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Rosalie Vaccarino v. Midland National Life Insurance

November 14, 2011


The opinion of the court was delivered by: Honorable Christina A. Snyder, U.S. District Judge





Deputy Clerk Court Reporter / Recorder Tape No.

Proceedings: DEFENDANT'S MOTION TO DISMISS (filed July 22, 2011)


On June 17, 2011, plaintiff Rosalie Vaccarino ("plaintiff" or "Vaccarino") filed this putative class action against defendant Midland National Life Insurance Company ("defendant" or "Midland") in the Los Angeles County Superior Court alleging claims for violation of California Business and Professions Code § 17200, et seq. ("Unfair Competition Law" or "UCL"), fraud, breach of contract, and requesting a declaration of rights under the annuities contracts. On June 15, 2011, defendant removed the action to federal court pursuant to 28 U.S.C. 1441 and the Class Action Fairness Act, 28 U.S.C. § *fn1

On July 22, 2011, defendant filed the instant motion to dismiss. Plaintiff filed an opposition on August 1, 2011. Defendant replied on August 8, 2011. After carefully considering the parties' arguments, the Court finds and concludes as follows.


Plaintiff alleges that in Peterman v. North American Co. For Life and Health Ins., Los Angeles Superior Court Case No. BC357194, a class of persons age 65 and older alleged that Midland's deferred annuities they purchased*fn2 failed to provide proper disclosures of costly surrender penalties, and hid the costs of a purported bonus and high sales commissions. According to plaintiff, during the course of that case, which Midland settled before trial, the Superior Court determined that Midland had failed to properly disclose surrender penalties rendering them unenforceable. Plaintiff alleges that Midland has not provided redress for purchasers age 64 and under. Compl. ¶ 1.

Plaintiff further alleges that Midland has been actively engaged in deceptive and unlawful business practices, in that it has induced sales agents to sell its annuities over those of other companies by offering exorbitant sales commissions and arming agents with "user friendly" products that purportedly provide a "bonus" and other benefits. Id. ¶¶ 5--7. Plaintiff further asserts that Midland knew that the bonus and high commissions were costs that it would "claw back" from purchasers by lowering the amount of the returns it was required to credit each year under the contracts. Id. ¶ 7.

According to plaintiff, Midland has used standardized sales brochures and disclosure statements to sell its deferred annuities. In these materials, plaintiff asserts that Midland made misrepresentations such as that a "bonus" would be provided, and failed to disclose material facts including that Midland paid sales agents exorbitant commissions. Plaintiff avers that Midland has required sales agents to provide these materials to all prospective purchasers at the point of sale and has prohibited agents from making any statements that differ from the sales materials. Id. ¶¶ 8--11.

With respect to those purchasers who surrendered their annuities prior to the end of the surrender period, plaintiff alleges that Midland applied surrender penalties, which it boosted through an "interest adjustment" provision to shift the risk of changing interest rates from itself to purchasers. According to plaintiff, the annuities do not state how the adjustment functions, but instead set forth a "three-variable fractional exponential formula," which has a built-in bias towards a loss in value. Id. ¶ 12.

As to purchasers between the ages of 60 and 64, plaintiff contends that Midland failed to provide proper disclosures of surrender charges and the interest adjustment as required by California Insurance Code § 10127.13. Id. ¶ 13.

Plaintiff alleges that she was 63 years old when she purchased a "Legacy Bonus 11" deferred annuity from a Midland sales agent who provided her with a standardized sales brochure and disclosure statement. Plaintiff contends that she and the agent signed the disclosure statement, which contained an attestation by the sales agent that he had not diverged from Midland's standard materials. The materials purportedly represented to plaintiff that her annuity would provide an 11% bonus and "enhanced growth potential without market-type loss," and that tax-deferred growth would allow plaintiff's money to "grow faster." Id. ¶ 14.


A. Fed. R. Civ. P. 12(b)(6)

A Rule 12(b)(6) motion tests the legal sufficiency of the claims asserted in a complaint. "While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the 'grounds' of his 'entitlement to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atlantic Corp. v. Twombly, 127 S. Ct. 1955, 1964-65 (2007). "[F]actual allegations must be enough to raise a right to relief above the speculative level." Id. at 1965.

In considering a motion pursuant to Fed. R. Civ. P. 12(b)(6), a court must accept as true all material allegations in the complaint, as well as all reasonable inferences to be drawn from them. Pareto v. F.D.I.C., 139 F.3d 696, 699 (9th Cir. 1998). The complaint must be read in the light most favorable to the nonmoving party. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001); Parks Sch. of Bus., Inc. v. Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). However, a court need not accept as true unreasonable inferences or conclusory legal ...

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