United States: Class & Collective Action Group Newsletter - June 15, 2020

FEDERAL APPELLATE COURTS

Decision in TVPX ARS, Inc. v. Genworth Life & Annuity Insurance Co. (Eleventh Circuit)

Key Issue

The preclusive effect of a class action settlement and release on claims brought on the basis of the settling defendant's subsequent acts.

Background

This case concerns two separate actions brought against the same life insurance company over a span of 18 years. The first action (the "2000 McBride action") resolved in a class settlement, and the second was filed in 2018 as a putative class action by a plaintiff who acquired an interest in a life insurance policy held by a member of the 2000 McBride settlement class.

In the 2000 McBride action, plaintiffs sued defendant Genworth Life and Annuity Insurance Company ("Genworth") for fraud and breach of contract in connection with life insurance policies that plaintiffs purchased from Genworth.¹ Plaintiffs sought to represent a class comprised of "current or former owners of flexible premium adjustable life insurance policies issued by Genworth between August 1, 1980 and May 20, 2004."² The McBride plaintiffs alleged that Genworth "sold them universal life insurance policies and represented that the policies had fixed, single, or vanishing premiums even though they did not."³ Plaintiffs also alleged that Genworth "assessed premiums in amounts higher than the premiums contracted for by the parties" and improperly increased "cost of insurance," which is a "monthly charge to compensate Genworth for the mortality risk of the guaranteed death benefit."⁴

Genworth resolved the McBride claims through a class settlement in 2004.⁵ The settlement agreement required class members to "release all 'past, present and future' causes of action that were 'based upon, related to, or connected with, directly or indirectly, in whole or in part (a) the allegations, facts, subjects or issues set forth or raised in the [2000 McBride action] or (b) the Released Conduct.'"⁶ The term "Released Conduct" was broadly defined to include "essentially every aspect" of the defendant's life insurance policies, including "cost of insurance rates and charges."⁷ Additionally, the notice sent to class members stated that class members that did not opt out might surrender claims related to "cost of insurance charges" and "cost of insurance rates."⁸

In 2018, plaintiff TVPX ARS, Inc. ("TVPX") filed a putative class action against Genworth, similarly alleging that Genworth violated the terms of its life insurance policies by imposing inflated "cost of insurance" charges on its clients.⁹ TVPX alleged that the "cost of insurance charge" must be determined "according to Genworth's expectations of future mortality," such that if "mortality rates are projected to decline," so too should the cost of insurance rates charged by Genworth.¹⁰ But according to TVPX, Genworth had actually increased its cost of insurance charges from 2013 through 2018, "even though mortality expectations improved during that same time period."¹¹

Genworth moved to enforce its 2004 class action settlement of the McBride action and sought to enjoin TVPX's putative class action on the grounds that it was precluded under the res judicata doctrine.¹² TVPX argued that its claims were not precluded because they did "not share an identical factual predicate with the claims" in the McBride action.¹³ The district court rejected TVPX's arguments and granted Genworth's injunction. First, the court held that both the 2000 McBride action and TVPX's claims involved the same "primary right and duty," i.e., "Genworth's contractual duty to administer the insurance policy in accordance with its terms, including terms on setting cost of insurance rates and charges."¹⁴ In support of that conclusion, the court cited the 2004 McBride settlement's broad release of "known and unknown" claims, and a clause in the settlement stipulation that the McBride "[p]laintiffs alleged [Genworth] breached the insurance contract 'by increasing the monthly cost of insurance rates'—indicating that the McBride parties intended such claims to be finally adjudicated."¹⁵

Finally, the district court found that TVPX's claims were premised on a continuation of the same conduct that was at issue in the 2000 McBride action, not new wrongful conduct that would make res judicata inapplicable.¹⁶ The district court reasoned that the McBride plaintiffs and TVPX challenged "virtually indistinguishable" conduct—in the first case, that Genworth set its cost of insurance rates "improperly and on a whim," and in the second, that Genworth set its cost of insurance rates without considering mortality expectations.¹⁷ The district court concluded that "TVPX's predecessor in interest and Genworth had a deal. . . . Fourteen years after the deal, TVPX asserts claims . . . that share an identical factual predicate with the claims covered by the deal. It can't do that. Claim preclusion forbids it."¹⁸

TVPX appealed the district court's judgment. On appeal, TVPX argued that (1) its claims were not barred by res judicata because they arose from a different factual predicate than the claims covered by the 2004 McBride settlement, and (2) the district court's order relied on the impermissible factual finding that Genworth had in fact engaged in the same conduct dating back to the 2000 McBride action.¹⁹

Decision

An Eleventh Circuit panel vacated the district court order and remanded for further fact-finding to determine whether Genworth's challenged practices in the TVPX action had been ongoing since the 2000 McBride action.²⁰ The panel agreed with the district court's finding that both the settled 2000 McBride action and TVPX's pending case involved the same "rights and duties"—i.e., whether Genworth's practices for setting cost of insurance rates complied with its policies' requirements.²¹ But that alone did not bar TVPX's claims. The panel held that "a class release may not preclude a subsequent action unless 'the released conduct arises out of the "identical factual predicate" as the claims at issue in the case.'"²² Res judicata requires that "full relief must have been available in the first action in order for the second action to be barred," or in other words that TVPX must have been capable of bringing the same claims in the first action.²³

The panel held that the factual record did not support the district court's finding that an "identical factual predicate" existed in the settled 2000 McBride action and TVPX's pending case. The district court relied on the McBride plaintiffs' allegation that Genworth had failed to disclose that monthly cost of insurance was determined "at the whim" of Genworth's management.²⁴ However, the panel found this to be insufficient because the McBride complaint said "nothing about how Genworth actually calculated [the cost of insurance] at the time of the McBride settlement," whereas TVPX's pending case alleged that Genworth manipulated its cost of insurance in a particular way: by failing to account for changes in mortality expectations.²⁵

The panel also rejected Genworth's reliance on a prior version of TVPX's complaint, which alleged that Genworth "left its [cost of insurance] rates unchanged for decades."²⁶ Genworth argued from that allegation that the panel could conclude its cost of insurance practices that TVPX challenged were the continuation of the same conduct at issue in the 2000 McBride action. The panel rejected that argument because it rested on an allegation from a non-operative version of the complaint, and TVPX's "operative complaint says nothing about whether Genworth's [cost of insurance rates] were similarly untethered to mortality expectations prior to the [2013-2018] class period."²⁷ Lacking evidence that the defendant had engaged in the same practices during the settled case and leading up to the pending case, the court vacated the district court's order and remanded for further factual development.²⁸

Thoughts & Takeaways

The panel's decision is instructive of how defenses of claim preclusion and release apply to subsequent litigation that overlaps with a prior class settlement. It also highlights key considerations for defendants considering how to structure a class settlement to mitigate future litigation risk.

First, litigants should be aware that, while a class action settlement release can bar future claims that were not actually raised (and might not have been presentable) in the settled action, there are still limits to a class settlement's preclusive effect. All federal circuit courts that have addressed the question have applied some version of the "identical factual predicate" standard that the panel applied here.²⁹ Second, a preclusion defense entails a fact-based inquiry to determine whether both the settled action and the potentially precluded action involve an "identical factual predicate."³⁰ To that end, settling parties, in addition to focusing on the language used in the settlement's release of claims, should focus on other documents such as the operative complaint or stipulations of fact that accompany a settlement agreement. Here, while both the district court and the panel focused their analysis on the precise text of the settlement agreement and the operative complaint from the 2000 McBride action, unlike the district court, the panel was unwilling to give effect to the broad release language when the precise conduct being challenged was not spelled out in the operative complaint.

Read the decision here.

FEDERAL DISTRICT COURTS

Order Denying Class Certification in Harvey v. Centene Management Co. LLC (E.D. Wash.)

Key Issue

Whether a class action was a superior method of adjudicating a controversy where non-judicial alternatives enabled putative class members to seek reimbursement for their out-of-network healthcare expenses.

Background

Plaintiff Cynthia Harvey filed a complaint in the Eastern District of Washington alleging that defendant Centene Management Company, LLC ("Centene") "administered a health insurance plan (the 'Ambetter' product) with a legally inadequate network of medical providers and, when members were forced to seek care outside the Ambetter network, illegally allowed them to be billed more than they would have paid for in-network services."³¹ Plaintiff moved to certify "a class of all who purchased the Ambetter product between January 11, 2012 and the present."³²

Prior to Harvey's action, Washington state's Office of the Insurance Commissioner ("OIC") brought an enforcement action against Centene based on hundreds of complaints it received regarding Centene's inadequate network.³³ Centene resolved the enforcement action by entering into a Consent Order requiring it to "pay $1.5 million, admit[] its network was inadequate and failed to provide members sufficient access to care, and [] to follow a 'Compliance Plan' approved by the OIC."³⁴

The Compliance Plan, which was administered by an independent auditor, "provide[d] reimbursement to members who paid out-of-network charges when no in-network option was available."³⁵ Centene notified more than 70,000 plan members that they may be eligible for reimbursement for amounts they paid to out-of-network providers, and the independent auditor "sent follow-up letters to more than 10,000 members identified based on their claims history."³⁶ Ultimately, several hundred members submitted reimbursement requests; Centene reimbursed 113 of those claims and paid claimants eight percent annual interest on the overcharge amounts.³⁷ The OIC determined that Centene satisfied its obligations under the Compliance Plan.³⁸

Centene opposed class certification on the basis that "Plaintiff and others like her have superior, nonjudicial alternatives to a class action, and because issues common to the class do not sufficiently predominate to warrant certification."³⁹ Centene identified three alternative remedies. Putative class members could (1) seek relief from Centene directly and, if unsatisfied, appeal to an Independent Review Organization, which was certified by the OIC; (2) seek assistance from the OIC; or (3) participate in the Compliance Plan.⁴⁰ Harvey contended that a class action was superior to all three of Centene's proposed alternatives.⁴¹

Decision

The district court held that Harvey satisfied the Rule 23(a) requirements but denied class certification because a class action would not be superior to alternative methods of resolving the controversy.⁴² The court also held that Harvey failed to satisfy predominance, since a class action would "entail thousands of individualized determinations of whether, and if so to what extent, a member was injured by Centene's alleged network inadequacy."⁴³

As to superiority, the court reasoned that it was "not confined to considering judicial methods of handling the dispute but may instead consider administrative and other non-judicial avenues by which class members may obtain redress."⁴⁴ The court cited other cases in which courts have denied certification where plaintiffs could seek relief through a defendant's refund or product replacement programs.⁴⁵ The same applies where "administrative avenues to relief like those offered by the OIC exist."⁴⁶ Finally, participation in the Compliance Plan would also be a superior method of resolving the putative class claims, since Centene and the independent auditor had already provided notice to more than 70,000 plan members and satisfactorily evaluated the reimbursement requests they received.⁴⁷

The district court rejected Harvey's arguments that these alternatives were inferior. Harvey argued that a class should still be certified despite the availability of relief from Centene, otherwise "any defendant with a customer service department could defeat superiority by arguing that it should be allowed to handle complaints in house."⁴⁸ The district court was not persuaded, since Centene "operates in a highly regulated industry, bound by a web of statutory and regulatory requirements over which an independent state agency, the OIC, has enforcement authority."⁴⁹ Moreover, unlike most companies' refund programs, Centene's reimbursement program allowed its plan members to appeal adverse decisions to an Independent Review Organization ("IRO"), and Centene is bound by the IRO's decisions.⁵⁰

Harvey also argued that participation in the Compliance Plan was an inadequate alternative because its success relies on injured plan members to self-identify as having been improperly billed.⁵¹ The court rejected that argument in light of the 70,000 notices that Centene had issued, and plaintiff failed "to explain how a notice sent to class members [as part of a class action proceeding] would yield a greater response."⁵²

Finally, the court found that individualized, fact-specific determinations of the "threshold issue of injury-in-fact" would predominate over common questions.⁵³ The source of the problem was Harvey's broad class definition, which included "all those who purchased Ambetter policies since 2012"—approximately 100,000 putative class members—even though the record reflected that only about 14,000 of them were actually billed for out-of-network care, and even some of those plan members may be ineligible for reimbursement.⁵⁴ The court concluded that the inclusion of "many members who never suffered the alleged primary injury" in the class was "fatal" to certification.⁵⁵

Thoughts & Takeaways

Harvey is notable in its holding that non-judicial alternatives, including remedy programs offered by a defendant and programs established to resolve an overlapping enforcement action, were superior to a class proceeding. Although other district courts have denied class certification on the basis that non-judicial alternatives were superior, the outcome appears to be uncommon. The norm is to compare a class proceeding only to other judicial alternatives: individual actions, a consolidated suit, or a multi-district litigation.⁵⁶ However, at least one court that rejected consideration of non-judicial alternatives as part of the superiority inquiry has been more receptive to similar arguments when framed in terms of adequacy: "A representative who proposes that high transaction costs (notice and attorneys' fees) be incurred at the class members' expense to obtain a refund that already is on offer is not adequately protecting the class members' interests."⁵⁷

When considering non-judicial alternatives to a class action, courts generally require that the relief is comparable to the remedy a plaintiff could receive in court, and that the relief must not be illusory.⁵⁸ The court in Harvey was satisfied with the notice process of the Compliance Plan (even though it yielded only 113 paid claims) and the regulatory and supervisory network in which the defendant operated. Accordingly, at least in jurisdictions where courts consider non-judicial alternatives as part of the superiority inquiry, defendants may benefit from leveraging their existing claims resolution processes or other available remedies to challenge class certification.

Finally, Harvey highlights that the predominance and superiority factors often overlap analytically: the court's assessment that a class proceeding would present significant individualized inquiries undercut plaintiff's superiority arguments as well. Defendants may improve their chance of prevailing on a superiority challenge by coupling it with a robust challenge to predominance.

Read the decision here. Harvey sought interlocutory appeal of the denial of class certification on May 26, 2020.59

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Footnotes

1. McBride v. Genworth Life & Annuity Ins. Co., No. 4:00-CV-217 (CDL), 2019 WL 6001566 (M.D. Ga. Mar. 15, 2019).

2. Id. at *1.

3. Id.

4. Id. at *1, *4.

5. Id. at *2.

6. TVPX ARS, Inc. v. Genworth Life & Annuity Ins. Co., —F.3d—, No. 19-11178, 2020 WL 2730789, at *2 (11th Cir. May 26, 2020).

7. Id.

8. Id.

9. McBride, 2019 WL 6001566, at *4.

10. Id.

11. TVPX, 2020 WL 2730789, at *3.

12. McBride, 2019 WL 6001566, at *4.

13. Id.

14. Id. at *7.

15. Id. at *7-8 (citation omitted).

16. Id. at *8.

17. Id.

18. Id. at *9.

19. TVPX, 2020 WL 2730789, at *4.

20. Id. at *6.

21. Id. at *4.

22. Id. at *5 (citing 6 William B. Rubenstein, Newberg on Class Actions § 18:19 (5th ed. Dec. 2019)).

23. Id. at *4 (citing In re Atlanta Retail, Inc., 456 F.3d 1277, 1287 (11th Cir. 2006)).

24. Id. at *5.

25. Id.

26. Id.

27. Id.

28. Id. at *6.

29. 6 William B. Rubenstein, Newberg on Class Actions § 18:19 (5th ed. 2020) ("Nearly every circuit has adopted this approach and none has rejected it."); see also Kris J. Kostolansky & Diane R. Hazel, Class Action Settlements: Res Judicata, Release, and the Identical Factual Predicate Doctrine, 55 Idaho L. Rev. 263, 275 n.91 (2019) (collecting cases).

30. Rubenstein, supra note 29, § 18:19 ("The identical factual predicate inquiry is fact-based, with many courts finding later cases sufficiently related to the class action judgment as to be precluded and some courts occasionally finding later cases not factually identical and hence not precluded.").

31. Harvey v. Centene Mgmt. Co. LLC, No. 2:18-cv-00012-SMJ, 2020 WL 2411510, at *1 (E.D. Wash. May 12, 2020).

32. Id. at *2.

33. Id. at *1.

34. Id. at *2 (citation omitted).

35. Id.

36. Id.

37. Id. at *2, *5.

38. Id. at *2.

39. Id. at *3-4.

40. Id. at *4-5.

41. Id.

42. Id. at *4-6.

43. Id. at *4-7.

44. Id. at *3.

45. Id. at *4.

46. Id.

47. Id. at *5.

48. Id. at *4 (citation omitted).

49. Id.

50. Id.

51. Id. at *5.

52. Id.

53. Id. at *6.

54. Id.

55. Id.

56. See Rubenstein, supra note 29, § 4:86.

57. In re Aqua Dots Prods. Liab. Litig., 654 F.3d 748, 752 (7th Cir. 2011).

58. Id.

59. See Harvey v. Centene Mgmt. Co. LLC, No. 20-35468 (9th Cir. May 27, 2020).

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