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