Case Notes

Class OK'd in Prudential Securities Suit over Death Payments

A federal judge in Trenton, NJ, has granted class certification in a securities suit claiming Prudential Financial Inc. overstated its income and understated expenses by misusing a nationwide database of deaths. The judge also denied a motion by Prudential to exclude the testimony of the plaintiffs' lead expert.

The suit concerns Prudential's use of the U.S. Social Security Administration's Death Master File (DMF), a database of deaths in the United States, to manage its life insurance and annuity policies. The plaintiffs claim Prudential used the DMF frequently to identify deceased annuity policyholders in order to stop annuity payments. But, the plaintiffs claim, Prudential used the DMF far less often to identify life insurance policyholders who had died and to make payments to beneficiaries or to state unclaimed property offices.

Prudential entered into a global settlement with multiple state governments in connection with those claims in 2012. As a result of its improper use of the DMF, the suit alleges, Prudential knowingly retained money that did not belong to it and understated its liabilities to policyholders.

On Aug. 5, 2011, Prudential disclosed in a Form 10-Q filed with the U.S. Securities and Exchange Commission (SEC) that it was being investigated by an auditor on behalf of 33 states over its compliance with state unclaimed property laws. In addition, it disclosed that the New York Attorney General's Office had launched an investigation into the company's compliance with unclaimed property laws. These investigations focused on the company's use of the DMF, according to the suit.

On the next business day, Aug. 8, 2011, Prudential's stock price fell from $53.99 to $48.14 per share, the suit says.

U.S. District Judge Madeline Cox Arleo of the District of New Jersey granted certification after rejecting Prudential's claims that the National Shopmen Pension Fund is insufficiently educated about the case. Prudential claimed that deposition testimony of the fund's corporate representative showed he is inadequately informed because he mischaracterized certain facts regarding the suit. But, citing his “many accurate statements” about the litigation during the deposition, Arleo said the fund representative meets the “minimal knowledge” requirement under Rule 23(a).

Arleo also found the proposed class met the predominance requirement under Rule 23(b)(3), rejecting Prudential's claim that common questions of law or of facts common to class members were outweighed by questions affecting only individual members.

The judge said the plaintiffs are entitled to invoke a charge of fraud on the market because they proved Prudential stock trades on an efficient market. Thus, unless the defendant can prove an absence of price impact from the alleged misrepresentations, Arleo said, the investors adequately showed they relied on them.

Prudential did not dispute the plaintiffs' assertion that the company's stock price dropped significantly after it was accused of misusing the DMF, but it argued that other factors might have been the cause of the falling stock price. Arleo, however, said Prudential failed to distinguish between price impact and loss causation. Price impact concerns whether the alleged misrepresentations affected the stock's market price, while loss causation asks whether the subsequent decline in the stock was caused by a correction of prior misrepresentations or by other confounding factors. The argument that the drop in stock price was caused by other contemporaneous disclosures, and not the DMF issue, goes to loss causation and is not appropriate for consideration at the class certification stage, Arleo said.

Arleo also denied Prudential's motion to exclude the expert opinion of financial analyst Steven Feinstein, rejecting the defendant's claim that his testimony was unreliable. Feinstein's report was intended to establish the market for Prudential stock was efficient, but the defendant claimed Feinstein failed to prove that the news concerning the company's use of the DMF caused the stock price to fall the next day. Arleo denied the motion to exclude the expert report, finding Feinstein did not seek to prove that the DMF report caused the stock price to drop, but merely demonstrated that the market is efficient. ' Charles Toutant, New Jersey Law Journal

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Judge Declines to Rule on Insurer's Coverage of PNC

A federal judge has decided that it is too soon to declare that an insurance company need not cover PNC Financial Services Group for $13 million in one case and potentially more in another because the underlying litigation has not been resolved.

U.S. District Judge Mark R. Hornak of the Western District of Pennsylvania declined to rule on AXIS Insurance Co.'s request for declaratory judgment to determine whether the insurer would be responsible for indemnifying PNC in two underlying actions.

In the first of those two cases, a district court ordered AXIS to pay $13 million in excess insurance coverage to PNC stemming from settlements in the overdraft litigation against the bank. At press time, AXIS's appeal of that judgment was pending. The second case arises out of the National Prearranged Services (NPS) litigation in which PNC was hit with $390 million in damages in Missouri federal court, currently on appeal. The declaratory judgment request asked Hornak to determine whether AXIS would have to pay a portion of that figure as well. But Hornak said in his opinion that since the cases remain in litigation, a ruling on AXIS's duty to pay or not pay would be premature.

Hornak pointed to AXIS's request to specifically determine whether five defenses it put forth would absolve the company from indemnifying PNC, and additionally, if those defenses failed, its reservation of rights to raise the terms and conditions of PNC's $25 million policy as defenses.

“This attempt to hedge against a final, definitive decision determining AXIS's obligations pushes this case ' already of questionable maturity for judicial resolution ' clearly into the realm of unripeness ' ,” Hornak said.

In determining whether the case was at the appropriate phase for a ruling, Hornak examined the three factors presented in the 1990 U.S. Court of Appeals for the Third Circuit case, Step-Saver Data Systems v. Wyse Technology: adversity, conclusiveness and utility. ' P.J. D'Annunzio , The Legal Intelligencer

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Class OK'd in Prudential Securities Suit over Death Payments

A federal judge in Trenton, NJ, has granted class certification in a securities suit claiming Prudential Financial Inc. overstated its income and understated expenses by misusing a nationwide database of deaths. The judge also denied a motion by Prudential to exclude the testimony of the plaintiffs' lead expert.

The suit concerns Prudential's use of the U.S. Social Security Administration's Death Master File (DMF), a database of deaths in the United States, to manage its life insurance and annuity policies. The plaintiffs claim Prudential used the DMF frequently to identify deceased annuity policyholders in order to stop annuity payments. But, the plaintiffs claim, Prudential used the DMF far less often to identify life insurance policyholders who had died and to make payments to beneficiaries or to state unclaimed property offices.

Prudential entered into a global settlement with multiple state governments in connection with those claims in 2012. As a result of its improper use of the DMF, the suit alleges, Prudential knowingly retained money that did not belong to it and understated its liabilities to policyholders.

On Aug. 5, 2011, Prudential disclosed in a Form 10-Q filed with the U.S. Securities and Exchange Commission (SEC) that it was being investigated by an auditor on behalf of 33 states over its compliance with state unclaimed property laws. In addition, it disclosed that the New York Attorney General's Office had launched an investigation into the company's compliance with unclaimed property laws. These investigations focused on the company's use of the DMF, according to the suit.

On the next business day, Aug. 8, 2011, Prudential's stock price fell from $53.99 to $48.14 per share, the suit says.

U.S. District Judge Madeline Cox Arleo of the District of New Jersey granted certification after rejecting Prudential's claims that the National Shopmen Pension Fund is insufficiently educated about the case. Prudential claimed that deposition testimony of the fund's corporate representative showed he is inadequately informed because he mischaracterized certain facts regarding the suit. But, citing his “many accurate statements” about the litigation during the deposition, Arleo said the fund representative meets the “minimal knowledge” requirement under Rule 23(a).

Arleo also found the proposed class met the predominance requirement under Rule 23(b)(3), rejecting Prudential's claim that common questions of law or of facts common to class members were outweighed by questions affecting only individual members.

The judge said the plaintiffs are entitled to invoke a charge of fraud on the market because they proved Prudential stock trades on an efficient market. Thus, unless the defendant can prove an absence of price impact from the alleged misrepresentations, Arleo said, the investors adequately showed they relied on them.

Prudential did not dispute the plaintiffs' assertion that the company's stock price dropped significantly after it was accused of misusing the DMF, but it argued that other factors might have been the cause of the falling stock price. Arleo, however, said Prudential failed to distinguish between price impact and loss causation. Price impact concerns whether the alleged misrepresentations affected the stock's market price, while loss causation asks whether the subsequent decline in the stock was caused by a correction of prior misrepresentations or by other confounding factors. The argument that the drop in stock price was caused by other contemporaneous disclosures, and not the DMF issue, goes to loss causation and is not appropriate for consideration at the class certification stage, Arleo said.

Arleo also denied Prudential's motion to exclude the expert opinion of financial analyst Steven Feinstein, rejecting the defendant's claim that his testimony was unreliable. Feinstein's report was intended to establish the market for Prudential stock was efficient, but the defendant claimed Feinstein failed to prove that the news concerning the company's use of the DMF caused the stock price to fall the next day. Arleo denied the motion to exclude the expert report, finding Feinstein did not seek to prove that the DMF report caused the stock price to drop, but merely demonstrated that the market is efficient. ' Charles Toutant, New Jersey Law Journal

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Judge Declines to Rule on Insurer's Coverage of PNC

A federal judge has decided that it is too soon to declare that an insurance company need not cover PNC Financial Services Group for $13 million in one case and potentially more in another because the underlying litigation has not been resolved.

U.S. District Judge Mark R. Hornak of the Western District of Pennsylvania declined to rule on AXIS Insurance Co.'s request for declaratory judgment to determine whether the insurer would be responsible for indemnifying PNC in two underlying actions.

In the first of those two cases, a district court ordered AXIS to pay $13 million in excess insurance coverage to PNC stemming from settlements in the overdraft litigation against the bank. At press time, AXIS's appeal of that judgment was pending. The second case arises out of the National Prearranged Services (NPS) litigation in which PNC was hit with $390 million in damages in Missouri federal court, currently on appeal. The declaratory judgment request asked Hornak to determine whether AXIS would have to pay a portion of that figure as well. But Hornak said in his opinion that since the cases remain in litigation, a ruling on AXIS's duty to pay or not pay would be premature.

Hornak pointed to AXIS's request to specifically determine whether five defenses it put forth would absolve the company from indemnifying PNC, and additionally, if those defenses failed, its reservation of rights to raise the terms and conditions of PNC's $25 million policy as defenses.

“This attempt to hedge against a final, definitive decision determining AXIS's obligations pushes this case ' already of questionable maturity for judicial resolution ' clearly into the realm of unripeness ' ,” Hornak said.

In determining whether the case was at the appropriate phase for a ruling, Hornak examined the three factors presented in the 1990 U.S. Court of Appeals for the Third Circuit case, Step-Saver Data Systems v. Wyse Technology: adversity, conclusiveness and utility. ' P.J. D'Annunzio , The Legal Intelligencer

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