Norma Ezell, Leonard Whitley v. Lexington Insurance Company

United States Court of Appeals
For the First Circuit
No. 18-2064
NORMA EZELL, LEONARD WHITLEY, and ERICA BIDDINGS,
on behalf of themselves and others similarly situated,
Plaintiffs, Appellants,
v.
LEXINGTON INSURANCE COMPANY; AMERICAN INTERNATIONAL GROUP, INC.;
AIG ASSURANCE COMPANY; AIG INSURANCE COMPANY; AIG PROPERTY
CASUALTY COMPANY; AIG SPECIALTY INSURANCE COMPANY; AMERICAN
GENERAL LIFE INSURANCE COMPANY; NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURG, PA.; AGC LIFE INSURANCE COMPANY; AMERICAN
GENERAL ANNUITY SERVICE CORPORATION; AIG CLAIMS, INC., f/k/a AIG
Domestic Claims, Inc.,
Defendants, Appellees.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Nathaniel M. Gorton, U.S. District Judge]
Before
Lynch, Circuit Judge,
Souter, Associate Justice,
and Kayatta, Circuit Judge.
Craig R. Spiegel, with whom Steve W. Berman was on briefs,
for appellants.
Adam H. Offenhartz, with whom James L. Hallowell, Nancy E.
Hart, Peter M. Wade, William T. Hogan III, and Nolan J. Mitchell
were on brief, for appellees.
 Hon. David H. Souter, Associate Justice (Ret.) of the
Supreme Court of the United States, sitting by designation.

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June 11, 2019

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SOUTER, Associate Justice. Appellants Norma Ezell,
Leonard Whitley, and Erica Biddings entered into structured
settlement agreements with Lexington Insurance Company. By the
terms of their settlements, appellants agreed not to pursue their
wrongful death and personal injury claims against parties insured
by Lexington. In exchange, Lexington agreed that appellants would
receive specific periodic payments from annuities that Lexington
would purchase. Years after these agreements took effect,
appellants accused Lexington and other affiliated insurers of
misrepresenting the amount appellants would receive from the
settlements. Appellants brought this putative class action in
federal court, alleging that Lexington and other insurers made
fraudulent misrepresentations to appellants, actionable at common
law, and engaged in a scheme to defraud appellants in violation of
the Racketeer Influenced and Corrupt Organizations Act, or RICO,
18 U.S.C. §§ 1961 et seq. Appellants now challenge the District
Court's dismissal of their claims as raised for a second time under
an amended complaint. We affirm.
We begin with the language of the relevant settlement
documents that are part of the record on appeal. One settlement
agreement applied to Ezell and Whitley; the other, to Biddings.
Under each, Lexington would purchase annuities from various life
insurance companies, and the proceeds from the annuities would be
remitted to appellants in periodic installments. As to Ezell and

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Whitley, a preliminary memorandum provided that $200,000 would be
"annuitized" by Lexington for the purpose of financing periodic
payments, Ezell Settlement Memorandum ¶ 2, while a formal agreement
indicated the exact amount Ezell and Whitley would receive each
month, Ezell Settlement Agreement ¶ 2.2. As to Biddings, a formal
agreement indicated that the "total present value" of the periodic
payments would be $1,642,000, and it also specified the exact
amount she would receive each month. Biddings Settlement
Agreement ¶ 2.2.
Appellants respectively allege that they did not receive
the promised amounts ($200,000 to be "annuitized" for Ezell and
Whitley, and $1,642,000 in "total present value" for Biddings)
because the life insurers that sold the annuities to Lexington
diverted four percent of those amounts to pay commissions to the
brokers who arranged the transactions with Lexington. Since these
commissions were not disclosed in the settlement agreements or
otherwise, appellants contend that the insurers fraudulently
misrepresented the amount appellants would receive from the
settlements. This allegation is the basis for appellants' common-
law fraud and RICO claims.
The problem for appellants is that the settlement
documents, fairly read, did not promise that Ezell and Whitley
would receive $200,000, or that Biddings would receive $1,642,000.
Rather, they promised only that $200,000 would be "annuitized" for

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Ezell and Whitley, and that the "total present value" of the
periodic payments to Biddings would be $1,642,000. The amount
"annuitized" to produce a periodic payment stream plausibly refers
to the amount of money spent to purchase that payment stream, not
the amount a beneficiary receives from it. See American Heritage
Dictionary of Business Terms 19 (2009) (defining "annuitize" as
"[t]o convert a sum of money into a series of payments").
Similarly, the "total present value" of a payment stream plausibly
refers to its cost, not to the amount a beneficiary receives. See
Black's Law Dictionary 43 (10th ed. 2014) (defining "actuarial
present value" as the "amount of money necessary to purchase an
annuity that would generate a particular monthly payment, or
whatever periodic payment the plan provides . . .").
Here, there is no dispute that Lexington paid $200,000
to purchase the annuities for Ezell and Whitley, and $1,642,000
for the annuities for Biddings. 1 Although the life insurers that
sold the annuities to Lexington then allegedly used four percent
of these sums to pay commissions to brokers, appellants conceded
in their complaint that it is "[i]ndustrywide" practice for brokers
1 This is not, therefore, a case in which Lexington as the
settling insurer incurred an obligation to disclose a fact
necessary to correct what would be a falsity in some representation
in the absence of further disclosure. Cf. Macomber v. Travelers
Prop. & Cas. Corp., 804 A.2d 180, 186-187 (Conn. 2002) (reversing
the dismissal of a complaint that the settling insurer
misrepresented the purchase price of an annuity by failing to
disclose a rebate from the broker).

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to be paid "a standard sales commission of four percent (4%) of
the annuity's cost," Amended Complaint ¶ 31, and that the
commission would be paid by the annuity issuer, id. ¶¶ 35, 99(b),
100(b), 120(b), 121(b). 2 Assuming that these allegations are true,
as we must at the motion-to-dismiss stage, Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 555 (2007), the four-percent commission
payment would have been paid by the life insurance companies that
sold the annuities, and would have been accounted for as a standard
element of the cost of doing business by the life insurance
companies and reflected in the market prices that Lexington paid.
The commission, in other words, was included in the price of a
given annuity in the marketplace, and the appellants have provided
no basis to infer that liability insurers in Lexington's position
were under any obligation to inform a settlement party of the items
of overhead that it was the annuity industry's continuing practice
to account for in pricing their products. Because the words
"annuitized" and "total present value" simply committed Lexington
to pay the amounts stated as necessary to produce the periodic
2 Despite this allegation, at several points the complaint
contains the arguably contradictory claim that Lexington's parent
company retained the four percent, see Amended Complaint ¶¶ 50,
57, 65, but without specifying that it did so in the transactions
with Ezell, Whitley, or Biddings. To the extent this unspecified
claim contradicts the other allegations in the record, it fails
under the pleading standards of Federal Rule of Civil Procedure
9(b), which requires the plaintiff to "state with particularity
the circumstances constituting fraud."

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payments specified in the agreements, the annuity companies'
payment of brokers' commissions from out of the money Lexington
paid for the annuities does not belie the facts that Lexington
paid the amounts it quoted and that appellants received exactly
those specific annuity payments the agreements had promised,
payments that the appellants have not alleged that they failed to
receive.
Moreover, even if there were ambiguities in the terms
"annuitized" or "total present value," the specific schedules of
periodic payments set out in the respective settlement agreements
would cure them, for those agreements listed the precise amount
appellants could expect to receive each month throughout a stated
period. In so doing, the agreements concretely defined what
$200,000 "annuitized" and $1,642,000 in "total present value"
meant in terms of annuity benefits to be paid to appellants.
Because there is no dispute that appellants did receive the
periodic payment amounts they were promised in agreements
containing no uncorrected misrepresentations, there is no
allegation in the pleadings that appellants suffered the kind of
harm necessary to make out a case of the statutory or common-law
violations claimed.
In short, appellants have failed to "state with
particularity the circumstances constituting fraud." Fed. R. Civ.
P. 9(b). Under Rule 9(b), appellants must state "the who, what,

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where, and when of the allegedly [misleading] representation" with
particularity. Kaufman v. CVS Caremark Corp., 836 F.3d 88, 91
(1st Cir. 2016) (quoting Alt. Sys. Concepts, Inc. v. Synopsys,
Inc., 374 F.3d 23, 29 (1st Cir. 2004)). Here, however, the basic
problem with appellants' complaint is not that they failed to state
some facts "with particularity." Fed. R. Civ. P. 9(b). Rather,
it is that the facts they have pleaded "with particularity" on the
matters discussed here demonstrate the absence of any
"circumstances constituting fraud." Id. Accordingly, we affirm
the District Court's decision dismissing the amended complaint
with prejudice.
So ordered.

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