Dameware Development, L.L.C. v. American General Life Insurance

Case: 11-20218 Document: 00511927366 Page: 1 Date Filed: 07/19/2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
July 19, 2012
No. 11-20218 Lyle W. Cayce
Clerk
DAMEWARE DEVELOPMENT, L.L.C.; DAMEWARE DEVELOPMENT
L.L.C. DEFINED BENEFIT PENSION PLAN AND TRUST,
Plaintiffs - Appellants,
v.
AMERICAN GENERAL LIFE INSURANCE COMPANY,
Defendant - Appellee.
Appeal from the United States District Court
for the Southern District of Texas
Before STEWART, ELROD, and SOUTHWICK, Circuit Judges.
CARL E. STEWART, Circuit Judge:
Dameware Development, LLC Defined Benefit Pension Plan and Trust
(“Dameware” or the “Plan”)1 bought several life insurance policies (the “policies”)
from American General Life Insurance Company (“American General”). After
Dameware was unable to obtain the tax benefits it hoped would result from
purchasing the policies, it sued American General for damages and for rescission
of the contract. The district court granted summary judgment to American
1
Dameware Development LLC is a named party to this suit, but the district court
ruled that it did not have standing. Because it does not challenge this contention on appeal,
the only remaining appellant is the Dameware Development, LLC Defined Benefit Pension
Plan and Trust.
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No. 11-20218
General. Because we conclude that Dameware has not shown any basis for
rescinding the contract nor any contractual duties breached by American
General, we AFFIRM the district court’s judgment.
I.
In 2003, Joseph Vizzini, Dameware’s financial advisor, attended a
presentation about the use of American General financial products to establish
a pension plan that qualified for favorable tax treatment pursuant to section 412
of the Internal Revenue Code. On Vizzini’s advice, Dameware decided to
establish such a plan. Accordingly, Vizzini contacted Kimberly Branch, an
American General vice president. Branch referred Vizzini to Alan Zeplain, an
American General agent, who, Vizzini says, advised Vizzini that, in order to
establish a 412(i) Plan funded by American General’s financial products,
Dameware must select a Third-Party Administrator (“TPA”)2 from American
General’s list of approved TPAs. Dameware chose B&F Corporate Benefit
Services, Inc. (“B&F”), one of the TPAs that American General had approved.
On December 16, 2003, B&F sent Zeplain a proposed 412(I) Plan, and Zeplain
forwarded it to Vizzini the next day. Dameware signed an administrative
services agreement with B&F on December 23, 2003. Dameware intended to
fund the Plan, which came to be known as the Dameware Development, LLC
Defined Benefit Pension Plan and Trust, with life insurance policies for three
employees and annuities from American General.
2
Vizzini’s affidavit explains the role of TPAs as follows:
A key player in putting together a 412(I) plan is the third party administrator
(TPA). The TPA develops the plan based on the clients[’] objectives, cash flow,
and employee census. Annual administration, performed by the TPA, typically
includes calculating the required plan contributions, and completing annual
reports for the IRS, Department of Labor, and the Pension Benefit Guarantee
Corporation, the federal agency that monitors pension plans.
2
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On January 13, 2004, Dameware submitted applications for life insurance
policies to American General on behalf of three employees: Victoria Goodwin,
Karla Hatcher, and Robert K. Hatcher. It paid American General $743,510.47
to fund the Plan for 2003 and partially fund the Plan for 2004 on February 20,
2004, and subsequently paid American General an additional $486,274 to fund
the Plan for the remainder of 2004. The three insureds acknowledged receipt of
the policies on March 24, 2004. The policies themselves contained no
information relating to a 412(I) Plan, except that the applications asserted that
one basis for purchasing the policies was “tax benefit.” Delivered along with the
policies were Disclosure and Acknowledgment Forms. These Disclosure and
Acknowledgment Forms included a list of thirteen TPAs, and required the signor
to check a box next to the TPA it selected. Each signor selected B&F as TPA.
The Disclosure and Acknowledgment Forms contained a number of disclaimers,
including the following: that Dameware is not relying on any “representation,
warranty or guarantee beyond those contained within the insurance policy
contract itself, including any riders or amendments thereto”; that “the TPA
indicated herein is responsible for administering the section 412(I) Plan . . .”;
and that
American General Life Insurance Company operates solely in the
capacity of a product provider and that any sales presentations, tax
consequences, and/or planning concepts that may have been
presented by American General Life Insurance Company . . .
describing the benefits of using life insurance in connection with the
Plan cannot be relied upon as tax or legal advice.
Each Disclosure and Acknowledgment Form was signed on March 24 by
Dameware, acting through an agent; the covered Dameware employee; and by
Vizzini.
While American General immediately began to provide life insurance
coverage for the three covered Dameware employees, Dameware never obtained
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any tax benefits from the life insurance policies or annuities it purchased from
American General. In July 2005, Vizzini began contacting B&F to learn what
information needed to be submitted to receive tax benefits for 2004, but received
no response. Vizzini accordingly contacted American General’s Zeplain, who
informed Vizzini that American General had terminated its relationship with
B&F. Vizzini and Zeplain thereafter contacted Pension Professionals of
America, which American General had also approved as a TPA. The Pension
Professionals of America worked on Dameware’s 412(i) Plan for approximately
a year. In April 2006, a representative of Pension Professionals informed Vizzini
that B&F’s strategy in formulating Dameware’s 412(i) Plan had been flawed.
Then, in the summer of 2006, a representative from Pension Professionals of
America informed Vizzini that the company was no longer acting as a TPA, and
that it had not completed Dameware’s 412(i) Plan.
Vizzini contacted Zeplain again, and Zeplain provided the names of two
more TPAs. Vizzini contacted National Pension Associates, one of the two TPAs
Zeplain named, and it agreed to do the work. But it, too, failed to perform the
work required to complete a Plan that could be submitted for Dameware’s 2006
tax returns.
In December 2006, Dameware advised American General that it no longer
wanted to wait to obtain the benefits of a 412(I) Plan. At this point, it had been
three years since Dameware had signed an administrative services agreement
with the first TPA, and Dameware had paid more than two million dollars to
American General for insurance products. Dameware asked American General
to return the money it had already paid. American General returned the money
Dameware had paid for annuities, but did not return the $1,043,900.83
Dameware had paid in life insurance premiums. When American General failed
to return the life insurance premiums, Dameware sued, alleging that its error
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concerning a cause for entering into the contract had vitiated its consent, and
that American General had breached the contract.
The district court granted summary judgment to American General on
Dameware’s claims, reasoning that American General had no duties to
Dameware with respect to the provision of the TPAs. Dameware appeals.
II.
The court reviews a decision rendered on a motion for summary judgment
de novo, applying the same standard as the district court. Threadgill v.
Prudential Sec. Grp., Inc., 145 F.3d 286, 292 (5th Cir. 1998). Summary
judgment is appropriate if the pleadings, depositions, answers to interrogatories,
and admissions on file, together with the affidavits, if any, show that “there is
no genuine issue as to any material fact and that the moving party is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(a). When considering a motion
for summary judgment, the court must view all facts and evidence in the light
most favorable to the non-moving party. United Fire & Cas. Co. v. Hixson Bros.,
453 F.3d 283, 285 (5th Cir. 2006).
III.
A.
We first address Dameware’s contention that its contract with American
General was invalid. The four elements of a valid contract under Louisiana law
are the following: (1) the parties must possess the capacity to contract; (2) the
parties’ mutual consent must be freely given; (3) there must be a certain object
for the contract; and (4) the contract must have a lawful purpose. St. Charles
Ventures, L.L.C. v. Albertsons, Inc., 265 F. Supp. 2d 682, 688-90 (E.D. La. 2003)
(citing Provenza v. Cent. & Sw. Servs., Inc., 775 So. 2d 84, 89 (La. Ct. App.
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2000)). At issue here is the requirement that both parties have consented to a
contract.3
Dameware contends that its consent was vitiated by an error concerning
cause. Articles 1949 and 1950 of the Louisiana Civil Code explain what types
of error vitiate consent. An error vitiates consent when it “concer[ns] . . a cause
without which the obligation would not have been incurred.” La. Civ. Code Ann.
art. 1949. A “cause” is “the reason why a party obligates himself.” Id. art. 1967.
“Error may concern a cause” when the error
bears on the nature of the contract, or the thing that is the
contractual object or a substantial quality of that thing, or the
person or the qualities of the other party, or the law, or any other
circumstances that the parties regarded, or should in good faith
have regarded, as a cause of that obligation.
Id. art. 1950.
Dameware maintains that its cause for entering into the contract was to
establish a 412(I) Plan, and that its inability to establish a 412(I) Plan
constitutes an error concerning cause. But the contractual language undercuts
Dameware’s argument. The contract between Dameware and American General
focuses almost entirely on American General’s provision of life insurance
policies. Only one document, the Disclosure and Acknowledgment Form, focuses
on the establishment of a 412(I) Plan.4 The Disclosure and Acknowledgment
Form does not demonstrate that the establishment of a 412(I) Plan was
Dameware’s cause for entering into a contract with American General. As we
3
American General argues that Dameware failed to adequately plead vitiated consent
in its complaint and therefore waived arguments based on this theory. We assume without
deciding that Dameware has not waived these arguments.
4
The district court found that the contract was limited to the insurance policies. On
appeal, Dameware argues that the Disclosure and Acknowledgment Forms–which were signed
on the same day as the insurance policies and which are the only documents connecting
American General to the TPAs in any way–were also part of the contract. We assume without
deciding that the Disclosure and Acknowledgment Forms were part of the contract.
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discuss below, the Disclosure and Acknowledgment Form has two primary
functions: first, it disclaims any responsibility on the part of American General
for establishing a 412(i) Plan; and second, it contains a list of TPAs for
Dameware to choose from, and provides that whichever TPA Dameware selects
is solely responsible for establishing Dameware’s 412(i) Plan. The relationships
between Dameware and the TPAs were governed by contractual agreements
separate from the contract between Dameware and American General. Thus,
the cause of the contracts between Dameware and the TPAs–which are not at
issue in this case–might have been to establish a 412(I) Plan; but the language
of the contract between Dameware and American General demonstrates that
“the reason Dameware obligated itself” in its contract with American General
was to secure life insurance policies for its employees.5
In addition to not squaring with the language of the contract, Dameware’s
argument does not follow from the language of the Code. Dameware maintains
that it committed an error concerning cause by incorrectly assuming that the
establishment of a 412(i) Plan would follow from its purchase of the policies.
While the comments to the Louisiana Civil Code provide a number of examples
illustrating the application of Article 1950, none of the examples concern
factually analogous circumstances. Comment C, the closest analogy, reads as
follows:
relief may be obtained when either the thing for which a party has
contracted or a substantial quality of that thing is different from
what he understood at the time of contract, as when, intending to
5
In order to establish that American General owed some duty to Dameware with
respect to the 412(I) Plan, Dameware makes much of an affidavit from its financial advisor
Joseph Vizzini. It is well established, though, that courts interpreting contracts may resort
to parol evidence only when the contract is ambiguous. See, e.g., Carmichael v. Bass P’ship,
Nos. 11-845, 11-669, 2012 WL 280611, at *6 (La. Ct. App. Feb. 1, 2012). Here, the language
of the contract clearly shows that its cause was to exchange premium payments for life
insurance coverage, so we are not permitted to consider parol evidence such as Vizzini’s
affidavit.
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buy bars of silver, he has unknowingly bought bars of another
metal, or when, intending to buy a gold vase, he has unknowingly
bought a gold-plated one.
Id. art. 1950 cmt. C. Dameware does not allege that American General’s life
insurance policies did not provide life insurance. It does not even argue that the
policies were inadequate for the purpose of forming 412(I) Plans. Thus, it does
not argue that the “thing for which [it] contracted or a substantial quality of that
thing is different from what [it] understood at the time of the contract . . . .” See
id. Instead, it blames the TPAs, which are not parties to this action, for failing
to follow the procedures necessary for establishing a 412(I) Plan.6 In other
words, Dameware argues that while American General provided the bargained-
for life insurance policies, external events that arose subsequent to contract
formation prevented Dameware from using those policies as it had originally
hoped to. The language of Article 1950 does not cover such a contention.
Nor does Dameware’s argument find support from case law. Dameware
maintains, in essence, that its decision to enter into a contract with American
6
Notably, Dameware does not argue that American General knew or should have
known that the contract’s list of TPAs contained TPAs that were incompetent at the time the
parties entered into the contract, let alone that American General intended to deceive
Dameware when it provided the list of TPAs. Thus, this case is distinguishable from The
Board of Trustees of the Ironworkers Local No. 498 Pension Fund v. Nationwide Life Insurance
Co., No. 04 C 821, 2005 WL 711977 (N.D. Ill. Mar. 28, 2005) (interpreting Illinois law), relied
upon by Dameware. In Local No. 498 Pension Fund, plaintiffs alleged that the defendants
“acted to deprive them of money, which should have been invested on their behalf, through a
scheme in which Defendants deducted money from fund assets and paid fees, kickbacks, and
commissions to third-party administrators . . .” Id. at *1. Further, plaintiffs alleged that
defendants “willfully concealed” those improper payments. Id. at *8.
While Dameware points to payments from American General to B&F, it does not argue
that these payments were improper, or that American General “willfully concealed” those
payments. Dameware does argue in a footnote in its brief that, based on a separate lawsuit
American General filed against B&F, American General “must have been aware that B&F was
likely engaging in wrongful behavior related to their duties as Plan Administrators in
February 2005.” The contract at issue here, however, was signed in March 2004, long before
American General filed suit against B&F.
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General was based on an error concerning whether a future event would occur.
But Louisiana law does not contemplate such errors as proper bases for
rescission. While mistakes as to the state of the world as it exists at the time of
the contract can sometimes constitute errors of cause under Louisiana law, see
Desonier v. Golden Gulf Marine Operators, Inc., 474 So.2d at 1316, this logic does
not extend to mistaken predictions regarding events that occur after a contract
is signed. See St. Charles Ventures, 265 F. Supp. 2d at 693 (“[A] claim of error
cannot be based on the fact that a party would not have entered into a contact
had it anticipated a future event . . . .”) (quoting Shelton v. Congress St. Prop.,
Inc., No. 92-1084, 1993 WL 43637, at *3 (E.D. La. Feb. 16, 1993) (internal
quotation marks omitted)); Saul Litvinoff, Vices of Consent, Error, Fraud, Duress
and an Epilogue on Lesion, 50 La. Law Rev. 1, 28 (1989) (“[T]he general
conclusion is that the chance of a future event happening or not is a risk
assumed by the party whose expectations will materialize if the event happens
or will be frustrated if the event does not happen . . . ”). For this reason,
Louisiana courts have rejected arguments that post-contract changes in the
market prices of contracted-for items constitute error in cause that vitiated
consent. See Hanover Petroleum Corp. v. Tennecco Inc., 521 So.2d 1234, 1240-41
(La. Ct. App. 1988).7
Accordingly, Dameware’s error was not an “error concern[ing] cause”
contemplated by the Code. We therefore reject Dameware’s argument that its
contract with American General should be rescinded.
B.
We next consider whether American General has breached any duties it
owed to Dameware. Under Louisiana law, “[i]nterpretation of a contract is the
7
Regarding the proposition that events occurring after a contract is signed do not
provide grounds for rescinding that contract, Louisiana law accords with the common law rule.
See Restatement (Second) of Contracts § 154 cmt. a.
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determination of the common intent of the parties.” La. Civ. Code Ann. art.
2045. “Conditions may be expressed either in a stipulation or implied by law,
the nature of the contract or the intent of the parties.” Id. art. 1768.
Dameware argues that the contract demonstrated that Dameware could
only choose from the TPAs listed by American General. This restriction,
Dameware argues, imposed an obligation on American General to ensure that
the TPAs it listed were capable of designing a viable 412(I) Plan. Dameware
further contends that its inability to form a Plan within three years shows that
American General did not satisfy the condition of ensuring that the TPAs were
competent.
The language of the contract demonstrates that American General had no
obligation to ensure the TPAs performed competently. The Disclosure and
Acknowledgment Form–the only component of the contract that even mentions
a 412(I) Plan–specifies the thirteen TPAs that Dameware can choose from to
administer its Plan. It creates no duties on the part of American General
respecting the establishment of the 412(I) Plan. In fact, three sentences in the
Disclosure and Acknowledgment Form specifically disclaim any duties on the
part of American General.
First, the Disclosure and Acknowledgment Form asserts the following:
The Employer and Plan Trustee further acknowledge that they
understand that American General Life Insurance Company
operates solely in the capacity of a product provider and that any
sales presentations, tax consequences and/or planning concepts that
may have been presented by American General Life Insurance
Company, its employees, agents, representatives and/or other
affiliates describing the benefits of using life insurance in connection
with the Plan cannot be relied upon as tax or legal advice.
If American General “operates solely in the capacity of a product provider,” and
the product that it provides is life insurance policies, it follows that the contract
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between American General and Dameware does not guarantee that the TPAs
hired by Dameware will competently establish a 412(I) Plan.
Second, in the Disclosure and Acknowledgment Form, Dameware
disclaims reliance on representations not contained in the policies: “In addition,
the Employer and Plan Trustee acknowledge that they are not relying upon any
representation, warranty, or guarantee beyond those contained within the
insurance policy contract itself, including any riders or amendments thereto.”
Id. Nowhere in the insurance policy contract itself does American General
provide any statement that can be construed as a “representation, warranty, or
guarantee” concerning a 412(I) Plan. Thus, this language forecloses Dameware’s
argument that the Disclosure and Acknowledgment Form created a duty on the
part of American General to ensure that the TPAs were competent to establish
a 412(I) Plan.
Third, the Disclosure and Acknowledgment Form reads that “[t]he
Employer and Plan Trustee also hereby acknowledge their understanding that
the TPA indicated herein is responsible for administering the section 412(I) plan
consistent with the Internal Revenue Code and related Treasury regulations and
IRS guidance governing such plans.” This language further undercuts
Dameware’s contention that American General was responsible for ensuring that
a viable 412(I) Plan was created by entirely allocating that responsibility to the
TPAs.
For these reasons, American General did not breach any duties it owed to
Dameware. The contract did not explicitly or implicitly impose a duty on
American General to ensure that a 412(I) Plan was formed; in fact, the
Disclosure and Acknowledgment Forms expressly provide that such a duty does
not exist. Given the extensive disclaimers contained in the Disclosure and
Acknowledgment Forms, the contract cannot be read to mean that American
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General guaranteed the performance of the TPAs, nor can it be read as
endorsing the advice provided by whichever TPA Dameware chose.
IV.
For the foregoing reasons, we AFFIRM the district court’s judgment.
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