Opinion
Case No. 8:03-cv-758-T-30TBM
December 11, 2003
ORDER
THIS CAUSE comes before the Court upon Plaintiff's Motions to Remand and Memoranda in Support (Dkt. # 14 in case number 8:03-cv-758-T-30-TBM; Dkt. # 18 in case number 8:03-759-T-27EAJ) and Defendant's Memoranda of Law in Opposition to Plaintiff's Motions to Remand (Dkt. # 18 in case number 8:03-cv-758-T-30-TBM; Dkt. # 24 in case number 8:03-759-T-27EAJ). The Court, having considered the motion and being otherwise fully advised, finds that the motions should be denied.
Plaintiff filed two separate suits in its individual capacity and seeking class actions to obtain equitable relief and damages against its insurer, Security Life of Denver Insurance Company ("Security Life"). In case number 8:03-cv-758-T-30TBM, Plaintiff alleges that Security Life improperly charged Florida policy holders an administrative expense in violation of the terms of the policies. In case number 8:03-cv-759-T-27EAJ, Plaintiff claims that Security Life wrongly overcharged Florida policy holders for state premium taxes.
Both cases were originally filed in the Twelfth Judicial Circuit in and for Sarasota County, Florida. Security Life subsequently removed the cases to the Middle District of Florida and the Court consolidated the two cases. Plaintiff has moved to remand the case to state court asserting this Court lacks subject matter jurisdiction. Security Life argues that Plaintiff's claims fall within the scope of the Securities Litigation Uniform Standards Acts of 1988 ("SLUSA"), or in the alternative, that diversity jurisdiction exists.
In order for a claim to fall within SLUSA, four criteria must be satisfied: (1) the action is a "covered class action" under SLUSA; (2) the action purports to be based on state law; (3) the defendant is alleged to have misrepresented or omitted a material fact (or to have used or employed any manipulative or deceptive device or contrivance), and (4) the defendant is alleged to have engaged in conduct described by criterion (3) "in connection with" the purchase or sale of a covered security. Green v. Ameritrade, Inc., 279 F.3d 590, 596 (8th Cir. 2002).
Plaintiff alleges that this Court lacks subject matter jurisdiction because none of its claims are derived from alleged misrepresentations "in connection with" the purchase or sale of a covered security. Specifically, Plaintiff asserts that its claims are merely based on Security Life's post-sale practice of overcharging for premium taxes and incorrectly assessing administrative expenses.
This Court acknowledges the continuing difficulty in discerning the line that divides those fraudulent acts that are "in connection with" the purchase or sale of a covered security from those that are not. This Court previously considered the issue of whether an insurance company's overcharging for premium taxes is "in connection with" the purchase or sale of a covered security in Gruber v. Southland Life Ins. Co., case no. 8:02-cv-1528-T-30MAP, and Maragos v. Western Reserve Life Assurance Co. of Ohio, case number 8:02-cv-240-T-3OTGW. In bothGruber and Maragos, this Court held that the practice of overcharging for premium taxes was not "in connection with" the purchase or sale of a covered security.
Despite the apparent similarities between the cases, the present action is distinguishable from both Gruber and Maragos. In the present case, paragraph 9 of the Complaint alleges that "[b]oth the prospectuses and the notices of withdrawal rights provided to Plaintiff's and Class Members represent that Defendant is deducting 2.5% from each premium payment and is remitting that amount to the respective policyholder's state."
In contrast, the four corners of the complaints in Gruber andMaragos lacked any allegation of prior notice of the insurers charges for premium taxes and there was no mention at all of the existence of a prospectus containing representations as to the issues sued upon. In Gruber, the Complaint alleged that "[t]he Plaintiff was unaware that he was paying a tax on the premiums for [these] policies. The agent never told him of any taxes at the time of sale and he never read anything from Southland Life Insurance Company to indicate he was [to] pay a premium tax."
The Court finds that the Plaintiff's allegations in this case, that the prospectus overstated the amount of premium taxes Security Life was required to pay, brings this action within the scope of SLUSA.See Behlen v. Lynch, 311 F.3d 1087, 1095-96 (11th Cir. 2002); Araujo v. John Hancock Life Ins. Co., 206 F. Supp.2d 377, 384-85 (E.D.N.Y. 2002). Because the prospectus was produced before the sale, it is obvious that Security Life's alleged scheme must have involved prior planning and forethought. This prior planning and forethought indicates that Security Life's actions were more than just the internal corporate mismanagement that was alleged in Gruber and Maragos.
Because the Court finds that there is federal question jurisdiction, it does not address whether diversity jurisdiction exists.
Therefore, Plaintiff's motions to remand are denied. Additionally, because SLUSA prohibits a private party from bringing a `covered class action' in federal or state court based on the statutory or common law of a state alleging a misrepresentation or omission of a material fact "in connection with" the purchase or sale of a covered security, Plaintiff's class action claims must be dismissed. See 15 U.S.C. § 77p(b); 15 U.S.C. § 78bb(f)(1).
It is therefore ORDERED AND ADJUDGED that:
1. Plaintiff's Motions to Remand (Dkt. # 14 in case number 8:03-cv-758-T-30-TBM; Dkt. # 18 in case number 8:03-759-T-27EAJ) are hereby DENIED.
2. Plaintiff's class actions claims are hereby DISMISSED.
DONE and ORDERED in Tampa, Florida.