The MetLife Securities Fraud Class Action Case

Update as of August 31, 2009: 

Amicus Curiae brief by Thomas P. Tierney

Summary as of September, 2006: 

Former policyholders of mutual life insurance company brought this action against the Metropolitan Life Insurance Company or MetLife, Inc. (defendant) to recover for securities fraud in connection with demutualization and conversion to stock company.

In 2000 MetLife changed from a mutual life insurance company to a stock life insurance company. This demutualization took place with the unanimous approval of the Board of Directors, the imprimatur of the New York State Insurance Commission and the permission of 93% of MetLife's 2,800,000 policyholders that voted (according to the complaint the total number of MetLife's policyholders surpasses 10,000,000).

This transaction converted MetLife's policy holdings into over 700,000,000 shares of stock valued at $14.25 per share, worth over $10 billion at the time. MetLife compensated each former policyholder with ten shares of MetLife stock in return for the policyholders' relinquishing of, inter alia, their voting membership interests in MetLife. Those termed "participating" policyholders, who also possessed interests in MetLife's then $14 billion surplus, received further shares of stock claimed to be commensurate with their policies' contributions to the surplus.

The Second Consolidated Amended and Supplemental Class Action Complaint (the complaint) alleges that the Policyholder Information Booklet (PIB), which set forth the details of the demutualization prior to the vote that approved the transaction, contained material misrepresentations, made through misstatements and omissions, and that MetLife made such misrepresentations with the relevant scienter. More specifically, in the complaint, plaintiffs allege four misrepresentations in the PIB: (i) omitting to state that the actuarial method used to calculate policyholders' contributions to MetLife's surplus arrived at a value of $15.3 billion, far higher than the $8.4 billion in stock that these policyholders received as compensation; (ii) omitting to state that MetLife's method of reorganization, an exchange of policies for stock with the right to elect cash, as opposed to an exchange of policies for cash with the right to elect stock, was chosen for the benefit of MetLife and not the policyholders, because plaintiffs would allegedly have received double the compensation under the latter method; (iii) omitting to state that policyholders would surrender their right to annual dividends from their contributions to MetLife's surplus; and (iv) misstating that reasonable dividends would "continue to be paid as declared," when in plaintiffs' view the assets allocated to pay dividends had been limited. In conclusion, plaintiffs allege that PIB did not explain that policyholders received only 54 cents on the dollar for their policies, that dividends were reduced, and that MetLife engaged in fraud by not stating this in the PIB.

On July 31, 2001, the Court entered the Memorandum and Order signed by U.S. District Judge Thomas C. Platt denying the defendant's motion for an order dismissing the complaints and the action pursuant to FRCP 12(b)(1) or (6) for lack of subject matter jurisdiction and further denying the motion to stay the action pending the completion of related state-court proceedings. On February 12, 2003, the plaintiffs filed a Consolidated Amended and Supplemental Class Action Complaint, and, on April 26, 2004, the plaintiffs amended the complaint again by filing a Second Consolidated Amended and Supplemental Class Action Complaint. In 2004 the defendant moved to dismiss the dismiss the second claim for relief, of securities fraud, from the class action second amended complaint. On June 22, 2004, the Judge signed an Order denying defendant's motion to dismiss the second consolidated and amended class action complaint. The court stated that plaintiffs allege particular misstatements and omissions in the (PIB), and attempt to demonstrate MetLife's scienter through strong circumstantial evidence of recklessness. In the Order the court "accepted plaintiffs allegations as true and drawing reasonable inferences in their favor," and declared that "plaintiffs may be entitled to the relief they seek, and discovery in this case may therefore continue."

On July 20, 2005, the Judge issued an order granting Motion to Certify Class. According to the Order, 'all of the named Plaintiffs are appropriate and adequate class representatives, except Mr. Darrell Murray' given the reasons stated in the order.

On December 29, 2005, the Court signed an Order to Show Cause as to why an Injunction should not issue barring the Fiala litigation in State court. On August 11, 2006, the Court entered the Memorandum and Order denying the Federal Plaintiffs' Motion to Enjoin a State Action. Further, on August 30, 2006, the Court entered the Amended Memorandum and Order denying the Federal Plaintiffs' Motion to Enjoin a State Action. According to the Order, the Federal Plaintiffs' arguments fail and Section78bb(f)(3)(A)(ii)(II) excludes the Fiala action from Securities Litigation Uniform Standards Act (SLUSA).

According to the docket from the U.S. Court of Appeals for the Second Circuit, on August 3, 2005, Petitioner Metropolitan Life and Petitioner Metlife, Inc. filed a motion for Leave to Appeal pursuant to 23 (f). On March 29, 2006, the Court entered the Order. According to the Order, Petitioners move pursuant to Fed. R. Civ. P. 23(f) for an interlocutory appeal of the district court's order certifying the putative class. Upon due consideration, it is ordered that the petition is denied, because an immediate appeal is not warranted.