ASOCIACIN DE ENFERMERA VISITANTE GREGORIA AUFFANT, INC. et al v. GREAT-WEST LIFE AND ANNUITY INSURANCE CO.

Filing 80

REPORT AND RECOMMENDATION re 66 MOTION to dismiss Complaint as to Caribbean Pension Consultant, Inc. filed by Caribbean Pension Consultant, Inc., 45 MOTION to dismiss complaint as to Metropolitan Life Insurance, Metlife Securities, Inc., General American, Great-West Life and Annuity Insurance Company filed by Great-West Life and Annuity Insurance Company, Metlife Securities, Inc., General American, Metropolitan Life Insurance Objections to R&R due by 12/23/2010Signed by US Magistrate Judge Bruce J. McGiverin on 12/6/2010.(yo)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF PUERTO RICO

ASOCIACIÓN DE ENFERMERÍA
VISITANTE AUFFANT, INC., et al.,
Plaintiffs,

Civil No. 09-1514 (BJM)

v.
GREAT-WEST LIFE AND ANNUITY
INSURANCE COMPANY, et al.,
Defendants.

REPORT AND RECOMMENDATION
Before the court are two motions to dismiss the complaint filed by plaintiffs Asociación de
Enfermería Visitante Gregoria Auffant, Inc. (“AEVGA”) and Plan de Beneficios Definidos de
AEVGA (“Pension Plan”) (collectively, “AEVGA” or “plaintiffs”) against defendants Great-West
Life and Annuity Insurance Company (“Great West”), Metropolitan Life Insurance (“Metropolitan”),
Metlife Securities, Inc. (“Metlife”), General American Life Insurance Company (“General
American”) (collectively, the “Metropolitan defendants”), Caribbean Pension Consultants, Inc.
(“CPC”), Fascore LLC (“Fascore”), and GWFS Equities, Inc. (“GWFS”) (collectively,
“defendants”).1 The Metropolitan defendants removed plaintiffs’ complaint, which alleges breach
of contract and violation of the Puerto Rico Uniform Securities Act (“PRUSA”), as amended, 10
L.P.R.A. §§ 851 et seq. (Docket Nos. 1-5, 1-6), from the Puerto Rico courts to this court before
defendant CPC had been served. (Docket No. 1). The Metropolitan defendants and CPC filed
motions to dismiss the complaint (Docket Nos. 45, 66, 68), and plaintiffs have opposed. (Docket
Nos. 57, 74). The case was referred to me by the presiding judge for disposition as to the

1

Fascore and GWFS were served process (Docket Nos. 30, 31) but have not answered the
complaint and are not included among the defendants that have moved to dismiss the complaint.

Asociación de Enfermería Visitante Gregoria Auffant, Inc., et al. v.
Great W est Life and Annuity Insurance Co., et al.
CIVIL NO. 09-1514 (BJM)
REPORT AND RECOM M ENDATION

Page 2

Metropolitan defendants and for a report and recommendation as to defendant CPC.2 (Docket Nos.
15, 79). 28 U.S.C. § 636. After careful consideration, I recommend that the court grant CPC’s
motion to dismiss and grant in part and deny in part the Metropolitan defendants’ motion to
dismiss.
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff AEVGA is a non-profit organization headquartered in Hato Rey, Puerto Rico, that
offers in-home care and health services. AEVGA offers its employees various employment benefits,
including an annuity program (the “Annuity Plan”), whose benefits are provided under the terms of
an annuity contract (the “Annuity Contract”) in which the Annuity Plan’s funds are invested.
(Docket No. 1-6, ¶¶ 1, 10, 12, 14). Plaintiff Pension Plan is the AEVGA employees’ retirement
pension plan. The Pension Plan, which has been frozen since November 1, 1998, covers AEVGA
employees, all of whom are Puerto Rico residents. (Id., ¶ 2).
Defendants have been AEVGA’s financial planning advisors and have jointly provided the
administrative services for employee benefits offered by AEVGA. (Id., ¶ 11). The Annuity Contract
was issued by defendant General American and maintained by defendants Metropolitan, MetLife,
Great West, and Fascore. (Id., ¶ 12). Defendant General American is an insurance company
incorporated in Missouri and authorized to do business in Puerto Rico. General American issued
the Annuity Contract, contract number 454137-P1, to AEVGA, and contract number 454136-P1 (the
“Pension Contract”) (together, the “Contracts”) to the Pension Plan.3 (Id., ¶¶ 1, 3). General
American is affiliated with defendant Metropolitan, an insurance company headquartered in New

2

While plaintiffs and the Metropolitan defendants consented to magistrate judge jurisdiction
(Docket No. 14), defendant CPC, which was subsequently served (Docket No. 32), declined to consent.
(Docket No. 78). Because my analysis is largely based on the same grounds as to both parties, and in
order to avoid any risk of conflicting opinions, I am issuing a report and recommendation as to all
defendants.
3

Although incorporated by reference into the complaint, the Contracts are not in evidence.

Asociación de Enfermería Visitante Gregoria Auffant, Inc., et al. v.
Great W est Life and Annuity Insurance Co., et al.
CIVIL NO. 09-1514 (BJM)
REPORT AND RECOM M ENDATION

Page 3

York and authorized to do business in Puerto Rico. Metropolitan manages the Annuity and Pension
Contracts. (Id., ¶ 4). Defendant MetLife, a corporation headquartered in New York, is a subsidiary
of Metropolitan. (Id., ¶ 5). Defendant Fascore is a corporation headquartered in Colorado that
provides services on behalf of Metropolitan and General American. (Id., ¶ 9). Defendant Great
West, an investment company headquartered in Colorado, acquired the Contracts, which were
offered through Great West’s subsidiary, defendant GWFS, a corporation headquartered in Colorado.
(Id., ¶¶ 6-7). Defendant CPC is an investment firm headquartered in Florida dedicated to offering
consulting and employment benefit administration services. CPC was acquired by Oriental Bank
and Trust (“OBT”) to offer its retirement plan administration services to its customers. (Id., ¶ 8).
According to the complaint, General American and Metropolitan sold the Annuity Contract
to AEVGA without registering that contract with the Puerto Rico Office of the Commissioner of
Financial Institutions (“OCFI”) or providing AEVGA’s officers a copy of the Annuity Contract’s
prospectus with information on the contract’s details. Furthermore, General American and
Metropolitan did not designate a duly authorized, registered representative to provide AEVGA’s
officers the orientation, information, and financial assistance necessary to make decisions relating
to the Annuity Contract’s management and administration. Likewise, when Great West took over
administration of the Contracts, it did not designate an authorized representative to offer plaintiffs
financial assistance and advice regarding administration of the Contracts’ funds. Defendants have
refused to respond to AEVGA’s requests regarding the Contracts. (Id., ¶¶ 6, 12, 14, 15).
The return of funds under the Annuity Contract depends substantially on the results of the
investment of a fund or a separate account invested in the acquisition of securities. (Id., ¶ 13). The
value of the Annuity Contract has decreased, resulting in a reduction of benefits for participating
employees. (Id., ¶ 15). Notwithstanding AEVGA’s officers’ fruitless efforts to cancel the Annuity
Contract and prevent the loss of its value, the investments maintained in the Annuity Contract had
sustained losses of around $50,000 at the time the complaint was filed. (Id., ¶ 16).

Page 4

Asociación de Enfermería Visitante Gregoria Auffant, Inc., et al. v.
Great W est Life and Annuity Insurance Co., et al.
CIVIL NO. 09-1514 (BJM)
REPORT AND RECOM M ENDATION

In their first cause of action, plaintiffs claim that these losses and related damages have
resulted from defendants’ alleged violations of the Puerto Rico Uniform Securities Act (“PRUSA”),
10 L.P.R.A. §§ 851 et seq., in not (1) registering the investment with the OCFI as required by law
or (2) appointing an authorized representative to handle AEVGA’s claims. (Id., ¶¶ 12, 18).
AEVGA’s attempt to submit this claim to the OCFI and the Puerto Rico Office of the Insurance
Commissioner (“OIC”) was denied on the grounds that those offices lack jurisdiction to handle
claims pertaining to employee benefits. (Id., ¶ 17).
Plaintiffs’ second cause of action, alleging breach of contract relating to the Pension Plan,
“arises as a result of the same series of acts, omissions or events that gave rise to the first cause of
action in this case.” (Id., ¶¶ 19, 23). Plaintiffs claim that defendants, including CPC, failed to
comply with their contractual obligations by not (1) preparing actuarial reports required by the
Pension Plan or (2) processing the Pension Plan’s benefit payments.

Plaintiffs allege that

defendants’ noncompliance and Fascore’s intervention with the administration of the Pension
Contract prevented OBT and its subsidiary CPC from providing services to the Pension Plan in their
role as the plan’s administrators, kept Banco Santander de Puerto Rico and OBT from providing
their agreed-upon services to AEVGA, and disrupted the preparation of the actuarial reports required
for the Pension Plan such that the reports could not be completed. (Id., ¶¶ 19-21).
At the time the complaint was filed in March 2009, the United States Department of Labor
(“DOL”) was requiring plaintiffs to pay fines and penalties for not having prepared certain actuarial
reports that CPC allegedly should have prepared. (Id., ¶ 20). Plaintiffs’ second cause of action
claims an estimated $200,000 in damages, including the DOL’s fines. (Id., ¶ 22). The complaint
states that the claim is for breach of contract only and “does not involve fiduciary action, since all
the defendants have refused to recognize that they have any fiduciary obligations in regard to the
administration of [the Annuity and Pension Plans].” (Id., ¶ 23). Defendants removed to this court
in June 2009 on diversity of citizenship and federal question grounds, 28 U.S.C. §§ 1332, 1441(a)-

Asociación de Enfermería Visitante Gregoria Auffant, Inc., et al. v.
Great W est Life and Annuity Insurance Co., et al.
CIVIL NO. 09-1514 (BJM)
REPORT AND RECOM M ENDATION

Page 5

(b), alleging complete preemption of plaintiffs’ claims by the Employee Retirement Income Security
Act (“ERISA”), as amended, 29 U.S.C. § 1001 et seq. (Docket No. 1).
STANDARD OF REVIEW
In order to survive a Rule 12(b)(6) motion to dismiss for failure to state a claim upon which
relief can be granted, a complaint must allege “a plausible entitlement to relief.” Bell Atlantic Corp.
v. Twombly, 550 U.S. 544 (2007). However, a court should “accept well-pled factual allegations
in the complaint as true and make all reasonable inferences in the plaintiff’s favor.” Miss. Pub.
Employees’ Ret. Sys. v. Boston Scientific Corp., 523 F.3d 75, 85 (1st Cir. 2008). The court may
consider documents the authenticity of which are not disputed by the parties, documents central to
the plaintiffs’ claim, and documents sufficiently referred to in the complaint. Curran v. Cousins, 509
F.3d 36, 44 (1st Cir. 2007) (internal citation omitted); Beddall v. State St. Bank & Trust Co., 137
F.3d 12, 17 (1st Cir. 1998).
While a complaint need not contain detailed factual allegations in order to withstand
dismissal, a plaintiff’s “obligation to provide the grounds of his entitlement to relief requires more
than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not
do.” Twombly, 550 U.S. at 555 (internal citation omitted). The court need not accept as true legal
conclusions or “naked assertions devoid of further factual enhancement.” Ashcroft v. Iqbal, 556
U.S. ___, 129 S.Ct. 1937, 1949-50 (2009) (citing Twombly, 550 U.S. at 557) (internal alteration
omitted); Maldonado v. Fontanes, 568 F.3d 263, 267 (1st Cir. 2009). The complaint must allege
enough factual content to nudge a claim across the line from conceivable to plausible. Iqbal, 129
S.Ct. at 1952 (citing Twombly, 550 U.S. at 570). The court’s assessment of the pleadings is contextspecific, requiring the court “to draw on its judicial experience and common sense.” Id. at 1949.
The plaintiff must show more than the “sheer possibility that a defendant has acted unlawfully.” Id.
Where the well-pleaded facts do not permit the court to infer more than the mere possibility of
misconduct, the complaint has alleged, but has not shown, that the pleader is entitled to relief. Id.

Asociación de Enfermería Visitante Gregoria Auffant, Inc., et al. v.
Great W est Life and Annuity Insurance Co., et al.
CIVIL NO. 09-1514 (BJM)
REPORT AND RECOM M ENDATION

Page 6

at 1950 (quoting Fed. R. Civ. P. 8(a)(2)).
DISCUSSION
I.

ERISA Preemption
Defendants’ motions to dismiss argue, albeit perfunctorily, that plaintiffs’ Puerto Rico law

claims are preempted by ERISA. (Docket Nos. 45, p. 2; 66, p. 2). ERISA provides a comprehensive
regulatory scheme that broadly preempts any state laws that “relate to” employee benefit plans. 29
U.S.C. § 1144(a). Where a plaintiff’s purported state law claims in fact allege breach of fiduciary
duty within the meaning of ERISA, ERISA completely preempts the state law claims. Dudley
Supermarket, Inc. v. Transamerica Life Ins. and Annuity Co., 302 F.3d 1, 3 (1st Cir. 2002). The
Metropolitan defendants’ notice of removal4 contends that ERISA completely preempts plaintiffs’
claims because the claims “in substance seek relief that is otherwise within the scope of ERISA[’s]
remedy provisions.” (Docket No. 1, p. 4, ¶ 9).
A.

Breach of Contract

I agree with defendants with respect to plaintiffs’ breach of contract claim. In Dudley
Supermarket, the trustees of an employee benefit plan sued the defendant financial services company
for state and common law claims of negligence, breach of contract, and unfair trade practices due
to the defendant’s allegedly deficient investment advice regarding asset management for the plan.
302 F.3d at 3. The complaint alleged that the defendant “failed to provide adequate information
concerning its investment practices, to provide accurate actuarial statements, and to disclose that the
plan was underperforming.” Id. at 3-4. On appeal, the plaintiffs argued that they were not alleging
that the defendant acted as a fiduciary under ERISA, but rather as a “provider of garden-variety
professional services” regulated by state laws that did not affect ERISA’s regulatory scheme. Id.
The First Circuit rejected this argument, finding that by the complaint’s terms, the defendant

4

At the time of removal, defendant CPC had not yet been served.

Asociación de Enfermería Visitante Gregoria Auffant, Inc., et al. v.
Great W est Life and Annuity Insurance Co., et al.
CIVIL NO. 09-1514 (BJM)
REPORT AND RECOM M ENDATION

Page 7

qualified as an ERISA fiduciary with respect to plaintiff’s employee benefit plan. Since “in reality”
the state law claims alleged breach of fiduciary duty under ERISA to provide competent investment
advice and services, the court held, ERISA completely preempted the plaintiffs’ state law claims.
Id. at 3-4 (citing 29 U.S.C. § 1002(21)(A); further citations omitted).
The same analysis applies to the instant case. Under ERISA, a person is a “fiduciary” with
respect to an employee benefit plan if he (1) “exercises any discretionary authority or discretionary
control respecting management of such plan or exercises any authority or control respecting
management or disposition of its assets,” (2) “renders investment advice for a fee or other
compensation, direct or indirect, with respect to any moneys or other property of such plan, or has
any authority or responsibility to do so,” or (3) “has any discretionary authority or discretionary
responsibility in the administration of such plan.” 29 U.S.C. § 1002(21)(A). “Investment advice”
includes “advice as to the value of securities or other property, or as to the advisability of investing
in, purchasing, or selling securities or other property, where the advice is individualized and is
rendered on a regular basis pursuant to a mutual agreement for a fee.” Dudley Supermarket, 302
F.3d at 3-4 (citation omitted). According to the complaint, pursuant to the Contracts with plaintiffs,
“[d]efendants have been financial planning advisors for plaintiff and have jointly provided the
administrative services for employee benefits offered by AEVGA,” including management,
consulting, and administration services for the Plans and the assets contained therein. (Docket No.
1-6, ¶¶ 3-14). Therefore, by the terms of the complaint, defendants qualify as ERISA fiduciaries.5
Plaintiffs’ breach of contract claim seeks damages “for failure to comply with [defendants’]
obligation to properly administer the retirement plans,” including failure to provide adequate

5

In opposing defendants’ motions to dismiss, plaintiffs change course from their complaint and
argue for the first time that defendants are liable as fiduciaries under ERISA. (Docket Nos. 57, 74).
However, plaintiffs have never moved to amend their complaint to state causes of action under ERISA
instead of or in addition to Puerto Rico law. Moreover, the time to amend has passed. FED . R. CIV . P.
15(a). Accordingly, I will not consider any causes of action under ERISA.

Asociación de Enfermería Visitante Gregoria Auffant, Inc., et al. v.
Great W est Life and Annuity Insurance Co., et al.
CIVIL NO. 09-1514 (BJM)
REPORT AND RECOM M ENDATION

Page 8

financial assistance or key information regarding the Annuity Plan, to process Pension Plan benefit
payments, or to prepare the Pension Plan’s actuarial reports. (Docket Nos. 1-6, ¶¶ 12, 14, 19; 74,
p. 3). At its core, this claim is for breach of fiduciary duty while defendants were acting as ERISA
fiduciaries, even though, like the plaintiffs in Dudley Supermarket, plaintiffs’ complaint disclaims
any “fiduciary action,” ostensibly because defendants refused to acknowledge any fiduciary status.
(Id. at ¶ 23). Plaintiffs’ breach of contract claim is premised upon defendants’ conduct in
administering the Plans, so ERISA’s full preemptive force must apply. Levy v. Chandler, 287 F.
Supp. 2d 831, 839 (E.D. Tenn. 2003). I therefore recommend that the district court grant both the
Metropolitan defendants’ and CPC’s motions to dismiss the breach of contract claim.
B.

PRUSA

I do not, however, find defendants’ preemption argument persuasive as to plaintiffs’ other
claim, alleging violations of various registration and notification requirements that PRUSA imposes
on broker-dealers, investment advisors, and the securities they offer and sell. See 10 L.P.R.A. §§
861, 871, 874(d), 890(a)(1). Plaintiffs allege that the Annuity Plan lost value because defendants
failed to register the Annuity Contract with the OCFI, give AEVGA’s officers a prospectus about
the Annuity Plan’s investment options, or appoint an authorized representative to provide financial
assistance and claims handling. (Docket No. 1-6, ¶¶ 12, 15, 16, 18).
Under ERISA’s “saving clause,” laws that “regulate[] insurance, banking, or securities” are
generally saved from preemption. 29 U.S.C. § 1144(b)(2)(A). There is no question that PRUSA is
a law that regulates securities. Courts have found the saving clause applicable to state laws
prohibiting insurers from conducting business in the state without acquiring a certificate of authority
from the state’s insurance regulating agency. E.g., Wayne Chemical, Inc. v. Columbus Agency Serv.
Corp., 567 F.2d 692 (7th Cir. 1977); Comm-Exec Investigations, Inc. v. Cutrona Ins. Agency, Inc.,
976 F. Supp. 770, 771-72 (N.D. Ill. 1997). The court in Comm-Exec held that ERISA did not
preempt the state law at issue because that law applied “to all insurance carriers and to all insurance

Asociación de Enfermería Visitante Gregoria Auffant, Inc., et al. v.
Great W est Life and Annuity Insurance Co., et al.
CIVIL NO. 09-1514 (BJM)
REPORT AND RECOM M ENDATION

Page 9

policies across the board, having no particular focus on employee benefit plans or on the carriers that
insure them.” Comm-Exec, 976 F. Supp. at 772 (distinguishing Metropolitan Life Ins. Co. v. Taylor,
481 U.S. 58, 62 (1987)). Moreover, the DOL, in an advisory opinion, took the view that “it would
be contrary to Congressional intent to conclude that states, while having the authority to apply
insurance laws to such plans, do not have the authority to require and enforce registration, licensing,
reporting, and similar requirements necessary to establish and monitor compliance with those laws.”
United States Department of Labor, Pension and Welfare Benefits Administration, Advisory Opinion
90-18A, p. 4. By analogy, the same rationale applies to the pertinent provisions of PRUSA, which
regulate “registration, licensing, reporting, and similar requirements” in relation to the offer and sale
of securities across the board, without singling out employee benefit plans.
However, as the Supreme Court has clarified in more recent cases, even laws that nominally
fall within the ERISA saving clause may still be preempted if they conflict with Congress’s policy
of providing “exclusively federal remedies.” Rush Prudential HMO, Inc. v. Moran, 536 U.S. 355,
377 (2002). “[A]ny state-law cause of action that duplicates, supplements, or supplants the ERISA
civil enforcement remedy conflicts with the clear congressional intent to make the ERISA remedy
exclusive and is therefore pre-empted.” Aetna Health Inc. v. Davila, 542 U.S. 200, 209 (2004). In
Aetna Health, the plaintiffs were plan participants and beneficiaries suing for benefits denied by the
plan provider; they “did not attempt to remedy any violation of a legal duty independent of ERISA.”
Pharm. Care Mgmt. Ass’n v. Rowe, 429 F.3d 294, 305 (1st Cir. 2005).
Plaintiffs’ PRUSA claim, by contrast, seeks a remedy for just such an independent legal duty.
PRUSA’s registration requirements “‘have no real bearing on the intricate web of relationships
among the principal players in the ERISA scenario (e.g., the plan, the administrators, the fiduciaries,
the beneficiaries, and the employer).’” Rowe, 429 F.3d at 305 (quoting Carpenters Local Union No.
26 v. U.S. Fid. & Guar. Co., 215 F.3d 136, 141 (1st Cir. 2000)). In their role as offerors and sellers
of securities, as opposed to their role of plan administrators as discussed above in section I.A,

Asociación de Enfermería Visitante Gregoria Auffant, Inc., et al. v.
Great W est Life and Annuity Insurance Co., et al.
CIVIL NO. 09-1514 (BJM)
REPORT AND RECOM M ENDATION

Page 10

defendants were not “acting as an ERISA fiduciary.” Dudley Supermarket, 302 F.3d at 3; 29 U.S.C.
§ 1002(21)(A). While non-fiduciaries may still be liable for violating certain provisions of ERISA
or the terms of the plan, Harris Trust and Sav. Bank v. Salomon Smith Barney, Inc., 530 U.S. 238,
246 (2000), ERISA neither proscribes nor provides a remedy for the conduct alleged by plaintiffs,
that is, failure to comply with securities registration requirements. See 29 U.S.C. §§ 1104 (fiduciary
duties under ERISA), 1132 (civil enforcement remedy). Since PRUSA does not duplicate,
supplement, or supplant ERISA’s civil enforcement remedy with respect to the registration and
notification provisions, PRUSA falls within ERISA’s saving clause.6 Rowe, 429 F.3d at 305.
Accordingly, plaintiffs’ PRUSA claim is not preempted by ERISA. I turn, then, to defendants’ Rule
12(b)(6) challenge to that claim.
II.

Rule 12(b)(6) Challenge to PRUSA Claim
Defendants argue that plaintiffs’ claim under unspecified provisions of PRUSA should be

dismissed for failing to meet the Twombly/Iqbal plausibility standard pursuant to Federal Rule of
Civil Procedure 8(a) (“Rule 8(a)”) or the pleading requirements of Federal Rule of Civil Procedure
9(b) (“Rule 9(b)”), the Private Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. §
78u-4(c), and Securities and Exchange Commission Rule 10b-5 (“Rule 10b-5”), 17 C.F.R. §
240.10b-5.7 (Docket Nos. 45, p. 6-13; 66, p. 7-12). Plaintiffs respond that the complaint’s

6

Compare As You Sow v. AIG Fin. Advisors, Inc., 584 F. Supp. 2d 1034 (M.D. Tenn. 2008)
(claims under state securities law fell within ERISA saving clause), with Bacon v. Stiefel Labs., Inc., 677
F. Supp. 2d 1331, 1347-48 (S.D. Fla. 2010) (ERISA preempted suit by plaintiff plan participants under
state securities law; state law remedy “duplicates the ERISA remedy because ERISA’s chief remedy is a
suit for benefits”).
7

With respect to defendant CPC, the PRUSA claim may be disposed of briefly. As CPC notes
(Docket No. 66, p. 2-3), the PRUSA claim contains absolutely no allegations pertaining to CPC
whatsoever, except insofar as CPC is included in the allegations referencing “defendants” generally.
(Docket No. 1-6, ¶¶ 10-18). Since the complaint does not show that plaintiffs are entitled to relief from
CPC for any PRUSA violations, FED . R. CIV . P. 12(b)(6); Twombly, 550 U.S. at 557, I recommend that
plaintiffs’ PRUSA claim be dismissed as to CPC.

Asociación de Enfermería Visitante Gregoria Auffant, Inc., et al. v.
Great W est Life and Annuity Insurance Co., et al.
CIVIL NO. 09-1514 (BJM)
REPORT AND RECOM M ENDATION

Page 11

allegations are sufficient under all of these standards.8 (Docket Nos. 57; 74, p. 1-7).
As defendants note (Docket No. 45-2, p. 3), the complaint cites PRUSA generally without
specifying which provisions defendants allegedly violated. As noted supra, the allegations of failure
to register the Annuity Contract, to provide a prospectus for the Annuity Plan, or to designate a
registered representative as AEVGA’s financial advisor (Docket No. 1-6, ¶¶ 12, 18) impliedly invoke
sections 861, 871, and 874(d) of PRUSA, 10 L.P.R.A. §§ 861, 871, 874(d). Section 861 of PRUSA
imposes registration and notification requirements on broker-dealers, agents, and investment
advisors doing business in Puerto Rico. 10 L.P.R.A. § 861. Section 871, in turn, requires the
registration of any security offered or sold in Puerto Rico, subject to certain exceptions. 10 L.P.R.A.
§ 871. Section 874(d) permits the OCFI to require, as a condition for registering a security, that a
prospectus containing certain information be provided to a buyer or offeree either before or
concurrently with the offer, sale, payment, or delivery of a security. 10 L.P.R.A. § 874(d). PRUSA
provides a private civil right of action against whoever offers or sells a security in violation of
section 861(a),9 871, or 874(d), inter alia, and whoever “directly or indirectly controls” such a seller,
subject to a limitations period of two years after the sale of the security. 10 L.P.R.A. § 890(a)-(b).
Defendants argue that “plaintiffs’ complaint lacks particular and concrete allegations of
misrepresentation or fraud” and thus does not meet the PSLRA’s or Rule 9(b)’s pleading
requirements. Defendants argue additionally that the complaint does not meet the threshold

8

Plaintiffs’ opposition to the Metropolitan defendants’ motion to dismiss argues, for the first
time, that defendants violated the Securities Act of 1933, 15 U.S.C. § 77a et seq. (Docket No. 57; see
also Docket No. 74). As noted, plaintiffs have never amended the complaint, and I will not read a
Securities Act cause of action into the complaint.
9

Importantly, PRUSA imposes civil liability pursuant only to subsection (a) of section 861, not
section 861’s remaining provisions. Section 861(a) provides, “It is unlawful for any person to transact
business in Puerto Rico as a broker-dealer or agent unless he is registered under this chapter.” 10
L.P.R.A. § 861(a). The remaining provisions pertain to investment advisors, the employment of agents
or representatives by broker-dealers and investment advisors, and the expiration and renewal of
registrations. 10 L.P.R.A. § 861(b)-(g).

Asociación de Enfermería Visitante Gregoria Auffant, Inc., et al. v.
Great W est Life and Annuity Insurance Co., et al.
CIVIL NO. 09-1514 (BJM)
REPORT AND RECOM M ENDATION

Page 12

requirement of economic loss for a claim under Rule 10b-5, which prohibits any act or omission
resulting in fraud or deceit in connection with the purchase or sale of any security. 17 C.F.R. §
240.10b-5. (Docket Nos. 45-2, p. 6-12; 66, p. 7-9).
Defendants have misconstrued the complaint (understandably, as the complaint is hardly a
model of clarity). They apparently presume that plaintiffs are suing under section 890(a)(2) of
PRUSA, which imposes civil liability on any person who offers or sells a security by fraudulent
means. 10 L.P.R.A. § 890(a)(2). The complaint never mentions fraud, nor is fraud an element of
any of the relevant substantive PRUSA provisions. Section 890(a)(1), not section 890(a)(2), makes
liable “[a]ny person who . . . [o]ffers or sells a security in violation of” those provisions. 10 L.P.R.A.
§ 890(a)(1). Therefore, the complaint does not implicate Rule 10b-5. Furthermore, since fraud is
not implicated in plaintiffs’ cause of action, the court finds inapplicable the heightened pleading
requirements of particularity and specificity that Rule 9(b) and the PSLRA impose. See FED . R. CIV .
P. 9(b) (requiring particularity of allegations of fraud or mistake); 15 U.S.C. § 78u-4(b)(1) (requiring
specificity of allegations of misleading statements and omissions in private securities fraud actions).
Next, the Metropolitan defendants contend that plaintiffs’ claim does not satisfy the Rule 8(a)
requirement that a complaint contain “a short and plain statement of the claim showing that the
pleader is entitled to relief,” FED . R. CIV . P. 8(a), because the complaint merely contains a conclusory
allegation of “violations of securities laws” without noting any specific statute or concrete fact.
Defendants claim that the complaint thus fails to give them fair notice of the claim against them.
(Docket No. 45-2, p. 12-14).
The complaint alleges that the Annuity Plan, which was “issued by General American and
maintained by Metropolitan Life, MetLife, Great West and Fascore,” was offered and sold to
AEVGA without being registered with the OCFI, without the designation of a registered
representative or agent to provide financial assistance to AEVGA, and without the submission of a
copy of the Annuity Plan’s prospectus to AEVGA’s officers. (Docket No. 1-6, ¶ 12). The complaint

Asociación de Enfermería Visitante Gregoria Auffant, Inc., et al. v.
Great W est Life and Annuity Insurance Co., et al.
CIVIL NO. 09-1514 (BJM)
REPORT AND RECOM M ENDATION

Page 13

also alleges that General American, Metropolitan, and Great West “maintained” the Annuity
Contract without giving AEVGA an authorized, registered representative to provide financial
assistance. (Id., ¶ 14).
The complaint does not allege that any defendant other than General American offered or
sold AEVGA the Annuity Contract, or any securities covered by the Annuity Plan, as required for
direct liability under section 890(a)(1). 10 L.P.R.A. § 890(a)(1); see also 10 L.P.R.A. § 881(j)(1)-(2)
(defining “sell,” “sale,” “offer,” and “offer to sell”). Therefore, plaintiffs’ allegations are insufficient
to state a claim for the direct liability of any defendant except, possibly, General American, as will
be discussed in more detail infra. However, section 890(b) of PRUSA extends liability to the same
degree as the seller, jointly and severally, to
[e]very person who directly or indirectly controls a seller liable under subsection (a),
every partner, officer, or director of such a seller, every person occupying a similar
status or performing similar functions, every employee of such a seller who
materially aids in the sale, and every broker-dealer or agent who materially aids in
the sale.
10 L.P.R.A. § 890(b). The complaint alleges that Metropolitan is affiliated with General American
and that MetLife, in turn, is a subsidiary of Metropolitan. (Docket No. 1-6, ¶¶ 3-5). The complaint
further alleges that “[d]efendants have been financial planning advisors for plaintiff and have jointly
provided . . . administrative services” and that “General American, Metropolitan and Great West
have maintained” the Annuity Contract. (Id., ¶¶ 11, 14). I find these allegations insufficient to
allege vicarious liability under any portion of section 890(b). Plaintiffs do not allege that the other
defendants controlled General American or materially aided in the sale of the Annuity Contract, and
the complaint does not contain enough factual content to show that the other defendants had a similar
status or functions as General American. See Iqbal, 129 S.Ct. at 1952; Twombly, 550 U.S. at 570.
Accordingly, I recommend that the court dismiss plaintiffs’ PRUSA claim against all defendants
save General American, namely, Metropolitan, MetLife, Great West, GWFS, and Fascore (as well
as CPC, as noted supra).

Asociación de Enfermería Visitante Gregoria Auffant, Inc., et al. v.
Great W est Life and Annuity Insurance Co., et al.
CIVIL NO. 09-1514 (BJM)
REPORT AND RECOM M ENDATION

Page 14

The question remains, then, whether the complaint’s allegations are sufficient to state a claim
against General American. PRUSA imposes civil liability on any person who offers or sells a
security where (1) that person is transacting business in Puerto Rico as a broker-dealer or agent
without being registered under PRUSA; (2) the security has not been registered under PRUSA; or
(3) the OCFI has, as a condition of registration, required “through regulation or order” that a
prospectus containing certain information “be sent or given to each person to whom an offering is
made before or concurrently with” the first written offering, sale, payment, or delivery of a security.
10 L.P.R.A. §§ 861(a), 871, 874(d), 890(a)(1).
The complaint alleges that General American issued the Annuity Contract to AEVGA, and
that the Annuity Contract was offered and sold without registering it with the OCFI, providing a
prospectus for the Annuity Plan, or appointing an authorized, registered representative for AEVGA.
(Docket No. 1-6, ¶¶ 3, 12). These allegations are insufficient to state a claim under section 874(d).
There is no allegation that the OCFI did, in fact, issue a regulation or order conditioning registration
of the Annuity Contract on the issuance of a prospectus. See 10 L.P.R.A. § 874(d). Thus, the court
cannot infer more than the mere possibility of misconduct, and plaintiffs have not shown entitlement
to relief. Iqbal, 129 S.Ct. at 1949.
Nor have plaintiffs stated a claim under section 861(a) of PRUSA, which prohibits
transacting business in Puerto Rico “as a broker-dealer or agent unless [the person] is registered
under this chapter.” 10 L.P.R.A. § 861(a). PRUSA defines “broker-dealer” as “any person engaged
in effecting transactions in securities” but does not include “[a]n agent” or “[a]n issuer.” 10 L.P.R.A.
§ 881(c). An “agent” is “any individual other than a broker-dealer, who represents a broker-dealer,
or an issuer, in conducting or attempting to conduct the purchase or sale of securities,” subject to
certain exclusions not relevant here. 10 L.P.R.A. § 881(b). An “issuer” is “any person who issues
or proposes to issue any security.” 10 L.P.R.A. § 881(g). A “security” means “any . . . investment
contract.” 10 L.P.R.A. § 881(l). The complaint alleges that General American issued the Contracts

Asociación de Enfermería Visitante Gregoria Auffant, Inc., et al. v.
Great W est Life and Annuity Insurance Co., et al.
CIVIL NO. 09-1514 (BJM)
REPORT AND RECOM M ENDATION

Page 15

to plaintiffs and that the Contracts are investment contracts. (Docket No. 1-6, ¶¶ 3, 4, 6, 12).
Accordingly, the complaint alleges that General American is an issuer of a security and therefore
excluded from the definition of “broker-dealer.” There are no allegations that General American
qualifies as an “agent” under PRUSA. Since section 861(a) makes it unlawful to “transact business
in Puerto Rico as a broker-dealer or agent unless . . . registered under this chapter,” 10 L.P.R.A. §§
861(a) (emphasis added), plaintiffs have not stated a claim for violation of section 861(a). See 10
L.P.R.A. § 890(a)(1) (imposing liability for violation of subsection (a) only of section 861).
Finally, the court finds the complaint’s allegations sufficiently state a claim under section 871
of PRUSA, which prohibits any person from offering or selling any security in Puerto Rico unless
the security has been registered under PRUSA’s provisions. 10 L.P.R.A. § 871(1). The complaint
alleges that General American issued the Contracts to plaintiffs and that the Contracts were offered
and sold without being registered with the OCFI. (Docket No. 1-6, ¶¶ 3, 12). While the court need
not accept as true “naked assertions devoid of further factual enhancement,” Iqbal, 129 S.Ct. at 194950, it is unclear what more plaintiffs would have to say in order to adequately allege defendant’s
failure to act, which is precisely what the law prohibits. See FED . R. CIV . P. 8(a). I find that
plaintiffs have sufficiently stated a claim against General American under section 871 of PRUSA.
Accordingly, I recommend that the court dismiss plaintiffs’ PRUSA cause of action against
all defendants, except for the claim under 10 L.P.R.A. § 871 against General American only.
III.

Failure to Prosecute or Comply with Court Orders
The Metropolitan defendants also argue that the complaint should be dismissed for lack of

prosecution and for plaintiffs’ repeated flouting of the deadlines set by the court. (Docket No. 45,
p. 14-17). Rule 41(b) of the Federal Rules of Civil Procedure provides, “If the plaintiff fails to
prosecute or to comply with these rules or a court order, a defendant may move to dismiss the action
or any claim against it.” FED . R. CIV . P. 41(b). “[T]he district court’s decision to dismiss a claim for
failure to prosecute with or without prejudice is ordinarily within its discretion.” The Shell Co.

Asociación de Enfermería Visitante Gregoria Auffant, Inc., et al. v.
Great W est Life and Annuity Insurance Co., et al.
CIVIL NO. 09-1514 (BJM)
REPORT AND RECOM M ENDATION

Page 16

(P.R.) Ltd. v. Los Frailes Serv. Station, Inc., 605 F.3d 10, 26 (1st Cir. 2010). While dismissal is
appropriate only when a plaintiff’s misconduct is extreme, wasting the court’s time and ignoring
court deadlines have been found reason enough to dismiss a complaint. Tower Ventures, Inc. v. City
of Westfield, 296 F.3d 43, 46 (1st Cir. 2002) (citing Enlace Mercantil Internacional, Inc., v. Senior
Indus., Inc., 848 F.2d 315, 317 (1st Cir. 1988); Cosme Nieves v. Deshler, 826 F.2d 1, 2 (1st Cir.
1987)).
The Metropolitan defendants argue that plaintiffs have failed to prosecute their case, given
their repeated requests for extension of time, failure to meet their own or the court’s deadlines, and
failure to amend their pleadings despite significant developments since the filing of the complaint.
(Docket No. 45-2, p. 14-17). Defendants argue that such disregard for court orders and the court’s
need for efficient case management in the context of a crowded calendar merit dismissal. Certainly
plaintiffs’ habitual noncompliance with the court’s orders is cause for considerable concern.
Nevertheless, in light of the foregoing discussion, the case has been narrowed down to a single claim
against a single defendant, which will simplify matters for both the parties and the court going
forward. While I would caution plaintiffs to be more heedful in the future of the deadlines set by the
court, I do not find that plaintiffs’ torpid approach to their own case warrants dismissal at the present
time. Therefore, I recommend that the court deny the Metropolitan defendants’ motion to dismiss
the complaint on the alternative basis of Rule 41(b).
CONCLUSION
For the reasons explained above, I recommend that the court GRANT the motions to dismiss
(Docket Nos. 45, 66) as to all defendants except General American. As to General American, I
recommend that the court GRANT its motion to dismiss as to all claims except the claim brought
under section 871 of PRUSA, 10 L.P.R.A. § 871.
This report and recommendation is filed pursuant to 28 U.S.C. 636(b)(1)(B) and Rule 72(d)
of the Local Rules of this Court. Any objections to the same must be specific and must be filed with

Asociación de Enfermería Visitante Gregoria Auffant, Inc., et al. v.
Great W est Life and Annuity Insurance Co., et al.
CIVIL NO. 09-1514 (BJM)
REPORT AND RECOM M ENDATION

Page 17

the Clerk of Court within fourteen days of its receipt. Failure to file timely and specific objections
to the report and recommendation is a waiver of the right to appellate review. See Thomas v. Arn,
474 U.S. 140, 155 (1985); Davet v. Maccorone, 973 F.2d 22, 30-31 (1st Cir. 1992); Paterson-Leitch
Co. v. Mass. Mun. Wholesale Elec. Co., 840 F.2d 985 (1st Cir. 1988); Borden v. Sec’y of Health &
Human Servs., 836 F.2d 4, 6 (1st Cir. 1987).
IT IS SO RECOMMENDED.
In San Juan, Puerto Rico, this 6th day of December, 2010.

S/Bruce J. McGiverin
BRUCE J. McGIVERIN
United States Magistrate Judge