HURWITZ, Circuit Judge:
This is a putative class action against EquiTrust Life Insurance Company ("EquiTrust"), alleging violations of federal and state law in the sale of annuities. The district court granted EquiTrust's motion for summary judgment, but, without explanation, declined to award costs to the prevailing party. We affirm the summary judgment, but vacate the denial of costs and remand for the district court either to award costs or explain its refusal.
A. The Annuity
In 2007, Paul Harrington purchased an EquiTrust MarketPower Bonus Index Annuity (the "Annuity") from an insurance agency. The Annuity uses "index accounts" to generate "index credits" that increase the Annuity's accumulation value (the total amount in the account). Index credits (essentially interest) are calculated based on periodic changes in the closing value of the S & P 500.
The Annuity permits annual withdrawals of up to 10% of the accumulation value with no penalty. Larger withdrawals are subject to: (1) a surrender charge, a specified percentage of the accumulation value that decreases each year until it disappears in the fourteenth year; and (2) a market value adjustment, which increases or decreases the accumulation value based on interest rates in the market.
Harrington's initial premium was $432,530.92. The Annuity included a "10% premium bonus," under which EquiTrust
B. Procedural Background
In 2009, Harrington filed this putative class action in the District of Arizona, alleging that EquiTrust's marketing of the Annuity violated the Racketeer Influenced and Corrupt Organizations ("RICO") Act, 18 U.S.C. § 1962(c), and Arizona law. Harrington later filed a motion for class certification, and EquiTrust filed a motion for summary judgment. The district court granted EquiTrust's motion, denied class certification as moot, and entered judgment for the defendant. The court, however, declined without explanation to award costs to the prevailing party. Harrington timely appealed the judgment, and EquiTrust timely appealed the denial of costs.
A RICO claim requires "racketeering activity (known as predicate acts)." Living Designs, Inc. v. E.I. Dupont de Nemours & Co., 431 F.3d 353, 361 (9th Cir.2005) (quoting Grimmett v. Brown, 75 F.3d 506, 510 (9th Cir.1996)) (internal quotation marks omitted). The racketeering activities alleged by Harrington were violations of 18 U.S.C. § 1341 (mail fraud) and 18 U.S.C. § 1343 (wire fraud). See 18 U.S.C. § 1961(1) (identifying violations of these statutes as racketeering activity).
Mail and wire fraud can be premised on either a non-disclosure or an affirmative misrepresentation. See United States v. Benny, 786 F.2d 1410, 1418 (9th Cir.1986). A non-disclosure, however, can support a fraud charge only "when there exists an independent duty that has been breached by the person so charged." United States v. Dowling, 739 F.2d 1445, 1449 (9th Cir.1984), rev'd on other grounds, 473 U.S. 207, 105 S.Ct. 3127, 87 L.Ed.2d 152 (1985). "Absent an independent duty, such as a fiduciary duty or an explicit statutory duty, failure to disclose cannot be the basis of a [RICO] fraudulent scheme." Cal. Architectural Bldg. Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1472 (9th Cir.1987) (citing Dowling, 739 F.2d at 1449).
Harrington's complaint is based entirely on the language of the Annuity contract and the EquiTrust marketing materials; he makes no claim of misrepresentation by the insurance agency that sold him the Annuity. Harrington alleges three fraudulent schemes: (1) the promise of premium bonuses; (2) the application of the Annuity's market value adjustment; and (3) the circumvention of state nonforfeiture laws. The district court found no actionable predicate acts, and we agree.
A. The Premium Bonus
Harrington claims that the promise in the Annuity of a "10% premium bonus" was fraudulent because EquiTrust failed to disclose that it does not invest any additional money in the market when crediting the bonus to an annuitant's account, and eventually "recoups" the bonus by crediting lower index credits to the Annuity than it might have in an annuity contract without the bonus feature. Harrington also argues that the "10% bonus" is illusory, because the ultimate increase over time in the accumulation value from the bonus might be less than increases that would occur for an annuity which provided higher returns.
We begin from the settled premise that a seller generally has no duty to disclose internal pricing policies or its method for
Harrington does not allege that Equi-Trust was a fiduciary or that some statute required the disclosure of its internal pricing policies. In the absence of such a relationship, there is no duty to disclose that the Annuity may provide lower index credits than might have been available in an alternative product without the bonus feature. See Cal. Architectural, 818 F.2d at 1472.
Of course, even absent a duty to disclose, a seller can be liable for affirmatively misrepresenting its product. See Lustiger v. United States, 386 F.2d 132, 136 (9th Cir.1967); see also Benny, 786 F.2d at 1418. Thus, if an annuity company promises a bonus, but does not deliver as advertised, there can be actionable misrepresentation.
But it is uncontested here that Equi-Trust delivered precisely what it promised. The 10% bonus was accurately described in the Annuity materials and properly credited to Harrington's account. The bonus increased Harrington's accumulation value without requiring him to deposit additional funds, allowing him to withdraw more money without penalty than otherwise would have been possible. The promise of a "bonus" was thus not, as Harrington claims, illusory. See Kennedy v. Jackson Nat'l Life Ins. Co., No. C 07-0371 CW, 2010 WL 4123994, at *11 (N.D.Cal. Oct. 6, 2010) (finding that added liquidity is a bonus). Nor is it clear that Harrington would have been better off absent the bonus feature. If the index credits were regularly low, Harrington's investment would outperform a non-bonus annuity that provided the possibility of higher credits.
B. The Market Value Adjustment
The Annuity includes a market value adjustment ("MVA"), a "positive or negative adjustment that may apply to [an annuity's accumulation] value upon early withdrawal or surrender, based on the movement in an external index." The MVA takes account of the capital gains or losses resulting from the sale of securities needed to fund early withdrawal or surrender requests. EquiTrust's brochure provides the precise formula used to calculate the MVA, explains how to determine the variables in the formula, and offers examples of its application.
Harrington alleges that the brochure fails to explain that the disclosed constant in the formula, which he refers to as a "bias,"
The district court correctly rejected this argument. EquiTrust meticulously explains the MVA and provides examples of how it operates in various circumstances. See Kennedy, 2010 WL 4123994, at *10 ("Plaintiff complains that Defendant defined the other variables in the MVA/EIA formula, but failed to explain the 0.005 value. This is not fraud."). More importantly, even if we assume that Harrington correctly divines the MVA's implicit purpose, the bias does not violate it. Even with the bias, the MVA raises the accumulation value if interest rates decline and decreases it when they rise. To be sure, the increase is less and the decrease greater than it would be without the bias, but EquiTrust never promised anything different.
C. The Nonforfeiture Law
The model standard nonforfeiture law for individual deferred annuities ("SNFLIDA"), codified at Ariz.Rev.Stat. § 20-1232, has specific regulations for annuities with optional maturity dates. See id. § 20-1232(G). Whether a maturity date is optional or fixed is determined by the contract terms. See id.
If the Annuity had an optional maturity date, its terms would not comply with SNFLIDA. The Annuity contract, however, has an explicit fixed maturity date. Nonetheless, Harrington argues that the Annuity effectively has an optional maturity date because EquiTrust's internal policy is to consider affording annuitants relief from the fixed-date terms of their contracts upon request. Harrington argues that the Annuity therefore violates SNFLIDA, and is an attempt by Equi-Trust to defraud Arizona regulators.
The district court correctly rejected this claim. Harrington offers no authority for the proposition that an insurer's willingness to consider providing relief on a caseby-case basis to its annuitants from the
IV. EquiTrust's Appeal
EquiTrust argues that the district court erred by not awarding it costs as the prevailing party pursuant to Federal Rule of Civil Procedure 54(d). Although a district court has the discretion to decline to award costs to a prevailing party, it must explain a denial. See Ass'n of Mex.-Am. Educators v. California, 231 F.3d 572, 591-93 (9th Cir.2000) (en banc). The court here did not do so. Thus, we vacate the order denying costs and remand to allow the district court either to award costs or state its reasons for denying them. See Quan v. Computer Scis. Corp., 623 F.3d 870, 889 (9th Cir.2010), abrogated on other grounds by Fifth Third Bancorp v. Dudenhoeffer, ___ U.S. ___, 134 S.Ct. 2459, 2467, 189 L.Ed.2d 457 (2014).