Patenaude v. Equitable Life Assurance

• Decision Date: 14 May 2002
• Docket Number: No. 00-56913.,00-56913.
• Citation: 290 F.3d 1020
• Parties: 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.
• Court: U.S. Court of Appeals — Ninth Circuit

290 F.3d 1020

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.

No. 00-56913.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted March 5, 2002.

Filed May 14, 2002.

COPYRIGHT MATERIAL OMITTED

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.

I

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 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).

II

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 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 Company Act of 1940." 15 U.S.C. § 77r(b)(2). Variable annuities must be registered with the Securities and Exchange Commission ("SEC") as securities. SEC v. Variable Annuity Life Ins. Co. of Am., 359 U.S. 65, 69-73, 79 S.Ct. 618, 3 L.Ed.2d 640 (1959). When variable annuities are sold by insurance companies, they must be offered through "separate accounts,"⁵ as described by the Investment Company Act of 1940. The "separate accounts" must be registered with the SEC as "investment companies," even though the variable annuity products are sold by insurance companies. Lander v. Hartford Life & Annuity Ins. Co., 251 F.3d 101, 105 (2d Cir.2001) (citing Prudential Ins. Co. of Am. v. SEC, 326 F.2d 383 (3d Cir.1964)).

No one contests that the variable annuity that Patenaude purchased contained, as an integral component, a separate account created by Equitable Life that permitted the annuity holder to invest in mutual funds and like securities. This separate account was registered with the SEC as an "investment company" under the Investment Company Act of 1940. Thus, by the plain language of the statute as applied to the undisputed facts of this case, the deferred tax variable annuity purchased by Patenaude qualifies as a "covered security" within the meaning of SLUSA.

III

Patenaude does not dispute that variable annuities satisfy the SLUSA definition of a "covered security." However, Patenaude argues that we should not rely upon this "plain meaning" reading of these particular provisions, but rather should consider the statutes as a whole, their context and purpose, and their legislative history.

Generally, "[i]f the statutory language is clear, that is the end of our inquiry." A-1 Ambulance Serv., Inc. v. California, 202 F.3d 1238, 1244 (9th Cir.2000), cert. denied, 529 U.S. 1099, 120 S.Ct. 1833, 146 L.Ed.2d 777 (2000) (citing Connecticut Nat'l Bank v. Germain, 503 U.S. 249, 253-54, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992)). To be sure, the "plain meaning" of a particular statutory provision is not determined by considering the language of that provision in isolation; rather, determining the plain meaning of a statutory provision requires considering the provision at issue in the context of the statute as a whole. See Robinson v. Shell Oil Co., 519 U.S. 337, 340-41, 117 S.Ct. 843, 136 L.Ed.2d 808 (1997) ("The plainness or ambiguity of statutory language is determined by reference to the language itself, the specific context in which that language is used, and the broader context of the statute as a whole."); Carpenters Health & Welfare Trust Funds v. Robertson, 53 F.3d 1064, 1067 (9th Cir.1995) ("When we look to the plain language of a statute in order to interpret its meaning, we do more than view words or subsections in isolation. We derive meaning from context, and this requires reading the relevant statutory provisions as a whole.").

However, there is nothing in the statutory context, nor in SLUSA's legislative history, that would...