims "which exist, hereafter may exist, or might have existed (whether or not p rev io u sly or currently asserted in any action)." Id.
In August 1999, a Fairness Hearing was held in connection with the p ro p o sed Adams Class Action settlement. The district court found that class c er tif ic atio n was proper under Fed. R. Civ. P. 23, that the notice that had been p ro v id ed to the class "was adequate, comprehensive, and timely," R3-89 at 40, and th at the proposed settlement was fair, adequate, and reasonable. In light of those f in d in g s , the district court entered a Final Order and Judgment, in which it adopted an d incorporated by reference the terms of both the settlement and the release. The co u rt also entered a permanent injunction "barr[ing] and enjoin[ing]" all class m em b ers who had not opted out of the settlement from "filing, commencing, p ro secu tin g , intervening in, or participating in (as class members or otherwise) any law su it in any jurisdiction based on or relating to the claims and causes of action, o r the facts and circumstances relating thereto, in this action and/or the Released T r an s a ctio n s . . . ." R3-90 at 9. The court retained jurisdiction as to all matters co n ce rn in g the enforcement of the class action settlement as well as the court's F in al Order and Judgment.
A f te r the district court issued its Final Order, a second notice, entitled "N o tice of Approval of Settlement and Opportunity to Elect Relief" was sent to all m em b ers of the class, advising them of the terms of the final settlement and the typ es of relief that were available to them. The second notice advised its recipient c la ss members that, regardless of whether they elected to pursue to proposed relief, th ey would be "bound by all of the terms of the Settlement Agreement, including b ein g precluded from pursing any claims or matters covered by the Settlement A g reem en t in any pending or future lawsuits or other proceedings." R5-147, Exh.
3 at 4. The second notice also made clear that, under the terms of the settlement, a ll class members who did not opt out of the Adams Class Action were p erm an en tly enjoined from commencing "any lawsuit in any jurisdiction based on o r relating to the claims and causes of action or the facts and circumstances thereto in the class action lawsuit or in the Released Transactions." Id. at 10. As with the first notice, it is not disputed that the appellants received this follow-up notice.
None of the appellants, however, opted to pursue the relief provided in the Adams C lass Action settlement.
B. The Appellants' Mississippi Claims I n October 2005, over six years after entry of the district court's Final Order an d Judgment in the Adams Class Action, the appellants filed two separate actions ag ain st Southern Farm in Mississippi state court.3 The two complaints were nearly id en tical to each other. Both alleged that Southern Farm had engaged in deceptive an d fraudulent practices in recommending replacement life insurance products su ch as flexible premium and universal life insurance policies, without disclosing th at the premiums for these policies could increase over time. Specifically, the ap p ellan ts' complaints alleged that Southern Farm had marketed its replacement p o lices as having "level and/or limited" premiums, without disclosing that the p re m iu m payments might increase if the interest rates assumed by Southern Farm's m o d els did not remain as high over time as projected. See Jourdan Compl., Br. Of A p p ellan ts, Exh. 1 at 8.
The Jourdan and Craig Complaints also alleged that Southern Farm had failed to explain key concepts such as "cash value" and how it would affect their p o licies, and that Southern Farm had failed to explain how the cash value of the ap p ellan ts' policies would go down if interest rates fell in the future (thereby resu ltin g in higher premium payments). The gravamen of the appellants' co m p lain ts was the general allegation that Southern Farm had fraudulently and d e c ep tiv e ly suggested to its customers that the premium payment would be "level [in amount] and/or limited in number," and that this suggestion had prompted the a p p e lla n ts to purchase replacement policies without being informed of the actual risk s of those policies. See id. at 36. Both complaints alleged a total of 13-counts a g a in s t Southern Farm, including, inter alia, fraudulent misrepresentation, breach o f contract, negligence, fraud, and breach of fiduciary duty.
In December 2005, Southern Farm filed a Motion to Enforce Final Judgment w ith the district court, seeking to permanently enjoin the appellants from p r o s e cu tin g the Jourdan and Craig actions pending in Mississippi. Southern Farm co n ten d ed that the district court had authority under the All Writs Act, 28U.S.C. § 1 6 5 1 (a),4 to enjoin the appellants' actions, and contended that the pending actions w e re plainly violative of the settlement, release, and judgment that had been e n te re d by the district court in the Adams Class Action. Southern Farm asserted th a t the appellants were members of the class; that they had each been afforded n o tice of the Adams Class Action; and that none of them had taken steps to opt out o f the Adams Class Action.
Moreover, Southern Farm contended that the claims being asserted in the J o u r d a n and Craig Complaints were nearly identical to the claims that had been s ettle d and released by State Farm in the Adams Class Action, based, as they were, o n Southern Farm's allegedly deceptive practices in connection with the sale of f le x ib le premium and universal life insurance policies. Southern Farm argued that issu es such as (1) the amount and number of premiums that would be required with th e policies; (2) the failure to disclose the relationship between interest rates, the 4 The All Writs Act, 28U.S.C. § 1651(a), provides that "[t]he Supreme Court and all courts established by Act of Congress may issue all writs necessary or appropriate in aid of their respective jurisdictions and agreeable to the usages and principles of law." Under this statute, the Supreme Court "has repeatedly recognized the power of a federal court to issue such commands . . . as may be necessary or appropriate to effectuate and prevent the frustration of orders it has previously issued in its exercise of jurisdiction otherwise obtained." United States v. N.Y. Tel. Co., 434 U.S. 159, 172, 98 S. Ct. 364, 372 (1977). cash value, and the premium payment; and (3) misrepresentations about how the p o licies would perform had all been litigated, settled, and released in the Adams C lass Action. Noting the myriad similarities between the allegations of the Adams C la ss Action and those of the Jourdan and Craig Complaints, Southern Farm arg u ed that the appellants' actions were plainly barred by the terms of the settlem en t, release, and judgment that had been entered by the district court.
T h e district court agreed. After first finding the notice that had been p ro v id ed to the appellants in the Adams Class Action was adequate, thorough, and co m p o rted with both the requirements of due process and the requirements of Rule 2 3 , the court concluded that the claims the appellants had brought in Mississippi "[aro se] out of the same [universal life] policies and [r]eplacement [t]ransactions th at were the subject of the class action settlement approved by [the] Court in 1 9 9 9 ." R7-157 at 10. Specifically, the court found that the Jourdan and Craig C o m p lain ts had alleged a scheme to defraud insurance policyholders by convincing th e m to switch to replacement policies; by misrepresenting the amount and number o f premiums that would be required; and by failing to disclose the effect that in terest rates might have on the cash value of the policy. Observing that all of th e s e allegations mirrored those of the Adams Class Action, the court concluded th at they were barred by the settlement and release that had been entered into by S o u th e r n Farm and had been approved by the district court via the court's Final O rd er and Judgment. Accordingly, the court issued an order permanently e n jo in in g the appellants from further prosecuting their actions against Southern F arm in Mississippi. This appeal followed.
II. STANDARD OF REVIEW "In reviewing the district court's decision to grant an injunction, including a n injunction under the All Writs Act, we apply an abuse-of-discretion standard." Klay v. United Healthgroup, Inc., 376 F.3d 1092, 1096 (11th Cir. 2004) (citation o m itte d ) . "A district court abuses its discretion if it applies an incorrect legal s ta n d a r d , follows improper procedures in making the determination, or makes fin d in g s of fact that are clearly erroneous." Martin v. Automobili Lamborghini E x clu siv e, Inc., 307 F.3d 1332, 1336 (11th Cir. 2003) (per curiam) (citation and q u o tatio n omitted). In making these assessments in the context of a decision to g r a n t an injunction, we review the district court's factual determinations for clear erro r, and its purely legal determinations de novo. Klay, 376 F.3d at 1097 (citatio n s omitted).
III. DISCUSSION T h e appellants' argument on appeal is essentially two-fold. First, they co n ten d that the original class notice that was afforded to them in connection with th e Adams Class Action was constitutionally inadequate. Second, they contend th a t the type of claims asserted in their actions in Mississippibased upon so-called "in creasin g premium" policiesare distinguishable from the claims against S o u th e r n Farm that were settled and released in the Adams Class Action. Because, th ey contend, their "increasing premium" actions do not fall within the scope of the 1 9 9 9 Adams Class Action settlement and Release, they assert that the doctrine of res judicata should not preclude them from prosecuting those actions in M ississip p i. We address each contention in turn.
A . Whether the Notice in the Adams Class Action Comported With Due Process A lth o u g h the ultimate question in this case is whether the Adams Class A ctio n settlement and release should have a res judicata effect on the appellants' p resen t actions, we have stated that res judicata can only be applied to an action if it is first shown that doing so would be consistent with due process. Twigg v. S ears & Roebuck & Co., 153 F.3d 1222, 1226 (11th Cir. 1998). The appellants arg u e on appeal that the Adams Class Action notice was constitutionally in a d e q u a te , and that, consequently, permitting the Adams Class Action to have a res judicata effect would not be consistent with due process. Id. at 1228-29. Thus, at the outset, we address whether the notice that was provided to appellants in the 1 9 9 9 Adams Class Action comported with due process. "[C ]lass actions, as other cases, are subject to the requirements of due p r o c e ss ." Id. at 1226. "The essence of due process is that deprivation of life, lib erty, or property by adjudication be preceded by notice and opportunity for a h earin g appropriate to the nature of the case." In re Nissan Motor Corp. Antitrust L itig .,
T h e notice was written in a generally understandable, "Q & A"-type format.
It advised recipients that the Adams Class Action "involv[ed] claims about how flex ib le premium and universal life insurance policies have been sold and how th o se policies have performed." Id. at 1. More specifically, the notice advised its r ec ip ie n ts that the earlier Adams Class Action been based on allegations that S o u th ern Farm had "made misrepresentations or omissions of fact in connection w ith the sale of flexible premium and universal life insurance policies." Id. at 21.
In addition to setting forth the two types of specific relief available to class m em b ers, the notice stated that recipient class members would be automatically in clu d ed in the proposed settlement with Southern Farm, unless they took the affirm ativ e step of opting out. It also informed recipients that a Fairness Hearing h a d been scheduled for 15 July 1999 to assess the fairness of the proposed s ettle m e n t. The notice indicated that once the proposed settlement had been a p p r o v e d by the district court, each class member would receive a second notice o fferin g him or her an opportunity to participate in the settlement. Finally, the n o tice stated that all class members who failed to opt out of the settlement would b e "bound by all orders and judgments entered by the Court, whether favorable or u n fav o rab le to the Class," and that class members would "not be able to maintain, c o n tin u e , or commence any other claim, lawsuit or proceeding against [Southern F arm ] relating to any [flexible premium or universal life policy] if [they] decide[d] to remain in the Class." Id. at 20. Appended to the notice was the aforementioned R elease and Waiver, which was identified as being "critical." Id. at 35. Recipients w ere urged to read the release "very carefully." Id.
As to the method of distribution employed, Southern Farm sent these notices to all identified class members' last known address, via first class mail. Each n o tice that was subsequently returned to sender was further investigated by S o u th ern Farm in an attempt to obtain the correct address, and, where possible, a seco n d notice was sent to the corrected address. In addition to these mailings, the co m p an y also created a toll free telephone number to field inquiries about the A d am s Class Action; it published notice in USA Today; and it posted information a b o u t the Adams Class Action its website.
T h e district court found that the notice provided to the appellants in this case w as adequate and thorough, and that it comported with both the requirements of R u le 23 and of due process.5 We agree. First, the notice was thorough, consisting as it did of 48-pages of explanatory text. Cf. Twigg, 153 F.3d at 1228-1229 (fin d in g a two-page notice with a vague, one sentence description of the type of c la im involved, to be violative of due process). Second, the language of the notice w as clear and comprehensible, and it adequately described both the substantive claim s at issue in the Adams Class Action and the "information reasonably n e c es sa ry to make a decision to remain a class member and be bound by the final ju d g m en t," such as the relief available, the steps necessary to opt out, and the im p licatio n s of remaining a member of the class. See Nissan, 552 F.3d at 1104-05.
Finally, we find, as the district court did, that the steps taken by Southern Farm in d istrib u tin g the noticevia multiple first class mailings and publication in a n atio n al newspaperas well as providing a telephone number, website, and mailing a d d r e ss to field queries from class members, constituted "the best notice p r a ctic ab le under the circumstances." See Fed. R. Civ. P. 23(c).
T h e appellants argue that their case is analogous to Twigg, in which we co n clu d ed that the notice afforded class members was insufficient because it did n o t adequately describe the type of claim involved in the earlier class action.
Twigg, 153 F.3d at 1228-1230. In Twigg, the notice had indicatedin a pithy, one s en te n c e descriptionthat the class action involved "unnecessary and/or improper r ep a ir s" performed by the defendant, Id. at 1229-30, that is, repairs that were p e r fo r m e d that were not needed. The appellant's action in a later suit, however, w as based on services for which he had paid, but which had not been performed.
Id. at 1224. Because we found that the notice in the earlier action had failed to a d v is e the appellant whether "claims like his were being litigated [or] had been settled " in the earlier action, we concluded that permitting res judicata to bar the ap p ellan t's present claims would be inconsistent with due process. Id. at 1228-29.
T h e appellants seek to analogize their case to Twigg, because the notice in th e Adams Class Action failed to mention the type of claim that they contend is in v o lv ed in their case, that is, a claim based on an undisclosed "increasing p rem iu m ."6 Relying on Twigg, the appellants assert that it would violate due p ro cess to apply the terms of the Adams Class Action (including its release) to th eir action involving increased premiums. As they explain, "[n]owhere in the [A d am s] class action notice does it address `increasing premiums' nor does it state th at the class members' premiums could/would increase." Br. of Appellants at 8.
T w ig g is inapposite, however, because the notice contained in the Adams C la ss Action described in great depth the type of claims that were being litigated an d settled in that case, and, unlike in Twigg, that description included the type of c la im s appellants are now seeking to bring. Specifically, the Adams notice stated th at the Adams Class Action involved "misrepresentations or omissions of fact in co n n ectio n with the sale of flexible premium . . . life insurance policies." R5-147, E x h . 1 at 21. This notice included allegations that Southern Farm had both misled p o licy owners about the number of premium payments that would be required to k eep the policy in force and had indicated that its interest rate projections would n o t change in such a way to affect the performance of the policy. More s p e cif ic ally , the special adjudication portion of the notice informed class members th a t they were entitled to special relief if they believed Southern Farm had m isrep resen ted "the manner in which the number, amount, and frequency of p rem iu m payments would affect the cash value [of their policies]." Id. at 30 ( em p h a sis added).
T h is description informed the appellants of the types of claims being litig ated in the Adams action, and, in addition, it made clear that the appellants' claim s w h ich essentially are based on fraud in connection with the premiums to be p a id on their policies and a failure to disclose the impact of declining interest rates o n the cash value of those policieswould be subject to the Adams Class Action settlem en t. The fact that the notice did not specifically use the phrase "increasing p r e m iu m " policiesassuming there is such a thingdoes not render the notice c o n s titu tio n a lly suspect for due process purposes, as the wording of the notice was su fficien t to encompass appellants' increasing premium-type of action. See, e.g., In re Gen. Am. Life. Ins., 357 F.3d at 804-05 (finding no due process v io latio n w h ere "modal billing practices . . . were never specifically at issue" but w h ere the notice "was clearly broad enough to encompass such practices"and co n clu d in g that "[t]here is no impropriety in including in a settlement a description o f claims that is somewhat broader than those that have been specifically p lead ed "). We conclude that the notice afforded the appellants in the Adams Class A ctio n constituted the best notice practicable and comported with the requirements o f due process, and that the appellants' reliance on Twigg is misplaced.
B. Whether The Settlement in the Adams Class Action Bars Appellants' Claims H av in g determined that the notice afforded to the appellants in the Adams C la ss Action was adequate, we now must assess whether the settlement, release, an d judgment entered in that earlier action should have a res judicata effect on the ap p ellan ts' actions (that is, the Jourdan and Craig Complaints) currently pending in M is sis sip p i. Res judicata, or claim preclusion, will prohibit a party from relitig atin g a claim where a judgment on the merits (involving the same claim and th e same parties) exists from a prior action. The principles of claim preclusion "ap p ly to judgments in class actions as in other cases." Twigg, 153 F.3d at 1226 ( cita tio n omitted). In order for claim preclusion to apply, four elements are req u ired : (1) a final judgment on the merits; (2) rendered by a court of competent ju r is d ic tio n ; (3) identity of the parties; (4) identity of the causes of action. Id. at 1 2 2 5 (citation omitted). The first three elements are not disputed in the present case,7 and therefore our analysis centers on whether the cause of action alleged by th e appellants is identical to the cause of action that was settled in the earlier A d am s Class Action. In determining whether the causes of action are identical, we h a v e indicated that the analysis centers on whether the "primary right and duty are th e same." Manning v. City of Auburn,
The appellants argue that their present actions involve so-called "increasing p rem iu m " insurance policiesthat is, claims based on Southern Farm's failure to d is clo s e that their policy premiums might increase in the event interest rates turned o u t to be lower than those projected. They contend that this is a different "o p erativ e nucleus of fact" than the claims asserted in the Adams Class Action, w h ich , they argue, involved "vanishing premium" policies, that is, where the p o licy holder expected the premium to disappear once the cash value was large en o u g h to cover the required premiums. The appellants assert that there is a factu al distinction between premiums that would suddenly increase without w a rn in g and premiums that failed to disappear after a period of time, such that claim preclusion should not apply.
W e disagree. First, although the appellants attempt to construe their claims a s being based on "increasing premium" policies, it is clear that the policies in v o lv e d in their case were flexible premium policiesidentical to those that were th e subject of the Adams Class Actionand were only "increasing" in the sense that th e premium required to cover the policies might be greater if interest rates took an u n f o r es ee n downward turn. The Adams Class Action notice, which was in c o r p o r ate d into the district court's Final Order and Judgment, alleged an o v erarch in g scheme of fraud and deception by Southern Farm in connection with th e sale of these flexible premium types of policies, a broad nucleus of fact that w o u ld encompass the fraud claims now being alleged by the appellants. See In re P ru d en tial Ins. America Sales Practice Litig., 148 F.3d 283, 311 (3d Cir. 1998) ("T h e named plaintiffs . . . all have claims arising from the fraudulent scheme p erp etrated by Prudential. That overarching scheme is the linchpin of [the co m p lain t], regardless whether each class member alleges a churning claim, a v a n is h in g premium claim, an investment plan claim, or some other injury . . . ."); see also In re Gen. Am. Life Ins., 357 F.3d at 803-04 (finding that a broadlyw o rd ed class action settlement "clearly encompassed" the plaintiff's new claims alleg in g fraud in the sale of insurance policies, even though the settlement did not sp ecifically mention modal billing practices).
Moreover, the notice stated that the Adams Class Action involved, among o th er allegations, the contention that Southern Farm had misrepresented "the m a n n e r in which . . . the amount . . . of premium payments would affect the cash v alu e [of the policies]." R5-147, Exh. 1 at 30-31 (emphasis added). This explicit referen ce to the amount of the premium (and the fact that the amount could rise if th e cash value was not as Southern Farm anticipated) belies the appellants' assertio n that their claims are based on a different nucleus of operative fact than the A d am s Class Action.
F in ally, the release that was drafted in the Adams Class Action, which all of th e appellants received, made clear that it was to be in settlement of any causes of a ctio n "that have been, could have been, may be, or could be alleged or asserted n o w or in the future" by any class member, "on the basis of, connected, with, arisin g out of, or related to, in whole or in part," the subject transactions. Id. at 454 6 . This language, which was expressly incorporated into the district court's Final O rd er and Judgment, clearly encompasses the appellant's pending claims. Because th e appellant's so-called "increasing premium" claims are based on the "same o p erativ e nucleus of fact" as those settled and released in the Adams Class Action, see Manning, 953 F.2d at 1358-59, we agree with the district court that res judicata ap p lies to those claims.8 And because res judicata applies to the appellants' p en d in g actions, the district court properly enjoined them from further prosecuting th o se actions in Mississippi.
IV . CONCLUSION T h e appellants have appealed the district court's order granting Southern F arm 's Motion to Enforce Final Judgment and enjoining the appellants from fu rth er prosecuting their actions against Southern Farm in Mississippi. Upon rev iew , we conclude that the notice afforded the appellants in the Adams Class A ctio n comported with the requirements of due process, and that the settlement, release, and Final Order and Judgment entered in the 1999 Adams Class Action p reclu d es the appellants from bringing their actions against Southern Farm.
Accordingly, we AFFIRM.
1 Flexible premium and universal life insurance policies are insurance products that were created by the insurance industry when interest rates increased dramatically in the 1980s and policy holders began to convert their whole life policies to term insurance, in order to access the cash value that had accumulated within their policies and seek higher rates of return through alternative investments. See generally Daniel R. Fischel & Robert S. Stillman, The Law and Economics of Vanishing Premium Life Insurance, 22 Del. Corp. L. J. 1, 4-6 (1997). To address their declining market share, insurance companies developed flexible premium and universal life insurance policies, both of which are "interest sensitive" policies that pay dividends based on current interest rates. Id. at 4-8. With these policies, the premium that a policy holder was scheduled to pay was based on certain market assumptionsspecifically, the assumption that interest rates would remain high over the life of the policy. Id. These policies were founded on the expectation that the cash surplus accrued from premiums paid in the early years would earn enough to pay the premium in the later years. Id. When interest rates fell, however, the cash value of many of these policies failed to grow as assumed in the company's initial interest rate/dividend projections. As a result, many policy holders were forced to pay significantly higher premiums than they had originally anticipated (or risk losing the policy altogether). This development has resulted in a panoply of lawsuits against the insurance industry, alleging that customers were deceived by the insurance companies based on their misleading illustrations about how the policy would perform and their unreasonably high projections of future interest rates. See id.
3 One action, Harmon Jourdan et. al. v. Southern Farm Bureau Life Ins. Co., No. 251-05932 CIV, ("the Jourdan Complaint"), was filed in Hinds County Circuit Court, Mississippi and was subsequently removed to the Southern District of Mississippi. The other, Wilson Craig v. Southern Farm Bureau Life Ins. Co., No. CV-05-360-PFM, ("the Craig Complaint"), was filed in Monroe County Circuit Court, Mississippi. Both actions are still pending.
5 Our case law makes clear that Rule 23's mandate that absentee class members be given "the best notice practicable under the circumstances," Fed. R. Civ. P. 23(c), is consistent with the due process requirements of the Constitution, and, in fact, that Rule 23 goes beyond those requirements. Nissan, 552 F.2d at 1103-1104 (citation omitted).
6 The term "increasing premium" is a bit of a misnomer; there is no distinctly identifiable Southern Farm insurance product known as an "increasing premium policy." In fact, the record suggests that the plaintiffs in this action had flexible premium policies. See, e.g., Jourdan Policy, Br. of Appellants, Exh. 4 (identifying the policy as a "Flexible Premium Life Insurance Policy" and advising the policyholder that "premium payments are flexible," that "you may choose the amount and frequency of payments," but that the "amount . . . of premium payment will affect cash value"). As appellants conceded at oral argument, their policies were "increasing" only in the sense that if the policyholder paid a premium over timebased on overly-optimistic interest rate/dividend projectionsand then interest rates decreased (resulting in a shortfall in the anticipated cash value of the policy), the policyholder would be left having to either increase the premiums to cover the policy, or risk losing coverage. Under the appellants' flexible premium policies, they could voluntarily determine the amount of their monthly premium, but if they paid too little in the early years they could find themselves having to voluntarily increase their payments if interest rates (and the policy's dividends) decreased, or, otherwise, forego further coverage. As is discussed subsequently, despite the branding of their case as one involving "increased premiums," the policies involved in appellants' caseand the alleged deception surrounding their sale and promotionwere strikingly similar to those involved in the Adams Class Action. Compare R3-90 at 2-3 (defining the Adams class as all of those who had an ownership interest in "flexible or universal life insurance policies") with Jourdan Compl., Br. of Appellants, Exh.1 at 8 (stating that "Southern Farm [] fraudulently induced Plaintiffs to purchase their Universal policies" without explaining whether and how the premiums could increase on those policies").
7 The district court's Final Order and Judgment in the Adams Class Action, adopting in full the terms of the settlement and enjoining the class members from pursuing any further lawsuits based on or relating to the facts of that case, constituted a final judgment on the merits that was rendered by a court of competent jurisdiction. In addition, it is undisputed that the parties in the present action are identical to those of the Adams Class Action; the appellants in this case are all members of the "class" that was certified in the Adams Class Action, that is, persons who had an ownership interest in a flexible premium or life insurance policy issued by Southern Farm as a replacement policy between 1983 and 1999.
8 Nor are we persuaded by the appellants' contention that their claims are "future injury" claims, that is, that they had yet not been injured by Southern Farm at the time of the Adams Class Action settlement and release. A review of the appellants' complaint makes clear that the "injury" they suffered, if any, occurred with "the purchase of a product that was other than as represented." See Elkins, 1998 U.S. Dist. LEXIS 1557, at *50; see also In re Prudential, 148 F.3d at 313 (rejecting a similar future injury argument, and finding that "[t]here is no `future' manifestation of injury, because any injury suffered by a member of the class has already occurred," through the insurer's allegedly fraudulent sales practices at the point of sale).
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This document cites
- U.S. Supreme Court - United States v. New York Telephone Co., 434 U.S. 159 (1977)
- U.S. Court of Appeals for the Eighth Circuit - United States of America, Appellee, v. Wesley Mcquay, Appellant., 7 F.3d 800 (8th Cir. 1993)
- U.S. Court of Appeals for the Eleventh Circuit - Kevin Twigg, Individually and on Behalf of all Others Similarly Situated, Plaintiff-Appellant, v. Sears, Roebuck & Co., Defendant-Appellee., 153 F.3d 1222 (11th Cir. 1998)
- U.S. Court of Appeals for the Eleventh Circuit - John Martin, Plaintiff-Appellant, Brian Neiman, Saul Smolar, Interested-Parties-Appellants, v. Automobili Lamborghini Exclusive, Inc., Automobili Lamborghini, Spa, Automobili Lamborghini, U.S.A., Inc., Exclusive, Inc., Defendants-Appellees. John Martin, Plaintiff-Appellant, Brian Neiman, Saul Smolar, Interested-Parties-Appellants, v. Automobili Lamborghini Exclusive, Inc., Automobili Lamborghini, Spa, Automobili Lamborghini, U.S.A., Inc., Exclusive, Inc., Defendants-Appellees. John Martin, Plaintiff-Appellant, Brian Neiman, Interested-Party-Appellant, v. Automobili Lamborghini Exclusive, Inc., Automobili Lamborghini, Spa, Automobili Lamborghini, U.S.A., Inc., Exclusive, Inc., Defendants-Appellees., 307 F.3d 1332 (11th Cir. 2002)
- U.S. Court of Appeals for the Third Circuit - in Re: the Prudential Insurance Company of America Sales Practices Litigation. Richard P. Krell, Mdl Transfer, N.D. Ohio, Dnj Civil Action No. 95-6062 v. Prudential Insurance Company of America, Richard P. Krell, as Well as Objectors Elizabeth Bajek, Amanda Bajek, Helen Bartsch, Mark Ciconte, Raymond Dolce, Margaret Dolice, Louise Duggan, Peter Duggan, Charles Duncan, Mary Howe, Mary Krell, William Morris, Diana Racer, Thomas Racer, Gweneth Reidel, the Estate of Carl J. Scalzo, Marie Scalzo, Terry Sligar, Alice Smith, Jerry Smith, and William Walton, Appellants At Nos. 97-5155/5156/5312. in Re Prudential Insurance Company America Sales Practice Litigation Agent Actions. Richard Johnson, Intervenor-Plaintiff in District Court, Richard E. Johnson, Appellant At No. 97-5217.
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