IN THE UNITED STATES DISTRICT COURTFOR THE WESTERN DISTRICT OF OKLAHOMA

ROBERT L. THOMAS and AMANDA §THOMAS, Individually and on Behalf of All §Others Similarly Situated, §

§Plaintiffs, §

§ Case No. CIV-07-121-Fv. §

§METROPOLITAN LIFE INSURANCE §COMPANY, and METLIFE SECURITIES, §INC., §

§Defendants. §

METLIFE'S MOTION FOR LEAVE TO FILE MOTION FOR SUMMARYJUDGMENT AND MEMORANDUM OF LAW IN SUPPORT

DANIEL McNEEL LANE, JR. DAVID L. KEARNEYDAVID A. JONES GABLE & GOT WALSNADA L. ISMAIL One Leadership Square, 15th FloorAKIN, GUMP, STRAUSS, HAUER & FELD, 211 N. Robinson Ave.L.L.P. Oklahoma City, OK 73102-7101300 Convent Street, Suite 1500 Telephone: (405) 235-5500San Antonio, Texas 78205 Telecopier: (405) 235-2875Telephone: (210) 281-7000Telecopier: (210) 224-2035

ASHLEY B. VINSONAKIN, GUMP, STRAUSS, HAUER & FELD,L.L.P. ATTORNEYS FOR DEFENDANTS580 California Street, Suite 1500 METROPOLITAN LIFE INSURANCESan Francisco, CA 94110 COMPANY AND METLIFE SECURITIES,Telephone: (415) 765-9500 INC.Telecopier: (415) 765-9501

Defendants Metropolitan Life Insurance Company ("MLIC") and MetLife

Securities, Inc. ("MSI"), (collectively, "MetLife"), file this Motion for Leave to File a

Motion for Summary Judgment. If permitted to file its motion for summary judgment,

MetLife would show:

Preliminary Statement

MetLife seeks leave to move for summary judgment on the threshold issue of

whether the Investment Advisers Act of 1940 (the "IAA") even applies to the single

transaction that is the sole basis for plaintiffs' claims. The starting point for MetLife's

motion is the Court's Order denying MetLife's motion to dismiss plaintiffs' Third

Amended Complaint ("TAC"). (Doc. No. 159.) In denying that motion, the Court

observed that "[w]hat is important here is (1) the relationship that existed between

plaintiffs and Mr. Laxton, (2) the service he allegedly provided, and the (3) product he

sold." (Id. at 18.) More specifically, the court elaborated, the plaintiffs "have no case

under the IAA" if the sale was a "garden-variety" brokered transaction to which the IAA

does not apply.

Plaintiffs survived MetLife's Rule 12(b)(6) motion because they alleged that

MetLife's registered representative, Jeff Laxton, was an investment adviser who provided

investment advice to the plaintiffs in exchange for special compensation, and the Court

had to accept these allegations as true. (Id. at 13-15.) The plaintiffs and Laxton have

now been deposed, and their testimony refutes these allegations.

The undisputed summary judgment evidence establishes that Jeff Laxton's sale of

a variable life insurance policy to the plaintiffs in 2003 was, in fact, a garden-variety

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brokered transaction to which the IAA does not apply. Plaintiffs undoubtedly will repeat

their argument that the IAA required MetLife to disclose an alleged conflict of interest to

plaintiffs, but—while MetLife disagrees that such a conflict existed—any such conflict is

irrelevant because the IAA did not apply to this transaction.

Laxton's sale of a variable life insurance policy to the plaintiffs, Robert and

Amanda Thomas, is the sole transaction at issue. In 2003, Laxton met with the plaintiffs

on one occasion. During that meeting, Laxton gathered information from the plaintiffs

that, in addition to other information he had previously gathered, led him to recommend

they purchase a MetLife variable life insurance policy on their infant daughter's life to

save for her education and other expenses. (The information Laxton collected was

required by the (then) NASD rules and his broker-dealer's internal rules, to ensure he

would have a reasonable basis for his recommendations.) Neither MetLife nor Laxton

charged the plaintiffs a separate fee for investment advice. Instead, MetLife collected a

$91 monthly premium payment from the Thomases to pay for the product, including the

sales and administrative expenses and taxes associated with the policy. Laxton was

compensated by a commission on the sale.

Construing this transaction to fall within the ambit of the IAA would upset over a

half-century of well-established authority from the SEC and numerous federal courts, and

would—at least in this federal district—subject every broker-dealer and their registered

representatives to IAA duties and liability for simple brokered transactions. Congress

was well aware of the often significant and varied investment advice commonly and

necessarily provided as part of the traditional conduct of business of broker-dealers.

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Congress was also well aware of potential conflicts of interest that may arise when

broker-dealers recommend securities to their customers. Nevertheless, Congress

deliberately chose to regulate under the IAA only those broker-dealers and registered

representatives who provide investment advice outside of this traditional relationship, or

who separately contract or charge their clients for investment advice, leaving the

remaining broker-dealers and their registered representatives—like the defendants and

Laxton here—subject only to the Securities and Exchange Act of 1934.

This case is ripe for summary judgment. In order to recover on their claims in this

case, plaintiffs must show that the defendants, or Laxton on behalf of the defendants,

served as investment adviser to them. However, the testimony of both of the plaintiffs

and Laxton, together with documents in the record, clearly demonstrate that neither of the

defendants or Laxton served as an investment adviser to the plaintiffs. No amount of

discovery would enable the plaintiffs to contradict the current record and create a material

issue of fact. Consequently, plaintiffs cannot establish the threshold showing that the

IAA applies to their claims, and summary judgment should be granted.

I. STATEMENT OF MATERIAL FACTS

(1) The only investment advice plaintiffs contend they received during the

class period—Laxton's recommendation that they purchase a variable life insurance

policy on the life of their daughter Josie May—occurred during one meeting in 2003

when they applied for a UL 2001 Flexible Premium Multifunded Life Insurance Policy

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issued by MLIC from Jeff Laxton. See A. Thomas Dep. 127:22-136:8, Dep. Ex. 7 at 9-

12, 15-16.1

(2) The UL 2001 Flexible Premium Multifunded Life Insurance Policy that the

Thomases purchased in 2003 is the only investment, life insurance product, or service at

issue in this suit. See Dep. Ex. 7 at 6-8; R. Thomas Dep. 79:16-21.2

A. Jeff Laxton

(3) Jeff Laxton was employed by MLIC from March 1998 through January

2005, and was licensed as a registered representative of MLIC's affiliated broker-dealer,

MSI, shortly after he joined MetLife. Laxton Dep. 179:1-10.3

(4) Laxton complied with all laws, regulations, NASD rules, and MetLife

guidelines at all times during his employment with MetLife. See id. 12:12-16, 153:25-

154:4, 157:1-3, 179:11-14.

(5) MetLife rules required registered representatives to comply with all federal,

state, and the National Association of Securities Dealers ("NASD"), now known as the

1 References to the deposition of Amanda Thomas are referred to herein as "A.Thomas Dep." Excerpts from the deposition of Amanda Thomas are included in Exhibit1 of the Declaration of Daniel McNeel Lane ("Lane Decl."), which is attached hereto.Exhibits to the depositions that are referenced in this motion are attached as Exhibits 4-12of the Lane Decl.

2 References to the deposition of Robert Thomas are referred to herein as "R.Thomas Dep." Excerpts from the deposition of Robert Thomas are included in Exhibit 2of the Lane Decl.

3 References to the deposition of Jeff Laxton are referred to herein as "LaxtonDep." Excerpts from the deposition of Jeff Laxton are included in Exhibit 3 of theDeclaration of Daniel McNeel Lane ("Lane Decl.")

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Financial Industry Regulatory Authority ("FINRA"), rules and regulations. See id. Dep.

Exs. 28, 29, 30.

(6) MetLife rules prohibited anyone other than registered investment adviser

representatives from providing investment advisory services. See id.

(7) Laxton signed a Registered Representative and Producer Certification Form

in several years during his tenure at MetLife in order to certify that he understood and

complied with federal and state laws and regulations, NASD rules, and MetLife rules.

See id.

(8) Laxton obtained a series 6 security license in May 1998, which only

permitted him to make recommendations and effect sales of mutual funds and variable

products, including variable life insurance policies. See id. 153:8-24.

(9) Laxton was not registered as an investment adviser at any time while he was

employed at MSI. See id. 188:10-16.

(10) Laxton was not an investment adviser representative of MetLife and did not

provide investment advice as an investment adviser representative. See id. 159:6-8,

159:11-13.

(11) Laxton was not listed as an investment adviser at any time during the

putative class period. See id. 228:4-8.

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(12) Laxton was not certified as or permitted to act as a financial planner,

prepare financial plans, or provide financial planning services to MetLife customers. See

id. 68:11-13, 120:12-20, 159:9-10, 188:23-189:3.

(13) At all times during his tenure at MetLife, Laxton's job was to sell MetLife

products, including permanent insurance, variable insurance, mutual funds, and annuities.

See id. 30:12-31:2, 208:1-3.

(14) Laxton never represented himself in any form prohibited by MetLife and

always told customers that he represented MetLife's affiliated broker-dealer. See id.

157:20-158:14, 169:22-170:2.

(15) Laxton was instructed that it was his responsibility to provide products that

fit his clients' needs, regardless of his own needs. See id. 56:9-58:2.

(16) It was Laxton's practice to have a reasonable basis to believe that a product

was suitable for a customer prior to recommending that product to the customer. See id.

180:10-15.

(17) It was Laxton's practice to follow the MetLife policy which required

registered representatives to make recommendations that were suitable in light of a

client's needs and objectives, financial resources, capacity for understanding and risk

tolerance. See id. 52:25-54:2, 70:8-71:2, 160:4-12, Dep. Exs. 28, 29, 30.

(18) Laxton would have MetLife customers fill out a suitability worksheet in

connection with making a suitability determination. See id. 180:20-181:9, 182:8-13.

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(19) It was Laxton's practice to follow the MetLife policy which required

registered representatives to disclose important product characteristics during sales

presentations, including product type, charges and risks while avoiding unfounded

guarantees or promises, exaggerations and unapproved comparisons. See id. 160:20-

161:1, Dep. Exs. 28, 29, 30.

(20) Laxton did not provide any advice to his customers "other than the

recommendation of products for their consideration and purchase." See id. 229:16-21.

(21) Laxton did not charge a fee or receive special compensation for providing

investment advice. See id. 188:10-16.

(22) Laxton was compensated by commissions on the products he sold. See id.

51:20-23.

(23) Laxton testified that he received other employee benefits tied to the

commissions he earned for products he recommended and sold that could vary with his

level of production and his sales of proprietary products. See id. 170:6-19.

B. Robert and Amanda Thomas

(24) In April 2003, Robert and Amanda Thomas had a daughter, Josie May

Thomas. See Dep. Ex. 3 at PL-RTO 363, Dep. Ex. 4 at 2.

(25) Before Josie May was born, the Thomases decided they would need to save

money for their daughter's college education. See R. Thomas Dep. 79:16-81:2.

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(26) Shortly after their daughter was born, the Thomases met with Laxton, from

whom they had previously purchased other variable products, to discuss investment

options that would help them save for Josie May's college education. See R. Thomas

Dep. 83:9-84:19, 85:3-7; A. Thomas Dep. 45:23-47:22; Laxton Dep. 60:8-20, 182:14-17,

183:24-184:2, 185:16-19.

(27) In the 2003 meeting, Laxton determined that the MetLife variable life

policy was suitable for the Thomases based on information he gathered from the

Thomases, a suitability worksheet Amanda Thomas signed, asset allocation

questionnaires that both of the Thomases completed in 2001, and their objective to save

for their child's education. See R. Thomas Dep. 82:7-84:3; A. Thomas Dep. 47:23-49:12,

74:25-77:22, Dep. Ex. 4; Laxton Dep. 60:8-20, 79:21-80:8, 171:10-20, 182:18-183:4,

Dep. Ex. 20.

(28) Laxton recommended that the Thomases purchase a MetLife variable life

policy to save for their daughter's college education. See R. Thomas Dep. 86:8-17, 87:5-

16; A. Thomas Dep. 47:11-22; Laxton Dep. 69:17-70:3, 185:16-25.

(29) Laxton based his recommendation that the variable life insurance policy

was a suitable product for the Thomases on a number of factors, including: the fact that

insurance costs are lower for children; the fact that the variable life policy was a

permanent product that had the ability to provide cash value, long-term growth, and tax

deferred growth on the assets within the policy; and the Thomases' specific financial

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situation and goals. See Laxton Dep. 61:14-62:19,67:16-69:8, 160:4-19, 171:21-172:14,

187:24-188:3, 189:8-23.

(30) Laxton provided product information about the MetLife variable life policy

to the Thomases, and went through an illustration for the policy with them. See R.

Thomas Dep. 86:18-23, 159:5-16, Dep. Ex. 5; A. Thomas Dep. 53:12-54:22; Laxton Dep.

160:20-161:1, 186:7-11.

(31) Consistent with his habitual practice, and MetLife's internal requirements,

Laxton believes he provided the Thomases with the prospectus for the variable life

insurance policy. See Laxton Dep. 159:14-160:3, 186:12-15, 186:22-187:3, 202:2-

204:23; Dep. Ex. 12.

(32) Amanda Thomas signed the application for the variable life insurance

policy and marked yes above her signature where it stated "I received a current

prospectus for the FPMLI policy indicated above." See R. Thomas 89:13-90:20, 94:9-12,

127:8-16, Dep. Exs. 3 at PL-RTO 361,4; A. Thomas Dep. 51:9-23; Laxton Dep. 186:22-

187:3, 203:7-10.

(33) Amanda Thomas signed the illustration for the variable life insurance

policy immediately below the sentence that read "I (We) have received a copy of this 14

page illustration and a current prospectus." See A. Thomas Dep. 53:12-54:22, Dep. Ex. 5

at PL-RTO 326; Laxton Dep. 186:22-187:3; Dep. Ex. 12.

(34) Based on Laxton's recommendation that the variable life policy was

suitable for their needs and their desire to save for Josie May's education, the Thomases

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applied for and purchased a UL 2001 Flexible Premium Multifunded Life Insurance

Policy issued by MLIC at the 2003 meeting. See R. Thomas Dep. 88:4-11, 90:24-91:21,

98:20-99:12, 124:18-125:5, Dep. Exs. 3,4; Laxton Dep. 60:8-62:25, 69:17-70:3.

(35) The Thomases provided information to Laxton to fill in on their application

for the variable life insurance policy. See R. Thomas Dep. 90:24-91:21, 98:6-99:3, Dep.

Ex. 3.

(36) Part of the Thomases' premiums for the variable life insurance policy was

put into subaccounts similar to mutual funds. See A. Thomas Dep. 50:15-20, Dep. Ex. 4;

Laxton Dep. 69:9-16, 77:14-78:10.

(37) Laxton discussed the Thomases' risk profile with Amanda Thomas and she

signed a suitability worksheet indicating that she had a moderate to aggressive risk

tolerance and that growth was her primary risk objective. See A. Thomas Dep. 48:11-

49:12, 74:25-76:8, Dep. Ex. 4; Laxton Dep. 187:14-19.

(38) Laxton recommended to the Thomases which subaccounts they should

select. See R. Thomas Dep. 126:11-127:7; Laxton Dep. 187:4-8.

(39) The Thomases ultimately selected the subaccounts into which they

allocated their premium in the variable life policy. See A. Thomas Dep. 50:15-20, 75:20-

76:8, Dep. Ex. 4.

(40) Laxton did not have discretion or authority to select or change subaccounts

on the Thomases' behalf. See A. Thomas Dep. 50:15-20, 55:6-15; Laxton Dep. 187:9-13.

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(41) At the 2003 meeting, the Thomases wrote a check for the first $91 monthly

premium for the variable life insurance policy. See R. Thomas Dep. 92:7-14; Laxton

Dep. 172:20-173:3, 187:20-23.

(42) Laxton sent the Thomases' $91 check to MetLife for payment on the

policy. See Laxton Dep. 172:20-173:6.

(43) The Thomases have continued to pay a $91 monthly premium for the

variable life insurance policy. See R. Thomas Dep. 96:10-16.

(44) The Thomases knew that Laxton was a representative employed by

MetLife, and they understood and expected that he would tell them about, and receive a

commission for selling, MetLife products. See R. Thomas Dep. 134:1-8, 135:3-19,

154:5-9; A. Thomas Dep. 113:8-12.

(45) The sales and expense charges that would be applied to the Thomases'

premium payments were disclosed to the Thomases at the time they purchased the

variable life policy. See R. Thomas Dep. 156:8-158:15, Dep. Ex. 5 at PL-RTO 322-323,

326; A. Thomas Dep. 53:12-56:8: Laxton Dep. 161:2-14, 232:1-233:5.

(46) The "sales and expense charges" section of the illustration for MetLife's

Universal Life 2001 Variable Life Insurance Policy states that a "2.25% deduction for

sales charges will be applied to the premium payment." Dep. Ex. 5 at PL-RTO 322.

(47) The prospectus for MetLife's Universal Life 2001 Variable Life Insurance

Policy discloses that MetLife "deduct[s] a 2.25% sales charge from each premium

6330187 11

primarily to help pay the cost of compensating sales representatives," and that it "pay[s]

commissions to sales representatives ... for the sale of [its] products" which "do not

result in a charge against the Policy in addition to the charges already described

elsewhere in [the] prospectus." Dep. Ex. 34 at MLIC000970, MLIC000978.

(48) Laxton was compensated for the sale of the variable life insurance policy to

the Thomases by a commission on the sale. See A. Thomas Dep. 61:20-62:10; Laxton

Dep. 51:24-52:24, 63:6-65:10, 232:25-233:5.

(49) The Thomases did not pay Laxton a separate fee for advice. See A.

Thomas Dep. 60:20-62:10, 108:25-109:6; Laxton Dep. 51:24-52:24, 172:20-173:15.

(50) The Thomases are not aware of any fees that were collected from them that

were not disclosed to them. See R. Thomas Dep. 95:21-97:19; A. Thomas Dep. 67:2-19,

109:19-24.

(51) The Thomases did not enter into any kind of contract with Laxton while he

was affiliated with MetLife. See A. Thomas Dep. 134:14-17; Laxton Dep. 51:24-52:18.

(52) Laxton never prepared a financial plan for the Thomases. See R. Thomas

Dep. 81:12-14, 82:12-15; A. Thomas Dep. 44:7-11, 129:10-130:5, 133:13-16; Laxton

Dep. 52:11-16, 68:11-13, 120:12-20, 188:23-189:3.

(53) Laxton never provided the Thomases with financial planning services. See

Laxton Dep. 68:11-13, 120:12-20, 188:23-189:3.

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(54) The only investment advice Laxton provided the Thomases were product

recommendations in connection with MSI's business as a broker-dealer. See Laxton Dep.

172:15-19, 188:17-22, 229:16-21, 231:6-12; A. Thomas Dep. 127:22-134:17, 134:18-

136:8, Dep. Ex. 7 at 9-12, 15-16.

(55) Laxton's "actions were completely consistent with both his obligations

under NASD (now FINRA) rules and the rules of his firm" and with "standard industry

practices by Broker Dealers and their registered representatives." See Niland Report at

5•4

II. SUMMARY JUDGMENT STANDARD

Where "the evidence adduced by the depositions, including that of the plaintiffs

themselves, clearly show[s] that there [is] no genuine issue in respect to any material fact

upon which the outcome of the litigation depend[s], and that the defendant [is] entitled to

judgment in its favor as a matter of law," summary judgment should be granted. James v.

Honaker Drilling, Inc., 254 F.2d 702, 706 (10th Cir. 1958). Under Rule 56(c) of the

Federal Rules of Civil Procedure, summary judgment should be granted "if the pleadings,

the discovery and disclosure materials on file, and any affidavits show that there is no

genuine issue as to any material fact and that the movant is entitled to judgment as a

matter of law." FED. R. Civ. P. 56(c).

4 References to the Expert Report of Lawrence J. Niland are referred to herein as

"Niland Report". The Expert Report of Lawrence J. Niland is attached to the Lane Decl.as Ex. 13.

6310187 13

As the party seeking summary judgment, MetLife "bears the initial burden of

making a prima facie demonstration of the absence of a genuine issue of material fact and

entitlement to judgment as a matter of law." Adler v. Wal-Mart Stores, Inc., 144 F.3d 664,

670-71 (10th Cir. 1998). MetLife may rely on portions of the pleadings, depositions,

answers to interrogatories, admissions on file, and affidavits to demonstrate the absence

of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

Once MetLife makes its initial showing, the burden shifts to plaintiffs to show that

there is a genuine issue for trial. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250

(1986); Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). To

survive a motion for summary judgment, plaintiffs must "do more than simply show that

there is some metaphysical doubt as to the material facts." Matsushita, 475 U.S. at 586.

"The non-moving party must show that there is a genuine issue for trial, a showing which

requires 'sufficient evidence favoring the nonmoving party for a jury to return a verdict

for that party'." Horn v. Squire, 81 F.3d 969, 974 (10th Cir. 1996) (quoting Anderson,

477 U.S. at 249). When a motion for summary judgment is made and supported by

documents and depositions, including depositions of the plaintiffs, "the adverse party

may not rest upon the mere allegations but his response, by affidavit or otherwise, must

demonstrate, by specific facts, that there is a genuine issue for trial." Bankers Trust Co. v.

Transamerica Title Ins. Co., 594 F.2d 231, 235 (10th Cir. 1979).

Here, because "the record taken as a whole could not lead a rational trier of fact to

find for the non-moving party, there is no 'genuine issue for trial,' Matsushita, 475 U.S.

6330187 14

at 587, and the Court should grant MetLife's motion for leave to file its motion for

summary judgment.

III. BROKER-DEALERS WHO PROVIDE ADVICE WITHIN THE SCOPE OFTRADITIONAL BROKERAGE SERVICES AND DO NOT CHARGE ASEPARATE FEE FOR ADVICE ARE NOT "INVESTMENT ADVISERS"UNDER THE IAA

A. Elements Of A Claim For Violation Of The IAA

In order to establish a violation of section 206 of the IAA, a plaintiff must prove

that the defendant (1) was an investment advisor, (2) used the mails or interstate

commerce, (3) made a misrepresentation or omission of a material fact to a client or

prospective client, and (4) acted negligently. 5 See Morris v. Wachovia Securities, Inc.,

277 F. Supp. 2d 622, 644 (E.D.Va. 2003). Plaintiffs' claims cannot survive summary

judgment because they cannot meet their threshold burden under the first prong of this

test—that is, to demonstrate that either of the defendants or Laxton acted as an

"investment advisor" to the plaintiffs when they purchased the MetLife variable life

insurance policy at issue in this suit.

B. The IAA's Definition Of "Investment Adviser"

Under section 202(a)(11) of the IAA, an investment adviser "means any person

who, for compensation, engages in the business of advising others . . . as to the value of

5 If a plaintiff satisfies these elements, the only private remedy for violation of theIAA is the rescission of an investment advisory contract, or restitution of anyconsideration for investment advice paid under such a contract. See TransamericaMortgage Advisors, Inc. v. Lewis, 444 U.S. 11, 24 (1979); Intl Brotherhood of Paintersand Allied Trades Union and Indus. Pension Plan v. Duval, No. 92-1099, 1994 WL903314, at *4 (D.D.C. Apr. 14, 1994).

6310187 15

securities or as to the advisability of investing in, purchasing, or selling securities . . . but

does not include. . . any broker or dealer whose performance of such services is solely

incidental to the conduct of his business as a broker or dealer and who receives no special

compensation therefor." 15 U.S.C. § 80b-2(a)(11)(C) (2009) (emphasis added).

The plain text of the IAA demonstrates that it was not intended to regulate all who

render investment advice as "investment advisers." See 15 U.S.C. § 80b-2(a)(11)(A)-(G).

Instead, "Congress created a different scheme of regulation—one that excepted many

who provide investment advice, including many broker-dealers registered under the

Exchange Act, from the Advisers Act." IAA Release No. 2376, 70 Fed. Reg. 20424,

20424 (Apr. 19, 2005). 6 Consequently, proving that an individual is an "investment

adviser" under the IAA requires showing first, that the individual meets the definition of

investment adviser in section 202(a)(11), and second, that the individual does not fall

within one of the enumerated exceptions in section 202(a)(11)(A)-(G).

The SEC has advised that not every person who provides investment advisory

services as a component of other financial services is an investment adviser under the

IAA. Instead, the SEC has provided a three-pronged test for determining whether such

persons fall within the IAA's definition of an investment adviser:

A determination as to whether a person providing financial planning,pension consulting, or other integrated advisory services is an investmentadviser will depend upon whether such person: (1) [p]rovides advice, orissues reports or analyses, regarding securities; (2) is in the business ofproviding such services; and (3) provides such services for compensation.

6 Pursuant to LCvR 7.1(0, copies of the SEC and NASD materials cited herein areattached hereto in the Appendix.

6330187 16

United States v. Elliott, 62 F.3d 1304, 1309-10 (11th Cir. 1995) (as amended 1996)

(citing IAA Release No. 1092, 52 Fed. Reg. 38400, 38401-02 (Oct. 16, 1987)). The SEC

further explained that a person is "in the business" of providing investment advice if the

person:

(i) [h]olds himself out as an investment adviser or as one who providesinvestment advice, (ii) receives any separate or additional compensationthat represents a clearly definable charge for providing advice aboutsecurities, regardless of whether the compensation is separate from orincluded within any overall compensation, or receives transaction-basedcompensation if the client implements. . . the investment advice, or (iii) onanything other than rare, isolated and non-periodic instances, providesspecific investment advice.

Id. at 1310 (emphasis omitted) (citing IAA Release No. 1092, 52 Fed. Reg. at 38402).

However, even if an individual meets these factors and thus falls within the IAA's

basic definition of investment adviser, he or she may still be excluded from regulation

under the IAA under one of section 202(a)(11)'s enumerated exclusions.

C. The IAA's Specific Exclusion For Broker-Dealers

One such exclusion is for broker-dealers who provide investment advice that is

"solely incidental" to the conduct of business as a broker or dealer and "who receive[] no

special compensation therefor." 15 U.S.C. § 80b-2(a)(1 1)(C) (2009). Although the IAA

does not further define the scope of the broker-dealer exclusion, the IAA's legislative

history, subsequently-issued SEC Releases, 7 and the opinions of numerous federal courts

7 As the agency granted the authority to interpret the intent of section 202(a), theSEC's interpretations are entitled to great weight. See 15 U.S.C. § 80b-2(a)(1 1)(G)(permitting SEC to exclude "such other persons not within the intent of this paragraph, asthe [Securities and Exchange] Commission may designate by rules and regulations or

6330187 17

provide extensive guidance for distinguishing between garden-variety brokerage

relationships—which were not intended to be regulated under the IAA—and investment

adviser relationships—which were. These authorities have consistently confirmed that

the IAA does not regulate brokers, dealers, or registered representatives acting on their

behalf,8 who commonly and necessarily provide investment advice as part of their

traditional brokerage services and do not separately charge their clients for such advice.

1. Investment advice provided as a part of traditional brokerageservices is "solely incidental" to the conduct of business as abroker-dealer.

Both the SEC and numerous federal courts have interpreted the term "solely

incidental" to include a wide-range of investment advice and other ancillary services that

are commonly and necessarily provided as part of traditional brokerage services. Shortly

after the IAA's enactment (but before the statute was effective on November 1, 1940), the

SEC's General Counsel issued an opinion reflecting this understanding:

order"); 15 U.S.C. § 80b-11(a) (2009) ("The Commission shall have authority from timeto time to make, issue, amend, and rescind such rules and regulations and such orders asare necessary or appropriate to the exercise of the functions and powers conferred uponthe Commission elsewhere in this subchapter."); United States v. Elliott, 62 F.3d at 1310;SEC v. Cont'l Commodities Corp., 497 F.2d 516, 525 (5th Cir. 1974); see also Navellier v.Sletten, 262 F.3d 923, 945 (9th Cir. 2001) (citing Chevron USA, Inc. v. NRDC, 467 U.S.837 (1984) ("[T]he SEC's reasonable interpretation of a statute that it administers,including its promulgation of rules and regulations interpreting or implementing thestatute, is entitled to deference.").

8 The SEC has interpreted the exclusion for broker-dealers to include "anassociated person of a broker dealer or 'registered representative' who providesinvestment advisory services to clients within the scope of the person's employment withthe broker or dealer", and otherwise meets the terms of the exclusion. See IAA ReleaseNo. 1092, 52 Fed. Reg. at 38403.

6330187 18

Clause (C) of section 202(a)(11) amounts to a recognition that brokers anddealers commonly give a certain amount of advice to their customers in thecourse of their regular business, and that it would be inappropriate to bringthem within the scope of the Investment Advisers Act merely because ofthis aspect of their business.

IAA Release No. 2, 11 Fed. Reg. 10996 (Sept. 27, 1946) (reprinting SEC General

Counsel opinion letter of October 28, 1940). The SEC has continued to take this position

for more than sixty years. In the SEC's 2005 Proposed Rule, it explained:

Broker-dealers have traditionally provided investment advice that issubstantial in amount, variety, and importance to their customers. This waswell understood in 1940 when Congress passed the Advisers Act. Thebroker-dealer exception in the Act was designed not to except broker-dealers whose advice to customers is minor or insignificant, but rather toavoid additional and duplicative regulation of broker-dealers, which wereregulated under provisions of the Exchange Act that had been enacted sixyears earlier. The exception also differentiated between advice provided bybroker-dealers to customers as part of a package of traditional brokerageservices for which customers paid fixed commissions which was notcovered by the Advisers Act and advice provided through broker-dealer'sspecial advisory departments for which customers separately contracted andpaid a fee which was covered by the Act.

IAA Release No. 2340, 70 Fed. Reg. 2716, 2719-2720 (Jan. 14, 2005). In the 2005 final

rule, the SEC reiterated this critical point:

Full service broker-dealers have always sought to develop long-termrelationships with their customers who often come to rely on them forexpert investment advice. . . . The nature, amount and significance of theadvice broker-dealers provided as part of traditional brokerage services wasevident in 1940 when Congress expressly excepted broker-dealers from theAdvisers Act to the extent they were providing advice in that context.

6330187 19

IAA Release No. 2376, 70 Fed. Reg. 20424, 20432 (Apr. 19, 2005). 9 The SEC once

again confirmed this point in 2007 in a proposed rule issued to address the concerns of

the D.C. Circuit in Financial Planning Association, explaining that the broker-dealer

exclusion:

amounts to a recognition that broker-dealers commonly give a certain amount ofadvice to their customers in the course of their regular business as broker-dealersand that 'it would be inappropriate to bring them within the scope of the[Adviser's Act] merely because of this aspect of their business.'

See IAA Release No. 2652, 72 Fed. Reg. 55126, 55127 (Sept. 28, 2007).

Accordingly, the SEC has long interpreted investment advice that is "solely

incidental" to the conduct of business as a broker-dealer to include a wide-range of

advice beyond a simple recommendation and sale of a security. For example, the SEC

has found that the ancillary investment advice a broker-dealer can provide and remain

covered by the broker-dealer exclusion often and, in many cases, necessarily includes

9 In Fin. Planning Ass'n v. SEC, the D.C. Circuit invalidated the final rule that wascodified in IAA Release No. 2376, which purported to create an additional exemption forbroker-dealers who gave advice solely incidental to their brokerage business, but received"special compensation" (i.e., compensation other than a commission) by charging theirclients either a fixed fee or a fee based on the amount of assets in the customer's accountfor their brokerage services. 482 F.3d 481, 485, 491 n.7, 493 (D.C. Cir. 2007). The SECpromulgated the final rule under section 202(a)(11), which gives it the authority to createexceptions to the definition of "investment adviser." Id. at 483, n. 1 . The D.C. Circuitheld that the SEC could not create an additional exception for broker dealers whoreceived "special compensation" because section 202(a)(1 1)(C) provided the exclusiveexception for broker-dealers. Id. at 493.

The Court only vacated the final rule—the SEC's discussion of the IAA'slegislative history is still persuasive. As the Tenth Circuit acknowledges, agencyinterpretations that lack the force of law "are entitled to respect, but only to the extentthat those interpretations have the power to persuade." See Via Christi Regional Med.Ctr, Inc. v. Leavitt, 509 F.3d 1259, 1272 (10th Cir. 2007) (quoting Skidmore v. Swifi &Co., 323 U.S. 134, 140 (1944)).

6330187 20

activities such as: "providing research and advice prior to a decision to buy or sell";

"some aspects of financial planning"; collecting sufficient information to have a

"reasonable basis for believing that a recommendation to buy or sell a particular security

is suitable for the broker's customer considering the customer's risk tolerance, other

securities holdings, financial situation, financial needs, and investment objectives"; I ° and

even "advice free in anticipation of sales and brokerage commissions on transactions

executed upon such free advice." IAA Release No. 2340, 70 Fed. Reg. at 2719-2720,

n.42, 2729, n.115, IAA Release No. 2376, 70 Fed. Reg. at 20430.

The SEC has specifically rejected "the view that only minor, insignificant, or

infrequent advice is excepted by section 202(a)(11)(C)" because that construction

"misapprehends the historical background, including the legislative history of the Act."

See IAA Release No. 2376, 70 Fed. Reg. at 20437. In fact, the SEC explained that such

an interpretation would prevent broker-dealers from providing the advice their customers

have long been accustomed to receiving:

I ° NASD Conduct Rule 2310 mandates that broker-dealers know their customersand ensure that the products recommended are suitable for the customers' needs. Fin.Ind. Regulatory Auth., Conduct Rule 2310, FINRA Manual (2009),http://finra.complinet.comien/display/display main.html?rbid=2403&element_id=3638;Niland Report at 2. In 1996, the NASD issued Notice to Members 96-86, whichreminded NASD members and their associated persons "that the suitability requirementsof NASD Conduct Rule 2310 (formerly Article III, Section 2 of the NASD Rules of FairPractice) apply to the recommendation of any security, including a Variable Contract.Thus, a member and its associated persons must have reasonable grounds for believingthat a Variable Contract recommended to a customer is suitable for that customer." Fin.Ind. Regulatory Auth., NASD Notice to Members 96-86, FINRA Manual (2009),http://finra.complinet.com/en/display/display_main.html?rbid=2403&elemenud=1744;Niland Report at 2-3.

6330187 21

If a broker could give advice only infrequently (unless it registered underthe Advisers Act), customers could not obtain advice in connection witheach transaction they propose to make, even if that advice is simply seekingassurances of the wisdom of the proposed transaction. If a broker werepermitted to give advice only in connection with a transaction, the broker(unless it registered under the Act) would be unable to advise clients to stayout of the market or to refrain from a particular transaction, or to providegeneralized market reports to their clients. Yet brokers have long providedsuch advice as part of their traditional brokerage services, and continue todo so today.

See id.

Notably, the SEC has not limited the permissible scope of incidental activities

solely to advice, and has repeatedly stated that even "broker-dealers who have exercised

discretionary authority over the accounts of some of their customers were providing

investment advice incidental to their business as a broker-dealer," and thus were not

subject to the IAA. See IAA Release No. 626, 43 Fed. Reg. 19224, 19227 (May 4, 1978);

see also IAA Release No. 640,43 Fed. Reg. 47176, 47177 (Oct. 13, 1978)."

Numerous courts have also applied these principles to hold that broker-dealers and

individuals acting on their behalf who provide investment advice as part of their

traditional brokerage business and receive commissions as a result of their sales are not

investment advisers under the IAA. See, e.g., Luzerne County Ret. Bd. v. Makowski, No.

3:CV-03-1803, 2007 WL 4211445, at *54 (M.D. Pa. Nov. 27, 2007) (granting summary

1 I Both of these Releases make clear that, in contrast, "a broker-dealer whosebusiness consists almost exclusively of managing accounts on a discretionary basis is notproviding investment advice solely incidental to his business as a broker-dealer." SeeIAA Release No. 626, 43 Fed. Reg. at 19227 n.15; IAA Release No. 640, 43 Fed. Reg. at47177. Here, because Laxton never had discretionary authority of any kind over theThomases' accounts, the argument that he was not an investment adviser is even stronger.

6330187 22

judgment for defendants where plaintiff failed to show that defendants received special

compensation despite fact that they "were being retained to provide guidance and advice

with regard to investments" and received compensation in exchange for "either (1)

transaction-related services-that is, commissions, or (2) administration of the Fund");

SEC v. Nat'l Executive Planners, Ltd., 503 F. Supp. 1066, 1074 (M.D.N.C. 1980)

(granting partial summary judgment for defendant despite fact that defendant "actively

promoted its expertise in the area of financial planning and investment advice" because it

only "received commissions on the sale of various investment products it offered," which

placed it outside purview of IAA); Cortlandt v. E. E Hutton, Inc., 491 F. Supp. 1, 5

(S.D.N.Y. 1979) ("[P]laintiff failed to introduce any facts at trial from which the court

might conclude that [the] defendants here, were 'investment advisers'. . . ."; in fact,

"Plaintiff did not even allege that [the defendants] went beyond acting as brokers to

engage in any investment advisory activities that were not 'solely incidental' to their

brokerage business."); Kaufman v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 464 F.

Supp. 528, 535, 537-38 (D. Md. 1978) (granting motion for summary judgment on IAA

claim because even though the defendant was in almost daily contact with plaintiffs'

investment adviser and advised her on the timing and advisability of the trades in

plaintiffs' accounts, "the commissions received were for his services in effecting the

transactions, not for his rendering of advice"); Kassover v. UBS AG, No. 08 CV 02753,

2008 WL 5331812, at *4-5 (S.D.N.Y. Dec. 19, 2008) (plaintiffs cannot state a claim

under the IAA where they "(1) fail to allege that an investment advisory contract existed.

. . , (2) fail to allege that [the defendant] was paid any special compensation for providing

6330187 23

Plaintiffs with investment advice, and (3) fail to allege that the investment advice

provided to Plaintiffs was not solely incidental to the maintenance of their brokerage

accounts"); In re Catanella and E.E Hutton and Co., Inc. Sec. Litig., 583 F. Supp. 1388,

1392, 1419 (E.D. Pa. 1984) (refusing to find defendant broker was investment adviser

despite his responsibility for "handling plaintiffs' portfolios", since no allegations

demonstrated that his "advice was anything other than incidental to his brokerage

functions or that he received special compensation for that advice"); Hall v. Paine,

Webber, Jackson & Curtis, Inc., No. 82-CV-2840, 1984 WL 812, at *2 (S.D.N.Y. Aug. 27,

1984); Polera v. Altorfer, Podesta, Woolard and Co., 503 F. Supp. 116, 119 n.4 (N.D. Ill.

1980).

In short, the SEC and federal courts have long found that the IAA should not be

applied to broker-dealers or their registered representatives who provide even significant

investment advice and other ancillary services as a necessary and fundamental part of

their garden-variety brokerage relationships.

2. Broker-dealers receive "special compensation" for investmentadvice only when they charge their clients a separate fee, beyonda traditional commission, for advice.

The SEC and federal courts have consistently held that nondiscretionary

transaction-based commissions are not "special compensation" under the broker-dealer

exclusion—but instead, broker-dealers receive "special compensation" only when they

charge their customers additional fees for advice in excess of their standard commissions.

This interpretation squares with the Act's legislative history, which confirms Congress

6330187 24

deliberately excluded broker-dealers who charge traditional commissions from the reach

of the IAA:

Before enactment of the IAA, broker-dealers and others who offeredinvestment advice received two general forms of compensation. Somecharged only traditional commissions (earning a certain amount for eachsecurities transaction completed). Others charged a separate advice fee(often a certain percentage of the customer's assets under advisement orsupervision). The Committee Reports recognized that the statutoryexemption for broker-dealers reflected this distinction; the Reportsexplained that the term 'investment adviser' was 'so defined as specificallyto exclude . . . brokers (insofar as their advice is merely incidental tobrokerage transactions for which they receive only brokeragecommissions).'

Fin. Planning Ass 'n, 482 F.3d at 485 (internal citations omitted).

In fact, it "has always been understood [that a] portion of commissions charged by

full-service broker-dealers compensate the broker-dealers for advisory services." IAA

Release No. 2340, 70 Fed. Reg. at 2717. And that is precisely why the SEC has long

found that broker-dealers receive "special compensation" only when they charge their

customers fees for advice that are separate from traditional commissions. As early as

1940, the SEC's General Counsel explained that broker-dealers can still fall within the

broker-dealer exception even when their charges for the same transaction differ by

customer:

If a broker is confident that his discrimination between customers follows aclear and consistent policy, bearing no relation whatsoever to the renditionof investment advice to his customers, he may safely consider himselfexcluded from the definition of the term 'investment adviser.'

IAA Release No. 2, 11 Fed. Reg. 10996.

6330187 25

In 1978, the SEC's Division of Investment Management further clarified the

SEC's position, explaining that it "regards special compensation as existing only where

there is a clearly definable charge for investment advice" because "[t]his reflects the

Division's position that a client who perceives that he is paying a charge specifically for

investment advice is entitled to the protections of the Advisers Act." Id. In 2005, the

SEC reiterated the same point when it clarified that broker-dealers who charge lower

commissions for electronic trading than for their full service brokerage accounts may be

deemed to receive "special compensation" for their full-service accounts "because the

difference in the commission rates represents a clearly definable portion of the brokerage

commission that may be primarily attributable to investment advice"—even though the

IAA would not ordinarily apply to transactions effected in those full-service accounts.

See IAA Release No. 2376, 70 Fed. Reg. at 20425. Once more, in 2007, the SEC

repeated that it has "long held the view that when a broker-dealer charges its customers a

separate fee for investment advice, it clearly is providing advisory services and is subject

to the Advisers Act." See IAA Release No. 2652, 72 Fed. Reg. at 55128 (emphasis

added).

The SEC has also clarified that there is a critical distinction between the term

"compensation" used in the basic definition of "investment adviser" and the term "special

compensation" in the broker-dealer exception. According to the SEC, under the general

definition of investment adviser in section 202(a)(11):

[the] compensation element is satisfied by the receipt of any economicbenefit, whether in the form of an advisory fee or some other fee relating tothe total services rendered, commissions, or some combination of the

6330187 26

foregoing. It is not necessary that a person who provides investmentadvisory and other services to a client charge a separate fee for theinvestment advisory portion of the total services.

IAA Release No. 1092, 52 Fed. Reg. at 38403. In contrast, the SEC has consistently

found that "special compensation" requires the existence of some separate fee or clearly-

definable charge for advice. See id. at 38403 n.13; FINESCO No Action Letter, 1979

SEC No-Act LEXIS 3851 (Dec. 11, 1979) (explaining that FINESCO's registered

representatives would fall within the general definition of investment adviser even "if a

single fee is charged for the provision of a number of different services" but that even if

their advice were "incidental to the conduct of the business of a broker or dealer,

FINESCO charges separate consulting fees for its advisory services and, therefore, would

be deemed to be receiving special compensation" and thus fall outside the broker-dealer

exclusion).

Federal courts have likewise interpreted "special compensation" to mean a

separate charge to the customer beyond a traditional commission. See, e.g., Luzerne

County, 2007 WL 4211445, at *54 (granting summary judgment for defendant since

commissions are not special compensation); Nat'l Executive Planners, 503 F. Supp. at

1074 (same); Kaufman, 464 F. Supp. at 535, 537-38 (same). The Eleventh's Circuit's

decision in United States v. Elliott is not inconsistent. In that case, the Court considered

whether two individuals who managed a collection of investment companies were

investment advisers under the IAA. 62 F.3d at 1309-10. The Court did not examine

whether the defendants were covered by the broker-dealer exclusion and thus never

considered the term "special compensation", but instead applied the definition of

6330187 27

"compensation" described in IAA Release No. 1092 to find that the defendants were

investment advisors under the statute's broad definition because they were "in the

business" of providing investment advice. Id. at 1311.

These authorities confirm that broker-dealers and their registered representatives

should not be deemed "investment advisers" under the IAA unless they charge their

clients a clearly-definable and separate fee for investment advice, over and above any

traditional commissions. As the SEC succinctly explained, the IAA "was intended to

cover brokers-dealers only to the extent that they were offering investment advice as a

distinct service for which they were specifically compensated." IAA Release No. 2376,

70 Fed. Reg. at 20431.

IV. THE UNDISPUTED EVIDENCE DEMONSTRATES THAT NEITHER OFTHE DEFENDANTS NOR JEFF LAXTON SERVED AS AN INVESTMENTADVISER TO THE PLAINTIFFS

Plaintiffs cannot show that either MetLife or Laxton served as an investment

adviser to plaintiffs with respect to the sale to them of the variable life insurance policy.

The record unequivocally demonstrates that Laxton provided the plaintiffs with garden-

variety brokerage services in connection with the sale of a variable life insurance policy

and received a commission solely as a result of that sale. Consequently, Laxton does not

meet section 202(a)(11)'s basic definition of an investment adviser—but even if he did,

his activities fall squarely within section 202(a)(11)(C)'s express exclusion for broker-

dealers, and thus he cannot be deemed an investment adviser under the IAA.

Consequently, plaintiffs cannot establish a threshold element of their claims, and

summary judgment is appropriate.

6330187 28

A. Laxton Did Not Have An Investment-Advisory Relationship With ThePlaintiffs

Laxton's relationship with the plaintiffs does not qualify him as an investment

adviser even under the IAA's broad definition.

First, Laxton was not permitted to have an investment-advisory relationship with

the plaintiffs. Laxton was not registered as an investment adviser at any time while he

was employed at MSI, and was forbidden by MetLife rules to provide investment

advisory services to any of his clients. See Laxton Dep. 159:6-8, 159:11-13, 188:10-16,

Dep. Exs. 28, 29, 30. Nor was Laxton certified as or permitted to act as a financial

planner, prepare financial plans, or provide financial planning services to MetLife

customers. See id. 68:11-13, 120:12-20, 159:9-10, 188:23-189:3. In fact, Laxton's sole

job as a registered representative of MetLife was to sell permanent insurance, variable

insurance, mutual funds, and annuities. See id. 30:12-31:2, 153:8-24, 208:1-3.

Second, there is no evidence that Laxton held himself out as an investment adviser

to the plaintiffs. It is undisputed that throughout his tenure at MetLife, Laxton followed

the law, regulations, and NASD rules applicable to broker-dealers, as well as MetLife

guidelines and rules. See id. 12:12-16, 153:25-154:4, 157:1-3, 179:11-14. In order to

certify that he understood and complied with such rules, Laxton signed certifications

throughout his tenure at MetLife which stated:

I understand that only Investment Adviser Representatives, who havenecessary federal and/or state registrations and who have necessary federaland/or state registrations and who have satisfied special MSI FinancialPlanner training requirements, may act or present themselves as FinancialPlanners, Advisers, Consultants, and by similar names, or may use sales

6330187 29

materials intended for use by investment advisor representatives, andfurther such Investment Adviser representatives....

See id. Dep. Exs. 28, 29, 30. Consistent with the above, Laxton testified that he was not

an investment adviser or a MSI financial planner, did not ever provide investment advice

as an investment adviser representative, and Laxton was not listed as an investment

adviser at any time during the putative class period. See id. 159:6-13, 228:4-8. Plaintiffs

also confirmed that they did not execute an investment advisory contract 12 with Laxton,

and he did not provide them with a written financial plan or financial planning services.

See R. Thomas Dep. 81:12-14, 82:12-15; A. Thomas Dep. 44:7-11, 129:10-130:5,

133:13-16, 134:14-17; Laxton Dep. 52:11-16, 68:11-13, 120:12-20, 188:23-189:3.

Laxton also testified that he "never represented [himself] in any form prohibited by

MetLife," and he always told customers that he represented MetLife's affiliated broker-

dealer. Laxton Dep. 157:20-158:14, 169:22-170:2. Indeed, the plaintiffs testified that

they knew Laxton was a representative employed by MetLife and understood and

expected that he would tell them about and receive a commission for selling them

MetLife products. See R. Thomas Dep. 134:1-8, 135:3-19, 154:5-9; A. Thomas Dep.

113:8-12.

12 The Court should not construe the plaintiffs' insurance contract as an investmentadvisory contract. A number of federal courts have confirmed that a contract should onlybe construed as an investment advisory contract when one is engaged by the terms of thecontract to provide advice. Zinn v. Parrish, 644 F.2d 360, 362 (7th Cir. 1981); see alsoMullin & Assocs., Inc. v. Bassett, 632 F. Supp. 532, 537 (D. Del. 1986); Wang v. Gordon,715 F.2d 1187, 1188-89 (7th Cir. 1983). Nothing in the plaintiffs' insurance policy can beconstrued to obligate the defendants or Laxton to provide any advice to the plaintiffs. SeeDep. Ex. 3.

6330187 30

Finally, Laxton only provided advice to MetLife customers, including the

plaintiffs, in connection with his business of selling MetLife securities and received

commissions for those sales. In fact, Laxton unequivocally confirmed that he "provided

no advice to [his] customers, other than the recommendation of products for their

consideration and purchase," and that "the only advice [he] provided the Thomases were

recommendations in connection with products [he was] recommending to them." See

Laxton Dep. 172:15-19, 188:17-22, 229:16-21, 231:6-12; A. Thomas Dep. 127:22-

134:17, 134:18-136:8, Dep. Ex. 7 at 9-12, 15-16.

Not only was Laxton forbidden to act as an investment adviser, there is no

evidence that Laxton held himself out to the Thomases as an investment adviser, or that

Laxton provided advice or received compensation other than in connection with sales of

securities. On this record, plaintiffs cannot establish that Laxton acted as an investment

adviser even under the broad definition included in section 202(a)(11).

B. Laxton's Relationship With The Plaintiffs Falls Squarely Within TheIAA's Broker-Dealer Exclusion

However, even if Laxton met section 202(a)(11)'s basic definition of an

investment adviser, his relationship (and thus MetLife's relationship) with the plaintiffs

falls squarely within section 202(a)(11)(C)'s exclusion for broker-dealers, rendering it

outside the scope of the IAA.

6330187 31

1. Laxton only provided investment advice to the plaintiffs inconnection with his business as a MetLife registeredrepresentative.

The undisputed record demonstrates that any advice Laxton provided to the

plaintiffs was "solely incidental" to his conduct of business as a registered representative

of MSI. In fact, the only investment advice plaintiffs contend they received during the

class period occurred during one meeting in 2003 when they purchased a Flexible

Premium Multifunded Life Insurance Policy issued by MLIC from Jeff Laxton. /3 See A.

Thomas Dep. 127:22-134:17, 134:18-136:8, Dep. Ex. 7 at 9-12, 15-16.

The plaintiffs met with Laxton shortly after their daughter was born in 2003 to

discuss investment options that would help them save for Josie May's college education.

See R. Thomas Dep. 83:9-84:19, 85:3-7; A. Thomas Dep. 45:23-47:22; Laxton Dep.

60:8-20, 182:14-17, 183:24-184:2, 185:16-19. Laxton concluded that a MetLife variable

life insurance policy was a suitable product for the Thomases based on information he

gathered from them, a suitability worksheet and an asset allocation questionnaire they

13 Plaintiffs also testified about two other instances where Laxton gave themadvice during the class period—the first when he laughed at Mrs. Thomas' question intheir 2003 meeting whether they should purchase Martha Stewart stock and the other in2004 when Mr. Thomas spoke with Mr. Laxton for five to ten minutes about a house theywere considering purchasing. See R. Thomas Dep. 101:6-106:12; A. Thomas Dep. 27:7-31:20, 35:24-37:3, 41:16-43:13. However, the plaintiffs confirmed that they do notconsider Laxton's gratuitous advice on these issues to be at issue in this suit. See A.Thomas Dep. 127:22-134:17, 134:18-136:8, Dep. Ex. 7 at 9-12, 15-16. Notably, theplaintiffs' concession is consistent with the SEC's position that broker-dealers can andcommonly do provide free advice, even unconnected to the sale of a security, to nurturethe client-relationship and remain within the protection of the broker-dealer exclusion.See IAA Release No. 2340, 70 Fed. Reg. at 2727, n.101, n.102; IAA Release No. 2376,70 Fed. Reg. at 20428, n.37, n.38, n.40, 20430.

6330187 32

filled out, and the fact that they wanted to invest to save for their daughter's college fund

and other needs. See R. Thomas Dep. 82:7-84:3; A. Thomas Dep. 47:23-49:12, 74:25-

77:22, Dep. Ex. 4; Laxton Dep. 60:8-20, 79:21-80:8, 171:10-20, 182:18-183:4, Dep. Ex.

20. Laxton reasonably believed that a MetLife variable life insurance policy was a

suitable product for the Thomases based on a number of factors, including: the fact that

insurance costs are lower for children; the fact that the variable life policy was a

permanent product that had the ability to provide a cash value, long-term growth, and tax

deferred growth on assets within the policy; and the Thomases' specific financial

situation and goals. See Laxton Dep. 61:14-62:19, 67:16-69:8, 160:4-19, 171:21-172:14,

187:24-188:3, 189:8-23. Therefore, Laxton recommended a MetLife variable life

insurance policy to the Thomases. See R. Thomas Dep. 86:8-17, 87:5-16; A. Thomas

Dep. 47:11-22; Laxton Dep. 69:17-70:3, 185:16-25.

During this meeting, Laxton provided product information about the MetLife

variable life policy to the Thomases, and went through an illustration for the policy with

them. See R. Thomas Dep. 86:18-23, 159:5-16, Dep. Ex. 5; A. Thomas Dep. 53:12-

54:22; Laxton Dep. 160:20-161:1, 186:7-11. Laxton also believes that he provided the

Thomases with the prospectus for the variable life insurance policy, which would be

consistent with his habitual practice and MetLife's internal rules. See Laxton Dep.

159:14-160:3, 186:12-15, 186:22-187:3, 202:2-204:23, Dep. Ex. 12. Although the

plaintiffs do not remember receiving the prospectus, Amanda Thomas signed the

application and an illustration for the variable life insurance policy and by doing so

confirmed that she received a current prospectus for their policy. See R. Thomas 89:13-

6330187 33

90:20, 94:9-12, 127:8-16, Dep. Exs. 3 at PL-RTO 361,4; A. Thomas Dep. 51:9-23,

53:12-54:22, Dep. Ex. 5 at PL-RTO 326; Laxton Dep. 186:22-187:3, 203:7-10.

Based on Laxton's recommendation that the variable life policy was suitable for

their needs and their desire to save for Josie May's education, the Thomases applied for

and purchased a UL 2001 Flexible Premium Multifunded Life Insurance Policy issued by

MLIC at the 2003 meeting. See R. Thomas Dep. 88:4-11, 90:24-91:21, 98:20-99:12,

124:18-125:5, Dep. Exs. 3,4; Laxton Dep. 60:8-62:25, 69:17-70:3. Laxton discussed the

Thomases' risk profile with Amanda Thomas, and she signed a suitability worksheet

indicating that she had a moderate to aggressive risk tolerance and that growth was her

primary risk objective. See A. Thomas Dep. 48:11-49:12, 74:25-76:8, Dep. Ex. 4; Laxton

Dep. 187:14-19. Based on this information, Laxton recommended to the Thomases

which subaccounts they should select. See R. Thomas Dep. 126:11-127:7; Laxton Dep.

187:4-8. However, the Thomases ultimately selected the subaccounts into which they

allocated their premium in the policy, because Laxton did not have discretion or authority

to select or change subaccounts on their behalf. See A. Thomas Dep. 50:15-20, 55:6-15,

75:20-76:8, Dep. Ex. 4; Laxton Dep. 187:9-13.

Nothing about Laxton's execution of the sale to the Thomases renders him an

investment adviser; rather, it was a garden-variety brokered transaction. Laxton collected

information from the Thomases about their financial situation, needs, and goals;

recommended a product that he believed was suitable for them; and provided information

to them about that product. In short, Laxton complied with the laws, regulations, rules,

and duties imposed on him as a registered representative of a broker-dealer.

6330187 34

The NASD (now FINRA) rules require broker-dealers and their registered

representatives to "know their customers" and to have a reasonable basis to believe that

products are suitable for their customers. Specifically, NASD Rule 2310 requires that:

(a) In recommending to a customer the purchase, sale or exchange ofany security, a member shall have reasonable grounds for believing thatthe recommendation is suitable for such customer upon the basis of thefacts, if any, disclosed by such customer as to his other security holdingsand as to his financial situation and needs.

(b) Prior to the execution of a transaction. . . a member shall makereasonable efforts to obtain information concerning: (1) the customer'sfinancial status; (2) the customer's tax status; (3) the customer'sinvestment objectives; and (4) such other information used or consideredto be reasonable by such member or registered representative in makingrecommendations to the customer.

Conduct Rule 2310.

In 1996, the NASD reminded its members that they must comply with Rule 2310

when selling variable life products and annuities. See NASD Notice to Members. Laxton

used a suitability questionnaire and asset allocation form in connection with collecting

information from the Thomases in order to satisfy this requirement. See R. Thomas Dep.

82:7-84:3; A. Thomas Dep. 47:23-49:12, 74:25-77:22, Dep. Ex. 4; Laxton Dep. 60:8-20,

79:21-80:8, 171:10-20, 182:18-183:4, Dep. Ex. 20. Laxton's "actions were completely

consistent with both his obligations under NASD (now FINRA) rules and the rules of his

firm" and with "standard industry practices by Broker Dealers and their registered

representatives." Niland Report at 5.

There is no basis to construe Laxton's practice of using suitability questionnaires

as anything other than incidental to his conduct of business as a registered representative

6330187 35

of a broker-dealer, and to do so would bring countless ordinary brokered transactions

within the ambit of the IAA—which neither FINRA, the SEC, nor any federal court has

ever indicated is required or intended.

2. Laxton Did Not Receive Any Special Compensation ForProviding Investment Advice To The Plaintiffs

Laxton also did not receive any "special compensation" for providing investment

advice to the plaintiffs. In fact, Laxton confirmed that he has never charged a fee or

received special compensation for providing investment advice. See Laxton Dep.

188:10-16. Instead, Laxton was always compensated by commissions on the products he

sold. See id. 51:20-23. Accordingly, Laxton was compensated for the sale of the variable

life insurance policy to the Thomases by a commission on the sale. See A. Thomas Dep.

61:20-62:10; Laxton Dep. 51:24-52:24, 63:6-65:10, 232:25-233:5.

Although Laxton was eligible to receive other employee benefits that could vary

with his level of production and his sales of proprietary products, those benefits were tied

directly to the commissions he earned for products he recommended and sold—not any

advice he provided. See Laxton Dep. 170:6-19. Even if Laxton had made many more

sales, and thus earned many more commissions and additional benefits, he would still

have been a registered representative selling his broker-dealers' products—not an

investment adviser for purposes of the IAA. In fact, Congress was well aware of

potential conflicts of interest that may arise when broker-dealers recommend securities to

their customers, but deliberately chose to exclude broker-dealers from regulation under

the IAA despite these conflicts. See IAA Release No. 2376, 70 Fed. Reg. at 20432, n.93.

6330187 36

Moreover, the Thomases did not pay Laxton any separate fees or any other clearly

definable charge for investment advice. See A. Thomas Dep. 60:20-62:10, 108:25-109:6;

Laxton Dep. 51:24-52:24, 172:20-173:15. Instead, the plaintiffs confirmed that they have

paid a $91 monthly premium for the variable life insurance policy since they purchased it

at the 2003 meeting. See R. Thomas Dep. 92:7-14, 96:10-16; Laxton Dep. 172:20-173:3,

187:20-23. The sales and expense charges that were applied to the Thomases' premium

payments (to cover commissions and other expenses) were disclosed to the Thomases at

the time they purchased the policy. See R. Thomas Dep. 156:8-158:15, Dep. Ex. 5 at PL-

RTO 322-323, 326;A. Thomas Dep. 53:12-56:8: Laxton Dep. 161:2-14, 232:1-233:5,

Dep. Ex. 34 at MLIC000970, MLIC000978. The Thomases are not aware of any fees

that were collected from them that were not disclosed to them, see R. Thomas Dep.

95:21-97:19; A. Thomas Dep. 67:2-19, 109:19-24, nor have they alleged in the TAC that

MetLife collected undisclosed fees or charges.

Because Laxton received a commission in connection with the plaintiffs' purchase,

and plaintiffs did not pay any separate fee or clearly-definable charge for investment

advice, Laxton did not receive "special compensation" for investment advice.

Consequently, the investment advice Laxton provided the plaintiffs and the charges they

paid render the defendants and Laxton squarely within the IAA's specific exclusion for

broker-dealers.

Conclusion

MetLife's Motion for Leave to File a Motion for Summary Judgment should be

granted.

6330187 37

Respectfully submitted,

Akin, Gump, Strauss, Hauer & Feld, L.L.P.300 Convent Street, Suite 1500San Antonio, Texas 78205Telephone: (210) 281-7000Telecopier: (210) 224-2035

/s/ Daniel McNeel Lane, Jr. DANIEL McNEEL LANE, JR.SBOT # 00784441DAVID A. JONESSBOT # 00795086NADA L. ISMAILSBOT # 24036825

-and-

ASHLEY B. VINSONSBOT # 24042096SBOC# 257246580 California Street, Suite 1500San Francisco, CA 94104Telephone: (415) 765-9561Telecopier: (415) 765-9501

-and-

David L. KearneyGable & GotwalsOne Leadership Square, 15th Floor211 N. Robinson Ave.Oklahoma City, OK 73102-7101Telephone: (405) 235-5500Telecopier: (405) 235-2875

Attorneys for Defendants Metropolitan LifeInsurance Company and Metlife Securities,Inc.

6330187 38

CERTIFICATE OF SERVICE

The undersigned hereby certifies that all parties listed on this certificate of servicewill receive a copy of the foregoing document filed electronically with the United StatesDistrict Court for the Western District of Oklahoma, on this 6th day of March, 2009, withnotice of case activity to be generated and ECF notice to be sent electronically by theClerk of the Court. A copy will be mailed Via Certified Mail to those who do not receiveECF notice from the Clerk of the Court:

Reggie N. Whitten Michael BurrageG. Patrick O'Hara Lauren Fisher GuhlWHITTEN, NELSON, MCGUIRE TERRY Simone Gosnell Fulmer

& ROSELIUS WHITTEN BURRAGE PRIEST FULMERP.O. Box 138800 ANDERSON & EISEL

Oklahoma City, OK 73113 211 N. Robinson Ave., Suite 1350Telephone: (405) 705-3600 Oklahoma City, OK 73102Facsimile: (405) 705-2573 Telephone: (405) 516-7800

Facsimile: (405) 516-7859

Venessa R. Bentwood Mark BialickBEHLEN LITTLE BENT WOOD & LUTHER David Donchin116 E. Sheridan, Suite 107 DURBIN, LARIMORE & BIALICK

Oklahoma City, OK 73104 920 North HarveyTelephone: (405) 232-4800 Oklahoma City, OK 73102-2610Facsimile: (405) 232-4860 Telephone: (405) 235-9584

Facsimile: (405) 235-0551

Timothy J. Becker Brian L CramerCarolyn G Anderson Guy R. WoodBrian C. Gudmundson Patrick O'Hara, Jr.ZIMMERMAN REED, PLLP NELSON ROSELIUS TERRY O'HARA &

651 Nicollet Mall, Suite 501 MORTON

Minneapolis, MN 55402 P.O. Box 138800Telephone: (612) 341-0400 Oklahoma City, OK 73113Facsimile: (612) 341-0844 Telephone: (405) 705-3600

Facsimile: (405) 705-2573

/s/ Daniel McNeel Lane, Jr. DANIEL MCNEEL LANE, JR.

6330187 39

TABLE OF CONTENTS

Preliminary Statement 1

I. STATEMENT OF MATERIAL FACTS 3

A. Jeff Laxton 4

B. Robert and Amanda Thomas 7

II. SUMMARY JUDGMENT STANDARD 13

III. BROKER-DEALERS WHO PROVIDE ADVICE WITHIN THE SCOPEOF TRADITIONAL BROKERAGE SERVICES AND DO NOT CHARGEA SEPARATE FEE FOR ADVICE ARE NOT "INVESTMENTADVISERS" UNDER THE IAA 15

A. Elements Of A Claim For Violation Of The IAA 15

B. The IAA's Definition Of "Investment Adviser" 15

C. The IAA's Specific Exclusion For Broker-Dealers 17

1. Investment advice provided as a part of traditional brokerageservices is "solely incidental" to the conduct of business as abroker-dealer 18

2. Broker-dealers receive "special compensation" for investmentadvice only when they charge their clients a separate fee,beyond a traditional commission, for advice. 24

IV. THE UNDISPUTED EVIDENCE DEMONSTRATES THAT NEITHEROF THE DEFENDANTS NOR JEFF LAXTON SERVED AS ANINVESTMENT ADVISER TO THE PLAINTIFFS 28

A. Laxton Did Not Have An Investment-Advisory Relationship WithThe Plaintiffs 29

B. Laxton's Relationship With The Plaintiffs Falls Squarely Within TheIAA's Broker-Dealer Exclusion 31

1. Laxton only provided investment advice to the plaintiffs inconnection with his business as a MetLife registeredrepresentative 32

2. Laxton Did Not Receive Any Special Compensation ForProviding Investment Advice To The Plaintiffs 36

Conclusion 37

CERTIFICATE OF SERVICE 39

i

TABLE OF AUTHORITIES

FEDERAL CASES

Adler v. Wal-Mart Stores, Inc.144 F.3d 664 (10th Cir. 1998) 14

Anderson v. Liberty Lobby, Inc.477 U.S. 242 (1986) 14

Bankers Trust Co. v. Transamerica Title Ins. Co.594 F.2d 231 (10th Cir. 1979) 14

In re Catanella and E.E Hutton and Co., Inc. Sec. Litig.583 F. Supp. 1388 (E.D. Pa. 1984) 24

Celotex Corp. v. Catrett477 U.S. 317 (1986) 14

Chevron USA, Inc. v. NRDC467 U.S. 837 (1984) 18

Cortlandt v. E. E Hutton, Inc.491 F. Supp. 1 (S.D.N.Y. 1979) 23

Fin. Planning Ass 'n v. SEC482 F.3d 481 (D.C. Cir. 2007) 20, 25

Hall v. Paine, Webber, Jackson & Curtis, Inc.No. 82-CV-2840, 1984 WL 812 (S.D.N.Y. Aug. 27, 1984) 24

Horn v. Squire81 F.3d 969 (10th Cir. 1996) 14

Intl Brotherhood of Painters and Allied Trades Union and Indus. Pension Plan v. DuvalNo. 92-1099, 1994 WL 903314 (D.D.C. Apr. 14, 1994) 15

James v. Honaker Drilling, Inc.254 F.2d 702 (10th Cir. 1958) 13

Kassover v. UBS AGNo. 08 CV 02753, 2008 WL 5331812 (S.D.N.Y. Dec. 19, 2008) 23

Kaufman v. Merrill Lynch, Pierce, Fenner & Smith, Inc.464 F. Supp. 528 (D. Md. 1978) 23, 27

Luzerne County Ret. Bd. v. MakowskiNo. 3:CV-03-1803, 2007 WL 4211445 (M.D. Pa. Nov. 27, 2007) 22, 27

11

Matsushita Elec. Indus. Co. v. Zenith Radio Corp.475 U.S. 574 (1986) 14, 15

Morris v. Wachovia Securities, Inc.277 F. Supp. 2d 622 (E.D.Va. 2003) 15

Mullin & Assocs., Inc. v. Bassett632 F. Supp. 532 (D. Del. 1986) 30

Navellier v. Sletten262 F.3d 923 (9th Cir. 2001) 18

Polera v. Altorfer, Podesta, Woolard and Co.503 F. Supp. 116 (N.D. Ill. 1980) 24

SEC v. Cona Commodities Corp.497 F.2d 516 (5th Cir. 1974) 18

SEC v. Nat'l Executive Planners, Ltd.503 F. Supp. 1066 (M.D.N.C. 1980) 23, 27

Skidmore v. Swift & Co.323 U.S. 134 (1944) 20

Transamerica Mortgage Advisors, Inc. v. Lewis444 U.S. 11 (1979) 15

United States v. Elliott62 F.3d 1304 (11th Cir. 1995) (as amended 1996) 17, 18, 27, 28

Via Christi Regional Med. Ctr, Inc. v. Leavitt509 F.3d 1259 (10th Cir. 2007) 20

Wang v. Gordon715 F.2d 1187 (7th Cir. 1983) 30

Zinn v. Parrish644 F.2d 360 (7th Cir. 1981) 30

STATUTES

15 U.S.C. § 80b-11(a) (2009) 18

15 U.S.C. § 80b-2(a)(11) 16, 17

Fed. R. Civ. P. 56(c) 13

111

SEC AND NASD MATERIALS

FINESCO No Action Letter, 1979 S.E.C. No-Act LEXIS 3851 (Dec. 11, 1979) 27

Fin. Ind. Regulatory Auth., Conduct Rule 2310, FINRA Manual (2009)http://finra.complinet.com/en/display/display main.html?rbid=2403&element id=3638 21,35

Fin. Ind. Regulatory Auth., NASD Notice to Members 96-86, FINRA Manual (2009)http ://finra. complinet. com/en/di spl ay/di spl ay main.html?rbid=2403&element_id=1744 21,35

IAA Release No. 2, 11 Fed. Reg. 10996 (Sept. 27, 1946) 19, 25, 26

IAA Release No. 626, 43 Fed. Reg. 19224 (May 4, 1978) 22

IAA Release No. 640, 43 Fed. Reg. 47176 (Oct. 13, 1978) 22

IAA Release No. 1092, 52 Fed. Reg. 38400 (Oct. 16, 1987) 17, 18, 27

IAA Release No. 2340,70 Fed. Reg. 2716 (Jan. 14, 2005) 19, 21, 25, 32

IAA Release No. 2376, 70 Fed. Reg. 20424 (Apr. 19, 2005) passim

IAA Release No. 2652, 72 Fed. Reg. 55126 (Sept. 28, 2007) 20, 26

iv