Montoya v. NEW YORK STATE UNITED TEACHERS
754 F. Supp. 2d 466
E.D.N.Y2010Background
- Plaintiffs Montoya and Pesce, on behalf of themselves and others, sue NYSUT Defendants for breach of fiduciary duty in a state-law class action regarding investment programs offered to teachers.
- Programs are 403(b) retirement options (Opportunity Plus/Opportunity Independence) created with NYSUT and ING Life/Annuity; NYSUT Trust, Trustees, and ING are defendants.
- Plaintiffs allege exclusive endorsement arrangement paid by ING violated fiduciary duties and biased investment recommendations.
- Prior ERISA action against the same defendants was dismissed for lack of subject-matter jurisdiction because the programs are government plans exempt from ERISA.
- This action was filed in state court and removed to federal court; Plaintiffs seek remand to state court, while Defendants seek dismissal under SLUSA.
- Court must decide whether SLUSA covers the action and, if so, dismisses it; otherwise, remand would be proper.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the action is a covered class action under SLUSA | Montoya—claims are state-law fiduciary breaches, but fall under securities fraud via exclusive endorsement | NYU argues the claims fit SLUSA’s covered class actionSipectrum and fraud elements | Yes; the action is SLUSA-covered based on scheme and omissions related to covered securities |
| Whether the Programs involve a covered security under SLUSA | Programs include a fixed option; argues not all options are covered securities | Whole program constitutes a variable annuity with covered securities | Yes; the Programs are a broad arrangement of covered securities, not severable to exclude the fixed option |
| Whether the alleged conduct constitutes a manipulative or deceptive device or material omissions | Breaches based on conflict-of-interest, endorsement payments, and nondisclosure | Ends up as a classic securities-fraud scheme; includes non-disclosure | Yes; the conduct fits manipulative/deceptive device and omission under SLUSA |
| Whether the alleged acts were 'in connection with' the purchase or sale of a covered security | Endorsement influenced investment decisions in the Programs | Claims turn on investment advice and decisions tied to securities | Yes; allegations arise from investment decisions influenced by the endorsement |
Key Cases Cited
- Romano v. Kazacos, 609 F.3d 512 (2d Cir. 2010) (court looks beyond pleadings to determine SLUSA coverage (artful pleading))
- Murphy Bros., Inc. v. Michetti Pipe Stringing, Inc., 526 U.S. 344 (U.S. 1999) (removal timing requires service; not just receipt of complaint)
- Lander v. Hartford Life & Annuity Co., 251 F.3d 101 (2d Cir. 2001) (variable annuities are SLUSA-covered securities)
- Felton v. Morgan Stanley Dean Witter & Co., 429 F. Supp. 2d 684 (S.D.N.Y. 2006) (non-disclosure and conflict-of-interest claims fall within federal securities laws)
- Winne v. Equitable Life Assurance Society of U.S., 315 F. Supp. 2d 404 (S.D.N.Y. 2003) (structure of annuity governs SLUSA coverage, not standalone option)
- Kircher v. Putnam Funds Trust, 547 U.S. 633 (2006) (SLUSA removal and dismissal framework)