NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court."
Although it is posted on the internet, this opinion is binding only on the
parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
DOCKET NO. A-3160-15T1
AXA EQUITABLE LIFE INSURANCE
Argued November 13, 2017 – Decided April 17, 2018
Before Judges Messano, Accurso, and Vernoia.
On appeal from Superior Court of New Jersey,
Law Division, Camden County, Docket No.
Barbara J. Hart (Lowey Dannenberg Cohen &
Hart, PC) of the New York and Connecticut
bars, admitted pro hac vice, argued the cause
for appellant (Cohn Lifland Pearlman Herrmann
& Knopf, LLP, Zucker Steinberg & Wixted, PA,
and Barbara Hart, attorneys; Peter S.
Pearlman, Audra DePaolo, Sung-Min Lee (Lowey
Dannenberg Cohen & Hart, PC), David C.
Harrison (Lowey Dannenberg Cohen & Hart, PC)
of the New York bar, admitted pro hac vice,
and Joshua H. Grabar (Bolognese & Associates,
LLC) of the Pennsylvania bar, admitted pro hac
vice, on the briefs).
Jay B. Kasner (Skadden, Arps, Slate, Meagher
& Flom, LLP) of the New York bar, admitted pro
hac vice, argued the cause for respondent
(Carl D. Poplar, PA and Jay B. Kasner,
attorneys; Carl D. Poplar, Jay B. Kasner and
Kurt Wm. Hemr (Skadden, Arps, Slate, Meagher
& Flom, LLP) of the New York and Massachusetts
bars, admitted pro hac vice, of counsel and
on the brief).
In 1993, plaintiff Arlene Shuster purchased a Flexible
Premium Variable Life Insurance Policy (the Contract) from the
predecessor of defendant, AXA Equitable Life Insurance Company
(AXA). Plaintiff made two premium payments of $100,000 each in
1993 and 1994.
In November 2014, plaintiff filed a putative class action
complaint alleging AXA breached the Contract. Broadly stated, the
Contract permitted policyholders to direct the investment of net
premium amounts — amounts in excess of insurance costs and expenses
— either with the Guaranteed Interest Division (GID), which
guaranteed an annual percentage return, or with a "Separate
Account" (SA). At the policyholder's direction, funds in the SA
would be invested with different investment divisions within AXA,
which, by the terms of the Contract, invested "in securities and
other investments whose value [wa]s subject to market fluctuations
and investment risk." Plaintiff directed investment in particular
In the Contract, AXA represented it would comply with all
applicable laws, including those of New York. Additionally, the
Contract provided, "[w]e will not make any material change in the
investment policy of an investment division of our SA without the
prior approval of the Superintendent of Insurance of New York
State." Plaintiff claimed that beginning in 2009, AXA pursued a
"volatility-management strategy" in some of its SA funds,
including those in which she had invested.
New York law regulates an insurer's investments in separate
accounts, and requires the New York State Department of Financial
Services (DFS) to approve an insurer's "statement as to its methods
of operation of such separate account."
If the insurer files an amendment of any such
statement with the superintendent that does
not change the investment policy of a separate
account and the superintendent does not
approve or disapprove such amendment within a
period of thirty days after such filing, such
amendment shall be deemed to be approved as
of the end of such thirty day period . . . .
An amendment of any such statement that
changes the investment policy of a separate
account shall be treated as an original
[N.Y. Ins. Law § 4240(e) (emphasis added).]
Plaintiff alleged that in its filing with DFS, AXA portrayed the
amendment adopting its "volatility-management strategy" as
"routine," permitting implementation of the strategy in due course
without review as a new "original" filing.
In March 2014, AXA entered into a consent order with DFS
(Consent Order). The Consent Order summarized DFS's findings
resulting from an investigation commenced in 2011 into AXA's
implementation of changed investment strategies in its "variable
annuity products." DFS found AXA violated §4240(e) in 2009, 2010
and 2011 "by filing . . . Plans of Operation . . . without
adequately informing and explaining to [DFS] the significance of
the changes to the insurance product." AXA's adoption of this
investment strategy "limit[ed] the gains that may accrue to a
policyholder's account." The consent order required AXA to pay a
civil fine, obtain necessary approvals for modifications and
communicate with policyholders.
Plaintiff's complaint alleged AXA breached its contractual
promise to comply with applicable law and not make material changes
in the SA's operating plan without DFS approval. It alleged the
breach resulted in AXA's implementation of the volatility-
management strategy that "reduced the returns" in funds held by
plaintiff and other class members.
The Securities Litigation Uniform Standards Act of 1998
(SLUSA), specifically, 15 U.S.C. § 78bb(f), provides:
Limitations on remedies.
(1) Class action limitations.
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
(A) a misrepresentation or omission
of a material fact in connection
with the purchase or sale of a
covered security; or
(B) that the defendant used or
employed any manipulative or
deceptive device or contrivance in
connection with the purchase or sale
of a covered security.
(2) Removal of covered class actions.
Any covered class action brought in any
State court involving a covered security, as
set forth in paragraph (1), shall be removable
to the Federal district court for the district
in which the action is pending, and shall be
subject to paragraph (1).
AXA removed plaintiff's complaint to federal district court and
asked that venue be transferred to the Southern District of New
York, where another action, Zweiman v. AXA Equitable Life Ins.
146 F. Supp. 3d 536 (S.D.N.Y. 2015), was pending at the time.
Before AXA's change of venue motion was heard, AXA moved to dismiss
the complaint, arguing it was precluded by SLUSA.
Plaintiff opposed the motions and moved to remand the
complaint to the Law Division. She argued her complaint alleged
a breach of the Contract and did not allege AXA made any
"misrepresentation or omission" to policyholders "in connection
with the purchase or sale of a covered security."1
In a comprehensive written decision, the district court judge
concluded "AXA's misrepresentation [wa]s an essential predicate
for [plaintiff's] breach of contract claim." However, applying
four factors relevant to whether the misrepresentation satisfied
the "in connection" prong of SLUSA, see Rowinski v. Salomon Smith
398 F.3d 294, 302 (3d Cir. 2005), the judge concluded
AXA failed to make the required showing. He remanded the complaint
to the Law Division.
Plaintiff also asserted in a letter to the court that transfer
was not appropriate because Zweiman "involves annuity products
whereas [this case] involves life insurance policies with
substantively different terms." While continuing to assert before
us that differences exist between the two investment products,
plaintiff acknowledged before the Law Division that "[i]f the
[C]onsent [O]rder . . . provides that AXA's violation of [§]42-
40(e) is limited solely to annuities, then life insurance policy
holders wouldn't have a claim." Furthermore, plaintiff's brief
does not attach any significance to the difference between her
variable life insurance policy and the annuities that were the
subject of Zweiman, except to say that the district court judge
in Zweiman recognized that every SLUSA preclusion analysis was
fact sensitive and his analysis did not consider the facts alleged
in plaintiff's complaint. Zweiman,
146 F. Supp. at 546 n.21.
AXA promptly filed a motion to dismiss.2 It claimed among
other things that plaintiff failed to allege AXA made any
misrepresentation to policy holders, or that she suffered
consequential damages from any breach of the Contract. AXA also
reiterated that SLUSA precluded plaintiff's complaint. AXA
supplemented its motion with the recently issued New York federal
district court's decision in Zweiman, in which the judge concluded
SLUSA precluded class claims in that suit for breach of contract
based upon the Consent Order. Zweiman,
146 F. Supp. 3d at 539.
After considering oral argument, the Law Division judge
essentially relied on the Zweiman court's analysis, and the United
States Supreme Court's decision in Merrill Lynch, Pierce, Fenner
& Smith Inc. v. Dabit,
547 U.S. 71 (2006). He dismissed
plaintiff's complaint with prejudice because SLUSA precluded the
action.3 This appeal ensued.
Plaintiff has not asserted, nor could she, that AXA's motion in
the Law Division was precluded by res judicata, collateral estoppel
or other similar doctrines. See Kircher v. Putnam Funds Trust,
547 U.S. 633, 647 (2006) ("Collateral estoppel should be no bar
to such a revisitation of the preclusion issue, given that [28
U.S.C.] § 1447(d) prevents the funds from appealing the District
The judge's order also dismissed the complaint for other reasons,
including failure to state a cause of action, Rule 4:6-2(e),
failure to plead fraud with particularity, Rule 4:5-8(a), and
forum non conveniens. Although AXA asserts they provide alternate
reasons to affirm the judgment, we need not consider these issues.
Plaintiff contends the success of her breach of contract
claim did not require she prove "a misrepresentation or omission
of a material fact in connection with the purchase or sale of a
covered security," 15 U.S.C. § 78bb(f)(1)(A) (emphasis added), and
therefore the complaint was not precluded by SLUSA. We disagree
"Our review, accepting the facts alleged in the complaint as
true and drawing all reasonable inferences in favor of the
plaintiff, is plenary." Rowinski,
398 F.3d 298 (citing In re
Adams Golf, Inc. Secs. Litig.,
381 F.3d 267, 273 (3d Cir. 2004)).
In this area, one maxim is clear:
[C]ourts have noted that plaintiffs should not
be permitted to escape SLUSA by artfully
characterizing a claim as dependent on a
theory other than falsity when falsity
nonetheless is essential to the claim, such
as by characterizing a claim of falsity as a
breach of the contractual duty of fair
[In re Kingate Mgmt. Litig.,
784 F.3d 128, 140
(2nd. Cir. 2015).]
The Supreme Court has broadly interpreted the "in connection
with" element of SLUSA "and held the requisite connection is
established where a 'fraudulent scheme' and a securities
transaction 'coincide.'" Rowinski, 398 F.3d at 300 (quoting SEC
535 U.S. 813, 825 (2002)). And, while "Zandford's
'broad' interpretation is not boundless[,] . . . courts have . . .
scrutinized the pleadings to arrive at the 'essence' of a state
law claim, in order to prevent artful drafting from circumventing
SLUSA preemption." Id. at 301 (citations omitted).
In Rowinski, the court identified four factors relevant "in
distinguishing between preempted claims and those remaining within
the province of state law." Id. at 302.
[F]irst, whether the covered class action
alleges a "fraudulent scheme" that "coincides"
with the purchase or sale of securities;
second, whether the complaint alleges a
material misrepresentation or omission
"disseminated to the public in a medium upon
which a reasonable investor would rely";
third, whether the nature of the parties'
relationship is such that it necessarily
involves the purchase or sale of securities;
and fourth, whether the prayer for relief
"connects" the state law claims to the
purchase or sale of securities.
[Ibid. (citations omitted).]
However, the court cautioned these "non-inclusive four
factors . . . are not requirements, but rather guideposts in a
flexible preemption inquiry[,]" and "[i]n a SLUSA case involving
different facts or allegations, other considerations also may be
relevant." Id. at 302 n.7.
We need not detail the Supreme Court's explication of the "in
connection" prong of SLUSA since Rowinski. Citing Dabit, and the
Court's own refinement of Dabit in Chadbourne & Parke LLP v.
134 S. Ct. 1058 (2014), the judge in Zweiman wrote:
In light of Troice and Dabit, the "in
connection with" doctrine can be articulated
as follows: the fraud must be of the type that
is material to someone other than the
fraudster to buy, sell, or hold a covered
security; and, if so, any claim involving that
transaction (or lack thereof) — regardless of
whether the plaintiff herself was induced to
take a position — is precluded.
146 F. Supp. 3d at 550.]
We agree with this synthesis of the controlling case law. When
applied to the facts alleged in plaintiff's complaint, SLUSA
precludes her breach of contract claim.
It is undisputed that plaintiff alleged AXA breached the
Contract by misrepresenting the nature and scope of its volatility
management strategy in order to secure DFS approval without the
review compelled by an "initial" filing. This misrepresentation
to DFS resulted in AXA initiating the particular trading strategy
and trading securities within the SA accounts, allegedly to the
detriment of plaintiff and putative class members.
Plaintiff contends AXA's non-public DPS filings did not
induce her to make any investment decision and therefore the
misrepresentation cannot be "in connection" with the purchase or
sale of covered securities as required by SLUSA. However, the
Supreme Court has rejected such a cramped construction. See Dabit,
547 U.S. at 85 (quoting United States v. O'Hagan,
521 U.S. 642,
658 (1997) ("The requisite showing . . . is 'deception "in
connection with the purchase or sale of any security," not
deception of an identifiable purchaser or seller.'")) Under the
terms of the Contract, plaintiff retained the ability to transfer
her shares in the SA account to "one or more other divisions of
[the] SA or to [the] GID" upon her written request. Plaintiff's
claim for damages relies wholly upon the assertion that AXA's
misrepresentation to DFS resulted in AXA implementing a trading
strategy for the investments she maintained in the SA accounts
that inured to her detriment. The broad interpretation of the "in
connection" prong applied by the Supreme Court and other courts
means that SLUSA precludes plaintiff's titular breach of contract