In re Lutheran Broth. Variable Ins. Products Co.

• Decision Date: 11 July 2000
• Docket Number: No. 99-MD-1309.,99-MD-1309.
• Citation: 105 F.Supp.2d 1037
• Parties: In re LUTHERAN BROTHERHOOD VARIABLE INSURANCE PRODUCTS CO. SALES PRACTICES LITIGATION
• Court: U.S. District Court — District of Minnesota

105 F.Supp.2d 1037

In re LUTHERAN BROTHERHOOD VARIABLE INSURANCE PRODUCTS CO. SALES PRACTICES LITIGATION

No. 99-MD-1309.

United States District Court, D. Minnesota.

July 11, 2000.

Edward Thomas Wahl, Oppenheimer Wolff & Donnelly, Minneapolis, MN, Patricia A. Bloodgood, Lockridge Grindal Nauen, Minneapolis, MN, for Lutheran Brotherhood Variable Ins. Products Co. Sales Practices Litigation.

MEMORANDUM AND ORDER

MAGNUSON, District Judge.

This matter is before the Court upon Plaintiffs' Motion to Remand All Removed Actions or, in the Alternative, to Sever and Remand or Dismiss Without Prejudice the Plaintiffs Who Purchased Only Non-Variable Life Insurance. For the following reasons, Plaintiffs' Motion is denied in its entirety.

BACKGROUND

The consolidated case currently before the Court arises out of a number of cases filed in both state and federal courts in Minnesota and Ohio.¹ Plaintiffs in each of these actions seek to represent a class of persons who "have [had] an ownership interest in one or more permanent whole life, universal life or variable life policies issued by Defendants" anytime since 1982. (See Thompson Complaint at ¶ 1.) Four of these cases, Thompson, Eifler, Locke, and Watson, were filed in state court and removed to federal court by Defendants Lutheran Brotherhood and Lutheran Brotherhood Variable Life Insurance Company (collectively "Lutheran Brotherhood") on the basis of federal question jurisdiction.² Even though the Complaints did not explicitly state causes of action arising under federal law, Defendants justified removal by contending the variable insurance policies at issue were "registered securities" governed by the Securities Act of 1933, 15 U.S.C. §§ 77 et seq., and the Securities Litigation Uniform Standards Act of 1998, P.L. 105-353 ("SLUSA").³

Since then, the Plaintiffs have been far from complacent about the forum in which they find themselves. The Plaintiffs are before the Court on their third motion to remand these cases to state court. The first motion was filed in Thompson, prior to its consolidation with the other cases. Plaintiffs attempted to defeat Lutheran Brotherhood's removal by contending, as they do here, that SLUSA did not apply to variable insurance contracts. On August 6, 1999, United States District Court Judge Donovan W. Frank, who presided over Thompson prior to transfer, rejected this argument and denied Plaintiffs' motion to remand.

Faced with this obstacle, the Thompson Plaintiffs then attempted to amend their Complaint to remove the counts related to variable insurance policies, in order to deprive the Court of subject matter jurisdiction. Plaintiffs' second motion to remand was filed in conjunction with their motion to amend the Complaint. Initially, Magistrate Judge Arthur J. Boylan recommended Thompson be remanded to state court. On January 14, 2000, this Court, however, rejected Plaintiffs' motion to amend the Complaint and remand the case to state court, in large part because Plaintiffs were trying to "forum shop" and avoid the application of federal case law which has made the certification of a class under circumstances such as these difficult.

For the third time, Plaintiffs now move the Court to remand these cases to state court, asserting that federal law simply does not apply to the type of insurance contracts at issue in these cases. However, Plaintiffs have added a new wrinkle in their present motion, related to the recent enactment of the Gramm-Leach Bliley Financial Modernization Act of 1999. In the alternative, Plaintiffs ask the Court to sever the claims of Plaintiffs who own only nonvariable insurance policies and remand those claims to state court.

STANDARD

Defendants removed these cases to federal court pursuant to 28 U.S.C. § 1441(a), which allows removal if a case could have originally been brought in federal court. A removed case will be remanded "if at any time before final judgment it appears that the district court lacks subject matter jurisdiction[.]" 28 U.S.C. § 1447(c). The party opposing remand has the burden of establishing federal subject matter jurisdiction. See In re Men's Assurance Co. of Am., 992 F.2d 181, 183 (8th Cir.1993).

DISCUSSION

A. PSLRA and SLUSA.

In recent years, Congress passed two statutes designed to alleviate the problems corporations suffered as a result of class action lawsuits. The first of these, the PSLRA, was designed to curb abuse in securities suits, particularly shareholder derivative suits in which the only goal was a windfall of attorney's fees, with no real desire to assist the corporation on whose behalf the suit was brought. See Greebel v. FTP Software, Inc., 194 F.3d 185, 191 (1st Cir.1999). The PSLRA immediately drove many would-be plaintiffs to file their claims in state court, based on state law, in order to circumvent the strong requirements established by the statute. Motivated by a response to keep such lawsuits in federal court, Congress quickly passed SLUSA in order to "prevent plaintiffs from seeking to evade the protections that federal law provides against abuse litigation by filing suit in State, rather than federal, courts." H.R. Conf. Rep. No. 105-803 (Oct. 9, 1998). With some exceptions, SLUSA made the federal courts the exclusive fora for most class actions involving the purchase and sale of securities. Primarily, SLUSA mandates that any class action based on an allegation that a "covered security" was sold through misrepresentation, manipulation, or deception shall be removable to federal court.

Once again, Plaintiffs argue that SLUSA is inapplicable here because variable insurance policies like the ones sold by Lutheran Brotherhood are not "covered securities" within the meaning of the act. SLUSA defines "covered securities" by referencing § 18(b) of the Securities Act of 1933 ("the '33 Act"). That section was added to the '33 Act in 1996 by the National Securities Markets Improvement Act of 1996 ("NSMIA"), Pub.L. No. 104-290. The NSMIA defines "covered securities" as either registered securities listed on national exchanges or securities issues by "an investment company that is registered [...] under the Investment Company Act of 1940." 15 U.S.C. § 77r(b)(1) and (2).

There is no dispute that Lutheran Brotherhood is a registered investment company, or that its variable policies are "securities" for purposes of the NSMIA. Plaintiffs thus concede that the variable policies technically fall within the literal words of the statute. (See Pl.s' Mem. at 9-10.) Despite this apparent fait accompli, Plaintiffs assert that the NSMIA writ large, as well as the legislative history behind the statutes, compels the conclusion that the these words apply only to mutual funds, not insurance policies. Although a quick reading of NSMIA does appear to indicate that Congress was primarily concerned with the regulation of mutual funds, other statutory language indicates that Congress wished to reform variable insurance products as well. Specifically, NSMIA also amended §§ 26 and 27 of the Investment Company Act of 1940 and regulated certain fees that can be charged by "registered separate accounts funding variable insurance contracts." 15 U.S.C. § 80a-26(e). This is not a case where we should dig through the intricate legislative history behind the NSMIA to discover what Congress truly intended to regulate. It is true that the Supreme Court has from time to time, often using words of the broadest scope, emphasized the power of the courts to look behind the literal words of a statute to effectuate the clear intent of Congress and the President. See, e.g., Rector of Holy Trinity Church v. United States, 143 U.S. 457, 471, 12 S.Ct. 511, 36 L.Ed. 226 (1892) ("It is the duty of the courts ... to say that, however broad the language of the statute may be, the act, although within the letter, is not within the intention of the legislature, and therefore cannot be within the statute.") At the same time, though, the Court has been equally resolute that when a statute's language is clear, the language should be taken literally without probing legislative intent. See, e.g., Connecticut Nat'l Bank v. Germain, 503 U.S. 249, 253-54, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992) ("we have stated time and again that courts must presume that a legislature says in a statute what it means and means in a statute what it says there ... When the words of a statute are unambiguous, then, this first canon is also the last: `judicial inquiry is complete.'") Only when a contrary intent is clearly expressed, or a statute is irredeemably ambiguous, should the Court give effect to legislative history behind the words of a statute. See Ardestani v. INS, 502 U.S. 129, 135-36, 112 S.Ct. 515, 116 L.Ed.2d 496 (1991).

The definition of "covered securities" clearly includes the variable products sold by Lutheran Brotherhood. The discussion of variable insurance policies in NSMIA demonstrates that Congress viewed variable insurance products as part of, or related to, the problem it wished to correct. There is no internal statutory discord, or ambiguity, which compels the need to examine the statutory history at all. SLUSA applies to the claims based on variable insurance policies because Lutheran Brotherhood is a "registered investment company."⁴

B. Effect of Gramm-Leach-Bliley.

In this latest attempt to remand these cases to state court, Plaintiffs have added a new argument to their litany. Plaintiffs argue that through the Gramm-Leach-Bliley Financial Modernization Act of 1999, 15 U.S.C. § 6701 et seq. (2000), Congress made clear its "intent to preserve the states' functional regulation of variable insurance products." (Pl.'s Mem. at 11.) In Plaintiffs' view, this clear congressional mandate requires a reading of SLUSA and the PSLRA that preserves the regulation of insurance solely to state lawmakers.

The primary purpose of Gramm-Leach is well-known. Since the 1930's, the Glass-Steagall Act, 12 U.S.C. § 377 et...