Expect Focus Life Insurance, June 2018

To Preempt or Not to Preempt - Courts Issue Competing SLUSA Rulings

Insurance   |   Life, Annuity, and Retirement Solutions   |   Securities Litigation and Enforcement   |   Financial Services Regulatory   |   Life, Annuity, and Retirement Litigation   |   Securities & Investment Companies   |   June 25, 2018

During two weeks in April, two different courts — the Second Circuit and the New Jersey Superior Court — considered nearly identical allegations regarding variable products and reached diametrically opposed conclusions about the extent to which the claims were barred by the Securities Litigation Uniform Standard Act (SLUSA).

In Shuster v. AXA Equitable Life Insurance, a putative class action involving variable life insurance policies, the plaintiff alleged that the contracts provided that AXA was not to make any material changes to the investment strategy related to the policies without first informing appropriate regulatory agencies. Plaintiff claimed AXA breached this provision by implementing a new “volatility-management strategy” in 2009 without adequately informing the New York Department of Financial Services, and that this act affected policyholders’ investment, resulting in reduced returns. The action’s procedural history included AXA’s removal of the case to the New Jersey federal district court and its move to dismiss the breach of contract claim as barred by SLUSA, which preempts class actions that allege misrepresentation or omission of a material fact in connection with the purchase or sale of a security. The New Jersey federal district court judge remanded the action. In state court, AXA again moved to dismiss, this time successfully.

In an April 17 ruling affirming the action’s dismissal, the New Jersey Superior Court found, based on the complaint’s allegations, the alleged misrepresentation did not necessarily induce the purchase of securities, but did result in a trading strategy within AXA’s accounts that ultimately reduced returns to putative class members. Like the trial court, the appellate court relied on a New York federal district court case, Zweiman v. AXA Equitable Life Insurance Company, which challenged the same investment strategy. There, in a 2015 opinion, the court broadly construed the requirement that the deception occur “in connection” with the purchase or sale of securities, finding the element was satisfied because the alleged fraud negatively impacted the securities. The New Jersey Superior Court agreed with this logic and found that SLUSA precluded the breach of contract claim. The Shuster court did not, however, cite a Second Circuit ruling reversing a SLUSA-based dismissal of a suit involving a putative class of variable annuity policyholders issued the week before — despite the fact that the same alleged misconduct by the same defendant was at issue.

Specifically, in its April 10 ruling in O’Donnell v. AXA Equitable Life Ins. Co., the Second Circuit considered a strikingly similar case and refused to adopt the Zweiman court’s analysis. Rather than broadly construing SLUSA’s “in connection with” element, the Second Circuit noted that the alleged misrepresentation to a regulator and the inaction of a securities holder to buy or sell were unconnected. It also found there was no reasonable inference that AXA misled the plaintiff or the market more generally in a manner that influenced the purchase or sale of securities. As a result, the Second Circuit concluded that SLUSA did not preempt the plaintiff’s breach of contract claim.


©2023 Carlton Fields, P.A. Carlton Fields practices law in California through Carlton Fields, LLP. Carlton Fields publications should not be construed as legal advice on any specific facts or circumstances. The contents are intended for general information and educational purposes only, and should not be relied on as if it were advice about a particular fact situation. The distribution of this publication is not intended to create, and receipt of it does not constitute, an attorney-client relationship with Carlton Fields. This publication may not be quoted or referred to in any other publication or proceeding without the prior written consent of the firm, to be given or withheld at our discretion. To request reprint permission for any of our publications, please use our Contact Us form via the link below. The views set forth herein are the personal views of the author and do not necessarily reflect those of the firm. This site may contain hypertext links to information created and maintained by other entities. Carlton Fields does not control or guarantee the accuracy or completeness of this outside information, nor is the inclusion of a link to be intended as an endorsement of those outside sites.

Subscribe to Publications


The information on this website is presented as a service for our clients and Internet users and is not intended to be legal advice, nor should you consider it as such. Although we welcome your inquiries, please keep in mind that merely contacting us will not establish an attorney-client relationship between us. Consequently, you should not convey any confidential information to us until a formal attorney-client relationship has been established. Please remember that electronic correspondence on the internet is not secure and that you should not include sensitive or confidential information in messages. With that in mind, we look forward to hearing from you.