UNITED STATES DISTRICT COURT 

FOR THE EASTERN DISTRICT OF PENNSYLVANIA 

 ) 

In re AMERICAN INVESTORS LIFE ) MDL Docket No. 1712 

INSURANCE CO. ANNUITY ) 

MARKETING AND SALES PRACTICES ) 

LITIGATION ) 

 ) 

RESPONSE OF CLASS MEMBER 

MARTHA MICHAEL TO PLAINTIFFS’ 

MOTION FOR FINAL APPROVAL 

AND WITHDRAWAL OF HER INTENT TO APPEAR AT THE FAIRNESS HEARING 

 

 Unless and until a fair and adequate settlement can be structured for the class members, 

the Court should not grant Plaintiffs’ Motion for Final Approval of Settlement, Class 

Certification, and Award of Attorney fees and Costs and Incentive Payments. Toward that end, 

the Objection of Martha Michael should be sustained and the Plaintiffs’ Motion denied. In 

further support of her Objection, Ms. Michael, through her attorneys of record, state the 

following: 

I. The proposed settlement is not fair and adequate because its Claims Review Process 

is too complicated and fails to offer the appropriate and reasonable remedy of 

rescission and refund of premiums. 

Determining fairness and adequacy of the proposed settlement by comparing it to the 

Minnesota settlement is appropriate. Indeed, class counsel points to other settlement classes in 

their effort to persuade the Court that the proposed settlement should be approved. Ms. Michael 

maintains that the Minnesota settlement is the best and most appropriate point of comparison 

because it involves the same defendants, identical claims and will operate side-by-side with the 

proposed settlement if it is approved. In her Objection, Ms. Michael argued that the Claim 

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Review Process should operate consistent with the process used in the Minnesota Settlement 

because claimants there are entitled to seek rescission and a full refund of premium (with 

interest). Minnesota residents are entitled to the refund, if they can demonstrate that they had 

been defrauded or that the annuity they purchased was unsuitable for them. By the terms of the 

settlement, claims are to be liberally construed in favor of the claimants. 

Similarly, the Claims Review Process of the proposed settlement allows class members to 

demonstrate that they have been defrauded and that the annuities sold to them were unsuitable.1

In the Claims Review Process, however, an individual adjudication of each class member’s 

claims will occur as a prerequisite to an award of ‘class’ relief to that claimant. Each claim will 

be individually scrutinized to see if the evidence presented by the claimant meets one of four 

different evidentiary standards, and to see if it fits into any of several different factual scenarios. 

After a determination of the merits of each individual claim is made, the class member may be 

awarded a small increase to the ‘bonus’ enhancement, or receive a slightly greater fraction of the 

surrender charge the Defendants have already levied on those claimants who (were clearly 

convinced) they had been misled or sold an unsuitable annuity. Under the proposed settlement, 

the best outcome for a claimant who proves her legal claim by clear and convincing evidence is 

                                                           

1 Class Counsel explains the process: 

The Claim Process Relief, and the related Claim Review Process, is intended for Class Members who 

believe that they can prove that they have been harmed by the way a policy was marketed and sold and/or 

because the policy was unsuitable for the original owner. The Claim Review Process allows participating 

Class Members to submit a Claim Form and proof of alleged misconduct by Defendants or the salespersons 

involved in the sale. Class Members who participate in the Claim Review Process must prove their claim in 

order to receive any Claim Process Relief. 

Plaintiffs Memorandum in Support of Approval, p. 10. 

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far less than what she would be entitled to under the basic contract law of every state (i.e. 

rescission). 

The Minnesota settlement presents a more desirable and more efficient alternative to the 

proposed Claims Review Process. In it, rather than have multiple tiers applying differing 

evidentiary standards and considering a myriad of factual scenarios, the claimants were allowed 

to request a full refund of their premiums if they believed they had been defrauded or if the 

annuity sold to them was unsuitable. Claims are to be construed liberally in favor of the 

claimants and the same standard applies to all claimants. The Minnesota settlement presents a 

much more efficient and desirable process than the proposed settlement. 

 At bottom, the proposed settlement and its Claim Review Process is neither fair nor 

adequate because it places a higher burden of proof on the Claimant, and yet (when the higher 

burden of proof is met) awards less relief than that available to Minnesota residents having the 

same claims.2

 Additionally, administration of the Minnesota settlement is in place and will 

continue to be carried out contemporaneously with this settlement (if this settlement is 

approved). Failing to incorporate the remedies of the Minnesota settlement into the relief 

available to the class as a whole makes the proposed settlement unfair and inadequate. 

II. In addition to the concerns over fairness and adequacy, the proposed Claims Review 

Process also calls into question any finding that the class action meets the 

predominance and superiority requirements of Rule 23 (B)(3). 

If the class action meets the requirement of predominance, the Court must find that 

common questions of law and fact predominate over individualized issues. Predominance 

                                                           

2 The claims of Minnesota residents are included in the class, but any recovery obtained by them through the 

Minnesota settlement effectively makes them ineligible for class relief). 

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requires that "[i]ssues common to the class must predominate over individual issues." In re 

Hydrogen Peroxide, 552 F.3d 305, 311 (3d Cir. December 20, 2008). Issues are common or 

individual based on the nature of evidence that will suffice to resolve the issue. Id. Thus "a 

district court must formulate some prediction as to how specific issues will play out in order to 

determine whether common or individual issues predominate in a given case." Id. (internal 

quotation marks omitted). "If proof of the essential elements of the cause of action requires 

individual treatment, then class certification is unsuitable." Newton v. Merrill Lynch, Pierce, 

Fenner & Smith, Inc., 259 F.3d 154, 172 (3d Cir.2001). Therefore, "the task for plaintiffs at class 

certification is to demonstrate that [each] element ... is capable of proof at trial through evidence 

that is common to the class rather than individual to its members." In re Hydrogen Peroxide, 552 

F.3d at 311-12. The relevant question is not whether each element can be proved but whether 

such proof will require evidence individual to class members. 

The Claim Review Process in its proposed form demonstrates the lack of predominance 

of questions of law and fact common to all class members. Indeed, the Process is designed to 

adjudicate individual claims, on an individual basis, and to determine to what extent each claim 

differs from the others. The variety of claims based on a variety of factual scenarios to be 

considered in the Claims Review Process have varying evidentiary standards applied during the 

individual adjudication of a class member’s claims (i.e. “clear and convincing evidence”, 

“preponderance of the evidence”, “substantial evidence”). Therefore, the Process does not 

demonstrate that common questions of law and fact predominate over individualized issues. 

If the instant class action satisfies the predominance and superiority requirements of Rule 

23(B)(3), the more appropriate remedy should be consistent with the Minnesota settlement where 

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the claims review process applies a single standard that can be easily met by class members and 

provides the same fair and adequate relief to all class members. 

III.The proposed settlement is unfair and unreasonable if it is funded at the expense of 

class members. 

 The proposed settlement should be rejected if the Court cannot independently verify that 

the costs of the settlement will not be ultimately borne by the class members. Ms. Michael 

objected “to the extent the ‘bonus’ will be funded through internal manipulations of crediting 

rates and spreads—resulting in the cost of the class relief being borne by the class members.” 

Michael Objection at p. 5. Plaintiffs did not respond to this objection and have not disclosed 

how the “bonus” will be funded. To this point, no party has represented that the settlement funds 

will not be recouped from the class members. Notably, there is no settlement fund identified by 

the Parties. 

 As the Court is likely aware, “bonuses” in the deferred annuity context have been both 

heavily scrutinized and criticized. Many believe the bonuses to be inherently deceptive and of 

little or no real value to annuity purchasers to whom they are offered as inducements. See e.g. 

Negrete v. Allianz Life Insurance Co. of N. America, 238 F.R.D. 482 (C.D. Calif. 2006)(cited by 

the Plaintiffs in their Memorandum in Support of Approval). In general terms, many allege that 

the recipient of an annuity bonus, in fact, receive nothing of any additional or extra value as the 

term “bonus” would suggest. Moreover, it is alleged that the companies who ‘give’ the bonuses, 

actually recoup the cost of them from the annuity purchasers to whom they are given. In other 

words, the cost of the bonus is ultimately borne by the purchaser. Recoupment of the costs of 

the bonus, it is generally alleged, may be accomplished by internally manipulating the interest 

rates to be credited to annuity holders. If the ‘bonuses’ to be paid as class relief were funded in 

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the same way, the monetary relief to Class members would be entirely illusory. If approved, 

such a settlement would be unfair. 

 The parties’ silence on this point is both concerning and telling. Given their silence, this 

objection is all the more pressing and the Court should take action to ensure that the interests of 

the absent class members are properly protected. The Court should postpone its ruling on 

Plaintiffs’ motion for final approval until an independent expert can be appointed by the Court to 

evaluate the proposed monetary relief and suggest safeguards to guarantee that the class 

members will not ultimately bear the costs of the settlement. 

Support for this course of action by the Court is found in Grove v. Principal Mutual Life Ins. 

Co., 200 F.R.D. 434, 441-442 (S.D.Iowa,2001)(also cited by the Plaintiff) where the court 

recognized that the “...case embraced a number of complex subject areas, including: individual 

deferred annuity contracts; cash value life insurance products; and a range of complex actuarial 

methodologies, accounting practices, and financial theories.” Id. The Grove court noted that “... 

it would have been an abdication of the Court's role in the settlement process to blindly approve 

of an agreement, the basis of which it knew little about.” Id. In support for its decision to appoint 

independent experts to analyze the settlement, the Grove court explained: 

In addition to ensuring the requirements of Rule 23 certification are met, one of the 

Court's central obligations is to determine whether this settlement is fair, reasonable, and 

adequate. See In re Prudential, 148 F.3d at 316 (“Rule 23(e) imposes on the trial judge 

the duty of protecting absentees, which is executed by the court's assuring the settlement 

represents adequate compensation for the release of the class claims.”) (citation omitted). 

The Court's oversight *442 duty is fiduciary in nature. See Grunin v. Int'l House of 

Pancakes, 513 F.2d 114, 123 (8th Cir.), cert. denied, 423 U.S. 864, 96 S.Ct. 124, 46 

L.Ed.2d 93 (1975) ( “Under Rule 23(e) the district court acts as a fiduciary who must 

serve as a guardian of the rights of absent class members.... [T]he court cannot accept a 

settlement that the proponents have not shown to be fair, reasonable and adequate.”). This 

task, which the Court undertakes at Part V of this Order, is not taken lightly as a 

substantial number of individuals, if the settlement is approved, will be deemed to have 

surrendered once and for all their rights for individual redress against the Defendant. See

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2 Newberg on Class Actions (3d ed.1992) § 11.41 (Rule 23(e) requires courts to 

“independently and objectively analyze the evidence and circumstances before it in order 

to determine whether the settlement is in the best interest of those whose claims will be 

extinguished”) (citation omitted). As the Supreme Court observed, class actions poised 

for settlement “demand undiluted, even heightened, attention” from the district court. 

Amchem, 521 U.S. at 620, 117 S.Ct. 2231; see also Ortiz v. Fibreboard Corp., 527 U.S. 

815, 849, 119 S.Ct. 2295, 144 L.Ed.2d 715 (1999) (discussing judicial scrutiny in a 

mandatory settlement class context). Where, as here, the parties seek certification and 

settlement approval simultaneously, the Court is required “to be even more scrupulous 

than usual” when examining the fairness of the proposed settlement. In re Prudential,

148 F.3d at 317 (citation omitted); see also Duhaime v. John Hancock Mut. Life Ins. Co.,

177 F.R.D. 54, 68 (D.Mass.1997)(court “has an obligation to consider the substantive 

fairness of the relief made available to settling class members, and this presumption [of 

fairness that exists with arms-length agreements] will not stand if the court determines 

that the substance of the agreement is not in fact fair and adequate”). 

Grove at 441-442. 

In the alternative or in addition to the appointment of experts to analyze the fairness and 

adequacy of the settlement, the Court should require a settlement fund to be funded by 

Defendants and maintained by an independent trustee. This fund should contain all the potential 

monetary relief. Approved claims would have their monetary relief be paid out of this fund 

directly to class members at the appropriate time. Otherwise, the monetary relief is simply a line 

item on class members’ accounts which Defendants can easily nullify by manipulating other 

variables within their control. 

IV. The Proposed Settlement is Unfair Because it Releases Independent Agents Not 

Before The Court. 

 As discussed in Ms. Michael’s objection, the proposed settlement releases independent 

agents who are not before the Court from claims which have not been asserted. Plaintiffs 

respond that releasing the agents is proper because their liability arises from “the same course of 

conduct alleged in the complaint.” Plaintiffs’ Memorandum at p. 30. This misses the point. In 

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certain circumstances, courts may release claims not asserted if they arise from the same nexus 

of facts—just as a judgment may preclude future litigation of such claims if they arose from the 

same nexus of facts. The issue is not the claims, but rather the parties being released. The Court 

may not release persons who are not parties to this action, regardless of what claims might be 

alleged against them. 

 Plaintiffs argue that “the release in the Settlement merely releases claims which arise out 

of the same course of conduct alleged in the Complaint,” and point to Varacallo v. Mass Mutual 

Life Insurance Co., 226 F.R.D. 206 (D.N.J. 2005) and the cases cited therein. Plaintiffs’ 

Memorandum at p. 30. This case, and every case cited therein, addresses the release of 

unnamed claims from named defendants. Here, Plaintiffs are attempting to release unnamed 

defendants. 

 Moreover, no consideration is being received from the independent agents. As noted in 

Ms. Michael’s objection, if a contract is premised on mutually bargained for legal detriment, 

then the Settlement is unenforceable by the released agents as they incur absolutely no detriment. 

The Second Circuit in National Super Spuds, Inc. v. New York Mercantile Exchange, 660 F.2d 9 

(2nd Cir. 1981) rejected a class settlement in part because it gave away claims possessed only by 

absent class members in exchange for no new consideration. “An advantage to the class, no 

matter how great, simply cannot be bought by the uncompensated sacrifice of claims of 

members, whether few or many, which were not within the description of claims assertable by 

the class.” Id. at 19. This is largely because “fundamental principles underlying class actions 

limit the powers of the representative parties to the claims they possess in common with other 

members of the class.” Id. at 16. Here, Plaintiffs are attempting to release claims against 

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independent agents which they do not possess. This release garners nothing in return and renders 

the proposed settlement unfair and inadequate. 

V. Ms. Michael’s counsel withdraws the previously filed Notice of Intent to Appear at 

the Fairness Hearing. 

The undersigned counsel for Ms. Michael previously filed a Notice of Intent to Appear at 

the Fairness Hearing. Counsel will not attend the Fairness Hearing of November 6, 2009, and 

asks that the Court consider Ms. Michael’s Objection in its written form, along with this filing. 

Ms. Michael also adopts and incorporates all other objections made to the proposed settlement in 

the above-styled action which do not conflict with the objections set forth herein. 

V. Conclusion 

 The settlement as currently proposed is patently unfair and presents the potential for 

future abuses by Defendants. The Claims Review Process should be simplified and rescission 

and refund of premiums should be made available as a remedy. Unnamed agents who are not a 

party to this action should not be released. The Court should also delay its ruling on the proposed 

settlement until an independent expert can be appointed to ensure that the method and type of 

relief can be properly executed as discussed herein. 

 Respectfully submitted: 

 s/ P. Michael Yancey . 

 P. Michael Yancey 

 Attorney for Objector Martha Michael 

 (policy # 44106) 

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OF COUNSEL:

MCCALLUM, METHVIN & TERRELL, P.C. 

2201 Arlington Avenue South 

Birmingham, Alabama 35205 

(205) 939-0199 - telephone 

(205) 939-0399 – facsimile 

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CERTIFICATE OF SERVICE

I hereby certify that on November 5, 2009, I electronically filed the foregoing with the Clerk of

the Court using the CM/ECF system which will send notification of such filing to the following:

Office of the Clerk of Court 

c/o American Investors Annuity 

Class Action Information Center 

P.O. Box 2226 

Faribault, MN 55021-1726 

James F. Jordan, Esq. 

Jason H. Gould, Esq. 

Jordan Burt LLP 

1025 Thomas Jefferson Street, N.W. 

Ste. 400 East 

Washington, DC 2007-5208 

Marcus & Auerbach LLC 

P.O. Box 96 

Wyncote, PA 19095 

John R. Hargrove 

Hargrove Pierson & Brown 

21 Southwest 5th Street, Suite 200 

Boca Raton, FL 33432 

 s/ P. Michael Yancey 

 OF COUNSEL 

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