BB&T v. Mass Mutual, Clark Consulting (Update)
On January 26, the judge in this matter ruled on the defendants’ dismissal motions. The order granted dismissal of Count I (breach of fiduciary duty); Count II (aiding and abetting breach of fiduciary duty); Count III (negligence); and Count VII (unfair and deceptive trade practices). The following BB&T claims survived: Count IV (negligent misrepresentation); Count V (breach of contract); and Count VI (fraud). The matter is set to be in discovery until September 24, 2010.
Fifth Third Bank v. Transamerica, Clark Consulting (Update)
In December, Transamerica and Clark filed a joint motion to compel production of certain communication between Fifth Third and the Federal Reserve of Cleveland regarding Fifth Third’s fourth quarter 2007 BOLI write-down due to losses incurred by the Falcon Fund. As of this month, the Federal Reserve Board of Governors, as well as the Ohio and Michigan state financial institutions regulators, has been allowed to intervene in the matter for the limited purpose of blocking the production of the communication between Fifth Third and the central bank. The regulators contend that the communication requested is privileged and further that the defendants have failed to make the showing required to overcome the privilege under the five-part test set forth by the Sixth Circuit. The defendants contend that the communication is germane to their defense as it relates to Fifth Third’s executives’ understanding of the products as well as the write-down.
Employer Stock Drop Litigation
Companies that sponsor ESOPs, 401(k)s and other forms of eligible individual account plans are vulnerable to ERISA class action lawsuits when the company stock held by the plan drops in value. Due to a 1995 decision issued by the Third Circuit Court of Appeals, the so-called “Moench” presumption of prudence, federal courts have shown an increased willingness to dismiss ERISA stock drop lawsuits at an early pre-trial state. That presumption treats a fiduciary’s decision to continue offering the company stock investment as being consistent with ERISA, unless the plaintiff can show that the fiduciary knew at a pertinent time of an imminent corporate collapse or other dire situation. The Third, Fifth, and Sixth Circuits have expressly adopted this presumption as part of federal common law under ERISA, while the Seventh and Ninth Circuits have affirmed summary dismissals of ERISA stock drop claims without specifically adopting such a presumption. Recently, the United States Department of Labor (DOL) filed an amicus curiae brief in the Citibank ERISA Litigation, and has urged the Second Circuit Court of Appeals to reject the Moench presumption as a tool for deciding ERISA stock drop cases. The DOL maintains that the cases should proceed without applying any presumption in favor of fiduciary defendants. If the Second Circuit adopts the DOL’s reasoning, it would remove an effective method of disposing unsound claims early and could otherwise change the legal landscape of how these matters are litigated. This Groom Law Group Client Alert provides additional detail.
Bipartisan Tax and Fairness and Simplification Act of 2010
On February 23, Senators Ron Wyden (D-OR) and Judd Gregg (R-NH) introduced a comprehensive income tax reform bill. Among the stated purposes of the bill are to make the Federal income tax system “simpler, fairer, and more fiscally responsible.” The bill would lower the corporate tax rate while closing some loopholes and exemptions. It would reduce the number of tax brackets for individuals from six to three (15%, 25% and 35%); eliminate the individual Alternative Minimum Tax; reduce the corporate tax rates and brackets with a single flat rate of 24%; codify the “economic substance” doctrine; and increase penalties for noncompliance, underreporting and fraud. Additionally, the bill targets for repeal or potential repeal certain long-standing provisions of the Internal Revenue Code, including Section 79 (relating to exclusion of group term life insurance purchased for employees), Section 125 (relating to exclusion of cafeteria plan benefits) and Section 501(c)(9) (relating to tax-exempt status of voluntary employees’ beneficiary associations (VEBAs)). Most of the bill provisions would be applicable to taxable years beginning after December 31, 2010.
President Obama FYE 2011 Budget Proposal
As we reported in an Ad Hoc LRA, earlier this month the Obama Administration published its 2011 fiscal budget proposals and “Greenbook.” The proposed budget would raise $14.4 billion in insurance-related revenue over the next 10 years, primarily by expanding pro rata interest expense disallowance for corporate-owned life insurance covering the lives of employees, directors and officers on insurance contracts issued after December 31, 2010. This proposal was also included in 2010 proposed fiscal budget released last May. This Locke, Lord, Bissell & Liddell Client Alert provides additional detail.
NY Final Insurance Producer Disclosure Regulation
On February 10, New York Insurance Department published the final version of the insurance producer compensation disclosure regulation. The final version of the regulations reflected some changes from the proposed version published on December 2. The final version requires a producer to provide a description of his/her role in the sale instead of disclosing whether the producer represents the insurance company or the purchaser in a particular transaction. The final version also dropped the requirement that producers provide initial compensation disclosures on all policy renewals. Instead, compensation disclosures for renewals are exempt unless the purchaser requests such information 30 days before or after the renewal. The final version did not make changes to the definition of compensation, which remains very broad, or the required timing of disclosure notification. The Independent Insurance Agents & Brokers of NY (IIABNY) announced that they will proceed with legal action to stop the rule from taking effect. The regulation is set to take effect January 1, 2011.
Ad Hoc LRA – February 2, 2010
President Obama FYE 2011 Budget Proposal
Yesterday, President Obama submitted his proposed budget for fiscal 2011 to Congress. The proposed budget would raise $14.4 billion in insurance-related revenue over the next 10 years, primarily expanding pro rata interest expense disallowance for corporate-owned life insurance (this appears to be a prospective change only). Other provisions related to life insurance in the proposed budget include: modifying rules that apply to sales of life insurance contracts; modifying dividends-received deduction for life insurance company separate accounts; and permitting partial annuitization of a nonqualified annuity contract. As you may recall, most of these insurance proposals were included in the 2010 Treasury Greenbook which was released in May 2009.
The insurance provisions are included in the Summary Table on page 168 of the budget proposal.
We will be tracking developments and working closely with industry groups to minimize or eliminate the potential affect of any related legislation emerging in coming months.