FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

MARY HELEN ELLER,

Plaintiff,

and

PAUL HARRINGTON, individually and

on behalf of all others similarly

situated,

Plaintiff-Appellant,

v.

EQUITRUST LIFE INSURANCE

COMPANY,

Defendant-Appellee.

No. 12-17119

D.C. No.

4:09-cv-00029-

DCB
2 HARRINGTON V. EQUITRUST LIFE INS. CO.

MARY HELEN ELLER,

Plaintiff,

and

PAUL HARRINGTON, individually and

on behalf of all others similarly

situated,

Plaintiff-Appellee,

v.

EQUITRUST LIFE INSURANCE

COMPANY,

Defendant-Appellant.

No. 12-17267

D.C. No.

4:09-cv-00029-

DCB

OPINION

Appeal from the United States District Court

for the District of Arizona

David C. Bury, District Judge, Presiding

Argued and Submitted

December 11, 2014—San Francisco, California

Filed February 24, 2015

Before: Diarmuid F. O’Scannlain, Raymond C. Fisher,

and Andrew D. Hurwitz, Circuit Judges.

Opinion by Judge Hurwitz
HARRINGTON V. EQUITRUST LIFE INS. CO. 3

SUMMARY*

RICO

The panel affirmed the district court’s summary judgment

and vacated its denial of costs in a putative class action

alleging violations of federal and state law in the sale of

annuities.

Affirming the district court’s grant of summary judgment

in favor of the defendant on a RICO claim, the panel held that

the plaintiff failed to establish any actionable predicate acts

in alleged fraudulent schemes concerning the promise of

premium bonuses, the application of the annuity’s market

value adjustment, or the circumvention of state nonforfeiture

laws. The panel also affirmed the district court’s summary

judgment on state-law claims.

Vacating the unexplained denial of costs, the panel

remanded to allow the district court either to award costs or

to state its reasons for denying them.

COUNSEL

Steve W. Berman (argued), Hagens Berman Sobol Shapiro

LLP, Seattle, Washington; Elaine T. Byszewski, Hagens

Berman Sobol Shapiro LLP, Pasadena, California, for

Plaintiff-Appellant.

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.
4 HARRINGTON V. EQUITRUST LIFE INS. CO.

Margaret A. Grignon (argued), Robert D. Phillips, Jr.,

Brandon W. Corbridge, Reed Smith LLP, Los Angeles,

California, for Defendant-Appellee.

OPINION

HURWITZ, Circuit Judge:

I. Introduction

This is a putative class action against EquiTrust Life

Insurance Company (“EquiTrust”), alleging violations of

federal and state law in the sale of annuities. The district

court granted EquiTrust’s motion for summaryjudgment, but,

without explanation, declined to award costs to the prevailing

party. We affirm the summary judgment, but vacate the

denial of costs and remand for the district court either to

award costs or explain its refusal.

II. Facts

A. The Annuity

In 2007, Paul Harrington purchased an EquiTrust

MarketPower Bonus Index Annuity (the “Annuity”) from an

insurance agency. The Annuity uses “index accounts” to

generate “index credits” that increase the Annuity’s

accumulation value (the total amount in the account). Index

credits (essentially interest) are calculated based on periodic
HARRINGTON V. EQUITRUST LIFE INS. CO. 5

changes in the closing value of the S&P 500.1 EquiTrust has

the express discretion to choose the amount of index credits

awarded (the “index cap”), but the Annuity guarantees a

minimum cap.

The Annuity permits annual withdrawals of up to 10% of

the accumulation value with no penalty. Larger withdrawals

are subject to: (1) a surrender charge, a specified percentage

of the accumulation value that decreases each year until it

disappears in the fourteenth year; and (2) a market value

adjustment, which increases or decreases the accumulation

value based on interest rates in the market.2 After his 105th

birthday, the annuitant can opt to receive the accumulation

value incrementally for a specified period without any

surrender charges or market value adjustments. When the

annuitant dies, the full accumulation value is available to

beneficiaries.

Harrington’s initial premium was $432,530.92. The

Annuity included a “10% premium bonus,” under which

EquiTrust added to the accumulation value a sum equal to

10% of the premiums paid during the first year. The

1 Harrington had two index accounts. For the 1-year Average Cap Index

Account, index credits are based on a comparison of the percentage

change in the S&P 500 from the previous Annuity contract anniversary

date to the daily average of the S&P 500 over the intervening year. For

the 2-year Average Cap Index Account, the comparison is to the monthly

average over the two-year period between Annuity Anniversaries.

2 A full surrender receives the cash surrender value, which is the greater

of (a) the accumulation value less the penalties discussed above; or (b) the

minimum guaranteed contract value, which is “87.5% of Premium Paid

(excluding any Premium Bonus), less any partial withdrawals, plus

interest earned at a rate no lower than 1% and no higher than 3%.”
6 HARRINGTON V. EQUITRUST LIFE INS. CO.

accumulation value of Harrington’s account was thus

immediately increased by 10% ($43,253.10).3

B. Procedural Background

In 2009, Harrington filed this putative class action in the

District of Arizona, alleging that EquiTrust’s marketing of the

Annuity violated the Racketeer Influenced and Corrupt

Organizations (“RICO”) Act, 18 U.S.C. § 1962(c), and

Arizona law. Harrington later filed a motion for class

certification, and EquiTrust filed a motion for summary

judgment. The district court granted EquiTrust’s motion,

denied class certification as moot, and entered judgment for

the defendant. The court, however, declined without

explanation to award costs to the prevailing party. Harrington

timely appealed the judgment, and EquiTrust timely appealed

the denial of costs.

III. Discussion

A RICO claim requires “racketeering activity (known as

predicate acts).” Living Designs, Inc. v. E.I. Dupont de

Nemours & Co., 431 F.3d 353, 361 (9th Cir. 2005) (quoting

Grimmett v. Brown, 75 F.3d 506, 510 (9th Cir. 1996))

(internal quotation marks omitted). The racketeering

activities alleged by Harrington were violations of 18 U.S.C.

§ 1341 (mail fraud) and 18 U.S.C. § 1343 (wire fraud). See

18 U.S.C. § 1961(1) (identifying violations of these statutes

as racketeering activity).

Mail and wire fraud can be premised on either a nondisclosure or an affirmative misrepresentation. See United

 

3

 Harrington later withdrew $43,253 without penalty.
HARRINGTON V. EQUITRUST LIFE INS. CO. 7

States v. Benny, 786 F.2d 1410, 1418 (9th Cir. 1986). A nondisclosure, however, can support a fraud charge only “when

there exists an independent duty that has been breached by

the person so charged.” United States v. Dowling, 739 F.2d

1445, 1449 (9th Cir. 1984), rev’d on other grounds, 473 U.S.

207 (1985). “Absent an independent duty, such as a fiduciary

duty or an explicit statutory duty, failure to disclose cannot be

the basis of a [RICO] fraudulent scheme.” Cal. Architectural

Bldg. Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d

1466, 1472 (9th Cir. 1987) (citing Dowling, 739 F.2d at

1449).

Harrington’s complaint is based entirely on the language

of the Annuity contract and the EquiTrust marketing

materials; he makes no claim of misrepresentation by the

insurance agency that sold him the Annuity. Harrington

alleges three fraudulent schemes: (1) the promise of premium

bonuses; (2) the application of the Annuity’s market value

adjustment; and (3) the circumvention of state nonforfeiture

laws. The district court found no actionable predicate acts,

and we agree.

A. The Premium Bonus

Harrington claims that the promise in the Annuity of a

“10% premium bonus” was fraudulent because EquiTrust

failed to disclose that it does not invest any additional money

in the market when crediting the bonus to an annuitant’s

account, and eventually “recoups” the bonus by crediting

lower index credits to the Annuity than it might have in an

annuity contract without the bonus feature. Harrington also

argues that the “10% bonus” is illusory, because the ultimate

increase over time in the accumulation value from the bonus
8 HARRINGTON V. EQUITRUST LIFE INS. CO.

might be less than increases that would occur for an annuity

which provided higher returns.

We begin from the settled premise that a seller generally

has no duty to disclose internal pricing policies or its method

for valuing what it sells. Thus, in Thorman v. American

Seafoods Co., we held that there was no fraudulent

concealment by a fishing company that did not disclose its

methodology for determining wages because, in the absence

of a fiduciary relationship or a statutory duty, the company’s

“silence or passive conduct does not constitute fraudulent

concealment.” 421 F.3d 1090, 1095 (9th Cir. 2005) (quoting

Volk v. D.A. Davidson & Co., 816 F.2d 1406, 1416 (9th Cir.

1987)). Courts in other circuits agree. See, e.g., Langford v.

Rite Aid of Ala., Inc., 231 F.3d 1308, 1313–14 (11th Cir.

2000) (“As a general matter of federal law, retailers are under

no obligation to disclose their pricing structure to

consumers.”); Bonilla v. Volvo Car Corp., 150 F.3d 62, 71

(1st Cir. 1998); Katzman v. Victoria’s Secret Catalogue, 167

F.R.D. 649, 656 (S.D.N.Y. 1996), aff’d, 113 F.3d 1229 (2d

Cir. 1997) (unpublished).

Harrington does not allege that EquiTrust was a fiduciary

or that some statute required the disclosure of its internal

pricing policies. In the absence of such a relationship, there

is no duty to disclose that the Annuity may provide lower

index credits than might have been available in an alternative

product without the bonus feature. See Cal. Architectural,

818 F.2d at 1472.4

4 A number of district courts have reached the same conclusion in

evaluating comparable annuities. See, e.g., Kennedy v. Jackson Nat’l Life

Ins. Co., No. C 07–0371 CW, 2010 WL 4123994, at *11–13 (N.D. Cal.

Oct. 6, 2010); Cirzoveto v. AIG Annuity Ins. Co., 625 F. Supp. 2d 623,
HARRINGTON V. EQUITRUST LIFE INS. CO. 9

Of course, even absent a duty to disclose, a seller can be

liable for affirmatively misrepresenting its product. See

Lustiger v. United States, 386 F.2d 132, 136 (9th Cir. 1967);

see also Benny, 786 F.2d at 1418. Thus, if an annuity

company promises a bonus, but does not deliver as

advertised, there can be actionable misrepresentation.5

But it is uncontested here that EquiTrust delivered

precisely what it promised. The 10% bonus was accurately

described in the Annuity materials and properly credited to

Harrington’s account. The bonus increased Harrington’s

accumulation value without requiring him to deposit

additional funds, allowing him to withdraw more money

without penalty than otherwise would have been possible. 

The promise of a “bonus” was thus not, as Harrington claims,

illusory. See Kennedy v. Jackson Nat’l Life Ins. Co., No. C

07–0371 CW, 2010 WL 4123994, at *11 (N.D. Cal. Oct. 6,

2010) (finding that added liquidity is a bonus). Nor is it clear

that Harrington would have been better off absent the bonus

feature. If the index credits were regularly low, Harrington’s

investment would outperform a non-bonus annuity that

628–31 (W.D. Tenn. 2009); Phillips v. Am. Int’l Grp., Inc., 498 F. Supp.

2d 690, 696–98 (S.D.N.Y. 2007); Delaney v. Am. Express Co., Civ. No.

06–5134 (JAP), 2007 WL1420766, at *5–6 (D.N.J. May 11, 2007); Sayer

v. Lincoln Nat’l Life Ins. Co., No. 7:05–CV–1423–RDP, 2006 WL

6253201, at *7–10 (N.D. Ala. Oct. 12, 2006).

5

See, e.g., In re Nat’l W. Life Ins. Deferred Annuities Litig., No.

05cv1018 AJB (WVG), 2012 WL 440820, at *4–5 (S.D. Cal. Feb. 10,

2012); Negrete v. Allianz Life Ins. Co. of N. Am., Nos. CV 05–6838 CAS

(MANx), CV 05–8908 CAS (MANx), 2011 WL 4852314, at *11–14

(C.D. Cal. Oct. 13, 2011); Iorio v. Allianz Life Ins. Co. of N. Am., No.

05CV633 JLS (CAB), 2008 WL 8929013, at *9–12, *14–16 (S.D. Cal.

July 8, 2008).
10 HARRINGTON V. EQUITRUST LIFE INS. CO.

provided the possibility of higher credits.6 The district court

thus correctly concluded that use of the term “bonus” was not

fraudulent. Compare, e.g.,Cirzoveto v. AIG Annuity Ins. Co.,

625 F. Supp. 2d 623, 627 (W.D. Tenn. 2009) (finding no

breach of contract for a “bonus” annuity that offered, and

provided, an increased rate of interest in the first year), with

Iorio v. Allianz Life Ins. Co. of N. Am., No. 05CV633 JLS

(CAB), 2008 WL 8929013, at *11 (S.D. Cal. July 8, 2008)

(finding actionable an affirmative misrepresentation about an

“immediate” bonus that was not available for years).

B. The Market Value Adjustment

The Annuity includes a market value adjustment

(“MVA”), a “positive or negative adjustment that may apply

to [an annuity’s accumulation] value upon early withdrawal

or surrender, based on the movement in an external index.” 

The MVA takes account of the capital gains or losses

resulting from the sale of securities needed to fund early

withdrawal or surrender requests. EquiTrust’s brochure

provides the precise formula used to calculate the MVA,

explains how to determine the variables in the formula, and

offers examples of its application.7

Harrington alleges that the brochure fails to explain that

the disclosed constant in the formula, which he refers to as a

6

In addition, because the bonus feature in the Annuity locks in value

immediately, it may increase the amount paid to an annuitant’s

beneficiaries more than would an alternative annuity.

7 The formula is: [(1+s)/(1+c+.005)]n/12

-1, where s is the treasury rate

when the annuity was purchased, c is the treasury rate when the annuity

is surrendered, and n is the number of months until the end of the

fourteen-year surrender-charge period.
HARRINGTON V. EQUITRUST LIFE INS. CO. 11

“bias,”8serves to decrease upward adjustments and increase

downward ones. Harrington claims that this omission is

fraudulent because the bias contradicts what he characterizes

as the “stated purpose” of the MVA, increasing the

accumulation value when interest rates are lower and

decreasing it when interest rates are higher.

The district court correctly rejected this argument. 

EquiTrust meticulously explains the MVA and provides

examples of how it operates in various circumstances. See

Kennedy, 2010 WL 4123994, at *10 (“Plaintiff complains

that Defendant defined the other variables in the MVA/EIA

formula, but failed to explain the 0.005 value. This is not

fraud.”). More importantly, even if we assume that

Harrington correctly divines the MVA’s implicit purpose, the

bias does not violate it. Even with the bias, the MVA raises

the accumulation value if interest rates decline and decreases

it when they rise. To be sure, the increase is less and the

decrease greater than it would be without the bias, but

EquiTrust never promised anything different. 

C. The Nonforfeiture Law

The model standard nonforfeiture law for individual

deferred annuities (“SNFLIDA”), codified at Ariz. Rev. Stat.

§ 20-1232, has specific regulations for annuities with optional

maturity dates. See id. § 20-1232(G). Whether a maturity

date is optional or fixed is determined by the contract terms. 

See id.

The terms in the Annuity do not comply with SNFLIDA. 

The Annuity contract, however, has an explicit fixed maturity

 

8

 The “bias” is the .005 in the formula.
12 HARRINGTON V. EQUITRUST LIFE INS. CO.

date. Nonetheless, Harrington argues that the Annuity

effectively has an optional maturity date because EquiTrust’s

internal policy is to consider affording annuitants relief from

the fixed-date terms of their contracts upon request. 

Harrington argues that the Annuity therefore violates

SNFLIDA, and is an attempt byEquiTrust to defraud Arizona

regulators.

The district court correctly rejected this claim. 

Harrington offers no authority for the proposition that an

insurer’s willingness to consider providing relief on a caseby-case basis to its annuitants from the fixed-term provisions

of an annuity contract mutates the annuity into one with an

optional maturity date; indeed, because the internal policy is

only invoked at the annuitant’s request, we can perceive no

reason to so conclude. More significantly, Harrington has no

conceivable injury from the internal policy, as the potential of

relief from the Annuity’s fixed maturity date can only add

value to his annuity. See 18 U.S.C. § 1964(c) (requiring

injury for civil RICO recovery).9

9 Because we affirm the district court’s summary judgment on

Harrington’s claims and he was the only putative class representative, we

do not address claims based on the other annuities described in the

complaint. The complaint also alleged violations of Arizona consumer

fraud laws, see Ariz. Rev. Stat. §§ 44-1521 to -1534; id. §§ 20-441 to -

469.01, and common law unjust enrichment. The state law fraud claims

were predicated on the same allegations that underlie the RICO claim, and

fail for the same reasons. The unjust enrichment claim also fails; it is

based on the erroneous theory that the Annuity promised, but did not

actually deliver, a bonus.
HARRINGTON V. EQUITRUST LIFE INS. CO. 13

IV. EquiTrust’s Appeal

EquiTrust argues that the district court erred by not

awarding it costs as the prevailing party pursuant to Federal

Rule of Civil Procedure 54(d). Although a district court has

the discretion to decline to award costs to a prevailing party,

it must explain a denial. See Ass’n of Mex.-Am. Educators v.

California, 231 F.3d 572, 591–93 (9th Cir. 2000) (en banc). 

The court here did not do so. Thus, we vacate the order

denying costs and remand to allow the district court either to

award costs or state its reasons for denying them. See Quan

v. Computer Scis. Corp., 623 F.3d 870, 889 (9th Cir. 2010),

abrogated on other grounds by Fifth Third Bancorp v.

Dudenhoeffer, 134 S. Ct. 2459, 2467 (2014).

V. Conclusion

We AFFIRM the district court’s grant of summary

judgment, VACATE the order denying costs to EquiTrust,

and REMAND to allow the district court to address the issue

of costs.