Raymond Patenaude v. The Equitable Life Assurance Society Of The United StatesRaymond Patenaude v. The Equitable Life Assurance Society Of The United States
Charles C. Platt, LeBoeuf, Lamb, Greene & MacRae, LLP, New York, NY, for the defendants-appellees.
Appeal from the United States District Court for the Southern District of California; Judith N. Keep, Chief Judge, Presiding. D.C. No. CV-00-01437-JNK.
Before: THOMAS, RAWLINSON, Circuit Judges and ARMSTRONG,1 District Judge.
THOMAS, Circuit Judge.
I
This appeal presents the question of whether tax-deferred variable annuities are covered securities under the Securities Litigation Uniform Standards Act of 1998 (“SLUSA“),
After contributing to his SEP for several years, Patenaude sought to transfer his retirement savings from Equitable Life to another company. At that time, he alleges that he learned he would incur substantial surrender fees if he wished to transfer his account, and that he had been paying substantial fees for redundant tax benefits.3 He then closed his SEP plan with Equitable Life, incurred surrender charges to liquidate the annuity, and filed suit against Equitable Life in California state court on behalf of himself and “the general public.”
In his complaint, Patenaude alleged that Equitable Life‘s conduct constituted an unfair and fraudulent business practice in violation of
II
At issue in this appeal is whether federal law prevents Patenaude from asserting state law claims against Equitable Life based upon the misrepresentations Equitable Life allegedly made while marketing and selling variable annuities. The resolution of this issue depends upon whether SLUSA is applicable to and thus preempts Patenaude‘s state law claims. If so, then the district court properly denied Patenaude‘s motion to remand and dismissed the complaint. If not, then the district court did not have subject matter jurisdiction and so should have remanded the case to state court.
Patenaude‘s complaint includes only state law causes of action. Thus, ordinarily the district court would not have subject matter jurisdiction, since “[t]he presence or absence оf federal-question jurisdiction is governed by the `well-pleaded’ complaint rule, which provides that federal jurisdiction exists only when a federal question is presented on the face of the plaintiff‘s properly pleaded complaint.” Caterpillar, Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987). “[A] case may not be removed to federal court on the basis of a federal defense, including the defense of pre-emption, even if the defense is anticipated in the plaintiff‘s complaint, and even if both parties cоncede that the federal defense is the only question truly at issue.” Id. at 393, 107 S.Ct. 2425 (citing Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 12, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983)) (emphasis in original). However, a statute may so completely preempt state law that it occupies the entire field, barring assertion of any state law claims and permitting removal to federal court. Id.; see also Paige v. Henry J. Kaiser Co., 826 F.2d 857, 860-61 (9th Cir.1987). Thus, the district court had subject matter jurisdiction over Patenaude‘s complaint if, and only if, SLUSA completely preempted the state law claims that Patenaude attempted tо assert.
No covered class action based upon the statutory or common law of any State or subdivision thereof may be maintained in any State or Federal court by any private party alleging (1) an untrue statement or omission of material fact in connection with the purchase or sale of a covered security; or (2) that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security.
Patenaude does not dispute that his complaint is a “covered class action” alleging that Equitable Life violated state law by making misrepresentations in connection with the purchase of variable annuities. However, Patenaude contends that a variable annuity is not a “covered security” within the meaning of SLUSA.
SLUSA defines a “covered security” as “a security that satisfies the standards for a covered security specified in paragraph (1) or (2) of section 77r(b) of this title.”
No one contests that the variable annuity that Patenaude purchased contained, as an integral component, a separate account created by Equitable Life that permitted the annuity holder to invest in mutual funds and like securities. This separatе account was registered with the SEC as an “investment company” under the Investment Company Act of 1940. Thus, by the plain language of the statute as applied to the undisputed facts of this case, the deferred tax variable annuity purchased by Patenaude qualifies as a “covered security” within the meaning of SLUSA.
III
Patenaude does not dispute that variable annuities satisfy the SLUSA definition of a “covered security.” However, Patenaude argues that we should not rely upon this “plain meaning” reading of these particular provisions, but rather should consider the statutes as a whole, their context and purpose, and their legislative history.
Generally, “[i]f the statutory language is clear, that is the end of our inquiry.” A-1 Ambulance Serv., Inc. v. California, 202 F.3d 1238, 1244 (9th Cir.2000), cert. denied, 529 U.S. 1099, 120 S.Ct. 1833, 146 L.Ed.2d 777 (2000) (citing Connecticut Nat‘l Bank v. Germain, 503 U.S. 249, 253-54, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992)). To be sure, the “plain meaning” of a particular statutory provision is not determined by considering the language of that provision in isolation; rather, determining the plain meaning of a statutory provision requires considering the prоvision at issue in the context of the statute as a whole. See Robinson v. Shell Oil Co., 519 U.S. 337, 340-41, 117 S.Ct. 843, 136 L.Ed.2d 808 (1997) (“The plainness or ambiguity of statutory language is determined by reference to the language itself, the specific context in which that language is used, and the broader context of the statute as a whole.“); Carpenters Health & Welfare Trust Funds v. Robertson, 53 F.3d 1064, 1067 (9th Cir.1995) (“When we look to the plain language of a statute in order to interpret its meaning, we do more than view words or subsections in isolation. We derive meaning from context, and this requires reading the relevant statutory provisions as a whole.“).
Indeed, if considered, the statutory context and legislative history buttress the broad reach of SLUSA‘s plain language. SLUSA was an outgrowth of the Private Securities Litigation Reform Act of 1995 (“PSLRA“),
Congress also intended SLUSA to form an integrated statutory scheme with NSMIA. Id. NSMIA “preclude[d] states from rеquiring issuers to register or qualify certain securities with state authorities,” thus “preempt[ing] state `Blue Sky’ laws.” Id. As the Second Circuit concluded in considering a similar challenge:
When considered in concert, SLUSA, NSMIA, and PSLRA demonstrate that Congress intended to provide national, uniform standards for the securities markets and nationally marketed securities. Through these statutes, Congress erected uniform standards for registration of, and litigation concerning, a defined class of covеred securities.... Nowhere in SLUSA, PSLRA, NSMIA, or more generally in the 1933, 1934, or 1940 Acts, are variable annuities exempted from the reach of federal securities statutes .... Thus, for over forty years, variable annuities have been subject to the 1933 Securities Act and the 1940 Investment Company Act. There is no indication in SLUSA, NSMIA, or PSLRA that Congress intended to alter this longstanding state of affairs.
Patenaude further contends that Congress did not intend the definition of “covered security” in NSMIA to include variable аnnuities, and given SLUSA‘s incorporation of NSMIA‘s interpretation of these securities, Congress intended, by implication, to exempt them from the preemptive provisions of SLUSA. However, Patenaude‘s reliance on congressional silence under NSMIA is misplaced. As discussed more fully by the Second Circuit in Lander, specific references to variable annuities are clearly implicated in other portions of NSMIA. Id. at 112. This belies Patenaude‘s assertion that Congress negleсted to consider that NSMIA might apply to variable annuities, and by extension, that they would be within the preemptive reach of SLUSA. Had Congress intended to differentiate variable annuities from other securities issued by registered investment companies, it could, and most likely would, have simply said so. It did not. Consequently, the plain and unambiguous language of SLUSA is dispositive.
Nor does the McCarran-Ferguson Act,
The McCarran-Ferguson Act does not prevent Congress from regulating insurance. Rather, the effect of the McCarrаn-Ferguson Act is the avoidance of ”inadvertent federal intrusion” into state insurance regulation. Barnett Bank v. Nelson, 517 U.S. 25, 39, 116 S.Ct. 1103, 134 L.Ed.2d 237 (1996) (emphasis in original). Thus, in accomplishing its ends, the McCarran-Ferguson Act “does not seek to insulate state insurance regulations from the reach of all federal law.” Id. “It is only when a statute, by unintended implication, encroaches on the insurance regulatory regime of a state that McCarran-Ferguson prevents application of the federal statute.” Lander, 251 F.3d at 116. Thus, “[w]hen federal law does not directly conflict with state regulation, and when application of the federal law would not frustrate any declared state policy or interfere with a State‘s administrative regime, the McCarran-Ferguson Act does not preclude its application.” Humana, Inc. v. Forsyth, 525 U.S. 299, 310, 119 S.Ct. 710, 142 L.Ed.2d 753 (1999). Furthermore, “when the intended effect of a federal statute is to displace state regulations, we must give effect to this intent, regardless of whether an insurance company is involved.” Lander, 251 F.3d at 116-17.
A
As has been amply demonstrated, the salе of variable annuities has been subject to federal securities law for more than half a century, even when the variable annuities are sold by insurance companies. See Variable Annuity Life Ins. Co. of Am., 359 U.S. at 70-72, 79 S.Ct. 618. Thus, Congress has consistently indicated its intent, particularly with the passage of SLUSA, to displace state regulation insofar as it relates to the marketing of the securities component of variable annuities.
However, this does not end the analysis because tax-deferred vаriable annuities are “hybrid” products, that is, they retain some aspects of both a security and an insurance product. To understand the interplay, we must deconstruct the product. “An annuity is a contract between a seller (usually an insurance company) and a buyer (usually an individual, also referred to as the `annuitant‘) whereby the annuitant purchases the right to receive a stream of periodic payments to be paid either for a fixed term or for the life of the purchaser or other designated beneficiary.” Lander, 251 F.3d at 104. Traditional annuities, or annuities in which payment begins immediately or soon after purchase and the contract specifies the amount of each payment, are “typically thought of as insurance products because the annuitant receives a guaranteed stream of income for life, and the insurer assumes and spreads the `mortality risk’ of the annuity — the risk that the annuitant will live longer thаn expected, thereby receiving benefits that exceed the amount paid to the seller of the policy.” Id.
In contrast, a deferred annuity is an accumulation product. Id. at 104-05. The purchaser invests money and allows the value of the account to grow and then later on draws down the value of the account. Id. at 104. In a fixed deferred annuity, the purchaser receives from the insurer an interest rate on the amount of premiums invested by the purchaser. In a variable deferred annuity, the purchaser is not guaranteеd a particular rate of return; instead, the purchaser invests in one or more professionally managed diversified investment products, offered through “separate accounts” of the insurance companies, and receives a rate of return that varies depending upon the success of the underlying investment. Id. at 105. Although deferred annuities have an investment component, they typically retain two insurance features: a guarantee of monthly payments for life and a benefit that is payable if the annuitant dies before the payout begins. Id. Thus, “[v]ariable annuities are typically characterized as `hybrid products,’ possessing characteristics of both insurance products and investment securities.” Id.
B
Patenaude claims thаt his action is founded on California‘s statutory regulation of insurance and thus, under McCarran-Ferguson, SLUSA is inapplicable to his claims. However, in California, there is no private right of action based either on the Insurance Code or regulations adopted thereunder. Rattan v. United Servs. Auto. Ass‘n, 84 Cal.App.4th 715, 101 Cal.Rptr.2d 6, 12 (2000). Thus, as a general matter, a private suit against an insurer is not part of California‘s state regulation of insurance.8
Nonetheless, Patenaude alleges that California insurance regulatiоn is at least indirectly impacted by his claims that Equitable‘s conduct constituted an unfair and fraudulent business practice in violation of
In short, the phrase “state laws enacted for the purpose of regulating the business of insurance” does not include all laws of general applicability enacted by a state that may impact the insurance industry. Thus, the fact that the insurance industry is not exempt in California from general consumer protection laws, and private causes of action created thereunder, does not mean that the McCarran-Ferguson Act exempts from SLUSA suits based on non-Insurance Code theories.
C
In sum, because SLUSA does not invalidate, impair, or supersede any California law enacted for the purpose of regulating the business of insurance, the MacCarran-Ferguson Act does not exempt Patenaude‘s action from SLUSA preemption.
V
Patenaude also contends that the Gramm-Leach-Bliley Financial Modernization Act of 1999 (“the Gramm-Leach Act“),
For these reasons, we agree with the district court that removal and dismissal of the instant action was proper under SLUSA.
AFFIRMED.