1999 Nationwide Class Action Settlement of Federal Court Class Action Challenging Insurer’s Marketing and Sales Practices of Life Insurance Policies was Entitled to Res Judicata Effect and thus Barred 2005 State Court Class Actions Against Insurer Eleventh Circuit Holds
A class action was filed against insurer Southern Farm in Georgia federal court culminating in a nationwide class action settlement in 1999, but in 2005 two new class action lawsuits were filed against Southern Farm, this time in Mississippi state court, presenting the issue of whether the new class actions were barred by res judicata. Adams v. Southern Farm Bureau Life Ins. Co., 493 F.3d 1276, 2007 WL 2119182, *1 (11th Cir. 2007). Defense attorneys moved to enjoin the new class actions from proceeding on the ground that they were barred by the Adams class action settlement, id., at *5; plaintiffs argued that notice afforded in the Adams class action was “constitutionally inadequate” and that the types of claims they asserted in the new class actions were different from those settled and released in the Adams class action id., at *6. The district court granted the defense motion, and the Eleventh Circuit affirmed.
In January 1998, Walter Adams filed a putative class action in Georgia federal court against insurer Southern Farm alleging fraudulent and deceptive practices in its marketing and sale of flexible premium and universal life insurance policies by “misrepresenting the benefits of the new policies; failing to provide an adequate explanation of concepts such as the policy’s ‘cash value’ and the ‘premium’ required by the policy; and ‘employing performance projections based on unreasonable explanations concerning interest rates and misrepresenting and/or omitting adequate explanation of the consequences of less favorable performance.’” Adams, at *1. The Adams class action eventually settled as a nationwide class, defined as “those persons and entities who currently own, or have owned, one or more flexible premium or universal life insurance policies  issued between January 1, 1983 and March 24, 1999 by [Southern Farm] to replace other life insurance policies.” Id. Class notice was mailed via first class to the last known of address of 174,000 class members, a toll-free telephone number was established to answer questions about the class action, notice was published in USA Today, and information about the class action and the settlement was posted on the insurer’s website. Id.
The notice sent out in the Adams class action was a 48-page “Q & A”-type notice that disclosed that the Adams class action “involv[ed] claims about how flexible premium and universal life insurance policies have been sold and how those policies have performed” and, specifically, in a section entitled “Description of the Lawsuit,” that the Adams Class Action alleged Southern Farm had “made misrepresentations or omissions of fact in connection with the sale of flexible premium and universal life insurance policies,” including (1)”misleading policyowners to believe that only a single or fixed, limited number of out-of-pocket premium payments would be required to keep a policy in force, and that the promised death benefits and increasing or stable cash values would continue to exist, without the policymaker making any further out-of-pocket premium payments;” and (2) “misleading policy owners to believe that interest rates illustrated at the time the policies were sold to Class Members were reasonable, and that such rates were not likely to change, or would not change in an amount sufficient to cause the policies to perform differently than was represented at the time of sale.” Adams, at *2. The class notice described the two forms of relief provided to participants in the Adams class action settlement, and warned putative class members that they would be bound by the terms of the class action settlement unless they affirmatively opted out, and provided notice of the release and waiver of claims applicable to all participants in the class action settlement. Id., at *2-*3. The Adams class action settlement was approved in August 1999, with the district court retaining jurisdiction as to enforcement of the class action settlement. Id., at *4. Notice of final approval of the class action settlement was also provided to class members, id.
In October 2005, two nearly identical class actions were filed in Mississippi state court against Southern Farm alleged deceptive and fraudulent practices in “recommending replacement life insurance products such as flexible premium and universal life insurance policies, without disclosing that the premiums for these policies could increase over time.” Adams, at *5. “The gravamen of the [new class action] complaints was the general allegation that Southern Farm had fraudulently and deceptively suggested to its customers that the premium payment would be ‘level [in amount] and/or limited in number,’ and that this suggestion had prompted the appellants to purchase replacement policies without being informed of the actual risks of those policies.” Id. Defense attorneys moved to enforce the judgment in the Adams class action and to permanently enjoin the Mississippi class actions from proceeding, id. The district court granted the defense motion, holding that (1) the notice provided in the Adams class action of the class action settlement comported with due process and Rule 23, and (2) the claims in the Mississippi class actions “[arose] out of the same [universal life] policies and [r]eplacement [t]ransactions that were the subject of the class action settlement approved by [the] Court in 1999.” Id. The Eleventh Circuit affirmed, holding that the Adams class action settlement was entitled to res judicata effect on the Mississippi class actions.
Preliminarily, the Eleventh Circuit stated that the appropriate standard of review was abuse of discretion. Adams, at *6. The Court then addressed whether the notice afforded in the Adams class action satisfied due process, id., at *7. Plaintiffs argued that notice in the Adams class action was “constitutionally inadequate” and that “permitting the Adams Class Action to have a res judicata effect would not be consistent with due process.” Id. The Circuit Court disagreed, holding that the notices provided in the Adams class action were reasonably calculated to reach the class members (characterizing it as “adequate and thorough”), and that the notices adequately conveyed the terms of the class action settlement and the ramifications of failing to opt out of the class action settlement. Id., at *7-*8. The class action settlement notice also urged recipients to read the disclosures “very carefully.” Id., at *8.
The Eleventh Circuit then addressed whether “primary right and duty” underlying the class action lawsuits were the same as in the Adams class action. Adams, at *10. Applying the standard analysis applicable in res judicata cases, the Circuit Court held that the Adams class action “alleged an overarching scheme of fraud and deception by Southern Farm in connection with the sale of these flexible premium types of policies, a broad nucleus of fact that would encompass the fraud claims now being alleged” in the Mississippi class actions. Id., at *11. The Court also noted the breadth of the release in the Adams class action settlement, id. Based on its analysis, it affirmed the judgment of the district court. Id., at *12.
NOTE: The Eleventh Circuit opinion distinguishes Twigg, 153 F.3d, which held that the notice afforded class members was insufficient because it did not adequately describe the type of claim involved in the earlier class action. Twigg, 153 F.3d at 1228-1230. See Adams, at *8-*9.