Freeman Investments, L.P. v. Pacific Life Insurance Company
2013 U.S. App. LEXIS 23
| 9th Cir. | 2013Background
- SLUSA precludes state-law class actions alleging misrepresentation or omission in connection with purchases or sales of covered securities.
- Plaintiffs purchased variable universal life policies from Pacific Life; policy separates investment accounts from general liabilities.
- Policy funds are invested in the Pacific Select Fund and the death benefit varies with fund performance.
- Policyholders bear investment risk; the separate account is registered as a unit investment trust under the Investment Company Act.
- Plaintiffs allege excessive 'cost of insurance' charges and seek restitution, tolling on concealment theories, and claims under California Business and Professions Code § 17200.
- District court dismissed under SLUSA; court remanded for amendment and considered whether claims are contract-based or fraud-based.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does SLUSA preclude class actions framed as misrepresentation/omission in a covered security case? | Plaintiffs argue the claims arise from concealment and deceit in the covered-security context. | Pacific Life argues SLUSA bars state-law class actions alleging misrepresentation/omission in connection with covered securities. | SLUSA preclusion applies to misrepresentation/omission framing, but contract claims may survive if properly pled. |
| Do contract-based claims survive SLUSA even when related to a covered security? | Contract claims (breach of contract and duty of good faith) are separate from fraud and should not be precluded. | SLUSA precludes state-law actions that rely on misrepresentation/omission in securities, regardless of labeling. | The breach of contract and related good faith claims survive SLUSA when pled as contract claims, on remand with amendment. |
| Whether the California § 17200 unfair competition claim survives SLUSA. | § 17200 claim contains unlawful/unfair acts based on charges and concealment relevant to the transaction. | SLUSA bars claims that are predicated on deception in connection with a covered security. | The § 17200 claim does not survive SLUSA; precluded if conduct occurred in connection with a covered security. |
Key Cases Cited
- Patenaude v. Equitable Life Assurance Soc’y of the United States, 290 F.3d 1020 (9th Cir. 2002) (variable annuities/insurance securities context in Ninth Circuit)
- Madden v. Cowen & Co., 576 F.3d 957 (9th Cir. 2009) (broad reading of SLUSA 'in connection with' standard)
- Dabit v. Merrill Lynch, 547 U.S. 71 (U.S. 2006) (SLUSA bar extends to class actions where fraud coincides with securities transaction)
- Zandford v. SEC, 535 U.S. 813 (U.S. 2002) (in connection with requires more than tangential relation to securities)
- Kircher v. Putnam Funds Trust, 547 U.S. 633 (U.S. 2006) (abrogation/limitations related to SLUSA context)