Opinion
1:02-cv-1462-LJM-VSS
May 7, 2003.
Beth A. Black, bablack@uhlaw.com, Robert M. Baker, III, rbaker@hhbhlaw.com, Thomas E. Satrom, tsatrom@locke.com
John G. Deckard, Bank One Center/Tower
Melanie D. Margolin, Locke Reynolds
Miriam Bahcall, Ungaretti Harris
ORDER ON DEFENDANTS' MOTION TO DISMISS
This matter is before the Court on defendants', The Prudential Insurance Company of America, Pruco Securities Corporation, Robert J. Mark ("Mark"), and John Persinger ("Persinger") (collectively, "Prudential"), Motion to Dismiss the complaint of Dona S. Taylor ("Taylor") and Victor J. Vollrath ("Vollrath") (collectively, "Plaintiffs"). Plaintiffs' complaint includes claims of manipulative and deceptive conduct in violation of Rule 10b-5 of the Securities Exchange Act of 1934, and state law claims of securities fraud, unlawful practices by investment advisors, common law fraud, breach of duty of good faith and fair dealing, negligence, and unjust enrichment. Plaintiffs filed their complaint in state court, and Prudential removed the action to federal court pursuant to 28 U.S.C. § 1441. The parties have fully briefed the matter, and the motion is now ripe for ruling.
Persinger joined Prudential in this Motion to Dismiss. Doc. No. 40. Marks filed a separate motion to dismiss. Doc. No. 28. The Court has reviewed the briefs from both Marks and Prudential, and Marks stands in the same position as the rest of the defendants. Accordingly, the Court will resolve both motions in this Order, referring to all defendants in this case as "Prudential."
I. FACTUAL BACKGROUND
The following are the relevant factual allegations set out in Plaintiffs' complaint. Taylor is the trustee of the Vollrath Irrevocable Trust (the "Trust"). Comp. ¶ 1. The Trust is the owner of a Variable Appreciable Life Insurance Policy (the "Policy"), issued by Prudential. Id. ¶ 2. The Policy insures the life of Vollrath, who is a retired physician. Id. At all relevant times, Mark and Persinger were Prudential representatives. Id. ¶¶ 7-8.
As required by FED. R. CIV. PRO. 12(b)(6), the Court accepts as true all well-pleaded factual allegations in the complaint.
In early 1997, Persinger met with Vollrath for the purpose of discussing Vollrath's life insurance needs. Id. ¶ 9. At the time, Vollrath was seventy-nine years old. Id. Persinger represented that he had a "good" Prudential policy for Vollrath. Id. At the suggestion of Persinger, Vollrath agreed to undergo a medical exam to determine his insurability. Id.
In March 1997, after the results of the medical exam became available, Persinger and Mark met with Vollrath for a second time. Id. ¶ 10. Both Persinger and Mark told Vollrath that he was very "lucky" to have received a "Preferred Class A" rating from Prudential. Id. The agents did not inform Vollrath that the rating included an additional fee of approximately $480 per month. Id.
At the conclusion of the second meeting, Vollrath agreed to purchase the Policy through his Trust. Id. ¶ 11. A policy application was completed and signed by Taylor in her capacity as trustee. Id. The application, along with an initial premium payment in the amount of $10,000, was submitted to Prudential. Id.
Policy number 95 11 450 was issued on the life of Vollrath on May 23, 1997. Id. ¶ 12. A communication from Mark to Vollrath dated August 22, 1997, noted that one of Vollrath's objectives was "estate preservation." Id. ¶ 13. In a letter dated August 25, 1997, Joseph P. McGarry, Jr., a Prudential Associate Underwriting Manager, informed Vollrath that there would be an additional premium charge due to a past heart value replacement. Id. ¶ 14.
It appears that there is a typo in the complaint, which indicates that the Policy was issued in 1987 instead of 1997. Comp. ¶ 12.
Prudential approved the Taylor/Vollrath application, and Mark delivered the Policy to Taylor on August 28, 1997. Id. ¶ 15. Mark spent between five and ten minutes with Taylor on August 28, 1997, but Mark did not give Taylor a prospectus or attempt to explain the policy to her. Id. ¶ 16.
Insurance illustrations were prepared by Prudential on August 31, 1997. Id. ¶ 17. The illustrations revealed that a "temporary" extra in the amount of $645.99 per year would be added to the required premium because of Vollrath's heart valve replacement. Id. The "temporary" period was nineteen years. Id.
Neither Taylor nor Vollrath was verbally informed about the following features of the Policy: (1) "temporary" in the context of the additional $645 per year meant nineteen years, by which time Vollrath would be ninety-nine years old; (2) the "Preferred Class A" rating included an additional fee of $480 per month; (3) the Policy had both life insurance and securities components (a portion of the premium payment would be invested in a stock index fund); (4) the Trust would be subject to a surrender charge should the trustee opt to cash out the Policy; and (5) the Policy would lapse if premium payments were not made, and a lapse would have adverse income tax consequences for Vollrath. Comp. ¶¶ 18-19.
In 2001, Jeff Roach, a financial planner, reviewed the Policy and informed Vollrath of the problems associated with the Policy, including the $480 monthly charge against the contract balance. Id. ¶ 20. At Vollrath's request, Prudential provided him with an in-force ledger illustration, and the illustration demonstrated that the policy was in danger of lapsing within a year or less. Id. ¶ 21. At the time of the complaint, Vollrath, through the Trust, had submitted premium payments totaling $182,581.12. Id. ¶ 22. The cash value of the Policy was less than $70,000. Id.
II. MOTION TO DISMISS STANDARD
When ruling on a motion to dismiss for failure to state a claim pursuant to Rule 12(b)(6), the Court accepts as true all well-pleaded factual allegations in the complaint and the inferences reasonably drawn from them. See Baxter by Baxter v. Vigo County Sch. Corp., 26 F.3d 728, 730 (7th Cir. 1994). Dismissal is appropriate only if it appears beyond doubt that Plaintiffs can prove no set of facts consistent with the allegations in the complaint that would entitle them to relief. See Hi-Lite Prods. Co. v. Am. Home Prods. Corp., 11 F.3d 1402, 1405 (7th Cir. 1993). This standard means that if any set of facts, even hypothesized facts, could be proven consistent with the complaint, then the complaint must not be dismissed. See Sanjuan v. Am. Bd. of Psychiatry and Neurology, Inc., 40 F.3d 247, 251 (7th Cir. 1995), cert. denied, 516 U.S. 1159 (1996). Plaintiffs may receive the benefit of hypotheses consistent with the complaint. See id. (citing Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).
Further, Plaintiffs are "not required to plead the particulars of [their] claim[s]," Hammes v. AAMCO Transmissions, Inc., 33 F.3d 774 (7th Cir. 1994), except in cases alleging fraud or mistake where Plaintiffs must plead the circumstances constituting such fraud or mistake with particularity. See FED. R. CIV. P. 9(b); Hammes, 33 F.3d at 778. "Particularity" requires plaintiffs to plead the who, what, when, where, and how of the alleged fraud. See Ackerman v. Northwestern Mut. Life Ins. Co., 172 F.3d 467, 469 (7th Cir. 1999); DiLeo v. Ernst Young, 901 F.2d 624, 627 (7th Cir. 1990).
Finally, the Court need not ignore facts set out in the complaint that undermine Plaintiffs' claims, see Homeyer v. Stanley Tulchin Assoc., 91 F.3d 959, 961 (7th Cir. 1996) (citing Am. Nurses' Ass'n v. Ill., 783 F.2d 716, 724 (7th Cir. 1986)), nor is the Court required to accept Plaintiffs' legal conclusions. See Reed v. City of Chi., 77 F.3d 1049, 1051 (7th Cir. 1996); Gray v. Dane County, 854 F.2d 179, 182 (7th Cir. 1988).
III. DISCUSSION
A. COUNT I: RULE 10b-5 CLAIM
Plaintiffs' first count, the only federal claim in the complaint, is for securities fraud in violation of Rule 10b-5 of the Securities Exchange Act of 1934. In the complaint, Plaintiffs make the following allegations in support of the 10b-5 claim:
1. Prudential's assertion that Vollrath was "lucky" to receive a "Preferred Class A" rating deceived him into believing he had the best, or one of the best ratings Prudential offered.
2. The use of the word "temporary" when applied to the extra premium charge of $645.99 per year is deceiving because "temporary" meant nineteen years, or until Vollrath reached the age of ninety-nine.
3. Prudential did not inform Vollrath of the securities component of the Policy, of the risks associated with securities investments, or of the surrender charge and adverse tax consequences that would follow should the Trust terminate the Policy.
4. Prudential falsely assured Vollrath that the Policy would preserve his estate in spite of their knowledge that commission fees, costs of insurance, the surrender charge and potential fluctuations in the securities markets would most likely deplete Vollrath's estate.
Comp. ¶¶ 24-27.
Prudential maintains that the 10b-5 claim is time-barred because Vollrath filed suit more than two years after Vollrath should have discovered the facts constituting the violation. In addition, Prudential argues that even if the 10b-5 claim is timely, it fails on the merits as a matter of law. Plaintiffs respond by arguing that fact disputes preclude the Court's resolution of the statute of limitations issue, and maintain that they have pled sufficient facts to survive Prudential's arguments on the merits.
Prudential supports its arguments with three documents that it attached to the Motion to Dismiss: (1) the Policy itself; (2) insurance illustrations; and (3) annual statements that Prudential sent to Plaintiffs. "Documents that a defendant attaches to a motion to dismiss are considered part of the pleadings if they are referred to in the plaintiff's complaint and are central to [his] claim." Venture Assocs. Corp. v. Zenith Data Sys. Corp., 987 F.2d 429, 431-32 (7th Cir. 1993). Plaintiffs refer to the Policy extensively throughout the complaint, and the Policy is the contract upon which the action is based. Accordingly, it is appropriate for the Court to consider the Policy despite the fact that Plaintiffs did not attach it to their complaint.
However, the Court will not consider the insurance illustrations or the annual statements in the context of a motion to dismiss. Although Plaintiffs refer to the illustrations in the complaint, there is no evidence before the Court about if and when the illustrations were delivered to Plaintiffs. A copy of the illustrations apparently was delivered to Plaintiffs after their attorney requested it in 2001, but the illustrations are only relevant to the fraud issue if they were in Plaintiffs' possession at an earlier time. With regard to the annual statements, Plaintiffs make no reference to them in the complaint. Consequently, the Court will not consider the annual statements.
1. Statute of Limitations
Until recently, securities fraud claims under 10b-5 were subject to a one-year/three-year statute of limitations scheme. Specifically, federal law required a plaintiff to bring suit within one year of the discovery of facts constituting a violation, and within three years of the actual violation. See Lampf, Pleva, Lipkind, Prupis Petigrow v. Gilbertson, 501 U.S. 350, 364, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991), superceded by 28 U.S.C. § 1658 ("Litigation instituted pursuant to § 10(b) and Rule 10b-5 therefore must be commenced within one year after the discovery of the facts constituting the violation and within three years after such violation."). In other words, securities fraud actions were subject to a one-year discovery period and a three-year period of repose.
However, Congress lengthened this statute of limitations period by enacting the Sarbanes-Oxley Act of 2002. Congress replaced the one-year/three-year scheme with a two-year/five-year scheme. As amended in 2002, 28 U.S.C. § 1658 provides:
(b) Notwithstanding subsection (a), a private right of action that involves a claim of fraud, deceit, manipulation, or contrivance in contravention of a regulatory requirement concerning the securities laws, as defined in section 3(a)(47) of the Securities Exchange Act of 1934 ( 15 U.S.C. § 78c(a)(47)), may be brought not later than the earlier of —
(1) 2 years after the discovery of the facts constituting the violation; or
(2) 5 years after such violation.
28 U.S.C. § 1658(b). The limitations period is not subject to equitable tolling. See Lampf, 501 U.S. at 363.
In a federal securities fraud suit, the statute of limitations begins to run on either actual or inquiry notice of facts constituting fraud. See Tregenza v. Great Amer. Comm. Co., 12 F.3d 717, 722 (7th Cir. 1993). The Seventh Circuit recently described the inquiry notice test this way:
The one-year [now two-year] statute of limitations applicable to suits under Rule 10b-5 begins to run not when the fraud occurs, and not when the fraud is discovered, but when (often between the date of occurrence and the date of the discovery of the fraud) the plaintiff learns, or should have learned through the exercise of ordinary diligence in the protection of one's legal rights, enough facts to enable him by such further investigation as the facts would induce in a reasonable person to sue within a year [two years].
Fujisawa Pharm. Co., Ltd. v. Kapoor, 115 F.3d 1332, 1334 (7th Cir. 1997). The inquiry is an objective one. See Law v. Medco Research, Inc., 113 F.3d 781, 786 (7th Cir. 1997). Thus, because the instant suit was filed on August 20, 2002, it is time-barred by the two-year discovery limitation if it is established that Plaintiffs discovered, or with reasonable diligence should have discovered, the fraudulent misrepresentations and omissions prior to August 20, 2000.
The ease of access to evidence of fraud is an important factor in the inquiry. See Fujisawa, 115 F.3d at 1335 ("The better his access, the less time he needs [to put together information sufficient to plead a particularized case of securities fraud]."). However, ease of access, standing alone, does not put a plaintiff on notice that something is amiss. "There must also be a suspicious circumstance to trigger a duty to exploit the access; an open door is not by itself a reason to enter the room." Fujisawa, 115 F.3d at 1335. "How suspicious the circumstance need be to set the statute of limitations running . . . will depend on how easy it is to obtain the necessary proof by a diligent investigation aimed at confirming or dispelling the suspicion." Id. (emphasis in original).
Prudential contends that Plaintiffs were on inquiry notice of the facts constituting the purported violation more than two years prior to the filing of the complaint, and accordingly, the 10b-5 claim is untimely. Prudential focuses on the fact that the Policy was delivered to Taylor on August 28, 1997, Comp. ¶ 15, and the Policy clearly explained every issue about which Plaintiffs complain. According to Prudential, Plaintiffs were on inquiry notice because a reasonably diligent investigation of the aforementioned documents would have revealed the alleged fraudulent representations and omissions.
Prudential also alleges that it provided the same information to Plaintiffs in an insurance illustration in 1997, and in annual account statements that Plaintiffs began receiving in May 1998. However, as the Court noted earlier, it will not consider those documents in the context of this Motion to Dismiss.
In response, Plaintiffs argue that whether they were on inquiry notice of the fraud is a question of fact for the fact-finder, and contend that the issue is not susceptible to adjudication as a matter of law. Pl.'s Resp. at 5. Plaintiffs also assert that they were not on inquiry notice until 2001 when Vollrath met with a financial advisor for the purpose of reviewing his overall financial plan, and the financial advisor notified Vollrath of the problems associated with the insurance contract.
At the outset, the Court disagrees with Plaintiffs' contention that resolving the inquiry notice issue in the context of a motion to dismiss is never appropriate. In support of this proposition, Plaintiffs cite to a number of cases from outside of the Seventh Circuit. Similar cases from other circuits may be persuasive authority on the inquiry notice issue, but not when they apply different standards than the Seventh Circuit. While the Seventh Circuit cautions parties and lower courts that the inquiry notice issue may be "inappropriate for resolution on a motion to dismiss under Rule 12(b)(6),"Marks v. CDW Computer Centers, Inc., 122 F.3d 363, 367 (7th Cir. 1997), it has not held that the issue may never be decided on a motion to dismiss. Rather, the Seventh Circuit has stated that, if a "plaintiff pleads facts that show its suit [is] barred by a statute of limitations, it may plead itself out of court under a Rule 12(b)(6) analysis." See Whirlpool Fin. Corp. v. GN Holdings, Inc., 67 F.3d 605 (7th Cir. 1995) (affirming district court's dismissal of federal securities fraud claim on inquiry notice issue).
One notable feature about this case, which the Court will discuss in more detail when it addresses the merits, is that every alleged fraudulent omission (extra monthly charge of $480, securities component of the contract, surrender fees, "temporary" extra charge due to heart condition, the possibility that the Policy would lapse if payments were not made) is clearly disclosed in the Policy, Def.'s Ex. 1, and Prudential delivered the Policy to Taylor on August 28, 1997. Comp. ¶ 15. Also in August 1997, Prudential informed Vollrath by letter of an additional premium charge due to his heart valve replacement. Comp. ¶ 14. Because those documents were in Plaintiffs' possession, they had access to all of the information constituting the fraud since August 1997. In fact, Plaintiffs admit that they discovered the fraud by having a financial planner review the Policy itself in 2001, which had been in Plaintiffs' possession for over three years at that point.
However, mere access to information does not put a plaintiff on inquiry notice. See Fujisawa, 115 F.3d at 1335. Circumstances must make the victim suspicious enough to investigate. See id. In this case, the circumstances need not be very suspicious due to the easy access to the Policy. See Marks, 122 F.3d at 368 (citation omitted) ("This Court has found that in determining the amount of suspicion or proof necessary to start the statute of limitations running what is important is `how easy it is to obtain the necessary proof by a diligent investigation aimed at confirming or dispelling the suspicion.'"). If something had made Plaintiffs suspicious, it would have taken little effort to confirm those suspicions. The Policy was already in Plaintiffs' possession. A brief perusal of the Policy would have led Plaintiffs to discover all of the omissions listed in the complaint. Although the Policy is approximately fifty pages, most of the information at issue is laid out in the first ten pages in relatively comprehensible fashion.
However, at this point in the case, there is no evidence of any suspicious circumstances that would have triggered Plaintiffs' duty to exploit the access. Although this case is arguably distinguishable from securities fraud cases like Fujisawa that involve the countless documents exchanged when one company acquires another, the Seventh Circuit has rejected arguments that mere access to necessary information starts the statute of limitations. See Fujisawa, 115 F.3d at 1335. Accordingly, the Court rejects Prudential's arguments on the statute of limitations issue, and will consider the merits of the fraud claim.
There is some support for the proposition that complete disclosure in the relevant transaction document can put a plaintiff on immediate inquiry notice. See, e.g., In re Prudential, 975 F. Supp. 584, 599-602 (D.N.J. 1996). See also Dodds v. Cigna Secs., Inc., 12 F.3d 346, 352 (2d Cir. 1993); DeBruyne v. Equitable Life Assur. Soc. of United States, 920 F.2d 457, 466 n. 18 (7th Cir. 1990); Calvi v. Prudential Secs., Inc., 861 F. Supp. 69 (C.D.Cal. 1994). However, most of those cases involved other "storm warnings," such as clear warnings in a prospectus. Because the Court cannot consider the insurance illustration (which contains a number of clear warnings about the alleged omissions) or the annual statements at this stage, the instant case is distinguishable from those cases. Moreover, Fujisawa was the Seventh Circuit's most recent analysis of the inquiry notice issue, and it concluded that mere access was not enough to start the statute of limitations.
2. The Merits: Materiality
Even if Plaintiffs' 10b-5 claim is timely, it fails on the merits. To prove a 10b-5 violation, "a plaintiff must establish that (1) the defendant made a false statement or omission (2) of material fact (3) with scienter (4) in connection with the purchase or sale of securities (5) upon which the plaintiff justifiably relied (6) and that the false statement or omission proximately caused the plaintiff's damages." Otto v. Variable Annuity Life Ins. Co., 134 F.3d 841, 851 (citing Caremark, Inc. v. Coram Healthcare Corp., 113 F.3d 645, 648 (7th Cir. 1997)). Plaintiffs main problem arises under the materiality requirement.
Plaintiffs allege that Prudential made two affirmative, fraudulent statements: (1) that Vollrath was "lucky" to receive a "Preferred Class A" rating; and that (2) Prudential had a "good" Policy for Vollrath. As Prudential argues, the statements were non-actionable "puffing." The statements were opinions expressed by a salesperson, and this type of "puffing" is not actionable in a securities fraud suit. See All-Tech Telecom, Inc. v. Amway Corp., 174 F.3d 862, 869 (7th Cir. 1999) ("empty superlatives on which no reasonable person would rely" and "meaningless sales patter" are not actionable); Medline Industries, Inc. v. Blunt, Ellis Loewi, Inc., 1993 WL 13436, at *4 (N.D.Ill. Jan. 21, 1993) (description of investment as "as good as gold" is mere puffing).
The rest of the securities fraud claim fails because every alleged fraudulent representation or omission was clearly and comprehensibly explained in the Policy that Prudential gave to Plaintiffs. A material misstatement or omission is one that "significantly alter[s] the total mix of information available to the investor." Acme Propane, Inc. v. Tenexco, Inc., 844 F.2d 1317, 1322 (7th Cir. 1988). Where the facts and circumstances allegedly omitted or misrepresented have actually been disclosed in the relevant transaction document, there is no liability under the securities laws because the materiality element is absent. See id. However, "the written words must be true, clear, and complete, in order to be dispositive." Id. at 1325. Judge Posner recently explained this fundamental principle in the law of fraud:
The claims are barred by a very simple, very basic, very sensible principle of the law of fraud, both the law of securities fraud and the common law of fraud. If a literate, competent adult is given a document that in readable and comprehensible prose says X (X might be, "this is a risky investment"), and the person who hands it to him tells him, orally, not-X ("this is a safe investment"), our literate, competent adult cannot maintain an action for fraud against the issuer of the document. This principle is necessary to provide sellers of goods and services, including investments, with a safe harbor against groundless, or at least indeterminate, claims of fraud by their customers. Without such a principle, sellers would have no protection against plausible liars and gullible jurors. The sale of risky investments would be itself a very risky enterprise — a very legally risky enterprise. Risky investments by definition often fizzle, and an investor who loses money is a prime candidate for a suit to recover it. If the documents he was given, warning him in capitals and bold face that it was a RISKY investment, do not preclude the suit, it will simply be his word against the seller's concerning the content of an unrecorded conversation.
Carr v. Cigna Securities, Inc., 95 F.3d 544, 547 (7th Cir. 1996) (citations omitted) (emphasis added).
Stated another way, "in the law of securities a written disclosure trumps an inconsistent oral statement." Acme Propane, 844 F.2d at 1322. See also Wolin v. Smith Barney, Inc., 83 F.3d 847, 851 ("A further obstacle to this suit is that no suit for securities fraud can be maintained on the basis of oral representations plainly inconsistent with written ones."). The Seventh Circuit explained the rationale for the "written disclosure trumps oral statement or omission" rule in Acme Propane:
[T]he securities laws are designed to encourage the complete and careful written presentation of material information. A seller who fully discloses all material information in writing should be secure in the knowledge that it has done what the law requires . . . in the law of securities a written disclosure trumps an inconsistent oral statement. Otherwise even the most careful seller is at risk, for it is easy to claim: `Despite what the written documents say, one of your agents told me something else.' If such a claim of oral inconsistency were enough, sellers' risk would be greatly enlarged. All buyers would have to pay a risk premium to cover this extra cost of doing business.
Acme Propane, 844 F.2d at 1322. See also Zobrist v. Coal-X, Inc., 708 F.2d 1511 (10th Cir. 1983).
In applying this principle, the Seventh Circuit has made no distinction between statements and omissions. For example, in Acme Propane, the buyers of an interest in an oil and gas well brought an action against the sellers for securities fraud. See id. at 1319-1320. The buyers argued that the sellers made several affirmative misrepresentations, and also failed to disclose several key facts about the well. See id. at 1322-1323. With regard to the alleged omissions, the Seventh Circuit rejected the buyers' arguments because "the sellers revealed the information to the buyers in writing." Id.
Like the buyers in Acme Propane, Plaintiffs in the instant case cannot recover for the alleged omissions because all of the relevant information was clearly disclosed to them in writing. For example, Plaintiffs maintain that Prudential's failure to disclose the securities component of the Policy was a fraudulent omission. Comp. ¶ 26. However, the cover page of the Policy, which Prudential delivered to Taylor on August 28, 1997, Comp. ¶ 15, explains in large font that:
The cash value may increase or decrease daily depending on the payment of premiums, the investment experience of the variable investment options, any excess interest credited to the fixed investment options, and the charges made. There is no guaranteed minimum.
Def.'s Ex. 1 (emphasis added). At the bottom of the cover page, Prudential again disclosed that there was a securities component to the Policy: "Benefits reflect premium payments, investment results and charges." Id. (emphasis added). Several other references to the securities nature of the Policy are made throughout the contract, such that a quick review of the Policy alerts the reader of its securities component. Def.'s Ex. 1 at 3E, 3F, 5.
Plaintiffs also contend that Prudential fraudulently failed to mention the surrender charge that would result if the Trust terminated the Policy. However, Prudential clearly disclosed and listed the applicable surrender charges on the sixth page of the Policy:
SCHEDULE OF MAXIMUM SURRENDER CHARGES
For full surrender at the beginning of the contract year indicated, the maximum charge we will deduct from the contract fund is shown below. For surrender at other times, the amount of the charge will reflect the number of days since the beginning of the contract year. For any decrease in Face Amount we will deduct a proportionate part of the surrender charge.
Def.'s Ex. 1 at 3C. Below that explanation, a table listed the applicable maximum surrender charge for years 1-10. Id. In year 11 or later, no surrender fee would be charged. Id.
Prudential also disclosed the $480 monthly charge for a "Preferred Class A" rating. Page 3 of the Policy, entitled CONTRACT DATA, states the following:
SUMMARY OF FACE AMOUNT
AMOUNT EFFECTIVE DATE RATING CLASS CONTRACT DATE CHANGE
$250,000 MAY 23, 1997 PREFERRED A, MAY 23, 2004 TEMPORARY EXTRA
Def.'s Ex. 1 at 3. Two pages later, at Page 3B, the Policy provides:
Monthly deductions for any extra rating class are as follows:
The maximum monthly deductions are $489.53 each.
Def.'s Ex. 1 at 3B. This deduction was explained in more detail later in the Policy. Def.'s Ex. 1 at 18.
Prudential also informed Plaintiffs of the "temporary extra" charge, and notified Plaintiffs that the Policy would lapse if premium payments were not made. Plaintiffs themselves allege in the complaint that an August 25, 1997, letter informed Vollrath that there would be an additional charge due to heart valve replacement. This temporary extra charge was also listed under the CONTRACT DATA page. Def.'s Ex. 1 at 3. The lapse provision, a common feature in insurance contracts, was at Page 9:
Moreover, the description of the extra premium fee due to Vollrath's heart problem as "temporary" was not actually false, which is a required element for a securities fraud claim. See Otto, 134 F.3d at 851. Although Vollrath may have assumed "temporary" meant a few years rather than nineteen, it would not have been difficult to ask the Prudential representative about it or otherwise ascertain how long the extra charge would be assessed.
Scheduled Premiums
If scheduled premiums that are due are not paid, or if smaller payments are made, the contract may then or at some time go into default. Payment of less than the scheduled premium increases the risk that the contract will end if investment results are not favorable. The conditions under which the contract will be in default are described below.
Def.'s Ex. 1 at 9.
In its Memo in Support, Prudential cited to relevant, controlling authority in the Seventh Circuit that holds that alleged omissions are immaterial if the information at issue is revealed to the buyer in writing. See Acme Propane, 844 F.2d at 1322. See also Wolin, 83 F.3d at 851; Carr, 95 F.3d at 547. Plaintiffs do not adequately distinguish these arguments or cite other Seventh Circuit cases that support their position. Pl.'s Resp. at 12-14. The Court's own research has not revealed any cases that are helpful to Plaintiffs. Although Prudential's representatives may not have verbally disclosed every detail of the Policy to Vollrath, the "total mix" of information he possessed included the Policy itself, which revealed all of the relevant information. Accordingly, the omissions were not material, and Plaintiffs' federal securities claim fails as a matter of law. With respect to Count I, the Court GRANTS Prudential's Motion to Dismiss.
B. STATE LAW COUNTS
After dismissal of the federal count, the following six state law counts remain: securities fraud; unlawful practices by investment advisors; common law fraud; breach of good faith and fair dealing; negligence; and unjust enrichment. Because Plaintiffs Taylor and Vollrath and defendants Mark and Persinger are all domiciled in Indiana, the Court does not have diversity jurisdiction. Although the Court has discretion to exercise jurisdiction under 28 U.S.C. § 1367, "[t]he general rule, when the federal claims fall out before trial, is that the judge should relinquish jurisdiction over any supplemental (what used to be called `pendent') state law claims in order to minimize federal judicial intrusion into matters purely of state law." Carr, 95 F.3d at 546. See also Wright v. Assoc. Ins. Cos., 29 F.3d 1244, 1251-52 (7th Cir. 1994). The Court sees no reason to depart from the general rule in this case, especially with numerous state law claims remaining, and accordingly REMANDS the case to state court.
IV. CONCLUSION
For the reasons discussed herein, the Court GRANTS Prudential's Motion to Dismiss with regard to Count I. Because the only remaining counts are state law claims, the Court REMANDS the case to state court.
IT IS SO ORDERED