Ross Klein et al v. MONY Life Insurance Company of America

Filing 56

ORDER by Judge Ronald S.W. Lew: The Court GRANTS Defendants Motion to Dismiss 45 WITHOUT LEAVE TO AMEND, and, accordingly, DENIES Defendants Motion toStrike 46 as MOOT. MD-JS-6 (shb)

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UNITED STATES DISTRICT COURT

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CENTRAL DISTRICT OF CALIFORNIA

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12 ROSS KLEIN; KLEIN METALS,
INC.; and KLEIN
13 ENTERPRISES, INC.,
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Plaintiffs,
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v.
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MONY LIFE INSURANCE COMPANY )
OF AMERICA,
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Defendant.
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CV 17-07003-RSWL-AS
ORDER re: Defendant’s
Motion to Dismiss Second
Amended Complaint
Pursuant to F.R.C.P.
12(b)(6) [45];
Defendant’s Motion to
Strike and Dismiss
Plaintiffs’ Requests for
Attorneys’ Fees and
Punitive Damages from
the Second Amended
Complaint [46]

Currently before the Court is Defendant MONY Life

23 Insurance Company of America’s (“Defendant”) Motion to
24 Dismiss Pursuant to Federal Rule of Civil Procedure
25 12(b)(6) (“Motion to Dismiss”) [45] and Motion to
26 Strike and Dismiss Requests for Attorneys’ Fees and
27 Punitive Damages from the Second Amended Complaint
28 (“Motion to Strike”) [46].

Having reviewed all papers
1

1 submitted pertaining to these Motions, the Court NOW
2 FINDS AND RULES AS FOLLOWS: the Court GRANTS
3 Defendant’s Motion to Dismiss WITHOUT LEAVE TO AMEND
4 and DENIES as MOOT Defendant’s Motion to Strike.
5

I. BACKGROUND

6 A.

Factual Background

7

In 2004, Plaintiffs Ross Klein; Klein Metals, Inc.;

8 and Klein Enterprises, Inc. (collectively,
9 “Plaintiffs”) sought advice from Defendant’s purported
10 agent, Kathleen Novotny (“Novotny”).
11 (“SAC”) ¶ 16, ECF No. 44.

Second Am. Compl.

According to the Second

12 Amended Complaint (“SAC”), Novotny wrongfully advised
13 Plaintiffs to invest in a Section 419 plan, called the
14 PREPare Plan (the “Plan”), through which Defendant sold
15 its insurance products.

Id. ¶¶ 14-15.

The Internal

16 Revenue Service (“IRS”) had issued a notice in 1995
17 stating that such plans violated the Internal Revenue
18 Code, and 2004 Treasury Regulations confirmed this
19 prohibition because individualized accounting within a
20 plan—like Defendant did with the Plan here—is
21 considered a tax shelter.

Id. ¶ 12.

Nevertheless,

22 Novotny prepared marketing materials promising that:
23 (1) employers, such as Plaintiffs, may deduct
24 contributions to the Plan; (2) Plaintiffs would receive
25 tax savings for their first-year contributions; and
26 (3) in each following year, Plaintiffs’ after-tax cost
27 would be reduced.
28

Id. ¶¶ 18, 20, Ex. A.

Plaintiffs contributed to the Plan until 2010, in
2

1 reliance upon Novotny’s alleged misrepresentations that
2 the Plan was tax deductible and IRS-compliant.
3 ¶¶ 27, 32.

Id.

Meanwhile, neither Novotny nor Defendant

4 informed Plaintiffs that Defendant had a policy against
5 selling its insurance products in such plans.
6 ¶¶ 28, 30-31.

Id.

Eventually, the IRS audited Plaintiff

7 Ross Klein and assessed significant back taxes,
8 interest, and penalties.

Id. ¶¶ 33-34.

Specifically,

9 the IRS took issue with Defendant’s individualized
10 accounting.

Id. ¶ 34.

Defendant’s representatives

11 admitted in depositions to Defendant’s use of separate
12 accounting for each employer within the Plan.
13 ¶ 24.

Id.

Plaintiffs claim they discovered this practice

14 after the depositions became public record in 2015.
15 Id. ¶ 35.
16 B.

Procedural Background

17

On September 22, 2017, Plaintiffs filed their

18 Complaint [1] against Defendant.

Thereafter, on

19 November 8, 2017, Plaintiffs filed their First Amended
20 Complaint (“FAC”) [18].

The Court dismissed the FAC

21 with leave to amend [43] on February 27, 2018, warning
22 Plaintiffs of the possibility of dismissal with
23 prejudice for a subsequent, deficient pleading.
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On March 19, 2018, Plaintiffs filed their SAC [44].

25 Defendant filed the instant Motion to Dismiss [45] and
26 Motion to Strike [46] on April 2, 2018.

Plaintiffs

27 timely opposed [49, 51], and Defendant timely replied
28 [53, 54].
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1

II. DISCUSSION

2 A.

Legal Standard

3

Federal Rule of Civil Procedure 12(b)(6) allows a

4 party to move for dismissal of one or more claims if
5 the pleading fails to state a claim upon which relief
6 can be granted.

A complaint must contain sufficient

7 facts, accepted as true, to state a plausible claim for
8 relief.

Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)

9 (quotation omitted).

Dismissal is warranted for a

10 “lack of a cognizable legal theory or the absence of
11 sufficient facts alleged under a cognizable legal
12 theory.”

Balistreri v. Pacifica Police Dep’t, 901 F.2d

13 696, 699 (9th Cir. 1988) (citation omitted).
14

“In ruling on a 12(b)(6) motion, a court may

15 generally consider only allegations contained in the
16 pleadings, exhibits attached to the complaint, and
17 matters properly subject to judicial notice.”

Swartz

18 v. KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007)
19 (citation omitted).

A court must presume all factual

20 allegations to be true and draw all reasonable
21 inferences in favor of the non-moving party.

Klarfeld

22 v. United States, 944 F.2d 583, 585 (9th Cir. 1991).
23 The question is not whether the plaintiff will
24 ultimately prevail, but whether the plaintiff is
25 entitled to present evidence to support the claims.
26 Jackson v. Birmingham Bd. of Educ., 544 U.S. 167, 184
27 (2005) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236
28 (1974)).

While a complaint need not contain detailed
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1 factual allegations, a plaintiff must provide more than
2 “labels and conclusions” or “a formulaic recitation of
3 the elements of a cause of action.”

Bell Atl. Corp. v.

4 Twombly, 550 U.S. 544, 555 (2007).
5 B.

Analysis

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1.

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Defendant requests the Court take judicial notice

Request for Judicial Notice

8 of the following: (1) the Plan proposal provided to
9 Plaintiffs on November 30, 2004; (2) the restatement of
10 the Plan provided to Plaintiffs in December 2004;
11 (3) the Plan joinder agreement executed by Plaintiff
12 Ross Klein on December 11, 2004; (4) the release
13 executed by Plaintiff Ross Klein on December 11, 2004;
14 (5) certain filings in Plaintiffs’ first Texas action;
15 (6) certain filings in the second Texas action;
16 (7) Plaintiffs’ original complaint against their
17 accountants filed in Los Angeles Superior Court; (8) a
18 subpoena served on Defendant in December 2014 in
19 connection with the first Texas action; and (9) a
20 records affidavit served in response to the subpoena.
21 Def.’s Req. for Judicial Notice (“RJN”), ECF No. 45-10.
22 Plaintiffs only oppose judicial notice of the purported
23 disclaimers, maintaining that they are neither attached
24 to the SAC nor referred to in the SAC.

Pls.’ Opp’n to

25 Def.’s Mot. to Dismiss (“Opp’n”) 10:24-11:3, ECF No.
26 51.
27

The court may consider unattached evidence that a

28 complaint “necessarily relies” on; this includes
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1 documents that the complaint refers to, are central to
2 the claim, and no party questions their authenticity.
3 United States v. Corinthian Colls., 655 F.3d 984, 999
4 (9th Cir. 2011) (citations omitted).

Here, Plaintiffs

5 allege Defendant “created false and fraudulent
6 documents purporting to disclaim responsibility for
7 providing any tax advice.”

SAC ¶ 39.

This allegation

8 refers to the “Multiple Employer Welfare Benefit Plan
9 Joinder Agreement” and “Statement of Understanding and
10 Release,” which accordingly are subject to judicial
11 notice.

See RJN, Exs. 3-4.

The SAC quotes directly

12 from and attaches the Plan proposal, so the Court takes
13 judicial notice of the proposal document as well.
14 Compare SAC ¶ 20, Ex. A, with RJN, Ex. 1.

Plaintiffs

15 further aver that Defendant’s agent presented the Plan
16 to Plaintiff Ross Klein in 2004, SAC ¶ 18, which
17 parallels Plaintiffs’ receipt of the Plan restatement
18 in December 2004, RJN ¶ 2.

As such, the Court takes

19 judicial notice of the restatement.
20

See RJN, Ex. 2.

A district court may take judicial notice under

21 Federal Rule of Evidence 201 of “undisputed matters of
22 public record, including documents on file in federal
23 or state courts.”

Harris v. Cty. of Orange, 682 F.3d

24 1126, 1131-32 (9th Cir. 2012) (internal citation
25 omitted).

As such, the filings in the Texas actions

26 and Los Angeles Superior Court are appropriate for
27 judicial notice.
28

See RJN, Exs. 5-18, 21-22.

Finally, the Court takes judicial notice of the
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1 fact of service of and response to the subpoena, but
2 not the truth of the facts recited therein.

See RJN,

3 Exs. 19-20; Gallagher v. United States, No. 17-cv4 00586-MEJ, 2017 U.S. Dist. LEXIS 163995, at *9 (N.D.
5 Cal. Oct. 3, 2017) (citing Lee v. City of L.A., 250
6 F.3d 668, 689-90 (9th Cir. 2001)).
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In sum, Defendant’s Request for Judicial Notice is

8 GRANTED in its entirety.
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2.

Motions to Dismiss and Strike

Preliminarily, because Plaintiffs allege Defendant

11 is liable for intentional misrepresentation under an
12 agency theory, see SAC ¶ 11, Federal Rule of Civil
13 Procedure 9(b) requires that Plaintiffs allege with
14 particularity facts supporting the existence of an
15 agency relationship, Palomares v. Bear Stearns
16 Residential Mortg. Corp., 07cv01899 WQH (BLM), 2008
17 U.S. Dist. LEXIS 19407, at *12 (S.D. Cal. 2008) (citing
18 Swartz v. KPMG LLP, 476 F.3d 756, 764-65 (9th Cir.
19 2007)).

Particularity means “the who, what, when,

20 where, and how.”

Davidson v. Kimberly-Clark Corp., 873

21 F.3d 1103, 1110 (9th Cir. 2017) (quotation omitted).
22

An agent is a person who represents another in

23 dealings with third persons.

Cal. Civ. Code § 2295.

24 To establish actual agency, Plaintiffs must allege
25 Defendant consented to Novotny acting on Defendant’s
26 behalf and subject to Defendant’s control, and Novotny
27 also consented to so act.

Van’t Rood v. Cty. of Santa

28 Clara, 6 Cal. Rptr. 3d 746, 764 (Ct. App. 2003)
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1 (quoting Edwards v. Freeman, 212 P.2d 883 (Cal. 1949)).
2 Importantly, there is no agency without the right to
3 control.

Id.

Moreover, a principal is not liable for

4 acts beyond the scope of the agent’s actual or
5 ostensible authority.

Id. at 765 (citing Ernst v.

6 Searle, 22 P.2d 715 (Cal. 1933)).
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In the SAC, Plaintiffs allege that Novotny was

8 Defendant’s “agent” and Defendant “consented to
9 Novotny’s marketing and promotion of [its] insurance
10 policies and Section 419 plan that is the subject of
11 this lawsuit.”

SAC ¶ 11.

Plaintiffs further aver that

12 Defendant consented to Novotny acting on Defendant’s
13 behalf and subject to its control, giving Novotny agent
14 code 936665 and compensating her for her acts.
15 ¶¶ 12-13.

Id.

Contrary to Defendant’s contention

16 otherwise, see Def.’s Reply in Supp. of Mot. to Dismiss
17 4:2-4, ECF No. 53, Plaintiffs do allege Novotny’s
18 consent, i.e., that she requested and received
19 Defendant’s “permission and license to promote and
20 market [Defendant]’s policies in connection with the
21 Section 419 plan on [Defendant]’s behalf and performed
22 such acts in accordance with the scope of [Defendant]’s
23 authority granted to Novotny,” SAC ¶ 12.
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Fatally, however, Plaintiffs’ control allegation is

25 conclusory.

Plaintiffs fail to allege any facts

26 showing Defendant’s right to control Novotny’s actions,
27 let alone specific facts to satisfy a heightened
28 pleading standard.

The Court already specifically
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1 informed Plaintiffs of this deficiency when it
2 dismissed the FAC with leave to amend.

See Order re:

3 Def.’s Mot. to Strike, Def.’s Mot. to Dismiss, & Pls.’
4 Mot. to Correct 14:9-10, ECF No. 43.

Because

5 Plaintiffs were warned to correct the deficiencies in
6 the FAC or face dismissal with prejudice, id. at 18:217 28, leave to amend the SAC is not warranted.
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Agent code 936665, allegedly provided to Novotny,

9 does not save the SAC.

See SAC ¶ 12.

Even assuming

10 the transaction at issue (i.e., Plaintiffs’ adoption of
11 the Plan) involved the direct sale of insurance
12 policies to Plaintiffs, a non-exclusive agent, like
13 Novotny, is the agent of the insured, like Plaintiffs,
14 not the insurer, like Defendant.

Mercury Ins. Co. v.

15 Pearson, 87 Cal. Rptr. 3d 310, 318 (Ct. App. 2008)
16 (quotation omitted).

Thus, Plaintiffs still fail to

17 properly allege an agency relationship.
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Moreover, the alleged scope of Novotny’s authority,

19 “including the authority to represent [Defendant] and
20 discuss the qualities, characteristics and all aspects
21 of [Defendant’s] insurance policies issued to
22 Plaintiffs, as well as the Section 419 plan, which the
23 [] insurance policies funded,” SAC ¶ 13, does not
24 include making representations about the tax
25 consequences of the Plan.1

An inference that her

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Plaintiffs’ allegation that all of Novotny’s
representations were made within the scope of her authority is
conclusory and thus insufficient to withstand dismissal. See SAC
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1 authority included such representations would be
2 unreasonable in light of Defendant’s explicit
3 disclaimers.

Cf. Klarfeld, 944 F.2d at 585 (requiring

4 courts to draw all reasonable inferences in favor of
5 the nonmovant).

For instance, the Plan brochure states

6 that Defendant “shall not be deemed to be a party to
7 the Plan.”

SAC, Ex. A at 12.

The disclosures that

8 Plaintiffs signed state that no “[i]nsurer or its
9 agents can guarantee or promise that the anticipated
10 favorable tax results will in fact be achieved,” RJN,
11 Ex. 3 at 41, and neither Defendant nor its agents “have
12 made any representations regarding the tax consequences
13 of participation in the [Plan],” id., Ex. 4 at 44.2

It

14 simply is not plausible that Defendant would grant
15 Novotny authority that directly conflicts with the
16 disclaimers provided to Plaintiffs.

Since Plaintiffs

17 do not, and cannot plausibly, allege Novotny had
18 authority to make tax representations, Defendant is not
19 vicariously liable for such representations (assuming
20 Novotny was Defendant’s agent).
21

Without adequate agency allegations, there is no

22 basis to hold Defendant liable.

Therefore, the Motion

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24 ¶¶ 11-12.
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2

Despite Plaintiffs’ argument that the disclaimers are a
factual issue, are void, and were fraudulently obtained, Opp’n
11:5-7, the disclaimers, even if unenforceable as to Plaintiffs,
limit Novotny’s alleged authority. Indeed, agency forms from the
principal’s words or conduct. Secci v. United Independant Taxi
Drivers, Inc., 214 Cal. Rptr. 3d 379, 385 (Ct. App. 2017)
(quotation omitted).
10

1 to Dismiss is GRANTED in its entirety WITHOUT LEAVE TO
2 AMEND.

See Zucco Partners, LLC v. Digimarc Corp., 552

3 F.3d 981, 1007 (9th Cir. 2009) (affirming dismissal
4 with prejudice where plaintiff “failed to correct the[
5 first amended complaint’s] deficiencies in its [s]econd
6 [a]mended [c]omplaint,” indicating that there were “no
7 additional facts to plead” (quotation omitted)).
8 Because the entire SAC is dismissed, the Motion to
9 Strike is DENIED as MOOT.
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III. CONCLUSION
Based on the foregoing, the Court GRANTS

12 Defendant’s Motion to Dismiss [45] WITHOUT LEAVE TO
13 AMEND, and, accordingly, DENIES Defendant’s Motion to
14 Strike [46] as MOOT.
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The clerk shall close this action.

16 IT IS SO ORDERED.
17
18 DATED: May 30, 2018

s/ RONALD S.W. LEW

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HONORABLE RONALD S.W. LEW
Senior U.S. District Judge

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