City of Westland Police & Fire Retirement System v. Metlife, Inc.
City of Westland Police & Fire Retirement System v. Metlife, Inc.
Opinion of the Court
OPINION
The principal issues in this putative class action
The Court previously ruled on defendants’ motions to dismiss the amended complaint.
Background
1. Parties
The principal defendant here is Met-Life, a multinational insurance company.
II. Insurance Reserves and Accounting
It is useful to begin with some general background on accounting, the insurance industry, and IBNR reserves.
Generally accepted accounting principles (“GAAP”) typically require a corporation to measure and report its financial performance and position by considering pertinent economic events when they happen, not by waiting for cash inflows or outflows to clear the books.
MetLife, as a publicly held company, of course reports its. financial performance and condition on an accrual basis. Insofar as its policy-based liabilities are concerned, that fact probably does not have a dramatic impact on its reporting of such liabilities in those instances in which the insured loss occurs, the policyholder claim is made, and the claim is paid in the same accounting period.
Whatever the reasons for the lack of temporal coincidence between the liability-creating event and the payment of any eventual claim, GAAP requires insurers to maintain loss reserves — estimates of what they will have to pay to cover insured losses incurred during a given period— regardless of whether claims have yet been made.
As the Second Circuit has said, it is “difficult [to] calculate] and mónitor[ ] the accuracy of loss reserves established by insurance companies.”
As relevant to this case, then, the accuracy of a company’s loss reserves — that is, the degree to which the loss reserves correspond to, or vary from, the insurance obligations that ultimately will be paid out in relation to the claims, known and unknown, covered by the reserve in question- — implicates the accuracy of its financial statements. If loss reserves are top low and later must be increased (resulting in a charge against income), earnings will have been overstated in SEC filings and financial statements. If reserves are too high and later are decreased (resulting in an increase in income), the excess will have resulted in an understatement of income during the period or periods in which it existed.
Facts and Prior Proceedings
I. The SSA-DMF and MetLife’s IBNR Reserves
We turn to the controversy at hand, which focuses importantly though not exclusively on-Central States’ contention that MetLife, during the relevant period, overstated its earnings • and its financial strength by' maintaining IBNR reserves insufficient to cover life insurance benefits payable in respect of the death of MetLife insureds covered by group life insurance policies for whom no death benefit claims had been received. That claim depends in substantial part upon MetLife’s use (or alleged non-use) of the Social Security Administration Death Master File (the “SSA-DMF”), which is a “database of deaths recorded in the United States.”
The SAC alleges that MetLife used the SSA-DMF as early as the mid-1990s to identify — and to halt payments to — deceased annuity recipients, but that it did not then use the database to identify deceased persons whose lives were insured by MetLife (“life insureds”).
Central States alleges that MetLife and its officers, directors or representatives in the years that followed repeatedly and materially overstated the Company’s financial condition and performance — including income, operating earnings, and earnings per share — as a result of MetLife’s failure adequately to reserve for death benefits due to beneficiaries of group life insurance policies whose insureds the SSA-DMF identified as deceased but for whom Met-Life had not received claims for benefits.
II. The State Investigations
According to Central States, state investigations into MetLife’s accounting practices began as early ás 2008, when the California Insurance Commission began to look into MetLife’s alleged failure to pay some life insurance benefits even after learning that an insured had died.
On May 19, 2011, MetLife officials testified before the Florida Office of Insurance Regulations.
Four days later, MetLife' executives— having been subpoénaed to testify at a hearing into the Company’s benefits payment practices
On July 5, 2011, New York officials subpoenaed MetLife for information about its “practices in identifying and paying out policies for deceased customers.”
Notwithstanding the initiation dates of these investigations, Central States alleges, MetLife did not disclose their existence or possible consequences until August 2011 — a delay that Central States contends “violated GAAP and SEC disclosure rules.”
III. The ALICO Acquisition and Met-Life’s Decision to Use the SSA-DMF More Broadly
In March 2010 — after the state investigations into MetLife’s accounting practices began but before they concluded — MetLife announced its intention to purchase the American Life Insurance Company (“ALI-CO”), an American International Group (“AIG”) subsidiary.
On August 2, 2010, MetLife announced that it would sell 75 million shares of common stock at $42 per share to help fund
According to Central States, MetLife subsequently decided — amid discussions with state regulators and while the AIG/ALICO lockup, was in effect — to start using the SSA-DMF regularly in all business units, including group life.
The next day, MetLife announced a public offering of 146.8 million shares of its common stock, priced at $43.25 per share.
These offerings were conducted pursuant, to a March 4, 2011 registration statement, which incorporated by reference MetLife’s Form 10-K for the year that ended December 31, 2010 and its Forms 8-K filed on August 2, 2010, November 30, 2010, March 1, 2011, and March 2, 2011, each of which, Central States says, “contained false financial statements.”
IV MetLife’s Stock Price Declines Twice, Allegedly Harming Central States
On August 5, 2011, Central States alleges, MetLife in its Form 10-Q for the period ending June 30, 2011 disclosed for the first time the scope and severity of various state “regulatory investigations into its death benefits practices.”
These disclosures allegedly caused Met-Life’s stock price to decline from $36.90 on August 4 to a low of $34.93 on August 5, closing at $36.35.
On October 6, 2011, MetLife filed a Form 8-K disclosing, among other things, that it would take a $115-$135 million after-tax charge to “adjust” (i.e., increase) its reserves to account for additional payments owed to beneficiaries identified as a
MetLife’s financial results for the third quarter of 2011,. which were released after the end of Class Period, revealed a 23 percent decrease in operating earnings for insurance products, allegedly due at least in part to the $117 million after-tax charge taken as a result of the SSA-DMF crosscheck.
V. Prior Proceedings
This action was commenced in January 2012 by Central States, allegedly on behalf of a class of all purchasers of MetLife common stock during the period February 2, 2010 to October 6, 2011, inclusive. The original complaint alleged claims under Sections 10(b) and 20 of the Securities Exchange Act of 1934 (the “Exchange Act”)
In an opinion dated February 28, 2013 (“Opinion”),
Not long after those motions were filed, the Supreme Court granted certiorari in Omnicare, which raised questions similar to some of those presented in this case. Rather than decide defendants’ motions to dismiss while Omnicare was pending, this Court waited for the Supreme Court to act. On March 24, 2015, the day Omnicare was decided, this Court entered an order (1) affording Central States an opportunity to amend its complaint, (2) denying defendants’ motions to dismiss without prejudice to renewal, and (3) seeking supplemental briefing in light of Omnicare.
Discussion
I. Legal Standard
To survive a Rule 12(b)(6) motion to dismiss, a plaintiff must- plead sufficient facts “to state a claim to relief that is plausible on its face.”
To, plead fraud under the securities laws, a complaint must “state with particularity the circumstances constituting
II. Exchange Act Claims
A. Section 10(b) and Rule 10b-5 Claims
Section 10(b) of the Exchange Act makes it unlawful to “use or employ, in connection with the purchase or sale of any security ... any manipulative or deceptive device or contrivance in contravention Of such rules and regulations as the Commission may prescribe.”
1. Material Misrepresentations and/or Omissions (and Scienter)
A plaintiff who brings a securities fraud claim under Section 10(b) and Rule 10b-5
Rule 10b-5 distinguishes between untrue statements of material fact and certain kinds of material omissions. That distinction is not trivial. The question whether a statement of a material fact is untrue “presents] different issues” than the question whether the speaker has “omit[ted] to state a material fact necessary” to make its statement(s) “not misleading.”
In either case, the plaintiff must allege adequately that the challenged statement or omission is “material.”
In addition to alleging that it is material, a Section 10(b) plaintiff who challenges a statement must allege adequately that the statement is “untrue.”
A Section 10(b) plaintiff who alleges harm due to the omission of .a material fact need not allege falsity to state a legally sufficient claim. Instead, such a plaintiff must plead facts that, if true, would be sufficient to show that the defendant had a duty to disclose the omitted information and failed to do so.
The SAC is 138’ pages long and consists of nearly 300 paragraphs. It asserts many things but in substance alleges that the financial statements issued by MetLife during the Class Period were misleading—and thus did not reflect accurately the financial condition and performance of the Company — for three reasons, each of which stems from MetLife’s alleged failure to cross-check the SSA-DMF against its roster of group life insureds. But before enumerating those reasons, it-is helpful to make one point abundantly clear.
Central States nowhere claims that Met-Life made any statement — true or false— as to what its IBNR reserves actually were. In other words, there is no suggestion that the Company said its IBNR reserves were $X and that such statement was false because those reserves actually were $Y. Nor is there any suggestion that such a statement was materially misleading because MetLife did not believe its IBNR reserves actually were $X, that MetLife had no reasonable basis for saying its IBNR reserves actually were $X, or
First, Central States asserts that Met-Life’s financial statements — including, among others, its income statements and balance sheets — were false or misleading because the amount of its allegedly inadequate reserves (whatever those reserves were in quantitative terms) necessarily was reflected in those statements.
Second, Central States contends that MetLife made qualitative statements about its mortality results, its underwriting practices, and its approach to risk and expense management that were false and/or misleading inflight of the alleged inadequacy of the Company’s IBNR reserves.
Finally, Central States contends that MetLife falsely stated that investigations into its retained asset accounts were “without merit” and failed timely to disclose the seriousness of state investigations into its death benefits payment practices — a failure that Central States says violated, among other things, SEC Regulation S-K, Item 303.
a. The Adequacy of MetLife’s IBNR Reserves .
In its February 2013 Opinion, the Court noted that MetLife’s IBNR reserves “‘‘capture’ losses for which claims have not been reported but must be . estimated so the company can pay future claims.’ While these estimates involve some factual inputs, they necessarily require judgment”
i. Statements of Opinion or Belief After Omnicare
Much could be said about the development of the securities laws with respect to whether and when statements of opinion or belief can give rise to liability. For present purposes, however, it suffices to begin by noting that the Supreme Court in Virginia Bankshares v. Sandberg
To allege adequately that a statement of fact (e.g., “the New York Yankees today have the best'record in baseball”) is false within the meaning of the securities laws, a plaintiff need plead only facts that, if true, would be sufficient to show, assuming materiality, that the statement is, in fact, false — i.e., that the Yankees today do not have the best record in baseball. In this context, the speaker’s belief as to the accuracy of her statement is irrelevant: if the Yankees do not have the best record in baseball — and they do not — the statement is “untrue” for purposes of Rule 10b-5 regardless of whether the speaker knew it was false or thought, mistakenly, that.it was correct.
To allege adequately that a statement of opinion or belief (e.g., “I believe the New York Yankees have the best record in baseball”) is false within the meaning of the securities laws, on the other hand, a plaintiff must plead facts that, if true, would be sufficient to show, again assuming materiality, one of two things: that (1) the opinion or belief “constitutes a factual misstatement” in itself, or (2) the opinion or belief is “rendered misleading by the omission of discrete factual representations.”
A plaintiff who asserts that a statement of opinion or. belief violates the first provision of the Rule — a plaintiff who asserts, in other words, that the opinion or belief itself is an “untrue statement -of a material fact” — must do more than allege that the underlying fact is false (i.e., that the Yankees do not have the best, record in baseball). Rather, such a plaintiff must plead facts that, if true, would be sufficient to show that the speaker did not “actually hold[] the stated belief’ (i.e., that the speaker knew the Yankees did' not have the best record in baseball but said they did anyway).
Similarly, a plaintiff who asserts that a statement of opinion- or belief violates the second provision of the -Rule — a plaintiff who asserts, in other words, that the speaker “omit[ted]to state a material
Instead, recognizing that statements of opinion or belief in some circumstances “are reasonably understood to rest on a factual basis that justifies them as accurate,”
Rule 10b-5’s “omissions clause ... necessarily brings the reasonable person into the analysis, and asks what she would naturally understand a statement to convey beyond its literal meaning.”
If the directors of Company X tell their shareholders that a proposed merger offers a “fair” price for Company X’s shares, they have stated their opinion about the deal. Whether a particular deal is “fair” is, after all, not a determinate, verifiable statement like “this ring is 24-carat gold.” But financial professionals have developed specific metrics — such as the residual income model, the dividend discount model, and discounted .cash flow analyses, among others — to perform valuations of companies, them stock prices, and the like.
The point, in each example, is the same. If the directors’ statements about the fairness of the deal or the appraiser’s valuation of the real estate are not grounded in “the customs and practices of the relevant industry,” they “could be misleadingly incomplete,”
So what, then? must a plaintiff plead to state a legally sufficient claim that the defendant “omit[ted] to state a material fact necessary” to make its statement of opinion “not misleading?”
In sum, then, a plaintiff who asserts that a statement of opinion or belief violates Rule 10b-5 must plead facts that, if true, would be sufficient to show one of two things: (1) if asserting that the statement of opinion or belief “constitutes a factual misstatement” in itself, that the speaker did not “actually hold[ ] the stated belief,” or (2) if asserting that the statement of opinion of belief is misleading due to the omission of “discrete factual representations,” that the statement did not “rest on some meaningful ... inquiry,” rendering it “misleading to a reasonable person reading the statement fairly and in context.”
ii. Central States Has Not Stated an Actionable Claim
The $117 million reserve increase MetLife made to cover losses stemming from its 2011 cross-check of the SSA-DMF prompted the Court to hold in its February 2013 Opinion that Central States “ha[d] alleged adequately that MetLife’s IBNR reserves proved to' be ... insufficient to meet- the company’s life insurance policy obligations.”
In its February 2013 Opinion, the Court accepted as true Central States’ argument that MetLife’s 2007 cross-check of the SSA-DMF against its individual life insureds uncovered a “shortfall of $80 million’.’ in the Company’s IBNR reserves and relied on that to hold that Central States adequately had pleaded that MetLife “knew that its estimated IBNR reserves were insufficient to meet the compan[y’s] life insurance policy obligations, or at least was aware that it had no reasonable basis for believing the estimates.”
The defendants protest this reasoning and now argue that the complaint was and the SAC is misleading as to what MetLife. learned, as a result, of the 2007 cross-check;
As defendants now point out, the April 2012 multi-state agreement on which this assertion is based does not bear out the notion that MetLife’s 2007 cross-check uncovered an $80 million shortfall in Met-Life’s IBNR reserves. Rather, it states only that the cross-check “identified over $50 million in death benefits, which were paid to Beneficiaries and over $30 million in unclaimed benefits which have been or will be reported and remitted to the appropriate states in accordance with the Unclaimed Property Laws,”
Stated another way, defendants argue that it says nothing, standing alone, that the 2007 cross-check revealed $80 million in unpaid benefits. If MetLife’s IBNR reserves then were adequate to cover those liabilities — an assumption which Central States does not adopt, but as to which it alleges no contrary facts — there is no reason to think that MetLife did not actually believe, contemporaneously with its representations, that its IBNR reserves later would be adequate to cover liabilities resulting from a cross-check of the SSA-DMF against its group life insureds. As defendants contend, the SAC identifies no
Central States now acknowledges that the regulatory agreement does not support directly the alleged $80 million reserve shortfall. Instead, it asks the Court to infer that there was a reserve shortfall, or notice thereof, based on the existence of $80 million in outstanding death benefits on individual life insurance policies in 2007 and. the fact that MetLife’s IBNR reserves later proved inadequate to cover the unpaid benefits discovered as a result of the Company’s 2011 cross-check of the SSA-DMF against its group life insureds.
While it is true that-on a motion to dismiss a court draws all reasonable inferences-in the plaintiffs favor, a claim for relief must be more than merely .possible. It must be plausible. . “[W]here the well-pleaded facts do not permit (he court to infer more than the mere possibility of misconduct,”
To allege adequately that MetLife’s representations regarding the sufficiency of its IBNR reserves were misstatements of material fact; Central States had to plead facts that, if true, would be enough to show, assuming materiality, that MetLife did not believe those representations. It could have alleged, for example, facts concerning the size of MetLife’s IBNR reserves; the size of those reserves relative to MetLife’s existing -liabilities; the relative sizes of MetLife’s group and individual life insurance pools and how the $80 million- in unpaid individual life insurance benefits revealed as a result of the 2007 SSA-DMF cross-check might have affected what estimated reserves should have been preceding the 2011 SSA-DMF crosscheck; MetLife’s methodology for calculating its reserves; whether MetLife’s methodology. accounted for unreported deaths; or the impact of various states’ policies for collecting unclaimed benefits. Had it done so, it perhaps would have-been in a stronger position now (although the Court does not so decide). But it did not.
In sum, then, it is possible that the 2007 discovery of $80 million in unpaid benefits perhaps might have rendered MetLife’s IBNR reserves insufficient, or at least alerted MetLife to the fact that it might be under-reserved in the future. But on the facts alleged in the SAC, it equally would be possible that the discovery had no such impact.. Indeed, perhaps MetLife carried extra reserves to account for unanticipated influxes of claims, or perhaps its methodology for estimating reserves took into account certain older policies for which claims never had been' filed. Perhaps MetLife determined IBNR reserves differently for its group life insureds than it did for its individual life insureds. There may be other innocent explanations. But the critical. point, is that. Central States, has failed to allege facts sufficient to make out a plausible claim that MetLife did not be
To allege adequately that MetLife omitted to state a material fact (or facts) necessary to prevent its representations regarding-the sufficiency of-its IBNR reserves from misleading reasonable investors, Central States had to call into question Met-Life’s basis for those representations by identifying particular, material facts about the inquiry MetLife “did or did not conduct or the knowledge it did or did not have” — facts the omission of which rendered MetLife’s representations misleading to reasonable investors reading the Company’s financial statements in context.
The SAC alleges no such facts. Central States has provided no indication that the stated basis for MetLife’s IBNR reserve estimates — namely, “actuarial analyses of historical patterns of claims and claims development”
b. Mortality Ratios, Underwriting Practices, & Risk Management
The SAC alleges also that Met-Life made representations regarding its mortality ratios and results, its underwriting strength, and its “disciplined approach to risk and expense managements” that were inaccurate as a result of the Company’s alleged failure to estimate properly its IBNR reserves.
As the Court alluded to earlier, neither the claim that MetLife misrepresented its reported income, its operating earnings, and its earnings per share nor, for the most part, this claim can survive once Central -States’ claim respecting the adequacy of MetLife’s IBNR reserves has been rejected. Nearly all of these ancillary claims are derivative of the alleged insufficiency in those reserves, and they depend on the premise that MetLife’s Class Period representations regarding there serves’ adequacy violated the securities laws. That claim has failed, so most of these must as well. Nevertheless, the Court addresses Central States’ claim that MetLife made false of misleading statements regarding its mortality ratios and results, as well as its underwriting and risk management practices, for reasons that will become clear when the Court addresses the Section 11 claims, infra.
As an initial matter, the Court concludes that MetLife’s. characterizing its underwriting as “solid,” its “approach to risk and expense managements” as “disciplined,” and its “mortality results” as “excellent,”
MetLife did offer specific figures with respect to mortality ratios.
The SAC does not define what a mortality ratio is, but the Court takes it in this context to be a measure of observed or known' deaths compared with expected deaths. The SAC does allege, however, that MetLife’s “false strong reported mortality ratios” had a “positive .impact on ... underwriting results”
In a July 2011 conference call for investors and analysts, MetLife discussed its financial results for the second quarter of 2011. Among other things, the Company described its group life mortality ratio for that quarter — reported to be 82.1 percent — as “excellent” and called it “group life’s best ever - mortality quarter.”
When MetLife officials testified in California in May 2011, they acknowledged, among other things, that MetLife (1) decided by December 2010 “to use the SSA-DMF more frequently and broadly,” (2) had yet to run “SSA-DMF matches for its group life policies” as of May 2011,' and (3) calculated deaths “as of the date of the match [against the SSA-DMF] as opposed to the date of the death.”
As noted above, the SAC is woefully vague in its description of what a mortality ratio is. Nonetheless, the Court assumes, arguendo, that such ratios áre “determinate, verifiable” facts, not statements of opinion or belief.
Though it is not clear (or, for our purposes, important) why MetLife waited until 2011 to cross-check the SSA-DMF against its roster of group life insureds, there is no indication that it could not have
To state a claim under Section 10(b) and Rule 10b-5, unlike under Section 11, a private plaintiff must allege facts that “give rise to a strong inference of scienter,”
Here, the SAC pleads no facts giving rise to a strong inference that MetLife misrepresented its mortality ratios throughout the Class Period with the “intent to deceive, manipulate, or defraud” its shareholders or anyone else. The scienter allegations in the SAC are largely conclusory, and they depehd almost entirely on the misguided premise that MetLife knew in advance of its pre-2011 SSA-DMF cross-check that it had misrepresented the adequacy of its IBNR reserves.
c. State Investigations: Alleged NonDisclosure and Item 303
The SAC makes two somewhat related allegations regarding state investigations into MetLife’s accounting practices.. First, Central States says, MetLife repeatedly and falsely claimed in SEC filings throughout the Class Period that an investigation intq its retained asset accounts by the New York Attorney General was “without merit.”
i. Retained Asset Accounts
The allegedly untrue or misleading statement with which Central States takes issue appears in at least three SEC filings during the Class Period.
By its terms, this is a statement of opinion or- belief, about legal compliance. As with MetLife’s representations regarding the adequacy of its/IBNR reserves, then, it ran afoul of the Exchange Act only if (1) MetLife did not actually believe, contemporaneously with its statements, that the various allegations were “without merit,” or (2) MetLife’s opinion — i.e., that the allegations lacked merit — would mislead a reasonable person reading the Company’s financial statements “fairly and-in context” because it did not “rest on some meaningful legal inquiry.”
Central States has alleged no facts suggesting that MetLife did not actually believe its dismissive statements about the New York State'Attomey General’s investigation. Nor has it alleged facts that, if true, would be sufficient tó show that Met-Life’s opinion about the merits of that investigation was misleading. To allege adequately that MetLife’s statement of opinion about legal compliance would mislead a. reasonable investor reading that statement in context, Central States may not rely on the bare fact that MetLife “failed to reyeal its basis” for the opinion.
But Central States has not done this. In fact, it has alleged no facts whatsoever regarding the basis for MetLife’s opinion — no facts about the- inquiry MetLife did or did not conduct into the allegations concerning its retained asset accounts, ho facts concerning MetLife’s understanding of the legality of its relevant practices, and no facts regarding how MetLife formulated its legal opinion. It has not alleged, for example, that MetLife developed its opinion “without having consulted a lawyer” or that it expressed its views “in the face of its lawyers’ contrary advice.”
Ultimately, Central States has not alleged adequately either, that. MetLife did not believe that-various allegations regarding its retained asset accounts were “without merit,” or that it omitted to state a fact (or facts) necessary to prevent- -its view regarding those allegations from misleading reasonable investors reading-the Company’s financial statements fairly arid in context.
ii. Death Benefits Payment Practices and Non-Use Of SSA-DMF
The SAC alleges also that “MetLife failed to disclose loss contingencies and legal proceedings related to a multi-state investigation concerning the Company’s use of the SSA-DMF, in violation of,” among other things, SEC Regulation S-K, Item 303.
SEC Regulation S-K, Item 303, requires disclosure of “ariy known ... uncertainties” (1) “that will result in or that are reasonably likely to result in the registrant’s liquidity increasing or decreasing in any material way” or (2) “that have had or that the registrant- reasonably expects will have a- material favorable or unfavorable impact on net sales or revenues or income from continuing operations.”
The Court in its February 2013 Opinion concluded that the amended complaint “alleged adequately that MetLife had a duty under Item 303 to disclose the state investigations before August 2011.”
Given the unraveling of Central States’ arguments on the IBNR reserves issue, the Court now must revisit its earlier Item 303 ruling as well. The operative question is whether the SAC adequately alleges that MetLife reasonably expected during the Class Period that it would incur either fines or future liabilities (or both) that would impact its future financial results.
In light of the,Court’s conclusion that the SAC alleges no more than that the 2007 cross-check uncovered $80 million in unpaid benefits (not an $80 million shortfall in MetLife’s IBNR reserves) — and .its concomitant conclusion that Central States has not alleged adequately either that MetLife did not actually believe its representations concerning the adequacy of its IBNR reserves or that those representations did not rest on a meaningful- inquiry- — it would make little sense for the Court now to hold that MetLife violated SEC Regulation S-K, Item 303, by failing timely to disclose the existence of various state investigations into'-its death benefits payment practices. To hold as much, in essence, would punish MetLife for failing to foresee- something that 'Central States has not shown was reasonably foreseeable.
Neither -the alleged existence of investigations into MetLife’s death benefits payment practices, nor MetLife’s internal discussions about using the SSA-DMF more broadly,
Simply put, there is nothing in the SAC from which to infer that MetLife reasonably expected, prior to August 2011, that it would incur fines and/or liabilities — let alone fines and/or liabilities that would impact materially the Company’s financial performance — as a result of the state investigations into its death benefits payment practices. The viability of Central States’ Item- 303 claim hinges on the already-rejected premise that MetLife misrepresented (within the meaning of the Exchange Act)- the adequacy of its IBNR reserves during the Class Period. Thus, for reasons stated herein, Central States has failed to allege adequately that Met-Life’s decision not to disclose the state investigations into' its death' benefits payment practices until August 2011 constituted a violation of SEC Regulation S-K, Item 303.
2. Loss Causation
Having found that Central States failed adequately to allege a material misrepresentation or omission, the Court need not discuss loss causation. Nonetheless, the Court briefly will address that issue here, as .it was the basis for dismissing Central States’ Exchange Act claims in the February 2013 Opinion.
Loss causation “is the causal link between the alleged misconduct and the economic harm ultimately suffered by the plaintiff.”
a. MetLife’s August 2011 Disclosure of Pending State Investigations
The Court in its February 2013 Opinion called the amended complaint “remarkably misleading” for its failure to mention that the drop in MetLife’s stock price following its August 5, 2011 disclosure coincided also with S & P’s .decision to downgrade the credit rating of the United States for the first time in history.
Not much has changed in the SAC. Central States now says that MetLife’s August 2011 disclosures merely “contributed to the decline of MetLife stock price.”
As before, Central States has provided no basis to suggest that the market considered investigations into MetLife’s accounting practices to be material or the cause of a drop in the Company’s stock price. And as before, the “market upheaval” caused by S & P’s decision to downgrade the United States’ credit rating — not to mention MetLife’s mostly stable stock performance during the relevant period — renders Central States’ allegations “insufficiently plausible to withstand a motion to dismiss.”
b. MetLife’s October 2011 Disclosure of After-Tax Charges
The Court’s February 2013 Opinion dispensed with Central States’ claims regarding MetLife’s October 6, 2011 Form 8-K— which disclosed, among other things, that the Company would take a nine-figure hit against income to increase its IBNR reserves as a consequence of its first-ever cross-check of the SSA-DMF against its group life insureds — for similar reasons.
The SAC remedies this deficiency. Unlike the amended complaint, the SAC alleges that MetLife’s share price declined 6.1 percent from its October 6 closing price to its October 7 closing price, while the S & P 500 and S & P 500 Insurance Indices each declined by substantially less — 0.81 percent and 3.1 percent, respectively.
MetLife’s October 6 announcement that it would take two other charges unrelated to the SSA-DMF does not counsel in favor of a different result. The other charges were smaller: one, related to damage from severe storms including Hurricane Irene, was for $80-$100 million, much of which previously was anticipated; the other, related to a September 1, 2011 liquidation plan for Executive Life Insurance Company of New York, was for $40 million.
Nevertheless, the fact that Central States adequately has pleaded that Met-Life’s October 6, 2011 Form 8-K caused a statistically significant decline in the Company’s stock price is legally immaterial for Section 10(b) and Rule 10b-5 purposes because Central States cannot tie the losses it suffered as a result of that decline to an actionable misrepresentation or omission. Indeed, as discussed herein, Central States adequately has pleaded only one legally sufficient misrepresentation or omission: that some or all of the mortality ratios MetLife reported during the Class Period were inaccurate. But — even assuming, arguendo and contrary to the Court’s earlier conclusion, that the SAC alleges facts sufficient to justify a finding that MetLife acted with scienter in misrepresenting its mortality ratios — Central States does not allege that MetLife’s October 6 Form 8-K, which addressed only the $117 million charge to increase MetLife’s IBNR reserves, revealed anything about those ratios. Nor does Central States allege that MetLife’s subsequent announcement regarding increased mortality ratios — an announcement that in any event occurred outside the Class Period
Central States’ loss causation allegations with respect to MetLife’s October 6 Form8-K are facially plausible. Yet they are untethered to a misrepresentation or omission actionable under Section 10(b) -and Rule 10b-5. Accordingly, they are insufficient to withstand the motions to dismiss.
B. Section 20(a) Claims
Section 20(a) imposes joint .and several liability on control persons for underlying violations of the Exchange Act.
III. Securities Act Claims
Central States alleges also violations of Sections 11, 12(a)(2), and 15 -of the Securities Act based on losses allegedly traceable to two public offerings of MetLife common stock — one on August 3, 2010 and one on March 4, 2011.
The Securities Act claims in the SAC have not changed materially, if at all, from those in the amended complaint, and there is no reason to revisit the Court’s earlier dismissal of Central States’ Section 12(a)(2) claims.
A Section 11 Claims
Section 11 “prohibits materially misleading statements or omissions in registration statements filed with the SEC.”
The Court already has cóncluded that 'the SAC fails adequately to allege a material misrepresentation or 'omission in nearly all of the instances relied upon by Central States. Accordingly, there is ho need for the Court to analyze the lion’s share of Central States’ claims in the Section ll framework.
That leaves only the matter of MetLife’s allegedly misstated mortality ratios. As noted above, the SAC adequately alleges that these ratios were inaccurate and therefore “untrue” for purposes of the securities laws.
This conclusion is entirely consistent with the Court’s Section 10(b) analysis. Based on the allegations in the complaint, mortality ratios appear to be readily quantifiable by comparing actual or reported deaths with expected deaths. The SAC alleges, in effect, that they are the-product of a simple mathematical calculation — that they are, in other words, “determinate, verifiable” facts, not statements of opinion or belief.
B. Section 15 Claims
Section 15 is the Securities Act equivalent of Section 20(a) of the Exchange Act: it imposes joint and several liability on control persons for underlying violations of the Securities Act.
Pursuant to the foregoing analysis, the Section 15 claims in the SAC survive these motions only to the extent they depend upon Central States’ Section 11 claim regarding MetLife’s allegedly inaccurate mortality ratios'. The Section 15 claims are dismissed in every other respect.
Conclusion
The defendants’ motions to dismiss the SAC [DI 85, 86] are.granted to the extent that (1) all claims under the Exchange Act and Rule 10b-5, (2) all claims under Section 12 of the Securities Act, and (3) all claims, under Sections 11 and 15 of the Securities Act except those based upon the alleged misstatements of mortality ratios
SO ORDERED.
. The case is brought by Central States, Southeast and Southwest Areas Pension' Fund ("Central States’') on behalf of an alleged class of "all purchasers of the common stock of MetLife, Inc .... between February 2, 2010 and October 6, 2011, inclusive (the ‘Class Period’),” SAC [DI 59, Ex. A] ¶ 1, and "all persons who purchased or acquired Met-Life common stock pursuant or traceable to [MetLife’s] August 3, 2010 public offering of 75 million shares of its common stock and MetLife’s March 4, 2011 public offering of 68,5 million shares of its common stock, respectively,” id. ¶ 2. Central. States purchased shares of MetLife common stock on August 3, 2010, March 3/20Í1, and March 4, 2011. Id. ¶ 249.
. See City of Westland Police & Fire Ret. Sys. v. MetLife, Inc., 928 F.Supp.2d 705 (S.D.N.Y. 2013) (granting in part and denying in part those motions).
. — U.S. -, 135 S.Ct. 1318, 191 L.Ed.2d 253 (2015).
Omnicare was a § 11 case. Nonetheless, its reasoning applies with equal force to other provisions of the federal securities laws, including, as relevant to this case, § 10(b) and Rule 10b-5/ which uses very similar language. See City of Omaha Civilian Emps.’ Ret. Sys. v. CBS Corp., 679 F.3d 64, 67-68 (2d Cir. 2012) (noting that § 10(b) and § 11 claims, which “share a material misstatement or omission element,” involve "the same reasoning”).
. SAC ¶ 30.
. The Executive Defendants are C. Robert Henrikson, William J. Wheeler, Peter M. Carlson, Steven A. Kandarian, and William J. Mullaney. See id. ¶¶ 31-35.
. The Director Defendants are Sylvia Matthews Burwell, Eduardo Castro-Wright, Cheryl W. Grisé, R. Glenn Hubbard, John M. Keane, Alfred F. Kelly, James M. Kilts, Catherine R, Kinney, Hugh B. Price, David Satcher, Kenton J. Sicchitano, and Lulu C. Wang. See id. ¶¶ 37-48.
. The Underwriter Defendants are Goldman Sachs & Co., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Wells Fargo Securities, LLC, Bank of America Merrill Lynch, Pierce, Fenner & Smith Incorporated, and HSBC Securities (USÁ) Inc. See id. ¶¶ 50-55.
Central States' claims against the Underwriter Defendants are premised on those defendants’ alleged participation in the August 3, 2010 and March 4, 2011 public offerings of MetLife common stock and their alleged failure reasonably to investigate with due diligence the representations contained within those offerings. See id. ¶¶ 254-256, 259.
. See Stanley Siegel & David A. Siegel, Accounting And Financial Disclosure 26-27 (1983) ("[T]he events giving rise to the recognition of income or expense are not necessarily tied to the date when cash is paid or received.”).
. Id. at 27, 31,
. For purposes of GAAP, in fact, "cash basis accounting is not acceptable.” Id. at 27, 35.
. See id. at 31-32.
. Id. at '28 (noting ‘that cash-based accounting often "results in a distortion” of a corporation’s financial statements and lends itself to "easy manipulation” by dishonest businesses).
. See Consol. Edison Co. of N.Y. v. United States, 279 F.2d 152, 158 (2d Cir. 1960) (Clark, J., dissenting).
. A good example might be a hypothetical claim for theft of an automobile, where the loss, the report of the loss, the quantification of the liability, and the payment of the claim can occur in a very short span of time.
. This, might be so, for example, where the loss-creating event is exposure to a toxic substance but the injury remains latent for a lengthy period.
. See Stephens v. Nat’l Distillers & Chem. Corp., 6 F.3d 63, 65 (2d Cir. 1993).
. See A.P.N. Holdings Corp. v. Hart, 615 F.Supp. 1465, 1474 (S.D.N.Y. 1985).
. See Stephens, 6 F.3d at 65.
. Delta Holdings, Inc. v. Nat’l Distillers & Chem. Corp., 945 F.2d 1226, 1229 (2d Cir. 1991).
. Stephens, 6 F.3d at 65.
. Delta Holdings, 945 F.2d at 1229.
. Stephens, 6 F.3d at 65.
. Id.
. Delta Holdings, 945 F.2d at 1229.
Indeed, Central States alleges that insurance companies must "set up estimated reserves for unreported claims [or] incurred but not reported claims.” SAC ¶ 172 (alteration in original) (emphasis and internal quotation marks omitted); see also id. ¶ 230.
. Delta Holdings, 945 F.2d at 1229.
. SAC ¶ 4.
. See id. ¶¶ 123-124.
MetLife has justified this alleged practice on the rationale that the beneficiary of a life insurance policy has a financial incentive to submit a claim, whereas relatives of an annuitant have no incentive to notify Met-Life of the annuitant's death, which would result in the cessation of annuity payments. See Mem. of Law in Supp. of the MetLife Defs.’ Mot, to Dismiss the Second Am. Compl, [DI 74] at 4.
. See SAC ¶ 124.
It is unclear from the SAC whether the fact of MetLife’s 2007 SSA-DMF cross-check was public knowledge at the time, or whether it remained undisclosed until some time after the fact, perhaps as late as May 2011, when MetLife executives testified about that cross-check (among other things) at a hearing in California. See id,
. See id. ¶¶ 8, 87(k).
. See id. ¶ 174,
. See id. ¶¶ 12, 15-16, 18, 65.
. Id. ¶¶ 9-10; see also, e.g., id. ¶¶ 65, 69, 74, 75, 81, 93-94, 97-98, 100, 113, 128, 130. For example, MetLife is alleged to have claimed falsely that its 2009 mortality ratios were strong and to have asserted specific numerical values that were inaccurate due to their failure to include IBNR deaths verifiable through the SSA-DMF. See id. ¶¶ 66, 77, 83.
. See id. ¶¶65, 75, 81, 93, 97, 118, 128.
. See id. ¶¶ 74, 78, 99, 125.
. See id. ¶¶ 66, 77, 83, 94, 98, 119, 130.
. See id. ¶¶ 58, 69-70 (Form 10-K for the year ending December 31, 2009); id. ¶ 86 (Form 10-Q for the period ending June 30, 2010); id. ¶¶ 89-90 (Form 424(b)(5) registration statement for MetLife’s acquisition of AL-ICO); id. ¶ 96 (Form S-3); 100-104 (Form 10-K for the year ending December 31, 2010); id. ¶¶ 112-113 (Form 424(b)(5) registration statement for AIG's earlier-than-expected sale of MetLife stock); id. ¶ 120 (Form 10-Q for the period ending March 31, 2011).
. Id. ¶¶ 86, 101, 113, 120.
. Id. ¶ 85; see also id. ¶¶ 15, 17, 68, 73, 79, 131, 182, 185.
. See id. ¶¶ 22, 135-139, 189 (investigations); ¶¶ 24, 147, 151, 191 (SSA-DMF cross-check).
. See id. ¶¶ 192, 206, 249, 261.
. See id. ¶ 117.
. Id. ¶ 164,
. Id. ¶ 11. MetLife acknowledged this investigation in its Form 10-Q for the second quarter of 2010, but summarily dismissed the allegations therein as being "without merit.” Id. ¶ 86.
. Id. ¶¶-122-123.
. Id.
. See id. ¶ 117.
. Escheatment is the "[Reversion of property to the state in the absence of legal heirs or claimants.” American Heritage Dictionary 607 (4th ed. 2000) (defining "escheat”). For present purposes, then, escheatment is the process by which a state takes ownership of unclaimed or abandoned life insurance policies. See -1 Life & Health Insurance Law § 11:18 (2d ed. 2014) (“The insurer must report abandoned proceeds to the state, and eventually pay them to the state.”). For those policies to escheat to the state, however, they must have "remained inactive,” i.e., been unclaimed, for a "period of time specified by state law,” after which they will be presumed abandoned. Accounts — Abandoned or Unclaimed, U.S. Sec. & Exch. Comm’n, http://www.sec.gov/answers/ escheat.htm (last visited Jan. 8, 2015). This period of time, which varies by state, is the “dormancy period.”
According to Central- States, the dormancy period for a life insurance policy should commence, for escheatment purposes, upon the insured’s death. See SAC ¶ 87(l). And yet, Central States says, MetLife has acknowledged that it regularly started the*60 .dormancy period clock as of the date it learned of a death, not as of the actual date of death — a decision that, in at least some cases, could have meant, the difference between a policy being escheatable or not. See, e.g., id.
. See id. ¶ 124.
. Id. ¶ 126.
. See id. ¶ 127.
. The New York investigation concluded in December 2011, when, Central States says, the New York State Department of Financial Services issued a report confirming life insurers’ allegedly dubious accounting practices. See id. ¶ 156. Notably, however, .while the report criticized "many insurers’’ for not cross-checking the SSA-DMF against their life insureds, it noted that MetLife, among others, had "recently adopted regular crosscheck procedures.” Id.
. Id. ¶¶ 164-165.
. Id, ¶¶ 158, 164. This April 23, 2012 multistate agreement is attached to the declaration of Elliot Greenfield. See DI 75, Ex, J. It is available also online at http://www.floir.com/ siteDocuments/MetLife_RSA.pdf. New York was not a signatory to the agreement. See SAC ¶ 161. Instead, it announced in April 2012 that its independent investigation into insurers’ inconsistent and self-serving use of the SSA-DMF had recovered more than $260 million from various insurance companies. See id.
. Id.n 71-72.
. See id.
. See id. ¶¶ 72, 107.
. Id. ¶88.
. Id. ¶¶90, 214. Underwriter Defendants Credit Suisse, Wells Fargo, Merrill Lynch, and HSBC allegedly were underwriters of that offering. Id. ¶ 254.
. See id. 195.
. Id. ¶¶ 107, 124.
. See id. ¶ 108.
. Id. 11105.
. See MetLife, Inc., Prospectus Supplement (Form 424(b)(5)) (Mar. 4, 2011).
. See id.; SAC ¶¶ 105, 112, 114. The March 4, 2011 Registration Statement is alleged to contain material misstatements and-to have incorporated the 2010 10-K and other financial statements that included material mis; statements. See SAC ¶ 113.
. See MetLife, Inc., Prospectus Supplement (Form 424(b)(5)) (Mar. 4, 2011); SAC ¶ 114.
. SAC ¶ 216 & n. 28; see also id. ¶ 113.
Underwriter Defendants Goldman Sachs, Citigroup, Credit Suisse, Wells Fargo, Merrill Lynch, and HSBC allegedly were underwriters of the March 4, 2011 offerihg. See id. ¶ 255.
. Id. ¶¶ 216-218.
. See id. ¶ 114.
. Id. ¶ 109; see id. ¶¶ 106-107.
. See id. ¶ 109.
. Central States says it purchased MetLife stock at "artificially inflated prices” during the Class Period, id. ¶ 192, and that it suffered harm when MetLife’s share price, allegedly inflated due to MetLife’s misrepresentations, fell after the Company’s August 2011 and October 2011 disclosures. See id. ¶¶ 192, 206, 24„9, 261.
. Id. ¶ 133.
. MetLife, Inc., Quarterly Report (Form 10-Q) (Aug. 5, 2011); see also SAC ¶¶20, 133.
. MetLife, Inc., Quarterly Report (Form 10-Q) (Aug. 5, 2011).
. SAC ¶ 133.
Such liability disclaimers — included in previous disclosures, see, e.g., id. ¶¶ 86, 101, 120 — were omitted from the August 5, 2011 Form 10-Q.
. See id. ¶¶ 135-136.
. See id. ¶ 139.
. See id. ¶ 137.
. MetLife, Inc., Current Report (Form 8-K) (Oct. 6, 2011); see also SAC ¶¶23, 140-141, 151. According to Central States, MetLife clarified in an October 27, 2011 press release that the after-tax charge identified in its October 6, 2011 Form-8-K-Was for $117 million. See, e.g., SAC ¶ 153. MetLife's Form 10-Q for the period ending September 30, 2011 stated the same figure. See MetLife, Inc., Quarterly Report (Form 10-Q) (Nov. 4, 2011).
. See MetLife, Inc., Current Report (Form 8-K) (Oct. 6, 2011); see also SAC ¶ 140.
. See SAC ¶ 147.
Another consequence of MetLife’s decision to cross-check the SSA-DMF against its roster of group life insureds, according to Central States, was a sudden spike in the life insurer’s mortality ratios — numbers MetLife allegedly trumpeted throughout the Class Period. See, e.g., id. ¶¶74, 94, 154, 244-245.
. See id. ¶ 147.
. See id. ¶¶ 148-149.
. Id. ¶ 153.
. Id. ¶¶ 154-155.
. 15 U.S.C. §§ 78j(b), 78t.
. 17 C.F.R. § 240.10b-5.
. See Compl. [DI 1] ¶ 2.
. 15 U.S.C. §§ 77k, 77l, 77o.
. See Am. Compl. [DI 20] ¶ 25.
. City of Westland Police, 928 F.Supp.2d 705.
. Pl.’s Mot. for Partial Reconsideration [DI 53]; Defs.’ Joint Mot. for Reconsideration [DI 55],
. Orders [DI 60, 67].
. Order [DI 84].
. Underwriter Defs.' Renewed Mot, to Dismiss the Second Am. Compl. [DI 85]; Met-Life Defs.’ Renewed Mot. to Dismiss the Second Am. Compl. [DI 86].
. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).
. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955).
. Allaire Corp. v. Okumus, 433 F.3d 248, 249-50 (2d Cir. 2006) (internal quotation marks and citation omitted).
. ATSI Commc'ns Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007).
. Fed.R.Civ.P. 9(b).
. ATSI Commc’ns Inc., 493 F.3d at 99 ("[P]rivate securities fraud actions must also meet the PSLRA’s pleading requirements or face dismissal.”).
. Rombach v. Chang, 355 F.3d 164, 170 (2d Cir. 2004) (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993)); see also 15 U.S.C. § 78u-4(b)(1) (stating that a complaint must “specify each' statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed”); Novak v. Kasaks, 216 F.3d 300, 306 (2d Cir. 2000).
. 15 U.S.C. § 78j(b).
. 17 C.F.R. § 240.10b-5(b).
. Halliburton Co. v. Erica P. John Fund, Inc., — U.S. -, 134 S.Ct. 2398, 2407, 189 L.Ed.2d 339 (2014) (internal quotation marks omitted); see also ECA Local 134 IBEW Joint Pension Trust of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 197 (2d Cir. 2009) ("[T]o succeed on. a claim, a plaintiff must establish that the defendant, in connection with the purchase or sale of securities, made a materially false statement or omitted a material fact, with scienter, and that the plaintiff's reliance on the defendant’s action caused injury to the plaintiff.” (internal quotation marks omitted)).
. See City of Westland, 928 F.Supp.2d at 714-16.
. The Court in its February 2013 Opinion dismissed Central States’ claims based on MetLife’s alleged GAAP, Regulation S-K Item 103, and ASC 450 violations. The SAC contains no new allegations as to those claims. The Court's analysis of those points remains unchanged.
With respect to GAAP, Central.States identifies no specific principle(s) of accounting that MetLife allegedly violated. ‘ Its mere allegations that MetLife violated GAAP in preparing its financial statements are insufficient, standing alone, to state a claim that MetLife's representations of compliance with GAAP are material misstatements. See In re Lehman Bros. Sec. & Erisa Litig., 799 F.Supp.2d 258, 303 (S.D.N.Y. 2011).*66 Central States has alleged no "specific departures from GAAP,” nor has it "set forth facts sufficient to warrant a finding that [MetLife] did not actually hold the opinion it expressed.” Id. Central States’ threadbare allegations do no more than ”recit[e] ... the statutory language” and assert “conclusory allegations.” Omnicare, 135 S.Ct. at 1333. They add nothing to the SAC, and they need not be discussed separately.
. Erica P. John Fund, Inc., 134 S.Ct. at 2407 (internal quotation marks omitted).
. Omnicare, 135 S.Ct. at 1325; 17 C.F.R. § 240.10b-5(b).
. 17 C.F.R. § 240.10b-5(b).
. Id.
. Id.; see also Basic Inc. v. Levinson, 485 U.S. 224, 238, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988); Levitt v. J.P. Morgan Sec., Inc., 710 F.3d 454, 465 (2d Cir. 2013); ECA & Local 134 IBEW Joint Pension Trust of Chi., 553 F.3d at 197; In re Lululemon Sec. Litig., 14 F.Supp.3d 553, 571 (S.D.N.Y. 2014).
. Basic Inc., 485 U.S. at 236, 108 S.Ct. 978.
. Hutchison v. Deutsche Bank Sec. Inc., 647 F.3d 479, 485 (2d Cir. 2011) (second alteration in original) (internal quotation marks omitted); see also Basic, Inc., 485 U.S. at 231-32, 108 S.Ct. 978.
. Ganino v. Citizens Utilities Co., 228 F.3d 154, 161 (2d Cir. 2000).
. ECA & Local 134 IBEW Joint Pension Trust of Chi., 553 F.3d at 197.
. Id. (ellipsis in original) (internal quotátion marks omitted).
. 17 C.F.R. § 240.10b-5(b).
. In re Lululemon Sec. Litig., 14 F.Supp.3d at 571 ("[W]ithout contemporaneous falsity, there can be no fraud.”).
. Id. (quoting Rombach, 355 F.3d at 174).
. McMahan & Co. v. Wherehouse Entm’t, Inc., 900 F.2d 576, 579 (2d Cir. 1990).
. Id.; see also Kleinman v. Elan Corp., 706 F.3d 145, 153 (2d Cir. 2013) (“[The] veracity of a statement or omission is measured not by its literal truth, but by its ability to accurately inform rather than mislead prospective buyers.” (internal quotation marks omitted)).
. See Levitt, 710 F.3d at 465.
. In re Lululemon Sec. Litig., 14 F.Supp.3d at 572; see also Omnicare, 135 S.Ct. at 1325 (noting that a statement "may be rendered misleading by the omission of discrete factual representations”); Caiola v. Citibank, N.A., 295 F.3d 312, 331 (2d Cir. 2002) ("[U]pon choosing to speak, one must speak truthfully about material issues.”).
. SAC ¶¶ 69, 162(b), 174.
In addition, Central States asserts that Met-Life misstated its mortality ratios, an allegation the Court deals with below.
. See, e.g., id. ¶¶ 65-67, 74, 77-78.
. See, e.g., id. ¶¶ 14, 86, 162(a).
. City of Westland, 928 F.Supp.2d at 716 (quoting Delta Holdings, 945 F.2d at 1229).
. See Stephens, 6 F.3d at 65 ("IBNR reserves are extremely conjectural.”); A.P.N. Holdings Corp., 615 F.Supp. at 1474 ("[S]etting an IBNR reserve is a matter of judgment based upon historical experience — a projection must be made as to the frequency and severity of future claims.”).
. 501 U.S. 1083, 111 S.Ct. 2749, 115 L.Ed.2d 929 (1991).
. — U.S. -, 135 S.Ct. 1318, 191 L.Ed.2d 253 (2015).
. See id. at 1326 (noting that where a “determinate, verifiable statement” is in fact incorrect, it matters not that the speaker’s mistaken assertion was “innocent! ]”).
. Id. at 1325 (emphasis added).
. See id. (noting that the question whether a statement of a material fact is untrue "presentís] different issues” than the question whether the speaker has omitted to state a material fact necessary to make its statements) not misleading).
. Id. at 1326; see also Fait v. Regions Fin. Corp., 655 F.3d 105, 113 (2d Cir. 2011) (noting that statements of opinion “not honestly believed when they were made” are actionable).
Unlike with statements of pure fact, it is of no importance that a "sincere statement” of opinion or belief "turn[s] out to be wrong.” Omnicare, 135 S.Ct. at 1327. Where-the speaker’s opinion or belief is genuine, a bare allegation that her opinion or belief ultimately proved incorrect is not enough to survive a motion to dismiss after Omnicare. Id. ("[A] sincere statement of pure opinion is not an ‘untrue statement of material fact,’ regardless whether an‘investor -can ultimately prove the belief wrong.”). - Indeed, the securities laws do "not allow investors to second-guess inherently subjective and uncertain assessments;” they are not, in other words, "an invitation to Monday morning quarterback an issuer’s opinions.” Id.
. Id. at 1328, 1332.
. Va. Bankshares, 501 U.S. at 1093, 111 S.Ct. 2749; see also Weiss v. SEC, 468 F.3d 849, 855 (D.C.Cir. 2006) ("Under the securities laws, a statement of opinion includes an implied representation that the speaker rendered the opinion in good faith and with a reasonable basis.”).
. Omnicare, 135 S.Ct. at 1332.
. Id. at 1331-32.
. Id. at 1332.
. Id. at 1330.
. Id. at 1328.
. See id.
. See generally Mario Massari et al. The Valuation of Financial Companies (2014).
. See CSX Transp., Inc. v. Ga. State Bd. of Equalization, 552 U.S. 9, 17, 128 S.Ct. 467, 169 L.Ed.2d 418 (2007) (“Valuation is not a , matter of mathematics .... Rather, the calculation of true market value is an applied science, even a craft. Most appraisers estimate market value by employing not one methodology but a combination. These various methods generate a range of possible market values which the appraiser uses to derive what he considers to be an accurate estimate of market value, based on careful scrutiny of all the data available.”).
. Omnicare, 135 S.Ct. at 1328, 1330.
. Id. at 1328-30.
While a reasonable investor undoubtedly expects that an issuer’s opinion statement "fairly aligns with the information in the issuer’s possession at the time,” the reasonable investor "does not expect that every fact known to an issuer supports its opinion statement.” Id. at 1329. Thus, an "opinion statement ... is hot necessarily misleading when an issuer knows, but fails to disclose, some' fact cutting the other way.” Id.
. 17 C.F.R. § 240.10b-5(b).
. 135 S.Ct. at 1329.
. Id. at 1332.
. Id. at 1333 (internal quotation marks omitted).
. Id. at 1332. Indeed, "whether an omission makes an expression of opinion misleading always depends on context," and the securities-laws "create[] liability only for the omission of material facts that cannot be squared with” reading an expression of opinion “in its full context.” Id. at 1330.
. Id. at 1329.
Another way of stating this is that the plaintiff must plead facts that, if true, would be sufficient to show (1) that the financial statement omitted facts that would be material to a reasonable investor, and (2) that the omission of those facts rendered the issuer’s statements of opinion or belief misleading by revealing that the issuer "lacked the basis for making those statements that a reasonable investor would expect.” Id. at 1333.
. Id. at 1332.
. Id. at 1325-28, 1332.
This Court held more than four years ago that a plaintiff challenging a statement of opinion or belief adequately alleges a violation of the securities laws by pleading facts that, if true, would be sufficient to show that-the defendant "either did not in fact hold that opinion or knew that it had no reasonable basis for it.” In re Lehman Bros. Sec. & Erisa Litig., 799 F.Supp.2d at 302. Other courts have hinted at the same. See, e.g., Kowal v. MCI Commc’ns Corp., 16 F.3d 1271, 1277 (D.C.Cir. 1994) (noting that státements of opinion or belief are "misleading for the purposes of the securities laws if they ... lacked a reasonable basis when made”). And at common law, a misrepresentation was fraudulent if the plaintiff could show, among Other things, that it was made "recklessly, careless whether it be true or false.” Bose Corp. v. Consumers Union of U.S., 466 U.S. 485, 502 n. 19, 104 S.Ct. 1949, 80 L.Ed.2d 502 (1984) (internal quotation marks omitted); see also Restatement (Second) of Torts § 526 (1977);' Restatement (Third) of Torts: Liab. for Econ. Harm § 10 (Tentative Draft No. 2, 2014), The Court recognizes that its formulation of the standard in In re Lehman Brothers Securities & Erisa Litigation is not as precise as that articulated in Omnicare. Nevertheless, the Court believes the two' standards are in substance quite similar, if not identical.
. City of Westland, 928 F.Supp.2d at 717.
. See Omnicare, 135 S.Ct. at 1326—27, 1332; see also id. at 1328 (“[A] statement of opinion is not misleading just because external facts show the opinion to'be incorrect.”).
. Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1129 (2d Cir. 1994) (internal quotation marks omitted).
. In re Lululemon Sec. Litig., 14 F.Supp.3d at 571.
. See Omnicare, 135 S.Ct. at 1326, 1328.
. City of Westland, 928 F.Supp.2d at 717.
The Court thus framed its decision, issued more than two years before Omnicare, in part because it was not yet clear that the misstatement provision of Rule 10b-5 ”present[ed] different issues” than the omission provision of the Rule. Omnicare, 135 S.Ct. at 1325. In light of that distinction, the Court concludes that while what was conveyed by its earlier holding has not changed materially, its prior formulation does not state accurately the law as it stands today. See supra note 155.
. Fait, 655 F.3d at 113.
. Omnicare, 135 S.Ct. at 1328.
. MetLife did not present this argument in its motion to dismiss the amended complaint.
. DI 20 ¶ 162; SAC ¶ 174.
. See Greenfield Decl. [DI 75], Ex. J.
. See City of Westland, 928 F.Supp.2d at 717 (describing the amended complaint as alleging that MetLife discovered "a reserve shortfall of $80 million” after cross-checking the SSA-DMF against its roster of individual life insureds in 2007).
. See DI 75, Ex. J, at 2.
. Reserves, of course, are estimated (i.e., taken as charges against income) before they are paid out. Thus, if MetLife had at least $80 million in reserves when it discovered the unpaid benefits revealed as a result of the 2007 SSA-DMF cross-check, its payment of those benefits would have had no impact on its income statement. If, on the other hand, MetLife’s reserves were insufficient in 2007 to cover those liabilities, it presumably would have had to increase its reserves by taking an additional charge against income — a charge it would have been required to disclose in its SEC filings.
But MetLife’s SEC filings reveal nothing of the sort. If MetLife took a charge against income to bolster its reserves in 2007, it did not say so at the time. Neither the facts pleaded in the SAC nor the facts as revealed in MetLife's SEC filings, then, give rise to an inference that the 2007 cross-check revealed an $80 million "shortfall” in Met-Life’s IBNR reserves.
. Omnicare, 135 S.Ct. at 1328, 1332.
. Iqbal, 556 U.S. at 679, 129 S.Ct. 1937 (2009). "Where a complaint pleads facts that are 'merely consistent with’ a defendant's liability, it 'stops short of the line between possibility and plausibility of entitlement to relief.’ ” Id. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 557, 127 S.Ct. 1955).
. Hayden v. Paterson, 594 F.3d 150, 167 (2d Cir. 2010) (quoting Iqbal, 556 U.S. at 682, 129 S.Ct. 1937).
. Central-States alleges also that MetLife’s methods for calculating its IBNR reserves did not comply with GAAP. As noted in the Court’s February 2013 Opinion, this allegation ''add[s] nothing,” and "[t]here is no need to discuss [it] separately.” City of Westland, 928 F.Supp.2d at 716 n. 66; see also In re CIT Grp., Inc. Sec. Litig., 349 F.Supp.2d 685, 688 (S.D.N.Y. 2004) (refusing to address "alleged GAAP violations [that] are completely depen- - dent! upon the underlying statements at issue”).
. Omnicare, 135 S.Ct. at 1332.
. Id. at 1330.
. Id. at 1329.
. Id. at 1332.
. SAC ¶69 (quoting MetLife’s Form 10-K for the year ending December 31, 2009).
. To be sure, MetLife’s Class Period representations regarding the'adequacy of its IBNR estimates may not have fairly aligned with the information it possessed in the wake of its 2011 SSA-DMF cross-check. But that information was not available to it at the time it made the representations at issue here, and that is all that matters for purposes of the securities laws. As Justice Kagan wrote, the omissions provision of Rule 10b-5 is not "an invitation to Monday morning quarterback an issuer’s opinions.” Omnicare, 135 S.Ct. at 1327.
As above, the Court does not now decide whether any allegations such as those enumerated in the text would have sufficed.
. See SAC ¶ 9.
. There is no need to address further Central States' claim that MetLife overstated its reported income, its operating earnings, and its earnings per share. See id. ¶¶ 16, 18. Those figures are alleged to have been misstated precisely because the Company’s IBNR reserves did not provide fully for incurred liabilities for death benefits payable in respect of deaths not yet reported. Where that claim fails, so to this one.
. Id. ¶¶ 9-10.
. See, e.g., ECA & Local 134 IBEW Joint Pension Trust of Chi., 553 F.3d at 205-06 (holding that' statements regarding, among other things, the defendant’s "highly disciplined risk management” were "no more than ’puffery’, which does not give rise to securities violations” (internal quotation marks omitted)).
. Va. Bankshares, 501 U.S. at 1087, 111 S.Ct. 2749.
. See, Novak, 216 F.3d at 315 ("Here, the complaint alleges that the defendants did more than just offer rosy predictions; the defendants stated that the inventory situation was in ‘good shape’ or ‘under control’ while they allegedly knew that the contrary was true." (emphasis added)); In re Sanofi-Aventis Sec. Litig., 774 F.Supp.2d 549, 567 (S.D.N.Y. 2011) (statements interpreting clinical studies are statements of opinion); In re Bank of Am. Corp. Sec., Derivatives, & Emp. Ret. Income Sec. Act (ERISA) Litig., 757 F.Supp.2d 260, 311-12 (S.D.N.Y. 2010).
. See Omnicare, 135 S.Ct. at 1326, 1328.
Even if MetLife actually understated its mortality ratios, see infra, its mortality results may still have been "excellent” in the relevant quarters. "Excellent,” of course, is a subjective term. Central States pleads no facts to support a different conclusion.
. See, e.g., SAC ¶¶ 66, 77, 83, 94, 98, 119, 130.
. Id. ¶ 78.
. Id. ¶¶ 80, 87.
. Id. ¶ 155.
. Id.
. Id. ¶ 130.
. See id. ¶ 155.
. See id. If, 130.
. See id. ¶ 154. The fact that October 28, 2011 is outside the Class Period is of no moment. The conference. call on that date discussed financial results for the third quarter of 2011, which concluded on September 30, 2011, occurred entirely during the Class Period, and in fairness should be discussed here.
. See id.
. Id.
. Id. ¶ 124.
. Omnicare, 135 S.Ct. at 1326.
. The Court assumes, arguendo, that Central States has alleged adequately that Met- - Life’s stated mortality ratios were material— that is, that "there is a substantial likelihood that a reasonable shareholder would consider [such ratios] important in deciding how to [act].” Hutchison, 647 F.3d at 485 (second alteration in original) (internal quotation marks omitted); see also Basic, Inc., 485 U.S. at 231-32, 108 S.Ct. 978.
. 17 C.F.R. § 240,10b-5(b).
. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 323, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) (internal quotation marks omitted); see also ECA & Local 134 IBEW Joint Pension Trust of Chi., 553 F.3d at 197 (noting, that the misrepresentation or omission must be made "with scienter" to be actionable under Section 10(b) and Rule 10b-5 (internal quotation marks omitted)).
. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976).
. Tellabs, 551 U.S. at 324, 121 S.Ct. 2499 (internal quotation marks ohiitted).
. See, e.g., SAC ¶¶ 121, 132.
In other words, Central States argues, Met-Life knew its reported mortality ratios were inaccurate because those ratios depended upon IBNR reserve estimates that MetLife knew were similarly inaccurate.
. See id. ¶1¶ 86, 101, 113, 120.
. See id. ¶¶ 164-165.
. See id. ¶ 133 (appearing to -conflate the New York investigation into MetLife’s retained asset accounts with other states’ investigations into the Company’s death benefits payment practices).
. Indeed, the differences are apparent from the face of the SAC. In paragraph 124, Central States discusses two SSA-DMF crosschecks that MetLife ran against its retained asset accounts, one in 2006 and one in 2010, but notes that MetLife had not run an SSA-DMF cross-check against its group life insureds as of May 2011. See id. 11124, Paragraph 169 makes the distinction even clearer: “MetLife disclosed the retained asset account investigation ..., but failed to disclose the more material SSA-DMF investigation.” Id. ¶ 169 (emphasis added).
. See id. ¶ 86 (Form 10-Q for the period ending June 30, 2010); ¶ 101 (Form 10-K for the year ending December 31, 2010); ¶ 120 (Form 10-Q for the period ending March 31, 2011).
. See, e.g., id. ¶ 86 (emphasis added).
. Omnicare, 135 S.Ct. at 1328, 1332.
. Id. at 1329.
. See id. at 1332.
. Id. at 1329.
. Id. at 1332.
. Id. at 1328-29.
. Id. at 1328.
. SAC ¶ 162(a). The Court in its February 2013 Opinion dispensed with Central States’ claims that MetLife’s alleged non-disclosure of loss contingencies and legal proceedings related to the state investigations' violated FASB ASC 450 and SEC Regulation S-K, Item 103. See City of Westland, 928 F.Supp.2d at 718 (dismissing these claims because “the state investigations were not pending or threatened litigation”). The SAC contains no new allegations as to those claims. The Court will not revisit them here,
. 17 C.F.R. § 229.303(a).
. City of Westland, 928 F.Supp.2d at 718.
. Id. "There was potential also,” the February 2013 Opinion noted,.“for state fines.for failure to. comply with unclaimed property laws.” Id.
. There is, of course, no allegation that MetLife failed to disclose existing fines or liabilities or fines or liabilities that MetLife knew would impact its future financial performance. The only question, then, is whether MetLife failed to disclose fines or liabilities itreasonably should have known were-likely to affect its future financial performance.
. See SAC ¶ 106 (noting internal discussions regarding the scope of MetLife’s use of the SSA-DMF).
. Id.
. See 17 C.F.R. § 229.303(a).
. Emergent Capital Inv. Mgmt., LLC v. Stonepath Grp., Inc., 343 F.3d 189, 197 (2d Cir. 2003).
. Lentell v. Merrill Lynch & Co., 396 F.3d 161, 173 (2d Cir. 2005) (alteration in original) (emphasis omitted) (quoting Suez Equity Investors, L.P. v. Toronto-Dominion Bank, 250 F.3d 87, 95 (2d Cir. 2001)).
. Id. at 174 (alteration in original) (quoting First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 772 (2d Cir. 1994)).
. In re Flag Telecom Holdings, Ltd. Sec. Litig., 574 F.3d 29, 36 (2d Cir. 2009) (internal quotation marks omitted).
. Lattanzio v. Deloitte & Touche LLP, 476 F.3d 147, 158 (2d Cir. 2007).
. City of Westland, 928 F.Supp.2d at 714-15.
. Id. at 715 (second alteration in original) (quoting In re Flag Telecom Holdings, 574 F.3d at 36).
. Id. (quoting Lattanzio, 476 F.3d at 158).
. Id.; see also SAC ¶ 135. According to Central States, MetLife filed its Form 10-Q for the period ending June 30, 2011 — in which it disclosed, for the first time, the existence, breadth and possible consequences of the state investigations into its death benefits payment practices — on the morning of August 5, before the stock market opened. See SAC ¶ 133.
. SAC ¶ 135 (emphasis added). By contrast, the amended complaint alleged that the disclosures “caused” the decline. See DL20 ¶ 134.
. Lattanzio, 476 F.3d at 158.
. See SAC ¶ 137.
. In re Flag Telecom Holdings, 574 F.3d at 36. Central States’ attempt to downplay the significance of S & P’s decision, see SAC ¶ 137 n, 10, is unpersuasive. It falls on deaf ears,
. See SAC ¶ 138.
. City of Westland, 928 F.Supp.2d at 715 (citing Lentell, 396 F.3d at 174).
. Id. at 715-16.
.Id. at 716.
. Id. (finding those allegations insufficient to withstand a motion to dismiss).
. SAC ¶ 147.
.Id. ¶ 140.
. See id. ¶¶ 154-155.
. See City of Westland, 928 F.Supp.2d at 716; see also In re Lehman Bros. Sec. & ERISA Litig., No. 09-md-2017 (LAK) (S.D.N.Y. Sept. 10, 2015).
. See 15 U.S.C. § 78t.
. See SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1472 (2d Cir. 1996); In re China Valves Tech. Sec. Litig., 979 F.Supp.2d 395, 413-14 (S.D.N.Y. 2013).
. See Rombach, 355 F.3d at 177-78 (noting jhat a Section 20(a) claim — which is “necessarily predicated on a primary violation of securities law” — “must also be dismissed” where "the district court properly dismissed the primary securities claims against the ... defendants”).
. See SAC ¶,211. Central States alleges Section 11 violations against all defendants except Kandarian and Mullaney. It alleges Section 12(a)(2) violations against all defendants except Goldman Sachs and Citigroup as to the August 3, 2010 offering, And it alleges Section 15 violations against all MetLife Defendants except Castro-Wright.
. See City of Westland, 928 F.Supp.2d at 722.
. The Court dismissed Central States’ Section 12(a)(2) claims because it found that no defendant had " 'solicited the purchase of securities out of a desire to (a) serve their own interests or (b) serve the interests of the securities’ owner.’ ” Id. at 719-20 (quoting Citiline Holdings, Inc. v. iStar Fin. Inc., 701 F.Supp.2d 506, 512 (S.D.N.Y. 2010)), The SAC adds no allegations that point to a contrary conclusion.
. In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 358 (2d Cir. 2010); see also Omnicare, 135 S.Ct at 1323.
. 15 U.S.C, § 77k; see also Omnicare, 135 S.Ct. at 1323 (quoting the statutory text); In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d at 358-59(same).
. Herman & MacLean v. Huddleston, 459 U.S. 375, 383, 103 S.Ct. 683, 74 L.Ed.2d 548 (1983) (internal quotation marks omitted) (noting that this "is hardly a novel proposition").
. In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d at 359.
. See I. Meyer Pincus & Assocs. v. Oppenheimer & Co., 936 F.2d 759, 761 (2d Cir. 1991) (noting that Sections 10(b) and 11 each require private securities plaintiffs to "identify a materially misleading statement made by the defendants").
. 15 U.S.C. § 77k; 17 C.F.R. § 240.10b-5(b).
. See In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d at 359.
. As before, the Court assumes, arguendo, that Central States has alleged adequately that MetLife's stated mortality ratios were material — that is, that "there is a substantial likelihood that a .reasonable shareholder would consider [such ratios] important in deciding how to [act].” Hutchison, 647 F.3d at 485 (second alteration in original) (internal quotation- marks omitted); see also Basic, Inc., 485 U.S. at 231-32, 108 S.Ct. 978.
. Omnicare, 135 S.Ct. at 1326.
. See 15 U.S.C. § 77o.
. In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d at 358; see also First Jersey Sec., Inc., 101 F.3d at 1472 ("In order to éstablish a prima facie case of controlling-person liability, a plaintiff must show a primary violation by the controlled person and control of the primary violator by the targeted defendant....”).
. See In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d at 358, 366, (affirming the district court's dismissal of a Section 15 claim where the plaintiffs’ Section 11 and 12 claims were properly dismissed).
Reference
- Full Case Name
- CITY OF WESTLAND POLICE AND FIRE RETIREMENT SYSTEM, Individually and on Behalf of All Others Similarly Situated v. METLIFE, INC.
- Cited By
- 25 cases
- Status
- Published