The opinion of the court was delivered by: Sprizzo, D.J.
MEMORANDUM OPINION AND ORDER
Plaintiff Marden D. Paru ("plaintiff") moves to remand the above-captioned action from the Southern District of New York to New York State Supreme Court, where it was originally filed. Defendant Mutual of America Life Insurance Company ("defendant" or "Mutual of America"), who removed the action to this Court, opposes plaintiff's Motion to Remand. For the reasons set forth below, plaintiff's Motion to Remand is granted.
On July 22, 2004, the original plaintiff in this action, Harriet P. Epstein, brought this action on behalf of herself and all others similarly situated in New York State Supreme Court, alleging a single state law claim of breach of fiduciary duty against Mutual of America. On August 25, 2004, defendant removed the action to the Southern District of New York, pursuant to 28 U.S.C. §§ 1441, 1446, and the Securities Litigation Uniform Standards Act ("SLUSA"), 15 U.S.C. §§ 77p(c), 78bb(f)(2), on the grounds that plaintiff's claim was preempted by SLUSA. See Def.'s Not. Of Rem. at 1. On September 21, 2004, plaintiff filed a Motion to Remand the action to state court; defendant opposed the motion on October 21, 2004; and on October 28, 2004 plaintiff filed a reply to defendant's opposition. On December 13, 2005, the Amended Complaint was filed and Marden Paru was substituted as the named plaintiff in place of Harriet Epstein. See Am. Compl. ¶ 1. Plaintiff subsequently, on December 27, 2005, filed a second Motion to Remand the action back to state court; defendant filed its Memorandum of Law in Opposition to this motion on January 20, 2006; and plaintiff filed its Reply on February 10, 2006.*fn1 The Court heard oral argument on plaintiff's Motion to Remand on March 21, 2006.
The Amended Complaint alleges that defendant breached its fiduciary duty to plaintiff and to the class by permitting market timing to occur within one of the investment alternatives available to holders of its variable annuity contracts. Am. Compl. ¶¶ 1, 2. Variable annuity contracts are investment vehicles, offered exclusively by insurance companies, whereby the investor makes premium payments into the annuity and allocates those payments amongst various investment options, or sub-accounts, within the contract. Id. ¶¶ 9-11. The Putative Class consists of purchasers of Mutual of America variable annuity contracts who chose, as an investment alternative within those contracts, the Scudder Variable Series I: International Portfolio (the "Fund") between January 1, 1995 and May 1, 2002, and allege losses resulting from market timing in the Fund which defendant allowed to occur. Id. ¶ 1.
Market timing involves improper short-term trading in and out of a mutual fund, benefitting the market timer but harming long-term investors in the fund. Id. ¶ 4; Def.'s Mem. at 2. Market timers profit by taking advantage of an inefficiency inherent in the way mutual funds are priced. A mutual fund's price, its Net Asset Value ("NAV"), is calculated by subtracting the fund's total liabilities from its total assets. Am. Compl. ¶ 14. The NAV of funds whose shares are traded on foreign exchanges is calculated at the end of each trading day in the United States, using the last trade price in the home market of each security in the fund. Because foreign markets close anywhere from five to fifteen hours before the close of trade in the United States, by the time the NAV is calculated, the last trade prices in the foreign markets no longer reflect all relevant information that has become known since the foreign markets closed, such that the NAV no longer reflects the fair market value of the securities. Id. ¶¶ 16, 18, 20, 22.
The market timer makes his profit by waiting for a favorable discrepancy to appear in the pricing of the fund and quickly purchasing into the fund, before the NAV is recalculated the next evening to incorporate the new information. Id. ¶¶ 20, 24, 29, 30. For example, if favorable information about a European stock in a fund traded on the NYSE is revealed late in the afternoon--after the close of trading in Europe, but before the NYSE closes--the fund's NAV does not reflect this good news yet because the NAV will have been calculated using the price of the stock at time trading ended in Europe, before that information was revealed. The market timer is able to make a profit by purchasing into the fund at the "stale" NAV, which does not yet reflect this information and is therefore lower than the actual value of the fund, and later selling those shares at an NAV which reflects their true, higher, value. This practice ultimately lowers the NAV of the fund, harming long-term investors in the fund. See id. ¶¶ 15, 24, 31, 34.
Plaintiff's sole claim against defendant, for common law breach of fiduciary duty, alleges that Mutual of America breached its fiduciary obligation to the class by allowing market timing to occur in the Fund, whose shares are traded on foreign exchanges. Id. ¶¶ 2, 4, 19, 48. Plaintiff alleges Mutual of America should have taken measures, such as making appropriate adjustments to the closing price of foreign securities, a practice known as Fair Value Pricing, to correct the inherent inefficiency in the pricing of the Fund, and prevent or reduce the possibility of market timing activity. Id. ¶ 21. Mutual of America did not engage in Fair Value Pricing or take any other measures to prevent market timing, as a result of which market timing was permitted to occur within the Fund and long term investors were harmed. Id. ¶¶ 4, 21, 48.
A defendant may remove a case from state to federal court if the action is one "of which the district courts of the United States have original jurisdiction." 28 U.S.C. § 1441(a). The removing party bears the burden of establishing federal jurisdiction. See Caterpillar Inc. v. Williams, 482 U.S. 386, 391-92 (1987). Challenges to subject matter jurisdiction may not be waived and may be raised sua sponte by the district court. See Alliance of Am. Insurers v. Cuomo, 854 F.2d 591, 605 (2d Cir. 1988). If, at any time before final judgment, it appears that the district court lacks subject matter jurisdiction over an action, the case must be remanded, even where removal was proper at the time it was made. See 28 U.S.C. § 1447(c); Villano v. Kohl's Dep't Stores, Inc., 362 F. Supp. 2d 418, 420 (S.D.N.Y. 2005).
Congress enacted SLUSA in 1998 in order to make federal court the exclusive venue for class actions alleging fraud in the sale of certain covered securities. See Lander v. Hartford Life & Annuity Ins. Co., 251 F.3d 101, 107 (2d Cir. 2001). Under SLUSA, a covered class action brought in state court, based upon the statutory or common law of any state, must be removed to federal court. See 15 U.S.C. § 78bb(f)(2). If a district court determines that the action is not a preempted class action, the district court lacks subject matter jurisdiction over the action and must remand it back to the originating state court. See Spielman v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 332 F.3d 116, 125 (2d Cir. 2003). SLUSA's removal provision is triggered wherever the following four conditions are met:
(1) the underlying suit is a "covered class action;" (2) the action is based on state or local law; (3) the action concerns a "covered security;" and (4) the plaintiff has alleged that the defendant misrepresented or omitted a material fact or employed a manipulative or deceptive device or contrivance in connection with the purchase or sale of a security. Dabit v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 395 F.3d 25, 44-45 (2d Cir. 2005) vacated on other grounds, 126 S. Ct. 1503 (2006).
The parties to this action dispute only whether the fourth requirement for preemption is met. Pl.'s Mem. at 4; Def.'s Mem. at 9. Plaintiff argues that because the complaint states only a state law claim for breach of fiduciary duty and does not allege any untrue statements or omissions of material fact, it is not preempted by SLUSA and must therefore be remanded. Pl.'s Mem. at 1, 3. Mutual of America counters that despite plaintiff's "strategic attempts to plead artfully around the requirements of [SLUSA]," the substance of plaintiff's allegations are based on "explicit and implicit misrepresentations and omissions." Preemption is therefore mandated and the Motion to Remand must be denied.*fn2 Def.'s Mem. at 1, 3, 6.
Defendant urges, and recent caselaw indicates, that this Court must look beyond the face of the Complaint to the substance of plaintiff's allegations to determine whether SLUSA preemption applies. See Dabit, 395 F.3d at 44-45; Xpedior Creditor Trust v. Credit Suisse First Boston (USA) Inc., 341 F. Supp. 2d 258, 265 (S.D.N.Y. 2004). While this Court is mindful that plaintiff may not escape SLUSA preemption through artful pleading meant to disguise allegations of misstatements or omissions, it is similarly mindful that defendant may not recast plaintiff's Complaint as a securities fraud class ...