Opinion ID: 796142
Heading Depth: 3
Heading Rank: 3

Heading: The Nature of Demutualization

Text: 31 Finally, the nature of demutualization compels the conclusion that Southwire never could have had any right to the demutualization proceeds. As noted above, by definition demutualization involves a conversion of the mutual policyholders' ownership interest in the old [mutual] company into ownership interest in the form of stock in the new [stock] company. UNUM Corp. v. United States, 130 F.3d 501, 502 (1st Cir. 1997), cert. denied, 525 U.S. 810, 119 S.Ct. 42, 142 L.Ed.2d 32 (1998). Here, no ownership interests materialized until April 1988, when Irving purchased the annuity contracts for the Employees' benefit. 8 NSA did not purchase any annuities from Prudential, and was not the contract-holder. The same is true of Southwire, NSA's parent company. Accordingly Southwire did not hold, and could not have held, any membership interest in Prudential, and thus could not have held any claim to the demutualization proceeds. 32 Similarly, the ownership interests in Prudential never inured to the NSA Plan. The Plan's trustee (Irving) purchased group annuity contracts from Prudential to effectuate the final distribution of the Plan's assets under 29 U.S.C. § 1341(b)(3). This purchase represents the closeout of the Plan under 29 C.F.R. § 4041.28. Only then, after the NSA Plan terminated, did any entity (Irving) receive an ownership interest in Prudential. Thus, like Southwire, the NSA Plan could not have held a right to demutualization proceeds. Southwire apparently recognizes as much, as it states that the right to demutualization proceeds does not constitute a plan asset[]. Southwire Br. at 26. 9 In sum, because neither Southwire nor the NSA Plan ever held an ownership interest in Prudential—a precondition for entitlement to demutualization proceeds—neither could have been entitled to the money at issue. 33 Southwire disagrees, arguing that the right to demutualization proceeds reverted to NSA along with the $11.5 million in surplus trust funds. Flaws in this argument abound. First, Southwire overlooks that neither NSA nor the NSA Plan ever held any ownership interest in Prudential, as explained above. 34 Second, Southwire's argument tortures the language of the Plan documents, which provide that only funds remaining after the satisfaction of all liabilities revert to Southwire. J.A. at 463 (NSA Pension Plan ¶ 9.2). Southwire provides no reason for us to accept the counterintuitive proposition that an asserted right to proceeds from an unforeseen, and at the time unlawful, future demutualization of an insurance company was a fund remaining in the NSA Plan after Irving purchased the group annuity contracts. 35 Finally, Southwire's argument misdefines the right at issue. Southwire's position assumes the existence of some abstract right to demutualization proceeds, a right that apparently existed not only at a time predating the demutualization plan, but even when demutualization was not even legal and thus hardly foreseeable. This assumption is infinitely dubious, as the stack of documents regarding the Plan termination, purchase of annuity contracts, and reversion of remaining funds contains nary a word regarding such a right. 36 In reality, rights to proceeds from a demutualization arise only when a mutual insurance company demutualizes, and in such a situation, the mutual company's demutualization plan defines those rights. With a proper understanding of the right at issue, it is apparent that no right to the Prudential demutualization proceeds could have arisen prior to December 2000, when Prudential announced its plan to demutualize. By that time, the NSA Plan—the only vessel through which Southwire could receive any right to demutualization proceeds—had been defunct for over a dozen years. 37 In short, Southwire's position is incompatible with the definition of demutualization. This problem does not, however, apply to the Employees' position, which is perfectly consistent with the understanding that no rights to demutualization proceeds arise until the demutualization is announced, absent a clear earlier agreement.