290 F.3d 1020 (9th Cir. 2002), 00-56913, Patenaude. v. Equitable Life Assurance

Docket Nº:00-56913.
Citation:290 F.3d 1020
Party Name:Raymond PATENAUDE, on behalf of himself and the general public, Plaintiff-Appellant, v. The EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES; AXA Advisors, LLC; Equitable Distributors, Inc., Defendants-Appellees.
Case Date:May 14, 2002
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 1020

290 F.3d 1020 (9th Cir. 2002)

Raymond PATENAUDE, on behalf of himself and the general public, Plaintiff-Appellant,


The EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES; AXA Advisors, LLC; Equitable Distributors, Inc., Defendants-Appellees.

No. 00-56913.

United States Court of Appeals, Ninth Circuit

May 14, 2002

Argued March 5, 2002.

Page 1021

[Copyrighted Material Omitted]

Page 1022

Michael C. Spencer, Milberg Weiss Bershad Hynes & Lerach LLP, New York, NY, for the plaintiff-appellant.

Charles C. Platt, LeBoeuf, Lamb, Greene & MacRae, LLP, New York, NY, for the defendants-appellees.

Appeal from the United States District Court for the Southern District of California; Judith N. Keep, Chief Judge, Presiding. D.C. No. CV-00-01437-JNK.

Before: THOMAS, RAWLINSON, Circuit Judges and ARMSTRONG,1 District Judge.

THOMAS, Circuit Judge.

This appeal presents the question of whether tax-deferred variable annuities are covered securities under the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"), Pub.L. No. 105-353, 112 Stat. 3227 (codified in scattered sections of 15 U.S.C). We conclude that they are, and affirm the judgment of the district court.


Raymond Patenaude sought advice concerning the creation of a retirement plan for his new business from an agent of The Equitable Life Assurance Society of the United States ("Equitable Life"). According to his complaint, Patenaude was advised to establish a simplified employee pension ("SEP")2 plan with Equitable Life and to fund it with a variable annuity because of the tax benefits that such an arrangement would provide. Relying on the agent's experience and expertise as a financial planner as well as Equitable's reputation as a well-respected company, Patenaude set up a SEP plan and funded it with a variable annuity. Equitable solicited additional investments from Patenaude by emphasizing the tax benefits of its variable annuity.

After contributing to his SEP for several years, Patenaude sought to transfer his retirement savings from Equitable Life to another company. At that time, he alleges that he learned he would incur substantial surrender fees if he wished to transfer his account, and that he had been paying substantial fees for redundant tax benefits.3

Page 1023

He then closed his SEP plan with Equitable Life, incurred surrender charges to liquidate the annuity, and filed suit against Equitable Life in California state court on behalf of himself and "the general public."

In his complaint, Patenaude alleged that Equitable Life's conduct constituted an unfair and fraudulent business practice in violation of Cal. Bus. & Prof. Code 17200, and that Equitable Life engaged in acts of false or misleading advertising in violation of Cal. Bus. & Prof. Code 17500.4 Equitable Life removed the action to federal court on the basis Patenaude's claims were preempted by SLUSA. Patenaude moved to remand; Equitable Life moved to dismiss. The district court denied the motion to remand and granted the motion to dismiss, concluding that Patenaude's state law claims were preempted by SLUSA. Patenaude appeals. We review a district court's denial of a motion to remand a removed case de novo. Audette v. ILWU, 195 F.3d 1107, 1111 (9th Cir. 1999). We review a district court's dismissal of a complaint for failure to state a claim de novo. Oscar v. Univ. Students Coop. Ass'n, 965 F.2d 783, 785 (9th Cir. 1992) (en banc).


At issue in this appeal is whether federal law prevents Patenaude from asserting state law claims against Equitable Life based upon the misrepresentations Equitable Life allegedly made while marketing and selling variable annuities. The resolution of this issue depends upon whether SLUSA is applicable to and thus preempts Patenaude's state law claims. If so, then the district court properly denied Patenaude's motion to remand and dismissed the complaint. If not, then the district court did not have subject matter jurisdiction and so should have remanded the case to state court.

Patenaude's complaint includes only state law causes of action. Thus, ordinarily the district court would not have subject matter jurisdiction, since "[t]he presence or absence of federal-question jurisdiction is governed by the 'well-pleaded' complaint rule, which provides that federal jurisdiction exists only when a federal question is presented on the face of the plaintiff's properly pleaded complaint." Caterpillar, Inc. v. Williams, 482 U.S. 386, 392, 107 S.Ct. 2425, 96 L.Ed.2d 318 (1987). "[A] case may not be removed to federal court on the basis of a federal defense, including the defense of pre-emption, even if the defense is anticipated in the plaintiff's complaint, and even if both parties concede that the federal defense is the only question truly at issue." Id. at 393, 107 S.Ct. 2425 (citing Franchise Tax Bd. v. Constr. Laborers Vacation Trust, 463 U.S. 1, 12, 103 S.Ct. 2841, 77 L.Ed.2d 420 (1983)) (emphasis in original). However, a statute may so completely preempt state law that it occupies the entire field, barring assertion of any state law claims and permitting removal to federal court. Id.; see also Paige v. Henry J. Kaiser Co., 826 F.2d 857, 860-61 (9th Cir. 1987). Thus, the district court had subject matter jurisdiction over Patenaude's complaint if, and only if, SLUSA completely preempted the state law claims that Patenaude attempted to assert.

SLUSA provides for the removal and dismissal of class actions brought pursuant to state law alleging misrepresentations in

Page 1024

connection with the purchase or sale of a covered security. Specifically, SLUSA states:

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 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). SLUSA also provides for the removal of such actions from state court to federal court. 15 U.S.C. 77p(c).

Patenaude does not dispute that his complaint is a "covered class action" alleging that Equitable Life violated state law by making misrepresentations in connection with the purchase of variable annuities. However, Patenaude contends that a variable annuity is not a "covered security" within the meaning of SLUSA.

SLUSA defines a "covered security" as "a security that satisfies the standards for a covered security specified in paragraph (1) or (2) of section 77r(b) of this title." 15 U.S.C. 77p(f)(3). Section 77r(b), enacted as part of the National Securities Markets Improvement Act of 1996 ("NSMIA"), Pub.L. No. 104-290, 110 Stat. 3416, states that a "security is a covered security if such security is a security issued by an investment company that is registered, or that has filed a registration statement, under the Investment...

To continue reading