United States District Court, S.D. California
ERNEST O. ABBIT, on behalf of himself and on behalf of all persons similarly situated, Plaintiff,
ING USA ANNUITY AND LIFE INSURANCE COMPANY, Defendant
For Ernest O. Abbit, on behalf of himself and on behalf of all persons similarly situated, Plaintiff: Timothy J Tatro, LEAD ATTORNEY, Tatro & Zamoyski, LLP, San Diego, CA; Andrew W. Hutton, Hutton Law Group, San Diego, CA.
For ING USA Annuity and Life Insurance Company, Defendant: Christopher T. Wright, LEAD ATTORNEY, Kirby Noonan Lance & Hoge LLP, San Diego, CA; David J Noonan, LEAD ATTORNEY, Kirby Noonan Lance and Hoge, San Diego, CA; Clark C. Johnson, Oluwafunmito P. Seton, PRO HAC VICE, Stites & Harbison, PLLC, Louisville, KY; Joseph L. Hamilton, PRO HAC VICE, Stites & Harbison Louisville, KY.
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS [Dkt. No. 6]
HON. GONZALO P. CURIEL, United States District Judge.
On September 25, 2013, Plaintiff Ernest O. Abbit (" Plaintiff" ) filed a complaint (" Complaint" ) against Defendant ING USA Annuity and Life Insurance Company (" Defendant" or " ING" ). (Dkt. No. 1.) On November 25, 2013, Defendant filed a motion to dismiss Plaintiff's Complaint pursuant to Federal Rules of Civil Procedure 12(b)(6) and a related request for
judicial notice. (Dkt. No. 6; Dkt. No. 6-2, " RJN." ) The motion has been fully briefed. (Dkt. Nos. 14, 16.) In addition, Plaintiff has filed objections to Defendant's request for judicial notice. (Dkt. No. 14-1.) Pursuant to L. Civ. R. 7.1(d)(1), the Court finds the matter suitable for adjudication without oral argument. For the reasons set out below, the Court DENIES Defendants' Motion to Dismiss the Complaint.
Plaintiff, an 83-year-old retired senior citizen, alleges purchasing an " ING indexed-annuity with an effective date of September 28, 2010." (Compl. ¶ 27.) Plaintiff seeks to bring a Class Action, on behalf of himself and all others similarly situated, alleging that Defendant unlawfully targets senior citizens by advertising indexed-annuity  contracts that purport to protect retirement savings while hiding an undisclosed complex embedded derivative structure. (Compl. ¶ ¶ 1-9.) Plaintiff seeks to bring this action on behalf of the following class:
All persons who, within the applicable statute of limitations of the date of commencement of this action and while 65 years of age or older, and a resident of the State of California, purchased one or more ING indexed-annuities either directly, or through surrender (in whole or in part) of, or borrowing against, an existing permanent life insurance policy, annuity, or other retirement savings account.
(Compl. ¶ 22.)
An annuity is a contract between an investor and an insurance company in which the investor pays premiums to the insurance company in exchange for the insurance company's promise to return the deposit via periodic payments. (Compl. ¶ 29.) Annuity contracts typically undergo two primary periods: the " full accumulation period," during which the investor deposits funds with the insurance company, and the " annuitization period," during which the investor withdraws funds in the form of periodic payments. (Compl. ¶ 30.) " Indexed-annuities" are annuities that " generally earn interest linked-to, or derivative-of the price movements of, an equity index or other index, such as the S& P 500® Index. Indexed annuities can also guarantee interest." (Compl. ¶ 31(c).) Defendant offers five different index-crediting " strategies" from which indexed-annuity investors may select. Although Plaintiff chose the " Monthly Cap Index Strategy," Plaintiff alleges that he " would have lost retirement savings under any of the strategy alternatives offered by ING due to the faulty design and execution of the ING indexed-annuities." (Compl. ¶ 67.)
Under the indexed-annuity contracts with ING, ING promised " protection of principal" and " Index Opportunities" for Plaintiff and members of the Class. (Compl. ¶ 3.) However, Plaintiff alleges ING exercised its investment discretion under the contracts in a manner that ensured that its indexed-annuities did not protect or build up retirement savings. Plaintiff alleges ING embedded derivatives into the retirement savings without disclosing them to Plaintiff and members of the Class. " Embedded derivatives" are described as exotic financial structures
that are complex, opaque, and illiquid market-linked instruments. (Compl. ¶ 5.)
In addition, Plaintiff alleges Defendant offered indexed-annuity investors a five percent (5%) bonus  which purportedly added to investors' total premium at contract inception as an immediate head start on earnings. (Compl. ¶ 35; Compl. Ex. A at 5.)
B. Plaintiff's Allegations
Plaintiff alleges Defendant's false and misleading sales pitch and advertising materials induced him to purchase an indexed-annuity from Defendant in or around September 2010. (Compl. ¶ 37.) Plaintiff alleges terminating his Individual Retirement Account and transferring the $1,000,000 proceeds to the ING annuity now at issue via an " IRA rollover." (Compl. ¶ 37.) Plaintiff alleges that the ING indexed annuity brochure was false and misleading in the following respects: (1) the statement that " 100% of your premium is put into the contract" was false and misleading because under the annuity's complex derivatives structure, Plaintiff immediately lost over $100,000 of his retirement savings value on the first day of his investment; (2) the contract " would not receive interest credited on the full premium, as represented; " (3) the five percent premium bonus promised by Defendant was not immediately credited to the annuity; (4) the five percent premium bonus was not " protected" as promised, and could be " diminished; " and (5) Plaintiff would not receive compounded interest as set forth in the contract. (Compl. ¶ ¶ 36(a)-(e).)
According to Plaintiff, Defendant designs its indexed-annuity products to " systematically deprive ING annuity holders of retirement savings and earnings potential." (Compl. ¶ 34.) Plaintiff alleges that subsequent to signing Defendant's annuity contract (" the Annuity Contract" ), Plaintiff received false and misleading " year end" and " annual" statements that inaccurately accounted for the bonus and daily interest credits promised to Plaintiff under the Annuity Contract. (Compl. ¶ 45.) Specifically, Plaintiff alleges the following false and misleading representations on his year-end and annual statements: (1) the " Cash Surrender Value"  of the annuity was materially understated; (2) the " Minimum Guaranteed Contract Value"  of the annuity was materially understated; and (3) the statements falsely claimed that the Cash Surrender Value included a Surrender Charge. (Compl. ¶ ¶ 45, 46, 48.) Plaintiff bases his allegations of understated statement values on allegations that the reported annuity values reflected charges or reductions not provided for by the contract and did not accurately account for the bonus and daily interest credits promised under the annuity contract. (Id.)
Plaintiff alleges Defendant has " purposefully targeted a vulnerable class of senior citizens for sale of these derivatives, embedded in ING's indexed-annuities." (Compl. ¶ 50.) Plaintiff further alleges that Defendant concealed material facts surrounding the annuities' true asymmetric valuations from investors, (Compl. ¶ 51), and failed to train its sales force to either understand, appreciate, or disclose to consumers the true valuations of the derivatives embedded in Defendant's annuity contracts. (Compl. ¶ ¶ 63, 64)
On September 25, 2013, Plaintiff filed a Class Action Complaint alleging eight causes of action against Defendant: (1) Breach of Contract and Breach of Good Faith and Fair Dealing; (2) Breach of Fiduciary Duty; (3) Financial Elder Abuse in violation of California Welfare & Institutions Code section 15600, et seq. ; (4) Fraudulent Concealment in violation of California Civil Code section 1710, et seq. ; (5) Concealment in an Insurance Contract in violation of California Insurance Code section 332; (6) Unlawful, Deceptive, and Unfair Business Practices in violation of California Business & Professions Code section 17200, et seq. ; (7) Unfair, Deceptive, and Misleading Advertising in violation of California Business & Professions Code section 17500, et seq. ; and (8) Failure to Supervise. On November 25, 2013, Defendant filed a motion to dismiss all causes of action in the Complaint. (Dkt. No. 6.)
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) tests the sufficiency of a complaint. Navarro v. Block, 250 F.3d 729, 732 (9th Cir. 2001). Dismissal is warranted under Rule12(b)(6) where the complaint lacks a cognizable legal theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 534 (9th Cir. 1984); see Neitzke v. Williams, 490 U.S. 319, 326, 109 S.Ct. 1827, 104 L.Ed.2d 338 (1989) (" Rule12(b)(6) authorizes a court to dismiss a claim on the basis of a dispositive issue of law." ). Alternatively, a complaint may be dismissed where it presents a cognizable legal theory yet fails to plead essential facts under that theory. Robertson, 749 F.2d at 534. While a plaintiff need not give " detailed factual allegations," a plaintiff must plead sufficient facts that, if true, " raise a right to relief above the speculative level." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 545, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). " To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 547). A claim is facially plausible when the factual allegations permit " the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. In other words, " the non-conclusory 'factual content,' and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief." Moss v. U.S. Secret Service, 572 F.3d 962, 969 (9th Cir. 2009). " Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 556 U.S. at 679.
In reviewing a motion to dismiss under Rule 12(b)(6), the court must assume the truth of all factual allegations and must construe all inferences from them in the light most favorable to the nonmoving party. Thompson v. Davis, 295 F.3d 890, 895 (9th Cir. 2002); Cahill v. Liberty Mut. Ins. Co., 80 F.3d 336, 337-38 (9th Cir. 1996). Legal conclusions, however, need not be taken as true merely because they are cast in the form of factual allegations. Ileto v. Glock, Inc., 349 F.3d 1191, 1200 (9th Cir. 2003);
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