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July 9, 2001


The opinion of the court was delivered by: Kaplan, District Judge.


On April 7, 2000, Metropolitan Life Insurance Company ("MetLife") converted from a mutual to a stock insurance company pursuant to New York Insurance Law § 7312, which was enacted to permit such conversions. The conversion received the required approval of the New York Superintendent of Insurance based on his finding that the plan of reorganization was fair and equitable to policy holders.

Plaintiffs bring this purported class action on behalf of MetLife policy holders pursuant to 42 U.S.C. § 1983. They claim that the conversion deprived them of their federal constitutional rights in that it took property without just compensation (Counts I and II), took their property by private sale of a near-controlling interest in the company without advance notice or opportunity to vote (Count III), deprived non-New York property holders of their rights without just compensation and thereby improperly regulated interstate commerce (Count IV), and deprived policy holders of various contractual rights in violation of the Contract Clause (Counts V-VIII). Defendants*fn1 have moved to dismiss the complaint primarily on the grounds that they were not state actors, that plaintiffs' membership interests in a mutual organization do not constitute property, that the McCarran-Ferguson Act*fn2 insulates state insurance regulation from Commerce Clause challenge, and that for any and all of these reasons the complaint fails to state a claim upon which relief may be granted. Defendants argue in the alternative that this Court should abstain from hearing the case in favor of pending state court challenges.

In resolving the motion to dismiss, the Court accepts as true the factual allegations set forth in the complaint and draws all reasonable inferences in favor of plaintiffs.*fn3 It may dismiss only if "it appears beyond doubt that the plaintiff[s] can prove no set of facts in support of [their] claim which would entitle [them] to relief."*fn4 Although Rule 12(b) motions are made solely upon the pleadings,*fn5 the Court considers also those documents to which plaintiffs refer in the complaint.*fn6

I. State Action

Section 1983 permits claims for violations of constitutional rights committed "under color of" state law, a phrase synonymous with the "state action" required by the Fourteenth Amendment.*fn7 Thus, state action is an indispensable element of each of plaintiffs' claims for relief.*fn8

Action taken by a private entity constitutes state action only when "there is such a close nexus between the State and the challenged action that seemingly private behavior may be fairly treated as that of the State itself."*fn9 Action by a private entity pursuant to statutory authorization retains its private character and is not actionable under Section 1983.*fn10

Jackson v. Metropolitan Edison Co.*fn12 illustrates the point. The Court there found no state action in a utility company's decision, upon state approval, to terminate a customer's electric service, noting that "the nature of governmental regulation of private utilities is such that a utility may frequently be required by the state regulatory scheme to obtain approval for practices a business regulated in less detail would be free to institute without any approval from a regulatory body."*fn13 The same may be said of the state's regulation of insurance companies. Indeed, a majority of courts confronted with the issue of approval of mutual-to-stock conversion plans similar to that here has found no state action.*fn14

Nor did MetLife become a state actor on the theory that it exercised state power to "take" the property interests of the policy holders. The power to amend a corporate charter — including changes such as mergers, reorganizations and dissolutions, all of which alter the rights of stockholders — is a power that nearly all corporations long have exercised without becoming state actors.*fn15 Accordingly, plaintiffs have failed to allege the existence of state action.

II. Property Interest

Even if plaintiffs had sufficiently alleged state action, the claims in Counts I through III of the complaint would fail because plaintiffs cannot establish that their membership interests in the mutual organization constituted property.

To establish a property interest, plaintiffs must demonstrate "a legitimate claim of entitlement" arising from "an independent source such as state law."*fn16 Plaintiffs find the source of their alleged property rights in their "contractual right," allegedly guaranteed by MetLife's 1915 charter, "to (1) ownership and control of MetLife; (2) a distribution of equity based upon historic contributions; and (3) receipt of insurance at cost through participation."*fn17 Yet plaintiffs right to receive a return of excess premiums as surplus (what plaintiffs term "equity") remains under the demutualization plan,*fn18 as does their ability as continuing policy holders to receive insurance.*fn19 Moreover, plaintiffs' interest in MetLife as a mutual company did not rise to the level of a property interest such as to render policy holders "owners" of the corporation. "A member of [a mutual] corporation has no definite property interest which can be ascertained and recovered. . . . The assets belong to the corporation, and no member has any interest in any aliquot part thereof, and the unascertained interest of a mere policy holder is quite insufficient to sustain an . . . action brought to prevent the corporation from doing what the statute authorizes it to do."*fn20 Plaintiffs' effort to limit Grobe's holding to the issue of voting rights is misplaced; Grobe more broadly held that the plaintiff there lacked a property interest sufficient to sustain any constitutional challenge to the New York Insurance Law.*fn21 And Grobe is not alone in finding that membership interests in a mutual company are too insubstantial to merit constitutional protection.*fn22

Accordingly, plaintiffs lack a property interest upon which to assert takings or due process violations ...

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