Opinion
15-P-1235
05-05-2016
JESSICA C. RULE v. MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY.
NOTICE: Summary decisions issued by the Appeals Court pursuant to its rule 1:28, as amended by 73 Mass. App. Ct. 1001 (2009), are primarily directed to the parties and, therefore, may not fully address the facts of the case or the panel's decisional rationale. Moreover, such decisions are not circulated to the entire court and, therefore, represent only the views of the panel that decided the case. A summary decision pursuant to rule 1:28 issued after February 25, 2008, may be cited for its persuasive value but, because of the limitations noted above, not as binding precedent. See Chace v. Curran, 71 Mass. App. Ct. 258, 260 n.4 (2008).
MEMORANDUM AND ORDER PURSUANT TO RULE 1:28
Plaintiff Jessica C. Rule, owner of two Massachusetts Mutual Life Insurance Company (MassMutual) policies, brought this action, individually and on behalf of all similarly situated persons, claiming that MassMutual's March, 2014, proxy statement (proxy), which described proposed and recommended by-law changes, was false and deceptive. According to Rule, the dissemination of this materially false and deceptive proxy constituted a breach of contract, breach of the implied covenant of good faith and fair dealing, and breach of MassMutual's fiduciary duty to its policy holders. Rule also sought a declaration that policy holders in a mutual insurance company are entitled to inspect the company's books and records as a matter of law. A Superior Court judge allowed MassMutual's motion to dismiss each claim, reasoning that the proxy was not materially false and misleading, and therefore not actionable. The judge further concluded that Rule, "as a policyholder and member of MassMutual, has no right to inspect certain MassMutual books and records under Massachusetts common law." Judgment entered dismissing the complaint, and Rule filed a timely appeal. We affirm.
Background. We summarize the allegations in the "First Amended Class Action Complaint" (complaint) and other procedural background as may be relevant. MassMutual is a domestic mutual life insurance company headquartered in Springfield. Rule owns a whole life policy and a term life policy with MassMutual. Policy holders and members of MassMutual have the right to elect MassMutual's board of directors (board) and the authority to approve changes to MassMutual's corporate charter or by-laws.
Connecticut Mutual Life Insurance Company, which merged with MassMutual in 1996, initially issued both policies. Rule has owned her whole life policy since 1985, and her term life policy from 1987 to at least 2006.
On or about March 5, 2014, MassMutual disseminated the proxy to obtain members' approval of proposed amendments to the by-laws. The proxy included a summary of the proposed by-law changes, and a "redlined" version of the by-laws showing all of the proposed changes. The amendments were subject to a members' vote on April 9, 2014, at MassMutual's annual meeting. Members were encouraged to attend and cast their votes, and members unable to attend were given the option to vote by proxy via Internet, telephone, or mail. The proxy stated that the amendments would make the by-laws consistent with MassMutual's current practices and bring the by-laws "in alignment with widely accepted corporate governance best practices."
Through counsel, Rule contacted MassMutual to express concern that the amendments were adverse to members, and to request copies of documents pertaining to the board's deliberations on the proposed amendments. MassMutual responded by letter asserting that Rule had no legal right to inspect its books and records and that her request was not made in good faith. Nevertheless, MassMutual permitted Rule's counsel to review, but not copy, five sets of redacted minutes of the relevant meetings of the board and the corporate governance committee. After review of these records, Rule wrote to MassMutual claiming, "the board did not engage in a thorough or independent process before voting to make significant changes to MassMutual's bylaws and seek member approval" and that "the [corporate governance committee] and full board did not retain independent outside advisors or counsel in this process, which was driven by management on painfully insufficient notice." Rule also requested the inspection of "additional documents, reports, minutes and emails." MassMutual denied Rule's request. At the annual meeting, Rule's counsel voiced her opposition to the amendments and cast her vote against them.
Discussion. 1. Motion to dismiss. "We review the allowance of a motion to dismiss de novo," Galiastro v. Mortgage Electronic Registration Sys., Inc., 467 Mass. 160, 164 (2014), "accepting as true the factual allegations in [Rule's complaint] as well as any favorable inferences reasonably drawn" from those allegations. Lopez v. Commonwealth, 463 Mass. 696, 700 (2012) (citation omitted). To prevail on appeal, the plaintiff's factual allegations must plausibly suggest her entitlement to relief above the speculative level. Harrington v. Costello, 467 Mass. 720, 724 (2014). Mindful of this standard, we discern no error in the dismissal of Rule's claims.
a. Breach of fiduciary duty. Rule contends that MassMutual breached its fiduciary duty to disseminate a true and accurate proxy statement because the proxy failed to disclose potential negative consequences of the proposed amendments. "To establish a breach of fiduciary duty, there must be a duty owed to the plaintiff by the defendant and injury to the plaintiff proximately caused by the breach." Estate of Moulton v. Puopolo, 467 Mass. 478, 492 (2014). Neither this court nor the Supreme Judicial Court has addressed whether a mutual insurance company owes a fiduciary duty to its members in connection with the dissemination of proxy materials. We decline to reach that question here because, as the motion judge correctly determined, even if MassMutual owed Rule a fiduciary duty, she failed to sufficiently allege a breach of this duty and a resulting injury.
Rule also contends that the proxy failed to identify the potential conflict of interest between MassMutual and its policy holders. We decline to address this argument, because it was not raised in the Superior Court. Milton v. Civil Serv. Commn., 365 Mass. 368, 379 (1974).
First, the complaint does not sufficiently allege a breach of any fiduciary duty of disclosure. It is not enough for Rule to identify missing information she found "interesting or desirable." Adelson v. Adelson, 60 Mass. App. Ct. 753, 763 (2004), quoting from Milton v. Van Dorn Co., 961 F.2d 965, 969 (1st Cir. 1992). Instead, she must show that material information was not disclosed. See ibid. "[U]ndisclosed information is material only if there is a 'substantial likelihood' that a reasonable [policy holder] would view its disclosure as having 'significantly altered the total mix of information' available in deciding his choice of action in the transaction." Ibid., quoting from TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976). The complaint fails to identify, beyond a speculative level, the information that would have caused policy holders to alter their vote. The proxy set forth the current by-laws and a redlined version of all proposed amendments. Compare R.S.M. Inc., v. Alliance Capital Mgmt. Holdings, L.P., 790 A.2d 478, 503 (Del. Ch. 2001). Under the circumstances before us, nothing more was required.
Second, Rule failed to sufficiently allege that she was injured as a result of MassMutual's alleged breach. Estate of Moulton v. Puopolo, supra. MassMutual's claimed failure to disclose material information did not prevent Rule from forming an opinion about the proposed amendments and casting her vote. As Rule acknowledged, her counsel was present at the annual meeting, spoke in opposition to the amendments, and voted against them on Rule's behalf. She was entitled to nothing more.
b. Contract claims. Rule claims that MassMutual's conduct breached her contract with it. Specifically, she asserts that her policies grant her "the right to cast an informed vote based on an accurate proxy." No such language appears in the policies. The only contract term addressing her right to vote states that policy holders have "the right to vote in person or by proxy at all meetings of the Company." Since it is undisputed that Rule cast her vote by proxy and the vote was duly counted, the judge correctly determined that "nothing in the Complaint plausibly suggests an entitlement to relief by reason of interference with Rule's ability to cast a vote on the proposed amendment to the By-laws."
In a related claim, Rule contends that MassMutual breached the implied covenant of good faith and fair dealing. See Anthony's Pier Four, Inc. v. HBC Assocs., 411 Mass. 451, 471 (1991) ("Every contract implies good faith and fair dealing between the parties" [citation omitted]). "The purpose of the implied covenant is to ensure that neither party interferes with the ability of the other to enjoy the fruits of the contract, . . . and that, when performing the obligations of the contract, the parties remain faithful to the intended and agreed expectations of the contract." Chokel v. Genzyme Corp., 449 Mass. 272, 276 (2007) (citation omitted). But as the motion judge determined, the contract terms governing Rule's right to vote did not impose duties on MassMutual related to the content of proxy materials. Since "[t]he scope of the covenant is only as broad as the contract that governs the particular relationship," id. at 288, quoting from Ayash v. Dana-Farber Cancer Inst., 443 Mass. 367, 385, cert. denied sub nom. Globe Newspaper Co. v. Ayash, 546 U.S. 927 (2005), there was no error in the dismissal of this claim.
2. Inspection of books and records. Rule also argues on appeal that the judge erred in denying her request for a declaration that policy holders have a common-law right to inspect the books and records of a mutual insurance company. She relies upon Varney v. Baker, 194 Mass. 239, 240-241 (1907), which stands for the proposition that stockholders of a corporation have a common-law right to inspect the corporation's books and records. Rule contends that the right of inspection should be extended to policy holders of MassMutual. The motion judge disagreed, reasoning that no Massachusetts court has held that such a common-law right of inspection exists and the Legislature has declined to extend a statutory right of inspection to policy holders of mutual insurance companies. We conclude that even if such a common-law right existed, a question we do not reach, MassMutual satisfied its inspection obligation when it permitted Rule's counsel to review the minutes of the board's discussions of the proposed by-law amendments.
A common-law right of inspection does not grant stockholders an all-access permit to the corporation's records. See Klotz v. Pan-American Match Co., 221 Mass. 38, 45 (1915) (denying "too broad and indefinite" requests for inspection of corporation's records). The common-law right is a qualified right to inspect the books of a corporation that are material to the stockholder's interest in the assets and business of the corporation. Id. at 41, 45. Such a right would not entitle Rule to inspect "all documents" that pertain to the board's deliberations on the proposed amendments. See Dennison v. Needle, 274 Mass. 416, 418-419 (1931) (limiting decree for common-law right of inspection from "books and records" to "records of all meetings of stockholders and stock and transfer books"). Thus, under any common-law right, MassMutual's obligation to permit inspection of the requested records would have been satisfied.
Specifically, Rule requested "copies of all of the documents concerning deliberations by the Board of Directors and their approval of . . . proposed changes [to MassMutual's By-laws]," including "all documents that concern, support and/or contradict the claim in the Proxy Statement distributed to members that the Proposed By-law Changes 'will bring the By-laws in alignment with widely accepted corporate governance best practices.'"
Further, Rule has not pleaded a proper purpose for her request. See Albee v. Lamson & Hubbard Corp., 320 Mass. 421, 424 (1946) (stockholder bears burden of proof to allege and prove her "good faith and a proper purpose" for request to inspect books and accounts of corporation). Rule contends that her request is based on her belief that the proposed amendments to the by-laws "constituted bad corporate governance proposals, and that she wished to understand the Board's investigation, process and reasons behind the proposed changes." However, a common-law right of inspection cannot be exercised "for mere curiosity, or for merely speculative purposes, or vexatiously." Varney, supra at 241. Since MassMutual's vote to adopt the proposed amendments has concluded and Rule has voted, there is no proper purpose for further inspection.
Judgment affirmed.
By the Court (Blake, Kinder & Neyman, JJ.),
The panelists are listed in order of seniority. --------
/s/
Clerk Entered: May 5, 2016.