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IN RE METLIFE DEMUTUALIZATION LITIGATION
July 23, 2001
IN RE METLIFE DEMUTUALIZATION LITIGATION.
The opinion of the court was delivered by: Platt, District Judge.
Defendants Metropolitan Life Insurance Company ("MetLife Co.")
and MetLife, Inc. move pursuant to Rule 12(b)(6) of the Federal
Rules of Civil Procedure to dismiss the three complaints
underlying this action or, in the alternative, for a stay. For
the following reasons, these motions are DENIED.
This action arises from MetLife Co.'s conversion from a mutual
life insurance company to a stock life insurance company known
as MetLife, Inc. through a process known as demutualization.
MetLife Co. and MetLife Inc. are the defendants in this action.
Plaintiffs, seven participating MetLife Co. policyholders, filed
three separate complaints in which they allege that the
defendants distributed materials during the demutualization
process which were materially misleading. On June 27, 2000, this
Court consolidated the three actions.
To become effective, the plan had to be approved by the New
York Superintendent of Insurance and by MetLife Co.'s
policyholders. Policyholders were informed about the nature of
the plan by, among other things, a two-part Policyholder
Information Booklet ("PIB"), which MetLife mailed to
policyholders. The contents of the PIB, which the plaintiffs
call "the Prospectus," are at the heart of this litigation.
After the PIB was distributed, both the policyholders and the
Superintendent approved the plan: the policyholders on February
18, 2000, when MetLife Co. reported that ninety-three (93%)
percent of the nearly 2.8 million policyholders cast votes
favoring demutualization, and the Superintendent on April 4,
2000, after holding a hearing. In approving the plan, the
Superintendent specifically found that the plan was fair and
equitable to policyholders and reiterated his approval of the
policyholder notice documents, including the PIB, because they
"contained sufficient information about the proposed
reorganization to enable Eligible Policyholders to make an
informed decision regarding the Plan. . . ." (Yannett Decl. Ex.
C. ¶ 216.)*fn1
On April 4, 2000, the holding company, MetLife, Inc.,
announced its initial public offering ("IPO") of 202 million
shares of common stock to be sold at $14.25 per share. The
company also announced private placements of MetLife, Inc.
stock. On April 7, 2000, the closing date of the IPO and the
private placements, MetLife Co. became a wholly owned subsidiary
of MetLife, Inc.
Pursuant to the demutualization plan, upon MetLife Co.'s
conversion from a mutual insurance company to a stock
corporation, policyholders received compensation, one form of
which was the issuance of common stock, which was held in trust.
The amount of stock a policyholder received was based on his
status as a participating or a nonparticipating policyholder.
According to the Complaint filed by Martin Gold, Mary A. DeVito,
Michael A. Giannattasio, Kevin L. Hyms and Harry S. Purnell,
III, participating policyholders were those policyholders who
had both a statutory interest in MetLife Co.'s surplus and a
right to vote on matters submitted to policyholder votes such as
director elections; nonparticipating policyholders, in contrast,
only had the right to vote but not the right to the
surplus.*fn2 Under the plan, both types of policyholders
received a fixed
amount of stock, ten shares, as compensation for the surrender
of their membership interests in the mutual life insurance
company. Participating policyholders were eligible for
additional stock as determined by an actuarial formula which
factored the participating policy's past and estimated future
contributions to MetLife Co.'s surplus.
Plaintiffs claim that material information on several matters
was omitted from the PIB. Although the plaintiffs admit that the
PIB provided descriptions of voting rights and rights to
participate in the surplus, the plaintiffs claim that it omitted
(i) . . . the value of those rights; (ii) the value
of the rights of a shareholder in a Delaware
corporation (without the Trust) and the costs
associated with exercising those rights; and (iii)
the value of those rights as beneficiaries of the
Trust and the costs associated with that
The plaintiffs also allege that the PIB was false and
misleading because it did not contain facts showing that the
distribution of shares of stock to policyholders was unfair. The
distribution of stock was allegedly unfair because it overvalued
the right to vote: as alleged in the Complaint, the cumulative
value of the ten shares distributed to all policyholders in
exchange for their membership interests was equal to
approximately sixteen (16%) percent of MetLife Co.'s $13.6
billion surplus, which, according to the plaintiffs, was
converted into equity upon demutualization. Plaintiffs maintain
that as participating policyholders they were entitled to a
greater amount of the stock issued in exchange for membership
interests because only they had statutory interests in the
surplus. In the plaintiffs' words, the PIB violated the
Securities Act because it "is false and misleading in that it
omits any discussion about the value of the equity
[approximately $2 billion] allocated to voting rights of
participating and nonparticipating policyholders, or that the
value ascribed to voting rights is materially greater than the
actual value of those rights." (Gold Compl. ¶ 34.)
Plaintiffs further allege that the PIB omitted material
information regarding the differences in the expense of
contesting elections in a mutual insurance company and in a
stock corporation. It is axiomatic, the plaintiffs claim, that
the increased costs of elections will reduce the value of
policyholders' interests in MetLife, Inc.*fn3
Plaintiffs filed multiple complaints alleging violations of
Section 12(a)(2) of the Securities Act, 15 U.S.C. § 771(a)(2).
Defendants now move to dismiss.
1. Rule 12(b)(6) Standard