Tancredi v. Metropolitan Life Ins. Co.

• Decision Date: 09 July 2001
• Docket Number: No. 00 CIV 5780 LAK.,00 CIV 5780 LAK.
• Citation: 149 F.Supp.2d 80
• Parties: Stephen TANCREDI, et ano., Plaintiff, v. METROPOLITAN LIFE INSURANCE COMPANY, et ano., Defendants.
• Court: U.S. District Court — Southern District of New York

149 F.Supp.2d 80

Stephen TANCREDI, et ano., Plaintiff, v. METROPOLITAN LIFE INSURANCE COMPANY, et ano., Defendants.

No. 00 CIV 5780 LAK.

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

July 9, 2001.

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Michael P. Malakoff, Malakoff Doyle & Finberg, P.C., Pittsburgh, PA, Barry A. Weprin, Milberg Weiss Bershad Hynes & Lerach, LLP, New York City, Peter Wasylyk, Law Offices of Peter Wasylyk, Providence, RI, for Plaintiff.

Bruce E. Yannett, Colby A. Smith, Carl Micarelli, Debevoise & Plimpton, New York City, Duncan J. Logan, Metropolital Life Insurance Company, for Defendants.

MEMORANDUM OPINION

KAPLAN, District Judge.

On April 7, 2000, Metropolitan Life Insurance Company ("MetLife") converted from a mutual to a stock insurance company pursuant to New York Insurance Law § 7312, which was enacted to permit such conversions. The conversion received the required approval of the New York Superintendent of Insurance based on his finding that the plan of reorganization was fair and equitable to policy holders.

Plaintiffs bring this purported class action on behalf of MetLife policy holders pursuant to 42 U.S.C. § 1983. They claim that the conversion deprived them of their federal constitutional rights in that it took property without just compensation (Counts I and II), took their property by private sale of a near-controlling interest in the company without advance notice or opportunity to vote (Count III), deprived non-New York property holders of their rights without just compensation and thereby improperly regulated interstate commerce (Count IV), and deprived policy holders of various contractual rights in violation of the Contract Clause (Counts V-VIII). Defendants¹ have moved to dismiss the complaint primarily on the grounds that they were not state actors, that plaintiffs' membership interests in a mutual organization do not constitute property, that the McCarran-Ferguson Act² insulates state insurance regulation from Commerce Clause challenge, and that for any and all of these reasons the complaint fails to state a claim upon which relief may be granted. Defendants argue in the alternative that this Court should abstain from hearing the case in favor of pending state court challenges.

In resolving the motion to dismiss, the Court accepts as true the factual allegations set forth in the complaint and draws all reasonable inferences in favor of plaintiffs.³ It may dismiss only if "it appears beyond doubt that the plaintiff[s] can prove no set of facts in support of [their] claim which would entitle [them] to relief."⁴ Although Rule 12(b) motions are made solely upon the pleadings,⁵ the Court considers also those documents to which plaintiffs refer in the complaint.⁶

I. State Action

Section 1983 permits claims for violations of constitutional rights committed "under color of" state law, a phrase synonymous with the "state action" required by the Fourteenth Amendment.⁷ Thus, state action is an indispensable element of each of plaintiffs' claims for relief.⁸

Action taken by a private entity constitutes state action only when "there is such a close nexus between the State and the challenged action that seemingly private behavior may be fairly treated as that of the State itself."⁹ Action by a private entity pursuant to statutory authorization retains its private character and is not actionable under Section 1983.¹⁰

Here, plaintiffs allege nothing more than that MetLife took advantage of authority granted by the New York Insurance Law to elect to become a stock company. The fact that the Superintendent of Insurance granted approval did not transform MetLife's election into state action. Approval by a state officer or agency, where the state "has not put its own weight on the side of the proposed practice by ordering it", does not transmute a practice initiated by the [private entity] and approved by the [state] into "state action."¹¹

Jackson v. Metropolitan Edison Co.¹² illustrates the point. The Court there found no state action in a utility company's decision, upon state approval, to terminate a customer's electric service, noting that "the nature of governmental regulation of private utilities is such that a utility may frequently be required by the state regulatory scheme to obtain approval for practices a business regulated in less detail would be free to institute without any approval from a regulatory body."¹³ The same may be said of the state's regulation of insurance companies. Indeed, a majority of courts confronted with the issue of approval of mutual-to-stock conversion plans similar to that here has found no state action.¹⁴

Nor did MetLife become a state actor on the theory that it exercised state power to "take" the property interests of the policy holders. The power to amend a corporate charter — including changes such as mergers, reorganizations and dissolutions, all of which alter the rights of stockholders — is a power that nearly all corporations long have exercised without becoming state actors.¹⁵ Accordingly, plaintiffs have failed to allege the existence of state action.

II. Property Interest

Even if plaintiffs had sufficiently alleged state action, the claims in Counts I through III of the complaint would fail because plaintiffs cannot establish that their membership interests in the mutual organization constituted property.

To establish a property interest, plaintiffs must demonstrate "a legitimate claim of entitlement" arising from "an independent source such as state law."¹⁶ Plaintiffs find the source of their alleged property rights in their "contractual right," allegedly guaranteed by MetLife's 1915 charter, "to (1) ownership and control of MetLife; (2) a distribution of equity based upon historic contributions; and (3) receipt of insurance at cost through participation."¹⁷ Yet plaintiffs right to receive a return of excess premiums as surplus (what plaintiffs term "equity") remains under the demutualization plan,¹⁸ as does their ability as continuing policy holders to receive insurance.¹⁹ Moreover, plaintiffs' interest in MetLife as a mutual company did not rise to the level of a property interest such as to render policy holders "owners" of the corporation. "A member of [a mutual] corporation has no definite property interest which can be ascertained and recovered .... The assets belong to the corporation, and no member has any interest in any aliquot part thereof, and the unascertained interest of a mere policy holder is quite insufficient to sustain an ... action brought to prevent the corporation from doing what the statute authorizes it to do."²⁰ Plaintiffs' effort to limit Grobe's holding to the issue of voting rights is misplaced; Grobe more broadly held that the plaintiff there lacked a property interest sufficient to sustain any constitutional challenge to the New York Insurance Law.²¹ And Grobe is not alone in finding that membership interests in a mutual company are too insubstantial to merit constitutional protection.²²

Accordingly, plaintiffs lack a property interest upon which to assert takings or due process violations under the federal Constitution.

III. Contractual Rights

Plaintiffs cite MetLife's 1915 charter as the alleged "contractual" source of their claimed property rights. They argue that the charter "recognized that MetLife, previously a stock company, had reacquired its capital stock and that it would thereafter `continue to be a mutual company without capital stock,' and that the operation `would have perpetual succession.'"²³ From this plaintiffs conclude that the demutualization plan constituted an unconstitutional impairment of contract.²⁴ They contend that the demutualization process impaired policy holders' voting rights under the charter (Count V), that it impaired policy holders' rights to surplus (Count VI), and that the New York law pursuant to which the demutualization was effected constituted an ex post facto law that unconstitutionally altered policy holders' various rights under the charter (Count VII).

MetLife's charter from the time of its inception was subject to statutory provisions for amending charters.²⁵ Moreover, the Constitution of the State of New York specifically reserves to the Legislature the right to alter laws under which corporations originally were formed.²⁶ Thus, "every person who became a member of the corporation did so with full knowledge that it might at any time be changed from a mutual to a stock corporation ... and that under this provision of the constitution those terms might at any time be changed by the legislature."²⁷ In Polk v. Mutual Reserve Fund Life Association of New York,²⁸ the Supreme Court held that a New York corporation's amendment of its charter was not an impairment of contract because the above-quoted constitutional provision put the company's members on notice that the charter could be amended, just as if there had been a notice provision in the text of the charter itself.²⁹ New York's constitutional provision allowed MetLife to convert from a stock to a mutual company in 1915, pursuant to the New York State Legislature's authorization to do so.³⁰ The same constitutional provision allows MetLife to act pursuant to the Legislature's 1988 law authorizing demutualization of domestic mutual life insurance companies.³¹ Plaintiffs' claims that the Section 7312 of the New York Insurance Law is an ex post facto law impairing policy holders' rights under the charter are without merit.

Similarly unavailing are plaintiffs' arguments regarding voting rights. Section 7312(k)(2) of the Insurance Law requires approval of demutualization by two-thirds of the votes cast by eligible policy holders, and it contains no requirement that a majority of policy holders have voted. Thus, the vote complied with the statutory requirements validly enacted by the New York Legislature pursuant to Article 8, Section 1 of the New York Constitution. There is simply no...