City of Westland Police & Fire Retirement System v. Metlife, Inc. (129 F. Supp. 3d 48, 2015)

OPINION

LEWIS A. KAPLAN, District Judge.

The principal issues in this putative class action are whether MetLife, Inc. (“MetLife” or the “Company”) misled investors (1) with respect to its financial performance and position because certain reserves underlying its financial statements failed adequately to take account of incurred but not reported (“IBNR”) death benefit claims with respect to group life insurance policies, and (2) by making allegedly deceptive statements concerning those reserves.

The Court previously ruled on defendants’ motions to dismiss the amended complaint. It later gave Central States leave to file a second amended complaint (“SAC”), which defendants subsequently moved to dismiss.' While those motions were pending, however, the Supreme Court granted certiorari in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, which raised questions similar to some of those presented here. Accordingly, the Court awaited the Omnicare decision and' obtained supplemental briefing in light of that ruling. The motions to dismiss the SAC now are ripe for decision.

Background

1. Parties

The principal defendant here is Met-Life, a multinational insurance company. Also named are (1) a number of individuals who were MetLife executives during all or part of the Class Period (the “Executive Defendants”), (2) MetLife directors (the “Director Defendants”), and (3) several securities firms that underwrote certain- MetLife- securities during the .relevant period (the “Underwriter Defendants”).

II. Insurance Reserves and Accounting

It is useful to begin with some general background on accounting, the insurance industry, and IBNR reserves.

Generally accepted accounting principles (“GAAP”) typically require a corporation to measure and report its financial performance and position by considering pertinent economic events when they happen, not by waiting for cash inflows or outflows to clear the books. To ensure compliance with these principles — that is, to assure “that recognition [is] given to income when it is-earned, and ... to expenses when they- are incurred,” “irrespective of when payment is made or received” — corporations generally eschew cash-based accounting for accrual-based accounting, which provides “a more realistic view” of a given company’s financial performance and position by requiring the company to account for future expected cash inflows and outflows, in addition to accounting for already-completed cash flows. In addition, accrual-based accounting deters unscrupulous companies from misrepresenting their financial condition by, among other things, failing to reflect expenses or known liabilities that have been incurred, but that, for one reason or another, have yet to be paid. As the late Judge Clark wrote, “the fundamental aim of accrual accounting - ... is to match revenues with the expenses incurred in producing such revenues.”

MetLife, as a publicly held company, of course reports its. financial performance and condition on an accrual basis. Insofar as its policy-based liabilities are concerned, that fact probably does not have a dramatic impact on its reporting of such liabilities in those instances in which the insured loss occurs, the policyholder claim is made, and the claim is paid in the same accounting period. In other cases, however, significant periods of time may pass between the event creating the insurer’s liability and the eventual payment of a claim. And in some circumstances, no claim may be made for. a long- time, as for example where the loss-creating , event is unknown to the insured or' the beneficiary or where the existence of insurance coverage is not discovered for some time.

Whatever the reasons for the lack of temporal coincidence between the liability-creating event and the payment of any eventual claim, GAAP requires insurers to maintain loss reserves — estimates of what they will have to pay to cover insured losses incurred during a given period— regardless of whether claims have yet been made. These loss reserves, increases in which are charges against income for the periods in which the increases occur —must account for both known and IBNR claims. Reserves for known claims are “set aside to cover estimated losses based on reported claims” and are thus relatively easy to predict. IBNR reserves, on the other hand, are “extremely conjectural” because they are “set aside to cover losses for which claims have not been, reported but must be estimated.” Accordingly, IBNR reserves “may need adjustment as time passes and their accuracy can -be tested in retrospect.”

As the Second Circuit has said, it is “difficult [to] calculate] and mónitor[ ] the accuracy of loss reserves established by insurance companies.” Nevertheless, GAAP does require insurers- to make “a reasonable estimate of IBNR liabilities.” And yet, GAAP do not specify “a precise actuarial method” for estimating or setting those reserves.

As relevant to this case, then, the accuracy of a company’s loss reserves — that is, the degree to which the loss reserves correspond to, or vary from, the insurance obligations that ultimately will be paid out in relation to the claims, known and unknown, covered by the reserve in question- — implicates the accuracy of its financial statements. If loss reserves are top low and later must be increased (resulting in a charge against income), earnings will have been overstated in SEC filings and financial statements. If reserves are too high and later are decreased (resulting in an increase in income), the excess will have resulted in an understatement of income during the period or periods in which it existed.

Facts and Prior Proceedings

I. The SSA-DMF and MetLife’s IBNR Reserves

We turn to the controversy at hand, which focuses importantly though not exclusively on-Central States’ contention that MetLife, during the relevant period, overstated its earnings • and its financial strength by' maintaining IBNR reserves insufficient to cover life insurance benefits payable in respect of the death of MetLife insureds covered by group life insurance policies for whom no death benefit claims had been received. That claim depends in substantial part upon MetLife’s use (or alleged non-use) of the Social Security Administration Death Master File (the “SSA-DMF”), which is a “database of deaths recorded in the United States.”

The SAC alleges that MetLife used the SSA-DMF as early as the mid-1990s to identify — and to halt payments to — deceased annuity recipients, but that it did not then use the database to identify deceased persons whose lives were insured by MetLife (“life insureds”). It was not until 2007, the complaint alleges, that Met-Life for the first time compared the SSA-DMF against its roster of individual — as opposed to group — life insureds in order to identify those individual insureds who had died but for whom death benefit claims had not been submitted. This crosscheck allegedly uncovered $80 million in unclaimed individual life insurance benefits that were due to the deceased life insureds’ beneficiaries or, in the absence of identifiable beneficiaries, to various states under abandoned property laws. While the 2007 cross-check allegedly revealed $80 million in unclaimed benefits, however, there is no allegation that MetLife’s IBNR reserves were insufficient to cover those costs. In any case, MetLife allegedly did not then cross-check the SSA-DMF against its roster of group life insureds — a cross-check that, plaintiff argues, would have exposed MetLife’s IBNR reserves as inadequate.

Central States alleges that MetLife and its officers, directors or representatives in the years that followed repeatedly and materially overstated the Company’s financial condition and performance — including income, operating earnings, and earnings per share — as a result of MetLife’s failure adequately to reserve for death benefits due to beneficiaries of group life insurance policies whose insureds the SSA-DMF identified as deceased but for whom Met-Life had not received claims for benefits. These misstatements allegedly included, among other things, misleading (but more qualitative) assertions about MetLife’s “solid underwriting,” its “disciplined approach to risk and expense managements,” and its “excellent mortality results” as well as assurances not only that its methods for fixing IBNR reserves complied with generally accepted accounting principles (“GAAP”), but also that such reserves were sufficient to cover future claims. Many of these allegedly misleading statements, Central States says, were contained in MetLife press releases, presentations, conference calls, and public filings during the Class Period. Central States alleges also that MetLife was too cavalier in dismissing as “without merit” various state investigations into its accounting practices. One of the consequences of these alleged misstatements, Central States avers, is that MetLife stock traded at “artificially inflated prices” during the Class Period. When those stock prices fell after MetLife’s alleged misstatements came to light in August and October 2011, Central States says it suffered economic harm.

II. The State Investigations

According to Central States, state investigations into MetLife’s accounting practices began as early ás 2008, when the California Insurance Commission began to look into MetLife’s alleged failure to pay some life insurance benefits even after learning that an insured had died. In September 2009, Central States alleges, Florida and Illinois launched a joint “Market Conduct Examination” of MetLife’s use (or, as the case may be, non-use) of the SSA-DMF. And in July 2010, Central States says, the New York Attorney General began “a major fraud probe” into MetLife’s alleged practice of retaining and profiting from money held in. retained asset accounts that arguably should have been disbursed to beneficiaries or escheated to states.

On May 19, 2011, MetLife officials testified before the Florida Office of Insurance Regulations. They acknowledged' that the Company had used the SSA-DMF systematically since the 1980s to identify, and to stop payments to, deceased annuitants, but that it had not used the database to identify life insureds whose deaths should have triggered either payments to beneficiaries or, in the absence of identifiable beneficiaries, the start of the escheatment process.

Four days later, MetLife' executives— having been subpoénaed to testify at a hearing into the Company’s benefits payment practices — expanded upon that testimony in California,, where they acknowledged, among other things, that the Company (1) cross-checked the SSA-DMF against its retained asset account in 2006 and learned of 1,300 matches, resulting in payments to beneficiaries' and escheatment to states; (2) cross-checked the SSA-DMF against its roster of individual life insureds in 2007, but had not yet done so for its group life insureds, (3) calculated the dormancy period for escheatment purposes from the date it learned of the déath, not the actual date of death, and (4) had decided as early as December 2010 to use the SSA-DMF more broadly (i.e., to cross-check the database against its group life, insureds).

On July 5, 2011, New York officials subpoenaed MetLife for information about its “practices in identifying and paying out policies for deceased customers.” The subpoenas stemmed from a concern that life insurers, including MetLife, were using the SSA-DMF to stop annuity ‘payments upon an annuitant’s death, but not to pay out death benefits due under life insurance policies, annuity contracts, or retained asset accounts. This investigation did not end until after the Class Period,

Notwithstanding the initiation dates of these investigations, Central States alleges, MetLife did not disclose their existence or possible consequences until August 2011 — a delay that Central States contends “violated GAAP and SEC disclosure rules.” Eventually, Central States alleges, MetLife agreed in April 2012, after the Class Period ended, to pay states “a total of $500 million to settle claims related to death benefits.”

III. The ALICO Acquisition and Met-Life’s Decision to Use the SSA-DMF More Broadly

In March 2010 — after the state investigations into MetLife’s accounting practices began but before they concluded — MetLife announced its intention to purchase the American Life Insurance Company (“ALI-CO”), an American International Group (“AIG”) subsidiary. The consideration was to consist of $6.8 billion in cash and $8.7 billion in equity, the latter in the form of 78.2 million shares of MetLife common stock,- 6.9 million shares of MetLife contingent convertible preferred stock, and 40 million-other “equity units.” All share amounts were fixed, and the shares were subject to a lockup agreement that provided, among other things, that AIG would not sell any of its MetLife stock until nine months after the deal closed and that it would not sell more than 50 percent of its shares until at least a year after closing.

On August 2, 2010, MetLife announced that it would sell 75 million shares of common stock at $42 per share to help fund the cash portion of the purchase.price. It did so pursuant to an August 3, - 2010 registration statement, which incorporated by reference MetLife’s Form 10-K for the fiscal year that ended December -31, 2009 and Forms 10-Q for thé periods that ended March 31, 2010'and June 30, 2010, and contained representations (or misrepresentations, as Central States alleges) concerning the adequacy of MetLife’s IBNR reserves. MetLife completed its acquisition of ALICO on November 1, 2010 at a total cost of $16.2 billion.

According to Central States, MetLife subsequently decided — amid discussions with state regulators and while the AIG/ALICO lockup, was in effect — to start using the SSA-DMF regularly in all business units, including group life. And on March 1, 2011,. four months after the ALI-CO acquisition closed and five months.before the lockup was scheduled to expire, AIG and MetLife allegedly entered into an agreement that relieved AIG of the lockup restrictions..

The next day, MetLife announced a public offering of 146.8 million shares of its common stock, priced at $43.25 per share. Under its terms, but contrary to the terms of the original lockup agreement, AIG completed á secondary offering of all 78.2 million shares of MetLife common stock that it had received for ALI-CO. In addition, MetLife completed a follow-on offering of 68.5 million shares of its common stock, the proceeds from which it used to' repurchase and cancel the 6.85 million shares of MetLife contingent convertible preferred stock that AIG had received as compensation for ALICO. In a concurrent offering, AIG sold-also its 40 million MetLife common equity units, leaving it, upon completion of the sale, with none of the MetLife securities it had, received for ALICO.

These offerings were conducted pursuant, to a March 4, 2011 registration statement, which incorporated by reference MetLife’s Form 10-K for the year that ended December 31, 2010 and its Forms 8-K filed on August 2, 2010, November 30, 2010, March 1, 2011, and March 2, 2011, each of which, Central States says, “contained false financial statements.” The March 4, 2011 registration statement contained also (allegedly false) representations about the adequacy of 'MetLife’s IBNR reserves and its “excellent mortality ratios.” MetLife announced that the sales were complete on March 8, 2011.

Central States alleges that AIG’s expedited sale of MetLife stock “was a surprise to analysts and investors” and that it was designed to allow AIG to sell its MetLife shares before MetLife announced publicly that it would use the SSA-DMF to identify additional life insurance liabilities — an announcement that Central States says would have “risked a steep decline in [Met-Life’s] stock price and thus, the value of the consideration provided to AIG.” In effect, Central States contends, MetLife knew that its stock price would decrease, perhaps dramatically, upon its announcement that it would conduct its first-ever cross-check of the SSA-DMF against its roster of group life insureds. But it gave AIG an opportunity to sell its MetLife stock at what Central States says was an artificially inflated price before that happened.

IV MetLife’s Stock Price Declines Twice, Allegedly Harming Central States ‘

On August 5, 2011, Central States alleges, MetLife in its Form 10-Q for the period ending June 30, 2011 disclosed for the first time the scope and severity of various state “regulatory investigations into its death benefits practices.” MetLife acknowledged that “[m]ore than 30 U.S. jurisdietions are auditing MetLife ... for compliance with unclaimed property laws” and that those investigations “may result” in administrative penalties, additional payments to beneficiaries and escheatments to states, and changes to MetLife’s procedures for identifying and escheating abandoned property. Further, it admitted that it was “not currently able to estimate the reasonably possible amount of any such additional payments or the reasonably possible cost of any such changes in procedures, but it is possible that such costs may be substantial” and, Central States alleges, it no longer dismissed investigations into its retained asset accounts as being “without merit.”

These disclosures allegedly caused Met-Life’s stock price to decline from $36.90 on August 4 to a low of $34.93 on August 5, closing at $36.35. The stock price fell further to a close of $32.74 on August 8, but that drop coincided with news of much broader impact: Standard & Poor’s (“S & P”) downgraded the credit rating of the United States for the first time in history after the market closed on August 5.

On October 6, 2011, MetLife filed a Form 8-K disclosing, among other things, that it would take a $115-$135 million after-tax charge to “adjust” (i.e., increase) its reserves to account for additional payments owed to beneficiaries identified as a consequence of its first-ever cross-check of the SSA-DMF against its roster of group life insureds. At the same time, MetLife revealed that it would take two smaller charges, one related to damage from severe storms including Hurricane Irene ($80-$100 million) and the other related to a September 1, 2011 liquidation plan for Executive Life Insurance Company of New York ($40 million). These disclosures collectively are alleged to have caused MetLife’s. stock price to decline from a closing price of $30.69 on October -6 to a closing price of $28.80 on October 7, or 6.16 percent. By contrast, Central States alleges, the S & P 500 and S & P 500 Insurance Indices declined only 0.81 and 3.13 percent, respectively, over the same period. Relying on an event study referred to in the SAC, Central States alleges that the 6,16 percent decline in MetLife’s share price was statistically significant.

MetLife’s financial results for the third quarter of 2011,. which were released after the end of Class Period, revealed a 23 percent decrease in operating earnings for insurance products, allegedly due at least in part to the $117 million after-tax charge taken as a result of the SSA-DMF crosscheck. Another alleged consequence of the $117 million- reserve increase was that MetLife’s group life and individual life mortality ratios each climbed to 98.5 percent, a markedly, higher figure than those in previous quarters;

V. Prior Proceedings

This action was commenced in January 2012 by Central States, allegedly on behalf of a class of all purchasers of MetLife common stock during the period February 2, 2010 to October 6, 2011, inclusive. The original complaint alleged claims under Sections 10(b) and 20 of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 Thereunder. It was amended some months later to add claims under Sections 11, 12 and 15 of the Securities Act of 1933(the “Securities Act”), among other changes. Defendants moved to dismiss.

In an opinion dated February 28, 2013 (“Opinion”), The Court granted in part the defendants’ motions to dismiss -the amended complaint. It dismissed Central States’ Exchange Act claims for failure to plead loss causation and its Section 12(a)(2) Securities Act claims for failure to allege that the defendants had solicited the securities purchases. It upheld thé sufficiency of most of Central States’ claims under Sections 11 and 15 of the Securities Act. Both parties moved for reconsideration. The Court denied the motions, but granted Central States, leave to amend and invited the defendants to incorporate their -arguments for reconsideration into mor tions to dismiss the SAC. Central States filed its SAC on March 15, 2013, and the MetLife and Underwriter Defendants subsequently moved to dismiss on August 23, 2013.

Not long after those motions were filed, the Supreme Court granted certiorari in Omnicare, which raised questions similar to some of those presented in this case. Rather than decide defendants’ motions to dismiss while Omnicare was pending, this Court waited for the Supreme Court to act. On March 24, 2015, the day Omnicare was decided, this Court entered an order (1) affording Central States an opportunity to amend its complaint, (2) denying defendants’ motions to dismiss without prejudice to renewal, and (3) seeking supplemental briefing in light of Omnicare. Central States ultimately chose- not to amend, and the MetLife and Underwriter Defendants moved to dismiss the SAC on May 21, 2015. The Court now addresses those motions, which it considers de novo so as to take account of the points raised in the parties’ respective motions for reconsideration of the February 2013 opinion to the extent those points have been raised by the present motions.

Discussion

I. Legal Standard

To survive a Rule 12(b)(6) motion to dismiss, a plaintiff must- plead sufficient facts “to state a claim to relief that is plausible on its face.” A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” - The Court accepts as true all well pleaded factual allegations and “draw[s] all inferences in the plaintiffs favor.” In deciding a motion to dismiss, a court considers the complaint, “any written instrument attached to the complaint, statements or documents incorporated into the complaint by reference, legally required public disclosure documents filed with the SEC, and documents possessed by or known to the plaintiff and upon which it relied in bringing the suit.”

To, plead fraud under the securities laws, a complaint must “state with particularity the circumstances constituting fraud” and must satisfy also the Private Securities Litigation Reform Act of 1995 (“PSLRA”), which requires, among other things, that a complaint ‘“(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the .speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.’ ”

II. Exchange Act Claims

A. Section 10(b) and Rule 10b-5 Claims

Section 10(b) of the Exchange Act makes it unlawful to “use or employ, in connection with the purchase or sale of any security ... any manipulative or deceptive device or contrivance in contravention Of such rules and regulations as the Commission may prescribe.” SEC Rule 10b-5, which implements the statute, prohibits making “any untrue statement of a material fact or [omitting] to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.” To recover for a violation of Section 10(b) and Rule 10b-5, a private securities plaintiff, must prove six elements: “(1) a material misrepresentation or omission by the defendant; (2) scienter, (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.” The Court dismissed Central States’ Exchange Act claims on loss causation grounds in its February 2013 Opinion.

1. Material Misrepresentations and/or Omissions (and Scienter)

A plaintiff who brings a securities fraud claim under Section 10(b) and Rule 10b-5 must clear a number of hurdles. In this case, the first hurdle — which requires Central States to allege adequately that Met-Life made “a material misrepresentation or omission” — proves insurmountable.

Rule 10b-5 distinguishes between untrue statements of material fact and certain kinds of material omissions. That distinction is not trivial. The question whether a statement of a material fact is untrue “presents] different issues” than the question whether the speaker has “omit[ted] to state a material fact necessary” to make its statement(s) “not misleading.” Thus, there are two ways for a Section 10(b) plaintiff to state a legally sufficient claim that a defendant has made amaterial misrepresentation (i. e., a misstatement) or omission. First, such a plaintiff can plead facts that, if true, would be sufficient to show that the defendant made an “untrue statement of a material fact.” Second, the plaintiff can plead facts that, if true, would be sufficient to show that the defendant “omit[ted] to state a material fact necessary” to make whatever statement(s) it made “not misleading.”

In either case, the plaintiff must allege adequately that the challenged statement or omission is “material.” Whether a particular statement or omission is material is an “inherently fact-specific” inquiry That asks whether “there is a substantial likelihood that a reasonable shareholder would consider [the fact(s) stated or omitted] important in deciding how to [act].” At the pleading stage, “a plaintiff satisfies the materiality requirement of Rule 10b-5 by alleging a statement or omission that a reasonable investor would have considered significant in making investment decisions.” In the context of an omission specifically, “a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available” is sufficient. Materiality, in other words, is a mixed question of law and fact. On a Rule 12(b)(6) motion, then, “a complaint may not properly be dismissed ... on the ground that the alleged [ Statements or omissions are not material unless they are so obviously unimportant to a reasonable investor that reasonable minds could not differ on the question of their importance.”

In addition to alleging that it is material, a Section 10(b) plaintiff who challenges a statement must allege adequately that the statement is “untrue.” An untrue statement of fact (we’ll get to statements of opinion or belief in a moment) is one that was false “at the time it was made.” To plead falsity, however, Section 10(b) plaintiffs “must do more than simply assert that a statement is false— ‘they must demonstrate with specificity why that is so.’ ” And “falsity,” in this context, is a bit of a misnomer. “Some statements, although literally accurate, can become, through their context and manner of presentation, devices which mislead investors.” For that reason, “the disclosure required by the securities laws is measured not by literal truth, but by the ability of the material to accurately inform rather than mislead prospective buyers.”

A Section 10(b) plaintiff who alleges harm due to the omission of .a material fact need not allege falsity to state a legally sufficient claim. Instead, such a plaintiff must plead facts that, if true, would be sufficient to show that the defendant had a duty to disclose the omitted information and failed to do so. Such a duty may arise expressly, pursuant to a statute or regulation, or implicitly “as a result of the ongoing duty to avoid rendering existing statements misleading by failing to disclose material facts.”

The SAC is 138’ pages long and consists of nearly 300 paragraphs. It asserts many things but in substance alleges that the financial statements issued by MetLife during the Class Period were misleading—and thus did not reflect accurately the financial condition and performance of the Company — for three reasons, each of which stems from MetLife’s alleged failure to cross-check the SSA-DMF against its roster of group life insureds. But before enumerating those reasons, it-is helpful to make one point abundantly clear.

Central States nowhere claims that Met-Life made any statement — true or false— as to what its IBNR reserves actually were. In other words, there is no suggestion that the Company said its IBNR reserves were $X and that such statement was false because those reserves actually were $Y. Nor is there any suggestion that such a statement was materially misleading because MetLife did not believe its IBNR reserves actually were $X, that MetLife had no reasonable basis for saying its IBNR reserves actually were $X, or anything of the sort. The claims are more subtle than that.

First, Central States asserts that Met-Life’s financial statements — including, among others, its income statements and balance sheets — were false or misleading because the amount of its allegedly inadequate reserves (whatever those reserves were in quantitative terms) necessarily was reflected in those statements.

Second, Central States contends that MetLife made qualitative statements about its mortality results, its underwriting practices, and its approach to risk and expense management that were false and/or misleading inflight of the alleged inadequacy of the Company’s IBNR reserves. Of course, all of these claims are derivative of the same question: were MetLife’s implicit representations regarding the adequacy of its IBNR reserves either (1) untrue statements of a material fact, or (2) omissions of a material fact that rendered the Company’s financial statements throughout the Class Period misleading?

Finally, Central States contends that MetLife falsely stated that investigations into its retained asset accounts were “without merit” and failed timely to disclose the seriousness of state investigations into its death benefits payment practices — a failure that Central States says violated, among other things, SEC Regulation S-K, Item 303.

a. The Adequacy of MetLife’s IBNR Reserves .

In its February 2013 Opinion, the Court noted that MetLife’s IBNR reserves “‘‘capture’ losses for which claims have not been reported but must be . estimated so the company can pay future claims.’ While these estimates involve some factual inputs, they necessarily require judgment” and thus are statements of opinion or belief, not of fact. The Court’s earlier conclusion that MetLife’s (explicit or implicit) representations regarding the adequacy of its IBNR reserves were statements of opinion or belief has not changed. Accordingly, the question now before it is whether those representations were material misrepresentations or omissions for purposes of the securities laws.

i. Statements of Opinion or Belief After Omnicare

Much could be said about the development of the securities laws with respect to whether and when statements of opinion or belief can give rise to liability. For present purposes, however, it suffices to begin by noting that the Supreme Court in Virginia Bankshares v. Sandberg made clear that the securities laws do not impose an absolute bar to liability for statements of opinion or belief. But the Court in Omnicare makes just as clear that it is substantially more difficult for a securities plaintiff to allege adequately (or, ultimately, to prove) that such a statement is false than it is .to allege adequately (or prove) that a statement of pure fact is false. . -

To allege adequately that a statement of fact (e.g., “the New York Yankees today have the best'record in baseball”) is false within the meaning of the securities laws, a plaintiff need plead only facts that, if true, would be sufficient to show, assuming materiality, that the statement is, in fact, false — i.e., that the Yankees today do not have the best record in baseball. In this context, the speaker’s belief as to the accuracy of her statement is irrelevant: if the Yankees do not have the best record in baseball — and they do not — the statement is “untrue” for purposes of Rule 10b-5 regardless of whether the speaker knew it was false or thought, mistakenly, that.it was correct.

To allege adequately that a statement of opinion or belief (e.g., “I believe the New York Yankees have the best record in baseball”) is false within the meaning of the securities laws, on the other hand, a plaintiff must plead facts that, if true, would be sufficient to show, again assuming materiality, one of two things: that (1) the opinion or belief “constitutes a factual misstatement” in itself, or (2) the opinion or belief is “rendered misleading by the omission of discrete factual representations.” However, while there are two ways for a plaintiff who challenges a statement of opinion or belief to state a legally sufficient claim.under Rule 10b-5, courts considering whether such a plaintiff has met the pleading burden must remember that each of these methods is tied to a separate and distinct provision of the Rule.

A plaintiff who asserts that a statement of opinion or. belief violates the first provision of the Rule — a plaintiff who asserts, in other words, that the opinion or belief itself is an “untrue statement -of a material fact” — must do more than allege that the underlying fact is false (i.e., that the Yankees do not have the best, record in baseball). Rather, such a plaintiff must plead facts that, if true, would be sufficient to show that the speaker did not “actually hold[] the stated belief’ (i.e., that the speaker knew the Yankees did' not have the best record in baseball but said they did anyway).

Similarly, a plaintiff who asserts that a statement of opinion- or belief violates the second provision of the -Rule — a plaintiff who asserts, in other words, that the speaker “omit[ted]to state a material fact necessary in order to make” its opinion or belief “not misleading” — “cannot state a claim by alleging only that [the] opinion was wrong,” for “a statement of opinion is not misleading just because external facts show the opinion to be incorrect.”

Instead, recognizing that statements of opinion or belief in some circumstances “are reasonably understood to rest on a factual basis that justifies them as accurate,” a plaintiff who asserts that the defendant omitted to state a fact (or facts) necessary to make a statement of opinion or belief “not misleading” must “call into question the issuer’s basis for offering the opinion.” Before explaining what a plaintiff must plead to satisfy this standard, it is important to explain why the standard exists in the first place.

Rule 10b-5’s “omissions clause ... necessarily brings the reasonable person into the analysis, and asks what she would naturally understand a statement to convey beyond its literal meaning.” With respect to statements of opinion or belief, “that means considering the foundation she would expect an Issuer to have before making the statement.” For example, in the context of “formal documents,” like financial statements filed with the SEC, reasonable investors “do not, and are not right to, expect opinions contained in those statements to reflect baseless, off-the-cuff judgments.” Rather, they properly may assume that expressions of opinion contained therein “convey facts about how the speaker has formed the opinion” — i.e., facts “about the speaker’s basis for holding that view.” Where they do not, such statements may mislead their audiences in violation of Rule 10b-5. One or two examples may be illustrative.

If the directors of Company X tell their shareholders that a proposed merger offers a “fair” price for Company X’s shares, they have stated their opinion about the deal. Whether a particular deal is “fair” is, after all, not a determinate, verifiable statement like “this ring is 24-carat gold.” But financial professionals have developed specific metrics — such as the residual income model, the dividend discount model, and discounted .cash flow analyses, among others — to perform valuations of companies, them stock prices, and the like. Thus, a statement that a deal is “fair” reasonably may be understood as a statement, or at least as an implication, that the opinion reflects or is based upon one or more accepted valuation metrics. In other words, even assuming that the directors actually believé that the offered price is “fair,” they arguably may have liability under Rule 10b-5’s omissions clause if (1) their opinion rests solely upon subjective views and does not reflector rest upon an accepted valuation metric, and (2) they fail to disclose that fact.

Similarly, if an appraiser states that a piece of real estate is worth $100,000, the appraiser, in effect, has said that it is the appraiser’s opinion or belief that the property is worth $100,000. But there are widely-accepted methods by which appraisers form judgments as to the value of real estate. So, just as in the preceding example, an real estate appraiser who offers an opinion as .to value, depending upon the context, reasonably might be regarded as having said in substance (or implied) that the appraiser’s view reflects or is supported by accepted principles of real estate valuation applied to appropriate data. Liability therefore perhaps could follow on the theory that it was materially misleading for the appraiser to omit the fact that the opinion was unsupported by accepted principles and relevant data if, in fact, that were so.

The point, in each example, is the same. If the directors’ statements about the fairness of the deal or the appraiser’s valuation of the real estate are not grounded in “the customs and practices of the relevant industry,” they “could be misleadingly incomplete,” At least in some contexts. That is so because the reasonable person, who “understands a statement of opinion in its full context,” would expect “not just that the issuer believes the opinion (however irrationally),” but that the opinion “rest[s] on some meaningful ... inquiry—rather than, say, on mere intuition, however sincere.”

So what, then? must a plaintiff plead to state a legally sufficient claim that the defendant “omit[ted] to state a material fact necessary” to make its statement of opinion “not misleading?” Omnicare holds that a plaintiff “cannot just say that the issuer failed to reveal [the] basis” for the opinion. Such a “conelusory assertion[ ]” may be enough to allege adequately that an omission has occurred, but it offers no reason to think the omission “rendered a published statement misleading.” Nor may the plaintiff merely “recit[e] ... the statutory language” or offer bare “conlusory allegation[s]” that the issuer “lacked reasonable grounds for the belief it stated.” Rather, the plaintiff “must identify particular (and. material) facts going to the basis for the issuer’s opinion — facts about the inquiry the issuer did or did not conduct or the knowledge it did or did not have — whose omission makes the opinion statement at issue misleading to a reasonable person reading the statement fairly and in context.” In the context of a financial statement filed with the SEC, a plaintiff who asserts a claim under the omissions clause of Rule 10b-5 must allege, in other words, not only that the financial statement “omits -.material facts about the issuer’s inquiry into or knowledge' concerning a statement of opinion,” but also that “those facts conflict with whát a reasonable investor would take from the statement itself.” “That is no small task for an investor.”

In sum, then, a plaintiff who asserts that a statement of opinion or belief violates Rule 10b-5 must plead facts that, if true, would be sufficient to show one of two things: (1) if asserting that the statement of opinion or belief “constitutes a factual misstatement” in itself, that the speaker did not “actually hold[ ] the stated belief,” or (2) if asserting that the statement of opinion of belief is misleading due to the omission of “discrete factual representations,” that the statement did not “rest on some meaningful ... inquiry,” rendering it “misleading to a reasonable person reading the statement fairly and in context.”

ii. Central States Has Not Stated an Actionable Claim

The $117 million reserve increase MetLife made to cover losses stemming from its 2011 cross-check of the SSA-DMF prompted the Court to hold in its February 2013 Opinion that Central States “ha[d] alleged adequately that MetLife’s IBNR reserves proved to' be ... insufficient to meet- the company’s life insurance policy obligations.” That remains true. But as Omnicare makes clear, a plaintiff who asserts that a statement of opinion or belief violates Rule 10b-5 must do more than merely allege that the opinion (or one of its underlying facts) was wrong. The securities laws do not permit allegations of “fraud by hindsight,” and “[a] statement believed -to be true when made, but later shown to be false” ,-is not an actionable misstatement under Section 10(b) and Rule 10b-5. Thus, the fact, that Met-Life’s IBNR reserves ultimately proved insufficient is not determinative. of these motions to dismiss. The. critical questions instead , are whether Central States has alleged adequately that (1) MetLife did not actually believe its IBNR reserves were adequate but nevertheless said (or implied) they were, or (2) MetLife’s (explicit or implicit) representations regarding the adequacy of its IBNR reserves did not rest on a meaningful inquiry, rendering them misleading to a reasonable investor reading MetLife’s financial statements in context. For the reasons stated below, the Court concludes the answer to each of these questions is “No.”

In its February 2013 Opinion, the Court accepted as true Central States’ argument that MetLife’s 2007 cross-check of the SSA-DMF against its individual life insureds uncovered a “shortfall of $80 million’.’ in the Company’s IBNR reserves and relied on that to hold that Central States adequately had pleaded that MetLife “knew that its estimated IBNR reserves were insufficient to meet the compan[y’s] life insurance policy obligations, or at least was aware that it had no reasonable basis for believing the estimates.” In other words, the Opinion reasoned, because an SSA-DMF cross-check against one type of policy revealed that MetLife’s IBNR reserves were insufficient, a trier of fact reasonably could conclude that MetLife should have recognized that its reserves similarly were (or might be) inadequate for another type of policy for which no crosscheck had been run. Though it did not use these words,, the February 2013 Opinion in effect , concluded that Central States adequately had pleaded either that (1) MetLife did not “honestly believe[ ]” its representations concerning the adequacy of its I-BNR reserves, or (2) those representations did not “rest on some meaningful ... inquiry.”

The defendants protest this reasoning and now argue that the complaint was and the SAC is misleading as to what MetLife. learned, as a result, of the 2007 cross-check; The amended complaint alleged,. and the SAC continues to allege, that “in 2007 MetLife performed a match across certain of its insurance records using the SSA-DMF and had discovered over $80 million in IBNR claims that had not been reserved for.” Central States frames this allegation — which is derived from a post-Class Period multi-state regulatory agreement to which MetLife was a party — in such a way as to imply that MetLife’s 2007 cross-check revealed an $80 million IBNR reserve shortfall. Indeed, that is how the Court (mistakenly) interpreted the amended complaint in its earlier Opinion.

As defendants now point out, the April 2012 multi-state agreement on which this assertion is based does not bear out the notion that MetLife’s 2007 cross-check uncovered an $80 million shortfall in Met-Life’s IBNR reserves. Rather, it states only that the cross-check “identified over $50 million in death benefits, which were paid to Beneficiaries and over $30 million in unclaimed benefits which have been or will be reported and remitted to the appropriate states in accordance with the Unclaimed Property Laws,” There is no indication — in the SAC, the multi-state agreement, or elsewhere — that the 2007 cross-check and the resulting discovery of unpaid benefits had any impact whatsoever, positive or negative, on MetLife’s IBNR reserves or on its financial statements. And, defendants argue, if the 2007 cross-check in fact did not reveal an $80 million IBNR reserve “shortfall,” but rather merely $80 million in unpaid benefits, there is no basis to infer that MetLife did not believe, at the time it crosschecked the SSA-DMF against its roster of group life insureds, that its IBNR reserves were adequate to cover unpaid benefits identified as a result of that crosscheck. Nor, defendants say, is there a basis to infér that MetLife knew — but failed to disclose — material information that contradicted its statements regarding the adequacy of its IBNR reserves such that a reasonable investor would have been misled by the omission of that information.

Stated another way, defendants argue that it says nothing, standing alone, that the 2007 cross-check revealed $80 million in unpaid benefits. If MetLife’s IBNR reserves then were adequate to cover those liabilities — an assumption which Central States does not adopt, but as to which it alleges no contrary facts — there is no reason to think that MetLife did not actually believe, contemporaneously with its representations, that its IBNR reserves later would be adequate to cover liabilities resulting from a cross-check of the SSA-DMF against its group life insureds. As defendants contend, the SAC identifies no “particular (and material) facts going to the basis for the issuer’s opinion” — facts whose omission (had the facts existed) might have made MetLife’s representations misleading to a reasonable person— and thus provides no reason to think that MetLife’s, comments concerning the sufficiency of its IBNR reserves did not “rest on some meaningful ... inquiry.”

Central States now acknowledges that the regulatory agreement does not support directly the alleged $80 million reserve shortfall. Instead, it asks the Court to infer that there was a reserve shortfall, or notice thereof, based on the existence of $80 million in outstanding death benefits on individual life insurance policies in 2007 and. the fact that MetLife’s IBNR reserves later proved inadequate to cover the unpaid benefits discovered as a result of the Company’s 2011 cross-check of the SSA-DMF against its group life insureds.

While it is true that-on a motion to dismiss a court draws all reasonable inferences-in the plaintiffs favor, a claim for relief must be more than merely .possible. It must be plausible. . “[W]here the well-pleaded facts do not permit (he court to infer more than the mere possibility of misconduct,” or where there are “obvious alternate explanations,” That standard is not met.

To allege adequately that MetLife’s representations regarding the sufficiency of its IBNR reserves were misstatements of material fact; Central States had to plead facts that, if true, would be enough to show, assuming materiality, that MetLife did not believe those representations. It could have alleged, for example, facts concerning the size of MetLife’s IBNR reserves; the size of those reserves relative to MetLife’s existing -liabilities; the relative sizes of MetLife’s group and individual life insurance pools and how the $80 million- in unpaid individual life insurance benefits revealed as a result of the 2007 SSA-DMF cross-check might have affected what estimated reserves should have been preceding the 2011 SSA-DMF crosscheck; MetLife’s methodology for calculating its reserves; whether MetLife’s methodology. accounted for unreported deaths; or the impact of various states’ policies for collecting unclaimed benefits. Had it done so, it perhaps would have-been in a stronger position now (although the Court does not so decide). But it did not.

In sum, then, it is possible that the 2007 discovery of $80 million in unpaid benefits perhaps might have rendered MetLife’s IBNR reserves insufficient, or at least alerted MetLife to the fact that it might be under-reserved in the future. But on the facts alleged in the SAC, it equally would be possible that the discovery had no such impact.. Indeed, perhaps MetLife carried extra reserves to account for unanticipated influxes of claims, or perhaps its methodology for estimating reserves took into account certain older policies for which claims never had been' filed. Perhaps MetLife determined IBNR reserves differently for its group life insureds than it did for its individual life insureds. There may be other innocent explanations. But the critical. point, is that. Central States, has failed to allege facts sufficient to make out a plausible claim that MetLife did not believe, in advance of the 2011 SSA-DMF cross-check, that its IBNR reserves were adequate. - That is fatal to the claims that rest on the proposition that MetLife knew that i-its financial statements- were false because it did not in fact believe- that its IBNR reserves-were adequate.

To allege adequately that MetLife omitted to state a material fact (or facts) necessary to prevent its representations regarding-the sufficiency of-its IBNR reserves from misleading reasonable investors, Central States had to call into question Met-Life’s basis for those representations by identifying particular, material facts about the inquiry MetLife “did or did not conduct or the knowledge it did or did not have” — facts the omission of which rendered MetLife’s representations misleading to reasonable investors reading the Company’s financial statements in context. ‘ In addition to some or all of the facts noted above, it could have alleged, for example, facts tending to show that Met-Life ignored (or otherwise misapplied) the “customs and practices” of the insurance industry in estimating its IBNR reserves; That MetLife’s estimates did hot “fairly align[ ] with the information in [its] possession at the time;” or that those estimates did not rest upon the kind of “foundation” that a reasonable person would have expected them to rest upon.

The SAC alleges no such facts. Central States has provided no indication that the stated basis for MetLife’s IBNR reserve estimates — namely, “actuarial analyses of historical patterns of claims and claims development” — ran afoul of the customs and practices of the life- insurance industry, Indeed, it has not alleged any facts suggesting that there is a particular cüstom or practice in the life insurance industry for fixing IBNR reserves. Nor does the SAC allege adequately that either (1) it was a custom or practice among life insurers to estimate IBNR reserves'by conducting a cross-check of the SSA-DMF against all life insureds, or (2) the “foundation” upon which MetLife did rest its IBNR reserve estimates did not comport with what a reasonable person reading the Company’s financial statements fairly and in context would have expected. -And it alleges no facts tending to show that Met-Life’s IBNR reserves did not fairly align with information it possessed at' the time. Central States’ argument to the contrary — to the extent it makes one — appears to rely entirely on a premise the Court on reflection has concluded lacks any basis whatsoever: that MetLife’s 2007 SSA-DMF cross-check revealed an $80 million shortfall in the Company’s IBNR reserves. But MetLife’s representations regarding the -adequacy of its -IBNR reserves were, as the Court, has discussed, in no way inconsistent with what that crosscheck actually revealed: $80 million in unpaid benefits. In all the circumstances, Central States has failed adequately to allege that MetLife omitted to state a fact (or facts) necessary to prevent its representations regarding the sufficiency of its IBNR reserves from misleading reasonable investors reading the Company’s financial statements fairly and in context.

b. Mortality Ratios, Underwriting Practices, & Risk Management

The SAC alleges also that Met-Life made representations regarding its mortality ratios and results, its underwriting strength, and its “disciplined approach to risk and expense managements” that were inaccurate as a result of the Company’s alleged failure to estimate properly its IBNR reserves. These allegations are interrelated and the Court addresses them together.

As the Court alluded to earlier, neither the claim that MetLife misrepresented its reported income, its operating earnings, and its earnings per share nor, for the most part, this claim can survive once Central -States’ claim respecting the adequacy of MetLife’s IBNR reserves has been rejected. Nearly all of these ancillary claims are derivative of the alleged insufficiency in those reserves, and they depend on the premise that MetLife’s Class Period representations regarding there serves’ adequacy violated the securities laws. That claim has failed, so most of these must as well. Nevertheless, the Court addresses Central States’ claim that MetLife made false of misleading statements regarding its mortality ratios and results, as well as its underwriting and risk management practices, for reasons that will become clear when the Court addresses the Section 11 claims, infra.

As an initial matter, the Court concludes that MetLife’s. characterizing its underwriting as “solid,” its “approach to risk and expense managements” as “disciplined,” and its “mortality results” as “excellent,” as well as other such representations are not actionable under the securities laws. Rather, they are “merely generalizations regarding [MetLife’s] business practices” generalizations of the type that the Second Circuit “consistently [has] held to be inactionable” puffery, in part because they are “too general to cause a reasonable investor to rely upon'them.” Even if these “conclusory,” “qualitative” statements — which, like the Company’s representations regarding the adequacy of its IBNR reserves, were characterizations or statements of opinion or belief— could be actionable in some cases, they are not in the circumstances alleged here. Central States has not alleged adequately either that (1) .MetLife did not actually believe the opinions contained therein, or (2) the statements did not rest on a meaningful inquiry, rendering them misleading to a reasonable investor reading them in context.

MetLife did offer specific figures with respect to mortality ratios. Whether those allegedly understated figures are actionable under the securities laws is a closer question.

The SAC does not define what a mortality ratio is, but the Court takes it in this context to be a measure of observed or known' deaths compared with expected deaths. The SAC does allege, however, that MetLife’s “false strong reported mortality ratios” had a “positive .impact on ... underwriting results” and that MetLife “knowingly or recklessly”’misrepresented those ratios throughout the Class Period due to its failure to incorporate unreported deaths that were reflected in the SSA-DMF. Reported mortality ratios for each quarter in 2009 and 2010 and the first two quarters of 2011 hovered between approximately 81 to 92 percent. In the third quarter of 2011, however, after Met-Life cross-checked the SSA-DMF against its roster of group life insureds, its reported mortality ratio surged to 98.5 percent for both individual and group life insurance. Had the deaths uncovered by the 2011 cross-check been incorporated into the mortality ratios when those deaths actually occurred, Central States appears to argue, earlier quarters’ mortality ratios likely would have been higher. On this theory, the reported mortality ratios during the Class Period are alleged to have been inaccurate.

In a July 2011 conference call for investors and analysts, MetLife discussed its financial results for the second quarter of 2011. Among other things, the Company described its group life mortality ratio for that quarter — reported to be 82.1 percent — as “excellent” and called it “group life’s best ever - mortality quarter.” MetLife said also that. it expected its group life mortality ratio, which had-not exceeded 90 percent since the third quarter of 2009, To hover around 88 percent moving forward. On October 28, 2011, however, MetLife held another conference call for investors and analysts to discuss its financial results for-the third quarter of 2011. During that call, MetLife explained the impact of the $117. million increase to its reserves in the wake- of its 2011 SSA-DMF cross-check. At the same time, MetLife reported that its individual and group life mortality ratios both had risen to 98.5 percent — rises the Company said were attributable to its $117 million “reserve strengthening,” but which in fact may have had a more logical and straightforward explanation.

When MetLife officials testified in California in May 2011, they acknowledged, among other things, that MetLife (1) decided by December 2010 “to use the SSA-DMF more frequently and broadly,” (2) had yet to run “SSA-DMF matches for its group life policies” as of May 2011,' and (3) calculated deaths “as of the date of the match [against the SSA-DMF] as opposed to the date of the death.” In other words, some time between May 23, 2011, when MetLife officials testified in California that-no group life SSA-DMF crosscheck yet had been run, and October 6, 2011, when MetLife filed a Form 8-K disclosing for the first time that it would increase its reserves by at least $115 million to account for- additional payments owed to beneficiaries, MetLife crosschecked the SSA-DMF against its roster of group life insureds. In doing so, it likely “discovered” many deaths — some recent, some older: — for the first time. Given MetLife’s - admission that it routinely calculated .deaths based- on the date of discovery, not the actual date of death, it is no surprise that MetLife’s first-ever crosscheck of the SSA-DMF against its roster of group life insureds would have caused a sharp increase in its reported mortality figures.

As noted above, the SAC is woefully vague in its description of what a mortality ratio is. Nonetheless, the Court assumes, arguendo, that such ratios áre “determinate, verifiable” facts, not statements of opinion or belief. They appear, after all, to be readily quantifiable by comparing actual or reported deaths with expected deaths. To state a legally sufficient claim that those ratios were false ‘within the meaning of the securities laws, then, Central State's merely had to plead facts that, if true, would' be sufficient to show that they were in fact inaccurate.

Though it is not clear (or, for our purposes, important) why MetLife waited until 2011 to cross-check the SSA-DMF against its roster of group life insureds, there is no indication that it could not have done so sooner.. And Central States’ allegation that MetLife’s reported group life mortality ratio rose after the Company’s first-ever cross-check of the SSA-DMF against its group life insureds — from 82.1 percent' in the second quarter of 2011 to 98.5 percent in the third quarter of 2011— is a sufficient - basis on which to conclude that some or -all of the mortality ratios MetLife reported during the Class Period were inaccurate. Put another way, the SAC adequately has alleged that'at least some of MetLife’s reported Class Period mortality ratios were “untrue statements] of amaterial fact.” But that is not the end of the inq