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11 Cir Sees No Breach of Contract by Ohio National in Variable Annuity Commissions Lawsuit
March 22, 2021
Ohio National entered into contracts with various broker dealers whereby the former compensated the latter for sales of variable annuities. The commission paid by Ohio National to a brokerage firm is undertaken pursuant to the terms of a Selling Agreement. The problem with that arrangement is that the brokerage firms sell through human beings, who are registered representatives. What happens when Ohio National terminates a Selling Agreement and stops paying commissions to the brokerage firm? Who is supposed to pay the reps their commissions? Who should they sue?
MDAL Complaint
On January 11, 2019, Keith Bowers, Trip Whatley, Susan Moore, and Tracy Lenz filed a Complaint in the United States District Court for the Middle District of Alabama ("MDAL") against The Ohio National Life Insurance Company, Ohio National Life Assurance Company, and Ohio National Equities, Inc. (collectively "Ohio National") The Complaint alleged breach of contract as intended third-party beneficiaries, unjust enrichment, and tortious interference with business relations.
The Selling Agreement
Plaintiffs Whatley, Moore, and Lentz are registered representatives of broker dealers ProEquities, Inc., LPL Financial, and Securities America, respectively; and each of these broker dealers had nearly identical Selling Agreement with Ohio National, which is an insurance corporation that, inter alia, issues variable annuities with a guaranteed minimum income benefit rider.
As to the transactions at issue in the Complaint, Plaintiffs alleged that their employer broker-dealers had enlisted them to sell the Ohio National annuities. The Plaintiffs had contracts with their employer broker-dealers but were not parties to the Selling Agreements between the broker-dealers and Ohio National. By way of a sample, a "Commissions Payable" section of the Selling Agreements states:
Commissions payable in connection with the contracts shall be paid to [the broker dealer] . . . according to the Commission Schedule(s) . . . . Compensation to the [broker dealer's] Representatives . . . will be governed by agreement between [the broker dealer] and its Representatives and its payment will be the [broker dealer's] responsibility.
Section 9 further states that Ohio National's obligation to pay commissions pursuant to the Commission Schedule "shall survive this Agreement unless the Agreement is terminated for cause by [Ohio National]." And the Commission Schedule provides, in part, that Ohio National is to pay the broker dealer "trail commissions" in return for selling and servicing Annuities.2= = = = =Footnote 2: Trail commissions are commissions on previously sold Annuities that remain in force. The Commission Schedule provides that "[t]rail commissions will continue to be paid to the broker dealer of record while the Selling Agreement remains in force and will be paid on a particular contract until the contract is surrendered or annuitized."
Ohio National Terminates Selling Agreements
Plaintiffs alleged that on September 28, 2018, Ohio National terminated the Selling Agreements without cause and, thereafter, refused to pay to the broker-dealers any allegedly owed commissions. Accordingly, Plaintiffs contend that the broker-dealers did not pay to them their trail commissions.
MDAL Dismissal / 11 Cir Appeal
MDAL dismissed Plaintiffs' claims with prejudice, and Plaintiffs Whatley, Moore, and Lenz appealed to the United States District Court of Appeals for the Eleventh Circuit ("11Cir") Keith Bowers, Plaintiff, and Trip Whatley, Susan Moore, and Tracy Lenz, Plaintiffs/Appellants, v. The Ohio National Life Insurance Company, Ohio National Life Assurance Company, and Ohio National Equities, Inc., Defendants/Appellees (Opinion, 11Cir., No 19-15014)
http://brokeandbroker.com/PDF/WhatleyOp11Cir210318.pdf
Although Plaintiffs had alleged five causes of action before MDAL, only three were before 11Cir on appeal:
[P]laintiffs' first claim is for breach of contract, based on the theory that they have standing as third-party beneficiaries of the Selling Agreements. Second, and in the alternative to the breach of contract claim, Plaintiffs allege unjust enrichment on the basis that it is unjust for Ohio National to benefit from retaining trail commissions that should have been paid pursuant to the Selling Agreements. Plaintiffs' third claim is for tortious interference with business relations. They claim that by failing to pay commissions, Ohio National interfered with the separate contracts between the broker dealers and Plaintiffs.
In granting the Motion to Dismiss all claims, MDAL made the following findings:
[F]irst, the court found that Plaintiffs' lacked standing to bring a breach of contract claim because they were not intended beneficiaries of the Selling Agreements. The district court relied heavily on Section 9 of the Selling Agreements which provides for direct payments from Ohio National to the broker dealer, while providing that Plaintiffs' compensation is the broker dealer's responsibility. Second, the court held that Appellants could not bring an unjust enrichment claim based on an issue that was expressly governed by contract. Third, the court dismissed Plaintiffs' tortious interference claim, holding that under the "refusal to deal" doctrine, Ohio National could not be held liable in tort for terminating the Selling Agreements and stopping payment on trail commissions. Rather than granting Plaintiffs leave to amend, the district court dismissed each claim with prejudice. . . .
at Pages 4 - 5 of the 11Cir Opinion
No Intention
In tackling the third-party beneficiary claim, 11Cir asserted that under Ohio law, standing only attaches if the third-party status is intended rather than merely an incidental aspect of the cited contract. In reviewing the Selling Agreement, 11Cir found no language of intention and affirmed MDAL's dismissal of this cause of action:
at Page 8 of the 11Cir Opinion[O]hio National did not take on any duty vis-à-vis Plaintiffs. To the contrary, "the performance contracted for" in the Selling Agreements was that Ohio National would issue compensation only to the broker dealer, while the broker dealer would remain responsible for Plaintiffs' compensation. Id. Therefore, the Selling Agreements do not reflect an intent to benefit Plaintiffs.
An Express Contract
Under Ohio Law, the equitable doctrine of unjust enrichment comes into play only in the absence of an express contract; and, further, there is a three-pronged test by which a plaintiff must prove unjust enrichment:
(1) a benefit conferred by a plaintiff upon a defendant; (2) knowledge by the defendant of the benefit; and (3) retention of the benefit by the defendant under circumstances where it would be unjust to do so without payment.
at Page 9 of the 11Cir Opinion
In considering the Selling Agreements, the 11Cir characterizes those documents as expressly stating that:
[O]hio National is not responsible for the compensation of a broker dealer's sales representatives. Id. Therefore, the subject of Plaintiffs' claim is covered by an express contract. And as a result, Plaintiffs cannot recover under a theory of unjust enrichment.
at Pages 9 - 10 of the 11Cir Opinion
Tortious Interference Claim
Finally, 11Cir found the Appellants' tortious interference claim equally unavailing. To prevail on such a claim, Appellants needed to satisfy a five-pronged test:
(1) the existence of a protectible business relationship; (2) of which the defendant knew; (3) to which the defendant was a stranger; (4) with which the defendant intentionally interfered; and (5) damage.
at Page 10 of the 11Cir Opinion
In dismissing this final claim, 11Cir found in part that;
at Page 17 of the 11Cir Opinion[O]hio National's refusal to pay commissions owed under the Selling Agreements is not, as a matter of law, an intentional interference with the contracts between the broker dealers and their sales representatives. Accordingly, we affirm the district court's finding that Plaintiffs failed to state a claim for tortious interference with business relations.