This is a putative class action commenced by Plaintiff Jessica Zweiman on behalf of herself and other variable annuity policy holders as customers of Defendant AXA Equitable Life Insurance Co. (“AXA”) alleging that AXA breached its contractual duties to them by implementing a volatility management strategy for its variable annuity policies. Presently pending before me are: (1) Plaintiffs motion to remand the Complaint to New York State Supreme Court, Westchester County under the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”), Pub L. No. 105-353, 112 Stat. 3227 (codified at 15 U.S.C. §§ 77p, 78bb(f)); and (2) Defendant’s motion to dismiss the Complaint as precluded by SLUSA. Plaintiffs Complaint is precluded by SLUSA because it: (1) involves a covered class action; (2) asserts a state common law breach of contract cause of action; (3) concerns covered securities; and (4) contains allegations when viewed realistically assert misrepresentations or omissions of a material fact in connection with the purchase or sale of its variable annuities.
Therefore, Plaintiffs motion to remand is DENIED, and AXA’s motion to dismiss is GRANTED.
I. The Annuity Cases
This is the second putative class action commenced by Plaintiff Jessica Zweiman.
On June 5, 2014, AXA filed a letter in the O’Donnell case indicating: (1) its intention to seek to dismiss each of the Annuity Cases based on lack of subject matter jurisdiction; (2) asking for the briefing of the motions to be phased so that the subject matter jurisdiction issue could be considered first; and (3) suggesting that the initial pretrial conference scheduled for July 11, 2014 in O’Donnell also serve as the initial pretrial conference in the other Annuity Cases. (No. 14-CV-2209, Doc. 14.) At the time of AXA’s June 5th letter AXA had not been served in two of the other Annuity Cases. (Id.) The letter also indicated that on or before June 16, 2014, in accordance with my Individual Rules & Practices In Civil Cases (“Individual Rules”), AXA would submit in the O’Donnell action a letter requesting a pre-motion conference in connection with its anticipated motion to dismiss the complaint in that action for lack of subject matter jurisdiction. (Id.) I issued an order scheduling the initial conference in the An
On June 16, 2014, AXA submitted a pre-motion letter in O’Donnell requesting a premotion conference concerning its proposed motion to dismiss for lack of subject matter jurisdiction." (No. 14-CV-2209, Doc, 16.) In its letter, AXA pointed out that the sole basis for jurisdiction asserted by Plaintiff in O’Donnell was the Class Action Fairness Act of 2005 (“CAFA”), 28 U.S.C. §§ 1332(d) and 1453. (Id.) AXA argued that CAFA “excludes from its Scope any class action that solely involves a claim ... concerning a covered security” as defined in SLUSA. (Id. 1-2 (internal quotation marks omitted).) Since there was no other bases of jurisdiction AXA argued that the O’Donnell complaint must be dismissed. (Id. at 2.) Under Rule 4.A of my Individual Rules, O’Donnell had three business days within which to file his opposition to AXA’s pre-motion letter. On June 19, 2014, rather than file his opposition to AXA’s pre-motion letter, O’Donnell voluntarily dismissed his action. (No. 14-CV-2209, Doc. 17.) On that same day, the plaintiffs in the other Annuity Cases also voluntarily dismissed their claims. (No. 14-CV-3128, Doc. 12; No. 14-CV-3505, Doc. 7; No. 14-CV-3715, Doc. 11.)
II. Procedural History
Plaintiff commenced this putative class action by filing a complaint in the'Supreme Court of the State of New York, County of Westchester, Index No. 59638/2014, on June 19, 2014. (Compl.)
On July 30, 2014, Plaintiff filed her motion to remand this action back to the Supreme Court of New York, (Doc, 16), and memorandum of law, (PL’s Remand Mem.)
III. Background
Plaintiff Zweiman purchased a Variable annuity contract from AXA -with an initial contribution of $245,044.40, pursuant to a contract dated October 16, 2008 (the “Contract”).
■ Plaintiff Zweiman’s Contract permitted her to choose among several investment options,, which were maintained in Separate Account No. 49. (Contract 7-9, 24; Prospectus 1.)
AXA established and maintained the Separate Accounts in accordance with the laws of New York State. (Contract 24.) Section 2.04 of Plaintiffs Contract provided, in part, that AXA had the right, “subject to compliance with applicable law:”
(a) to add Investment Funds (or sub-funds of Investment Funds) to, or to remove Investment Funds (or sub-funds) from, the Separate Account, or to add other separate accounts;
(b) to combine any two or more Investment Funds or sub-funds thereof; ... [and]
(h) to cause one or more Investment Funds to invest some or all of their assets in one or more other trusts or investment companies.
(Contract 26.) Section 2.04 further provided that “[i]f the exercise of these rights results in a material change in the underlying investment of a Separate Account,” AXA was required to notify Zweiman that it had exercised its right, as required by law. (Id. at 27.) -
In May of 2009, AXÁ introduced a volá-tility management strategy' designed to tactically manage equity exposure to Standard & Poof’s (“S &'P”) 500 companies based on the level of volatility in the market. Specifically, AXA disclosed through the EQ Advisors Trust Prospectus dated May 27, 2009, that it was introducing this volatility management strategy
During normal "market conditions, it is expected that • each Portfolio will-, invest substantially all of- its assets in long positions on - the S & P 500 Index. When the models, indicate that market volatility is increasing above specific thresholds set for each Portfolio, the Portfolio may limit its exposure to the S & P 500 Index..,. This investment strategy is intended to reduce the overall risk of investing in the equity securities of companies represented in the S & P 500 Index, but may result in a Portfolio underperforming that index during certain periods.
(5/27 Prospectus 6, 7.)
By prospectus supplement dated August 12, 2009, AXA made a similar disclosure indicating that its volatility management strategy may apply to existing portfolios, such as the AXA Allocation Portfolio group
On February 19, 2010, Zweiman decided to reallocate all of her account value out of the AXA Conservative-Plus Allocation Portfolio and into seven separate investment portfolios. (Hemr Decl. Ex., 8.) The volatility management strategy did not apply to these portfolios. (Def.’s Remand Opp. & MTD 7.) Zweiman then reallocated approximately one-third of her account into two different investment funds on June 21,2013. (Hemr Decl. Ex. 10.)
New York - Insurance Law Section 4240(e) required AXA to file with the New York State Department of Financial Services (“DFS”)
No authorized insurer shall make any such agreement in this state providing for the allocation of amounts to a separate account- until such insurer has -filed with the superintendent a statement as to its methods of operation of such- separate account and the superintendent has approved such statement— In determining whether or not to approve any such statement, the superintendent shall consider, among other things, the history, reputation and financial stability of the insurer and the character, experience, responsibility, competence and general fitness of the officers and directors of the insurer. If the insurer files an amendment of any such statement with the superintendent that does not change the investment policy.of a separate account and the superintendent does not approve or disapprove such amendment within a period of thirty days after such filing, such amendment shall be deemed to be approved as of the end of such thirty day period.... An amendment of any such statement that changes the investment policy of a separate account shall be treated as an original filing.
N.Y. Ins. Law § 4240(e). In accordance with Section 4240(e), AXA-filed requests to amend and restate its Plans of Operation in 2009, 2010, and 2011 for various separate accounts — -including Separate Account No. 49 — with DFS.- (Consent Order ¶-2.)
In 2011, DFS investigated AXA’s disclosure to DFS of its volatility management strategy. (Id. at 1.) At the conclusion of that investigation, AXA and DFS entered into a Consent Order on March 17, 2014. (Id.)
According to the Consent Order, DFS determined that AXA’s Plans of Operation failed to adequately inform and adequately explain to DFS that existing variable annuity policyholders (like Plaintiff) who had not elected to participate in the volatility management strategy could nevertheless have this strategy applied to their policies. (Id. ¶3.) Many variable annuity policyholders paid a premium for guaranteed
The changes effectively changed the nature of the product that the policyholders purchased, yet AXA did not explain in its filings to the Department that it was making such changes to its variable annuity products. The absence of detail and discussion in the filings regarding the significance of the implementation of the ATM Strategy had the effect of misleading the Department regarding the scope and-potential- effects of the ATM Strategy on the relevant funds and the possible consequences for policyholders— DFS approved the filings because it was led to believe that the changes were merely .routine additions of funds and similar alterations. Had [DFS] been aware of the extent of the changes, it may have required that the existing policyholders affirmatively. opt in to the [volatility management strategy]- ' .
(Id. ¶¶ 8, 9.)
Although AXA did not affirmatively.admit to any wrongdoing as part of the Consent Order, DFS found that AXA violated Section 4240(e) “by filing the Plans of Operation with ... DFS without adequately informing and explaining to the Department the significance of the changes to the insurance product.” (Id. ¶¶ 10, 11.) As part of the Consent Order, AXA agreed to pay a civil fine, provide DFS-appróved communications to policyholders when AXA revises fund choices relating to its volatility management strategy, and certain other relief. (Consent Order 12-16.) DFS did not, however, withdraw its approvals of AXA’s 2009, 2010, and 2011 amended and restated Plans of Operation, order AXA to cease its volatility management strategy, or otherwise order AXA to take steps to inform existing policyholders of the strategy. (See id.)
Zweiman seeks to represent a class of individuals who purchased variable annuities from AXA, which subsequently became subject to the ATM Strategy, and who suffered injury as a result. (Compl. ¶ 16.)
IV. Applicable Law
“The magnitude of the federal interest in protecting the integrity of efficient operation of the market for nationally traded securities ' cannot be overstated.” Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit,
To avoid the restrictions of the PSLRA, members of the plaintiffs’ bar increasingly sought to bring class actions under state law in state court. Id. at 82,
V. Discussion
Plaintiff concedes that the Complaint’s allegations involve a covered class .action, based on state statutory or common law, and concern a covered security thereby satisfying the first three requirements for SLUSA preclusion. (Pl.’s Remand Mem. 6-7.) However, the parties disagree regarding -whether AXA made a misrepresentation or omission of a material fact or used or employed any manipulative device or contrivance in connection with the purchase or sale of its variable annuities.
A. Misrepresentation or Omissions of Material Fact
Plaintiff contends that her Complaint alleges a single straightforward breach of contract claim- based upon AXA’s violation of New York Insurance Law Section 4240(e). {See generally PL’s Remand Mem. 7-10.) Zweiman concedes that AXA made misstatements and/or omissions in its DFS filings, (PL’s Remand Reply & MTD Opp. 20 (“AXA’s alleged misconduct relating, to the DFS. involved misstatements and omissions in AXA’s filings”).)
In its recent decision, In re Kin-gate,
To state a breach of contract claim under New York law, a plaintiff must plead: “‘(1) the existence of a contract; (2) a breach of that contract; and (3) damages resulting from the breach.’ ”
If an effort to save her Complaint, Plaintiff urges that I view portions of Section 2.04 of the Contract in isolation such that two separate clauses are created — a so-called “Compliance Clause” and “Notice Clause.”
As an initial matter, Section 2.Ó4 is one section of the Contract entitled “Changes With Respect To Separate. Account.” (Contract 26-27.) It is not divided into specific clauses called a compliance clause and a notice clause. In any event, Section 2.01 B of the Contract sets forth that the Separate Accounts are established and maintained in accordance with New York law. (Id. at 24.) Section'2.04 states that AXA'has the right to make changes to the Separate Accounts “subject to compliance with applicable law.” (Id. at 27.) And Section 2.04 goes on to state that “[i]f the exercise of these rights results in a material change in the underlying investment of a Separate Account, you will be notified of such exercise, as required by law. (Id. (emphasis added).) In reading these provisions together, it is clear that AXA’s ability to make changes to the Separate Account was limited by its obligation un
A review of the Zweiman I complaint confirms my reading of the instant Complaint, and reveals that Plaintiff selectively edited her current Complaint to delete “magic words” or “red flags” identifying her claim to be a securities fraud claim precluded by SLUSA. Paragraph 52 of the Zweiman I complaint states that: “If the exercise of these rights resulted in a material, change in the underlying investment of a separate account, AXA. was obligated under [Section 2.04] to notify policyholders, as required by law.” (Zweiman I Compl. ¶ 52 (alterations omitted; internal quotation marks omitted).)
Plaintiff fights against this interpretation by positing that the term “material change” merely emphasizes that the change was not “routine.” (Pl.’s Remand Reply & MTD Opp. 10.) However, the problem for Plaintiff is that AXA’s contractual obligation to notify her in accordance with the law was triggered by a “material” change. ' Indeed, this analytical roadblock underscores that the purported two AXA violations of law — failure to notify its policyholders of a material change and failure to obtain proper DFS approval — are intertwined. The sine qua non of DFS’s determination (and Plaintiffs allegation) that AXA’s filing was misleading is that AXA did not explain to DFS how “existing policyholders who had not elected to invest in the ATM Strategy could end up invested in such funds.” (Consent Order ¶ 3 (emphasis added).) Stated differently, AXA’s purported violation of Section 4240(e) began with, and is based upon,
B. “In Connection With”
. Plaintiff posits that the Complaint does not allege that AXA committed a fraud “in connection with” the purchase or sale of a covered security because: (1) Plaintiff purchased her securities before AXA implemented the ATM Strategy; and (2) AXA’s misleading disclosure to DFS was not public and- therefore could not have induced Plaintiff to buy, sell, or hold her securities. I consider each of these arguments in turn and find them to be unpersuasive. ¡
SLUSA does not define the “in connection with” requirement. However, the Supreme Court provided clarity as to its meaning in two important cases — Dabit and Troice. An overview of these cases will be helpful in considering the term “in connection with” as.it relates to the present matter.
In Dabit, the Supreme Court considered whether or not SLUSA precluded so-called “holder” claims where the victims were fraudulently induced — not to sell or purchase — but to retain or delay selling their securities.
The Supreme Court recently refined and added to this legal landscape in Troice, holding'that fraud’is “in connection with” a covered security if it is “material” to an individual’s (other than'the fraudster) decision to buy, sell, or hold a covered security. — U.S. -,
In light of Troice and Dabit, the “in connection with” doctrine can be articulated as follows: the fraud must be of the type that is material to someone other than the fraudster to buy, sell, or hold a covered security; and, if so, any claim involving that transaction (or lack thereof) — regardless of whether the plaintiff herself was induced to take a position — is precluded. Armed with these controlling principles, I turn to the mei-its of Plaintiffs arguments.
1. Holder Claim
Plaintiffs proposition that AXA’s fraud could not induce her securities transaction because she purchased her covered security long before the ATM Strategy barely warrants any discussion. The Troice Court expressly held that holder claims fall within SLUSA’s parameters. Troice,
2. Materiality
a. Misrepresentation or Omission to Policyholders
Turning to materiality — Plaintiff cannot plausibly assert that AXA’s fraud concerning its ATM Strategy did not make a significant difference to her decision to hold. Indeed, the Complaint is rife with statements that AXA’s failure to notify her of the volatility management strategy was crucial to her investment decision:
• Plaintiff paid a premium for certain guarantee benefits, which “effectively immunized these benefits from the risks attendant to stock market volatility.” (Compl. ¶ 9.)
• The ATM Strategy reduced “AXA’s exposure to market volatility — the very risks that policyholders paid AXA to assume.” (Id. ¶ 11.)
• “The effects of the ATM Strategy ... altered the very nature of the product held by [P]laintiff and other policyholders.” (Id. ¶ 12.)
• “Implementation of the ATM Strategy materially changed the variable annuity products and reduced the value of [Plaintiff’s and the other Class members’ variable annuity accounts.” (Id.)
On the bases of these statements, I conclude that Plaintiffs allegations that AXA misrepresented or omitted information concerning the application of the ATM Strategy to Plaintiff “coincided” with and were material to her decision to hold her covered securities. Any other construction would be contrary to the Complaint.
Plaintiff argués that AXA’s misleading DFS filings were not material to her- investment decision because she did not “receive, read, or rely” on them. (Pl.’s Remand Mem. 11; Pl.’s Remand Reply & MTD Opp. 16.) Plaintiffs, formulation, however, is not the law.
In articulating “in connection with” as a “material” connection, Troice plainly stated that “the scope of this language does not extend further.” Troice,
A narrow construction would not, as a matter of first impression, have been unreasonable; one might have concluded that an alleged fraud is ‘in connection with’ a purchase or sale of securities only when the plaintiff himself was defrauded into purchasing or selling particular securities. After all, that was the interpretation adopted by the panel in the Bimbaum case. But this Court ... has rejected that view. Under our precedents, it is enough that the fraud alleged ‘coincide’ with a securities transaction — whether by the plaintiff or by someone else. The requisite showing, in other words, is deception in connection with the purchase or sale of any security, not deception of an identifiable purchaser or seller.
Dabit,
The public versus non-public nature of the DFS filing is therefore of no moment. Rather, the key question is whether or not the misleading DFS filing made a difference to an investor’s decision regarding her covered security. I find that it did.
Absent valid DFS approval, AXA would not have been legally permitted to introduce the ATM Strategy to Plaintiffs variable annuity policy. (Compl. ¶¶ 10-13; PL’s Remand Reply & Opp. 1.) Therefore, AXA’s fraud on DFS — the misleading DFS filing — enabled it to introduce this strategy to Plaintiffs investment portfolio. And as explained at length, Plaintiff complains that the introduction of the ATM Strategy had a material and negative impact on her covered security. The direct connection between AXA’s fraud on DFS and the harm Plaintiff claims belies any notion that AXA’s misleading DFS filing did not “coincide” with, and made no difference to, Plaintiffs decision to hold, (see PL’s Remand Reply & Opp. 17). See In re LIBOR-Based Fin. Instruments,
Plaintiff’s, Complaint therefore alleges misrepresentations or omissions by AXA “in connection with” covered securities transactions.
IV. Conclusion
For the reasons discussed above, Plaintiffs putative class action falls within the purview of SLUSA, and must therefore be DISMISSED. Accordingly, Plaintiffs motion to remand this action to state court is DENIED, and AXA’s motion to dismiss is GRANTED. The Clerk of the Court is respectfully directed to terminate the pending motions and close this case. (Docs. 16,27.) '
SO ORDERED.
Notes
. Plaintiff Jessica Zweiman is the executrix of the estate of Anne Zweiman, her mother. (Doc. 17 at 4.) I will refer to both Jessica and Anne Zweiman as Plaintiff.
. "Compl.” refers to the Class Action Complaint. (Doc. 1-1.)
. Rule 4.A of my Individual Rules indicates .that a party’s submission of a pre-motion letter seeking leave to file a pre-answer motion to dismiss will stay that party’s obligation to answer.
."Pl.’s Remand Mem.” refers to the Memorandum of Law in Support of Plaintiff's Motion to Remand. (Doc. 17.)
. "Def.'s Remand Opp. & MTD” refers to the Memorandum of Law of AXA Equitable Life Insurance Company (A) in Support of its Motion to Dismiss die Compláint as Precluded by the Securities Litigation Uniform Standards Act and (B) in Opposition to Plaintiff's . Motion to Remand. (Doc. 28.)
. "Pl.*s Remand Reply & MTD Opp,” refers to the Plaintiff’s Memorandum in Further Support of Her Motion to Remand and in Opposition to Defendant’s Motion to Dismiss. (Doc. 30.)
. "Def. MTD Reply” refers to AXA Equitable Life Insurance Company's Reply Memorandum of Law in Further Support of Its Motion to Dismiss the Complaint as Precluded by the Securities Litigation Uniform Standards Act. (Doc.31.)
. For the purpose of resolving these motions, I assume all the -allegations contained in the Complaint to be true, drawing all reasonable inferences in favor of Plaintiff. Koch v. Christie’s Int’l PLC,
."Contract” refers to Anne Zweiman’s AXA Variable Annuity Contract No. 3-0865884, dated October 16, 2008, part 1 of 2. (Hemr Decl. Ex. 3.) The citations to the Contract page numbers correspond with the page numbers designated on the Electronic Case Filing System ("ECF”).
.. "Hemr Decl.” refers to the Declaration of Kurt Wm. Hemr (A) in Support of Motion of ' AXA Equitable Life Insurance Company to Dismiss the Complaint as Precluded by the Securities Litigation Uniform Standards Act and (B) in Opposition to Plaintiff’s Motion to Remand. (Doc. 29.)
. “Consent Order” refers to the New York State Department of Financial Services Consent Order. (Hemr Decl. Ex, 1, at 12-21.)
. "Prospectus” refers to Hemr Deck Ex, 5. (Doc. 29-5.)
. The AXA Conservative-Plus Allocation Portfolio is one of five portfolios that AXA refers to as the "AXA Allocation” portfolios. (Prospectus 1.)
. The Complaint refers to the volatility management strategy as the ATM Strategy. (Compl. ¶ 1.)
."5/27 Prospectus” refers to Hemr Deck Ex. 6, (Doc. 29-6.) The citations to the 5/27 Prospectus page • numbers ■ correspond with the page numbers designated on ECF,
. "8/12 Prospectus” refers to Hemr Decl. Ex. 7. (Doc. 29-7.) The citations Jo the 8/12 Prospectus page numbers correspond .with the page numbers designated on ECF.
. "DFS was created by transferring the . functions of the New York State Banking Department and the New York State Insurance Department into a new agency. This transfer of functions became effective on October 3, 2011.” (Consent Order 1.)
. During the pendency of this motion, the Second Circuit issued its opinion in In re Kingate,
. Plaintiff seems to be attempting to mitigate this admission by citing to Mills v. Polar Molecular Corp.,
. Plaintiff's reliance on Dluhos v. Floating & Abandoned Vessel, Known as New York,
. Plaintiff contends that the instant Complaint is not a toned-down version of the Zweiman I complaint because she used the O’Donnell complaint as the template for the instant Complaint. (Pl.’s Remand Reply & MTD Opp. 14 n.8.) Plaintiff's argument is misplaced. When performing the artful pleading analysis it is inappropriate to compare complaints filed by different parties in different litigations. See Shuster v. AXA Equitable Life Ins. Co., No. 14-CV8035,
. It is undisputed that a valid contract exists.
, I note that Plaintiff did not explicitly argue that Section 2.04 has two distinct clauses that purportedly create separate claims and/or causes of action for breach of contract until she filed her reply papers.
. "Zweiman I” refers to Hemr Decl. Ex. 14. . (Doc. -14.)
. Plaintiff’s denial of such does not take her Complaint outside of SLUSA’s prohibition, Segal v. Fifth Third Bank, N.A.,
. Since I have determined that Plaintiffs Complaint alleges ■ a misrepresentation or omission. I need not, and decline to, determine whether the Complaint alleges a manipulative or deceptive device or contrivance. 15 U.S.C. § 78bb(f)(0-
. Stephens v. Gentilello,
. On July 14, 2015, after briefing in this matter was complete, Plaintiff brought Shuster,