Olmsted v. Pruco Life Ins. Co. of New Jersey, CV 00-1340(NGG).

• Decision Date: 30 October 2000
• Docket Number: No. CV 00-1340(NGG).,CV 00-1340(NGG).
• Citation: 134 F.Supp.2d 508
• Parties: Sidney OLMSTED and Johanna Olmsted, On Their Own Behalf and On Behalf of All Others Similarly Situated, Plaintiffs, v. PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY and the Prudential Insurance Company of America, Defendants.
• Court: U.S. District Court — Eastern District of New York

134 F.Supp.2d 508

Sidney OLMSTED and Johanna Olmsted, On Their Own Behalf and On Behalf of All Others Similarly Situated, Plaintiffs, v. PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY and the Prudential Insurance Company of America, Defendants.

No. CV 00-1340(NGG).

United States District Court, E.D. New York.

October 30, 2000.

COPYRIGHT MATERIAL OMITTED

Paul D. Wexler, Bragar Wexler Eagel & Morgenstern, L.L.P., New York, NY, Jeffrey H. Squire, Kirby McInerey & Squire, L.L.P., New York, NY, for Plaintiffs.

Mark Holland, James N. Benedict, and Mary K. Dulka, Clifford Chance Rogers & Wells, L.L.P., New York, NY, for Defendants.

MEMORANDUM AND ORDER

GARAUFIS, District Judge.

Plaintiffs filed this putative class action alleging excessive fees charged by a life insurance company. Plaintiffs are holders of Variable Annuity Contracts ("Contracts") issued by Pruco Life Insurance Company and its parent, Prudential Insurance Company, (collectively, "Defendants") since March 10, 1997. Plaintiffs allege that the fees charged by Defendants for the service of managing Plaintiffs' Contracts are excessive under §§ 80a-26(e) and 80a-27(i) of the Investment Company Act of 1940, 15 U.S.C. § 80a-1 et seq. (Supp.2000) ("ICA"). For the reasons stated below, Plaintiffs' Complaint is dismissed with prejudice.

I

Plaintiffs are variable annuity contract holders. (Pl.Compl.¶ 7.) Their Contracts require them to pay monies to Defendants, who, in turn, invest the monies in various investment vehicles chosen by Plaintiffs. Under the Contracts, Defendants promise to make payments to Plaintiffs in the future, generally upon Plaintiffs' death or retirement. (Id. ¶ 14.)

For this service, Defendants impose a series of fees on the Plaintiffs: (a) a daily mortality and expense risk charge at the rate of 1.25% per annum; (b) a daily administrative charge at the rate of .15% per annum; and (c) an annual administrative fee of $30 on the anniversary date of the Contract.¹ These fees are imposed upon the total balance of each account of each Plaintiff and are in addition to the management fees charged by the investment advisors who manage the investments for the separate accounts. It is not uncommon for a Plaintiff to pay to Defendants annual fees totaling 1.4% of their assets while also paying additional fees to the investment advisor. (Id. ¶ 15.)

As the purported consideration of these insurance charges, Defendants promise that, in the event of a Plaintiff's death prior to the due date of the first annuity payment, Defendants will pay the Plaintiff or his beneficiaries the greater of: (a) the value of his investment in the annuity; or (b) the amount of his or her contributions to the annuity, minus withdrawals. In insurance industry parlance, this guarantee is known as the "death benefit." (Id. ¶ 16.)

Plaintiffs contend that the benefit of option (b) is illusory. They aver that (a) will be less than (b) only if the Plaintiff dies shortly after a severe stock market decline and his or her contributions have not been invested long enough to have accumulated a cushion of profit. Plaintiffs further argue that, given the performance of the investments in Defendants' accounts over the last two decades, only an unusual and rare combination of circumstances would lead to (a) being less than (b). (Id. ¶¶ 16-17.)

Nevertheless, Defendants impose the fees in question on each Plaintiff's account every day. The fees are a fixed percentage of 1.4% per annum, without relationship to the health or age of the Plaintiff; hence, the costs of maintaining the Contract account are related to the value of the account, not to the risks incumbent on the insurance company. According to Plaintiffs, virtually all of the monies collected for these fees represent profit to Defendants and are therefore excessive and unreasonable in light of the benefits provided. Plaintiffs suggest a mortality charge of .2% would be fair and reasonable. (Id. ¶¶ 18-20.)

Plaintiffs' Complaint states that Defendants have violated §§ 80a-26(e) and 80a-27(i) and that Plaintiffs are entitled to damages for the violation. (Id. ¶¶ 21-22.)

Defendants have moved for dismissal under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief could be granted. Defendants argue four points in support of their position: (1) there is no explicit or implicit private right of action for violations of § 80a-26(e) or 80a-27(i); (2) Plaintiffs' claims are time-barred under a statute of limitations; (3) the Complaint fails to plead facts demonstrating excessiveness as required by Federal Rule of Civil Procedure 8; and (4) Plaintiffs' claims are barred by the New York "filed rate doctrine."

II

In order for a party to succeed on a motion to dismiss under Rule 12(b)(6), it must be clear that the plaintiff can prove no set of facts that would establish a claim for relief. See Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Boyd v. Nationwide Mut. Ins. Co., 208 F.3d 406, 409 (2d Cir.2000). When making that determination, a court must assume that the allegations in the complaint are true and draw all reasonable inferences in the plaintiff's favor. Cooper v. Pate, 378 U.S. 546, 546, 84 S.Ct. 1733, 12 L.Ed.2d 1030 (1964) (per curiam); Boyd, 208 F.3d at 409. The court's function on a motion pursuant to Rule 12(b)(6) is merely to determine whether the complaint itself is legally sufficient to state a claim upon which relief may be granted. See Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir.1985).

III

The issue of whether injured parties may initiate civil actions under § 80a-26(e) or 80a-27(i) is a matter of first impression in the federal system. A review of case law reveals only one case which has confronted these subsections, but that case did not actually resolve the question now before this court. See Levy v. Alliance Capital Mgmt. L.P., 189 F.3d 461, No. 98-9528, 1999 WL 642920 (2d Cir. Aug.20, 1999) (dismissing, in an unpublished opinion, the claim on other grounds).²

Section 80a-26(e) states, in relevant part: "It shall be unlawful for any registered separate account funding variable insurance contracts, or for the sponsoring insurance company of such account, to sell any such contract-(A) unless the fees and charges deducted under the contract, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the insurance company...." 15 U.S.C. § 80a-26(e)(2).

Section 80a-27(i) states, in relevant part: "It shall be unlawful for any registered separate account funding variable insurance contracts, or for the sponsoring insurance company of such account, to sell any such contract unless-(A) such contract is a redeemable security; and (B) the insurance company complies with section 80a-26(e) of this title...." Id. § 80a-27(i)(2).

Neither subsection expressly provides for a private right of action. Nevertheless courts may infer a private cause of action if convinced that the legislature intended to imply one. See, e.g., Cannon v. University of Chicago, 441 U.S. 677, 717, 99 S.Ct. 1946, 60 L.Ed.2d 560 (1979) (acknowledging the ability of courts to infer private rights of action where appropriate). This court, therefore, will attempt to navigate the murky and uncertain waters of what Congress may have meant-but did not say. In so doing, this court looks to the Supreme Court for guidance on statutory interpretation.

IV

Until 1975, courts applied a simple test to determine the availability of an implied remedy. "If a statute was enacted for the benefit of a special class, the judiciary normally recognized a remedy for members of that class. Under this approach, federal courts, following a common-law tradition, regarded the denial of a remedy as the exception rather than the rule." Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 374-75, 102 S.Ct. 1825, 72 L.Ed.2d 182 (1982) (citations omitted).

In 1975, the Supreme Court decided Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975), which transformed the method of interpretation into a more rigid, four-factor analysis of the words and intent of Congress. Those factors include the following: (1) whether the plaintiff is one of the class for whose benefit the statute was enacted; (2) whether there is any indication of legislative intent, explicit or implicit, to create or deny such a remedy; (3) whether the private right of action would be consistent with or frustrate the purposes of the legislative scheme; and (4) whether the cause of action is traditionally relegated to state law remedies. See Cort, 422 U.S. at 78, 95 S.Ct. 2080. In subsequent years, the Court has stressed the paramount importance of legislative intent, while deeming the other factors supplementary. See, e.g., Thompson v. Thompson, 484 U.S. 174, 179, 108 S.Ct. 513, 98 L.Ed.2d 512 (1988) ("In determining whether to infer a private cause of action from a federal statute, our focal point is Congress' intent in enacting the statute."); Touche Ross & Co. v. Redington, 442 U.S. 560, 575-76, 99 S.Ct. 2479, 61 L.Ed.2d 82 (1979) (finding that not all Cort factors should be accorded equal weight and that, in fact, the central inquiry is congressional intent); Thompson, 484 U.S. at 189, 108 S.Ct. 513 (Scalia, J., concurring) (calling congressional intent "the determinative factor, with the other three merely indicative of its presence or absence"); see also McClellan v. Cablevision of Conn., Inc., 149 F.3d 161, 164 (2d Cir.1998) (noting that the Supreme Court has refocused the Cort analysis to emphasize the importance of congressional intent). Hence, this court must focus on the intent of Congress in enacting §§ 80a-26(e) and 80a-27(i).

V

The inquiry begins with the language of the statute itself. See Transamerica Mortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 16, 100 S.Ct. 242, 62 L.Ed.2d 146 (1979); Touche Ross, 442 U.S. at 568, 99 S.Ct. 2479. Both ...