Athene Life and Annuity Company v. American General Life Insurance Company ( 2019 )

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
ATHENE LIFE AND ANNUITY )
COMPANY, AMERICAN INVESTORS )
LIFE INSURANCE COMPANY, INC. )
REVOCABLE TRUST, and )
INDIANAPOLIS LIFE INSURANCE )
COMPANY REVOCABLE TRUST, )
)
Plaintiffs, )
)
v. ) C.A. No. 2018-0244-SG
)
AMERICAN GENERAL LIFE )
INSURANCE COMPANY, ZC )
RESOURCE INVESTMENT TRUST, )
and ZC RESOURCE LLC, )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: May 2, 2019
Date Decided: July 31, 2019
Martin S. Lessner, Richard J. Thomas, and M. Paige Valeski, of YOUNG
CONAWAY STARGATT & TAYLOR, LLP, Wilmington, Delaware; OF
COUNSEL: James P. Gillespie, of KIRKLAND & ELLIS LLP, Washington, D.C.;
Adam T. Humann, of KIRKLAND & ELLIS LLP, New York, New York, Attorneys
for Plaintiff Athene Annuity and Life Company.
Brian C. Ralston, of POTTER ANDERSON & CORROON LLP, Wilmington,
Delaware, Attorney for Plaintiffs American Investors Life Insurance Company
Revocable Trust and Indianapolis Life Insurance Company Revocable Trust.
Kenneth J. Nachbar and Sabrina M. Hendershot, of MORRIS, NICHOLS, ARSHT
& TUNNELL LLP, Wilmington, Delaware, Attorneys for Defendant American
General Life Insurance Company.
Joel Friedlander and Christopher P. Quinn, of FRIEDLANDER & GORRIS, P.A.,
Wilmington, Delaware; OF COUNSEL: John L. Jacobus, J. Walker Johnson,
Catherine D. Cockerham, and Michael E. Stoll, of STEPTOE & JOHNSON LLP,
Washington, D.C., Attorneys for Defendants ZC Resource Investment Trust and ZC
Resource LLC.
GLASSCOCK, Vice Chancellor
This matter is before me on the issue of equitable jurisdiction, raised sua
sponte, and subsequently joined by the Defendants. The heart of the matter is a
claim for breach of contracts of insurance between the parties, and declaratory relief
as to the obligations of the parties under those contracts. The Plaintiffs also seek
specific performance and injunction relief. They allege the possibility of future
breach, absent such remedies.
This Court has no statutory jurisdiction here, and the claims are purely legal.
The question, then, is whether the requests for equitable relief are substantive, as
opposed to a formulaic incantation of an equitable remedy. If, and only if, the former
is the case, does this Court have jurisdiction. On the other hand, if a declaratory
judgment of contractual rights combined with damages will provide the Plaintiffs
with complete relief, I am without jurisdiction, and the matter must be dismissed
unless transferred to a court of law.
Upon consideration, I am without jurisdiction here.
I. BACKGROUND
On February 13, 2019, I held Oral Argument on Defendants ZC Resource
Investment Trust’s (“ZC Trust”) and ZC Resource LLC’s (“ZC Resource”) Motion
to Dismiss, which Defendant American General Life Insurance Company
(“American General”) joined. At Oral Argument, I raised, sua sponte, the issue of
this Court’s subject matter jurisdiction over this action. The parties, at my request,
filed supplemental memoranda on whether this Court has subject matter jurisdiction,
after which I considered the issue of jurisdiction submitted for decision on May 2,
2019. I examine here this Court’s equitable jurisdiction and, therefore, assume the
factual allegations in the Plaintiffs’ Complaint are true,1 but focus on only those facts
relevant to deciding the question of subject matter jurisdiction.2
This action is a second incarnation of a case first brought on March 18, 2013
(the “Aviva Litigation”), with the same Defendants and predecessors to the
Plaintiffs.3 In the Aviva Litigation, I granted the Defendants’ Cross-Motion for
Judgment on the Pleadings on non-substantive grounds (ripeness). 4 No party in the
Aviva Litigation raised the question of subject matter jurisdiction at the time, nor
did I.
The Aviva Litigation and this action both center on the same contractual
relationship between the parties. In October of 2000 and June of 2001, American
General separately sold two substantially-similar group-variable life-insurance
1
Int’l Bus. Machs. Corp. v. Comdisco, Inc., 602 A.2d 74, 78 (Del. Ch. 1991) (“Equitable
jurisdiction must be determined from the face of the complaint as of the time of filing, with all
material factual allegations viewed as true.”) (citing Diebold Comput. Leasing, Inc. v. Com. Credit
Corp., 267 A.2d 586 (Del. 1970)).
2
Intrepid readers should consult the Plaintiffs’ Complaint for a more detailed summary of their
allegations.
3
See Aviva Life and Annuity Co. v. Am. General Life Ins. Co., 2014 WL 1677798 (Del. Ch. Apr.
29, 2014). Plaintiff Athene Life and Annuity Company was then known as Aviva Life and Annuity
Company. Compl. ¶ 16. Plaintiffs American Investors Life Insurance Company, Inc. Revocable
Trust and Indianapolis Life Insurance Company Revocable Trust were represented by their trustee,
U.S Bank Trust National Association, in the previous litigation. See Aviva, 2014 WL 1677798.
4
See Aviva, 2014 WL 1677798.
2
policies (the “Policies) to Plaintiff American Investors Life Insurance Company, Inc.
Revocable Trust (“American Investors”) and Plaintiff Indianapolis Life Insurance
Company Revocable Trust (“IndyLife”). 5 American Investors and IndyLife together
paid $150 million in premiums for the Policies,6 and have since merged into Plaintiff
Athene Life and Annuity Company (“Athene”),7 which holds the beneficial interest
in the Policies.8 The Policies are, more specifically, corporate-owned life-insurance
(“COLI”) policies, whereby the policy owner receives death benefits upon the
demise of its covered employees. 9 The premiums paid by the policy owner are
invested on its behalf, and the growth on the investments is used to pay the death
benefits, which are, importantly, unencumbered by income or capital gains tax, as
long as appropriate strictures are followed. 10
The Policies are governed by certain transaction documents (the “Transaction
Documents”).11 Relevant within the Transaction Documents is an agreement by
5
Compl. ¶¶ 24–25. American General, now a subsidiary of American International Group, is a
Texas corporation. Id. ¶ 19. American Investors is a Delaware trust. Id. ¶ 17. IndyLife is a
Delaware Trust. Id. ¶ 18.
6
Id. ¶¶ 24–25. Athene would later pay an additional $30 million premium in 2001. Id. ¶ 8.
7
Id. ¶ 27. Athene is an Iowa corporation. Id. ¶ 16.
8
Id. ¶ 27. Athene is the sole grantor and beneficiary of both American Investors and IndyLife.
Id. ¶¶ 17, 18.
9
Id. ¶ 28.
10
Id.
11
Id. ¶¶ 35–36. According to the Complaint, each of the Policies was governed by six documents,
the five documents relevant here are: (1) the Policy Document; (2) a Private Placement
Memorandum from American General for the Policy; (3) an additional Private Placement
Memorandum from ZC Resource; (4) a Commitment Letter from American General to Athene,
and (5) a Commitment Letter from ZC Resource to American General. Id. ¶ 35.
3
American General not to “modify, amend or change any of the Transaction
Documents in any way which could change in any material respect the rights of
[Athene] and/or the terms and conditions of the transactions reflected in the
[Transaction] Documents.”12 American General also agreed in the Transaction
Documents to indemnify Athene in the event the Policies lost their tax favored status,
subject to American General’s right to manage the Policies in a manner that ensured
compliance with the applicable tax regulations. 13
American General offered Athene various investment options for the
premiums it paid. 14 Athene chose to invest in a portfolio named the SVP (an
acronym for “stable-value protection”) Balanced Portfolio (the “SVP Balanced
Portfolio”).15 The SVP Balanced Portfolio has two components. The first is an
equity and bond portfolio (the “Corresponding Portfolio”). 16 The second is, as
described by the Plaintiffs, a guarantee (the “SVP Product”) from non-party Zurich
Insurance Company (“Zurich Insurance”), 17 and is calculated as “the difference
12
Id. ¶ 36(d).
13
Id. ¶ 38.
14
Id. ¶ 30. There was an annual fee of 0.45 percent of the SVP Balanced Portfolio associated with
investment in the SVP Balanced Portfolio. Id. ¶ 34.
15
Id. ¶ 6. The SVP Balanced Portfolio is managed by ZC Trust, a Delaware business trust. Id. ¶¶
20, 30. ZC Resource, a Delaware limited liability company, is a trustee of ZC Trust. Id. ¶ 21.
16
Id. ¶ 31.
17
Zurich Insurance Company (“Zurich Insurance”) is a Swiss corporation. Id. ¶ 22. According
to the Complaint, Zurich Insurance “owns and maintains a number of affiliates in the United States,
including ZC Trust, ZC Resource, and Benefit Finance Partners, LLC.” Id. The last of which, a
non-party, is the administrator of the Policies. Id. ¶ 23.
4
between (i) the total value of the SVP Balanced Portfolio and (ii) the net asset value
of the Corresponding Portfolio.” 18 The SVP Balanced Portfolio was initially
contemplated to grow at a fixed crediting rate, which would be periodically reset
based on a formula with the intent to amortize the SVP product over time. 19 In 2001,
the parties agreed to amend the Transaction Documents to, among other things, set
a minimum crediting rate of eight percent.20 I note that it is the Defendants’ position
that the SVP Product has no real value, but is instead an accounting device to smooth
returns in the Portfolio over time. 21
According to the Transaction Documents, Athene could exit its investment in
the SVP Balanced Portfolio, either by switching to another investment portfolio
offered by American General (“reallocation”), 22 or by exercising its right to
“surrender” and receiving the value of its investment. 23
Over time, as a result of the returns of the Corresponding Portfolio and the
application of the eight percent minimum crediting rate, the SVP Product has grown
18
Id. ¶ 32.
19
Id. ¶ 33.
20
Id. ¶ 44.
21
See, e.g., Defs. ZC Resource Inv. Trust and ZC Resource LLC’s Br. in Support of Their Mot. to
Dismiss, at 17.
22
Compl. ¶ 39(a). If Athene chose to reallocate its investment, the value of the SVP Balanced
Portfolio would be reallocated over four years, through five installments, to another investment
portfolio. Id.
23
Id. ¶ 39(b). If Athene chose to “surrender” or cancel its Policies, American General was bound
by the Transaction Documents to pay Athene the value of the SVP Balanced Portfolio within six
months of receiving a demand. Id.
5
to become a larger and larger portion of the SVP Balanced Portfolio.24 In late 2011
and early 2012, the Defendants purported to unilaterally amend the Transaction
Documents to “cap” the value of the SVP Product at fifty-five percent of the total
value of the SVP Balanced Portfolio (the “SVP Cap”) and to change Athene’s
surrender rights (together, the “2011 Supplements”). 25 The Defendants have argued
that the SVP Cap is necessary to comply with tax regulations and, therefore, to
preserve the tax-favored status of the Policies.26 The amendment to Athene’s
surrender rights changed the timing of payment from six months after exercise of
the right, to the time at which the value of the SVP Product is at or below zero.27
In March 2013, the predecessors to the Plaintiffs brought the Aviva Litigation
in response to the 2011 Supplements to the Policies; they sought, among other
things, declaratory judgment that the implementation of the SVP Cap and the change
to Athene’s surrender rights were invalid. On cross-motions for judgment on the
pleadings, I dismissed the plaintiffs’ claims without prejudice, reasoning that their
claims were not yet ripe, because any limit on the SVP cap was only theoretical.28
Subsequently, the SVP Cap has been implicated, and as a result, the value of a single
24
Id. ¶¶ 51, 52.
25
Id. ¶¶ 51, 58. Athene was provided a draft of the changes to the Policies in December 2011. Id.
¶ 54. Despite Athene’s objections, the Defendants in a January 11, 2012 conference call asserted
that they considered the 2011 Supplements to the Policies to be in full force and effect without
Athene’s approval. Id. ¶¶ 58, 59, 60.
26
Id. ¶ 65.
27
Id. ¶ 56.
28
Id. ¶ 67.
6
death benefit paid under the Policies was reduced by approximately $9,000.29 The
Plaintiffs, reasoning that its claims are now ripe, brought this action.
Athene’s Complaint has three counts. The first count is for breach of contract
and specific performance.30 Athene argues that American General breached the
Transaction Documents by implementing the 2011 Supplements and breached the
Transaction Documents by paying out a death benefit that would have been greater
by $9,000 absent the SVP Cap. 31 Athene seeks “specific performance” of the
Transaction Documents as they existed before the 2011 Supplements—that is, it
seeks an order that American General cease breaching—and additionally and
alternatively requests monetary damages. 32 The second count is for declaratory
judgment and injunctive relief.33 Athene seeks a declaratory judgment that the
Defendants are not permitted to implement the SVP Cap (or alternatively that the
initial implementation of the SVP Cap was invalid) and that the Defendants are not
permitted to amend Athene’s surrender rights. 34 Athene then requests that I enjoin
the Defendants from acting inconsistently with the declaratory judgment Athene
seeks.35 The third count is for tortious interference with contract, and is brought
29
Id. ¶ 78.
30
Id. ¶¶ 87–97.
31
Id. ¶¶ 88–90.
32
Id. ¶¶ 96–97.
33
Id. ¶¶ 98–106.
34
Id. ¶¶ 104–05.
35
Id. ¶ 106.
7
against only ZC Trust and ZC Resource.36 Athene alleges that ZC Trust and ZC
Resource implemented the 2011 Supplements and thereby caused American General
to breach the Transaction Documents, as amended in 2001.37
The Defendants moved to dismiss under Court of Chancery Rule 12(b)(6),
failure to state a claim. At Oral Argument, I questioned this Court’s subject matter
jurisdiction. Thereafter, the Defendants filed an Amended Motion to Dismiss to
additionally move to dismiss under Court of Chancery Rule 12(b)(1), lack of subject
matter jurisdiction.
II. ANALYSIS
This is a court of limited jurisdiction, and as such may not waive subject
matter jurisdiction. 38 Subject matter jurisdiction is a necessary predicate, without
which this Court—a court of limited jurisdiction—has no authority to act. 39
36
Id. ¶¶ 107–12.
37
Id. ¶ 110.
38
See Ct. Ch. R. 12(h) (While a “defense of lack of jurisdiction over the person . . .” may be
waived, “whenever it appears by suggestion of the parties or otherwise that the Court lacks
jurisdiction of the subject matter, the Court shall dismiss the action.”). The Plaintiffs take issue
with the Defendants’ amended pleading, which, after I raised the jurisdictional issue sua sponte,
added an allegation of failure of equity jurisdiction. The Plaintiffs argue that the Defendants have
waived their right to challenge subject matter jurisdiction. As equity jurisdiction is a predicate to
action by this Court, the issue is of no moment, and I do not address it here.
39
See Int’l Bus. Machs. Corp. v. Comdisco, Inc., 602 A.2d 74, 77 n.5 (Del. Ch. 1991) (“[I]t is clear
that, unlike many jurisdictions, judges in the Delaware Court of Chancery are obligated to decide
whether a matter comes within the equitable jurisdiction of this Court regardless of whether the
issue has been raised by the parties.” (citations omitted)).
8
A. Equitable Jurisdiction
The Court of Chancery is Delaware’s court of equity and maintains subject
matter jurisdiction in only three ways, “if: (1) one or more of the plaintiff’s claims
for relief is equitable in character, (2) the plaintiff requests relief that is equitable in
nature, or (3) subject matter jurisdiction is conferred by statute.” 40 The Plaintiffs’
Complaint alleges no matters that are equitable in themselves, and no statute
provides for jurisdiction here. The Plaintiffs argue that subject matter jurisdiction
exists because they seek equitable relief. The Plaintiffs’ Complaint, on its face, does
indeed reference equitable relief; it requests specific performance (as well as
injunctive relief following declaratory judgment). 41 However, “[i]n deciding
whether or not equitable jurisdiction exists, the Court must look beyond the remedies
nominally being sought, and focus upon the allegations of the complaint in light of
what the plaintiff really seeks to gain by bringing his or her claim.” 42
The inquiry into the necessity of equitable relief, in other words, is a “realistic
assessment of the nature of the wrong alleged and the remedy available in order to
determine whether a legal remedy is available and fully adequate.” 43 Where
“sufficient remedy may be had by common law, or statute, before any other court or
40
Candlewood Timber Grp., LLC v. Pan Am. Energy, LLC, 859 A.2d 989, 997 (Del. 2004)
(citations omitted).
41
Compl. ¶¶ 96, 106.
42
Candlewood, 859 A.2d at 997 (citations omitted).
43
Id. (quoting McMahon v. New Castle Assocs., 532 A.2d 601, 603 (Del. Ch. 1987)).
9
jurisdiction of this State,” the Court of Chancery has no jurisdiction. 44 The equitable
jurisdiction analysis is based upon the allegations made in the complaint, taken as
true; however, a mere allegation that there is no adequate remedy at law is
insufficient to end the inquiry if such allegation is a mere facade. 45
The Plaintiffs allege that specific performance or injunction are necessary
because no adequate remedy at law exists. To be adequate, the remedy at law must
“afford the plaintiff full, fair, and complete relief.”46 In the context of a breach of
contract claim, there is an obvious remedy at law, damages. As such, a “Court of
Equity has no jurisdiction to entertain a suit brought purely for compensatory
damages.”47 However, damages may be inadequate to provide complete relief and
44
10 Del. C. § 342. Section 342 serves to codify “the common law mandate as to equity’s
concurrent jurisdiction.” Harman v. Masoneilan Int’l, Inc., 442 A.2d 487, 497 (Del. 1982).
45
Candlewood, 859 A.2d at 997 (citing Candlewood Timber Grp. LLC v. Pan Am. Energy LLC,
2003 WL 22417235, at *2 (Del. Ch. Oct. 22, 2003)); see also McMahon, 532 A.2d at 604(“Chancery jurisdiction is not conferred by the incantation of magic words.”).
46
El Paso Nat. Gas Co. v. Transamerican Nat. Gas Corp., 669 A.2d 36, 39 (Del. 1995).
47
Tull v. Turek, 147 A.2d 658, 664 (Del. 1958); see also Candlewood, 859 A.2d 989 at 997
(“Because plaintiffs can adequately seek monetary damages in a court of law for [the defendant’s]
alleged breach of contract, this Court cannot grant specific performance and, hence, does not have
jurisdiction to hear and decide this matter.” (quoting Candlewood Timber Group LLC v. Pan
American Energy LLC, 2003 WL 22417235, at *2 (Del. Ch. Oct. 22, 2003))). The Court of
Chancery would of course have jurisdiction if bestowed by statute or if the claims were equitable
in character.
10
their award, if possible, 48 may accompany necessary equitable relief. 49 In such a
case, equitable jurisdiction exists to provide the necessary remedy.
Similarly, declaratory judgment exists at law to provide relief to parties in a
contractual dispute, but the availability of such relief does not divest this Court of
subject matter jurisdiction, where a party would ultimately require equitable relief.50
On the other hand, invoking equity in a conclusory manner to enforce a declaratory
judgment is insufficient to provide jurisdiction; otherwise, any declaratory action
would be endowed with spurious equitable features, which would render this Court’s
limited equity jurisdiction illusory. 51 Instead, whether subject matter jurisdiction
rests with the Court of Chancery in a declaratory judgment action is “determined
48
Damages may be, for example, impossible to measure. See, e.g., Cheese Shop Int’l., Inc. v.
Steele, 311 A.2d 870, 871 (Del. 1973) (“Goodwill valuation, however, is subjective and influenced
by many factors external to the market place. Therefore, it becomes impossible to measure the
dollar value of the franchisor’s loss of goodwill in an ongoing successful business arising from the
non-performance of trademark provisions by any one franchisee. Only equity can supply an
adequate remedy in such case.”).
49
El Paso Nat. Gas Co., 669 A.2d at 39.
50
Diebold Comput. Leasing, Inc. v. Commercial Credit Corp., 267 A.2d 586, 591 (Del. 1970)
(“Jurisdiction under the Declaratory Judgment Act is based on the question of whether law or
equity traditionally would have jurisdiction of the subject matter if the controversy should develop
to a later stage; of whether the issues raised would be presented in a legal or equitable action if
coercive relief were being sought. Specifically, the Chancery Court has jurisdiction in a
declaratory judgment action if there is any underlying basis for equity jurisdiction measured by
traditional standards.”).
51
Charlotte Broad., LLC v. Davis Broad. of Atlanta LLC, 2013 WL 1405509, at *6 (Del. Ch. Apr.
2, 2013) (“If the Plaintiffs’ request for equitable relief in this contract action—to enjoin the
Defendant from pursuing rights ostensibly under the Agreement which, in fact, it does not have,
and preventing the Defendant from the theoretical pursuit of contractual claims in other courts—
were sufficient to convert a purely contractual matter from law to equity, the exception would eat
the rule, and this Court would no longer remain a court of limited jurisdiction.”).
11
without reference to the declaratory judgment statute,” and the Court “applies
precisely the same criteria it would if the statute were not there.”52
It is true, as the Plaintiff argues, that even where a remedy at law is adequate
to cure past injury, equitable jurisdiction may, nonetheless, exist when that remedy
at law would be inadequate to cure threatened prospective injury. 53 In such a
scenario, a plaintiff would be unable to fully recover in a single suit, but would
instead be forced to bring a “multiplicity” of suits in response to each future injury. 54
Injunctive relief could then be warranted to forestall wasteful litigation, even where
an adequate remedy at law would exist if (or when) the prospective injury came to
pass.55 Equitable jurisdiction, however, is only available on this ground where there
exists “a real threat of a multiplicity of lawsuits, and not the mere possibility of such
suits.”56
52
Jefferson Chem. Co. v. Mobay Chem. Co., 253 A.2d 512, 514–15 (Del. Ch. 1969). In Jefferson
Chemical Co. v. Mobay Chemical Co., the plaintiff sought more than a declaration of its rights but
also “an order which will prevent [the defendant] from interfering with the exercise of whatever
rights [the plaintiff] is found to have under the contract.” Id. at 515. Importantly (and
distinguishing from the case at hand), the rights at issue were patent rights. Id.53
Int’l Bus. Machs. Corp. v. Comdisco, Inc., 602 A.2d 74, 79–82 (Del. Ch. 1991) (noting that past
and future damages would be calculable, but explaining the plaintiff’s argument that “absent an
injunction, it would [nonetheless] be irreparably harmed because . . . [it] will be forced to bring a
multiplicity of lawsuits to enforce its legal rights in the same manner which could be accomplished
in this Court by injunction.”).
54
Id. at 81–82; see also Chateau Apts. Co. v. City of Wilm., 391 A.2d 205, 206 (Del. 1978) (“A
legal remedy may not be adequate, however, although an action for damages could be brought,
where the harm suffered will be irreparable or where the injury will occasion a multiplicity of
suits.”).
55
Int’l Bus. Machs. Corp., 602 A.2d at 79–82; see also Tull v. Turek, 147 A.2d 658, 664 (Del.
1958) (“. . . the principle that equity will give full relief to avoid a multiplicity of suits.”).
56
Int’l Bus. Machs. Corp., 602 A.2d at 82 (citations omitted).
12
In a typical contract action, as here, a defendant, motivated by self-interest,
claims a contractual right to engage in the behavior of which the plaintiff complains.
This is insufficient to threaten post-judgment breaches so as to require equitable
relief. That is because a legal decision clarifying the contract and imposing damages
changes the incentives of the parties to the contract. In other words, the fact that a
breaching party theoretically may re-breach does not support an allegation of a real
threat of continued injury where a successful suit at law, brought by the plaintiff,
would deprive the defendant of both a good faith argument of interpretation and its
profit-based motive to pursue it.57
In light of these principles, I turn to the Plaintiffs’ allegations and find that an
adequate remedy at law exists.
B. The Plaintiffs Have an Adequate Remedy at Law
The Plaintiffs argue that no adequate remedy at law exists to provide relief
from the American General’s alleged breach of contract resulting from the
Defendants’ extra-contractual amendment to the Transaction Documents in 2011,
and introduction of the SVP Cap. 58 Specific performance is required, per the
Plaintiffs, “to prevent American General from taking further actions that will
57
Id. For example, in International Business Machines Corp. v. Comdisco, Inc., this Court, faced
with claims for breach of contract and related tortious behavior, wrote that the threat of continued
lawsuits would be more persuasive “if [the defendant] did not claim a right to possession of the
equipment which [the plaintiff] claims has been converted, but was taking the equipment out of
spite or for some other non-business purpose.” Id.58
Compl. ¶ 96.
13
irreparably harm Athene by denying it the unique, negotiated benefits of the Policies
as well as its investment in the SVP Balanced Portfolio, for which Athene contracted
and which are difficult or impossible to quantify.” 59
1. Multiplicity of Suit
The Plaintiffs argue in their Complaint that American General breached its
contract with the Plaintiffs by implementing the 2011 Supplements and then
underpaying (as a result of the 2011 Supplements) a death benefit. The Plaintiffs
also seek declaratory judgment that the Defendants did not have the right to
implement those same 2011 Supplements. The Plaintiffs concede that “[m]oney
damages are sufficient to remedy the reduced death benefit paid to date and
declaratory relief will provide a remedy to address the 2011 Supplements.”60 That
is, legal relief is a complete remedy for the breaches committed and the damages
thus-far incurred. However, the Plaintiffs argue that injunctive relief is necessary,
even if they are successful in proving their claims, because “neither money damages
nor declaratory relief are sufficient to prevent Defendants’ improper implementation
of their [SVP Cap] . . . [a]nd neither remedy is sufficient to prevent future
amendments that are designed to comply with a potential Court order striking down
59
Id. I note that what the Plaintiffs seek is not “specific performance” in the traditional sense of
the remedy imposed on a defendant to perform in an executory contract setting. Here, the Plaintiffs
simply seek a finding that the Defendants’ unilateral contract amendments are unenforceable and
an order that the Defendants’ comply with the contract going forward, as thus interpreted. This is
more properly characterized as a kind of “anti-breach” injunction than specific performance.
60
Pls.’ Reply Mem. in Supp. of Subject-Matter Jur. of the Ct., at 2.
14
the 2011 Supplements but would similarly eviscerate Athene’s contract rights.”61
Such actions by the Defendants would, per the Plaintiffs, necessitate further
litigation. It is, therefore, important to focus on the relief sought.
The Plaintiffs raise three counts in their Complaint, two of which they contend
require equitable relief. 62 In “Count 1” of the Complaint, the Plaintiffs bring a claim
for breach of contract and seek specific performance and damages. The Plaintiffs
argue that American General lacked the contractual authority to amend the
Transaction Documents to impose the 2011 Supplements, and that by imposing and
implementing these Supplements, American General breached its contract with the
Plaintiffs. In addition to a finding that imposing the Supplements is a contractual
breach, for which an award of damages is appropriate, the Plaintiffs request specific
performance of the contract as it existed, sans Supplements; in other words, they ask
equity to direct American General to go, and breach no more. 63
61
Id., at 2–3; see also Pls.’ Mem. of Law in Supp. of Subject-Matter Jur. of the Ct., at 6 (“Even if
the Court concludes that the 2011 Supplements breach the Parties’ agreements, Defendants could
attempt to impose new amendments aimed at achieving the same effects in order to avoid their
obligations for future payouts.”).
62
The Plaintiffs’ third count for tortious interference of contract, brought against ZC Trust and ZC
Resource, also purports in the Complaint to seek equitable relief in the form of “injunctive relief
from further interference by ZC Trust and ZC Resource.” Compl. ¶ 112. However, the Plaintiffs
do not argue that this third count supports equitable jurisdiction and have waived any argument
that it does. See Pls.’ Mem. of Law in Supp. of Subject-Matter Jur. of the Ct.; Pls.’ Reply Mem.
in Supp. of Subject-Matter Jur. of the Ct.
63
Compl. ¶¶ 96, 97.
15
The request for equitable relief through specific performance strikes me as
entirely unnecessary to remedy the alleged breach. If the Plaintiffs prevail on their
contract claim that the creation and implementation of the 2011 Supplements is
beyond American General’s contractual power, and its employment of the
Supplements thus a breach of the Transaction Documents, and if the Plaintiff then
recovers damages, what is left for equity to enforce?
In “Count 2” of the Complaint, the Plaintiffs seek declaratory judgments that
“the Defendants are not permitted to implement the [SVP Cap] unilaterally under
the Transaction Documents and [amendments made in 2001]” 64 and “the Defendants
are not permitted to amend the Surrender Protocol unilaterally under the Transaction
Documents and [amendments made in 2001].” 65 The Plaintiffs also seek an order
prohibiting the Defendants from breaching the Transaction Documents, as they ask
me to construe them. 66
Again, if the Plaintiffs prevail on declaratory relief construing the Transaction
Documents as they suggest, equity is superfluous. Generally, this court does not
enjoin hypothetical future breaches of contract. It is, I suppose, possible that
American General may play the scofflaw and, having lost a declaratory judgment
64
Compl. ¶ 104. Alternatively, the Plaintiffs ask for declaratory judgment that “the Defendants’
unilateral implementation of the SVP Cap to impair Athene’s and the Trusts’ ability to obtain the
benefit of the SVP Product is an invalid exercise of their rights under the Transaction Documents
and the Restated Transaction Documents.” Id. ¶ 105.
65
Id. ¶ 104.
66
Id. ¶ 106.
16
action at law determining that it does not have the contractual authority to impose
an SVP cap or unilaterally amend Athene’s surrender rights, purport in the future to
do so nonetheless. The Plaintiffs point out that in such a case, it would then be put
to the expense and trouble of further litigation. This is true. No court order (even
in equity) is self-enforcing, or proof against bad-faith disregard.67 However, nothing
here indicates that special circumstances compel equity to act.68 I note that if the
mere threat of future breach or disregard of court orders triggered equitable
jurisdiction, such jurisdiction would be general, not limited.
The Plaintiffs contend that the risk of further litigation is not hypothetical
because the “Defendants have relentlessly sought to eviscerate Athene’s guaranteed
minimum crediting rate of eight percent and ability to access the SVP Product.”69
The allegation in the Complaint is that the Defendants have sought to reduce their
obligation to the Plaintiffs regarding the SVP Product by implementing the 2011
Supplements through unilateral amendment of the Transaction Documents.70 The
Plaintiffs allege that the 2011 Supplements were improper, and that, when the
67
But see Deuteronomy 17:11–12 (King James) (“. . . [a]ccording to the judgment which they shall
tell thee, thou shalt do: thou shalt not decline . . . to the right hand, nor to the left. And the man
that will do presumptuously, and will not harken . . . unto the judge, even that man shall die.”).
68
Cf. Diebold Comput. Leasing, Inc. v. Commercial Credit Corp., 267 A.2d 586, 590–91 (Del.
1970) (finding that a claim for impending—and, for the plaintiff, catastrophic—breach and request
for injunctive relief invoked equitable jurisdiction).
69
Pls.’ Reply Mem. in Supp. of Subject-Matter Jur. of the Ct., at 5 (internal quotations omitted).
70
Compl. ¶¶ 51, 52, 55, 56.
17
Plaintiffs objected, the Defendants refused to withdraw the Supplements.71 The
Defendants’ refusal, per the Plaintiffs, demonstrates the Defendants’ intent to breach
similarly in the future, necessitating further litigation absent injunctive relief. As
support for this statement, the Plaintiffs point to the fact that the Defendants not only
amended the Transaction Documents with the 2011 Supplements, but have also, over
the years, actually implemented the 2011 Supplements and have consistently refused
the Plaintiffs’ requests to abandon their contractual position.
The Plaintiffs’ argument is tautological. The Defendants have consistently
maintained a contract right that is yet to be adjudicated. They have this in common
with nearly every litigant in a contract dispute. The Defendants’ consistency does
not imply a willingness to maintain the same position, post-judgment.72 I note that
the Plaintiffs describe the Defendants’ attempts to limit their obligations under the
contract as “relentless.” 73 However, the singular event complained of is American
General’s amendments to the contract in 2011, and American General’s persistence
in maintaining the efficacy of and enforcing those amendments. Nothing in that
71
Id. ¶¶ 59–62.
72
See Green v. GEICO Gen. Ins. Co., 2017 WL 438230, at *2 (Del. Ch. Feb. 1, 2017) (Where the
plaintiffs sought an injunction to stop the defendant, an insurer, from continuing to employ a
certain rule when adjusting claims, this Court wrote that “[a] declaration that either the insurance
policies at issue or the applicable statute(s) do not permit [the defendant] to employ [its rule] in its
claim processing would not require an accompanying injunction. There is no indication that [the
defendant] would refuse to abide by a final declaratory judgment to this effect.” (citation omitted)).
73
Pls.’ Reply Mem. in Supp. of Subject-Matter Jur. of the Ct., at 5.
18
allegation indicates that American General would disregard a contractual
construction in an order of a Delaware court. 74
The Plaintiffs rely on Diebold Computer Leasing, Inc. v. Commercial Credit
Corp.75 In Diebold, the plaintiff, a company that leased computers, had a $75 million
revolving line of credit with Commercial Credit Corporation (“Commercial”). 76 The
plaintiff resolved to restructure and diversify its business and advised Commercial
of its intent to do so. 77 Commercial responded that pursuant to its loan agreement
with the plaintiff, Commercial’s approval of the restructuring was required, and
would not be forthcoming; further, Commercial provided that if the plaintiff
proceeded, Commercial would regard the plaintiff to be in default, and would declare
the credit extended (almost $70 million of the $75 million line of credit) to be
payable.78 The plaintiff alleged in its complaint that if Commercial considered the
plaintiff to be in default, it would ruin plaintiff’s business; nonetheless, the plaintiff
still intended to pursue a plan for restructuring. 79 The plaintiff therefore sought an
injunction to prevent Commercial from declaring it in default when the plaintiff
74
See Chateau Apartments Co. v. City of Wilm., 391 A.2d 205, 208 (Del. 1978) (“While, to be
sure, it is possible that the City could ignore a determination that their rates were unlawful and
continue to charge unlawful water rates, we do not find the danger realistic. We decline to assume
that, if liability is judicially established against the City, it will charge unlawful rates against the
plaintiffs or other customers in deliberate disregard of such determination.”).
75
267 A.2d 586 (Del. 1970).
76
Id. at 588.
77
Id.78
Id. at 588–89.
79
Id. at 589.
19
restructured. 80 The Court of Chancery found that a declaratory judgment in Superior
Court was available to provide complete relief, divesting it of jurisdiction. 81 Our
Supreme Court disagreed, noting the plaintiff’s manifest intent to continue with its
plan for restructuring, and Commercial’s resulting, doom-inducing response.82 The
Supreme Court wrote that “[t]his is the kind of collision course equity serves to avoid
in the exercise of its traditional jurisdiction of preventing a threatened breach of
contract.”83
The situation here is different. In Diebold, the situation posed imminent
harm—no breach had occurred, but the parties’ positions and their contrasting views
of contractual obligations made (if the defendant was correct in its contractual
understanding) breach imminent and, given its fundamental impact on the plaintiff,
irreparable. This approaching harm implicated equity. No such “collision course”
exists in this action. Here, like Diebold, the parties disagree about their contractual
obligations. Unlike Diebold, here the Plaintiffs allege that breach has already
occurred and caused damages, remediable at law; the Plaintiffs’ position is that,
given the ongoing nature of the contract, the Defendants may breach again. I have
80
Id.81
Id. at 589–90.
82
Id. at 590.
83
Id.20
already rejected the latter as a ground for equitable jurisdiction. What is left is a
contract action, at law.
2. Presence of a Non-Party
The Plaintiffs describe the SVP Product as “supported by a Zurich Insurance
Company guarantee” 84 and as “a contractual obligation of Zurich Insurance
Company.” 85 Zurich Insurance is not a party here, although it appears from the
Complaint that Zurich Insurance has certain rights under the Transaction
Documents. 86 According to the Complaint, it is Zurich Insurance that would be
obligated to pay the value of the SVP Product to Athene in the case that Athene
exercised its surrender rights and the Corresponding Portfolio was insufficient to
cover the amount owed to Athene.87 The Plaintiffs argue (for the first time in their
Reply Memorandum) that absent specific performance, they would have to seek
additional relief against Zurich Insurance. To the extent this issue is before me, I
find the Plaintiffs’ argument unpersuasive.
The Plaintiffs argue that East Balt LLC v. East Balt US, LLC is instructive to
this case. 88 In East Balt, the seller of certain assets brought an action against the
purchasers of the assets for breach of contract, and sought specific performance for
84
Compl. ¶ 7.
85
Id. ¶ 32
86
Id. ¶¶ 33, 40.
87
Id. ¶ 42.
88
2015 WL 3473384 (Del. Ch. May 28, 2015).
21
the release of funds held in escrow.89 The purchasers argued that this Court lacked
subject matter jurisdiction because money damages would be adequate; the seller
argued that specific performance and the release of the money held in escrow was
necessary because affirmative court action could still be required to effectuate the
release of the escrow funds after a grant of damages or declaratory relief. 90 This
Court found that subject matter jurisdiction existed because the equitable relief
sought would be more efficient that relief through a law court.91 That is because
“[w]hile the Superior Court could declare rights, it would be unable to compel the
Escrow Agent to deliver the Escrow Amount or order [the defendants] to act.”92 In
other words, only this Court (assuming it vindicated the sellers) could compel,
through specific performance, the purchasers to direct their escrow agent to release
the funds held in escrow. 93 The East Balt Court noted that escrow agreements are,
by nature, fiduciary relationships. 94
The rationale of East Balt is not implicated here simply because the Plaintiffs
(may) seek funds held by a non-party; Zurich Insurance is not alleged to hold money
in escrow for the Plaintiffs or the Defendants, nor would it necessarily be obligated
89
Id. at *1–2.
90
Id. at *3.
91
Id. at *4.
92
Id. at *3.
93
Id. at *2. The Court noted that “[w]hile the Superior Court could declare rights, it would be
unable to compel the Escrow Agent to deliver the Escrow Amount or order Defendants to act.” Id.
at *3.
94
Id. at *3.
22
to provide the Plaintiffs with money even if the Defendants were compelled by
equity to request it.95 In other words, nothing in the Complaint alleges that Zurich
Insurance is an agent of the Defendants upon whom injunctive relief would be
effective here. Zurich Insurance may be a proper party to this action. It is unclear
to me, however, how equitable relief could compel non-party Zurich Insurance to
act, if such is required. According to the Plaintiffs, it is Zurich Insurance that is
ultimately responsible for payment of the SVP Product if Athene exercises its
surrender rights (although the Complaint does not disclose whether such payment
would be made first to the Defendants and then to Athene, or directly to Athene).
However, whether Zurich Insurance has “guaranteed” the SVP Product is not at issue
95
The Plaintiffs also cite United BioSource LLC v. Bracket Holding Co., which is both instructive
and distinguishable. 2017 WL 2256618 (Del. Ch. May 23, 2017). In United BioSource LLC, the
plaintiff sold several of its subsidiaries to the defendant, one of the subsidiaries received a large
tax refund during the pre-closing period; this refund was placed in the subsidiary’s bank account.
Id. at *2. The plaintiff brought litigation and sought specific performance of the securities
purchase agreement to compel the defendant to forward to the plaintiff the tax refund, which the
plaintiff asserted it was owed by contract. Id. at *2. The Court noted that “it is not apparent how
a damages award against [the defendant] would have any legal effect [on the subsidiary], which is
a separate legal entity.” Id. at 4. The plaintiff also alleged that the defendant’s parent company
was considering sale of the defendant, which could make the defendant less capable of fulfilling
any judgment against it in the future. Id. at 4. Therefore, this Court found, “an order of specific
performance compelling [the defendant] to direct [its subsidiary] to forward the Tax Refund to
[the plaintiff] . . . would be more ‘certain, prompt, complete, and efficient’ than a damages award.”
Id. at *4. Here, the Plaintiffs allege in their Complaint that Zurich Insurance “owns and maintains
a number of affiliates in the United State [sic], including ZC Trust [and] ZC Resource.” Compl. ¶
22. The Complaint does not suggest that those two defendants could direct their parent company
or affiliate to act. Furthermore, no allegation is made as to the relationship between Zurich
Insurance and American General. Therefore, nothing in the Complaint or the Plaintiffs’ briefing
suggests that Zurich Insurance is an escrow agent or otherwise holds money accessible by the
Defendants. Additionally, unlike in East Balt and United BioSource LLC, the Plaintiffs here do
not seek to convert the SVP Product into a monetary amount payable by any party or non-party,
which is to say that the Zurich Insurance guarantee, if it is such, is not implicated in this action.
23
in this action; Athene has only put at issue whether the 2011 Supplements were
proper (which affects only the value of the SVP Product, not who is responsible for
their payment in case of surrender). The potential need for Athene to pursue
additional legal action against Zurich Insurance does not here support specific
performance, when that specific performance would not negate the need for
additional legal action.
C. Designation Is Not Appropriate
I have found that this Court lacks subject matter jurisdiction. The Plaintiffs
argue that, in that event, I may (and should) request to be designated a judge of the
Superior Court of Delaware to hear this matter, pursuant to Article IV, Section 13(2)
of the Delaware Constitution.96 I decline to make such a request and do not find it
is in the interest of judicial efficiency. The Plaintiffs posit that I have “invested
significant time and resources into understanding the highly complex factual and
legal issues involved in this case.”97 While I have now had before me a substantially
similar case twice, the first incarnation was dismissed on a Motion for Judgment on
the Pleadings as unripe, and this case too will be dismissed from this Court before
discovery has begun. Interestingly, the Plaintiffs also aver that I “possess[] six years
96
Del. Const. of 1897 art. IV, § 13(2) (“Upon written request made by the Chancellor . . . to
designate one or more of the State Judges . . . to sit in . . . the Superior Court . . . and to hear and
decide such causes in such Court and for such period of time as shall be designated.”).
97
Pls.’ Mem. of Law in Supp. of Subject-Matter Jur. of the Ct., at 12.
24
of background.”98 While the Aviva litigation was filed over six years ago, on March
18, 2013, it was dismissed on May 1, 2014 on preliminary grounds. The Complaint
here was not filed until April 3, 2018. The intervening years have, I confess, made
me less familiar with this matter, not more so.
Constitutional designation may be a useful tool where parts of a litigation will
inevitably, otherwise, proceed in both law and equity. There, it may be efficient to
assign a single judge by designation. 99 Here, in light of the current Complaint, a
single judge at law will be able to resolve this matter in its entirety. Judicial
98
Pls.’ Reply Mem. in Supp. of Subject-Matter Jur. of the Ct., at 8.
99
The Plaintiffs cite Brandywine Flowers, Inc. v. W. Am. Ins. Co. for the proposition that I should
seek designation as a Superior Court judge. 1993 WL 133176 (Del. Ch. Apr. 19, 1993), aff’d, 633
A.2d 368 (Del. 1993). Vice Chancellor Berger sat by designation as a Superior Court judge in
Brandywine, but the opinion makes no mention and conducts no analysis of why designation was
appropriate in that case. The Plaintiffs also cite Monsanto Co. v. Aetna Cas. & Sur. Co., where a
Superior Court judge sat by designation as a Vice Chancellor “in order to adjudicate the equitable
issues in [that] case.” Monsanto Co. v. Aetna Cas. & Sur. Co. (Monsanto II), 1993 WL 563252,
at *5 (Del. Super. Dec. 9, 1993). In an early opinion in the same case, the preceding Superior
Court judge explained that a parallel action had been stayed in the Court of Chancery (which he
noted may not have jurisdiction if the defendant has an adequate remedy at law), that the
defendants sought “equitable” counterclaims in the Superior Court action, and that it was “clearly
in the best interests of judicial economy to avoid severing a portion of [the] case;” therefore he had
been designated to sit in the Court of Chancery. Monsanto Co. v. Aetna Cas. & Sur. Co. (Monsanto
I), 1989 WL 997183, at *1–2 (Del. Super. Sept. 29, 1989) (denying the motion to dismiss in favor
of the Court of Chancery action or alternatively to transfer the action to the Court of Chancery).
The Plaintiffs quote from a later opinion in the same case, where the Court explained “[t]his step
was taken to conserve resources and enhance judicial efficiency due to the complexity of this case
. . . .” Monsanto II, 1993 WL 563252, at *5. The Plaintiffs omit the remainder of the sentence
and paragraph, which state: “but it was not intended to blend the two distinct jurisdictions of the
Superior and Chancery Courts. Because [one of the defendant’s] motion seeks an equitable
remedy, its application must be made in the Court of Chancery.” Monsanto II, 1993 WL 563252,
at *5. The Superior Court then denied the defendant’s motion for partial summary judgment, in
part, because “this [c]ourt lacks the jurisdiction to adjudicate equitable issues, it may not provide
equitable relief in the form of reformation of the contract . . . .” Monsanto II, 1993 WL 563252,
at *6 (Denying the motion for the additional reason that “[t]he Missouri parol evidence rule
prohibits the inclusion of the proposed pollution exclusion in the insurance policy at issue . . . .”).
25
efficiency would not be furthered by my designation. I have found that this Court
does not possess equitable jurisdiction, nor does this Court’s jurisdiction attach
under some other theory. A policy of designation in light of the glancing
involvement of the Court of Chancery in a related matter would do little to advance
efficiency, but much to undermine this Court’s limited jurisdiction.
D. Motion to Amend
The Plaintiffs request leave to amend their Complaint if I find that this Court
lacks equitable jurisdiction because, per the Plaintiffs, 100 “this case presents issues
fundamentally equitable in nature.”101 They suggest there may be cryptic trust issues
present that would convey equitable jurisdiction here,102 if fleshed out in an amended
complaint. I note that if the matter includes issues that are indeed fundamentally
equitable in nature, they should have appeared in the Complaint explicitly or have
been so apparent implicitly as to confer equitable jurisdiction. The Plaintiffs have
not moved to amend; consequently, I do not have the advantage of a proposed
amended complaint. Regardless, I find it unlikely that an amendment would vest
me with jurisdiction. However, having proceeded to examine ripeness despite the
lack of equitable jurisdiction in the Aviva Litigation—that is, having failed to
appropriately address jurisdiction in the previously-filed action—I bear
100
Pls.’ Mem. of Law in Supp. of Subject-Matter Jur. of the Ct., at 13 n.3.
101
Pls.’ Reply Mem. in Supp. of Subject-Matter Jur. of the Ct., at 8 n.4 (emphasis added).
102
See id. (citing and quoting a section of an United States Supreme Court opinion, CIGNA Corp.
v. Amara, 563 U.S. 421, 439 (2011), regarding the relationships between trusts and equity).
26
responsibility for the inefficiency of the Plaintiffs’ attempt to litigate in this forum a
second time. 103 If there are indeed non-pretextual equitable pleadings here that are
ripe, which (if this case were transferred to the Superior Court and those pleading
there pursued) could cause more jurisdictional questions and inefficiency down the
line, I would like to avoid such a problematic outcome. I will withhold an order in
this matter until the parties confer on a possible amendment and whether it would
raise legitimate jurisdictional considerations, and whether it should otherwise be
permitted. The parties should inform me promptly on how they intend to proceed in
this regard.
III. CONCLUSION
The Court of Chancery lacks subject matter jurisdiction over the Complaint.
While on its face the Complaint seeks equitable relief, an adequate remedy at law
exists. This action must be dismissed unless the Plaintiffs elect transfer to the
Delaware Superior Court. I shall defer an order pending resolution of the request to
amend the Complaint.
103
Cf. Diebold Comput. Leasing, Inc. v. Commercial Credit Corp., 267 A.2d 586, 590 (Del. 1970)
(opining that the Court of Chancery should have allowed leave to file an amendment and
considering the substance of the denied amendment in making their determination).
27