United States Court of Appeals
For the First Circuit
Nos. 20-2103
20-2135
JESSE ARONSTEIN, individually and on behalf of all others
similarly situated,
Plaintiff, Appellant/Cross-Appellee,
v.
MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY,
Defendant, Appellee/Cross-Appellant,
C.M. LIFE INSURANCE COMPANY,
Defendant.
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Mark G. Mastroianni, U.S. District Judge]
Before
Howard, Chief Judge,
Selya and Lynch, Circuit Judges.
Kevin B. Love, with whom Ian McLoughlin, Adam Stewart, Criden
& Love, P.A., and Shapiro Haber & Urmy LLP were on brief, for
appellant/cross-appellee.
Eric S. Mattson, with whom Robert N. Hochman, Heather
Benzmiller Sultanian, John P. Pucci, Jodi K. Miller, Sidley Austin
LLP, and Bulkley, Richardson and Gelinas, LLP were on brief, for
appellee/cross-appellant.
October 6, 2021
LYNCH, Circuit Judge. When a life insurance company
cuts the interest rate of an annuity in half, it must make that
change clear to its consumers. In choosing to change an interest
rate by an endorsement its own staff warned would sow consumer
confusion, defendant Massachusetts Mutual Life Insurance Company
("MassMutual") introduced ambiguity into its annuity certificate.
Because of that lack of clarity, plaintiff Jesse Aronstein believed
that he had bought an annuity that guaranteed him 3.0% annual
interest. MassMutual has taken the position that it clearly
promised only 1.5%. After a bench trial, the district court ruled
against MassMutual; it also ruled against Aronstein's class action
claims.1
Finding no error, we affirm the district court's denial
of class certification, entry of judgment for Aronstein, and award
of prejudgment interest.
I.
In 2003, MassMutual decided to cut the minimum
guaranteed interest rates -- the lowest rates annuities can earn
-- paid to purchasers of some of its annuities. For the New York
version of its "Odyssey" annuity, MassMutual reduced the rate from
1 No reporter has published and no electronic database
contains the relevant district court decisions. They can be found,
however, on the district court's docket. Aronstein v. Mass. Mut.
Life Ins. Co., No. 3:15-cv-12864-MGM (D. Mass. judgment entered
Nov. 12, 2020), ECF Nos. 169, 212, 223, 229, 230.
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3.0% to 1.5%. To effect that change, MassMutual considered two
options: updating the entire certificate or attaching an amendment
to the certificate, called an endorsement or rider, to override
the certificate's terms. MassMutual chose the latter option,
despite internal documents stating that creating such a conflict
between the endorsement and the certificate would be "[c]onfusing
to the client." MassMutual entitled this rider the "GUARANTEED
INTEREST RATE ENDORSEMENT." It also changed references in its
internal documents from "guaranteed interest rate" to "guaranteed
minimum interest rate." (Emphasis added.) But MassMutual did not
make a similar clarification in the endorsement to educate all of
its consumers.
We briefly describe the Odyssey annuity certificate, as
purportedly amended by the endorsement. The body of the
certificate explains that interest will accrue at a minimum rate
of 3.0% per year. On the first substantive page of the
certificate, the minimum guaranteed interest rate is listed as
3.0%, and the policy promises that "[t]he interest rate credited
to this Certificate shall never be less than the Minimum Guaranteed
Interest Rate shown above" (i.e., 3.0%). The certificate repeats
that promise several times. The certificate also contains payout
schedules based on the 3.0% rate. No payout figures based on a
1.5% rate are included. Additionally, the certificate promises
4.0% interest for the first year of the term. The certificate
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also provides that "[t]he entire Certificate consists of this
Certificate, the application, if any, and any riders or
endorsements attached to this Certificate."
The endorsement on which MassMutual relies appears on a
separate sheet following the certificate. The endorsement is
entitled "GUARANTEED INTEREST RATE ENDORSEMENT," but the
certificate refers to the relevant rate as the "Minimum Guaranteed
Interest Rate." Below the title, the endorsement reads:
This endorsement modifies the Contract to
which it is attached. In case of a conflict
with any provision in the Contract, the
provisions of this endorsement will control.
The effective date of this endorsement is the
date the endorsement is attached to the
Contract. Where appropriate, the word
"Certificate" shall be substituted for the
word "Contract". The Contract is modified as
follows:
The Minimum Guaranteed Interest Rate has
been changed to 1.5%.
The single endorsement page was only one of thirty-four pages sent
to consumers. At the start of the certificate, the table of
contents provides no reference to the endorsement. The second
page of the certificate schedule lists a single "rider" to the
policy: a "GUARANTEED INTEREST RATE ENDORSEMENT."
New York regulators approved the interest rate change in
July 2003, and MassMutual put the changed interest rate into effect
for annuities sold after December 31, 2003. In the lead-up to
that change, MassMutual communicated about the new, reduced
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interest rate with both its own salesforce and affiliated
salespeople. It provided them with new marketing materials for
the Odyssey, which did not reference the 3.0% rate (or the 1.5%
rate).
Before purchasing the annuity, in December 2003,
Aronstein met with a third-party salesperson authorized to sell
MassMutual annuities at his local bank. Aronstein told the
salesperson that he was looking for a secure investment with better
interest rates than the bank was advertising for certificates of
deposit. The salesperson steered Aronstein towards the Odyssey,
which he described as offering a 3.0% minimum interest rate. The
salesperson also gave Aronstein one of MassMutual's marketing
brochures reflecting the 3.0% rate. The salesperson did not tell
Aronstein that the minimum guaranteed interest rate would soon be
halved. Had Aronstein bought the annuity that day, he would have
received a certificate guaranteeing him a 3.0% return. But by the
time Aronstein had reviewed the materials with his wife and decided
to purchase the annuity, MassMutual had lowered the interest rate.
And when Aronstein returned to purchase the annuity, the
salesperson did not tell him about the change. Aronstein executed
the papers to purchase the annuity believing that he would always
receive at least 3.0% annual interest.
When Aronstein received in the mail from MassMutual a
package of the key documents, he reviewed it. But he did not
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notice the single-page endorsement tucked between the certificate
and a copy of his application. He read the nineteen pages of the
certificate, and he specifically noted that the certificate listed
the minimum guaranteed interest rate as 3.0%. He then "thumbed
through" the four pages of the copy of his application at the end
of the package. He did not catch the endorsement sandwiched
between the certificate and the application materials. In fact,
Aronstein did not notice the endorsement until years later when,
upon receiving an annual statement, he realized that MassMutual
had credited him less than 3.0% interest for several years. Even
then, he only discovered it attached to his certificate after a
MassMutual employee sent him a copy and Aronstein matched the copy
against the one in his materials. After discovering the
endorsement, Aronstein obtained counsel who sued on behalf of
Aronstein and a purported class of similarly situated customers.
He alleged causes of action for breach of contract and unfair and
deceptive trade practices.
Following discovery, the district court allowed in part
and denied in part MassMutual's motion for summary judgment. It
dismissed the unfair and deceptive trade practices claim, holding
that it was time barred. It allowed the breach of contract claim
to continue to trial, holding that the meaning of the certificate
was ambiguous. The district court then denied Aronstein's motion
for class certification, permitting him to pursue his individual
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claim. Relying on its earlier determination that the contract was
ambiguous, it concluded that extrinsic evidence would be needed to
determine what interest rate each class member believed the annuity
guaranteed. Thus, the district court held that common issues did
not predominate over individual ones, precluding class
certification. See Fed. R. Civ. P. 23(b)(3). The district court
then tried Aronstein's individual claim without a jury and entered
judgment for Aronstein. It also awarded Aronstein prejudgment
interest.
Aronstein appealed from the denial of class
certification. MassMutual cross-appealed from the judgment
against it and conditionally cross-appealed from the grant of
prejudgment interest.
II.
After a bench trial, we review the district court's
findings of fact for clear error and its legal conclusions de novo.
Calandro v. Sedgwick Claims Mgmt. Servs., Inc., 919 F.3d 26, 33
(1st Cir. 2019). In this diversity case, the parties agree that
we apply New York law. See Erie R.R. Co. v. Tompkins, 304 U.S.
64, 78 (1938); see also Borden v. Paul Revere Life Ins. Co., 935
F.2d 370, 375 (1st Cir. 1991) ("Where . . . the parties have agreed
about what law governs, a federal court sitting in diversity is
free, if it chooses, to forgo independent analysis and accept the
parties' agreement.").
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We begin with MassMutual's challenge to the district
court's judgment for Aronstein. MassMutual argues that the annuity
unambiguously sets the minimum guaranteed interest rate at 1.5%,
entitling it to judgment as a matter of law. That argument fails.
A.
The annuity contract, composed of several documents, was
ambiguous under New York law as to the Odyssey minimum guaranteed
interest rate at the time Aronstein purchased it.
New York courts read contracts as a "harmonious and
integrated whole." See Westmoreland Coal Co. v. Entech, Inc., 794
N.E.2d 667, 670 (N.Y. 2003). Several documents can comprise a
single contract. See Cnty. of Columbia v. Cont'l Ins. Co., 634
N.E.2d 618, 628 (N.Y. 1994) ("[I]t is settled that in construing
an endorsement to an insurance policy, the endorsement and the
policy must be read together, and the words of the policy remain
in full force and effect except as altered by the words of the
endorsement."). Whether a contract is ambiguous is a question of
law. See Banos v. Rhea, 33 N.E.3d 471, 476 (N.Y. 2015).
"'Ambiguity in a contract arises when the contract, read as a
whole, fails to disclose its purpose and the parties' intent,' or
where its terms are subject to more than one reasonable
interpretation." Universal Am. Corp. v. Nat'l Union Fire Ins. Co.
of Pittsburgh, Pa., 37 N.E.3d 78, 80 (N.Y. 2015) (quoting Ellington
v. EMI Music, Inc., 21 N.E.3d 1000, 1003 (N.Y. 2014)) (citations
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omitted). When the language of a header conflicts with the
language of text below it, that difference may create ambiguity.
Kowalczyk v. Flintkote Co., 405 N.Y.S.2d 852, 853 (App. Div. 1978).
We identify three elements of the certificate and the
endorsement that create ambiguity.
First, the certificate promises that "[t]he interest
rate credited to this Certificate shall never be less than the
Minimum Guaranteed Interest Rate shown above." (Emphasis added).
The minimum guaranteed interest rate shown above that paragraph is
3.0%. The definitions section of the certificate similarly defines
the minimum guaranteed interest rate by reference to the rate
"shown on the Certificate Schedule." (Emphasis added). A consumer
could construe those representations to mean that the rate actually
printed on the certificate schedule, not the rate in the
endorsement, controls. This would be reasonable because the
endorsement does not actually say that the rate in the certificate
and the rate in the endorsement conflict.
Second, the heading of the endorsement is misleading.
The endorsement is entitled "GUARANTEED INTEREST RATE
ENDORSEMENT," but the policy guarantees multiple interest rates.
Along with the minimum guaranteed interest rate, the policy
promises to credit interest to the annuity at a "current interest
rate" for the first year of the term. Thus, one could reasonably
look to the endorsement's heading and understand that the
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endorsement modified the other guaranteed interest rate and not
the minimum guaranteed interest rate. See id. Indeed, as the
district court permissibly inferred, MassMutual internally
corrected how it referred to the interest rate in to "avoid any
confusion among MassMutual employees regarding the particular
interest rate to be changed." (Emphasis added.)
Third, a consumer could understand the endorsement as
not modifying the guaranteed interest rate. The lone reference to
a "rider" in the certificate informs the consumer that there is a
"GUARANTEED INTEREST RATE ENDORSEMENT," but as we have concluded,
that language is itself misleading. The certificate's table of
contents omits the endorsement entirely. Both the table of
contents and the pagination of the nineteen numbered pages2 that
comprise the certificate would lead a consumer to believe
reasonably that there was no modification to the minimum guaranteed
interest rate. After reviewing eighteen pages premised on a 3.0%
interest rate -- including payout tables based on that figure --
a consumer must find the endorsement sandwiched between the
certificate and his application. Taking the certificate and the
endorsement as a whole, as we must under New York law, we cannot
conclude that a consumer would read the endorsement and understand
2 Each page of the certificate has a footer with the page
number listed out of eighteen total pages (e.g., Page 1 of 18).
Because the certificate contains both a page 3A and a page 3B, it
has nineteen pages in total.
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that it fundamentally altered the economic terms of the deal.
Finally, although it is not necessary to our analysis, it seems
unlikely that a consumer would even see that there was an
endorsement given these same factors.
The three elements render the certificate's minimum
guaranteed interest rate susceptible to two reasonable
interpretations. A consumer could reasonably read the certificate
as MassMutual does and conclude that the minimum guaranteed
interest rate was 1.5%. But he could also reasonably read it as
Aronstein did and conclude that he was entitled to a 3.0% interest
rate. Therefore, the provisions setting the minimum guaranteed
interest rate are ambiguous.
B.
"Where, as here, the language of a contract is ambiguous,
its construction presents a question of fact" under New York law.
Pepco Constr. of N.Y., Inc. v. CNA Ins. Co., 790 N.Y.S.2d 490, 491
(App. Div. 2005). So we must determine whether the district
court's construction of the contract was clearly erroneous.
When a contract is ambiguous, New York courts look to
extrinsic evidence of the parties' intent. Carlson v. Am. Int'l
Grp., Inc., 89 N.E.3d 490, 498 (N.Y. 2017). If that evidence does
not resolve the ambiguity, then New York courts resolve the
ambiguity against the insurer. See Fairchild v. Genesee Patrons
Coop. Ins. Co., 656 N.Y.S.2d 544, 545 (App. Div. 1997).
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Based on the extrinsic evidence, the district court
found that each party believed that the certificate provided for
a different minimum guaranteed interest rate. Because the
extrinsic evidence did not resolve the ambiguity, the district
court construed the ambiguity against MassMutual as drafter of the
contract.
We find no error. Indeed, MassMutual has waived any
argument to the contrary by failing to raise it in its briefs.
See United States v. Zannino, 895 F.2d 1, 17 (1st Cir. 1990).
III.
We turn next to the district court's denial of
Aronstein's motion for class certification. We review legal
questions de novo, factual determinations for clear error, and the
district court's overall class certification decision for abuse of
discretion. In re Nexium Antitrust Litig., 777 F.3d 9, 17 (1st
Cir. 2015).
Aronstein argues that New York courts would, but have
not yet, recognize two doctrines of contract interpretation, each
of which would render extrinsic evidence irrelevant.3 If extrinsic
evidence were irrelevant, then the district court's class
3 Aronstein also argues that the district court committed
reversible error by failing to predict whether the New York courts
would adopt these doctrines. Not so. The district court held
that New York courts would not buy Aronstein's theories. In any
case, because our review of these legal questions is de novo, the
argument is irrelevant.
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certification determination would be weakened, as it held that
individualized inquiry into extrinsic evidence would destroy
predominance over common questions of fact and law. The district
court ruled against the argument, and we find no error.
To apply the substantive law of New York to this dispute,
we look foremost to the decisions of the New York Court of Appeals.
See Philibotte v. Nisource Corp. Servs. Co., 793 F.3d 159, 165
(1st Cir. 2015). In making an informed "Erie prediction" when
state courts have not spoken directly, federal courts are
restrained. See generally 19 A. Miller, Federal Practice and
Procedure § 4507 (3d ed. Apr. 2021 update). A "plaintiff, who
made a deliberate choice to sue in federal court rather than in
. . . state court, is not in a position to ask us to blaze a new
trail that the [state] courts have not invited." Jones v. Secord,
684 F.3d 1, 11 (1st Cir. 2012).
A.
Aronstein first argues that New York courts would
construe an "intentionally ambiguous" contract against its
drafter. That is not the present state of New York law.
Under New York law, courts must first examine extrinsic
evidence of the parties' intent before turning to doctrinal
presumptions. See Perella Weinberg Partners LLC v. Kramer, 58
N.Y.S.3d 384, 389 (App. Div. 2017). Doctrines like contra
proferentem "may only be applied as a last resort, if the extrinsic
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evidence is inconclusive." Id. (emphasis added); see also
Nationstar Mortg. LLC v. Goeke, 57 N.Y.S.3d 223, 227 (App. Div.
2017) (collecting cases). That rule is particularly important
because it preserves parties' right to a jury trial when extrinsic
evidence conflicts. See Hartford Acc. & Indem. Co. v. Wesolowski,
305 N.E.2d 907, 909 (N.Y. 1973); Nationstar Mortg., 57 N.Y.S.3d at
227.
The most important factor in predicting whether New York
courts would adopt a rule is what New York courts have to say on
the matter. Here they are silent.4 And no other court has adopted
Aronstein's proposed rule either. The closest case he points to
is McMullin v. McMullin, 338 S.W.3d 315 (Ky. Ct. App. 2011). In
McMullin, the Kentucky Court of Appeals interpreted a property
division agreement between divorcing spouses. Id. at 317. The
husband intentionally introduced an ambiguous provision into the
agreement. Id. at 319, 323. Because of that chicanery, the court
refused to enforce a purported waiver of contra proferentem and
instead ruled for the wife. See id. 322-23. But far from refusing
to consider extrinsic evidence, the court explicitly considered
4 Aronstein also tries to argue that New York courts do
not look to extrinsic evidence in interpreting ambiguous insurance
contracts. Of course, New York law says nothing of the kind. See,
e.g., Fairchild, 656 N.Y.S.2d at 545 ("[W]here an insurance policy
is found to be ambiguous, the parties may submit extrinsic evidence
to aid in construction. It is only where such evidence does not
resolve the equivocality that the ambiguity must be resolved
against the insurer." (citation omitted)).
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the wife's testimony about her intent in contracting. Id. at 321
("Her testimony may be considered on this matter because courts
may look to extrinsic evidence where an ambiguity exists in a
contract."). Thus, McMullin does not support the rule Aronstein
offers.
B.
Aronstein next argues that New York courts would
construe standard-form contracts in the same manner for all
parties. He derives that rule from § 211(2) of the Restatement
(Second) of Contracts (Am. L. Inst. 1981), which provides that a
standardized contract is "interpreted wherever reasonable as
treating alike all those similarly situated, without regard to
their knowledge or understanding of the standard terms of the
writing." We need not address whether New York courts would adopt
that provision of the Restatement; even if they would, the
provision provides no aid to Aronstein.
A reporter's note to § 211 explains that "[w]hen an
employee of the dominant party explains a term in a standardized
agreement to the other party, parol evidence may be admitted to
show the explanation." Restatement (Second) of Conts. § 211
reporter's note to cmt. b; see, e.g., Darner Motor Sales, Inc. v.
Universal Underwriters Ins. Co., 682 P.2d 388, 395–96 (Ariz. 1984);
Sutton v. Banner Life Ins. Co., 686 A.2d 1045, 1050-51 (D.C. 1996).
It is true that in some cases, parol evidence is irrelevant because
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the parties' expectations are subordinated to the language of the
contract. See Kolbe v. BAC Home Loans Servicing, LP, 738 F.3d
432, 440–41 (1st Cir. 2013) (lead opinion of equally divided en
banc court) (collecting cases). But that is not so when the
drafting party orally clarifies an ambiguity to most of its
customers. After all, the purpose of § 211 is to give consumers
the bargain they "reasonably expected." See, e.g., Darner, 682
P.2d at 391. The purpose is not to allow consumers to obtain
benefits they never expected by creative legerdemain. While the
provision may provide an "advantage" to "some sophisticated
customers who contracted with knowledge of an ambiguity or
dispute," it cannot reasonably be construed to allow a host of
customers to exploit a provision they fully understood. See
Restatement (Second) of Conts. § 211 cmt. e.
What is more, Aronstein did not establish that he is
similarly situated to most other Odyssey purchasers as application
of the Restatement provision would require. As the district court
explained, although Aronstein was never told that MassMutual
reduced the interest rate to 1.5%, MassMutual produced evidence
that it "engaged in an extensive marketing campaign to inform sales
agents of the minimum guaranteed interest rate change, its
marketing materials were modified to reflect this change, and sales
agents generally explained this key interest rate to potential
purchasers orally." And Aronstein has adduced no evidence to show
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that many Odyssey purchasers were confused by the interest rate
they obtained. Indeed, the record contains evidence of only one
Odyssey purchaser who was not informed that the rate had been
lowered: Aronstein himself. Thus, he cannot show that application
of § 211(2) would allow for common interpretation of the
endorsement across the proposed class.
IV.
Finally, we address MassMutual's appeal of the district
court's award of prejudgment interest. MassMutual conditionally
cross-appealed from the award. In its opening brief, MassMutual
stated that it would drop the issue if we either affirmed the
denial of class certification or reversed the judgment for
Aronstein. Because we affirm the denial of class certification,
MassMutual has waived its challenge to prejudgment interest.
V.
The decisions below are affirmed. Costs awarded to
Aronstein. See Fed. R. App. P. 39(a).
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