F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

M A R Y H E L E N E L L E R , Plaintiff

, and

P A U L H A R R I N G T O N , individually

and on behalf of all others similarly situated, Plaintiff-Appellant ,

v
. E Q U I T R U S T L I F E I

N S U R A N C E C O M P A N Y , Defendant-Appellee

. N o. 12-17119

D.C. No. 4:09-cv-00029- DCBH A R R I N G T O N V

. E Q U I T R

U S T L I F E I

N S

. C O

. 2

M A R Y H E L E N E L L E R , Plaintiff

, and

P A U L H A R R I N G T O N , individually

and on behalf of all others similarly situated, Plaintiff-Appellee ,

v
. E Q U I T R U S T L I F E I

N S U R A N C E C O M P A N Y , Defendant-Appellant

. N o. 12-17267

D.C. No. 4:09-cv-00029- DCB

OPI NI ON

A ppeal from the United States District Court for the District of Ariz o na David C. B ury , District J udg e, Presiding Arg ued and Submitted December 11, 2014—San F rancisco, California

F iled F ebruary

24, 2015

B efore: Diarmuid F . O’Scannlain, Ray mond C. F isher, and Andrew D. Hurwitz , Circuit J udg es. Opinion by

J udg e HurwitzH A R R I N G T O N V

. E Q U I T R

U S T L I F E I

N S

. C O

. 3
SUMMARY *

RICO
The panel affirmed the district c ourt’s summary judg ment
a n d v a c ated its denial of costs in a putative class action alleg ing violations of f

e d e r a l and state law in the sale o f annuities. Affirming the district court’s g rant of summary judg ment in favor o f the defendant on a RI CO claim, the panel held that the plaintiff failed t o es tablish any a ctionable predicate acts in alleg ed fraudulent sc h e mes concerning the promise o f premium bonuses, the application o f the annuity ’s market value adjustment, o r the circumvention of state nonforfeiture laws. The panel also affirmed the district court’s sum mary judg ment on state-law claims. Vacating the unex plained denial of costs, t h e p anel remanded to allow the district court either to award costs o r to state its reasons for deny ing them.

COUNSEL

Steve W

. B erman ( arg ued), Hag ens B erman Sobol Shapiro L L P, Seattle, W ashing ton; Elaine T. B y sz ewsk i , H ag ens B erman Sobol Sh a p iro L L P, Pasadena, California, for Plaintiff-Appellant.

* T h is su m m ary co n stitu

tes n o part o f th e o p in io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.H A R R I N G T O N V

. E Q U I T R

U S T L I F E I

N S

. C O

. 4 Marg aret A. Grig non (arg ued), Robert D. Phillips, J r ., B randon W. Corbridg e, Reed Smith L L P, L os Ang eles, California, for Defendant-Appellee.

OP INION

HURW I TZ , Circuit J udg e:

I. Introduction
This i s a putative c lass action ag a inst EquiTrust L ife I nsurance Company ( “ EquiTrust”), alleg ing violations o f federal and state law in the sale of annuities. The district
co u r t g ranted E quiTrust’s motion f or summary judg ment, but, without ex planation, d eclined to award costs to the prevailing party

. W e a ffirm the summary judg ment, but vacate the denial of c osts and remand for the district court ei t h er to award costs or ex

plain its refusal.

II. F acts A. The Annuity

I n 2007, Paul Harring ton purchased a n E q uiTrust MarketPower B onus I ndex Annuity (the “Annuity ” ) from an insurance ag ency

. The Annuity u se s “ i ndex accounts” to g enerate “index credits” that increase the A nnuity ’s accumulation value ( the total amount in the account). I n d ex credits (essentially interest) are calculated based on periodicH A R R I N G T O N V

. E Q U I T R

U S T L I F E I

N S

. C O

. 5 chang es in the closing v alue of the S& P 500. 1 EquiTrust has the ex press discretion to choose the amount of index credits awarded (the “ind ex c a

p”), but the Annuity g uarantees a minimum cap.
The A nnuity permits annual withdrawals of up to 10% o f the accumulation value with no penalty

. L arg er withdrawals
are subject to: (1) a surrender charg e , a specified percentag e of the accumu l a t i on value that decreases each y ear until it disappears in the fourteenth y e a r; and (2) a market value adjustment, which increases or d e c reases the accumulation value based o n interest rates in the market. 2 A f ter his 105th b i r t hday , the a

nnuitant can o pt to receive the accumulation value increm e n tally for a specified period without any surrender charg es or market value adjustments. W hen the annuitant dies, the full accumulation v alue is avai l a ble to beneficiaries. Harring ton’s initial premium w as $432 , 5 3 0

. 92. The Annuity included a “10% premium bonu s , ” under which EquiTrust added to the accumulation value a s u m e q u al to 1 0% of the p remiums paid during the first y e a r

. T h e

1 Harrin g to n h ad tw o in d ex acco u n ts. Fo r t h e 1

- y ear A v erag e Cap In dex A cco u n t , in dex cred its are b ase d o n a co m p ariso n o f th e p ercen tag e ch an g e in th e S& P 5 0 0 f ro m th e p rev io u s A n n

u ity co n tract an n iv ersary d ate to th e daily av erag e o f th e S & P 5 0 0 o v er th e in terv en in g y ear

. F o r th e 2

- y ear A v erag e C ap In d ex A cco u n t, th e co m p ariso n is to th e m o n th ly
av erag e o v er th e tw o
- y ear p erio d b etw een A n n u ity A n n iv ersaries.

2 A f u ll su rren d er receiv es th e cash su rren d er v alu e, w

h ich is th e g reater o f (a) th e accu m

u l atio n v alu e l ess th e p en alties d iscu ssed ab ov e; o r (b ) th e m in im u m g u a r a n t eed co n tract v alu e, w h ich i s “ 8 7 .5 % o f P rem iu m P aid (ex clu d in g an y P rem iu m Bo n u s), less an y p artial w i t h d raw als, p lu s in terest earn ed at a rate n o lo w er th an 1 % an d n o h ig h er th an

3 %.”H A R R I N G T O N V

. E Q U I T R

U S T L I F E I

N S

. C O

. 6
accumulation value o f Harring ton’s account w a s thus immediately

increased by

10% ($43,253.10). 3

B. P rocedural Background

I n 2009, Harring ton filed this putative class action in the District of A riz o n a, alleg ing that EquiTrust’s marketing o f the Annuity violated the Racketeer I nfluenced and Corrupt Org a n i z ations (“RI CO”) Act, 18 U.S.C. § 1962(c), a nd A r i z ona law. Harring ton later filed a motion for cl a s s ce r t ification, and EquiTrust filed a motion for summary judg ment. T he district court g r anted EquiTrust’s motion, denied c lass cert i f

i c a tion as moot, and entered judg ment for the d efe ndant. The court, however, declined without
ex p lanation to award costs to the prevailing party

. Harring ton timely a ppealed the judg ment, and EquiTrust timely appealed the denial of costs.

III. Discussion

A RI CO 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. Br o w n , 7 5 F .3d 506, 510 (9th Cir. 1996)) (i n t ernal q

uotation marks o mitted). The racketeering activities alleg ed by Harring ton w ere violations of 18 U .S.C. § 1341 (mail fraud ) a nd 18 U.S.C. § 1343 (wire fraud). See 18 U.S.C. § 1961(1) ( identify ing v iolations of these s t a tutes as racketeering

activity ).

Mail and w ire fraud can be premised on e i t h e r a nondis c l o s u re or an affirmative misrepresentation. See United

3 Harrin g t o n

later w i th d rew

$ 4 3 ,2 5 3 w i th ou t p en alty

.H A R R I N G T O N V

. E Q U I T R

U S T L I F E I

N S

. C O

. 7
States v. Benny , 786 F .2d 1410, 1418 (9th Cir. 1986). A nond isclosure, however, can support a fraud charg e only “wh e n there ex ists an independent duty that has been breached b y the person so charg ed.” U nited States v. Dowling , 739 F .2d 1445, 1 449 (9th Cir. 1 984), rev’d on other grounds , 473 U.S. 207 (1985). “Absent an independent duty , such as a fiduciary duty or an ex plicit statutory d u ty , failure to disclose cannot be the basis of a [RI CO] fraudulent scheme.” Cal. Architectural Bldg. Prods., Inc. v. Franci s c an Ceramics, I nc. , 818 F .2d 1466, 1472 (9th Cir. 1 987) (citing D owling , 739 F .2d at 1449). Harring ton’s complaint is b ased entirely on the lang uag e of the An n u ity contract a nd the EquiTrust marketing materials; he makes no clai m of misrepresentation by the insurance ag ency that sold h i m t he Annuity

. Harring ton alleg es three fraudulent schemes: (1) the promise of premium bonuses; (2) the application of the Annu ity ’s market value adjustment; and (3) the circumvention of state nonforfeiture laws. The district court found no actionable p r ed i c ate acts, and we agree.
A. The P rem ium Bonus Harring ton claims that the promise in the A n nuity of a “10% premium bonus” was fraudulent b e c ause EquiTrust failed to disclose that it does not invest any additional money in the mar k et w h en crediting the bonus to an a nnuitant’s account, and ev e ntually “recoups” the bonus by crediting lower ind e x c r e d its to the Annuity than it mig ht h a ve in an annuity contract without the bonus feature. Harring ton also arg ues that the “10% bonus” is illusory , because the ultimate increase over time in the accumulation v alue from the bonusH A R R I N G T O N V

. E Q U I T R

U S T L I F E I

N S

. C O

. 8 mig ht be less than increases that would occur for an annuity which provided hig her returns.

W e beg in from the settled premise that a seller g enerally has no duty to disclose internal pricing policies o r its method f o r valuing what it sells. Thus, in Thorman v. American Seafood s Co. , we held that there was no fraudulent concealment by a fishing company that did not disc l o s e its methodolog y

for determining

wag es because, in the absence of a fiduciary relationship or a statutory duty , the company ’s “silence or p assive conduct does not c onstitute 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 o ther circuits ag r ee. S ee, e.g. , Langford v

. Rite Aid of Ala., Inc. , 231 F

. 3d 1 3 0 8 , 1 313–14 (11th Cir. 2000) (“As a g eneral matter of federal law, r etailers are under
no oblig ation to disclose their pricing s tructure to consumers.”); Bonilla v. Volvo Car Corp. , 150 F .3d 62, 71 (1st Cir. 1 9 98); Katzman v. Victoria’s Secret Catalogue , 167 F .R.D. 6 49, 656 (S.D.N.Y. 1996), a ff’d , 1 1 3 F .3d 1229 (2d Cir. 1997) (unpublished). Harring ton does not a lleg e that EquiTrust was a fiduciary
or that some statute r e q

u ired the disclosure of its internal pricing policies. I n the absence of such a relationship, there is no duty to d isclose that the Annuity may provide lower index credits than mig ht have been available in an a lternative product without t h e bonus feature. See Cal. Architectural , 818 F .2d at 1472. 4

4 A n u m b er o f d istrict co u

rts h av e r e ach ed th e sam e co n clu sio n in
ev alu atin g co m

p arab le an n

u ities. S ee, e.g

. , K en n ed y v. Ja ckso n Na t’l Life In s. Co

. , No

. C 0 7– 0 3 7 1 CW , 2 0 1 0 W L 4 1 2 3 9 94 , at * 1 1 –1 3 (N.D. Cal. Oct. 6 , 2 0 1 0 ); C

irzo veto v. AIG An n u i ty In s

. C o

. , 6 25 F. Su

p p

. 2 d 6 2 3 ,H A R R I N G T O N V

. E Q U I T R

U S T L I F E I

N S

. C O

. 9
Of course, even absent a duty to disclose, a seller can be liable for affirmatively misrepresenting its product. S ee Lustiger v. United States , 386 F

. 2d 132, 136 (9th Cir. 1 967);
see also Benny , 786 F .2d at 1418. Thus, if an annuity company pro mises a bonus, but does not deliver a s advertised, there can be actionable misrepresentation. 5

B u t 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 Ha rring ton’s account. T h e b onus increased Harring ton’s accumulation value without requiri n g him to deposit
a d d itional f

unds, allowing him to withdraw more money without penalty than oth e r w i se would have been possible. The promise of a “bonus” was thus not, as Harring ton claims, il l u s o r y
. See Kennedy v. J ackson Nat’l Life Ins. Co. , No. C 07–0371 CW , 2010 W L 4123994, at * 1 1 ( N

. D. Cal. O ct. 6, 2010) (finding that added liquidity is a bonus). Nor is it clear that Harring ton would have b een better off absent the bonus feature. I f the index credits w ere reg ularly low, Harring ton’s investment would outperform a n on -bonus annuity that

6 2 8

– 3 1 (W .D. T en

n

. 2 0 0 9 ); Ph illip s v. Am. In t’l Grp
., In c. , 4 9 8 F. Su p p

. 2 d 6 9 0, 6 9 6

– 9 8 (S.D.N.Y. 2 0 0 7 ); Dela n ey v. Am. Exp ress Co

. , Civ . No

. 0 6

– 5 1 3 4 (J A P ), 2 0 0 7 W L 1 42 0 76 6 , at * 5

– 6 (D.N.J

. May 1 1 , 2 0 0 7 ); S ayer v. L in co ln Na t’l Life In s. C o

. , N o

. 7 :0 5

– CV– 1 4 2 3– RDP , 2 00 6 W L 6 2 5 3 2 0 1 , at * 7

– 1 0 (N.D. A la. Oct. 1 2 , 2 0 06 ).

5 S ee, e.g

. , In re Na t’l W

. Life I n s

. D e f e r r e d An n u ities Litig

. , No

. 0 5 cv 1 0 1 8 A J B (W VG), 20 1 2 WL 44 0 8 2 0 , at * 4

– 5 (S.D. Cal. Feb

. 1 0 , 2 0 1 2 ); Neg rete v. Allia n z Life In s

. Co

. o f N. Am. , No s. CV 0 5

– 68 3 8 CA S (MA Nx ), C V 0 5

– 8 9 0 8 C A S (MA Nx ), 2 0 1 1 W L 4 8 5 2 3 1 4 , at * 1 1

– 1 4 (C.D. Cal. O ct. 1 3 , 2 0 1 1 ); Io rio v. Allia n z Life In s. Co

. o f N. Am. , No

. 0 5 CV6 3 3 J LS ( C AB ), 2 0 0 8 W L 89 29 0 1 3 , at * 9

– 1 2 , * 1 4

– 1 6 (S.D. Cal. J u ly 8 , 2 0 08 ).H A R R I N G T O N V

. E Q U I T R

U S T L I F E I

N S

. C O

. 10 provided the possibility of hig her credits. 6 The district court thus correctly c oncluded 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. T enn. 2009) (finding no b r e ach of contract for a “bonus” annuity that offered , a n d p r o vided, an increased rate of interest in the first y ear), with Iorio v. Allianz Life Ins. C o

. o f N. Am. , No. 05CV633 J L S (CAB ), 2 008 W L 8929013, at *11 (S.D. Cal. J u l y 8, 2 008) (finding a ctionable a

n a ffirmative misrepresentation about an “immediate” bonus that was not available for y e ars). B. The Market Value Adjustm ent

T h e Annuity includes a market value adjustme n t (“MVA”), a “positive or neg ative adjustment that may a pply to [ a n annuity ’ s accumulation] value upon e a rly withdrawal
or surrender, based on the movement in an e x t e r nal index

. ” T h e M V A takes account o f the capital g ains or losses resulting from the sale of securities n ee ded to f und e arly withdrawal or surrender requests. EquiTrust’s b rochure p r ovides the precise formula used to calculate the M V A , ex p lains how to determine the v a ri a b l e s in the formula, a

nd offers ex amples of its application. 7 Harring ton alleg e s that the brochure fails to ex plain that the disclosed constant in the formula, which he refers to as a

6 In ad d itio n , b ecau se t

h e b o n u s fe atu re in th e A n n u ity lo ck s in v alu e im m ed iately , i t m ay in crease t h e am o u n t p a i d to an an n u itan t’ s b en ef iciaries m o re th an

w o u l d an altern ativ e an n u ity

.

7 T h e f o rm u l a is: [(1 + s )/(1 + c +.0 0 5)] n /12

- 1 , w h ere s is th e treasu ry r a te
w h en th e an n

u ity w as p u rch ased , c i s th e treasu ry rate w h en th e a n nu i t y is su rren d ered , an d n is th e n u m b er o f m on th s u n til t

h e en d of th e f o u rteen

- y ear su rren d er- ch arg e p erio d

.H A R R I N G T O N V

. E Q U I T R

U S T L I F E I

N S

. C O

. 11 “bias,” 8 serves to d ecrease upward adjustments a nd increase downward one s

. Harring ton claims that this omission is fraudulent because the bias contradicts what he c haracteriz e s as the “ stat ed purpose” o f the MVA, increasing the accumulation value when interest rates are lower a nd decreasing

it when interest rates are hig her.
The district c ourt correctly rejected this argu m ent. EquiT ru st meticulously ex p lains the MVA and provides
ex a mples of h ow it operates in various circumstances. See Kennedy , 2010 W L 4123994, at *10 (“Plaintiff c omplains that Defendant defined the other variables in the MVA/EI A formula, but failed to ex plain the 0.005 value. This is not fraud.”). M o re importantly , even if we assume that Harring ton c orrectly divines the MVA’s implicit purpose, the bias does n ot 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 a n d t h e decrease g reater than it w ould be w ithout the bias, but EquiTrust never promised any thing different.

C. The Nonf

orf eiture Law
The model standard nonforfeiture law f o r individual deferred annuities (“SNF L I DA”), codified at Ariz

. Rev. Stat. § 20-1232, has specific reg ulations for a nnuities with optional maturity dates. See id. § 20-1 2 3 2(G). W hether a maturity date is optional o r fix ed is determined by the contract terms. See id.
The terms in the A nnuity do not comply with SNF L I DA. The Annuity contract, h owever, has an ex plicit fix ed maturity

8 T h e “ b i as” is th e .0 0 5 in th e f o rm u la.H A R R I N G T O N V

. E Q U I T R

U S T L I F E I

N S

. C O

. 12
date. Nonetheless, Harring to n a rg ues that the Annuity effectively h as an optional maturity d ate because EquiTrust’s internal policy is to consider affording annuitants relief from the f ix ed-date terms of t heir contracts upon request. Harring ton arg ues that the Annuity t h e refore violates SNF L I DA, and is an a ttempt by EquiTrust to defraud A riz o na reg ulators.
The district court correctly r e jected this c laim. Harring ton offers n o authority for the propositi o n t h a t an insurer’s willing ness to c onsider providing relie f on a caseby -case basis to its annuitants from the fix ed-term provisions
o f an annuity contract mutates the annuity into one with an optional maturity date; indeed, because the internal policy is only invoked at the a

nnuitant’s request, we can perceive no reason to so conclude. More sig n ificantly , Harring ton has no conceivable injury from the internal policy , as the potential o f relief from the Annuity ’s fix ed maturity d a t e can only a dd value to his annuity

. See 18 U.S.C. § 1964(c) (requiring injury for civil RI CO recovery

). 9

9 B e c a u se w e af

f irm th e d istrict co u rt’ s su m m ary j u d g m en t on Harrin g to n ’ s claim s an d h e w as t h e o n ly p u t ativ e class rep resen tativ e, w e d o n o t ad dress claim s b ased on th e oth er an n u ities d escrib e d i n t h e co m plain t. T h e co m

p lain t a l so alleg ed v io latio n s of A rizo n a co n su m er fr a ud law s, see A riz. Rev

. Stat. § § 4 4

- 1 5 2 1 t o
- 1 5 3 4; id

. § § 2 0- 4 4 1 t o
- 4 6 9 .0 1, an d co m

m o n law u n j u st en rich m en t. T h e state law f rau d claim s w ere p red icated o n th e sam e alleg atio n s th at u n d erlie th e RICO claim , an d fa i l f o r th e s am e reaso n s

. T h e u n j u st en rich m en t claim also f ails; it is b ased o n th e erro n eo u s t h e o ry th at th e A n n u ity p ro m ised , b u t d id n o t actu ally d eliv er, a b o n

u s.H A R R I N G T O N V

. E Q U I T R

U S T L I F E I

N S

. C O

. 13 IV. EquiTrust’s Appeal EquiTrust arg ues t h a t the district court erred by not awarding it costs as the prevailing party pursuant to F ederal Rule of Civil Procedure 54(d). Althoug h a district court has the discretion to decline to award costs to a prevailing party , it must ex plain a denial. See Ass’n o f M ex.-Am. Educators v

. California , 231 F .3d 572, 591–93 (9th Cir. 2 000) (en banc). The court h e re d id n ot do so. Thus, we vacate the order deny ing costs a

nd remand to allow the district court either to award costs or state its reasons for deny ing them. See Quan
v. Co mputer S

cis. Corp. , 623 F .3d 870, 889 (9th Cir. 2010), abrogated on other grounds by F ifth Third Bancorp v

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

V. Conclusion

W e AF F IRM the district c o urt’s g rant of summary judg ment, VACATE the o rder deny ing costs to Equ i T r u s t, and REMAND to allow the district c ourt to address the issue of costs.