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Connie J. Edmonson, Individually and On Behalf of All v. Lincoln National Life Insurance Company

February 3, 2012

CONNIE J. EDMONSON, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED,
PLAINTIFF,
v.
LINCOLN NATIONAL LIFE INSURANCE COMPANY, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Baylson, J.

MEMORANDUM ON LINCOLN'S MOTION FOR SUMMARY JUDGMENT AND PLAINTIFF'S CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT

I. Introduction

This case requires the Court to revisit a difficult issue of first impression in the Third Circuit concerning the Employee Retirement Income Security Act ("ERISA"), 29 U.S.C. §§ 1001, et seq. The precise issue presented is whether an insurer of an ERISA-governed employee welfare benefits plan -- the terms of which do not specify the method of payment of life insurance proceeds -- was acting as an ERISA fiduciary when it held and invested for its own profit the funds backing retained asset accounts used to pay plan beneficiaries their proceeds. The Court initially addressed this issue in detail in its previous opinion denying Defendant Lincoln National Life Insurance Company's ("Lincoln") Motion to Dismiss. See Edmonson v. Lincoln Nat'l Life Ins. Co. ("Edmonson I"), 777 F. Supp. 2d 869 (E.D. Pa. 2011).

A retained asset account is an interest-bearing account backed by funds that an insurer retains until the account holder writes a check or draft against the account. Lincoln issued such an account to Plaintiff Connie J. Edmonson so that she could draw down the life insurance proceeds owed to her as she saw fit. Plaintiff alleges that, through the use of retained asset accounts, Lincoln profited from the spread it earned on the funds backing those accounts and the interest it paid to beneficiaries. According to Plaintiff, Lincoln's retention of this profit constitutes unjust enrichment.

Presently before the Court are Lincoln's Motion for Summary Judgment (ECF No. 52), Plaintiff's Cross-Motion for Partial Summary Judgment (ECF No. 68), Plaintiff's Motion for Class Certification (ECF No. 63), Plaintiff's Motion to Compel Discovery (ECF No. 66), and Lincoln's Motion to Stay Discovery (ECF No. 73). For the reasons set forth below, Lincoln's Motion for Summary Judgment is GRANTED and Plaintiff's Cross-Motion for Partial Summary Judgment is DENIED. Accordingly, each of the parties' remaining motions is DENIED as moot.

II. Procedural History

On September 21, 2010, Plaintiff commenced a putative class action lawsuit on behalf of herself and all others similarly situated by filing a single-count complaint against Lincoln and John Does 1 through 100 for breach of fiduciary duty under ERISA. Plaintiff alleges that, by establishing retained asset accounts called SecureLine accounts to pay life insurance proceeds and investing the funds backing those accounts for its own profit, Lincoln breached its ERISA fiduciary duties to abstain from self-dealing in plan assets and to act solely in the interest of plan participants and beneficiaries and for the exclusive purpose of providing benefits to them.

Plaintiff seeks the following relief: an order certifying the claims of Plaintiff and all others similarly situated and appointing Plaintiff as class representative and Plaintiff's counsel as class counsel; a declaratory judgment pronouncing that Lincoln was unjustly enriched and directing Lincoln to hold Plaintiff's interest in constructive trust; disgorgement and equitable distribution of the funds held in constructive trust; attorney's fees, expenses and costs; and further relief that the Court deems just and proper.*fn1

On April 1, 2011, this Court denied Lincoln's Motion to Dismiss for lack of jurisdiction and for failure to state a claim pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. See Edmonson I, 777 F. Supp. 2d at 892-93. Initially, the Court rejected Lincoln's jurisdictional contention that Plaintiff lacked standing to pursue her claim. Id. at 879-83. Next, the Court performed a detailed analysis of whether Plaintiff stated a claim for breach of fiduciary duty under ERISA. Id. at 883-91.

Ultimately, the Court determined that, while Lincoln's contentions potentially had merit, several unresolved issues of fact precluded dismissal of the action. The Court recognized that, as a threshold matter, in order for Plaintiff to successfully state a claim for breach of fiduciary duty under ERISA, she had to allege that Lincoln was acting as an ERISA "fiduciary" when it invested the funds backing her SecureLine account for its own profit. Id. at 884. According to the Court, "[w]here the benefits are held, and the level of control [Lincoln] exercises over benefits before the beneficiary cashes out the SecureLine account, are key factual inquiries in determining [Lincoln's] fiduciary status." Id. at 885. More specifically, there were issues of fact as to "whether [Lincoln] relinquished authority and control of the funds when it established the SecureLine account and when it actually moved the benefits into the account." Id. at 888. In addition, there were issues of fact as to "whether the benefits are actually put into the SecureLine account for the beneficiary's immediate use, or whether they are not moved into the account until the beneficiary draws a draft on the account." Id. at 891. Drawing inferences from these unresolved issues of fact in favor of Plaintiff, the Court concluded that Plaintiff had stated a claim for breach of fiduciary duty under ERISA and that limited discovery on the issue of Lincoln's fiduciary status was appropriate. Id. at 874, 891.

On September 12, 2011, following discovery on the issue of its fiduciary status, Lincoln filed a Motion for Summary Judgment pursuant to Rule 56(a) of the Federal Rules of Civil Procedure. (ECF No. 52.) In its motion, Lincoln principally urges the Court to follow the rationale of Faber v. Metropolitan Life Insurance Co., 648 F.3d 98 (2d Cir. 2011), a case decided by the Second Circuit several months after this Court's decision on Lincoln's Motion to Dismiss. In Faber, the Second Circuit held that an insurer was not acting as an ERISA fiduciary when it invested the funds backing retained asset accounts for its own profit. Id. at 107.

On October 24, 2011, Plaintiff filed a Response in Opposition to Lincoln's Motion for Summary Judgment (ECF No. 61). In her response, Plaintiff contends that Faber should not dictate the outcome of this case. Rather, Plaintiff primarily argues that the Court should follow the rationale of Mogul v. UNUM Life Insurance Co. of America, 547 F.3d 23 (1st Cir. 2008), a case discussed at length in this Court's prior opinion on Lincoln's Motion to Dismiss. Contrary to Faber, the First Circuit held in Mogul that an insurer was acting as an ERISA fiduciary when it invested the funds backing retained asset accounts for its own profit. Id. at 27.

On November 9, 2011, before briefing on Lincoln's Motion for Summary Judgment was completed, Plaintiff unexpectedly filed a Cross-Motion for Partial Summary Judgment pursuant to Rule 56(a) of the Federal Rules of Civil Procedure. (ECF No. 68.) In her cross-motion, Plaintiff advances largely the same arguments made in her Response in Opposition to Lincoln's Motion for Summary Judgment. The next day, on November 10, 2011, Lincoln filed a Reply in Further Support of Its Motion for Summary Judgment. (ECF No. 70.) On November 23, 2011, Lincoln then filed a Response in Opposition to Plaintiff's Cross-Motion for Summary Judgment (ECF No. 80), repeating predominantly the same arguments made in its Motion for Summary Judgment and Reply in support thereof. Finally, on December 7, 2011, Plaintiff filed a Reply in Further Support of Her Cross-Motion for Summary Judgment. (ECF No. 84.)*fn2

On December 21, 2011, the Court held oral argument on Lincoln's Motion for Summary Judgment and Plaintiff's Cross-Motion for Partial Summary Judgment.The Court specifically addressed, among other things, each of the unresolved factual issues pertaining to Lincoln's fiduciary status outlined in its prior opinion on Lincoln's Motion to Dismiss. Counsel for both Lincoln and Plaintiff clarified each of these issues and explained that they had since been resolved through discovery.

III. Factual Background

The following relevant facts are undisputed.*fn3 Plaintiff's late husband was insured under a group life insurance policy (the "Policy") issued by Lincoln to an ERISA-governed employee welfare benefits plan (the "Plan") sponsored by Plaintiff's employer, Schurz Communications, Inc. (Plaintiff's Responses to Lincoln's Statement of Undisputed Facts in Support of Its Motion for Summary Judgment ("Pl. RSF") (ECF No. 62), at ¶ 2; Defendant's Responses to Plaintiff's Statement of Undisputed Facts in Support of Her Motion for Partial Summary Judgment ("Def. RSF") (ECF No. 81), at ¶ 1.) Plaintiff's husband was insured as her dependent under the Plan. (Def. RSF ¶ 2.) As his beneficiary under the Plan, Plaintiff was entitled to the life insurance proceeds called for by the Plan upon his death. (Compl. ¶ 16.)

The operative benefits provision in the Policy appears in a section, titled "DEPENDENTS LIFE INSURANCE." (Pl. RSF ¶ 3.) That provision provides as follows:

BENEFIT. Upon receipt of satisfactory proof of a Dependent's death while insured under this Policy, the Company will pay the amount of the Dependents Life Insurance in effect on the date of such death. This amount is shown in the Schedule of Insurance. The death benefit will be paid:

(1) to the Insured Person; or

(2) if the Insured Person fails to survive the Dependent, to the Insured Person's Beneficiary or according to the Facility of Payment Section. (Pl. RSF ¶ 3; Declaration of Joseph Paul McKinnon, Jr. ("McKinnon Decl.") (ECF No. 54), Ex. 4 at Edmonson 075.) In another section, titled "CLAIMS PROCEDURES FOR LIFE OR ACCIDENTAL DEATH AND DISMEMBERMENT (AD&D) BENEFITS," the Policy contains the following provision:

"TIME OF PAYMENT OF CLAIMS: Any benefits payable under this Policy will be paid immediately after the Company receives complete proof of claim." (Pl. RSF ¶ 4; Def. RSF ¶ 3; McKinnon Decl. at Edmonson 077.)

On March 30, 2009, after her husband had passed away, Plaintiff submitted a claim form (the "Claim Form") for death benefits under the Plan to Lincoln. (Pl. RSF ¶ 9; Def. RSF ¶ 6; Compl. Ex. A.) The Claim Form explained that "[i]f the amount payable to you is $5,000 or more, [Lincoln's] usual method of payment is to open a SecureLine Account, which gives you complete control of your funds" and is "a personal, interest-bearing account." (Pl. RSF ¶ 6; Def. RSF ¶ 7; Compl. Ex. A.) The Claim Form also explained that, with a SecureLine Account, "instead of receiving a lump sum of money through the mail, you will receive a checkbook" and "[y]ou may write checks for any amount over $250 and up to your full balance at any time." (Pl. RSF ¶ 7; Def. RSF ¶ 7; Compl. Ex. A.)

On April 8, 2009, Lincoln notified Plaintiff by letter that it had approved her claim in the amount of $10,000. (Pl. RSF ¶ 10.) The following day, April 9, 2009, Lincoln sent another letter to Plaintiff informing her that it had established a SecureLine Account in her name in the amount of $10,000. (Pl. RSF ¶ 11; Def. RSF ¶ 11; Compl. Ex. B.) With that letter, Lincoln also provided Plaintiff with a checkbook, a certificate of confirmation (the "Certificate of Confirmation"), a statement of SecureLine's terms and conditions (the "Terms and Conditions"), and a booklet describing SecureLine's features (the "Booklet"). (Pl. RSF ¶ 12; Def. RSF ¶ 12; Compl. Exs. C, D & E.)

The Certificate of Confirmationshowed that $10,000 -- the full amount of life proceeds owed to Plaintiff -- had been credited to her account. (Pl. RSF ¶ 13; Compl. Ex. C.) In addition, the Terms and Conditions stated that Plaintiff would receive a minimum interest rate "equal to the national average for interest bearing checking accounts as published by Bloomberg, plus 1%." (Pl. RSF ¶ 14; Def. RSF ¶¶ 12, 31; Compl. Ex. D.) Moreover, the Booklet explained to Plaintiff "[i]f you decide you want the entire proceeds immediately, you just need to write one check for the entire account balance." (Pl. RSF ¶ 15; Def. RSF ¶ 12; Compl. Ex. E.)

On July 27, 2009, Plaintiff withdrew the entire amount of life insurance proceeds owed to her from her SecureLine account. (Pl. RSF ¶ 17; Def. RSF ¶ 14.) Her account was later closed and a check was issued to her for the $52.33 of interest that had accumulated on the account since it was opened. (Pl. RSF ¶¶ 16-18; Def. RSF ¶ 14.)

Plaintiff's SecureLine account operated like all other SecureLine accounts that Lincoln established. (Pl. RSF ¶ 19; Def. RSF ¶ 28.) When Lincoln creates a SecureLine account, it credits the account with the full amount of proceeds owed to the account holder. (Pl. RSF ¶ 20.) At that time, Lincoln does not transfer any funds to the SecureLine account. (Id. ¶ 19; Def. RSF ¶ 29.) Instead, Lincoln transfers funds to the bank servicing the account when a check is drawn on the accountand presented for payment. (Pl. RSF ¶ 20; Def. RSF ¶ 29.) Until that time, the funds backing the SecureLine account are held in Lincoln's own general account with other assets. (Pl. RSF ¶ 20; Def RSF ¶ 30.) Lincoln does not segregate those funds, and only draws from its general account funds necessary to cover checks presented for payment.(Pl. RSF ¶ 21.)

IV. Jurisdiction

Because Plaintiff's claim arises under ERISA, this Court has jurisdiction pursuant to 28 U.S.C. § 1331 and 29 U.S.C. § 1132(e)(1).

V. Standard of Review

A court should grant a motion for summary judgment if the movant can show "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).*fn4 A dispute is "genuine" 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). A factual dispute is "material" if it "might affect the outcome of the suit under the governing law." Id.

Where the non-moving party bears the burden of proof on a particular issue at trial, the moving party's initial burden can be met simply by showing the court that "there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). The party opposing summary judgment must rebut by making a factual showing "sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Id. at 322. The court may grant summary judgment "[i]f the evidence is merely colorable, or is not significantly probative." Anderson, 477 U.S. at 249 (citations omitted). The court must view the evidence in the ...


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