The Southern District of California recently certified California and multistate classes of annuities purchasers in a case challenging the allegedly abusive design, execution, and pricing of fixed index annuities (FIA). The plaintiff, a senior who purchased an FIA issued by defendant insurer, claimed the defendant promised asset protection and guaranteed values that were vitiated by an alleged undisclosed “derivative” structure embedded in the annuities, which provided for the crediting of interest by reference to stock market indices. Plaintiff alleged that defendant’s actions breached their contracts and defendant’s fiduciary duties, constituted fraud, and violated California’s Unfair Competition Law (UCL), California’s False Advertising Law (FAL), California’s elder financial abuse statute, and securities laws. He sought to certify both a multi-state class, including purchasers in California, Illinois, Pennsylvania, Florida, and Texas, and a California class, along with a subclass of California seniors.
The court first found that plaintiff met the requirements of Federal Rule of Civil Procedure 23(a). The putative class included thousands of purchasers and thus satisfied numerosity. Common questions sufficient to satisfy commonality also existed, as the parties did not dispute that the FIAs included derivatives. Moreover, the court held that the damages formula proposed by plaintiff’s expert could serve as a plausible basis to assess damages on a classwide basis. The court also found that plaintiff satisfied the typicality requirement despite defendant’s argument that his claims were not typical of the class because he relied on representations made by an independent agent rather than materials provided by the defendant. The court agreed with plaintiff that the contracts provided to putative class members were uniform. It was also relevant that agents were not made aware of the alleged derivative structure and thus could not have made differing material statements in that regard. Lastly, the court held that plaintiff was an adequate class representative notwithstanding that the current account value of plaintiff’s annuity exceeded the premiums paid. According to the court, the calculation of damages under Ninth Circuit precedent focuses on the difference between what plaintiff paid and what he should have paid at the time of sale, which the court found would be the same for all class members.
Next, after assessing predominance and superiority under Rule 23(b)(3), the court certified the breach of contract claim, the UCL claim under the unfair and unlawful prong, the elder abuse claim, and the securities law causes of action. The court found certification was appropriate for a contract claim alleging that the values of the contracts fell below the guaranteed minimum due to the pricing of the derivatives structure, though a claim based on defendant’s calculation of interest would require individualized inquiries regarding purchasers’ understanding of the relevant contract language. Similarly, the court granted certification on the claim under the unfair and unlawful prong of the UCL, which was based on allegations that defendant’s failure to maintain guaranteed values violated the insurance code and breached the contracts, but found that a “lack of uniformity as to the misrepresentations” precluded certification under the fraud prong of the UCL, as independent agents did not rely on a uniform script and no uniform materials other than the contracts were distributed. The court also certified the class on the securities law causes of action, which defendant did not oppose, and the elder abuse claim. However, the court denied certification on the FAL claim, finding there was not enough evidence of uniform advertising. Moreover, plaintiff’s single page of briefing on the California common law claims of breach of fiduciary duty, breach of the implied covenant of good faith and fair dealing, and fraudulent concealment did not meet his burden of proof, and the court therefore denied certification as to those claims as well.
Finally, although the court expressed concerns about the methodology of plaintiff’s damages expert, it found the damages model was plausible and sufficient to satisfy the requirements for class certification. Following the order, defendant appealed the certification decision to the Ninth Circuit pursuant to Rule 23(f), and that appeal is pending.