In 2007, Paul Harrington purchased a MarketPower Bonus Index Annuity (the “Annuity”) from EquiTrust Life Insurance. The Annuity uses “index accounts” to generate “index credits” that increase the annuity’s total amount based on periodic changes in the closing value of the S&P 500. The Annuity also permitted annual withdrawals to an extent with no penalty; larger withdrawals were subject to diminishing surrender charges and market value adjustments. The Annuity also included a premium bonus whereby EquiTrust added 10% of the premiums paid in the first year. In 2009, Harrington brought a putative class action against EquiTrust (Harrington v. EquiTrust Life Ins. Co., 2015 U.S. App. LEXIS 2717) for violations of RICO and Arizona law. After Harrington filed a motion for class certification, EquiTrust moved for summary judgment. The district court granted summary judgment, entered judgment for EquiTrust, but declined to award costs without any explanation. Both parties appealed.
Harrington specifically alleged RICO violations of mail fraud (18 USC §1341) and wire fraud (18 USC §1343). The violations can either be premised on a non-disclosure or an affirmative representation, but non-disclosure can support fraud only if the person charged breached an independent duty. Harrington based his complaint entirely on the language of the Annuity contract and marketing materials – specifically, the (1) promise of premium bonuses, (2) the application of the Annuity’s market value adjustment, and (3) the circumvention of state nonforfeiture laws.
The Ninth Circuit agreed with the district court finding no actionable predicate acts. Harrington claimed that the bonus was fraudulent because EquiTrust failed to disclose that no additional money is invested when the bonus is credited and that the bonus is recouped by EquiTrust crediting lower index credits than it might have in a contract without bonuses. However, EquiTrust delivered exactly what it promised. EquiTrust accurately described the program and it was unclear whether the Annuity would not outperform a non-bonus annuity. As to the market value adjustment, Harrington alleged that the marketing materials failed to disclose a constant used for calculating the adjustment. Again the Court rejected Harrington’s argument, noting the meticulous explanation and examples of the adjustment formula. Finally, Harrington argued that the Annuity had an optional maturity date, based on EquiTrust’s policy of affording annuitants relief from fixed-date terms upon request, which violated Arizona non-forfeiture law. His argument failed because he offered no authority for his proposition and suffered no recognizable injury from his claim.
Addressing EquiTrust’s appeal, the Ninth Circuit explained that a court is within its discretion to deny costs to a prevailing party under F.R.Civ.P. 54(d), but must explain the denial.
The Ninth Circuit affirmed summary judgment, vacated the order denying costs, and remanded to the district court for an explanation.