The opinion of the court was delivered by: Spatt, District Judge
MEMORANDUM OF DECISION AND ORDER
The following facts are taken from the complaint. The plaintiff is the
owner of a variable universal life insurance policy with the defendant. A
variable universal life insurance policy permits a policyholder to invest
premiums in a separate account containing mutual funds which grows or
declines depending on the performance of the funds. See Joan E. Boros &
W. Randolph Thompson, A Vocabulary of Variable Insurance Products, 813
PLI/Comm 11, 35-36 (2001). The policyholder receives an account value and
a death benefit. See John Hancock, Medallion Variable Life Insurance,
available at http://www.jhancock.com/products/insurance/medallio-info.htm
(June 18, 2002). Before death, the policyholder can access her or his
account by taking out a loan or making a withdrawal. See id. See also
Boros & Thompson, supra, at 38-39 (explaining the various ways that a
policyholder can access her or his account in a variable universal life
On January 27, 2001, the plaintiff completed an application for a
variable universal life insurance policy with the defendant. In his
application, the plaintiff selected a policy with a death benefit face
value of $1,500,000. Also, the plaintiff elected to invest his premiums
in a sub-account consisting of mutual funds which contain mid cap and
large cap stocks. In addition, the plaintiff chose to pay a monthly
premium of $3,000.
On March 15, 2001, the defendant issued a variable universal life
insurance policy for the plaintiff. The plaintiff received the policy on
March 28, 2001, thirteen days later. The plaintiff alleges that under the
terms of the policy his insurance coverage did not go into effect until
after he received the policy and paid the minimum initial premium
payment. The plaintiff claims that he paid a first year annual insurance
premium of $18,000 for a policy period beginning on March 15, 2001, the
date the policy was issued. However, the plaintiff alleges that he did
not receive the entire year's worth of coverage for which he paid.
Instead, the plaintiff claims that the defendant received thirteen days
worth of premiums for a "risk-free" period. Finally, the plaintiff
alleges that this deceptive practice, namely charging premiums to
policyholders when there is no coverage, was standard procedure for the
defendant with regard to the life insurance policies that it sold.
On September 5, 2001, the plaintiff commenced a class action against
the defendant in the Supreme Court of the State of New York, Suffolk
County seeking to recover the value of the premiums collected by the
defendant during the "risk-free" period. In the complaint, the plaintiff
asserts claims under the New York common law for breach of contract,
breach of implied covenant of good faith and fair dealing, unjust
enrichment and the New York
Consumer Protection from Deceptive Acts and
Practices Act, N.Y. Gen. Bus. Law § 349 (McKinney 1988).
On October 5, 2001, the defendant removed the case to this Court
pursuant to SLUSA and 28 U.S.C. § 1331 and 1441(b). The defendant now
moves to dismiss the complaint under the provisions of SLUSA. The
plaintiff cross-moves to file an amended complaint and to remand this
action to state court for lack of subject matter jurisdiction.
A. The Standard of Review
Rule 12(b)(1) of the Federal Rules of Civil Procedure provides the
applicable standard of review for the motions to dismiss and remand
because each concerns the subject matter jurisdiction of the Court. With
regard to a motion under Rule 12(b)(1), the Court may consider affidavits
and other material beyond the pleadings to resolve the jurisdictional
question. Robinson v. Gov't of Malaysia, 269 F.3d 133, 141 n. 6 (2d Cir.
2001); Antares Aircraft, L.P. v. Fed. Republic of Nigeria, 948 F.2d 90,
96 (2d Cir. 1991), vacated on other grounds, 505 U.S. 1215 (1992); Exch.
Nat'l Bank of Chicago v. Touche Ross & Co., 544 F.2d 1126, 1130 (2d Cir.
1976). Further, under Rule 12(b)(1), the Court must accept as true all
material factual allegations in the complaint, but will not draw
inferences favorable to the party asserting jurisdiction. Shipping Fin.
Servs. Corp. v. Drakos, 140 F.3d 129, 131 (2d Cir. 1998); Atl. Mut. Ins.
Co. v. Balfour Maclaine Int'l Ltd., 968 F.2d 196, 198 (2d Cir. 1992).
Hearsay statements contained in affidavits may not be considered. Kamen
v. Am. Tel. & Tel. Co., 791 F.2d 1006, 1011 (2d Cir. 1986). Each party
may submit affidavits and other material in support of their respective
positions. The Court will consider such material to the extent they are
relevant to the issue of jurisdiction.
B. The Securities Litigation Uniform Standards Act of 1998
In 1998, Congress passed SLUSA to close a loophole in the Private
Securities Litigation Reform Act of 1995 ("PSLRA"). Landers v. Hartford
Life & Annuity Ins. Co., 251 F.3d 101, 107-08 (2d Cir. 2001). PSLRA
imposed, among other things, heightened pleading standards and a
mandatory stay of discovery for class actions alleging fraud in the sale
of securities. Id. at 107. The purpose of PSLRA was to prevent meritless
class actions alleging securities fraud by creating uniform standards for
such actions. Id.
According to House and Senate findings, Congress determined that class
action plaintiffs were avoiding PSLRA's heightened requirements by filing
class actions in state court under more lenient state statutory or common
law theories. Id. at 107-08. To close this alternative, SLUSA mandates
that federal courts be "the exclusive venue for class actions alleging
fraud in the sale of certain covered securities . . . [and that] such
class actions be governed exclusively by federal law." Id. at 108.
SLUSA directs the removal and dismissal of class actions brought under
state law alleging misrepresentation in connection with the purchase or
sale of a covered security. In particular, SLUSA provides:
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 a 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
15 U.S.C. § 77p(b). SLUSA also directs the removal of such actions
from state court to federal court. 15 U.S.C. § 77p(c).
1. The Application of SLUSA to the Complaint
To dismiss an action under SLUSA, the defendant must show that: (1) the
action is a "covered class action" under SLUSA; (2) the action purports
to be based on state law; (3) the action involves a "covered security"
under SLUSA; (4) the defendant misrepresented or omitted a material fact
or employed a deceptive devise; (5) "in connection" with the purchase or