In the United States Court of Federal Claims
No. 15-358C
(E-Filed July 12, 2017)
_____________________________________
)
JENNIFER LANCLOS, )
)
Plaintiff, ) Motion for Summary Judgment;
) RCFC 56; Guarantee of Annuity
v. ) Payments; Periodic Settlement
) Payments; Principles of Contract
THE UNITED STATES OF AMERICA, ) Interpretation
)
Defendant. )
_____________________________________ )
Jeffrey E. Dahl, San Antonio, TX, for plaintiff.
Ryan M. Majerus, Washington, DC, with whom were Benjamin C. Mizer, Principal
Deputy Assistant Attorney General, Robert E. Kirschman, Jr., Director, Deborah A.
Bynum, Assistant Director, Commercial Litigation Branch, Civil Division, United States
Department of Justice, Washington, D.C., for defendant.
OPINION AND ORDER
CAMPBELL-SMITH, Judge
Plaintiffs in this case allege that defendant breached its obligation to ensure
payment pursuant to a settlement agreement executed between the parties in 1986. See
ECF No. 1 at 2. Before the court are the parties’ cross motions for summary judgment.
See ECF Nos.10, 13. For the following reasons, plaintiff’s motion is GRANTED, and
defendant’s motion is DENIED.
I. Background
Plaintiff was born in 1982 at the United States Air Force Medical Center at
Keesler Air Force Base in Mississippi. See ECF No. 1 at 2. During delivery, plaintiff
sustained injuries, and she now suffers from Athetoid Cerebral Palsy. See id. Her
parents filed a claim for negligence against the Air Force, and the matter was settled by
agreement in 1986. See id.
In the instant lawsuit, plaintiff claims that defendant has violated the terms of that
settlement agreement. Specifically, pursuant to the terms of the settlement agreement,
defendant purchased an annuity from Executive Life Insurance Company of New York
(ELNY) which was to provide for “monthly annuity payments as well as larger payments
to be made in five-year increments.” Id. at 2-3. The relevant section of the settlement
agreement appears as follows:
We, PATRICK A. LANCLOS, LINDA LANCLOS, both individually and
on behalf of our daughter, JENNIFER E. LANCLOS, and JENNIFER E.
LANCLOS, by her parents and natural guardians, hereby agree to accept:
1) For Jennifer Lanclos -
- $200,000.00 lump sum
- The purchase of an annuity which will provide the following:
$1,500.00 per month – from commencement of payment for a period
of 5 years
$2,000.00 per month – years 6 – 10
$2,500.00 per month – years 11 – 15
$3,000.00 per month – years 16 – 20
$3,500.00 per month – years 21 – 25
$4,000.00 per month – years 26 – 30
$4,500.00 per month – years 31 – life
All monthly payments above are guaranteed for 30 years or the life
of Jennifer, whichever is longer.
See id. at 8. The settlement agreement provides for several additional payments that are
not the subject of the case at bar, including: (1) a schedule for the payment to plaintiff of
incremental amounts every five years, (2) a separate settlement amount for plaintiff’s
parents, and (3) a provision for plaintiff’s attorney’s fees. See id. at 8-9.
In addition to the payment schedules, the agreement also states: “All payments
will commence following issuance of payment checks by the United States Treasury and
administrative processing by the annuity provider.” Id. at 9. The parties further agreed
that the amounts reflected in the schedules were “in full satisfaction and final settlement”
of any claims arising out the subject injuries. Id. And plaintiff and her parents
“release[d] and forever discharge[d] the United States, its officers, agents and employees
from all liability, claims and demands of whatsoever nature arising from the said
incident.” Id.
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Due to financial circumstances unrelated to plaintiff’s claim, ELNY became
unable to make the scheduled payments in full. See id. at 3. In December 2011, plaintiff
received notice that her payments would be reduced to approximately forty-two percent
of the amount reflected in the settlement agreement. See id. The reduced payments
began in August 2013. See id. Plaintiff alleges, in the complaint, that defendant
guaranteed that plaintiff would receive the scheduled payments, but defendant has not
made up for the shortfall resulting from the reduced payments. See ECF No. 1 at 5. The
total shortfall from August 2013 through the time plaintiff filed her complaint in April
2015 was $50,282.40. See id. at 4. Plaintiff estimates the future expected shortfall at
$681,006.41. See id. at 5. As such, plaintiff seeks a total recovery from defendant of
$731,288.81. See id. at 6.
The parties have filed cross-motions for partial summary judgment on the issue of
liability based on their respective interpretations of the agreement language. See ECF
Nos. 10, 13. The matter is now ripe for ruling.
II. Legal Standards
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. RCFC 56(a); Celotex
Corp. v. Catrett, 477 U.S. 317, 322 (1986). A fact is material if it “might affect the
outcome of the suit under the governing law.” Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248 (1986). An issue is genuine if it “may reasonably be resolved in favor of either
party.” Id. at 250.
The moving party bears the initial burden of demonstrating the absence of any
genuine issue of material fact. Celotex Corp., 477 U.S. at 323. The burden then shifts to
the nonmoving party to show that a genuine issue of material fact does exist such that the
case should proceed to trial. Id. at 324.
This case presents a question of contract interpretation, an issue properly resolved
as a matter of law. See Grumman Data Sys. Corp. v. Dalton, 88 F.3d 990, 997 (Fed. Cir.
1996). When interpreting a contract, the court looks first to the plain language. See
McAbee Constr., Inc. v. United States, 97 F.3d 1431, 1435 (Fed. Cir. 1996). “ We give
the words of the agreement their ordinary meaning unless the parties mutually intended
and agreed to an alternative meaning.” Harris v. Dep’t of Veterans Affairs, 142 F.3d
1463, 1467 (Fed. Cir. 1998). “A contract should be interpreted in such a way that all
parts make sense.” Hughes Commc’ns Galaxy, Inc. v. United States, 998 F.2d 953, 958
(Fed. Cir. 1993) (citing United States v. Johnson Controls, Inc., 713 F.2d 1541, 1555
(Fed.Cir.1983)).
A contract term is ambiguous if it is “susceptible to more than one reasonable
interpretation.” McAbee, 97 F.3d at 1435. Absent ambiguity, the court must give the
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contract terms their “plain and ordinary meaning,” and may not consider evidence
extrinsic to the agreement. Id. (citing Alaska Lumber & Pulp Co. v. Madigan, 2 F.3d
389, 392 (Fed. Cir. 1993) and Interwest Constr. v. Brown, 29 F.3d 611, 615 (Fed. Cir.
1994)).
The issue presently before the court, whether defendant guaranteed the payments
to plaintiff such that it should be held liable for the shortfalls, does not involve disputed
material facts. The parties construct their respective interpretation arguments based on
the same language contained in the settlement agreement. As such, summary judgment is
appropriate, and to the extent any factual disagreements remain, the court finds them to
be immaterial to the question at hand.
III. Analysis
A. Contract Interpretation
The provision at issue states that plaintiff accepts “[t]he purchase of an annuity
which will provide” incrementally increased monthly payments, and that “[a]ll monthly
payments above are guaranteed for 30 years or the life of Jennifer, whichever is longer,”
ECF No. 1 at 8, in exchange for releasing her claims against the government, see id. at 9.
Plaintiff argues that this language unambiguously obligates defendant to ensure that
plaintiff receives the full payments recited in the contract. See ECF No. 10 at 5-6.
Defendant also insists that the agreement is unambiguous, but contends that its obligation
ended after it paid an initial lump sum and purchased an annuity to make the agreed-upon
payments. See ECF No. 13 at 14-20. According to defendant, the guarantee language in
the settlement agreement was “parroted” from the annuity contract, and meant only to
describe the nature of the annuity to be purchased. See id. at 17.
To support her position, plaintiff relies on the Federal Circuit’s decision in Massie
v. United States, 166 F.3d 1184 (Fed. Cir. 1999). The Massie family entered into a
settlement agreement that is remarkably similar to the agreement at issue here. Autumn
Massie, who suffered injuries during childbirth at a naval hospital, settled medical
malpractice claims by way of an agreement providing for monthly annuity payments.
See Massie, 166 F.3d at 1186. As is the case in the present matter, the company
responsible for making annuity payments to Ms. Massey became unable to do so, and
Ms. Massie sought the shortfall directly from the government. See id. at 1187. In that
case, the Federal Circuit reversed the decision from the Court of Federal Claims, and held
that the government was liable for the shortfall amounts. See id. at 1190.
In finding that the government was responsible for guaranteeing payments to Ms.
Massie, the Federal Circuit relied on a plain reading of the contract terms. The contract
at issue in Massie stated that “the annuity ‘will result in distributions’ and that the
payments were ‘guaranteed’ and ‘shall be paid.’” Id. at 1189. The court found this
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language to be “unambiguously mandatory,” and held that the government must be
responsible for the payments because “no one else is a party to the Agreement.” Id. at
1190. The Federal Circuit rejected the government’s argument that it had discharged its
duties under the settlement agreement “by purchasing an annuity that was set up to
disburse payments as the Agreement requires.” Id. at 1189-90. The court specifically
held that although the government was free to delegate its obligations to an annuity
company, “this delegation does not absolve it of its obligations.” Id. at 1190 (citing
Olson Plumbing & Heating Co. v. United States, 221 Ct. Cl. 197 (1979)).
The government, for its part, urges the court to follow Nutt v. United States, 837
F.3d 1292 (2016), another case with similar facts that was recently decided by the Federal
Circuit. In 1985, Cynthia Nutt entered into a settlement agreement with the government
after her husband was hit and killed by a United States Army truck. See id. at 1293-94.
The settlement agreement provided for a lump sum payment to the Nutt family, a lump
sum payment to the family’s attorney, and for the purchase of an annuity, which would in
turn provide payments to Ms. Nutt and her son. Id. at 1294. The annuity company later
became unable to make the full payments, and the Nutt family sought satisfaction from
the government. Id.
The Federal Circuit outlines the relevant portions of the contract at issue in Nutt as
follows:
As soon as practicable after approval of this settlement, the United States of
America agrees to purchase annuities which will pay the following amounts:
I.
1. a. [$60,000 per year] to Cynthia G. Nutt, her estate or designated
beneficiary for as long as [she] shall live or for thirty (30) years certain,
whichever is later.
b. On each of the following anniversaries of the purchase of the annuity, the
following specified lump sum payments shall be paid to Cynthia G. Nutt, her
estate or designated beneficiary: [listing anniversaries and amounts]
2. On each of the following anniversaries of the purchase of the annuity, the
following specified lump sum payments shall be paid to James N. Nutt, Jr.,
his guardian, his estate or designated beneficiary: [listing anniversaries
and amounts]
***
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II.
As soon as practicable after approval of this agreement, the United States of
America further agrees to pay [$240,000.00] to Cynthia G. Nutt . . . and a
sum equal to twenty percent of the total cost to the United States of the entire
settlement distributed to the [Plaintiffs’ attorneys].
The payments by the United States set forth above shall operate as full and
complete discharge of all payments to be made to and of all claims which
might be asserted on behalf of [Plaintiffs,] . . . provided, however, that if the
insurance company hereinafter referred to defaults in the performance of its
obligations under the annuity agreement with the United States, [Plaintiffs]
. . . shall have standing to sue the said insurance company for breach of
contract. In such event, the United States shall assist [Plaintiffs], their heirs
or personal representatives, in the prosecution of said suit to the extent
permitted by applicable laws and regulations.
The United States represents to [Plaintiffs] that the insurance company it
selects for the purchase of the annuities will be one which is generally
regarded as very sound in the insurance industry and to be among the class
or group of insurance companies which are rated Excellent or better by Best’s
Guide to Life Insurance Companies, 1982 Edition, published by A.M. Best
Company, Oldwick, New Jersey 07830.
***
The United States will furnish to [Plaintiffs] . . . a certificate of insurance or
other evidence of the purchase by the United States of annuities in an amount
sufficient to satisfy those obligations of the United States under this
Settlement Agreement which are to be satisfied by the purchase of the
annuities.
Id. at 1296-97. Like the parties in the present matter, in Nutt both the plaintiffs and the
government claimed that the contract unambiguously supported their respective positions.
Plaintiffs argued that “the terms of the Agreement ‘unambiguously obligate the
Government to ensure full payment of all annual payments and periodic lump sums it
promised.’” Id. at 1296. In response, the government argued that “the terms of the
Agreement ‘unambiguously require[ ] only the purchase of annuities.’” Id.
The Federal Circuit affirmed the Court of Federal Claims’ decision, and found in
favor of the government. The court looked—at a very granular level—to the exact
language in the agreement. It reasoned that:
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At the outset, the Agreement provides that “the United States of America
agrees to purchase annuities which will pay [certain periodic amounts].” We
agree with the Court of Federal Claims that the “fairest reading” of this
provision is that the Government did not agree to pay future sums, but agreed
only to purchase annuities. As the sentence’s syntax dictates, the phrase
“which will pay” modifies “annuities,” signaling that the annuities (and not
the Government) will pay the future amounts.
Id. at 1297 (citations omitted). The court held that two additional provisions bolstered its
conclusion: (1) the provision allowing plaintiffs to sue the annuity company in the event
of default; and (2) the provision noting that the government “will furnish” evidence that it
had purchased annuities in an amount sufficient to satisfy the “obligations of the United
States under this Settlement Agreement which are to be satisfied by the purchase of the
annuities.” Id. at 1298 (emphasis added by the Federal Circuit).
Despite the divergent conclusions of Massie and Nutt, the same principle underlies
both cases, and is consistent with long-standing precedent. That is: When interpreting a
contract, the court must look to the specific language of the contract. See McAbee, 97
F.3d at 1435. As the Federal Circuit explained in Nutt, the Massie case resulted in a
different outcome because the contract at issue involved different language. The court
identified two specific, material differences. See Nutt, 837 F.3d at 1299. First, the
“express guarantee provisions” present in Massie were not present in Nutt. See id. And
second, the Nutt agreement expressly “contemplates that in the event of a default by the
insurance company, the plaintiffs ‘shall have standing to sue the said insurance company
for breach of contract,’ and ‘the United States shall assist . . . in the prosecution of said
suit.’” See id.
The specific language of the agreement at issue in the present matter clearly and
unambiguously indicates that the government agreed, by basic grammatical function of
the terms in the agreement, to guarantee payments to plaintiff. The agreement states, in
the future tense, that the annuity to be purchased by the government “will provide”
certain monthly payments. ECF No. 1 at 8. The next sentence states, in the present
tense, that the monthly payments “are guaranteed,” for the longer of thirty years or
plaintiff’s life. Id. The court concludes that the portion of the agreement reciting what
the annuity will provide in the future constitutes a description of what the government is
obligated to purchase, while the guarantee, stated in the present tense, is a
contemporaneous promise between the parties executing the settlement agreement.
Mindful of the guidance provided by the Federal Circuit, a careful reading of the precise
contract language supports plaintiff’s position. See e.g., Nutt, 837 F.3d at 1297 (carefully
parsing the specific contract language by looking to the “syntax” and grammatical
structure of relevant sentences). Defendant’s arguments to the contrary are not
persuasive. The court also notes that the agreement contains none of the language
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relating to plaintiff’s standing to sue the annuity company that the court looked to in Nutt
as support for its conclusion.
B. Settlement Authority
In an attempt to circumvent any obligation to guarantee payments to plaintiff,
defendant contends that because the “Government official whose authority was required
to accept the settlement amount approved an amount not to exceed $1,000,000 . . . a
settlement costing the United States more than that would be void and unenforceable.”
ECF No. 13 at 23. According to defendant, the “authorized amount was insufficient to
make or guarantee each future payment, conclusively establishing that plaintiff’s
interpretation of the settlement should be rejected.” Id. In support of this argument, the
government attaches a payment voucher signed by John P. Davidson, and correspondence
with the company that arranged the structured settlement. See ECF No. 13-1 at 4-7.
This argument is unavailing for two reasons. First, these documents are extrinsic
to the agreement, and because the court has found that the agreement is unambiguous, the
court may not look beyond its corners. See McAbee, 97 F.3d at 1435 (explaining that
absent ambiguity, the court must give the contract terms their “plain and ordinary
meaning,” and may not consider evidence extrinsic to the agreement) (citing Alaska
Lumber & Pulp Co. v. Madigan, 2 F.3d 389, 392 (Fed. Cir. 1993) and Interwest Constr.
v. Brown, 29 F.3d 611, 615 (Fed. Cir. 1994)).
Assuming, however, that the court found it necessary to look beyond the
agreement, the court agrees with plaintiff that the evidence offered by defendant fails to
demonstrate that a disputed issue of material fact exists with regard to its contention that
the official who reviewed and approved the settlement agreement lacked authority to bind
the government to a guarantee provision. See ECF No. 14 at 6-8. The government states
in its motion that “the sole Government official with authority to approve payment of the
settlement” was D. Lowell Jensen. See ECF No. 13 at 11. Defendant then claims that
Mr. Jensen “authorized a lump-sum payment sufficient only to pay the upfront cash and
purchase the annuities that plaintiff agreed to accept.” Id. at 13-14. Neither the payment
voucher nor the correspondence, however, even name Mr. Jensen, much less shed any
light on what precisely he reviewed and approved. See ECF No. 13-1 at 4-7.
As such, the plain language of the contract remains the best and legally sufficient
evidence of the agreement between the parties.
Defendant raises one additional issue connected to settlement authority that the
court wishes to address.1 Defendant suggests that plaintiff’s interpretation of the contract
1 In its supplemental brief, defendant withdrew the arguments related to limited
waiver of sovereign immunity under the Federal Tort Claims Act (FTCA) and to an
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must be incorrect because its effect would violate current Department of Justice
settlement procedures that require settlement amounts to be disbursed as lump-sum
payments. See ECF No. 28 at 12-13. Defendant argues that “it must be presumed that
the parties intended to comply with the requirement that the Government’s settlement
obligations be discharged in full, at the time of settlement, out of appropriations made for
that purpose.” Id. at 13.
The problem with defendant’s argument is two-fold. First, as defendant
acknowledges, the Federal Circuit held in Nutt that “periodic damage awards under the
FTCA may be permissible in lieu of lump-sum payments with one of the recognized
exceptions, including by agreement of the parties.” Nutt, 837 F.3d at 1296 (citing Reilly
v. United States, 863 F.2d 149, 169 n.16 (1st Cir. 1988), and Vanhoy v. United States,
514 F.3d 447, 454 (5th Cir. 2008)). Defendant complains that the court in Nutt did not
explain the mechanism by which defendant is permitted to effect periodic payments to
settle FTCA claims. See ECF No. 28 at 12. But defendant’s confusion on the mechanics
of permissible settlement arrangements notwithstanding, this court does not have the
authority to contradict the Federal Circuit’s finding that periodic payments to settle
FTCA claims are permissible when made pursuant to an agreement between the parties.
Furthermore, it is not clear to the court that the result for which plaintiff advocates
would involve payments that are fairly characterized as periodic. Plaintiff has raised no
objection to defendant’s purchase of an annuity to provide periodic payments in its stead.
Rather, plaintiff simply seeks an additional payment pursuant to the guarantee the
government made now that the annuity has defaulted on its obligation. Defendant has
failed to demonstrate either that funds to support that guarantee would necessarily have
been included in the initial appropriation, or that seeking an additional appropriation to
cover that guarantee would be improper.
IV. Conclusion
For the foregoing reasons, the court finds that defendant guaranteed the monthly
payments to plaintiff, and summary judgment in plaintiff’s favor as to liability is
appropriate.
Plaintiff’s motion for partial summary judgment, ECF No. 10, is GRANTED, and
defendant’s motion for partial summary judgment, ECF No. 13, is DENIED. The parties
shall confer and file a joint status report informing the court as to the next appropriate
steps in the matter, and proposing a schedule regarding the same, on or before July 31,
2017.
analytical distinction between the FTCA and the Military Claims Act. See ECF No. 28 at
12.
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IT IS SO ORDERED.
s/ Patricia E. Campbell-Smith
PATRICIA E. CAMPBELL-SMITH
Judge
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