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IN RE METLIFE DEMUTUALIZATION LITIGATION

June 22, 2004.

IN RE: METLIFE DEMUTUALIZATION LITIGATION.


The opinion of the court was delivered by: THOMAS PLATT, JR., Senior District Judge

MEMORANDUM AND ORDER

Defendant, Metropolitan Life Insurance Company ["MetLife"], moves under Federal Rules of Civil Procedure 9 and 12 and pursuant to the Private Securities Litigation Reform Act to dismiss the Second Claim for Relief contained in the Second Amended Complaint of the class action Plaintiffs in this litigation. This claim by former MetLife policyholders is one of securities fraud under Section 10(b) of the Securities Exchange Act of 1934 and its correlative Rule 10b-5.

Oral argument was heard April 30, 2004. For the following reasons, MetLife's motion to dismiss is DENIED.

  Background

  The undersigned assumes familiarity with this Court's earlier decision denying MetLife's initial motion to dismiss Plaintiffs' original Complaint in this case, filed under Section § 12(a) of the Securities Act of 1933, in In re: MetLife Demutualization Litig., 156 F. Supp.2d 254 (E.D.N.Y. 2001), and with the statement of facts set forth more fully therein, see id. at 258-60.

  A. Factual summary

  Briefly, in 2000 MetLife changed from a mutual life insurance company to a stock life insurance company. This demutualization took place with the unanimous approval of the Board of Directors, the permission of 93% of MetLife's 2,800,000 policy holders, and the imprimatur of the New York State Insurance Commission. This transaction converted MetLife's policy holdings into over 700,000,000 shares of stock valued at $14.25 per share, worth over $10,000,000,000 at the time. MetLife compensated each former policyholder with ten shares of MetLife stock in return for the policyholders' relinquishing of, inter alia, their voting membership interests in MetLife. Those termed "participating" policyholders, who also possessed interests in MetLife's then-$14,000,000,000 surplus, received further shares of stock claimed to be commensurate with their policies' contributions to the surplus. See id., Plaintiffs' Second Amended Complaint at ¶¶ 28-54; MetLife's Memorandum of Law in Support of their Motion to Dismiss at 2-4; Policyholder Information Booklet at 6-7.

  Plaintiffs are current MetLife shareholders and former MetLife participating policyholders. They claim that the Policyholder Information Booklet ["PIB"], which set forth the details of the demutualization prior to the vote that approved the transaction, contained material misrepresentations, made through misstatements and omissions, and that MetLife made such misrepresentations with the relevant scienter. Plaintiffs' Memorandum of Law in Opposition to MetLife's Motion to Dismiss at 8-10.

  Specifically, Plaintiffs allege four misrepresentations in the PIB: (i) omitting to state that the actuarial method used to calculate policyholders' contributions to MetLife's surplus arrived at a value of $15,300,000,000, far higher than the $8,400,000,000 in stock that these policyholders received as compensation; (ii) omitting to state that MetLife's method of reorganization, an exchange of policies for stock with the right to elect cash, as opposed to an exchange of policies for cash with the right to elect stock, was chosen for the benefit of MetLife and not the policyholders, because Plaintiffs would allegedly have received double the compensation under the latter method; (iii) omitting to state that policyholders would surrender their right to annual dividends from their contributions to MetLife's surplus; and (iv) misstating that reasonable dividends would "continue to be paid as declared," when in Plaintiffs' view the assets allocated to pay dividends had been limited. See id.; Plaintiffs' Second Amended Complaint at ¶¶ 28-54.

  In sum and substance, Plaintiffs allege that PIB did not explain that policyholders received only 54¢ on the dollar for their policies, that dividends were reduced, and that MetLife engaged in fraud by not stating this in the PIB.

  B. Statutes, rules and regulations

  Plaintiffs sue MetLife under Section 10(b) of the Securities Exchange Act and Rule 10b-5; MetLife moves to dismiss the Complaint under Rules 9 and 12 and the Private Securities Litigation Reform Act [the "PSLRA"].

  Section 10(b) and Rule 10b-5 provide in pertinent part that it shall be unlawful for any person acting with scienter, directly, by use of the mails, to use in connection with the sale of any security any device in contravention of the rules of the Securities and Exchange Commission, such as the making of false statements or the omission of material facts in a prospectus. See 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5. (The parties agree that the PIB shall be treated as a prospectus for the demutualization transaction for the purposes of this litigation.)

  Rule 9 provides that in all averments of fraud, the circumstances surrounding the fraud shall be stated with particularity. Rule 12 provides that a complaint may be dismissed for failure to state a claim upon which relief may be granted. And the PSLRA provides that when alleging material falsehoods or omissions in an action for securities fraud, the complaint must specify the falsehoods or omissions, why they are misleading, ...


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