United States District Court, N.D. Iowa, Cedar Rapids Division
KAREN McMAHON, HEATHER McMAHON, and RONALD PERKINS, Plaintiffs,
TRANSAMERICA LIFE INSURANCE COMPANY, Defendant.
Leonard T. Strand, Chief Judge.
case is before me on a motion (Doc. No. 16) to dismiss by
defendant Transamerica Life Insurance Company (Transamerica).
Plaintiffs Karen McMahon (Karen), Heather McMahon (Heather)
and Ronald Perkins (Perkins) have filed a resistance (Doc.
No. 17) and Transamerica has replied (Doc. No. 23). I find
that oral argument is not necessary. See N.D. Iowa
December 11, 2017, plaintiffs filed a purported class action
complaint (Doc. No. 1) asserting claims for breach of
contract and breach of the implied covenant of good faith and
fair dealing. Plaintiffs seek declaratory and injunctive
relief in addition to monetary damages. Defendants responded
on May 7, 2018, by filing a pre-answer motion (Doc. No. 16)
to dismiss pursuant to Federal Rule of Civil Procedure
Federal Rules of Civil Procedure authorize a pre-answer
motion to dismiss for “failure to state a claim upon
which relief can be granted.” Fed.R.Civ.P. 12(b)(6).
The Supreme Court has provided the following guidance in
considering whether a pleading properly states a claim:
Under Federal Rule of Civil Procedure 8(a)(2), a pleading
must contain a “short and plain statement of the claim
showing that the pleader is entitled to relief.” As the
Court held in Bell Atlantic Corp. v. Twombly, 550
U.S. 544 (2007), the pleading standard Rule 8 announces but
does not require detailed factual allegations, but it demands
more than an unadorned, the-defendant-unlawfully-harmed-me
accusation. Id. at 555. A pleading that offers
labels and conclusions or a formulaic recitation of the
elements of a cause of action will not do. Id. Nor
does a complaint suffice if it tenders naked assertions
devoid of further factual enhancement. Id. at 557.
To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to “state
a claim to relief that is plausible on its face.”
Id. at 570. A claim has facial plausibility when the
plaintiff pleads factual content that allows the court to
draw the reasonable inference that the defendant is liable
for the misconduct alleged. Id. at 556. The
plausibility standard is not akin to a probability
requirement, but it asks for more than a sheer possibility
that a defendant has acted unlawfully. Id. Where a
complaint pleads facts that are merely consistent with a
defendant's liability, it stops short of the line between
possibility and plausibility of entitlement to relief.
Id. at 557.
Ashcroft v. Iqbal, 556 U.S. 662, 677-78 (2009)
assess “plausibility” by “‘draw[ing]
on [our own] judicial experience and common
sense.'” Whitney v. Guys, Inc., 700 F.3d
1118, 1128 (8th Cir. 2012) (quoting Iqbal, 556 U.S.
at 679). Courts “review the plausibility of the
plaintiff's claim as a whole, not the plausibility of
each individual allegation.” Id. (citation
omitted). While factual plausibility is typically
the focus of a Rule 12(b)(6) motion to dismiss, federal
courts may dismiss a claim that lacks a cognizable
legal theory. See, e.g., Somers v. Apple,
Inc., 729 F.3d 953, 959 (9th Cir. 2013);
Commonwealth Prop. Advocates, L.L.C. v. Mortg. Elec. Reg.
Sys., Inc., 680 F.3d 1194, 1202 (10th Cir. 2011);
accord Target Training Int'l, Ltd. v. Lee, 1
F.Supp.3d 927, 937 (N.D. Iowa 2014).
contend that they represent a class of persons who purchased
Transamerica's universal life insurance policies in the
late 1980s and early 1990s. Doc. No. 1 at ¶¶ 2, 23.
They contend that in August 2015, “Transamerica
suddenly, unilaterally, and massively began increasing
monthly deductions withdrawn from the Policies' accounts,
falsely stating the increases were permitted by the terms of
the Policies, ” when in fact the “reasons for
imposing the dramatic increases were to: (a) subsidize
Transamerica's cost of meeting its interest rate
guarantees under the Policies; (b) recoup past losses in
violation of the terms of the Policies; and (c) induce Policy
terminations by policyholders.” Id. at ¶
and Heather are residents of Virginia while Perkins is a
resident of Wisconsin. Id. at ¶¶ 8-10.
Transamerica is an Iowa corporation with its principal place
of business in Cedar Rapids, Iowa. Id. at ¶ 11.
and Heather are owners of life insurance policies issued by
Transamerica. Doc. No. 1 at ¶¶ 8-9. Karen's
policy was issued in the 1970s, and on October 15, 1990, was
converted to a Transamerica Preferred Policy Owner universal
life insurance policy with a face amount of $100, 000 (Policy
No. 92343459). Id. at ¶ 8. Heather's policy
- an Assured Life universal life insurance policy with a face
value of $100, 000 (Policy No. 92996275) - was issued to her
father, Edward McMahon, in January 1989. Id. at
¶ 9. Edward transferred the policy to Heather prior to
August 2015. Id. Perkins owns a TransMax universal
life insurance policy with a face amount of $300, 000 (Policy
No. 92252099). Id. In August 2015, each of
plaintiffs' policies were subject to the cost increases
that form the basis for the complaint. Id. at
noted above, each plaintiff claims to be the owner of a
Transamerica universal life insurance policy (the Policy or
Policies). Universal life insurance is more flexible than
term or whole life insurance, as policyholders are free to
adjust their premium payments:
Premium payments, which are variable, are deposited in an
accumulation account from which monthly cost of insurance and
expense charges are deducted. The accumulation account is
credited with monthly interest at a nonguaranteed declared
rate, but not less than the guaranteed interest rate
specified in the policy contract. Universal life insurance
policies allow policyholders to change the amount and
frequency of premium payments as long as their policies
contain sufficient cash value to cover monthly deductions
Id. at ¶ 18 & n.2. Importantly, an increase
in the “monthly deductions” will correspond with
a higher premium payment obligation.
“monthly deduction” is meant to recover the costs
associated with maintaining the Policy. The monthly deduction
is withdrawn from the Policy's accumulation account at
the end of each month. Id. at ¶ 25. The monthly
deduction is equal to “(a) the application of a
‘Monthly Deduction Rate' [(MDR)] to the difference
between the death benefit and the accumulation value at the
beginning of the year; (b) the monthly deduction for any
Policy riders; and (c) a Policy fee.” Id.,
see also Doc. No. 1-2 at 8 (“The Monthly
Deduction is equal to: (a) the [MDR], times .001, times the
difference between the death benefit and the accumulation
value at the beginning of the year . .
.”). The MDR is the most important component of
the monthly deduction. While the other two variables are
predictable and not subject to change, the MDR may be
adjusted at Transamerica's discretion. Doc. No. 1 at
Policy describes Transamerica's discretion related to the
MDR as follows:
Monthly Deduction Rates - We will determine the monthly
deduction rate for each policy year at the beginning of that
year. We will use the insured's age as of that policy
A Table of Guaranteed Monthly Deduction Rates is in the
policy data. We may use rates lower than these guaranteed
monthly deduction ...