PHT Holding I LLC v. ReliaStar Life Insurance Company

Background

Advance Trust filed this proposed class action in 2018, and Alice Curtis was later added as a named plaintiff. The existing complaints alleged that ReliaStar breached universal life-insurance policies by setting cost-of-insurance rates improperly and deducting charges based on those rates.

The proposed Second Amended Complaint added a separate claim concerning waiver riders. Those riders waive policy charges if the insured becomes totally disabled. The proposed complaint alleged that the policies specified the rider rates, but ReliaStar charged at least 15% more than those rates. It also proposed a new class of current and former owners of qualifying universal life-insurance policies. Curtis was not included in that proposed class.

The deadline for motions to amend the pleadings had passed. Plaintiffs said they learned about the alleged rider overcharges when ReliaStar produced a spreadsheet on March 26, 2020. Plaintiffs asked about the 15% increase the same day, notified ReliaStar of their intent to amend on April 20, and filed the motion on May 21, 2020.

Legal standards

The court applied Federal Rules of Civil Procedure 15 and 16. Rule 15 generally favors allowing amendments when justice requires, but amendment may be denied for undue delay, bad faith, futility, or unfair prejudice. Because the amendment request came after the scheduling-order deadline, Rule 16 also required good cause, measured primarily by the plaintiffs’ diligence.

For futility, the court considered whether the proposed claim could survive a motion to dismiss for failure to state a claim. At this stage, the court could deny amendment on the merits only if the proposed claim was clearly frivolous. The court generally could not consider materials outside the proposed complaint.

Good cause and diligence

The court found that the March 26 spreadsheet was newly discovered information that could not have been obtained earlier through reasonable diligence. ReliaStar had not identified an earlier date when the plaintiffs should have discovered the relevant information or shown that the plaintiffs possessed the facts underlying the new rider-charge allegations before receiving the spreadsheet.

The court also found that the plaintiffs acted diligently after receiving the spreadsheet. They promptly asked about the 15% adjustment, continued communicating with ReliaStar, and filed the motion less than two months after learning the facts underlying the proposed allegations. The court noted that ReliaStar had not raised its good-cause argument in its opening brief and may have waived it, but independently concluded that the plaintiffs had shown diligence.

Futility and statute of limitations

ReliaStar argued that the proposed claim was time-barred because the 15% increase allegedly began in 1989 or 1990. It relied on a 1989 memorandum. The court declined to consider that memorandum because the proposed complaint did not reference it, the memorandum was not necessarily embraced by the complaint, and it was not part of the motion record.

The court concluded that the proposed complaint did not establish on its face that the claim was time-barred. The complaint alleged that ReliaStar had an ongoing obligation to charge the rates specified in the policies and that a separate breach occurred each time ReliaStar charged more than the applicable rate. The court determined that this theory was not clearly frivolous under either Minnesota or Texas law.

The court also rejected ReliaStar’s argument that the Texas cases it cited made the proposed claim clearly futile. The court read those cases as addressing different issues, including single alleged breaches or the discovery rule, rather than establishing a general rule against the plaintiffs’ ongoing-breach theory. The court therefore did not resolve which state’s law or limitations period ultimately governs the claim.

Unfair prejudice

ReliaStar argued that the amendment would create extensive discovery obligations and delay the case. The court explained that additional discovery alone does not establish unfair prejudice. It found that ReliaStar had not shown why the discovery required for the new claim would be unfair compared with the discovery necessary to litigate it.

The court also found that the case remained relatively early despite having been pending since 2018. Fact discovery had not closed, no depositions had been taken, and no deadlines for dispositive motions or trial had been set. The court recognized that the amendment would expand discovery and allowed the parties to seek an appropriate schedule extension, but concluded that this did not require denying the motion.

Disposition

The court granted Plaintiffs’ Motion for Leave to File Second Amended Class Action Complaint (Dkt. 105). The ruling permitted the plaintiffs to add the proposed rider-charge allegations and class, but it did not decide whether ReliaStar breached the policies or whether the proposed class would ultimately be certified. Judge Elizabeth Cowan Wright signed the order.