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August 3, 2005.

FREDERICK WEBSTER, SR. and DAVID AVANT, on behalf of themselves and all others similarly situated, Plaintiffs,

The opinion of the court was delivered by: NAOMI BUCHWALD, District Judge


In March of 2005, defendant New York Life Insurance and Annuity Company ("NYLIAC") removed this case from the Supreme Court of the State of New York and moved to dismiss pursuant Fed R. Civ. P. 12 (b) (1) on the grounds that plaintiff's claims are barred by the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"). Shortly thereafter, Frederick Webster, Sr. ("Webster") and David Avant ("Avant") (collectively, "plaintiffs") moved for remand on the ground that their complaint alleges only state law claims and diversity of citizenship is absent. Oral argument on this motion was held on July 19, 2005. For the foregoing reasons, we deny defendant's motion to dismiss and grant plaintiffs' motion to remand.


  In 1999 and 2001, plaintiffs purchased variable annuity policies from defendant. On February 14, 2005,*fn1 plaintiffs filed a class action in the Supreme Court of the State of New York alleging that defendant had breached their policies by failing to pay a minimum guaranteed interest rate on their investments.

  Plaintiffs allege that they purchased NYLIAC annuity policies using "Form 999-190." Complaint ¶ 17. Avant's complete policy and application are attached as Part 1 of the appendix to defendant's memorandum in support of its motion to dismiss. Page 2 of the policy, titled "POLICY DATA," presents a variety of information, including a list of "Allocation Alternatives," identifying information for Avant, and the annuity's commencement date. Near the bottom of the page is the following text: "MINIMUM GUARANTEED INTEREST RATE: 3%." Plaintiffs allege that "[a]lthough the Policy Data Page identifies multiple annuity accounts available to purchasers under the contract . . . this minimum guaranteed interest rate was not limited to any specific account or accounts." Complaint ¶ 19. They argue that this phrase established a "minimum guaranteed interest rate" that applied to the entire investment of investors who purchased NLYIAC annuity policies using Form 999-190. Id. ¶ 18. Plaintiffs are not arguing that NYLIAC was guaranteeing that amounts invested in mutual funds would grow by a minimum of 3 percent; rather, they claim they were entitled to 3 percent interest on the balance invested in those funds. Transcript of Oral Argument at 24. Defendant argues that other language in the contract established that the minimum rate applied only to the portion of plaintiffs' money invested in the Fixed Account or the Dollar Cost Averaging Program ("DCAP"). Def. Support Mem. at 4-6.


  I. Applicable Law

  In enacting the Private Securities Litigation Reform Act of 1995 ("PSLRA"), Congress imposed stringent pleading requirements and mandatory discovery stays for securities fraud class actions filed in federal court in order to prevent meritless securities fraud class actions, called "strike suits." Spielman v. Merrill, Lynch, Pierce, Fenner, & Smith, Inc., 332 F.3d 116, 122-23 (2d Cir. 2003). SLUSA, in turn, was enacted to close a loophole by which claimants eluded the PSLRA's restrictions by filing in state court alleging state securities law claims. In re Worldcom, Inc. Securities Litigation, 308 F. Supp. 2d 236, 241-42 (S.D.N.Y. 2004) (quoting Spielman v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 332 F.3d 116, 123 (2d Cir. 2003).

  SLUSA provides in relevant part that:
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 security.
15 U.S.C. §§ 77p(b), 78bb (f) (1).
  Through SLUSA, Congress intended to "provide national, uniform standards for the securities markets and nationally marketed securities." Lander v. Hartford Life & Annuity Ins. Co., 251 F.3d 101, 111 (2d Cir. 2001). The Second Circuit explained that:
[I]n enacting SLUSA, "Congress could not have spoken more clearly" about its intention "to completely preempt the field of certain types of securities class actions by essentially converting a state law claim into a federal claim and creating federal jurisdiction and venue for specified types of state securities fraud claims." Spielman, 322 F.3d at 123 (emphasis omitted). As we explained in Spielman, complete preemption "manifests a [c]ongressional policy determination that the `state law claim in that area is of necessity so federal in character that it arises under federal law.'" Id. at 123 n. 5. (quoting Cicio v. Does, 321 F.3d 83, 92 (2d Cir. 2003) (further internal quotation omitted)). It therefore "provides in practice an exception to the well-pleaded complaint rule," id., such that when SLUSA's conditions have been satisfied, "the plaintiff has necessarily invoked federal question jurisdiction, even though he [or she] did not wish to," and the court must dismiss for failure to state a claim because SLUSA has preempted the state law basis for the claim, id. at 131-32 (Newman, J., concurring).
Dabit v. Merrill Lynch, Pierce, Fenner, & Smith, Inc., 295 F.3d 25, 33-34 (2d Cir. 2005).

  However, SLUSA has "broad, but not unlimited, scope." Spielman, 332 F.3d at 123 (emphasis in original). 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 sale of such security." Araujo v. John Hancock Life Ins. Co., 206 F. Supp. 2d at 380, 381 (E.D.N.Y. 2002) (citing 15 U.S.C. § 77p(b)).

  Here, the parties disagree only about the fourth element. Plaintiffs argue that their complaint does not allege any untrue statement, omission of a material fact, or manipulative or deceptive device or contrivance. Plaintiffs further contend that their complaint merely alleges a breach of contract claim under state law and so falls outside the scope of SLUSA. Defendant counters that plaintiffs' complaint was "artfully drafted to avoid the terms `misleading,' `misrepresentation,' `omission,' `fraud,' `deception,' or `scheme.'" Def. Reply Mem. at 2. The complaint, it argues, "effectively allege[s] misrepresentations and omissions of material fact — regarding the inapplicability of the 3% minimum guaranteed interest rate to the Separate Account." Def. Support Mem. at 11-12.

  A party need not bring a claim for fraud in order to give rise to SLUSA preemption. For example, in Korsinsky v. Salomon Smith Barney Inc., the court explained that: The "master of the complaint" rule does not limit the Court to the face of the complaint, however, or to plaintiff's characterization of his claims. Still v. DeBuono, 927 F. Supp. 125, 128 (S.D.N.Y. 1996). "In certain limited circumstances, a federal court may look behind the complaint to preclude a plaintiff from defeating federal question jurisdiction through `artful pleading,' that is, by disguising a federal claim as a claim arising under state law." Bowlus v. Alexander & Alexander Servs., Inc., 659 F. Supp. 914, 918 (S.D.N.Y. 1987).

 No. 01 Civ. 6085, 2002 WL 27775 at *2 (S.D.N.Y. Jan. 10, 2002). In Korsinsky, the parties disagreed as to whether the action involved a misrepresentation or omission, but while "the complaint clearly state[d] that `[t]his is not an action for fraud,' it outline[d] several instances of alleged misrepresentations" made by the defendants. Id. at *4. The court held that plaintiff's allegations "regarding an alleged scheme by defendants to issue artificially positive ratings on AT&T stock" constituted "material misrepresentations or ...

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