In the

United States Court of Appeals

For the Seventh Circuit

No. 12-3264

MARLEEN M. LAPLANT, individually

and on behalf of a class,

Plaintiff-Appellee,

v.

THE NORTHWESTERN MUTUAL

LIFE INSURANCE COMPANY,

Defendant-Appellant.

Appeal from the United States District Court

for the Eastern District of Wisconsin.

No. 11-C-910—Lynn Adelman, Judge.

ARGUED OCTOBER 31, 2012—DECIDED NOVEMBER 28, 2012

Before EASTERBROOK, Chief Judge, and FLAUM and

SYKES, Circuit Judges.

EASTERBROOK, Chief Judge. Northwestern Mutual sold

an annuity contract, which the parties call a “Pre-MN

annuity,” to approximately 36,000 persons. Of these,

some 3,000 live in Wisconsin. In 1985 Northwestern

Mutual changed the method it used to calculate the an-
2 No. 12-3264

nuitants’ annual dividend. The annuitants contend that

this change violates the terms of the annuity contracts, both substantively and with respect to the notice

Northwestern Mutual must give its customers.

This is not the first class action filed by the annuitants.

In 2001 the lawyers who today represent Marleen

LaPlant, our representative plaintiff, filed suit in a Wisconsin state court seeking to represent all annuitants

throughout the nation. The judge declined to certify

that class, ruling among other things that (a) a claim

for damages creates individual issues that make class

treatment imprudent, and (b) a national class is not

manageable given differences in the state law applicable to the policies, approximately 45% of which

contain choice-of-law clauses specifying application

of the law in the annuitants’ home state, rather than

Wisconsin, where Northwestern Mutual is incorporated

and has its headquarters. Noonan v. Northwestern

Mutual Life Insurance Co., 298 Wis. 2d 247 (Ct. App. 2006),

affirmed that decision. The current suit, reflecting the

limits established in Noonan, initially proposed a class

limited to annuitants who live in Wisconsin and sought

only a declaratory judgment that the 1985 change is

invalid. A declaratory judgment in favor of the class

could be followed by individual suits seeking damages.

The Wisconsin-only suit was certified as a class action

and tried to the court (since the only proposed remedy

was a declaratory judgment). Judge Dennis J. Flynn

ruled in plaintiffs’ favor, issuing a sweeping decision

declaring that Northwestern Mutual violated the annuity
No. 12-3264 3

contracts, breached its fiduciary duties, and should pay

substantial compensatory and punitive damages. Plant

[sic] v. Northwestern Mutual Life Insurance Co., No. 08-CV11988 (Cir. Ct. Milwaukee County Mar. 7, 2011). The

class then amended its complaint to seek damages for

all annuitants in every state.

Contending that the amendment brought the suit

within the scope of the Class Action Fairness Act, 28

U.S.C. §§ 1332(d), 1453, Northwestern Mutual filed a

notice of removal. LaPlant asked the district court to

remand, relying on §1453(d), which says that the Act

“shall not apply to any class action that solely involves— . . . (2) a claim that relates to the internal

affairs or governance of a corporation or other form of

business enterprise and arises under or by virtue of the

laws of the State in which such corporation or business enterprise is incorporated or organized”. (Section

1332(d)(9)(B) contains a materially identical provision

for suits filed initially in federal court.) LaPlant maintained that the suit “relates to the internal affairs” of

Northwestern Mutual because the policyholders of a

mutual insurer have an ownership interest in its governance and profits. Northwestern Mutual replied that the

suit relates to the annuity contracts, not to its internal

affairs, and that at all events the suit does not “solely

involve[]” Wisconsin’s corporate law, given the choice-oflaw clauses that led to Noonan’s decision against

certifying a national class.

The district court remanded the suit. 2012 U.S. Dist. LEXIS

116872 (E.D. Wis. Aug. 20, 2012). The judge observed that
4 No. 12-3264

the appellate decision in Noonan had not held that

multiple states’ laws apply but had concluded only that

the state trial judge had not abused his discretion in so

holding. Deeming the state trial judge’s decision on

that point not binding, the federal district judge

declared that the choice-of-law clauses are invalid and

that Wisconsin law applies to the policyholders in

every state. The district judge also concluded that all

disputes concerning policies issued by a mutual insurer

relate to that insurer’s internal affairs, so that §1453(d)(2)

requires a remand. We accepted Northwestern Mutual’s

petition for permission to appeal. See 28 U.S.C. §1453(c)(1).

The application of §1453(d)(2) in litigation concerning a Wisconsin corporation has the potential to

create anomalies. The internal-affairs doctrine is “a

conflict of laws principle which recognizes that only one

State should have the authority to regulate a corporation’s internal affairs—matters peculiar to the relationships among or between the corporation and its current

officers, directors, and shareholders—because otherwise

a corporation could be faced with conflicting demands.”

Edgar v. MITE Corp., 457 U.S. 624, 645 (1982). See also

Atherton v. FDIC, 519 U.S. 213, 223 (1997). Section 1453(d)(2)

reflects the view that, when just one state’s law applies

to a nationwide class, a state court can provide a satisfactory resolution. Yet Wisconsin does not uniformly employ

the internal-affairs doctrine. In Beloit Liquidating Trust v.

Grade, 270 Wis. 2d 356 (Wis. 2004), the Supreme Court

of Wisconsin applied Wisconsin law to a suit concerning the internal affairs of a Delaware corporation.

Northwestern Mutual does not contend, however, that
No. 12-3264 5

a state’s adoption of the internal-affairs doctrine is essential to a remand under §1453(d)(2), which asks whether

the dispute “relates to” internal affairs and not what

law the state court will apply (apart, that is, from the

“solely” language).

The parties do, however, dispute how we should

resolve uncertainties about whether a particular suit

relates to internal affairs. The district court concluded,

and the class contends, that “relates to” should be read

broadly and that the existence of other issues (here, the

interpretation of the contracts) should not prevent a

remand. Northwestern Mutual sees the word “solely” as

defeating a broad reading of “relates to”. Although at

least one circuit has held that the statutory language

reflects a preference for remand to state court, see Greenwich Financial Services Distressed Mortgage Fund 3 LLC v.

Countrywide Financial Corp., 603 F.3d 23, 29 (2d Cir.

2010), this circuit’s approach is to read the exceptions

in §1332(d) and §1453(d) without a presumption for

either remanding or retaining jurisdiction. We try to give

the statutory language a natural meaning in light of its

context, without a thumb on the scale. See, e.g., Appert v.

Morgan Stanley Dean Witter, Inc., 673 F.3d 609 (7th Cir.

2012); Katz v. Gerardi, 552 F.3d 558 (7th Cir. 2009).

Congress did not define “internal affairs”, but

neither did it signal a departure from that term’s ordinary

meaning, which the Supreme Court restated in Edgar:

“matters peculiar to the relationships among or between

the corporation and its current officers, directors, and

shareholders”. By that standard, LaPlant’s claim does not
6 No. 12-3264

relate to Northwestern Mutual’s internal affairs. The

suit does not involve the identity or authority of the

firm’s officers or directors, and the annuitants are not

shareholders.

True, policyholders in a mutual have “ownership”

interests, but that is not enough. Holders of corporate

bonds also have ownership interests, especially when

the issuer does not pay the promised return (the very

sort of claim LaPlant makes). Yet disputes between corporations and their creditors regularly are resolved under

the law of contract; they are not thought of as disputes

about internal corporate affairs. Annuity policies are

effectively debt contracts, and this suit depends on the

terms of promises that Northwestern Mutual made in

the “Pre-MN annuities.” Money due under a contract

is not a dividend for corporate-law purposes, no matter

what the contract calls it. In corporate law, a dividend

is discretionary with the board. The annuitants are

entitled to be paid, not to a role in Northwestern

Mutual’s corporate governance.

One logical implication of holding that a dispute

between annuitants and mutual insurers relates to the

insurer’s internal affairs would be that any dispute

about the meaning of any of the issuer’s policies relates

to the firm’s internal affairs—for holders of standard

policies, no less than holders of annuities, have remote

“ownership” interests in mutual insurers. Yet suits about

the meaning of an advertising-injury coverage, or an

exclusion for intentional torts, are decided every day

without either judge or litigants dreaming that they need
No. 12-3264 7

to understand or address corporate law. These are

disputes about the policies, resolved under insurance

law rather than the Model Business Corporations Act

and the internal-affairs doctrine. Just so with disputes

about the meaning of annuity contracts. A court should

proceed in this suit the same way it would if the issuer

were a for-profit insurer with shares traded on the

New York Stock Exchange rather than a mutual insurer.

Judge Flynn relied on New York and Wisconsin

insurance law and several states’ laws about marketing

but scarcely mentioned Wisconsin’s corporate law. That

pretty much shows that this dispute does not concern

the internal affairs of a Wisconsin corporation. What’s

more, the class relies heavily on Wis. Stat. §632.62, a

provision covering how “participating” policies share in

divisible surplus. Section 632.62 is part of Wisconsin’s

insurance code rather than its corporate code.

The annuitants are entitled to the full measure of their

rights no matter the issuer’s financial structure, but

under contract law and insurance law (and potentially

securities law, since annuities can be securities if not

regulated as insurance policies, see SEC v. United Benefit

Life Insurance Co., 387 U.S. 202 (1967)) rather than

corporate law. LaPlant and the class have not cited any

decision, by any state court, applying the internal-affairs

doctrine to claims by annuitants based on promises

made in their policies, and we conclude that §1453(d)(2)

does not apply.

The choice-of-law clauses found in about 45% of the

annuities reflect their status as regulated insurance prod-
8 No. 12-3264

ucts. Many states require insurance policies to be governed by the law of the state in which the insured lives

(or the policy is issued) rather than the law of the state

in which the insurer is incorporated. And if multiple

states’ law applies, this litigation cannot be resolved

“solely” under Wisconsin’s corporate law even if it were

within the scope of the internal-affairs doctrine (which, to

repeat, it isn’t). The district court thought otherwise,

proceeding in two steps. First, it applied Wisconsin’s

common-law choice-of-law principles, see Heath v. Zellmer,

35 Wis. 2d 578 (1967), and found that, in the absence

of a choice-of-law clause, Wisconsin law would apply.

Second, it concluded that any contract specifying a different set of legal rules is ineffectual as contrary to

the public policy reflected in Heath. Because the main

function of contractual choice-of-law clauses is to specify

a body of law other than the one that would be

selected using common-law methods, the upshot of the

district court’s decision is that all choice-of-law clauses

are invalid in Wisconsin.

For this startling proposition the district court cited

only Bush v. National School Studios, Inc., 139 Wis. 2d 635,

642 (1987). Bush dealt with a suit under the Wisconsin

Fair Dealership Law, which forbids any contractual

departure from its provisions. Wis. Stat. §135.025(3).

Wisconsin’s insurance law lacks any equivalent language. Bush acknowledged that Wisconsin regularly

enforces choice-of-law clauses. 139 Wis. 2d at 642, citing

Jefferis v. Austin, 182 Wis. 203, 205 (1923); Brown v. Gates,

120 Wis. 349 (1904). The state trial court determined

that the choice-of-law clauses in these very contracts
No. 12-3264 9

are valid—and although the appellate decision in

Noonan held that this ruling was not an abuse of

discretion, by LaPlant’s lights what the appellate court

should have held is that the clauses are invalid and that

a national class therefore could have been certified.

We are not disposed to disagree with the holding of a

Wisconsin trial court, and the strong implication of

a Wisconsin appellate court, on the validity of these

particular contractual clauses as a matter of Wisconsin

law. Under Erie our task is to resolve a dispute about

state law the way the state’s highest court would resolve

it, and our best assessment is that the Supreme Court of

Wisconsin would agree with the approach already taken

by the state’s trial and appellate judges.

LaPlant relies on Drinkwater v. American Family Mutual

Insurance Co., 290 Wis. 2d 642 (2006), for the proposition

that choice-of-law clauses can be deemed invalid even

in the absence of a statute such as §135.025(3). The

dispute in Drinkwater concerned an insurer’s claim to

subrogation under a contract that gave the insurer a

right to be repaid from an insured’s tort recoveries

against third parties. A clause in the contract

pointed to Iowa law, but Drinkwater nonetheless held

that Wisconsin law applied until the victim—a citizen

of Wisconsin injured in an accident in Wisconsin—had

been made whole by the combination of insurance proceeds and damages in tort. Only after a make-whole

recovery could the contractual right to subrogation kick

in. We said earlier that many states insist that their

own insurance law, and not the law of the insurer’s

home state, apply to policies issued in or for the benefit
10 No. 12-3264

of their citizens. That’s what Drinkwater concluded. And

that is also what the choice-of-law clauses in the “Pre-MN

annuity” contracts provide. Drinkwater, which held that

the law of the insured’s state prevails over the law of the

insurer’s (or employer’s) state, does not suggest to us

that the Supreme Court of Wisconsin would conclude

that the law of Wisconsin necessarily governs all

annuities issued by a Wisconsin insurer, even if the

policies themselves and the law of the annuitants’ home

states provide otherwise. (The class does not contend

that any other state’s domestic law would be repugnant

to Wisconsin, so that potential limit on choice-oflaw clauses is inapplicable.)

This is a contract case, not a corporate-governance

case. And multiple states’ law applies to these contracts.

Every state enforces promises, but states differ in how

they calculate damages and when (if ever) punitive

damages are available for breach of contract (which

the plaintiffs want to recast as a tort claim for breach of

fiduciary duty). Section 1453(d)(2) therefore does not

permit a remand, and this class action must be finally

resolved in federal court. The district judge must determine whether to certify a nationwide class for damages

and, having resolved that and any other procedural

issue, must decide the case on the merits.

A federal court inherits a removed case in its procedural

posture on the date of removal. When this case was

removed, Judge Flynn was free to reconsider his own

decision—to consider not only whether it was substantively correct but also whether the Uniform Declaratory
No. 12-3264 11

Judgments Act, which Wisconsin has adopted, Wis. Stat.

§806.04, permits the maneuver by which the class

sought to get around Noonan’s holding that Wisconsin

law does not allow the annuitants to pursue a class-wide

claim for damages. The doctrine of law of the case therefore does not prevent the district judge from evaluating

both sides’ contentions. And law of the case does not

apply at all once a trial court’s decision is on appeal; we

will be as free to review Judge Flynn’s decision on the

merits (should the federal district court enter a judgment

based on it) as we would be had the identical decision

been made initially by the federal district judge. See, e.g.,

Williams v. CIR, 1 F.3d 502 (7th Cir. 1993) (a trial court’s

decision never binds an appellate court through the

doctrine of law of the case).

VACATED AND REMANDED

12-6-12