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Title Rosalie Vaccarino v. Midland National Life

April 13, 2012


The opinion of the court was delivered by: The Honorable Christina A. Snyder


Present: The Honorable CHRISTINA A. SNYDER


Deputy Clerk Court Reporter / Recorder Tape No.

Attorneys Present for Plaintiffs: Attorneys Present for Defendants:

Not Present Not Present

Proceedings: (In Chambers:) DEFENDANT'S MOTION TO DISMISS (filed February 13, 2012)


On June 17, 2011, plaintiff Rosalie Vaccarino ("Vacacarino") 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. § 1332.*fn1 The gravamen of Vaccarino's complaint is that Midland made representations regarding premium bonuses and other benefits, while failing to adequately disclose that the costs of bonuses and exorbitant agent commissions were shifted back to purchasers, and that purchasers were subject to surrender charges and interest adjustments.

In an order dated November 14, 2011 ("the November 14 Order"), this Court granted defendants' motion to dismiss Vaccarino's complaint in its entirety with leave to amend. The Court found, inter alia, that Vaccarino had failed to affirmatively plead facts sufficient to avoid the effect of the applicable statutes of limitation. The Court also found that Vaccarino had not pled her claims for breach of contract, fraud, violation of the UCL, and declaratory relief with the specificity required under the federal rules.

Vaccarino filed her first amended complaint on December 14, 2011. Midland stipulated to permit Vaccarino to file a second amended complaint ("SAC"), which was filed on January 13, 2012. The SAC adds a new plaintiff, David Lee Tegen ("Tegen").*fn2

Midland filed the instant motion to dismiss on February 13, 2012. Dkt. No. 55. Plaintiffs filed their opposition on March 5, 2012. Dkt. No. 56. Midland replied on March 26, 2012.*fn3 Dkt. No. 59. The Court heard oral argument on April 9, 2011. After considering the parties' arguments, the Court finds and concludes as follows.


Plaintiffs allege 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*fn4 failed to provide proper disclosures of costly surrender penalties, and hid the costs of a purported bonus and high sales commissions. According to plaintiffs, 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. Plaintiffs allege that Midland has not provided redress for purchasers age 64 and under. SAC ¶ 1.

Plaintiffs further allege that Midland has been actively engaged in deceptive and unlawful business practices, in that it has induced sales agents to sell its annuities by offering exorbitant sales commissions and arming agents with "user friendly" products that purportedly provide purchasers with a "bonus" and other benefits. Id. ¶¶ 5--7. Plaintiffs further assert 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 plaintiffs, Midland has used standardized sales brochures and disclosure statements to sell its deferred annuities. Plaintiffs assert that in these materials, Midland made misrepresentations that a "bonus" would be provided, and failed to disclose material facts including that Midland paid sales agents exorbitant commissions. Plaintiffs aver 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, plaintiffs allege 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 plaintiffs, 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. ¶ 18.

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. ¶ 20.

Plaintiff Vaccarino alleges that she was 63 years old when she purchased two "Bonus 11" deferred annuities from Midland sales agent John Clark on March 25, 2003. Vaccarino asserts that Clark presented her with a standardized sales brochure and disclosure statements, which she reviewed with Clark before deciding to purchase her annuities. Id. ¶ 23. Vaccarino avers that on April 25, 2011, she made a partial surrender of one of her annuities, and that Midland enforced a surrender penalty, despite its knowledge that surrender penalties are unenforceable in California for purchasers over the age of 60. Id. ¶ 24.

Plaintiff Tegen alleges that he was 56 years old when he purchased a "Legacy Bonus 11" from Midland sales agent Gregory Fox. Tegen asserts that Fox presented him with a sales brochure and disclosure statement, which he reviewed with Fox before making his purchase. Id. ¶ 25.


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, 550 U.S. 544, 555 (2007). "[F]actual allegations must be enough to raise a right to relief above the speculative level." Id.

In considering a motion pursuant to Rule 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, "[i]n keeping with these principles a court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth. While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations." Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1950; Moss v. United States Secret Service, 572 F.3d 962, 969 (9th Cir. 2009) ("[F]or a complaint to survive a motion to dismiss, the non-conclusory 'factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief.") (citing Twombly and Iqbal); ...

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