Martin v. Metro. Life Ins. Co.

179 F.Supp.3d 948

Brenda G. Martin, et al., Plaintiffs,

v.Metropolitan Life Insurance Company, Defendant.

Case No. 16-cv-00484-RS

United States District Court, N.D. California.

Signed April 12, 2016

Jennifer Susan Rosenberg, Robert M. Bramson, Bramson, Plutzik, Mahler & Birkhaeuser LLP, Walnut Creek, CA, for Plaintiffs.

Joel Steven Feldman, Lisa Schwartz, Susan Ann Stone, Sidley Austin LLP, Chicago, IL, Carol Lynn Thompson, Sidley Austin LLP, San Francisco, CA, for Defendant.

ORDER GRANTING MOTION TO DISMISS

RICHARD SEEBORG, United States District Judge

I. INTRODUCTION

Plaintiffs Brenda G. Martin (“Martin”) and Joseph R. Giordano (“Giordano”) own life insurance policies obtained from defendant Metropolitan Life Insurance Company (“MetLife”). Plaintiffs completed, signed, and submitted an insurance application which, together with the ensuing policy, constitutes their respective insurance contracts. One perk of the program is the option for a loan against the accumulated cash value of the policy, an opportunity plaintiffs seized about a decade after they began doing business with MetLife. Plaintiffs eventually learned MetLife compounds interest on all policy loans, even though this practice was not disclosed on the applications plaintiffs signed to obtain life insurance. Suspecting they'd been hoodwinked, Martin and Giordano elected to file suit.

The crux of the complaint is that MetLife violates a century-old voter initiative (“the initiative”) by charging compound interest on policy loans without obtaining borrowers' written consent. MetLife counters it is exempt from this consent requirement by virtue of a constitutional amendment placed on the books by California voters in 1934. MetLife also maintains, in any event, it complied with the prior initiative, and submits Martin lacks standing to prosecute her claims because she does not allege she paid compound interest.

For the reasons explained below, MetLife's motion to dismiss will be granted. At bottom, the 1934 constitutional amendment empowers the California legislature to regulate compound interest as a form of “compensation” exempt entities “receive from a borrower in connection with any loan.” This provision conflicts with—and thus supersedes—the initiative's consent requirement, meaning exempt entities like MetLife cannot be held liable for violating the consent requirement. Even setting that aside, MetLife complied with the initiative. As all four of plaintiffs' claims hang on establishing a violation, they warrant dismissal without leave to amend.

II. FACTUAL BACKGROUND¹

Plaintiffs Martin and Giordano own whole life insurance policies issued to them by MetLife in 1992 and 1965, respectively. Whole life insurance is a type of product known generally as “permanent” life insurance. It accumulates cash value and pays a benefit upon the death of the insured.

MetLife's permanent life insurance allows policyholders to borrow against the accumulated cash value of the policy. The insured either can repay the loan directly in cash or use the cash value of the policy itself for repayment. If an insured person dies with a loan balance remaining, MetLife reduces the death benefit it pays by an amount necessary to cover the outstanding loan balance. If the policy is cancelled before the insured's death, the “surrender value” paid to the policyholder is reduced by the amount of any outstanding loan balance. In short, the loan balance, including interest, eventually is paid either by the policyholder herself, or if she dies, the subsequent beneficiary of the insurance.

Plaintiffs completed, signed, and submitted an application to obtain their respective policies, which provide (as to both plaintiffs) the application and policy together constitute the contract between the insured and the insurer.² Both policies allow for a loan up to at least the accumulated cash value of the policy, and describe in detail the manner in which compound interest may accrue.³ Plaintiffs signed only their applications—not the policies themselves, which they subsequently received and in which MetLife explained how interest could be compounded in certain circumstances. Giordano took out a policy loan about a decade after he first obtained insurance from MetLife. Martin followed suit around 2001, about nine years after she first obtained insurance.

The crux of the complaint is that MetLife violates a century-old voter initiative by charging compound interest on policy loans without obtaining borrowers' written consent. Specifically, in 1918, the voters of California saw fit to pass an initiative repealing various usury statutes and enacting new provisions.⁴ Section one of the initiative sets the default maximum rate of interest at seven percent, but authorizes rates up to twelve percent by written contract. Cal. Civ. Code § 1916–1. Section two—the provision most pertinent here—caps the maximum interest rate at 12 percent, and provides “interest shall not be compounded, nor shall the interest thereon be construed to bear interest unless an agreement to that effect is clearly expressed in writing and signed by the party to be charged therewith.” Id. § 1916-2. Section three authorizes a private right of action to recover treble the interest an individual has paid in violation of sections one or two of the initiative. Id. § 1916-3(a). Section four repeals the prior statutes regarding interest rate limitations. Id. § 1916-4.

In 1934, Golden State voters ratified an amendment to the California constitution modifying various parts of the 1918 initiative.⁵ Four paragraphs of the newly minted Article XX, section 22 especially are pertinent. Paragraph one reduces the maximum permissible rate of interest from twelve to ten percent. Cal Const. Art. XV, § 1. Paragraph two provides “[n]o person, association, copartnership or corporation shall by charging any fee, bonus, commission, discount or other compensation” circumvent the ten percent interest rate cap. Id. Paragraph three provides “none of the above restrictions shall apply” to the lender classes enumerated in the amendment. Id. It also says “[t]he Legislature may from time to time prescribe the maximum rate per annum of,...or in any manner fix, regulate or limit, the fees, bonuses, commissions, discounts or other compensation which all or any of the said exempted classes of persons may charge or receive from a borrower in connection with any loan.” Id. Paragraph four makes clear “[t]he provisions of this section shall supersede all provisions of this Constitution and laws enacted thereunder in conflict therewith.” Id.

Article XX, section 22 was renumbered to Article XV in 1976. Three years thereafter, the voters amended it once again to its present form. The only relevant modification is the addition of the phrase “or any other class of persons authorized by statute” to the list of exempt lender classes enumerated in paragraph three. Id. In 1981, the legislature used this authority to amend section 1100.1 of the Insurance Code to make insurers as a class a new category of exempt lenders. MetLife has been an incorporated admitted insurer in California since 1908. It thus seizes on Article XV as a basis for its exemption from the initiative's compound interest consent requirement.

Unimpressed by that contention, plaintiffs commenced this putative class action on December 17, 2015, in the Superior Court for the County of Contra Costa. MetLife was served twelve days later, and a month after that, removed the case pursuant to the Class Action Fairness Act, 28 U.S.C. § 1332(d). Plaintiffs bring a quartet of claims for (1) declaratory relief, 28 U.S.C. § 2201, (2) violation of California's Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200 et seq. , (3) violation of the 1918 initiative, and (4) “unjust enrichment and money had and received.” Compl. ¶ 1. MetLife filed this motion to dismiss on February 24, 2016. Dkt. No. 18.

III. LEGAL STANDARD

A complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). While “detailed factual allegations are not required,” a complaint must have sufficient factual allegations to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Bell Atlantic v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A claim is facially plausible “when the pleaded factual content allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. This standard asks for “more than a sheer possibility that a defendant acted unlawfully.” Id. The determination is a context-specific task requiring the court “to draw on its judicial experience and common sense.” Id. at 679, 129 S.Ct. 1937.

A motion to dismiss a complaint under Rule 12(b)(6) of the Federal Rules of Civil Procedure tests the legal sufficiency of the claims alleged in the complaint. See Parks Sch. of Bus., Inc. v. Symington , 51 F.3d 1480, 1484 (9th Cir.1995). Dismissal under Rule 12(b)(6) may be based on either the “lack of a cognizable legal theory” or on “the absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dep't , 901 F.2d 696, 699 (9th Cir.1990). When evaluating such a motion, the court must accept all material allegations in the complaint as true, even if doubtful, and construe them in the light most favorable to the non-moving party. Twombly , 550 U.S. at 570, 127 S.Ct. 1955. “[C]onclusory allegations of law and unwarranted inferences,” however, “are insufficient to defeat a motion to dismiss for failure to state a claim.” Epstein v. Wash. Energy Co. , 83 F.3d 1136, 1140 (9th Cir.1996) ; see also Twombly , 550 U.S. at 555, 127 S.Ct. 1955 (“threadbare recitals of the elements of the claim for relief, supported by mere conclusory statements,” are not taken as true).

IV. DISCUSSION

All four of p...