UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 06-1788
In Re: MUTUAL FUNDS INVESTMENT LITIGATION
________________________________________
In Re: ALGER, COLUMBIA, JANUS, MFS, ONE GROUP, PUTNAM, and
ALLIANZ DRESDNER
________________________________________
MATTHEW WIGGENHORN, individually and on behalf of all
others similarly situated,
Plaintiff – Appellant,
v.
AXA EQUITABLE LIFE INSURANCE COMPANY, formerly known as
Equitable Life Assurance Society of the United States,
Defendant – Appellee.
No. 06-1789
In Re: MUTUAL FUNDS INVESTMENT LITIGATION
________________________________________
In Re: ALGER, COLUMBIA, JANUS, MFS, ONE GROUP, PUTNAM, and
ALLIANZ DRESDNER
________________________________________
EDMUND WOODBURY, individually and on behalf of all others
similarly situated,
Plaintiff – Appellant,
v.
NATIONWIDE LIFE INSURANCE COMPANY,
Defendant – Appellee.
No. 06-1790
In Re: MUTUAL FUNDS INVESTMENT LITIGATION
________________________________________
In Re: ALGER, COLUMBIA, JANUS, MFS, ONE GROUP, PUTNAM, and
ALLIANZ DRESDNER
________________________________________
NIKITA MEHTA, as Trustee of the N.D. Mehta Living Trust,
individually and on behalf of all others similarly
situated,
Plaintiff – Appellant,
v.
AIG SUNAMERICA LIFE ASSURANCE COMPANY, formerly known as
Anchor National Life Assurance Company,
Defendant – Appellee.
No. 06-2010
In Re: MUTUAL FUNDS INVESTMENT LITIGATION
_______________________________________
In Re: ALGER, COLUMBIA, JANUS, MFS, ONE GROUP, PUTNAM, and
ALLIANZ DRESDNER
_______________________________________
PAULA BEALS,
Plaintiff – Appellant,
v.
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THE VARIABLE ANNUITY LIFE INSURANCE COMPANY,
Defendant – Appellee.
Appeals from the United States District Court for the District
of Maryland, at Baltimore. J. Frederick Motz, District Judge.
(1:04-md-15863-JFM)
Argued: October 31, 2008 Decided: January 30, 2009
Before MICHAEL, SHEDD, and DUNCAN, Circuit Judges.
Affirmed by unpublished per curiam opinion.
ARGUED: Robert L. King, St. Louis, Missouri, for Appellants.
David A. Jones, AKIN, GUMP, STRAUSS, HAUER & FELD, San Antonio,
Texas; Charles Platt, WILMER, CUTLER, PICKERING, HALE & DORR,
L.L.P., New York, New York, for Appellees. ON BRIEF: Klint L.
Bruno, KOREIN TILLERY, L.L.C., Chicago, Illinois, for
Appellants. Daniel McNeel Lane, Jr., AKIN, GUMP, STRAUSS, HAUER
& FELD, San Antonio, Texas, for Appellees AIG SunAmerica Life
Assurance Company and The Variable Annuity Life Insurance
Company; Michele Odorizzi, Sheila Finnegan, MAYER, BROWN, ROWE &
MAW, L.L.P., Chicago, Illinois, for Appellee AXA Equitable Life
Insurance Company, formerly known as Equitable Life Assurance
Society of the United States; Gordon Pearson, WILMER, CUTLER,
PICKERING, HALE & DORR, L.L.P., Washington, D.C., for Appellee
Nationwide Life Insurance Company.
Unpublished opinions are not binding precedent in this circuit.
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PER CURIAM:
Matthew Wiggenhorn, Edmund Woodbury, Nikita Mehta, and
Paula Beals (collectively “Plaintiffs”) appeal the district
court’s dismissal of their respective class action suits against
AXA Equitable Life Insurance Co., Nationwide Life Insurance Co.,
AIG SunAmerica Life Assurance Co., and Variable Annuity Life
Insurance Co. (collectively “Defendants”). The district court
dismissed the cases based on its determination that the suits
are preempted by the Securities Litigation Uniform Standards Act
of 1998 (“SLUSA”). Finding no error, we affirm.
I
Plaintiffs purchased variable annuities from Defendants.
Although variable annuities offer a range of investment options,
those at issue here involved mutual funds containing foreign
securities.
Policyholders of variable annuities allocate money among
the various investment accounts offered by the annuity. If
policyholders choose to invest in variable accounts, they
further apportion their money into sub-accounts that each
correspond with a mutual fund invested in by Defendants. The
money that policyholders invest in a particular sub-account goes
into a pool of assets, owned by Defendants, which is used to
purchase shares of the designated mutual fund. Rather than own
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the mutual fund shares themselves, policyholders receive sub-
account Accumulation Units (“AUs”) in proportion to the amount
of money they have invested in the sub-account.
The value of a sub-account’s AU is determined once every
business day at the close of trading on the New York Stock
Exchange (“NYSE”), 4:00 p.m. Eastern Time. The value is based
on the corresponding mutual fund’s net asset value (“NAV”),
which is also determined at the close of the NYSE. To determine
the NAV of a mutual fund, Defendants use the closing trade price
of each security in its home market; as a result, the closing
prices of foreign securities whose markets close earlier than
4:00 p.m. Eastern Time are several hours old by the time the
mutual fund’s NAV is calculated.
Further, value movements on the NYSE which occur after the
close of foreign securities markets often foreshadow a
corresponding movement in those markets the following day.
Resourceful short-traders can take advantage of these “stale”
foreign securities prices by buying or selling shares of a
mutual fund’s corresponding sub-account, depending on whether
the securities are undervalued or overvalued, and then quickly
selling or buying those shares once the foreign market reflects
the most recent value movement. This practice is called “market
timing.” When annuity holders “market time,” it dilutes the
ownership interests of other sub-account holders.
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II
Plaintiffs brought these putative class actions on behalf
of all variable annuity policyholders who (a) invested in sub-
accounts corresponding with mutual funds containing foreign
securities and (b) did not engage in market timing. The four
actions were filed in Illinois state court and were based on
state law. Initially, Plaintiffs claimed that Defendants
negligently relied on the stale NAVs to calculate the value of
the sub-account shares and that Defendants deceived
policyholders, or at least failed to provide them with complete
and truthful information, by not informing them of the potential
harm of market timing.
Defendants removed each of the four cases to the United
States District Court for the Southern District of Illinois and
moved to dismiss them on the basis that the claims were
preempted by SLUSA. Plaintiffs moved to remand the cases for
lack of subject matter jurisdiction, arguing in part that SLUSA
did not apply because Plaintiffs were all non-trading securities
holders. 1 Before the district court ruled on these motions, the
Judicial Panel for Multidistrict Litigation transferred the
1
This argument has since been foreclosed by Merrill Lynch,
Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71 (2006), which
held that SLUSA precludes the state law claims of non-trading
securities holders, just as it does the state law claims of
securities purchasers and sellers.
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actions to the United States District Court for the District of
Maryland, where they were consolidated with an existing
multidistrict proceeding involving other market timing cases.
Defendants renewed their motions to dismiss based on SLUSA
preemption.
In an effort to avoid SLUSA preemption, Plaintiffs amended
their complaints to assert a single claim: that Defendants
negligently exposed their investments to the dilution effect of
market timing. Nevertheless, the district court granted
Defendants’ motions to dismiss on SLUSA preemption grounds.
Specifically, the district court found that Plaintiffs’ claims
were preempted by 15 U.S.C. § 78bb(f)(1)(A), which states:
No covered class action based upon the statutory or
common law of any State or subdivision thereof may be
maintained in any State or Federal court by any
private party alleging--
(A) a misrepresentation or omission of a material fact
in connection with the purchase or sale of a covered
security[.]
The district court held that Plaintiffs’ allegations involved a
“misrepresentation or omission,” reasoning:
The element of a misrepresentation or omission of a
material fact is satisfied when a plaintiff alleges a
misrepresentation concerning the value of the
securities sold or the consideration received in
return. That is exactly what the plaintiffs have done
here, despite their emphatic disavowal of their prior
explicit allegations of misrepresentation, and their
pared-down amended complaint. Putting aside the
convoluted terminology and formulas associated with
variable annuities, at bottom the plaintiffs simply
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allege that the defendants incorrectly priced certain
investment options provided under the annuities.
In re Mut. Funds Inv. Litigation, 437 F.Supp.2d 439, 443 (D.Md.
2006)(citations and punctuation omitted).
The district court also found that Defendants’ alleged
misrepresentations occurred “in connection with” the purchase or
sale of securities. Plaintiffs argued that because they did not
trade the securities themselves, but were merely non-trading
holders of the securities, Defendants’ misrepresentations to
Plaintiffs could not have occurred “in connection with” the
purchase or sale of securities. Rejecting this argument, the
district court noted that in Merrill Lynch the Supreme Court
held that SLUSA applies broadly and preempts claims brought by
holders of securities, as well as by purchasers and sellers.
Merrill Lynch, 547 U.S. at 88-89. For the above reasons, the
district court granted Defendants’ motions to dismiss.
III
We review de novo the dismissal of a complaint pursuant to
Fed. R. Civ. P. 12(b)(6). Constantine v. Rectors and Visitors
of George Mason Univ., 411 F.3d 474, 498 (4th Cir. 2005). We
accept as true “all well-pleaded allegations and . . . view the
complaint in a light most favorable to the plaintiff.” Id.
(citations omitted). Further, dismissal is not appropriate
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“unless it appears certain that the plaintiff can prove no set
of facts which would support her claim and would entitle her to
relief.” Id. (punctuation omitted). Questions of subject
matter jurisdiction are also reviewed de novo. Lontz v. Tharp,
413 F.3d 435, 439 (4th Cir. 2005).
Having reviewed the record and the applicable law, and
having had the benefit of oral argument, we conclude that
Plaintiffs’ claims are preempted by SLUSA. Accordingly, we
affirm based substantially on the reasoning of the district
court. See In re Mut. Funds Inv. Litigation, 437 F.Supp.2d 439
(D.Md. 2006). 2
AFFIRMED
2
In light of our disposition, we need not address the
parties’ arguments regarding alternative grounds for dismissal.
Additionally, given our conclusions regarding the motions to
dismiss, we find that the district court did not err in failing
to remand the case to state court.
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