Thomas v. Metro. Life Ins. Co.

• Decision Date: 02 February 2011
• Docket Number: No. 09–6207.,09–6207.
• Citation: 631 F.3d 1153
• Parties: Robert L. THOMAS and Amanda Thomas, individually and on behalf of all others similarly situated, Plaintiffs–Appellants,v.METROPOLITAN LIFE INSURANCE COMPANY and Metlife Securities, Inc., Defendants–Appellees.American Council of Life Insurers, Amicus Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

631 F.3d 1153

Robert L. THOMAS and Amanda Thomas, individually and on behalf of all others similarly situated, Plaintiffs–Appellants,

v.METROPOLITAN LIFE INSURANCE COMPANY and Metlife Securities, Inc., Defendants–Appellees.American Council of Life Insurers, Amicus Curiae.

No. 09–6207.

United States Court of Appeals, Tenth Circuit.

Feb. 2, 2011.

Timothy Becker, (Carolyn G. Anderson and Brian C. Gudmundson of Zimmerman, Reed, P.L.L.P., Minneapolis, MN; Mark E. Bialick and David B. Donchin of Durbin, Larimore & Bialick; Michael Burrage, Simone G. Fulmer, Reggie N. Whitten and Lauren F. Guhl of Whitten, Burrage, Priest, Fulmer, Anderson & Eisel; and Venessa R. Brentwood, Oklahoma City, OK, with him on the briefs), for Plaintiffs–Appellants.Daniel McNeel Lane, Jr. (and Nada L. Ismail of Akin, Gump, Strauss, Hauer & Feld, L.L.P.; San Antonio, TX; Ashley B. Vinson of Akin, Gump, Strauss, Hauer & Feld, L.L.P., San Francisco, CA, on the brief), for Defendants–Appellees.Lisa Tate of American Council of Life Insurers, Washington, D.C. and Miriam R. Nemetz and Melanie Wilson Rughani of Mayer, Brown, L.L.P., Washington, D.C., for Amicus Curiae.Before KELLY, EBEL, and GORSUCH, Circuit Judges.PAUL KELLY, JR., Circuit Judge.

Plaintiffs–Appellants Robert and Amanda Thomas appeal from the district court's grant of summary judgment in favor of Defendants–Appellees Metropolitan Life Insurance Companies, Inc. and Metlife Securities, Inc. (sometimes collectively referred to as “Met”). Plaintiffs filed a putative class action on behalf of class members who bought life insurance products from Met. Two issues are before us: (1) whether the district court abused its discretion by refusing to grant leave to amend the Second Amended Complaint (“SAC”) to add named plaintiffs who had standing to assert securities fraud claims, and (2) whether the district court erred in granting summary judgment to Met on the ground that Mr. Laxton—the representative who sold a life insurance policy to Plaintiffs Robert and Amanda Thomas—was exempt from the Investment Advisers Act of 1940 (the “IAA”). We hold that Robert and Amanda Thomas—the only plaintiffs in this proceeding—do not have standing to appeal the first issue. Therefore, we dismiss that part of the appeal without considering the merits. We affirm the district court's grant of summary judgment on the second issue.

Background

Because this is an appeal from the grant of summary judgment, we view the facts and draw all reasonable inferences in Plaintiffs' favor. Scott v. Harris, 550 U.S. 372, 378, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007). We first discuss the facts pertaining to Plaintiffs' claims under the IAA, followed by the procedural history relevant to the district court's refusal to grant leave to amend the SAC.

A. Factual Background: Investment Advisers Act Claim

In 2001, Plaintiffs met with Jeffrey Laxton, a Financial Services Representative (“FSR”) employed by Met. CJA ¹ 130. Mr. Laxton analyzed the Thomases' financial situation and advised them on how to allocate the funds in their 401(k). Id. 142. Met required its FSRs to conduct this “suitability analysis” to ensure that they recommended appropriate investment and insurance products. JA 294–97, 309–10. Mr. Laxton was not compensated upon completing the suitability analysis. Id. at 337. In April of 2003, the Thomases had a child and became interested in purchasing financial assets to secure the child's future. CJA 142–43. Based in part on his prior financial analysis, Mr. Laxton advised them to purchase a variable universal life insurance policy (“VULP”) from Met. Id. 144. Plaintiffs promptly heeded this advice. Id. They have since paid a $91.00 monthly premium. Id. The VULP's prospectus stated that 2.25% of the premiums were dedicated to compensating FSRs. Id. at 146. After the sale, Met paid Mr. Laxton a $500 “production credit.” Id. at 147; JA 393.

Met compensates FSRs based on their sales of proprietary products. CJA 147. If FSRs fail to sell enough products, they may be terminated. Id. Met's marketing policy, according to Plaintiffs, requires FSRs to provide investment advice to potential customers as a means to sell more proprietary products. Id. at 138. This policy was so pervasive that FSRs allegedly gave financial advice to every customer to whom they sold a product. Id.

In their complaint, Plaintiffs contend that FSRs are “investment advisers” subject to regulation under the IAA. Id. at 2. The IAA, inter alia, imposes fiduciary duties on investment advisers. See SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 191–92, 84 S.Ct. 275, 11 L.Ed.2d 237 (1963). Plaintiffs allege that Mr. Laxton (and, derivatively, Met) violated the IAA by failing to disclose that he had strong incentives to sell Met's proprietary products, as opposed to giving unbiased advice. CJA 2.

Defendants claim that Mr. Laxton falls within the IAA's so-called “broker-dealer” exemption, which exempts from the IAA brokers and dealers who give advice “solely incidental to” their conduct as a broker- dealer and who receive “no special compensation” for the advice. JA 155–56; 15 U.S.C. § 80b–2(a)(11)(C) (2006). The district court agreed with Defendants and granted summary judgment on this basis. See Thomas v. Metro. Life Ins. Co., No. 07–0121, 2009 WL 2778663, at *3–9 (W.D.Okla. Aug.31, 2009).

So far as we are aware, application of the broker-dealer exemption to these circumstances is an issue of first impression among the federal appellate courts. Before we reach the district court's grant of summary judgment, however, we must discuss the case's procedural history and Plaintiffs' claim that the district court should have granted leave to amend the complaint.

B. Litigation History

On January 31, 2007, Robert Thomas filed a complaint on behalf of himself and others who had bought proprietary Met products. JA 724. The complaint alleged claims under section 10(b) of the Securities Exchange Act of 1934, the IAA, several state statutes, and state common law. Doc. 1 at 1–2, 4–5. In September 2007 Mr. Thomas—along with two additional named plaintiffs, Jay Stout and Carolyn Ising, who had purchased securities and a financial plan from Met—filed the SAC, which alleged essentially the same claims. See JA 731; Thomas v. Metro. Life Ins. Co., 540 F.Supp.2d 1212, 1214–18 (W.D.Okla.2008). Met moved to dismiss. The district court dismissed the state law claims, and Plaintiffs do not contest that ruling. Id. at 1232–33; see Aplt. Br. 4 n. 2. The district court also dismissed the federal securities fraud claims but allowed a period for discovery to resolve issues surrounding the plaintiffs' standing—specifically, whether any of the named plaintiffs had purchased mutual funds or securities during the relevant period. See Metro. Life Ins., 540 F.Supp.2d at 1231–32.

Discovery revealed that the named Plaintiffs had purchased only life insurance products—not securities or mutual funds—from Met during the class period. Doc. 127 at 1–2. Thus, no named Plaintiffs had standing to bring securities fraud claims. Plaintiffs moved for leave to amend the complaint to add as named plaintiffs persons who did purchase securities or mutual funds during the relevant time frame and who could therefore bring securities fraud claims. See JA 33, 41. In a two-page minute order, the district court partially denied Plaintiffs' motion. Id. at 133–34.

Although it denied the majority of Plaintiffs' requests in their motion for leave to amend the SAC, the district court did grant leave to file a Third Amended Complaint (“TAC”) to add Amanda Thomas, Robert Thomas's wife, as an additional named plaintiff. Aplee. Supp.App. 71. Plaintiffs Robert and Amanda Thomas filed the TAC, which brought the only claims the Thomases had standing to assert—the IAA claims discussed above. CJA 1. Although the TAC is styled as a class action, the district court has neither certified nor denied certification of a class. Robert and Amanda Thomas—the only Plaintiffs–Appellants in this appeal—argue that the district court abused its discretion in refusing to allow as named plaintiffs persons who had standing to assert securities fraud claims. Aplt. Br. 54.

Discussion

A. Standing: Leave to Amend to Add Securities Fraud Claims

Although neither party has disputed Plaintiffs' standing to appeal the district court's denial of leave to amend the complaint, “we have an independent duty to examine our own jurisdiction.” Amazon, Inc. v. Dirt Camp, Inc., 273 F.3d 1271, 1274 (10th Cir.2001). Thus, we raise the issue sua sponte.

“The standing Article III requires must be met by persons seeking appellate review, just as it must be met by persons appearing in courts of first instance.” Arizonans for Official Engl. v. Arizona, 520 U.S. 43, 64, 117 S.Ct. 1055, 137 L.Ed.2d 170 (1997) (citing Diamond v. Charles, 476 U.S. 54, 62, 106 S.Ct. 1697, 90 L.Ed.2d 48 (1986)). Therefore, “[t]o have standing [on appeal], one must be aggrieved by the order from which appeal is taken.” Uselton v. Commercial Lovelace Motor Freight, Inc., 9 F.3d 849, 854 (10th Cir.1993) (citation omitted); Sabido Valdivia v. Gonzales, 423 F.3d 1144, 1147 (10th Cir.2005); accord Tachiona v. United States, 386 F.3d 205, 211 (2d Cir.2004). Just like litigants generally cannot bring suit to vindicate the rights of others, see RMA Ventures Cal. v. SunAmerica Life Ins. Co., 576 F.3d 1070, 1073 (10th Cir.2009), parties generally do not have standing to appeal in order to protect the rights of third parties. See Howard v. Mail–Well Envelope Co., 150 F.3d 1227, 1230 (10th Cir.1998) (citation omitted).

Machella v. Cardenas, 653 F.2d 923 (5th Cir.1981), is particularly relevant here. In that case, Mr. Machella brought a putative class action against the Small Business Administration concerning loan forgiveness in a federal disaster relief program. Machella, 653 F.2d at 925. Before a class was certified, Mr. Machella attempted to amend his complaint to add a third...