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 annuitants’ annual dividend. The 

annuitants contend that this change violates the terms of the 

 * This opinion is being issued in typescript. A printed copy will follow.
No. 12-3264 Page 2

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 contracts, 

breached its fiduciary duties, and should pay substantial 

compensatory and punitive damages. Plant [sic] v. Northwestern Mutual Life Insurance Co., No. 08-CV-11988 (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 
No. 12-3264 Page 3

§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-of-law 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 

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 corpora-
No. 12-3264 Page 4

tion 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 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).
No. 12-3264 Page 5

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 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 advertisinginjury coverage, or an exclusion for intentional torts, are decided every day without either judge or litigants dreaming 

that they need to understand or address corporate law. These are disputes about the policies, resolved under insurance 
No. 12-3264 Page 6

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 products. 

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 internalaffairs doctrine (which, to repeat, is isn’t). The district court 

thought otherwise, proceeding in two steps. First, it applied 

Wisconsin’s common-law choice-of-law principles, see Heath 
No. 12-3264 Page 7

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-oflaw 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 a state trial court determined that the choice-of-law clauses in these very contracts 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 ab-
No. 12-3264 Page 8

sence 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 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-of-law 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.
No. 12-3264 Page 9

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 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