Nov. 30--A federal appeals court has handed a big win to Northwestern Mutual Life Insurance Co. in its fight to derail a state court lawsuit that was on track to expose the company to hundreds of millions in damages.

Last year, Racine County Circuit Reserve Judge Dennis Flynn found that Northwestern Mutual had acted in bad faith and breached its contracts with thousands of annuity holders when it unilaterally changed how dividends were paid on some annuities sold before 1985.

The judge refused Northwestern Mutual's demand to vacate his ruling and get off the case, and the state Court of Appeals also turned down the firm's argument.

Emboldened, the plaintiffs moved to amend their action to a broader class of annuity holders outside Wisconsin. That led to Northwestern Mutual removing the case to federal court, but U.S. District Judge Lynn Adelman ruled it should remain in state court, agreeing with plaintiffs that the case was one of corporate governance under Wisconsin law.

Northwestern Mutual again appealed, and late Wednesday the 7th U.S. Circuit Court of Appeals sided strongly with the insurance giant.

In a nine-page ruling written by Chief Judge Frank Easterbrook for a three-judge panel, the court vacated Adelman's decision and sent the case back to him for resolution.

"This is a contract case, not a corporate-governance case," Easterbrook wrote. "And multiple states' law applies to these contracts."

The court clearly said Adelman must determine whether to certify a national class action and decide the case on the merits, specifically noting he can come to a different conclusion than that of Flynn.

And if Northwestern Mutual doesn't like Adelman's decision, the 7th Circuit could disagree again.

"We will be as free to review Judge Flynn's decision on the merits (should the federal district court enter a judgment based on it) as we would be had the identical decision been made initially by the federal district judge," the federal appeals panel said.

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