Shaw v. United States , 900 F.3d 1379 ( 2018 )

United States Court of Appeals
for the Federal Circuit
______________________
KAREN L. SHAW, INDIVIDUALLY, AND KAREN L.
SHAW, AS GUARDIAN OF THE PERSON OF
RICHARD SCOTT SHAW, AN INCOMPETENT,
RAYMOND A. SHAW, INDIVIDUALLY,
Plaintiffs-Appellants
v.
UNITED STATES,
Defendant-Appellee
______________________
2017-2136
______________________
Appeal from the United States Court of Federal
Claims in No. 1:14-cv-00783-MMS, Judge Margaret M.
Sweeney.
______________________
Decided: August 20, 2018
______________________
CHARLES M. GRANOSKI, JR., Betzendorfer & Granoski,
Anderson Island, WA, argued for plaintiffs-appellants.
MOLLIE LENORE FINNAN, Commercial Litigation
Branch, Civil Division, United States Department of
Justice, Washington, DC, argued for defendant-appellee.
Also represented by CHAD A. READLER, ROBERT E.
KIRSCHMAN, JR., DEBORAH A. BYNUM.
______________________
2 SHAW v. UNITED STATES
Before LOURIE, DYK, and HUGHES, Circuit Judges.
DYK, Circuit Judge.
In 1985, Karen and Raymond Shaw entered into an
agreement with the United States settling personal-injury
claims arising from injuries to their son when he was born
at a military hospital. The settlement provided for the
purchase of several annuities that would make periodic
payments to the Shaws. In 2012, however, the issuer of
the annuities was liquidated, and the payments to the
Shaws were substantially reduced.
The Shaws filed suit against the government in the
United States Court of Federal Claims (“Claims Court”)
alleging a breach of their settlement agreement and
seeking damages measured by the difference between the
original payments and the reduced payments. The
Claims Court found no breach and granted summary
judgment in the government’s favor. Because the agree-
ment did not make the government a guarantor of the
annuity payments, we affirm.
BACKGROUND
Richard Scott Shaw, known as Scotty, was born on Ju-
ly 4, 1979, at Madigan Army Medical Center in Washing-
ton State. He suffered significant injuries during
childbirth, resulting in brain damage, cerebral palsy,
seizures, and blindness, necessitating ongoing, around-
the-clock care. The Shaws attributed these injuries to
medical malpractice by military-hospital employees who
provided the medical care, and they filed suit against the
government in the United States District Court for the
Western District of Washington under the Federal Tort
Claims Act (FTCA), 28 U.S.C. §§ 2671–2680. After a
bench trial, the district court found in favor of the Shaws,
but its damages award was later reversed in part by the
Ninth Circuit, which remanded to the district court for a
SHAW v. UNITED STATES 3
new damages assessment. Shaw v. United States (Shaw
I), 741 F.2d 1202, 1205–10 (9th Cir. 1984).
While the case was on remand to the district court,
the Shaws reached an agreement to settle their tort
claims with the government. The Shaws “agree[d] to
accept the compromise settlement . . . in full settlement
and satisfaction of any and all claims . . . against the
United States” concerning the events in question. J.A. 45.
In return, the government agreed to make certain pay-
ments. Paragraph 4 of the agreement stated, in part:
The payment by the United States of America of
the cash sums set forth below in paragraph 5 and
the purchase of annuities which will to [sic] pro-
vide certain future periodic payments as set forth
below in paragraph 6 shall constitute a complete
release . . . .
J.A. 45. Paragraph 5 went on to provide that the govern-
ment would “make the following payments.” J.A. 46.
First, $500,000 to the Shaws; second, $500,000 to a medi-
cal trust set up for Scotty; third, $850,000 to the Shaws’
attorneys; and fourth:
To Merrill Lynch Settlement Services, Inc., for the
purchase of annuities that will provide the period-
ic or other payments set forth in paragraph 6, be-
low, the sum of $2,950,000.00.
J.A. 47. Paragraph 6 directed that “[t]he annuities pur-
chased by the United States of America shall make the
following payments,” and it set forth the schedule and
terms for said periodic payments. Id.Four annuities are at issue here: one each payable to
Mr. and Ms. Shaw, one to the guardianship for the benefit
of Scotty, and one to the medical trust for the benefit of
Scotty. The government made each of the payments
specified in the agreement, including the payment of
$2,846,095 to Merrill Lynch for the purchase of the annui-
4 SHAW v. UNITED STATES
ties. With respect to the monthly payments from the
annuities payable to Mr. and Ms. Shaw, the agreement
stated that these “are guaranteed for a period of twenty
(20) years.” J.A. 47–48. Finally, paragraph 7 noted that
“[t]his compromise settlement is contingent on a total,
final cost of $4,800,000.00.” J.A. 49.
Merrill Lynch proceeded to purchase the annuities
described in the agreement from Executive Life Insurance
Company of New York (“ELNY”). Over the following
decades, ELNY encountered financial difficulties and
ultimately entered into court-ordered liquidation in 2012.
Pursuant to the liquidation plan, the annuity payments to
the Shaws were reduced by roughly 20%, and the pay-
ments to the guardianship and the medical trust were
reduced by 62.4%.
In 2014, the Shaws filed suit in the Claims Court on
behalf of themselves, Scotty, and the medical trust. They
alleged that the government was in breach of its obliga-
tions under the settlement agreement by “failing to pay,
or otherwise guarantee payment of, the reduction in the
future monthly payments of the four annuities resulting
from the liquidation of ELNY.” J.A. 40. The parties
agreed that there were no factual disputes as to liability,
and they proceeded to file cross-motions for summary
judgment on liability. The Claims Court granted sum-
mary judgment in favor of the government. Shaw v.
United States (Shaw II), 131 Fed. Cl. 181, 208 (2017).
The Claims Court determined that the government was
obligated under the agreement to guarantee the annuity
payments only for the first 20 years and that the reduc-
tion in payments had begun after that period. See id. at
202–07. It also determined that the Shaws lacked stand-
ing to sue on behalf of the medical trust because only the
trustee was authorized to bring suit. See id. at 206–07.
The Shaws timely appealed, and we have jurisdiction
pursuant to 28 U.S.C. § 1295(a)(3).
SHAW v. UNITED STATES 5
DISCUSSION
We review the Claims Court’s grant of summary
judgment and its contract interpretation de novo. Nw.
Title Agency v. United States, 855 F.3d 1344, 1347 (Fed.
Cir. 2017). “Summary judgment is appropriate when
there is no genuine issue of material fact and the moving
party is entitled to judgment as a matter of law.” Id.;
accord RCFC 56(a).
I
This is the third case that has come before our court
concerning the government’s obligations with respect to
annuities purchased from ELNY pursuant to settlement
agreements from the 1980s. See Nutt v. United States,
837 F.3d 1292 (Fed. Cir. 2016); Massie v. United States
(Massie II), 166 F.3d 1184 (Fed. Cir. 1999). The settle-
ment agreements in these cases were different, and in the
first two cases we reached different results—in Massie II,
holding that the government was obligated to guarantee
the payments, 166 F.3d at 1190, and in Nutt, that there
was no such obligation, 837 F.3d at 1297–99. Because
these cases guide our decision here, some background is
helpful.
Massie II involved injuries suffered during childbirth
at a military hospital. 166 F.3d at 1186. The resulting
tort claims were brought pursuant to the Military Claims
Act. Id. The parties reached a settlement. Id. It provid-
ed that a broker was to purchase an annuity that, accord-
ing to the agreement, would “be owned solely and
exclusively by the United States [and] which will result in
distributions on behalf of the United States.” Massie v.
United States (Massie I), 40 Fed. Cl. 151, 155 (1997),
rev’d, Massie II, 166 F.3d 1184. With respect to some of
the periodic payments to be made by the annuity, the
settlement agreement provided a schedule and then
directed that the “payments provided for . . . are guaran-
teed for fifteen (15) years.” Id. With respect to other
6 SHAW v. UNITED STATES
payments, the agreement stated that the “payments
provided for . . . are guaranteed.” Id. at 156. Still other
payments had no provision using guarantee language.
See id. With respect to each of the future payments, the
agreement directed that they “shall be paid” on the rele-
vant dates. Id. at 155–56.
We held that the contract obligated the government to
cover the shortfall in the payments caused by the insur-
er’s liquidation. Massie II, 166 F.3d at 1187, 1189–90. In
finding that the agreement was “unambiguously manda-
tory” and that “the government must be responsible for
their payment,” we relied on two portions of the above-
quoted language. Id. at 1190. In particular, we looked to
“[t]he language specifying that the annuity ‘will result in
distributions’” on behalf of the United States “and that
the disbursements ‘shall be paid.’” Id. We did not rely on
the use of the word “guaranteed.” See id. at 1189–90.
Nutt involved FTCA claims arising after a U.S. Army
vehicle struck and killed Mr. Nutt, the husband and
father of the plaintiffs. 837 F.3d at 1293. The parties
reached a settlement pursuant to which “the United
States of America agree[d] to purchase annuities which
w[ould] pay” a series of periodic and lump-sum payments.
Id. at 1296. None of the payment provisions used the
term “guaranteed.” See id. With respect to each of the
future payments, the agreement directed that they “shall
be paid” on the relevant dates. Id. The agreement fur-
ther provided that the government would select an insur-
ance company with a rating at or above excellent and
that, in the event of a default by the insurer, the govern-
ment would “assist [Plaintiffs] . . . in the prosecution of” a
suit for breach of contract. Id. at 1297 (first alteration in
original).
We held that the contract did not obligate the gov-
ernment to cover the shortfall in the payments caused by
the insurer’s receivership. Id. at 1297–99. The agree-
SHAW v. UNITED STATES 7
ment stated that the periodic payments would be paid by
the annuity, and the government “[wa]s not mentioned in
the paragraphs specifying the future payments to be paid
out by the annuity,” id. at 1297, and the language “on
behalf of the United States” was absent. This under-
standing was buttressed by the agreement’s provisions for
the insurer’s default, which contemplated government
assistance but not government liability. Id. at 1298–99.
In Nutt, we distinguished Massie II, in part, on the
ground that the agreement in Massie used the term
“guaranteed” to refer to the periodic payments, whereas
the agreement in Nutt did not. Id.
II
In this case, the Claims Court ruled that the govern-
ment had no obligation with respect to the shortfall
caused by the insurer’s liquidation. Shaw II, 131 Fed. Cl.
at 204–08. We agree, but we disagree in part with the
Claims Court’s reasoning.
The Shaws argue that the use of the term “guaran-
teed” in the agreement supports their position that the
government is obligated to guarantee the annuity pay-
ments. For example, the agreement stated, with respect
to the monthly payments to be made to Raymond Shaw:
To Raymond A. Shaw, the sum of $4,166.00 each
month, continuing for the life of Raymond A.
Shaw. These monthly payments are guaranteed
for a period of twenty (20) years; thus, should
Raymond A. Shaw die before the 240th payment,
then the payments set forth herein shall be paid,
as they become due, to his estate through and in-
cluding the 240th payment. Should Raymond A.
Shaw die after the 240th payment, the payments
set forth herein shall ceases [sic].
J.A. 47. The agreement provided the same with respect to
the monthly payments to Karen Shaw. Id. at 47–48. On
8 SHAW v. UNITED STATES
this basis, the Claims Court found that the agreement
would have obligated the government to cover any short-
fall in the first 20 years of payments but that the reduc-
tions began after that period had already ended. See
Shaw II, 131 Fed. Cl. at 205, 207–08.
In reaching this conclusion, the Claims Court relied
on Nutt, which, in part, distinguished Massie II on the
basis that the Massie agreement contained a similar use
of the term “guaranteed” with respect to some of the
annuities. See id. at 205. We think relatively little
significance can be given to this guarantee language. In
the context of annuities, “guaranteed” is generally used as
a term of art to establish that an annuity that is meas-
ured by an annuitant’s life will continue to make pay-
ments in the event of death before the end of the
guaranteed period. 1 In the Shaws’ agreement, the use of
1 See, e.g., Foisy v. Royal Maccabees Life Ins., 356
F.3d 141, 145 n.5 (1st Cir. 2004) (“A certain and continu-
ous annuity provides a minimum number of guaranteed
payments, regardless of whether the annuitant dies
before the minimum payments are complete. If the
annuitant outlives the guaranteed minimum, payments
will continue for life, ending upon the death of the annui-
tant.”); 3 Michael B. Snyder, Compensation and Benefits
§ 36:88 (“Under a term certain and life annuity, payments
are guaranteed for a stated period of time but are other-
wise payable for the life of the participant. If the partici-
pant is alive when the stated period of time ends, the
payments occur until the participant’s death. If the
participant dies before the stated period, the payments
continue to a named beneficiary for the remainder of the
guaranteed period.”); 3 Jacob A. Stein, Stein on Personal
Injury Damages § 16:73 (“Generally, a reasonable guaran-
tee period of 10–15 years is usually insisted upon by most
plaintiffs’ attorneys. This insures that a minimum of
SHAW v. UNITED STATES 9
the term “guaranteed” indicates that the monthly pay-
ments will be made until 20 years have passed or until
the death of the annuitant, whichever is later. Indeed,
the second and third sentences of the provision explained
exactly how that guarantee will function.
Turning to the rest of the agreement’s language and
our prior cases, we think the agreement in this case is
distinguishable from the one in Massie. The Massie
agreement described the periodic payments as being made
“on behalf of the United States,” Massie I, 40 Fed. Cl. at
155, suggesting an ongoing obligation of the government.
The agreements here and in Nutt contained no such
language, simply stating that the annuities shall make
the payments. See J.A. 47 (“The annuities purchased by
the United States of America shall make the following
payments: . . . .”); Nutt, 837 F.3d at 1296 (“[T]he United
States of America agrees to purchase annuities which will
pay the following amounts: . . . .”). Moreover, the Shaws’
agreement stated that “[t]he payment by the United
States of America of the cash sums set forth below in
paragraph 5 [(i.e., the initial lump sums)] and the pur-
chase of annuities which will to [sic] provide certain
future periodic payments as set forth below in paragraph
6 shall constitute a complete release” of the Shaws’
claims. J.A. 45. The agreement did not provide that the
payments made by the annuities would discharge the
government’s obligations. See id.
Thus, the Shaws’ agreement, even more than the one
at issue in Nutt, unambiguously cabined the government’s
obligations to the initial lump-sum payments and the
purchase of the annuity and did not obligate it to guaran-
tee the future payments by the annuities. We reach this
conclusion even in the absence of language, present in
future payments will be paid. This minimum payout
provides payments to the heirs of the now-dead payee.”).
10 SHAW v. UNITED STATES
Nutt, concerning the insurer’s rating and the govern-
ment’s role in the event of the insurer’s default, which
supported but was not necessary to the result in Nutt.
See Nutt, 837 F.3d at 1298. Because the agreement is
unambiguous in this respect, we need not consider the
extrinsic evidence offered by the Shaws. E.g., id. at 1296.
CONCLUSION
Because the Shaws’ agreement did not obligate the
government to act as a guarantor of the future periodic
annuity payments, we affirm the Claims Court’s grant of
summary judgment to the government. 2
AFFIRMED
COSTS
No costs.
2 The parties dispute whether Ms. Shaw has stand-
ing to pursue a claim on behalf of the medical trust estab-
lished for her son. Because there is no dispute that the
Shaws have standing to assert their claims as individuals
and as their son’s guardian, we have reached the merits
and need not decide the separate standing question. See,
e.g., Carpenters Indus. Council v. Zinke, 854 F.3d 1, 9
(D.C. Cir. 2017); Tierney v. Advocate Health & Hosps.
Corp., 797 F.3d 449, 451 (7th Cir. 2015); Cal. Hous. Sec.,
Inc. v. United States, 959 F.2d 955, 957 n.2 (Fed. Cir.
1992).